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Railtrack

– in the House of Commons at 2:30 pm on 24th October 2005.

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Votes in this debate

Photo of Michael Martin Michael Martin Chair, Speaker's Committee on the Electoral Commission, Speaker of the House of Commons 2:30 pm, 24th October 2005

We now come to the main business—Opposition day, eighth allotted day, on the Government's handling of decisions relating to Railtrack—[Interruption.] Order. Perhaps Ann Coffey could keep quiet.

Before I call Mr. Duncan, I inform the House that I have selected the amendment in the name of the Prime Minister.

I remind the House that last week the matter of the evidence of Mr. Byers to the Transport Sub-Committee was referred to the Committee on Standards and Privileges, so Members should not refer in this debate to matters that will fall to be judged by that Committee.

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry) 3:31 pm, 24th October 2005

I beg to move,

That this House
deplores the lack of openness and transparency of the Chancellor of the Exchequer and Ministers at the Department for Transport, Local Government and the Regions in their plan to restructure Railtrack;
questions the Government's propriety in the method by which they sought an Administration Order for Railtrack;
condemns their attempted intimidation of the Rail Regulator;
abhors their cavalier and dismissive contempt for Railtrack shareholders;
criticises the conduct of the Chancellor of the Exchequer's special adviser for usurping the proper role of Ministers;
notes that the Government's approach to the entire project was dictated by the Chancellor;
and considers this episode an example of disgraceful impropriety in the formation of policy and the execution of government decisions.

Thank you, Mr. Speaker. I think that the House will respect the fact that Mr. Byers has chosen to come to this debate, although that sits in stark contrast with the obvious absence of the Chancellor of the Exchequer, who is mentioned in the motion.

This debate is about one thing and one thing only—the conduct of new Labour in Government. It is about the way in which the decencies and proprieties of how we are governed have been bypassed, corrupted and polluted. It is about the erosion of independence in the civil service, the abuse of power by Ministers, the arrogance of unelected advisers, and the institutionalised contempt displayed by new Labour to the power and authority of Parliament.

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

My right hon. and learned Friend is very kind. We all have a treat in store when he winds up later. He will do greater justice to this matter than even my hard work in researching it.

This debate is about how the sorry episode of Railtrack's demise illustrates all the faults that I have listed, and it is about why the Government are so profoundly culpable for what they did. Today's debate—as we understand your ruling, Mr. Speaker—is not about matters that are being considered by the Standards and Privileges Committee. We are acutely aware of the important dividing line that separates the issues that we are focusing on and the issues being considered by that Committee. We will be extremely careful, Mr. Speaker, not to trespass on the accusations against the right hon. Member for North Tyneside that will be considered by the Committee. There is no need to do so; the guilt of this Government is palpable and can be proved without any such reference.

Nor is this debate about the Railtrack shareholders' case against the Government. As the judge made clear, he was required to adjudicate only on the one specific charge of misfeasance—an accusation that presented a very high legal hurdle, namely, that the then Secretary of State had acted with targeted malice. Far from vindicating the Government in all respects, as they try to claim, the court case merely excused them from that one extreme and specific charge. The judge was not asked to undertake a review of the Government's conduct, nor to express any opinion on their actions more generally. As the judge categorically made clear, that is the duty of this House; a duty that we now face.

It is not as though the judgment was uncritical. Even about the right hon. Member for North Tyneside, Mr Justice Lindsay inimitably said:

"His explanation as then given seemed to me to be little above gibberish, but it will be for Parliament to assess what he meant."

Indeed; Parliament will assess what the right hon. Gentleman meant. Parliament must now also assess the Government's wider conduct. Even the Government's counsel said:

"This case . . . has aroused intense political interest but, Your Lordship, it is not a political tribunal, or even in this case a court of judicial review, and the question therefore is not whether this decision was wise or careful or fair or reasonable or procedurally sound, it is simply whether it was malicious."

The court case left many aspects of the despicable issue unscrutinised, and it is now our duty to engage in that scrutiny.

All of us in the House face a test—a test of moral probity. We can choose simply to follow the party line or we can exercise our conscience on this matter of justice and take the necessary steps to remove from our Government those whose standards have fallen so grievously low. This House is the place for the redress of grievance. That is what we must now do. As the chairman of the shareholders action group said after the court case:

"We now look to Parliament to hold the Government and"— he said "Stephen Byers"; we say the right hon. Member for North Tyneside—"to account." We must not dash their hopes.

Despite the Government's amendment, the debate is not about the merits and demerits of how Railtrack is or was owned. We are not here to discuss the intricacies and rights and wrongs of who owns the railways. Any attempt to turn the debate into one about who should own the railways, or even to say that Railtrack was failing to perform well, would be utterly outside the debate's intended remit. Any such attempt would be a diversion from the focus of the motion, which is entirely to do with the Government's conduct.

The debate and the action that must follow from it are entirely about the corruption of the proper process of government by the then Department for Transport, Local Government, and the Regions, the absent Chancellor of the Exchequer, the Treasury and even the Prime Minister.

Photo of Ann Cryer Ann Cryer Labour, Keighley

Will the hon. Gentleman and the Conservative party accept some responsibility for the creation of Railtrack and thus the deaths of a number of people due to lack of maintenance by that organisation?

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

That is not a debate for the Chamber today. We are discussing the conduct of the Government, not the merits of Railtrack.

The House, by election and majority control, lends authority—

Photo of John Spellar John Spellar Labour, Warley

Will the hon. Gentleman give way?

Photo of John Spellar John Spellar Labour, Warley

I can understand why the hon. Gentleman does not want to consider the conduct of Railtrack, which, as the judge rightly said, was lamentable, and was not only failing on the ground of safety but sending the business towards bankruptcy. Why does he not want to defend his Government's creation?

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

I am defending the motion, which outlines a charge against the right hon. Gentleman and others of what I believe to be grave misconduct in the Government. By the end of the debate, he will have no excuse to rise to his feet again.

We have, over centuries, established proper and abiding procedures for scrutinising the conduct of the Executive. Parliament and its many Governments have earned an enviable reputation in the world for honesty and incorruptibility in our dealings. That is why we have a ministerial code, which makes it clear that announcements should be made in the House. Policy should be clear and openly expressed; that is why we have Green and White Papers. Significant changes in policy and significant decisions should be explained to the House.

Let me trespass for a moment on the comments of Mrs. Cryer. It is as far as I will go today, but let me at least show her that courtesy. The debate about private versus public ownership has been at the heart of political difference for decades, if not centuries. In some respects, it defines the difference between left and right. However, today's debate is not the place for that argument. Our motion is only about the process of government and the conduct of Ministers and officials when the Government took back ownership of Railtrack.

We have, to some extent, been here before. My right hon. Friend Mrs. May led a debate on the matter on 13 Nov 2001. In many respects, she made a remarkable speech because within weeks of Railtrack's demise, thanks to the thoroughness of her research, she asked some extremely prescient questions. Five years later, we can see that she homed in on exactly the right details and that she received in response evasive, mealy-mouthed and inaccurate answers.

Now, we know much more than we did then. During the High Court case this summer, a mountain of incriminating evidence was presented to the court and a stream of letters and meeting notes have been additionally released to me and to others. All that evidence shows a catalogue of impropriety—a deceitful plan to manoeuvre to present Railtrack as insolvent, and so force a railway administration order on the company as a means of getting it back for free.

Photo of Alistair Darling Alistair Darling The Secretary of State for Scotland, The Secretary of State for Transport

The hon. Gentleman said at the outset that he wished largely to ignore the judgment and I can see why. It would be highly inconvenient for him if he did take it into account. Does he accept that all this evidence and all these documents were laid before the court, that the court was invited to find that the Government, Ministers and others had acted improperly, and that the judge found the complete opposite?—[Interruption.] No wonder the hon. Gentleman is seeking advice. The whole basis on which he is constructing his case seems to be falling apart before he gets going.

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

The Secretary of State could not be more wrong and he knows it. The evidence before the court was to prove one particular aspect of the alleged misbehaviour of one person, the right hon. Member for North Tyneside. It was nothing to do with the conduct of the Government more generally. The judge specifically said in his judgment that it is for Parliament to adjudicate on the conduct of the Government. That is what we are doing today.

Photo of Alistair Darling Alistair Darling The Secretary of State for Scotland, The Secretary of State for Transport

I am sorry, but the hon. Gentleman has either not read the judgment or has drawn the wrong inference from it. The judge, in respect of the evidence given in court by my right hon. Friend Mr. Byers, said that that was a matter for the House of Commons. However, in his judgment he examined every piece of evidence put before the court, which of necessity meant examining the background against which Ministers acted, and he found at no stage that anyone in the Government had acted improperly. Surely the hon. Gentleman must accept that, unless he is saying that he does not accept the judgment.

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

That was a nice try, but again it is completely wrong. As the Secretary of State well knows, the judge was only looking at the specific allegation put to the court about the conduct of the right hon. Member for North Tyneside when he was Secretary of State, which may explain why the Government's own QC accepted as evidence everything offered by the rail regulator in court, which I believe I will prove is damning for the Government.

It is clear that one thing that the Secretary of State and his predecessors ruled out was formal renationalisation. They believed it to be too expensive. They were not prepared to renationalise the company because they wanted it for free. It is as though they have got rid of their clause IV, but secretly replaced it with clause V. No more overt nationalisation of industry—replace it with the covert nationalisation of industry. No more budgets for nationalising a company—use clause V and simply pinch it.

However, the right hon. Member for North Tyneside was merely the front man for that; the real puppet master was in the Treasury. Crucial to the Chancellor's involvement was the aggressive and insensitive figure of Shriti Vadera, dubbed by Martin Sixsmith "Gordon's representative on earth." It was she who codenamed the plot Operation Ariel. It was she who first asked, and I quote from an e-mail of 31 July:

"Can we engineer the solution through insolvency?"

That was not something that the judge had to study and to judge upon. It is only now clear what a central role the Chancellor played in the whole plot.

The right hon. Member for North Tyneside told the High Court about a special list that had been nicknamed the 10 commandments—10 conditions that needed to be satisfied before the plan to crush Railtrack was hatched. Can we guess who the 10 commandments came from? Yes, they came from the Chancellor—and it gets better. I have obtained from the Permanent Secretary at the Department for Transport minutes of a very interesting meeting in September 2001, where further details of the plot were discussed behind Parliament's back. Let me quote a small part of the official record of the meeting. It states: "The Secretary of State"—to us, the right hon. Member for North Tyneside—

"asked when the Chancellor would be in a position to be able to agree his questions had been answered satisfactorily. Shriti Vadera thought this should be possible next Wednesday."

That shows that the Chancellor was in this up to his neck.

Abundant evidence was produced in the court case showing that from the very beginning of 2001—six months before the right hon. Member for North Tyneside became Secretary of State—the Government planned to seize Railtrack's assets and use railway administration as the means to that end. The papers show that right up to the day before they went to court—7 October 2001—the Government were seriously worried about not having adequate evidence of Railtrack's insolvency. Again, I could give the House scores of examples in which it is abundantly clear that that was so, but I shall offer only a few.

On 3 August, the right hon. Gentleman wrote a memo to the Prime Minister in which he deals with options for dealing with Railtrack. He talks of the not-for-profit trust, which became the company limited by guarantee option, which was soon after adopted, saying:

"The option of a not-for-profit trust has attractions as a non-nationalisation alternative to a failed private sector solution."

The House knows that to be lawful a Minister may use statutory powers, such as the power to apply for an administration order, only for the purpose for which they were conferred. The administration power of the Secretary of State was given to him by Parliament to enable him to react to the insolvency of a railway company. In the present case, the evidence is overwhelming that the right hon. Gentleman used— I would say misused—his powers to try to create that insolvency.

Photo of John Spellar John Spellar Labour, Warley

Will the hon. Gentleman give way?

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

The right hon. Gentleman is welcome to intervene, but he is getting into ever deeper water because he is one of the guilty band.

Photo of John Spellar John Spellar Labour, Warley

Is it the hon. Gentleman's argument that Railtrack was solvent and had good prospects and that its managers would have been able to make a statement to their half-yearly meeting that it was able to continue trading solvently?

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

For reasons that I shall explain in due course, the water is becoming ever deeper for the right hon. Gentleman.

Photo of John Spellar John Spellar Labour, Warley

Surely it would be easier for the House if the hon. Gentleman answers now.

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

Unlike the right hon. Gentleman, I am happy to advance a logical argument according to a logical structure.

The right hon. Member for North Tyneside continued:

"We have work in hand to ensure we are ready to use the railway administration procedure if necessary. We could be forced down this route by events or"— this is crucial

"we could choose to go down it as an interim step to an eventual solution. It is clear that we ought not to contemplate taking Railtrack into administration, which we could achieve by withdrawing Government support, without being equally clear about how we would like it to come out of administration".

Is that the language of reacting to Railtrack's alleged insolvency, or of wanting to create it?

On 23 August 2001, Mr. Dan Corry, special adviser to the Secretary of State, e-mailed a civil servant in the Department for Transport, Local Government and the Regions, saying:

"I have spoken to SOS about where we are getting to . . . He is very attracted to the option of pushing them"— that is, Railtrack

"into administration. It does not cost too much, allows us to signal a big change."

Pushing?

Then, we have the infamous minute provided to the Secretary of State by Mr. Rowlands, now the permanent secretary at the Department for Transport and then the No. 2 in the Department, on 31 August 2001. He deals with how to take out Railtrack using the mechanism of railway administration. He writes:

"Under the legislation, however, Railtrack's funding and obligations are matters for the Regulator. We cannot see a way of proceeding without sidelining him."

The next part looks like options, including a "very short Bill" to give the Secretary of State "power to issue directions" to the regulator, which

"would remove his ability to frustrate Ministers' chosen solution."

On 13 September 2001, there was a meeting with the Secretary of State and his civil servants. The private secretary's note records the discussion. Mr. Linnard says

"if pull plug, may not collapse straight away."

Clearly, the Government wanted the company to collapse and were disappointed that it might not. He goes on to explain, "risk RT"—that is Railtrack, and then there is a reference to the rail regulator—

"go to Court. Unreasonable. Got right of appeal to"— rail regulator—"under law." That is a damning minute.

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

I leave it to the Secretary of State to intervene if he wishes to do so.

Photo of Alistair Darling Alistair Darling The Secretary of State for Scotland, The Secretary of State for Transport

I wish to intervene because, contrary to all the evidence, the hon. Gentleman is trying to make a case that Railtrack was solvent, was a going concern, that there was nothing really wrong with it and that there was a conspiracy to bring down a healthy company. As I shall demonstrate shortly, that is not quite the case. I am wondering how the hon. Gentleman can square what he says with a letter that was sent to the Department in March 2001 from Railtrack, which states that on its own analysis, on the day when its shares were trading at 800p a share, the company thought that they were worth 60p a share. Does that not suggest that there was something wrong with the company?

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

Again, that is irrelevant to the case that we are making. The fact that it was a fairly lousy company in the eyes of the Secretary of State does not excuse him from the conduct that I am demonstrating.

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

The right hon. Gentleman says that he has his answer. I shall let him intervene in a moment. I want to present my case. The right hon. Gentleman has forgotten one crucial ingredient and that is the rail regulator. A clear picture emerges of the Government—

Photo of Alistair Darling Alistair Darling The Secretary of State for Scotland, The Secretary of State for Transport

That was not my assessment; that came from Railtrack. It said that at a time when people were being allowed and encouraged to buy shares at 800p a share, the company thought that the value of the company meant that they were really worth about 60p a share. That is not my judgment but the judgment of Railtrack.

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

Again, the Secretary of State is missing out a crucial ingredient in the propriety of Government conduct, which is the relationship between the regulator and what they said to the court. As I have already begun to build up in the case—there is more to come, which will make the right hon. Gentleman even less comfortable—a clear picture has emerged of the Government's intention to engineer insolvency, combined with an understanding of the regulator's power to stop it.

Photo of John Spellar John Spellar Labour, Warley

Will the hon. Gentleman give way?

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

Not now; I will not give way for the moment.

We can see also that there was another aspect. The Renewco deal, which was to bring £1.5 billion in Government grants to Railtrack in 2001 instead of 2006, presented problems for the Government because they were committed to using their best endeavours to set it up. Mr. Linnard says in the meeting:

"SRA thinks we're going to do Renewco."

That is the Strategic Rail Authority. Sir Richard Mottram replies: "Slow it down." Then the right hon. Member for North Tyneside says that

"in relation to the chance that Railtrack will appeal to the rail regulator for additional funding"— this is a crucial point that the Secretary of State is trying to deny—

"PM wants Regulator out of it."

On 14 September 2001, Mr. Linnard—No. 3 in the Department—writes a further note to the Secretary of State discussing taking Railtrack out and replacing it with what he refers to as a "non-equity solution", a euphemism if ever there were one. He writes that

"the non-equity solution could only be achieved through railway administration."

So we see railway administration being used as a means to an end—the end being seizing Railtrack's assets and taking out a FTSE 100 company by the back door. That was political assassination writ large.

Photo of John Spellar John Spellar Labour, Warley

The hon. Gentleman is obviously not taking account of paragraph 64 of the judgment, where it says:

"A Railtrack note, prepared for John Robinson (the new chairman) in June 2001 stated that the situation was worse than expected. Neither the Regulator nor Railtrack could estimate the costs of running and maintaining the infrastructure with any certainty, the assumptions on which the [prior financial] settlement with the Regulator were completely unworkable, major cost over-runs . . . were still not under control, Railtrack's bloating operating costs were not being addressed. If the subsidy and pricing regime was left unchanged, the company was heading for liquidation."

Is the hon. Gentleman not building his case on very unsure foundations? He is trying to demonstrate that this creation of a Tory Government—Railtrack—was solvent when its own people were telling it that it was not.

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

The right hon. Gentleman's argument goes crashing to the ground when we realise that the independent rail regulator estimates that the Government's administration programme for Railtrack has cost the taxpayer £14 billion, which is eight times the Government's worst estimate of Railtrack's deficit.

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

One more time. The right hon. Gentleman will have an opportunity to respond.

Photo of Alistair Darling Alistair Darling The Secretary of State for Scotland, The Secretary of State for Transport

The hon. Gentleman says that the regulator is crucial. Again, he is trying to make a case that there was nothing basically wrong with the company. When he looked through the documents lodged in court, he would have seen a letter from the then chief executive of Railtrack, Steven Marshall, dated 29 June 2001, to the then rail regulator, Tom Winsor. He said: "You"—the rail regulator:

"went on to reassure us that if Railtrack was on the cliff edge, you would not be seeking to push it over."

He went on:

"The cliff's edge is closer than you may realise—the Board is obliged to take a view of the company's solvency on an ongoing basis and explicitly on 'going concern'".

Does not that suggest that there was something very wrong with the company in June 2001, as well as earlier in the year?

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

There was a lot wrong with the company, but there was even more wrong with the conduct of Ministers and officials in the way in which they tried to address the problem. That is the case that we are laying out.

Shortly after Mr. Linnard's memo, the Secretary of State sent another communication to the Prime Minister and the Chancellor, in which he said:

"Our advisers say they have unearthed no killer facts which I could use to force the company into railway administration. And Counsel has warned that a contested petition for administration would be seriously risky and therefore to be avoided."

Is this the language of reaction to insolvency? It is clear that even then they did not think that Railtrack was insolvent. Plainly, the Government were misusing their powers.

On 25 September 2001, the Government's investment bank advisers began to get cold feet about the plan to cut the company's financial lifeline by extinguishing the independence of the rail regulator. Mr. Challen of Schroders wrote to Mr. Rowlands and Shriti Vadera:

"Furthermore we remain (as laymen) surprised that the Government can, with impunity (albeit through a Parliamentary process), remove the effect of a key component of the regulatory regime on the basis of which shares were sold, shares have been traded and contracts have been entered into."

On 26 September 2001, Mr. Rowlands again minuted the Secretary of State as suggesting:

"short paving legislation . . . making the Regulator subject to Ministerial direction, so that he could not use the discretion available to him under current statute . . . to frustrate Government's new approach to Railtrack."

The next day, the Secretary of State met his officials, together with Mr. Adonis—now Lord Adonis—Brian Hackland of the No. 10 policy unit, Shriti Vadera of the Treasury and others. The minutes of the meeting say:

"The Secretary of State said that"— a "short bill" to take the Regulator under direct political control was

"needed to ensure that the option of an appeal to the Regulator was closed off."

The handwritten notes of the meeting add colour to that. Mr. Rowlands is recorded as having said: "talking about closing" Railtrack's "escape route" shows that the Government are no longer behind the company, which he calls a "hammer blow". It was a meeting at which Mr. Spellar, with all his brilliance, sat. As the then Minister of State, he added that

"legislation has got to close off all options".

Does the right hon. Gentleman want to comment on that?

Hon. Members:

Answer.

Photo of John Spellar John Spellar Labour, Warley

I am pleased that the hon. Gentleman asks me to comment. In the face of insolvency, the Government had to take action. That is the case. Unfortunately, he seems to believe that endless public money should have been pored into that utterly unworthy enterprise. That is the basis of his case, and he criticises us for protecting public funds and the transport system.

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

That was not about reacting to the company's insolvency; it was about cutting its financial lifeline, and the right hon. Gentleman has just condemned himself with his own words. Indeed, the company was not insolvent, because that lifeline was available. As it would have taken highly controversial primary legislation and a period of months in which to pass such legislation, including the use of the Parliament Act, to sever that lifeline, the Government had a major problem. How could they present the judge with a convincing case that Railtrack was already insolvent when that lifeline was still intact? They were seriously worried.

The Government knew that they were planning to use the railway administration regime for a collateral, and therefore illegal, purpose. They knew that to secure a railway administration order they had to convince a High Court judge that the company was insolvent. They knew that it was not insolvent as long as the rail regulator's jurisdiction was intact. They knew that they could not sever that lifeline without legislation, and that they could not pass such legislation in a short enough period of time, so they decided to present to the Court a case that contained serious and culpable omissions.

The anxiety at the time was graphically illustrated by Ms Shriti Vadera in another of her incautious e-mails. On 2 October, she said that the rail regulator

"is the total wild card. I hope we are all aware of the risks here . . . We cannot silence him over the weekend and if he stands up and says he has a grand plan which could keep the company"— note the word "keep"—

"solvent, we're up the creek."

Methinks it is Gordon's representative on Earth who is up the creek now. Is that the language of a Government reacting to an insolvency, or is it the language of a Government who know that their case for insolvency is shaky or even non-existent?

On the morning of 7 October, the day on which the Government went to court, the Secretary of State had a final meeting with his officials, his outside advisers, Dan Corry and the notorious Jo Moore. The minute of the meeting shows the shakiness of the evidence of insolvency, as it records that

"work had gone on overnight to consider whether the company was solvent or insolvent."

That work had been presented to counsel who, crucially, had offered the opinion

"that on the evidence before him he would expect a Judge to conclude that the company was insolvent and that a railway administration order would be made."

There was definitely a plan to engineer the artificial insolvency of Railtrack without reference to Parliament as a means of re-acquiring the company at no cost to the Government but at the expense of the shareholders. There are no two ways about it. Perhaps the most pitiful example of new Labour's attitude towards private ownership emerged during the course of the trial. It demonstrates beyond all doubt the utter contempt that Ministers and special advisers had for shareholders. I remind the House that 90 per cent of Railtrack's employees held shares in the company, and many of the shareholders were small investors, so we are not talking about big business or fat cats. Gordon's representative on Earth has described shareholders as "grannies" on many occasions. If the "grannies lose their blouses", Ms Vadera cynically observed, it would not matter, as they were only

"shareholders who had added no value to the company".

What a motley bunch—the Chancellor, his contemptuous special adviser, and the weedy lackey of a Secretary of State for Transport saying, "Yes, Gordon, no, Gordon, can I be nice to you in Cabinet, Gordon?"

Photo of Michael Martin Michael Martin Chair, Speaker's Committee on the Electoral Commission, Speaker of the House of Commons

Order. The hon. Gentleman knows the conventions of the House. He should refer to the Chancellor of the Exchequer correctly.

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

I am referring to his representative on Earth, Mr. Speaker.

Photo of Michael Martin Michael Martin Chair, Speaker's Committee on the Electoral Commission, Speaker of the House of Commons

Let me put the record straight. If the hon. Gentleman wants to refer to that representative on Earth, as he puts it, he should refer to the Chancellor's representative on Earth.

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

That does sound grander, Mr. Speaker. The Chancellor's representative on Earth let the cat out of the bag when she wrote in one of her memos:

"It's the American investors we have to worry about."

It is unprecedented, according to everyone I have spoken to in the House, for someone mentioned so specifically in a motion not to turn up to hear what is said. How on earth could the Chancellor, if he were here, stand up and talk about a Britain of opportunity for all, not just a few, when his representative on Earth has shown such contempt for shareholders and was worried only about American investors?

This whole sorry saga has undermined investor confidence in Government projects. It was the process of Government, the bypassing of Parliament, and secret back-room meetings that precipitated this loss of trust. All this happened at a crucial time for the Government. Private finance initiatives are the cornerstone of many Government projects, and I am sure that the Secretary of State will agree that investor confidence is critical to the success of these projects.

Let us take a look at a letter written by 22 senior City fund managers to the Chancellor in March 2002, in response to this Railtrack scandal. They said:

"There is a straightforward issue of trust. A range of Government initiatives rely on the development of partnerships between the private and public sectors . . . We believe that many of our colleagues in the private sector will now be wary of entering into such relationships and that damage has been caused to the trust that previously existed between Government and the City."

If an investment partner is so unreliable, how can anyone expect people to risk their capital when the Government have behaved so despicably in this case?

As the House knows, independence of economic regulation is of fundamental importance to the financial regime for the railway industry, especially as regards the financing of Railtrack. It was the company's financial lifeline, and it was, and remains, of immense importance. During the period up to and immediately after the administration order was made, the Government displayed two characteristics that were extremely damaging and alarming to confidence, in their actions and their iron-control mindset. They showed that they did not understand the importance of independent economic regulation and regarded it as a disposable commodity; and they showed such contempt for the constitutional significance of an independent institution that they had to devise a discreditable plan to extinguish that independence, to prevent it from interfering with their plan to seize the assets of a FTSE 100 company for nothing. What does that say about the stability of the independence of other institutions?

Since he took over as Secretary of State, Mr. Darling has been at pains to stress how important he and the Government regard independent economic regulation. On 12 June 2002, he stated:

"As the Government announced in October 2001, they have been considering whether the railways regulatory framework continues to be fit for purpose given the changing circumstances faced by the UK rail industry. The Government's considerations have been guided by . . . key overarching principles:

Providing sufficient comfort and protection to operators and lenders through independent economic regulation and in order to regulate monopoly/monopsony elements and to secure private investment in the railways at an efficient cost".—[Hansard, 12 June 2002; Vol. 386, c. 1262W.]

He went on to say that the Government regarded that principle as an "essential continuing requirement".

On 15 December 2003, he said:

"In a statement to Parliament in June 2002, I set out the key overarching principles for the regulatory framework for railways. Independent economic regulation was one such overarching principle for which there was an 'essential continuing requirement'. This remains the Government's position."—[Hansard, 15 December 2003; Vol. 415, c. 122WS.]

Having so assuredly asserted the essential importance of independent economic regulation, is the Secretary of State now going to go back on all those statements, which were intended to steady markets and reassure investors, and defend the secret Bill of October 2001 and the extraordinarily detailed plans that were put in place in the summer of 2001 to extinguish the independence of the rail regulator? Let us see how he both defends a violent attack on independent economic regulation in 2001 and at the same time asserts that independent economic regulation is an essential continuing requirement of private investment in the railways.

There was also a rescue plan, which, as the Government were well aware, threatened their plot to take over Railtrack. RenewCo, as it was called, was a new company, and planned jointly between Railtrack and the Strategic Rail Authority. Through that mechanism, Railtrack would be able to bring forward billions in Government grants and also borrow extra money against that financial security. Does it sound like a good plan?

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

The Secretary of State mutters from a sedentary position, "Who will pay for that?" I remind him again that he has since paid far more than that in the arrangements that have followed the improper takeover of Railtrack. This was a massive threat to the Government's plot to present Railtrack as insolvent.

Again, the process of government was totally ignored by Ministers and unelected special advisers; leaked emails and memos show the true extent of the deceit and plots that were hidden from the House. We now know that in July 2001, the Chancellor's representative on Earth was writing to colleagues and asking:

"Should we be approving Renewco at this point in time when it could enable Railtrack to avoid insolvency for a while and rob us of a cleaner insolvency trigger?"

That is clear and damning evidence that the Chancellor's special adviser was seeking to block the deal. The right hon. Member for North Tyneside wrote in that crucial memo in September 2001 to the Prime Minister and the Chancellor that with regard to the RenewCo rescue plan:

"I therefore conclude that we should not proceed with it. This will hasten the onset of Railtrack's financial problems".

So there we have it—the Secretary of State for Transport was seeking to

"hasten the onset of Railtrack's financial problems".

Again, he is damned by his own words.

It gets worse, however. A central element of the Government's attempts to wreck the plan was to ensure that any RenewCo debt was classified as public sector debt. In that way, the Chancellor could refuse to agree the plan, claiming that it was unacceptable for its debts to appear on the public accounts. But what about the Office for National Statistics? It decides the classification of where the debt lies, and was therefore another obstacle for the Government. Another battering ram was needed to smash through and plough on with the plan to

"engineer the solution through insolvency".

The Chancellor's representative on Earth described the ONS in one of her e-mails as

"the joker in the pack and a deal killer".

The national statistician has confirmed, in a written reply to my right hon. Friend the Member for Maidenhead, that

"originally the ONS decided to classify 'RenewCo' as a private sector institution", but after receiving "new information" from the Treasury, it concluded by 5 October 2001 that the company

"would be classified as public sector borrowing".

We have now seen the evidence, as it has been released to the High Court, showing precisely what was going on behind the scenes at the Treasury. We now know that officials from the Treasury e-mailed the head of public sector accounts at the ONS encouraging him to re-examine his original classification of RenewCo. The Treasury official wrote:

"A holding reply today would help. It is very urgent. Something along the lines that you want to reconsider the case in the light of this new information", to which he might have added, "Sir Humphrey".

In the face of such damning evidence, how can the Chancellor possibly claim that his Department was not attempting to influence the classification? There is now no doubt: his order to "reconsider the case" was a deliberate strategy to wreck the rescue plan.

As the evidence makes perfectly clear, it was not the ONS advising the Treasury but the Treasury ordering the ONS around. It is time that we saw all the communications on the issue between the Chancellor's Department and the ONS.

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

I wonder how many Railtrack shareholders there were in the hon. Gentleman's constituency.

Photo of Jim Sheridan Jim Sheridan Labour, Paisley and Renfrewshire North

I do not have a clue, but may I ask the hon. Gentleman a question? I have listened long and hard to his speech, and he has mentioned the shareholders on numerous occasions. Is he going to express any interest whatever in the role of the taxpayer?

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

The hon. Gentleman does not quite seem to be the brightest. I have mentioned this three times already, but I shall explain one more time so that he understands. The amount of money that has gone into the equivalent of Railtrack since its artificial insolvency, created by the Government, is far more than was ever predicted in the worst possible scenarios offered by consultants to the Secretary of State.

Let me say more about our case against the Government. There was one more obstacle—a formidable obstacle—to the Government's secret plan: the independent rail regulator. I emphasise the word "independent", as the holder of that office, established in 1993, oversees the economic regulation of the railways. Independence from the Government has always been critical, but the Government were very worried. Ministers and special advisers were quaking in their boots. Why? Because in situations that were difficult for Railtrack, the independent rail regulator had power to throw the company a financial lifeline. During the summer of 2001, the office of the rail regulator therefore posed a significant threat to the Government's secret plans. Perhaps that is why Brian Hackland, head of the Prime Minister's policy unit at No. 10, e-mailed colleagues in September 2001 to ask:

"Could the regulator thwart us?"

"Thwart" is a telling word. The regulator was a potential threat to the covert plan. Even the Chancellor's representative on Earth was panicking.

On 7 October 2001, the Secretary of State's officials called the High Court to secure the availability of the duty judge, Mr. Justice Lightman, to hear an urgent matter. It was a Sunday. Mr. Justice Lightman received a stack of papers from the Secretary of State's solicitors in the early afternoon, and a hearing was convened at the offices of the Government's solicitors at 5.45 pm.

As the House knows, it is the Government's duty, when engaged in any kind of litigation, to tell the whole story to the Court. They are not entitled to assume that the judge already knows the facts, and of course in this case the judge could not have known all the facts—until then, the Government had done an excellent job of keeping everything secret. It was crucial for the Secretary of State to convince the judge that the company was insolvent. If he could not do that, there could be no railway administration order—[Interruption.]

Ann Coffey, muttering from a sedentary position behind the Secretary of State, says that it was the Court case. It was not.

I remind the House that the legal advice that the Government had received from their own counsel was that a contested petition for administration was seriously risky and must be avoided. The advice from counsel that morning was carefully hedged. It was, I remind the House, that

"on the evidence before him he would expect a judge to conclude that the company was insolvent".

But what was the evidence before him and, more important, before the Court? And was it complete?

On 23 October 2001, the Government helpfully placed in the House of Commons Library the papers that the judge saw on 7 October 2001. The papers were also produced in the Railtrack shareholders' case. A careful examination of them reveals not only what the judge was told but, more important, what he was not told.

It appears that many extraordinary assumptions were made about the judge's knowledge of the details of the rail regulator's powers, and about the fact that earlier in 2001, he had announced that he would carry out two interim reviews of Railtrack's financial requirements in the light of the Hatfield crash. The papers given to the judge do not adequately explain the nature of the rail regulator's powers—powers to advance potentially billions of pounds more in financial support to Railtrack—or the fact that he had twice announced, in January and May 2001, his intention to carry out such a review. The judge was told nothing of that. [Interruption.] The Secretary of State nods his head, but he will have to make a powerful case to deny this if he himself is not to be in the dock.

The railways' economic regulatory regime is extremely complex. No judge could be taken to know about it in the detail necessary to obviate the need to inform him of the rail regulator's powers and public statements in 2001.

Photo of Gwyneth Dunwoody Gwyneth Dunwoody Labour, Crewe and Nantwich

I am sure that the hon. Gentleman has studied the rail regulator's evidence. He will know that the regulator made a great point of coming before us and saying that although he had those powers, Railtrack had not asked him to use them. Indeed, the first contact was made only when he was asked for a £4 million cheque, on the weekend before Railtrack believed that it was going to become bankrupt. He was then asked if he could find the money in cash—I paraphrase his evidence, which the hon. Gentleman will have read—and he explained that that was not possible. Since then, he has slightly rewritten the way in which he gave that evidence, but the reality is surely that he made it clear that he was not asked to use those powers.

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

I ask the hon. Lady to consider this issue seriously and even to contemplate revisiting it in her Committee. I believe that the rail regulator would tell the Committee that he did not protest about the insolvency because he did not believe that a case for insolvency existed, and certainly not to the point where what he would consider a dishonest case was put to the judge. That is crucial to the judgment of the propriety of what we are debating today.

As I said, the railways' economic regulatory regime is extremely complex and no judge could be taken to know about it in detail. Indeed, if he could be taken to have such detailed knowledge, why was it necessary to explain to him—in the papers given to him and in the oral hearing—much simpler and more easily accessible features of that regime: the railway administration provisions of the railways legislation?

The evidence of insolvency put before the judge was extremely thin.

Photo of Alistair Darling Alistair Darling The Secretary of State for Scotland, The Secretary of State for Transport

Railtrack was represented at that hearing. Why did it not object to the order, and why did it not point out that there could have been a further regulatory review?

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

In my view, Railtrack should have done so and is culpable for not having done so. The principal basis of the Government's case that Railtrack was insolvent was a report from Arthur Andersen, which stated:

"We have no information regarding Ariel's ability to raise additional funding via alternative sources."

The report was heavily relied upon as evidence of Railtrack's insolvency. The evidence of the then rail regulator to the High Court in the shareholders' case says that if Arthur Andersen did not know about the rail regulator's power to award additional money to Railtrack in higher access charges, someone should have told it, and in any case, someone should have told the Court.

Will the Secretary of State tell the House why the Court was not told about the availability of an alternative source of finance via the rail regulator, and whether it was assumed that a bald statement that the Government had decided to introduce a Bill to enable the Secretary of State to give directions to the rail regulator was enough to excuse the need to provide such an explanation.

Photo of Bernard Jenkin Bernard Jenkin Shadow Minister (Energy and Climate Change)

May I point out that the rail regulator was appointed by the Deputy Prime Minister, who was then Secretary of State for the Environment, Transport and the Regions, and that it was widely regarded as a controversial appointment? It is not surprising that Railtrack did not apply to the regulator, who was throughout the period—how shall I put it?—perhaps struggling to establish his political independence.

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

My hon. Friend, having held the post of shadow Secretary of State in the past, has considerable expertise in this matter, and I hear what he says.

Why, too, one might ask, was there no mention by the rail regulator of the Hatfield statement on 15 January 2001 or again on 24 May? That provided undeniably crucial information about the willingness of the rail regulator to conduct an interim review, but it was not disclosed to the judge. The Secretary of State may say that the judge was told that the independence of the rail regulator would soon be blown away, so there was no need to tell the judge about his powers. However, the right hon. Member for North Tyneside told the House on 13 November 2001 that if the judge had known that the rail regulator had the power to do an interim review and had started the process, he would probably not have made the administration order. That is a stark admission, as it could only be because, until the rail regulator's independence had been removed and he had been stopped from doing an interim review, the company was not insolvent.

The independence had not been removed and the rail regulator showed, by his offer to Railtrack on 6 October, when senior management called the regulator to ask for a review—to be told that he was willing to start the process and make an announcement to that effect—that he had not been stopped from carrying out that review. The Government had tried to intimidate him with the threat of legislation, but the rail regulator was not intimidated. It was Railtrack that had been scared witless by the threat, which is why it foolishly turned down the rail regulator's offer to start the interim review process. It could not be assumed that a short Bill to enable the Secretary of State to give directions to the rail regulator would pass in time to stop the regulator's interim review proceeding. The right hon. Member for North Tyneside admitted in court in 2005 that it could not have been passed in time.

Given that when the rail regulator did carry out the interim financial review, which the Government had been prepared to legislate to stop—this was after Network Rail took over—he awarded the company an extra £7.4 billion over and above his October 2000 settlement to the company, how could it possibly have been assumed that Railtrack was insolvent when that jurisdiction was still in place in October 2001? Members have been quizzing me on that matter again today, and those are the facts.

Until the legislation could be passed and brought into effect—if, indeed, it could be passed at all—the jurisdiction of the rail regulator and his announced intention to use it meant that Railtrack was not insolvent. That much is apparent from the internal communications from and between the Treasury and the Department for Transport, Local Government and the Regions. For example, why else would Ms Vadera say in her e-mail of 2 October 2001 that the rail regulator was the "total wild card" and that everyone should be aware of the risks, including the possibility that

"if he stands up and says he has a grand plan which could keep the company solvent we're up the creek"?

In particular, I say again, the use of the word "keep" clearly indicates that the company was not insolvent and that the Government knew it.

Secondly, why would Mr. Linnard be recorded as saying that emergency legislation would be needed

"to ensure that the Rail Regulator cannot frustrate our plans to restructure Railtrack"?

Why would numerous meeting notes and e-mails speak of the need for legislation to close off Railtrack's escape route via the rail regulator? Why would Mr. Rowlands, in his minute to the Secretary of State of 31 August, have said:

"We cannot see a way of proceeding without sidelining" the rail regulator, given that

"Railtrack's funding and obligations are matters for the Regulator"?

He explained that emergency legislation would "remove" the regulator's

"ability to frustrate Ministers' chosen solution".

Why, at the transport stocktaking on 18 September, did Mr. Rowlands say that Railtrack could fight the petition for railway administration in court and might win, and that the regulator had to be "closed off"? Why would the Government's counsel advise that a contested petition for administration was

"risky and must be avoided", if the company was genuinely insolvent?

There are many other such examples, but they all point to one thing: the company was not insolvent and the jurisdiction of the rail regulator was the one thing that would keep it solvent.

If, as might be asserted, the company was insolvent despite the powers and declared intention of the rail regulator to carry out an interim review, it would not have been necessary for the Government to go to such extraordinary lengths to neutralise it with their disgraceful emergency legislation, and to keep secret the fact that they planned to do just that. That was why the legislation was needed.Nothing of all that was put to the judge on 7 October 2001.

Recent statements on behalf of the Secretary of State have said that it was the High Court, not the Government, that put Railtrack into administration. The House knows that. What needs to be disclosed and explained concerns the facts that the High Court was and was not given to enable it to make that decision.

The Secretary of State has said, and will no doubt say again, that Railtrack did not oppose the application for the administration order. We know that too, but it is completely irrelevant. It was the Government's obligation to tell the whole story to the judge, whatever was or was not said by Railtrack.

By the time of the Court hearing, Railtrack's senior management had made many mistakes. Perhaps the greatest was not to realise how the powers of the rail regulator insulated and protected the company against a political assault of that kind. By then, they were like rabbits frozen in the headlights of the Government juggernaut bearing down on them. The Secretary of State must now explain the actions of his predecessor and his officials and advisers in this sorry affair.

Photo of Chris Bryant Chris Bryant Labour, Rhondda

Will the hon. Gentleman give way?

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

No.

I contend that the Government had a duty to tell the Court in October 2001 all the facts and that they deliberately withheld that crucial component. The failure to make an honest disclosure to the judge about the power of the rail regulator is yet another—perhaps the most—shameful scar on the Government's honesty. It was and is an absolute scandal.

The High Court case has shed light on a sly and deceitful plan to implement a clandestine policy without telling Parliament. Yet again, the Government have corrupted the proper process of government, which would have been genuinely to seek all channels of finance to assist Railtrack in avoiding financial difficulties. The proper process of government would have been to respect the independence of the rail regulator, not to corrupt the position with the stench of the Government's political games. The proper process of government would have been for Ministers to make decisions at Cabinet level, not to use unelected puppets to control operations from the Treasury. The proper and decent process of government would have been to come to Parliament in June 2001 and announce that a review of the railways was under way. The proper process of government would have been to disclose all the material facts to a judge in chambers, not to conspire by deceit and complicity to deny him the facts as they knew them.

Success has many fathers; failure is an orphan. The Chancellor called all the shots on this issue, and his absence shows that he is trying to hide. He was the organ grinder and the right hon. Member for North Tyneside was but the monkey. The Chancellor wrote the score; his representative on Earth did his dirty work.

The proper processes of government have, yet again, been shamefully sidestepped by Labour. It is to the detriment of our democracy, and it is an enduring testament to the corruption, deceit and arrogance of this pitiful and mucky Government.

Photo of Alistair Darling Alistair Darling The Secretary of State for Scotland, The Secretary of State for Transport 4:34 pm, 24th October 2005

I beg to move, To leave out from "House" to the end of the Question, and to add instead thereof:

"welcomes the judgement in the recently concluded Railtrack court case which, after weeks of evidence fully tested by cross examination, completely dismisses the claimants' allegation of wrongdoing on the part of Government;
further welcomes the fact that the judgement exonerates entirely the way the Government responded to its growing concerns about Railtrack's financial position and the propriety of the process that led to Railtrack being put in Administration, including the Government's stance in relation to the Rail Regulator;
notes that the judge described Railtrack's request for unlimited public funding and support, which was made in part to maintain its share price, as a "hopeless proposition";
and that there were good public reasons for the policy developed;
congratulates the Government for bringing under control the situation which resulted from the previous Government's botched privatisation and putting ownership of the track into the hands of a not-for-dividend company operating in the broad public interest;
and recognises the significant progress that is being made by Network Rail in improving performance on the railway and in bringing costs under control, in stark contrast to the management incompetence shown by Railtrack."

Mr. Duncan started his speech by asserting that the matters that he has spent the past hour and five minutes discussing were not, in fact, discussed in the recent court hearing, and he seemed to employ a very selective use of the facts in relation to this case. The truth is that all these matters were considered in depth after a long trial by Mr. Justice Lindsay, whose judgment was given just a couple of weeks ago.

I will refer to most of the points that the hon. Gentleman made and to what the judge had to say about them; but, essentially, it seems to me that the hon. Gentleman sought to make exactly the same case as the claimants made in court. He chose to ignore the fact that the judge found against the claimants and found that all the matters complained of by the hon. Gentleman and the Conservative party had no basis in fact, as I shall demonstrate.

The other curious thing about the hon. Gentleman's speech is that, when he started, he seemed to suggest that the solvency or otherwise of Railtrack was an irrelevancy, yet towards the end of his speech he seemed to suggest that the company was a going concern with nothing wrong with it and that it was only the dastardly Government who brought about its downfall. That flies in the face of all the facts, as I will demonstrate.

Photo of Quentin Davies Quentin Davies Conservative, Grantham and Stamford

Let me put to the right hon. Gentleman a question that was obviously not dealt with by the judge or the court, but that surely ought to be a matter of great concern to the House of Commons. A quotation has just been attributed to Shriti Vadera to the effect that the small shareholders do not matter—it does not matter if grannies lose their blouses—and that we ought to care only about the American investors. Does the right hon. Gentleman think that that is an acceptable attitude for a Treasury official or an adviser to the Chancellor of the Exchequer to take?

Photo of Alistair Darling Alistair Darling The Secretary of State for Scotland, The Secretary of State for Transport

I do not know whether the hon. Gentleman has read the judgment. The judge deals with the evidence of the special advisers in paragraphs 10 to 12 and in other places as well. On the central charge made by the Conservatives today, the judge makes the point that only Ministers, who are accountable to Parliament, can make such decisions. Moreover, he found that Ministers acted correctly in the face of the evidence before them.

Photo of Andrew Turner Andrew Turner Shadow Minister (Cabinet Office)

The right hon. Gentleman purports to quote what the judge found. Will he remind the House of whether the Chancellor of the Exchequer or Mr. Byers was the defendant in this case?

Photo of Alistair Darling Alistair Darling The Secretary of State for Scotland, The Secretary of State for Transport

I was the defendant in the case, to be precise, which is why I read the judgment with great interest. Of course the material decision complained of was taken by my predecessor, my right hon. Friend Mr. Byers. I say in passing—it would be interesting to hear what a former Chancellor of the Exchequer has got to say—that it would be quite extraordinary if the Chancellor, whoever it happened to be and whatever political party was in government, did not take an active interest in railway finances. After all, they consume a remarkably large amount of the public finances, so it is no surprise that the Chancellor should take an interest. In fact, the complaints made by the Conservatives and by the claimants related to the decision taken by my predecessor.

Several hon. Members:

rose—

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee)

Of course I took a close interest in railway finances when I was Chancellor of the Exchequer, and I would have expected to have a crucial say in them. We would have exchanged Cabinet papers and had a meeting of a Cabinet Committee. I would certainly not have sent along a special adviser to make cynical remarks about all those involved and to try to devise strategies for getting rid of the shareholders' interests in a company, and I certainly would not have expected the then Secretary of State for Transport to allow himself to be used as a cipher, as Mr. Byers did.

Photo of Alistair Darling Alistair Darling The Secretary of State for Scotland, The Secretary of State for Transport

Perhaps if the right hon. and learned Gentleman had taken a bit more interest in the public finances, he would never have allowed Railtrack to be set up in the first place. As I shall demonstrate, the setting up of Railtrack cost this country dear in every sense of the word.

Photo of David Ruffley David Ruffley Shadow Minister (Work and Pensions)

On 26 July 2001, Miss Vadera told Treasury colleagues that

". . . we need a trigger to insolvency that we decisively pull."

Given that all the main lines in this railway disaster lead to No. 11, will the Secretary of State explain why not a single Treasury Minister has had the decency to turn up and account to Parliament for the Chancellor of the Exchequer's policy of dodgy accounting and expropriation?

Photo of Alistair Darling Alistair Darling The Secretary of State for Scotland, The Secretary of State for Transport

The matter to which the hon. Gentleman refers was one of the central matters before the court. Lord Justice Lindsay did not find that the claimants' case was established, and he examined all these things.

I shall start with what the judge said—this flies in the face of the earlier comments of the hon. Member for Rutland and Melton that the judge paid no attention to these facts—about that splendid company, Railtrack, on whose behalf the hon. Gentleman spoke today. The judge stated at paragraph 274:

"In terms of railway performance, it had suffered not only Ladbroke Grove but Hatfield and the disruption that followed it. It was thought that some restructuring of it within the next 5 years was inevitable. It was seen as 'frankly a mess', with weak management at the zonal levels . . . It had difficulty even in funding the necessary regular maintenance. It had major projects without the skills to manage them . . . Its own business plan accepted that it had not maintained and renewed the railway to an acceptable standard. Its skills base as to engineers had diminished and its training fell short of what was needed. It was reported as suffering from institutional paralysis."

Lord Justice Lindsay went on at paragraph 275:

"Its own financial plan acknowledged the unreliability of its own estimates and a persistent inability to keep within budgets. It had virtually no management control; there was management paralysis. The Department had identified an amortisation error which, it thought, meant that it would be bust 'in spades' in CP 3"— that is, control period 3. He continued:

"Railtrack itself as well as brokers had identified an intrinsic value in its shares way below the market price."

Having summarised that evidence, he stated at paragraph 276:

"Against such a perception in both railway performance and financial terms there were plainly ample and sound policy reasons for the government wishing to be rid of Railtrack and for the railway assets to be passed into the control of another or others. There were good avowable and avowed public reasons for Mr. Byers"— my right hon. Friend the Member for North Tyneside

"to develop a policy to that end. He did so, drawing on advices given to him by Civil Service and other advisers whose skill, honesty and competency has not been called in question."

[Interruption.]

The hon. Member for Rutland and Melton says, "So what?" Railtrack had severe financial problems and severe management problems. It would have been extraordinary if any Government had not taken the necessary action to look after the public interest.

Several hon. Members:

rose—

Photo of Chris Bryant Chris Bryant Labour, Rhondda

Is not the truth of the matter that the entire privatisation was built on sand, and that the only question is whether it was sinking sand or builders sand? One of the things wholly lacking from the debate so far, which most people in the country would find extraordinary, is the conduct of previous Governments in setting up the privatisation.

Photo of Alistair Darling Alistair Darling The Secretary of State for Scotland, The Secretary of State for Transport

I have consciously concentrated my remarks on the conduct of the Government against what was happening with Railtrack in 2001. Many other criticisms of privatisation could be made, but the central point of the Opposition's argument today is that Ministers acted improperly in the face of what was happening to Railtrack. Given what was happening to Railtrack, the financial state that it was in and the poor state of its management, it would have been extraordinary if the Government of the day—whatever Government—had not taken appropriate action to look after the public interest.

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee)

We quite accept that the company was in a lamentable state, and that any Government had a duty to consider restructuring it to make the privatisation—the present Government always agreed with us on a privatised railway—work more successfully. The question at stake is: what was the position and interests of the shareholders, particularly the small shareholders? Was the company totally insolvent? That could be decided only by the independent regulator, because he determined the revenues of the company and whether it was entitled to more financial support. It was when the Government threatened to legislate to stop him doing anything that the company was made insolvent by the Government. That is what damaged the interests of the grannies, the railwaymen and the shareholders, whose interests the Government overlooked.

Photo of Alistair Darling Alistair Darling The Secretary of State for Scotland, The Secretary of State for Transport

That argument depends on the Government taking the view that not only should there be a review, but that, as a consequence of what it says, the regulator should tell the Government to produce a lot more taxpayers' money to keep the company afloat. The regulator does not have its own supply of money. The only place from which money can come is the Government. That argument is absolute nonsense.

The right hon. and learned Gentleman has inadvertently taken me to my next point, which concerns shareholders. The shareholders have every reason to be angry—but with the then directors of Railtrack. As I have said—

Several hon. Members:

rose—

Photo of Alistair Darling Alistair Darling The Secretary of State for Scotland, The Secretary of State for Transport

I will give way to Adam Afriyie, but I want to make some progress first.

Railtrack wrote to the Department in March 2001, saying that it had financial difficulties. At paragraph 38 of the judgment, the judge says that Mr. J.W. Smith, who wrote that letter, stressed the group's need to

"maintain an 'A' credit rating, which, in his view, required the announcement of a package confirming government support for" the

"Group. 'It is this', he wrote, 'which will enable us to raise £5bn by 2003'. That would be bound to cause concern at the Department as it would imply support, unascertainable in amount, for an individual company".

Of course that was going to cause concern, especially considering the content of the letter.

Two things in the letter interest me. First, Smith says that if the Government agree to bring forward £1.45 billion of deferred income, it will leave room for what he describes as "hope value": what an indictment of the directors that they were reduced to hoping that hope value would come into the company.

Secondly, a chart summarising the shareholder value analysis is attached to the letter, and Smith goes on to say:

"you will appreciate the market's sensitivity of this analysis"— too right he did. The analysis showed that although shares were trading at £8 a share, the company thought that they were worth 60p. If I were a shareholder in the company and found out that the directors knew that the shares were worth a fraction of what they were trading at, I would wonder why they did not issue a trading statement. Surely, they were misleading people, and the market, by allowing people to buy and sell shares at £8 a share when the company thought that they were worth a mere 60p.

Photo of Alistair Darling Alistair Darling The Secretary of State for Scotland, The Secretary of State for Transport

I shall give way in a moment. That is, perhaps, indicative of the directors' attitude to their shareholders. They thought that no matter what they had done, or what they did in the future, all that they would have to do would be to come cap in hand to the taxpayer and say, "Bail us out." In fact, the company had serious problems. This is not only about what was said internally. ABN Amro—the judge also mentions this—valued the shares at about 58p. Surely the alarm bells should have been ringing throughout the company, which was in deep financial trouble.

Photo of Quentin Davies Quentin Davies Conservative, Grantham and Stamford

I do not think that any Conservative Member disagrees with the right hon. Gentleman's criticism of Railtrack's management, but he misses the point altogether. No one suggests that there was no problem, or that Railtrack was a brilliantly successful company. The question is: having decided to take action—in the right or wrong direction; it does not matter—did the Government proceed in a straightforward and fair fashion, or in an underhand, cynical way that showed a cynical disregard for the interests of small shareholders? That is why the quotation from Shriti Vadera is so important. Does not that reflect all too well the new Labour values that permeate the Government, including the Treasury?

Photo of Alistair Darling Alistair Darling The Secretary of State for Scotland, The Secretary of State for Transport

The Government did act appropriately. My point is that the directors knew that the shares were worth a fraction of what they were trading at, because they knew that the company faced deep-seated problems. I mentioned the valuation of the shares earlier. I am also bound to draw the House's attention to the fact that the company wrote to all its shareholders in April 2001 drawing attention to its agreement with the Government, which states:

"The Government stands behind the rail system but not behind 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."

That was sent to every Railtrack shareholder.

Photo of Alistair Darling Alistair Darling The Secretary of State for Scotland, The Secretary of State for Transport

I want to make some progress, then I will give way.

It is clear to me that not only did the company know that it had substantial problems but that its shareholders knew that the Government's commitment was behind the rail system but not behind any particular private company. I am glad that in the face of the facts, which we were not going to get from the hon. Member for Rutland and Melton, it is now common ground that this company was in a far from healthy financial state. Paragraph 64 describes the note that Mr. John Smith of Railtrack prepared for the incoming chairman, Mr. Robinson. He said that

"the situation was worse than expected, neither the Regulator nor Railtrack could estimate the costs of running and maintaining the infrastructure with any certainty, the assumptions on which the settlement with the Regulator . . . had been based were completely unworkable, major cost over-runs on the "— west coast main line—

"and the Channel Tunnel Rail Link were still not under control, Railtrack's 'bloating' operating costs were not being addressed. If the subsidy and pricing regime was left unchanged, the company was heading for liquidation."

So it is perfectly obvious that the company and its directors knew that the company had deep financial problems. I repeat that for any Government to have ignored that, and for any Government not to have put in place contingency plans, would have been absolutely extraordinary. Without wishing to labour the point—

Several hon. Members:

rose—

Photo of Alistair Darling Alistair Darling The Secretary of State for Scotland, The Secretary of State for Transport

I will of course take interventions, just as the hon. Member for Rutland and Melton did.

Let me repeat the point. The then chief executive of Railtrack, when he wrote to the regulator, said:

"The cliff's edge is closer than you may realise."

This company had major financial problems.

Photo of Adam Afriyie Adam Afriyie Conservative, Windsor

My concern, like that of many others throughout the country, is for the smaller shareholders, especially the elderly and those with pension funds. It seems to me that questions in the House are not often directly answered. Will the Secretary of State answer this: does he accept, on behalf of his Government, any responsibility at all for the plight of the shareholders who have been harmed?

Photo of Alistair Darling Alistair Darling The Secretary of State for Scotland, The Secretary of State for Transport

The responsibility for the shareholders lay with the directors of Railtrack. Railtrack had allowed itself—[Interruption.] Let me just demonstrate, to answer the hon. Gentleman's question. This is what the directors of Railtrack told the Department when assessing the situation that they faced on 27 July 2001. They said that they had

"no access to bank finance"; that committed facilities

"were available for less than nine months"; that they had "major drawdown" expected on bank lines; and thought it would be "problematic around October".

Their access to the bond market was "doubtful", as was the ability of the board to sign off on the bond prospectus.

The point is that the directors of the company had a clear responsibility to the shareholders. It appears that they thought that the only way around that was to come back to the taxpayer and say, "Please bail us out."

Photo of Alistair Darling Alistair Darling The Secretary of State for Scotland, The Secretary of State for Transport

I will give way in a minute.

It is worth reminding the House that on 20 August the directors of Railtrack were proposing to set aside the regulatory regime for four years—so much for the much vaunted independent economic regulation. They wanted unconditional funding from the taxpayer. They wanted to emerge after the four-year period with their shares worth between £3.50 and £5—and of course the Government would have to underwrite that value. In the meantime, they were going to carry on with a dividend of 20p per share. In other words: everything courtesy of the taxpayer.

Photo of Alistair Darling Alistair Darling The Secretary of State for Scotland, The Secretary of State for Transport

Let me put this to the hon. Gentlemen—if they accept that this was a company with deep-seated financial and management problems: how on earth could the Government be justified in simply saying, "Have some more money"?

Photo of Crispin Blunt Crispin Blunt Opposition Whip (Commons)

The fact is that the company was operating in an environment in which very shortly after it was taken into administration it required another £7 billion to underwrite it or to keep it in operation. When the Secretary of State describes the circumstances known to the directors, that was the environment in which the company was operating prior to October 2001. Subsequently, is it not true that the Government had to give the company, as Network Rail, £14 billion to achieve solvency?

Photo of Alistair Darling Alistair Darling The Secretary of State for Scotland, The Secretary of State for Transport

The hon. Gentleman ignores the fact that the company did not have only financial problems. Everybody accepts that in the late 1990s and the first part of 2000, and after Hatfield, it became apparent that the deep-seated problem of successive years of lack of maintenance meant that costs were rising. However, it was to do with the management as well.

It is worth repeating Railtrack's comments about the genesis of its problems because they show that the problems were due to management as much as finance. Railtrack defined the problems as lack of any recent major projects experience inherited from British Rail. It did not have the expertise in-house to deal with such matters. The company defined another problem as

"stunning commercial naivety in agreeing to loosely-scoped, fixed-price contracts" years in advance of its ability sensibly to price the risks or lay them off on contractors. It also stated that that was compounded by guaranteeing outputs without adequate timetabling work and without scoping infrastructure works. That, in turn, was compounded by more traffic and a declining infrastructure.

In other words, the company's problems were not only financial but due to management. In the days following the judgment, the hon. Member for Rutland and Melton appeared reluctant to admit that the Tory position was to give that poorly managed company, which had financial problems, more money.

Photo of Henry Bellingham Henry Bellingham Opposition Whip (Commons)

Let me revert to the point that my hon. Friend Mr. Blunt made. If the company had not been forced into insolvency, it would have remained a FTSE company and retained access to global capital markets, which Network Rail does not possess because its only source of finance is the Government. Will the Secretary of State confirm the figure of £14 billion? How much extra has the process cost the taxpayer?

Photo of Alistair Darling Alistair Darling The Secretary of State for Scotland, The Secretary of State for Transport

The point is that the company was insolvent. It approached the Government to say that it could not make ends meet. Paragraph 105 of the judgment refers to a representative of Railtrack's advisers, Credit Suisse: First Boston, and states:

"He said Railtrack had virtually no management control, it was the worst case he had seen for a period and that there was management paralysis. It had major projects without the skills to manage them."

Yet Conservative Members' central argument is that the Government should have given Railtrack more money through a regulatory review. That is nonsense.

What were the Government supposed to do with a company that was painting a picture throughout 2001 of financial difficulties and self-confessed management failings? The Tory answer is, "Give them more money." I do not believe that the majority of people would agree with such a proposition.

Photo of John Bercow John Bercow Conservative, Buckingham

I appreciate that the Secretary of State is in a difficult position and that he is probably trying to tough it out. However, will he tell us whether, in reflecting on the behaviour and language of the Chancellor of the Exchequer's special adviser, he believes that it was seemly, measured, transparent and reasonable? If so, he has lost his moral compass.

Photo of Alistair Darling Alistair Darling The Secretary of State for Scotland, The Secretary of State for Transport

The hon. Gentleman has said some silly things in his time and his comment is up there among them. The central charge against the Government in the Opposition motion is that Ministers acted inappropriately. The Opposition used more florid language, but that is the charge. The Secretary of State and Ministers—they make the decisions—acted correctly when faced with a company that had deep financial problems and deep-seated management difficulties. It is becoming increasingly apparent that the Opposition would have asked the regulator to undertake a further review and would have given the company more money. [Interruption.]

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

Order. We cannot have a chorus of sedentary comments. The subject of the debate is heady stuff, but it must be conducted in an orderly manner.

Photo of Alistair Darling Alistair Darling The Secretary of State for Scotland, The Secretary of State for Transport

The Opposition view is, to some extent, that of Mr. Robinson, chairman of Railtrack. The judge said:

"Mr. Robinson's heart-felt evidence that the Government created Railtrack's insolvency is not acceptable. Not only did he, in so saying, ignore his own evidence and that of others that without government support Railtrack was unable to pay its debts"—

Railtrack's own evidence was that it was unable to pay its debts—

"but in any event a provider of funds does not 'create' an insolvency by providing only that to which the recipient is entitled. The Government can be said to have failed to avert Railtrack's insolvency but that cannot be said to be a fault in the Government unless one can postulate a duty on government to have funded Railtrack without limit and without condition", which the judge described as "a hopeless proposition." That gets to the nub of the Opposition's case. They appear to say that the Government should have funded Railtrack without limit and without condition, which, as the judge says, is "a hopeless proposition." That is why, as I say, the Government were entirely right to take the necessary steps to develop plans in the event that it should prove necessary to put in place a body to take over running the railways if the company failed. It was almost inevitable that it would fail.

Photo of Jeremy Hunt Jeremy Hunt Shadow Minister (Work and Pensions)

This really will not do. My hon. Friends the Members for Buckingham (John Bercow), for Grantham and Stamford (Mr. Davies) and for Windsor (Adam Afriyie) asked the Secretary of State whether it is acceptable for a senior Treasury official to describe Railtrack investors as grannies and to say that it does not matter if the grannies lose their blouses. Is that acceptable—yes or no?

Photo of Alistair Darling Alistair Darling The Secretary of State for Scotland, The Secretary of State for Transport

Is not it amazing that, in the face of the facts, Conservative Members have to depart from their central case? The facts are that the company was insolvent, it was badly managed and the Government were absolutely right to put in place contingency plans.

Photo of Alistair Darling Alistair Darling The Secretary of State for Scotland, The Secretary of State for Transport

Not just now, but I will do so before I sit down.

One should look at the evidence and the judge's findings. Mr. Justice Lindsay looked at all the evidence over a few weeks and concluded that the Government acted entirely correctly.

I want to come to the regulatory point, of which the hon. Member for Rutland and Melton made much. By way of background, it is worth bearing it in mind that the regulator himself had been quite critical of Railtrack. In the summer of 2001, he gave a speech that caused some consternation in Railtrack. He said:

"Railtrack should put away the begging bowl, and stop spending valuable management time hawking themselves . . . round Whitehall, and knuckle down to getting train services back to a sustainable level of reliability and quality of service."

That was the regulator's starting point. He felt that Railtrack should be getting on with the job and with the settlement that he had made. However, the question of whether my right hon. Friend the Member for North Tyneside was right in ruling out a further regulatory review was considered by the judge. He said:

"I do not see that he", my right hon. Friend,

"or the Department can be fairly criticised for anticipating that if there was to be no funding beyond Railtrack's present legal entitlement then legislation might be needed to be sure that that important policy decision could not be undermined. I see no ground for any material inference against Mr. Byers."

Furthermore, the judge says at paragraph 276:

"If he", my right hon. Friend,

"had good public reasons for the policy, as I hold he had, I do not see it as a fault in him . . . to have said that if necessary he would ask Parliament to legislate so that the policy could not be thwarted."

In other words, Mr. Justice Lindsay considered those matters and found that my right hon. Friend did not act in any way that was inappropriate.

Interestingly, when we see what the regulator said when he appeared before the predecessor to the Transport Committee

Photo of Alistair Darling Alistair Darling The Secretary of State for Scotland, The Secretary of State for Transport

I will in a moment.

The regulator made it clear that there was no prospect of being able to find the amount of money that the company needed, more or less over the weekend. Indeed, as the judge said, remarkably, Railtrack said that, unless the regulator could promise an unspecified number of millions of pounds on the Monday, there would be no point in having an interim review. In other words, the interim review could not have provided the lifeline that the Conservatives believe that Railtrack could have received.

Therefore, first, did the then Secretary of State act properly? Yes, he did. Mr. Justice Lindsay looked at that and found he acted appropriately. Secondly, as both the regulator himself and Mr. Justice Lindsay observe, even if there had been a regulatory review, it would not have helped Railtrack because its financial position was so bad that at that stage it would not have saved them.

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee)

The Secretary of State is giving his quotes rather quickly. He touched on the point that the judge said:

"I do not see it as a fault in him . . . to have said that if necessary he would ask Parliament".

I point out that the Secretary of State left out the words in brackets:

"I do not see it as a fault in him (or, at any rate, not one relevant to the tort I am considering)".

The Secretary of State seemed to leave that out. To put the facts on the record, the judge did not clear the former Secretary of State on this point.

Our case is not that the Railtrack directors acted impeccably. There is agreement about most of the criticisms of the Railtrack directors, but none of the criticisms from anyone else said that the company was insolvent. Only the independent regulator could determine that, and the Government threatened to legislate to stop him intervening because they wanted to make it insolvent. All the other charges against Railtrack may stand, but the insolvency and the cost to the shareholders are down to the Government and the then Secretary of State and his colleagues.

Photo of Alistair Darling Alistair Darling The Secretary of State for Scotland, The Secretary of State for Transport

I do not know whether the right hon. and learned Gentleman has read the judgment, but if he has he will know that it was the company itself that was outlining its financial difficulties and the company itself that said there would be questions about whether it could continue as a going concern. It is an important point, even to the remains of the Opposition's discredited case, that throughout 2001 the company was constantly asking itself whether it could continue to trade as a going concern, such was the state of its financial position. The Conservatives' position appears to be that, if only an interim review had been allowed, the regulator would have produced millions of pounds, for which Railtrack had asked earlier in the summer. Money would have to have come from the taxpayer—it could have come from nowhere else—to save the company.

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee)

That is what the Government feared. That is why they stopped him doing it—

Photo of Alistair Darling Alistair Darling The Secretary of State for Scotland, The Secretary of State for Transport

I did not need to give way, Mr. Deputy Speaker, because I could hear what the former Chancellor was saying.

Looking through the papers, one is struck by how, earlier in the year, when my right hon. Friend the Member for North Tyneside became Secretary of State, he foresaw no structural change taking place in the industry. At that time, he had no reason to believe that Railtrack was in such a state. It is all in the papers available at the Department—all the papers lodged with the court are available to be inspected by anyone who wants them. The judge made the point that the Department had made a full disclosure, as the House would expect.

I simply do not accept the proposition that, right from the start, the Government aimed to bring about Railtrack's insolvency. The Government did not do that. The first hint of financial problems came from the company itself in March, when it said that its shares were worth a fraction of the price at which they were trading. In each visit that Mr. Robinson and his colleagues paid throughout the summer, it was made clear that the company had deep management and financial problems. The Opposition case seems to be that the Government should have ignored all that and said to the company, "Have another regulatory review, have some more taxpayers' money", which is an extraordinary position to take.

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee)

The Secretary of State is being extremely generous in giving way to me. Will he say why the Government threatened to legislate to take away the regulator's powers? Surely their only motive was their fear that the regulator would offer financial support and stop the insolvency that was the Government's objective, as all the papers make clear.

Photo of Alistair Darling Alistair Darling The Secretary of State for Scotland, The Secretary of State for Transport

As the right hon. and learned Gentleman knows, because he interrupted me, a few moments ago I quoted Mr. Justice Lindsay saying that a policy decision was taken, so it was entirely understandable that the Secretary of State did not want that decision to be undermined by a further regulatory review.

The difference between us and the Opposition is becoming clear. It seems to be common ground that the company had big financial problems and was not well managed. The difference is that the Opposition think that the Government should have allowed an interim review and given more public money to a company that was in desperate straits. If that is what their case comes down to, I am happy that the public should judge us. We acted entirely appropriately in reaching the decision that the company could not be saved and that it was necessary to take appropriate steps to put a fresh administration in place after Railtrack had gone.

Photo of Alistair Darling Alistair Darling The Secretary of State for Scotland, The Secretary of State for Transport

No. I have given way to the hon. Gentleman enough.

The idea that we should have simply bailed out a failing company is absolute nonsense.

Photo of Alistair Darling Alistair Darling The Secretary of State for Scotland, The Secretary of State for Transport

Not now—I might do so before I finish.

The hon. Member for Rutland and Melton made much of the order for administration. Mr. Justice Lightman said:

"This is clearly a case where the making of a railway administration order is not only appropriate, but absolutely essential".

The hon. Gentleman says that the judge should not have made that decision, suggesting that incomplete information was laid before him. I repeat the point that Railtrack could have objected to the administration order. It could have said, "If you only allow the regulator to come in and bail us out, everything will be fine." Indeed, Mr Justice Lindsay, in his judgment on 14 October, said:

"Mr Byers is accused of engineering a situation in which he could present evidence that Railtrack was or was unlikely to be able to pay its debts. But that needed no engineering."

That is what the judge found. My right hon. Friend the Member for North Tyneside did not engineer the situation. The judge makes the point that Railtrack was unable to pay its debts and that that did not need engineering. Unfortunately, Railtrack had demonstrated in spades that it was unable to pay its debts.

It seems that the foundation upon which the Conservatives seek to build their case falls apart. Railtrack was heading towards insolvency throughout 2001. It had grossly underestimated its costs, it had lost control of its finances and it was in deep financial trouble. Its own advisers said that there was management paralysis. The difference between us seems to be that the Tories would have said, "Never mind, have some more taxpayers' money." Our position is quite different. Our position was that in the light of these difficulties the Government were not prepared simply to bail out the company. It was appropriate, when the company eventually went into administration, to put in place an organisation that could run the railways properly.

It is worth bearing it in mind that under Network Rail unit costs are coming down. It now knows its unit costs. It has taken maintenance back in-house, which has saved millions of pounds. The company is being run properly as a railway rather than an adjunct of a property company. It is clear to me, coming relatively fresh to the situation, having read the court judgment and having considered all the evidence, that the Government and our Ministers acted entirely properly. That is why I believe that the House should agree to the amendment and throw out the nonsensical motion that has been tabled by the Conservative party—a party that is discredited for the way in which it brought about rail privatisation and allowed Railtrack to be created.

Photo of Tom Brake Tom Brake Shadow Secretary of State for International Development, Liberal Democrat Spokesperson (International Development) 5:12 pm, 24th October 2005

What chutzpah! The Conservatives, the Frankenstein creators of the monster that led to the privatisation of the railways, are now admonishing and advising the Government on their handling of the railways. Whatever next—De Lorean advising on start-up businesses, Naomi Campbell providing anger management training or perhaps Jeremy Clarkson promoting fuel-efficient vehicles.

Sometimes, the Conservatives are justified in rebutting attacks that are based on what they did when they were in Government eight years ago, but, in relation to the privatisation of the railways and Railtrack, unfortunately the damage has been so longstanding that they cannot simply bat it away. Perhaps the Conservatives were looking for hope value in the debate—hope that their record would be forgotten. I think that people should be reminded of their record on this issue.

I shall give a few examples of Railtrack's performance. At the time of administration, it was preparing to pay a fine of at least £10 million for failing to reduce train delays. There was Lord Cullen's public inquiry into the deaths at Ladbroke Grove, which found Railtrack to be an incompetent and inadequate company. Railtrack's poor performance was also the subject of a report by consultants Booz Allen Hamilton, which was very critical of the lack of investment by Railtrack. It found that track renewals had averaged only 1.3 per cent. per annum during the control period, which was 1995–2001, which was a low rate of renewal compared with European railways, which typically replace 2 to 3 per cent. per annum. Railtrack's 1995 business plan referred to 2.2 per cent. renewals per annum, not 1.3 per cent., which it delivered. Clearly it was far short of delivering on its targets.

The National Audit Office report, published on 14 May 2004, entitled "Network Rail—Making a Fresh Start", quoted a number of factors that contributed to Railtrack's failure, including a lack of attention to its core business, leading to underinvestment in the infrastructure, loss of engineering skills and poor asset knowledge.

Given the background of the Hatfield crash, the record for track failure rose by 42 per cent. All that occurred after Railtrack took over responsibility for track safety from British Rail. No wonder Mr. Duncan did not want to talk about Railtrack.

Photo of Jeremy Hunt Jeremy Hunt Shadow Minister (Work and Pensions)

Does the hon. Gentleman accept that if we talk about whether the privatisation of Railtrack was right or wrong or whether the financial health of Railtrack was in a good or bad state, we risk ignoring the central Conservative contention that the treatment of private investors was shabby and that the Government should not have behaved as they did?

Photo of Tom Brake Tom Brake Shadow Secretary of State for International Development, Liberal Democrat Spokesperson (International Development)

The issue of the private investors and their investment was addressed by the court case. The wider public want to hear about the debacle that was Railtrack and the privatisation of the railways. They want to see some humility from the Conservative party, which has not been displayed today.

The Tory obsession with a man—Mr. Byers—and the desire to dwell on past events is extraordinary. The right hon. Gentleman's behaviour has been referred to the Standards and Privileges Committee, and it is the right body to decide his fate. We should be using this valuable parliamentary time to look not at what went wrong but at how we can improve the railways. The decision to turn Railtrack into a not-for-profit company was originally a Liberal Democrat idea. It was the right decision given that the Tories botched the privatisation of our railways.

As we are in the middle of a leadership race for the Conservative party, I thought it might be instrumental to look at what the candidates have to say about the railways, and railway privatisation and, specifically, how the railways should progress. When David Davis, the shadow Home Secretary, was Chairman of the Public Accounts Committee, which considered rail privatisation in 1998, he stated:

"If something is done badly, it is done badly."

He came clean and accepted that privatisation was done badly.

Let me remind hon. Members of some of the facts revealed in that report. It gave a damning verdict on rail privatisation, which saw a handful of former British Rail managers become multimillionaires within a matter of months. The best example of that was Sandy Anderson, who made £33 million in six months.

Photo of Tom Brake Tom Brake Shadow Secretary of State for International Development, Liberal Democrat Spokesperson (International Development)

Exactly.

The MPs on the Committee said:

"Such large profits risk discrediting privatisation as a whole", which is something of an understatement. They went on to say:

"The public are understandably concerned when they see a small number of individuals making personal fortunes at a time when complaints about the industry are rising."

The right hon. Member for Haltemprice and Howden said:

"I am not embarrassed. You have to be iron-hard in impartiality" as Chairman of the Select Committee. He went on to say:

"If something is done badly, it is done badly."

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

Perhaps I can help the hon. Gentleman. We are happy to accept that in some respects at least Railtrack was a basket case. He does not need to dwell on that. What matters is the conduct of the Government. His party's amendment

"condemns the way in which the Government handled the process and the operation of the Department for Transport, Local Government and the Regions at the time".

That is the kernel of the debate. Perhaps we could join forces and hear him concentrate on that.

Photo of Tom Brake Tom Brake Shadow Secretary of State for International Development, Liberal Democrat Spokesperson (International Development)

I will dwell on that shortly. However, it is important to consider the way forward.

As I said, two Conservative Members of Parliament are standing in a leadership contest, and I looked for more up-to-date information on what they have to say about the railways. I checked out the website for the shadow Home Secretary. On 29 March, he listed 14 campaigns, all of which he seemed to have launched on that one day. The website did not list other campaigns since that date, which perhaps explains what is happening to his leadership campaign.

A rail campaign was listed. The right hon. Gentleman's website says:

"he has campaigned for Howden to get a direct train to London."

Clearly, that is the beginnings of a transport policy. It is slightly constituency-centric and perhaps a little bit self-interested, but at least it is a start.

Photo of Damian Green Damian Green Conservative, Ashford

The hon. Gentleman may care to reflect that the successful campaign that my right hon. Friend David Davis conducted on that issue enabled him to double his majority over the Liberal Democrats at the general election.

Photo of Tom Brake Tom Brake Shadow Secretary of State for International Development, Liberal Democrat Spokesperson (International Development)

The hon. Gentleman makes an interesting point, but I repeat my view that basing one's transport policy on the need to secure direct trains from one's constituency to London is short-sighted.

I thought it appropriate to look at what Mr. Cameron said about transport policy, specifically rail. In part of his website headed "Quality of Life" he states:

"We must give voice to a Conservative instinct that has been silent for too long: our belief that the quality of life matters as much as the quantity of money. People in Britain today don't just want to be better off financially, with decent, well-paid jobs. They don't just want public services that work. They want Britain to be a place which lifts the spirits."

Such a place, he goes on, is

"where streets and public spaces aren't filthy; where getting around isn't such a hassle".

That is the first part of the hon. Gentleman's transport policy. In a section on a dynamic economy he says:

"We must show that we understand all that needs to be done to create a dynamic economy . . . So our vision should be to help make Britain the most civilised place in the world to live."

He goes on to say:

"Public service investment—as well as reform—is vital for our competitiveness. Spending on things like education and transport is a positive good, not a necessary evil."

That is the second part of the hon. Gentleman's transport policy, but it is sad that his website finds it necessary to state that spending on education and transport is

"a positive good, not a necessary evil."

Surely, even the most ardent supporters of the Conservative party could not fail to agree that stated goals such as ensuring that

"getting around isn't such a hassle" and spending on transport

"is a positive good, not a necessary evil" hardly constitute a transport policy. I looked for salvation in the Conservative manifesto entitled "Are you thinking what we're thinking?".

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

Order. The hon. Gentleman is in danger of going down a branch line. The debate is about the Government handling of decisions relating to Railtrack and the Prime Minister's amendment to the motion. The hon. Gentleman is not speaking directly to that at the moment.

Photo of Tom Brake Tom Brake Shadow Secretary of State for International Development, Liberal Democrat Spokesperson (International Development)

Thank you, Mr. Deputy Speaker, I accept your point. It is worth, however, stating briefly that the Liberal Democrats agree with the Conservative manifesto about the need to bring

"stability to the rail network, avoiding further costly and inefficient re-organisation."

The incompetence demonstrated by the Conservative Government when they created Railtrack and privatised the railways does not exonerate Labour. The hon. Member for Rutland and Melton identified some interesting facts, including the number of miles of new railway line to be built in the next few months. In 2007, 24 miles will be completed, so I assume that this year none will be built. He also told us that just three transport projects costing £500 million or more have commenced since 1997. Things were supposed to be different, as the 1997 Labour manifesto makes clear:

"The process of rail privatisation is now largely complete. It has made fortunes for a few, but has been a poor deal for the taxpayer . . . There must be convenient connections, through-ticketing and accurate travel information for the benefit of all passengers."

The Secretary of State may wish to comment on the need for convenient connections, which are not yet available at King's Cross, St. Pancras or in the Thameslink box. They will not be available at Stratford station unless a travelator is provided. And we await progress on through-ticketing in relation to the Oyster card.

A subject that Conservative speakers have repeatedly raised in this debate is the link with the Chancellor. They have asked whether he has had an active hand in everything surrounding Railtrack and its demise. The evidence that all lines lead to the Chancellor in relation to transport policy involves not Railtrack but the public-private partnership for the tube, but I shall not dwell on that subject, Mr. Deputy Speaker, because you would probably call me to order. However, that partnership has not been a great success, and I do not imagine that the Chancellor will want to stress his involvement in it.

In a final comment on Labour's performance, I must point out that the Strategic Rail Authority was to have been the solution to these problems, and the body that would have ensured that the strategic planning infrastructure was appropriate. The Government announced the legislation to introduce the authority to great fanfare in 2000, but now, just a few years later, it has very inconveniently been disbanded, with millions having been handed over to consultants in the process.

A clear consensus is emerging that Britain's transport problems can be solved only by environmentally sustainable strategies, and that the railways will form an essential part of that solution. That is why this debate should have been about the future of the railways, not about things that have happened in the past. Those issues were examined in the court case, and the Select Committee on Standards and Privileges will consider the activities of the right hon. Member for North Tyneside, which is the appropriate course of action.

I did not agree with much of what the hon. Member for Rutland and Melton said, but I agree with him that the House is the place to redress grievances. They include those that were imposed by the decades of underinvestment in the railways—the delays, the cancellations and the overcrowding—that previous Conservative Governments inflicted on the travelling public, aided and abetted to a certain degree by the present Government. Those are the grievances that people want to see redressed today, but it is clear from the debate that people will remain dissatisfied. They will get only forced indignation and no humility from the Conservatives. The travelling public's grievances will have to be redressed on another day.

Photo of Stephen Byers Stephen Byers Labour, North Tyneside 5:27 pm, 24th October 2005

I listened with great attention as the motion was moved by Mr. Duncan. I spent just over three weeks in the High Court at the end of June and the beginning of July, and the hon. Gentleman's speech was a total rerun of every argument that was put before the court. There was nothing new in his contribution. None of the documents to which he referred was new or fresh. I think that he said that some of them had been leaked, but they were all disclosed to the public during the court proceedings. In relation to the evidence that was put before the court when I petitioned for administration, the bundle of all the documents that we put before the High Court was also put into the Library of the House by the end of October 2001. So all the details and documents have been made available to Members of the House and, indeed, to the wider public. My right hon. Friend the Secretary of State was right to say that the judge had complimented the Department on its full disclosure, including that of documents that would usually have had legal privilege attached to them and would not have been disclosed in the normal course of events.

The hon. Member for Rutland and Melton is now back in his place, and I have to say that I have had many insults in my time in politics, but to be called "weedy" by him really takes the biscuit.

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

As the judge said of the comment made by Sriti Vadera, it was a term of endearment.

Photo of Stephen Byers Stephen Byers Labour, North Tyneside

And I took it as such, as always. I was disappointed by the hon. Gentleman's contribution, however, because I was looking for some substance and detail, and something new. I am afraid that it was a rehash of the arguments that were put on behalf of the claimants in the court case, which they comprehensively lost when Mr. Justice Lindsay had the opportunity of examining their claims in detail. It really was tabloid advocacy—all headlines and no substance.

Given that the Conservatives have chosen to have a half-day debate on this issue, it is interesting to see that their priority is to re-fight the battles of four years ago, when public opinion was not in favour of Railtrack. The public now realise that what we did in putting the travelling public first, not the interests of Railtrack shareholders, was absolutely right. That was the crux of my decision. The Conservatives have never apologised for the privatisation of Railtrack. Constantly, they put the interests of 250,000 Railtrack shareholders above those of the 2.5 million who travel on our railway system every day. The Conservative party is still the same—it will always be for the few and not the many, and will always be on the margins of politics in this country as a result.

Serious allegations have been made about the conduct of the Government leading up to the decision about administration. Because of the amendment moved by my right hon. Friend the Secretary of State, however, we can also consider the nature of the privatisation of Railtrack in the first place. I am delighted that the former Chancellor of the Exchequer, Mr. Clarke, will be replying to this debate. I hope that he will explain to the House what value there was for taxpayers in his writing off £1.4 billion owed to the taxpayer so that Railtrack would not inherit the debt, thereby making it more juicy for potential shareholders. That was a bung of huge proportions from the former Chancellor—to make the privatisation fly in the markets, he made a £1.4 billion gift.

It is worth reminding the House that under the Conservative Government's Railways Act 1993, which saw the privatisation of large sections of the railway system, Railtrack, responsible for the infrastructure, was kept in the public sector. That was for a good reason: everybody realised that the infrastructure operators and licence holder had to be accountable to the travelling public, not to private shareholders. However, John Major, the former Prime Minister, desperate to unite a party that was bitterly divided over issues such as Europe—if I can say that to the right hon. and learned Member for Rushcliffe—wanted a bone of dogma to give his braying Back Benchers. That dogmatic bone was the privatisation of Railtrack, pushed through in 1996.

Every independent commentator said that it simply did not make sense to have the licence holder in the private sector, accountable to shareholders and with a legal duty to put their interests first, not those of the travelling public. The right hon. and learned Member for Rushcliffe, however, when Chancellor of the Exchequer, wrote off £1.4 billion of taxpayer's money to make that privatisation float. In addition, a £69 million surplus had been made by Railtrack while in the public sector. What did he do with it? He did not use it for schools or to employ more nurses. He held it back and then showered it over the new shareholders in Railtrack like confetti—£69 million of confetti. That money was made while Railtrack was in the public sector, when those recipients were not even shareholders. That was how generous the right hon. and learned Gentleman was when he was Chancellor.

On the fundamental point of the motion, and as the hon. Member for Rutland and Melton has made clear, had the Conservatives faced the problems that we had in 2001, he would have been even more generous. He would have said to the regulator "Get on! If you want to give them billions, that is fine by us." Billions to Railtrack, a company that was clearly failing.

Photo of Adam Afriyie Adam Afriyie Conservative, Windsor

May I ask a question to which I did not receive an answer from the Secretary of State? I have been listening carefully to the right hon. Gentleman. Does he accept any responsibility whatsoever for the plight of shareholders, especially the elderly, whose pensions will suffer?

Photo of Stephen Byers Stephen Byers Labour, North Tyneside

When I was Secretary of State, I obviously had to have regard to the interests of shareholders, which is right and proper. But, as Secretary of State for Transport, I also had an overriding consideration: the travelling public. People chose to invest in Railtrack shares, and they received the value that was in the company. That is the nature of shareholding. There was value in the company—what was it? £2.50 or £2.60 per shareholder—and it was right for the shareholders to receive that amount. That was what the company was worth.

It is for investors to think carefully about where they are putting their money. Shares can go down as well as up, and Railtrack was a bad investment for many people. There are questions that the former shareholders should be asking the directors of Railtrack.

The privatisation of Railtrack was really a last throw of the die by the John Major Government. It was introduced because he was desperate to bring his party together. It is fascinating to look back at the terms on which Railtrack was promoted to the financial sector. At the weekend, I came across the comments of one financial adviser. He said

"Railtrack is essentially a property company".

He went on

"Railway stations provide a captive audience of passengers who are all potential customers".

Because of the way in which Railtrack ran the system, the passengers were in the stations for even longer waiting for the delayed trains. That financial adviser was absolutely right: these were the captive customers for those who were trying to promote the sale.

Railtrack was sold for £1.9 billion. It was clear that it had been undervalued. When David Davis chaired the Public Accounts Committee, the Committee issued a stinging criticism of the privatisation. Commenting on why it was rushed through before the 1997 general election, the right hon. Gentleman said

"The timing of the sale was a factor in the poor value achieved".

The Department acknowledged that Railtrack

"had been undervalued and sold in haste."

That was the background to the botched privatisation of Railtrack. What sort of company was it in the private sector from 1996 onwards? In his report on the Paddington crash at Ladbroke Grove, Lord Cullen said that the company suffered from "institutional paralysis". In a recent court case dealing with the Hatfield derailment, it was revealed in the evidence before the court that Railtrack, the company that the Conservatives would have kept in business, had failed to act for over a year after being told that rails near Hatfield were badly cracked and in need of replacement. That is the company so cherished by the Conservatives; but that was the finding of the judge in the recent Hatfield court case.

The judge, Mr. Justice Mackay, went on to say that the Hatfield derailment and the neglect that was there constituted

"one of the worst examples of sustained industrial negligence in a high-risk industry I have ever seen".

That is Railtrack. That is the performance of Railtrack. The Conservatives have alleged that somehow I personally engineered the collapse of Railtrack, but the evidence makes clear that I did not need to, because of the nature of Railtrack.

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee)

Just so that I know what the right hon. Gentleman's case is when I reply to the debate, may I seek clarification? I am astonished. I thought he was a Blairite, but he seems to be saying that his conduct was based on a hatred of the privatisation—although I do not recall his talking about a need to renationalise—and that his actions constituted a punishment of the company for its past misfeasance in respect of some of its duty. Reading the papers, I rather thought that his main motives at the time were to get hold of its assets at minimum cost and at the shareholders' expense, and to ensure that the successor company kept its debts off the public balance sheet. There is no mention of this concern for the travelling public, this desire to avenge the wrongs of nationalisation or the dreadful instance of the Hatfield crash. Is the right hon. Gentleman saying that all that chicanery was aimed at protecting the travelling public and provoked by his dreadful memories of how awful the whole policy had been in 1996?

Photo of Stephen Byers Stephen Byers Labour, North Tyneside

That was an interesting intervention, although it was more of a winding-up speech. There is no chicanery here. I am sure that this was the right decision, and I am even more confident of that now than when I took it way back in October 2001. Politically, I can see the value of the private sector in some parts of public service, but I do not accept that contracting out to a private sector company that is accountable only to shareholders is the right way forward for good, high-quality public services. If we can get the private sector to work for the public service, that is acceptable. Railtrack was working in no one's interest, which is why I was not prepared to give it yet more public money when it came asking for it.

Photo of Crispin Blunt Crispin Blunt Opposition Whip (Commons)

Does the right hon. Gentleman accept that the Government have any responsibility since 1997 for the institutional paralysis that seems to have overtaken Railtrack and its board because of their perceived and open attitude towards Railtrack?

Photo of Stephen Byers Stephen Byers Labour, North Tyneside

That certainly was not the thrust of Lord Cullen's judgment when he issued his public report on the tragic crash at Ladbroke Grove. It was Lord Cullen whom I quoted earlier, and he referred not to the actions of the Government but to the nature of Railtrack itself, which was suffering from institutional paralysis.

A lot has been made this afternoon of Railtrack's not being insolvent. My right hon. Friend the Secretary of State has gone through a number of clear statements showing that Railtrack itself told the Government that it was in great difficulties. Mr. Smith, an employee and senior member of Railtrack who was the interface between the company and the Government, wrote to the Government on 16 March 2001, when shares in Railtrack were trading on the market at £8 each. He said that in the view of Railtrack and its board, the true value of those shares was 60p each. Some Conservatives argue that we, the Government, allowed a false market to develop in Railtrack shares, but that letter shows who allowed that to happen.

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

If Railtrack's insolvency was so inevitable, why did the right hon. Gentleman, as Secretary of State, threaten the regulator with a quick Bill to abolish him?

Photo of Stephen Byers Stephen Byers Labour, North Tyneside

If the hon. Gentleman can rein himself in for a few minutes—I know that he finds that difficult—I will address the matter of the regulator.

Following Railtrack's letter of 16 March 2001 about its view of the value of the shares, it produced, on 31 March, its business plan for the five years to March 2006. The judge in the case called it a remarkable document. He said that it accepted that processes for maintaining and renewing the railway to an acceptable standard had clearly been broken, and that there were no robust plans in place to live within the rail regulator's targets, even before the lessons of the Hatfield derailment. There was a significant unwillingness by managers higher up to live within budgets and plans, and the business plan could not

"be regarded as an acceptable plan in financial terms".

That is Railtrack's own five-year business plan, which was produced at the end of March.

Railtrack's audited results for the year ending 31 March 2001 appeared on 24 May 2001. For the first time, the Railtrack Group had made a loss, after taxation, of £559 million—down from the previous year's profit of £295 million. That, I would have thought, would have given a stark warning to many of the private shareholders and small investors, to whom the hon. Member for Rutland and Melton and others have referred. A gap of £3.6 billion was disclosed between budgeted income and expenditure during what is called control period 2. The projected cost of the west coast main line had increased and escalated to £6.3 billion as a result of Railtrack's management. All that led Mr. Justice Lindsay in the High Court to comment:

"It would not, in my view, be unfair to comment that a company which needed, as did Railtrack, to give very careful attention to whether its accounts could properly be prepared on a going concern basis was a company which was likely to be heading towards seriously difficult times."

That was the view taken by the judge in the High Court case.

The final piece of the jigsaw in respect of the real value of Railtrack came on 4 June 2001, when the financial brokers ABN Amro, released a circular with a selling recommendation to the market as to the value of Railtrack shares. It analysed the financial position of Railtrack in some detail and there were dire warnings. It said that investors should be in no doubt that their equity was in danger of being wiped out and that the rising levels of debt threatened to engulf the value of its regulated assets, rendering the equity worthless. The then current share price of 438p implied wildly optimistic outcomes. Based on its expectations of performance, Amro valued Railtrack's shares at 58p.

We can therefore see the financial position of Railtrack in the statements of Railtrack itself and from independent financial commentators who made it clear that the company was in great difficulties. Investors were warned to be careful in case their equity was wiped out. All the warning signs were there.

Then, of course, there is the view of the regulator. Conservative Members have made a big issue of the role played by the regulator. It was in many ways a unique privatised sector because, although regulation applied across all privatisations, Railtrack was the only privatised utility that depended on a public subsidy. Two thirds of its revenue came from taxpayers and no other regulator had the same responsibility. With the regulation of gas and electricity, for example, when the regulator makes his determinations, he is not signing a cheque on behalf of the Government. That is the difference: when the rail regulator makes a determination, it is not the shareholders or the private sector, but the taxpayer who bears the cost. We are talking about a structure that was set up under the Conservatives to make Railtrack work in the City: they introduced an independent regulator but, exceptionally, one who was using taxpayers' money to subsidise the company.

Photo of Stephen Byers Stephen Byers Labour, North Tyneside

I want to deal with Mr. Winsor's view of Railtrack, but I will give way later.

Tom Winsor was the rail regulator at the relevant time and, on the evening of 12 June 2001, he made a speech to the Institute of Electrical and Electronics Engineers, which painted a bleak picture of Railtrack. He said that the west coast main line project had not been properly worked out and that things had got steadily worse, even after the Ladbroke Grove and Hatfield derailments. He said that Railtrack could not be trusted to deliver, that its share price had fallen below the 1996 offer price and that it had lost its essential skills base of engineers. The company, said Mr. Winsor, in a phrase to which my right hon. Friend the Secretary of State referred earlier,

"should put away the begging bowl and stop spending valuable management time hawking themselves unwanted round Whitehall and knuckle down to getting train services back to a sustainable level of reliability and quality of service".

That is what Tom Winsor wanted Railtrack to do.

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

The right hon. Gentleman makes a perfectly fair point when he describes the unique triangular relationship between the rail regulator, the Government and Railtrack. We accept that, but our case is that, because that relationship was enshrined in statute, the proper conduct of Government would have required him, as Secretary of State, and others in government to form public policy properly and to come honestly to the House and not do it on the sly, as we accuse him of doing, by applying improperly for a rail administration order and trying to ignore the statutory power of the regulator. If that is not true, why would Shriti Vadera have said:

"The rail regulator is the total wild card . . . I hope we are all aware of the risks here . . . We cannot silence him over the weekend and if he stands up and says he has a grand plan which could keep the company solvent, we're up the creek."?

Photo of Stephen Byers Stephen Byers Labour, North Tyneside

I shall talk in detail about what happened but I want to address that point head on, as the politics of the decision are key.

The hon. Gentleman and the right hon. and learned Member for Rushcliffe seem to hold the view that once the Conservative Government had created this being called the rail regulator, with all his rights, responsibilities and duties, a new Government—a Labour Government in this case—could not touch him. That is the implication of what the hon. Gentleman said. The regulator was a Conservative creation, so how could the Labour Government have the audacity to unravel a Conservative privatisation?

Look at the facts that were before the court. I said clearly in court and to the rail regulator, who was acutely aware of the fact, that legislation would be needed and I would have to take it through the House and another place. Of course, that is what we would have done, had we needed to. Primary legislation would have been needed, but I have no doubt that, with my colleagues, we would have done what we needed to do if it was necessary because it was in the interests of the travelling public so to do.

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee)

For four years, the Government accepted that structure and the right hon. Gentleman well knew that it was on the basis of that structure that the shareholders had invested and held their shareholding. The only reason that he decided to legislate was to make the company go bust, at the expense of the shareholders. For four years, he had announced no intention of legislating.

Photo of Stephen Byers Stephen Byers Labour, North Tyneside

It is clearly not the case that we were legislating to make the company go bust. The court was clear about that. Mr. Justice Lindsay, talking about the evidence that he had received from the chairman of Railtrack, commented:

"In his evidence to me Mr. Robinson accepted that without government support Railtrack was unable to pay its debts and that that had been true for a long time."

That was the situation: the company was unable to pay its debts. I decided as a matter of public policy that the Government would not bail out Railtrack with yet more public money.

To secure that public policy objective, I would have had to take legislation through this place and the House of Lords, but the Conservatives somehow find it grossly insulting that, when there is a change of Government, we want to do things differently. Well, we wanted to do things differently and we did. I believe that having a company to run the infrastructure that puts the interests of the public first is far better than having a company—Railtrack—which had a legal duty always to put its shareholders first. That was the fatal flaw in the Railtrack privatisation.

Mr. Winsor was robust in his approach to Railtrack, and it was for that reason that the company came to the Government and not to the rail regulator for an interim review—the route established by the Conservative Government when they were in office. Because the rail regulator was sending out such a clear message, the company decided to try to do a deal with the Government. I can understand why. A deal was done in April 2001, when £1.5 billion was brought forward in what was described as the endeavour settlement to assist Railtrack in its financial difficulties, largely as a result of Hatfield. A deal was done with the Government. The company pleaded poverty and £1.5 billion was made available. It is interesting that, within a month, £134 million of that sum had been given out in a dividend to Railtrack shareholders.

Another key point about the April settlement is that the Government made it clear that, although we would stand behind the railway industry, we would not stand behind individual companies and that shareholders needed to be aware of that fact. Unlike what the hon. Member for Rutland and Melton said, the Government were open about our approach to the railway industry. There were to be no more bail-outs. People learned lessons after the £1.5 billion in April and we hoped that that money would see Railtrack through, but the company told us that it needed more money.

Railtrack came to the Government in strictest confidence, however, so it was not something we could make public. The company wanted help but it told us about the position in confidence. The right hon. and learned Member for Rushcliffe will know from his outside interests that companies often approach the Government on a commercially confidential basis, which is not to be made public to the stock market or anybody else. That is what happened in that case and I make no apology for it. The matter was not something to be debated openly. A company was coming to the Government in private, in commercial confidentiality, saying, "We've got these problems. Can you help us out?". As a result, we held discussions, especially from 25 July, to try to resolve the difficulties that Railtrack faced. On 5 October, I had to decide whether to give more public money to Railtrack or tell the company that enough was enough and that, if it was insolvent, it should petition for administration.

The House debated the situation extensively in autumn 2001 and two distinct decisions were taken. On Friday 5 October, there was the decision to say no to extra finance for Railtrack. We paid all the money due to the company but nothing more. Then, on the basis of the advice I received on the Sunday morning, I agreed to petition for insolvency in line with my powers as Secretary of State.

Photo of Grant Shapps Grant Shapps Co-Chair, Conservative Party

The right hon. Gentleman has made great play of the fact that extra money was going to Railtrack, but will he answer the question that has been put several times this afternoon about whether an additional £14 billion of public money went to Network Rail?

Photo of Stephen Byers Stephen Byers Labour, North Tyneside

We do not know whether it was additional because we do not know what the rail regulator might have decided in an interim review, so we cannot answer that question. However, we are now in a far better position with Network Rail, which can deliver in the public interest, as opposed to Railtrack, which had that fundamental flaw. The company was failing in management terms and it can also be argued that its structure and the way that it was set up—putting the interests of shareholders first—could not deliver for the railway. The performance figures show that the railways are on the mend. There still needs to be much improvement, but the structure that is in place and that is being built on by my right hon. Friend the Secretary of State is a far better one to deliver in the interests of the travelling public.

A specific point was made about the position of the rail regulator. Mr. Winsor was robust in his approach. He knew that I had to take legislation through this place and the House of Lords. That is why, when the Railtrack directors phoned him on the Saturday evening—incidentally, they said they were ringing him only for due diligence—he said that he could conduct an interim review, but that he did not have much time. He asked them when they wanted the money. They said, "By Monday." They wanted millions of pounds by Monday. That was the response of the Railtrack directors. Mr. Winsor indicated clearly that, although he could conduct a review, I would have to take the measure through this place and the House of Lords and that it would take time, but they did not want to know. They knew that the game was up and that Railtrack was a company that could not pay its way. For that reason, when the case got to the court on the Sunday, they waived the two-days' notice that was theirs. They could have delayed the whole thing by a couple of days to have proper conversations with the regulator. They did not do that, but waived their right to have another couple of days to try to get a deal with the rail regulator. They gave up—they did not want to know. That is what the Railtrack directors did in those circumstances.

Photo of Stephen Byers Stephen Byers Labour, North Tyneside

Of course I give way to a former Railtrack shareholder.

Photo of Anne McIntosh Anne McIntosh Shadow Minister (Foreign and Commonwealth Affairs)

As the House will recall, I took evidence on this point—and, yes, as the right hon. Gentleman says, I held Railtrack shares at the time. Why did he threaten the rail regulator? Why did he not allow the rail regulator to use the powers that the House had vested in the rail regulator under the legislation? By not allowing the rail regulator to use those powers, what message does that send to regulators in other industries?

Photo of Stephen Byers Stephen Byers Labour, North Tyneside

I appreciate that the hon. Lady has only just come into the Chamber, but we have covered that issue extensively earlier in the debate. [Hon. Members: "Answer!"] I shall repeat it all if hon. Members want me to. It is a strange logic of what democracy is all about to suggest that, because a Conservative Government have created an edifice, a Labour Government cannot come in and change it. Yes, the hon. Lady is right: the Railways Act 1993 allowed the regulator to be in place. I indicated to the regulator that I would legislate if need be for powers to direct the regulator, but I did not need to legislate—in reality, there was no need to do so. That was the situation, but it is flawed logic to say that, somehow, a different Government cannot bring legislation before the House. Mr. Winsor was aware that legislation would be necessary, which is why he said, on the Saturday evening, "The Secretary of State has said that he wants to legislate, but that will take time. I can conduct an interim review while he tries to do so." I think that the hon. Member for Rutland and Melton made that point in relation to my speech in the House in November 2001.

Photo of Adam Afriyie Adam Afriyie Conservative, Windsor

I have a very brief question for the right hon. Gentleman: why did he not act in the four years after a Labour Government were elected?

Photo of Stephen Byers Stephen Byers Labour, North Tyneside

I was the Secretary of State only from 9 June and some people say that I acted far too quickly, but the Government did act. We were trying to make the structure work, but it became very clear that that simply was not the case. That is why I took the decision. It is interesting to read the view of Mr. Justice Lindsay in the High Court, where he was taken through the arguments about my conduct. He says:

"I do not see that he", referring to me—

"or the Department can be fairly criticised for anticipating that if there was to be no funding beyond Railtrack's legal entitlement then legislation might be needed to be sure that that important policy decision could not be undermined."

That was the view of the judge in the High Court case, and we are revisiting all the arguments that were heard in the High Court at the end of June and throughout July—but, no doubt, we will hear a few more now.

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

The right hon. Gentleman is right: he would have been entitled to come to the House to try to change the law, but he was working within existing statute law. Why did he not tell the judge who granted the administration order about the powers of the regulator, who, if he had chosen to exercise them, could have staved off the insolvency that was granted in that order?

Photo of Stephen Byers Stephen Byers Labour, North Tyneside

All the relevant details were provided to the court, as far as I am aware. I refer once again to the point made by Mr. Justice Lindsay. In referring to the making of the order, he says:

"The learned judge"—

Mr. Justice Lightman—

"accepted that the Company either was or was likely to be unable to pay its debts. In his evidence to me Mr Robinson", who was the chairman of Railtrack,

"accepted that without government support Railtrack was unable to pay its debts and that had been true for a long time."

So Railtrack gave up, effectively, because its directors knew the state that their company was in.

A major public policy decision was taken to say that no additional funding should be given to Railtrack, and we met all our legal obligations.—[Interruption.] The hon. Member for Rutland and Melton says from a sedentary position, "You didn't tell us," but the right hon. and learned Member for Rushcliffe was agreeing with me when I went through the nature of a major company coming to the Government in confidence with commercial information. I appreciate that the hon. Gentleman has never held Government office—he is unlikely ever to do so—but if he consulted the right hon. and learned Gentleman, he could have explained to him what the nature of government is all about. He would find that useful. It would not have any practical application—he will never have the chance—but it might be good for his wider knowledge of the way in which government works.

Railtrack was a flawed privatisation. Railtrack was obliged to meet the needs of its shareholders. With Network Rail, we now have a far better system that can put the travelling public first and we are beginning to see improvements in the railway system as a result. When the chairman of Railtrack met the Prime Minister in July 2001, he described his view of Railtrack. I shall quote because the language may not be quite parliamentary. He said that Railtrack was "a crap company". He was absolutely right in that analysis of Railtrack.

Despite all the criticism that I have had over the years from Railtrack shareholders, aided and abetted by Conservative Members, as they have been again this afternoon, I am confident that, when I took the decision in the autumn of 2001 to say, "No more extra money for Railtrack" and to put the interests of the travelling public first, I did so after proper debate and deliberation in government. I did it with the powers that I then had as Secretary of State for Transport, and I am absolutely confident that it was the right decision to take in the public interest and for those people who travel every day on our railway network. So I make no apology for that decision and for unwinding the Tory privatisation that was Railtrack. It was failing the industry and the travelling public, and we did things rightly and properly in the public interest. That is why I will support the Government amendment this evening.

Photo of Damian Green Damian Green Conservative, Ashford 6:07 pm, 24th October 2005

It has been instructive to listen to both the current and the former Secretaries of State for Transport, who have been anxious to tell us what they did, but very reluctant to deal with why they did it, which is central to the point made by my right hon. and hon. Friends in the motion. I want to concentrate for a few minutes—I am conscious that other colleagues wish to speak—on the second half of the motion, which criticises the conduct of the Chancellor of the Exchequer's special adviser and then considers the impropriety in the formation of Government policy. That lies at the heart of the debate. As well as the hugely important issue of running an efficient railway, it is possibly even more important that we run a fair and decent Government, and the whole episode reveals that the current group of Ministers—especially the Chancellor of the Exchequer and his advisers—are not capable of doing so.

I shall concentrate on the use and behaviour of special advisers. As a former special adviser, I want to challenge the implication that the way in which special advisers' now routinely behave, which damages the reputation of the whole civil service, is in any way comparable with how they used to behave under previous Governments.

The events surrounding Railtrack illustrate that the Government no longer hold to one of their articles of faith. They have always believed that the public care only about what they do and not at all about how they do it. That theory was exploded by the Iraq war, when even some of those who supported the Government's policy were deeply disturbed by the Government's lack of candour about their reasons for taking action and, equally, by the slapdash way in which decisions are taken, which allows the lack of candour to flourish because it bypasses the proper systems of government.

What is transparent from both the files and today's debate is that the Government wanted to renationalise Railtrack. That policy could have been properly debated in the House. Indeed, that happened in other venues. That is an entirely proper policy debate. What is not proper, and what the Chancellor's special adviser in particular seems to have driven, are the efforts to renationalise by stealth and on the cheap. In particular, as we have heard throughout the debate, the Chancellor's special adviser was the driving force behind the contempt shown to Railtrack shareholders.

The audit trail is clear. On 26 July 2001, Ms Shriti Vadera wrote:

"I was thinking we need a trigger to insolvency that we decisively pull."

At the end of July she was asking in e-mails:

"Can we engineer the solution through insolvency—finding the right balance between not having triggered it and therefore avoid compensation. . . . but enough to be seen to have acted decisively".

She went on to state at the end of August that

"we have enough things to spend money on in the sector without worrying about bailing out shareholders who added no value to the company", before her now notorious e-mail describing the shareholders as "grannies".

What the e-mails illustrate is not just Ms Vadera's contempt for small shareholders—that is a matter between her and her political masters, especially, perhaps, those Treasury Ministers who purport to support an enterprise economy—but how much real power lies in the hands of special advisers who seem to have no regard for any proper process of government. Permanent officials would not write e-mails like that about a sensitive matter of public policy, because they have proper regard for the way in which advice to Ministers should be devised and presented. Under previous Governments, special advisers would not have written like that, either. It is not a matter of pedantry or trying to wrap up advice in Sir Humphrey-style obfuscation; it is a decent regard for propriety, without which even democratic government loses its legitimacy. Governments have huge power. That means that individual officials have huge power and should exercise it responsibly.

Many people would say that it is wrong to talk about officials, because Ministers take responsibility for decisions. I wish that were still the case. Under this Government, Ministers too often duck and dive and try to evade responsibility. Just occasionally, the light shines on what is going on behind Whitehall's closed doors and we discover who is pulling the strings. The Government who brought us Jo Moore and still bring us Shriti Vadera have no right to hide behind constitutional or parliamentary proprieties. The people who tore up the old rule book cannot hide behind the old rules. In this case in particular, they cannot hide behind the old rules because Ms Vadera was clearly uninterested in maintaining the structure of the rail industry, which had been left in place to ensure that a proper balance was maintained.

We have just had an interesting debate about the role of the rail regulator and Mr. Tom Winsor's interpretation of it. It was entirely in the Government's power in four years to instigate a discussion and introduce legislation. They chose not to do so. When it came to the point where they wanted to renationalise Railtrack on the cheap, they realised that he might be an obstacle, so they started threatening him. The history of that episode shows that instead of having a proper policy debate, they choose to do things behind closed doors.

It is worth analysing who lies behind this manifestation of the increase in special advisers' powers and the misuse of that power. The plans for the destruction of Railtrack on the cheap were clearly hatched in the Treasury, and the spider at the centre of the web was the Chancellor of the Exchequer. It is a little ironic, but I feel sorry for the Prime Minister, who has had to suffer public rebuke following the Butler report for his informal style of sofa government. The Chancellor is in many ways more culpable of subverting the proper processes of government, because he is characteristically more thorough, more rigorous and more focused than the Prime Minister when he sets about subverting the processes of proper government.

The Chancellor's special adviser in this case was assiduous in pulling together and forcing through the policy that led to the collapse of Railtrack. To return to my first point, such behaviour on the part of a special adviser was unthinkable under any previous Government of any party. Special advisers are in a privileged position and should recognise that that brings responsibilities. That has clearly not happened in this case. Even more importantly, senior Ministers who appoint and employ special advisers should make it clear to them that they are expected to meet the highest standards of propriety—the standards that all of us expect from permanent officials. It is plain that the Chancellor does not expect or encourage his special advisers to meet those high standards.

All that is a most serious charge to lay at the Chancellor's door. He aspires to be Prime Minister. In that role he would be responsible for the conduct of all his Ministers. Why should Ministers or special advisers respect the rules when the Chancellor of the Exchequer holds the rules in contempt? The Government's conduct over Railtrack stinks, because those at the very top of the Government do not care about using their power in a proper, decent and fair way. For that they should be ashamed.

Photo of Grant Shapps Grant Shapps Co-Chair, Conservative Party 6:15 pm, 24th October 2005

I am the Member of Parliament for Hatfield. I was in Hatfield on the day of the crash and have followed the goings-on with great interest as a result of the immediacy of the case to me. I pass the memorial at Hatfield almost every day and am familiar with the issues of the cracked corner rail, which led to that tragedy and the four deaths.

This, however, is not a debate about Railtrack and whether it was a good or bad company. This is a debate about the way in which Railtrack was renationalised on the cheap. That is the only subject of the debate, and all the contributions that we have heard this afternoon from the Government Benches about how it was something to do with the success or otherwise of Railtrack are red herrings. They are irrelevant to the case. I have been in business for the past 15 years. It is a company limited by guarantee, so there are shareholders. The idea that a Government can take away those shares without due process and, in this case, without reference in advance to Parliament, is appalling. That is exactly what happened.

Photo of Stephen Byers Stephen Byers Labour, North Tyneside

The hon. Gentleman stated that the Government took away the shares of those who held shares in Railtrack. To ensure that he is not misleading the House, will he reconsider what he said? He will know that Railtrack shareholders got £2.50, I think, or £2.60 each, so they got the value in the company. The Government did not take away any shares from Railtrack shareholders.

Photo of Grant Shapps Grant Shapps Co-Chair, Conservative Party

Indeed. I am grateful for the right hon. Gentleman's intervention. Earlier, he told us that he thought shareholders got £2.50 or £2.60 when the company went into administration. I can tell him that the shares were at £2.80 when he effectively put Railtrack into administration, and the shareholders were compensated at just £2.50. I am happy to correct that assertion and to cover another point that I wanted to mention about the right hon. Gentleman's contribution.

Make no mistake: this is not an argument about whether we think Railtrack was a good or a bad company. It is not even an argument about whether we think the directors of the company were running the company correctly. There is well established company law to deal with all those matters. If the company was trading insolvently, just as if my company were trading insolvently, there are laws to deal with the directors in such instances. It is not good enough for the Government or the former Secretary of State for Transport, Local Government and the Regions to say that because the company was inefficient, or even if the company was in some way acting incorrectly in a legal sense, the only choice was to force it into administration, yet that is exactly what happened. The critical point is that it happened without reference to the House.

The same argument is used about the independent rail regulator and the idea that he could not have been approached differently. We have heard about the e-mails that were flying about. In one, the Government were concerned that the rail regulator might thwart them, and they considered the Office of the Rail Regulator a "total wild card". In the e-mails of September and October 2001, the Government said that if they could not silence the regulator, and if he stood up to them, the plan to keep the company solvent would be "up the creek". In other words, the right hon. Gentleman feared the rail regulator.

Time is short and it is important that we allow for sufficient summing up on both sides. As we have seen from today's debate, the project code-named operation Ariel was anything but whiter than white.

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee) 6:19 pm, 24th October 2005

It gives me great pleasure to make one of my occasional guest appearances at the Dispatch Box.

I have followed the Railtrack case since the evidence in the court case first began to reveal to the public exactly how the whole process came about. One of my key interests in politics during this Government's period in office is the way in which standards in public life have been reduced and the way in which the Government have changed the decision-making process. In the past eight years, most of the proper process has been subverted by the way in which new Labour operates, of which the Railtrack case is a prime example—indeed, it is the best example that we have seen so far, because of all the evidence that has come out.

When the evidence on the Railtrack case came out, it did not get the publicity that it might have received because it followed the tragic London underground bombings. Then we had to wait for the judge to pronounce on whether the then Secretary of State was motivated by personal malice towards the shareholders. Today, the Government are trying to evade responsibility by introducing general arguments about the privatisation of the railways and the competence of Railtrack's directors, whom I will not defend. They are avoiding not only the decision itself, but the very way in which the decision was taken and the processes by which the ultimate insolvency occurred and the situation we face today arose.

This Government took over eight years ago, and they have changed the way in which the Government operate, to the detriment of good decision making and the proprieties of public life, such as openness to the public and accountability to this Parliament. They no longer follow any proper system of Cabinet government, collective responsibility or recorded open decision making. I have been through all the papers and, so far as I can see, no Cabinet paper was ever produced and most Ministers, including most members of the Cabinet, had no idea what was being planned. That is a classic example of informal decision making on the sofa of one Minister or another. The only people who had the first idea what was going on were the Prime Minister, the Secretary of State for Transport and his then colleagues and, crucially, the Chancellor of the Exchequer, who played a key role throughout.

Meetings were unminuted, and many departmental officials did not leave their fingerprints behind. Fortunately, not only were one or two minutes kept, but a series of extremely reckless and unsuitable e-mails went flying between Departments. The former Secretary of State has said that the Department willingly produced some of the information, when the whole ghastly tale began to be revealed.

This Government do not follow any of the normal rules of parliamentary accountability. We have just heard Mr. Byers discuss his intention to legislate, to which I shall return in a moment. This House was never informed about any Government plan to legislate to take away the independent regulator's powers. Indeed, when the report of the court proceedings was recently released, it came as a revelation to all hon. Members and to most Ministers.

In my opinion, the best example of the absence of parliamentary accountability is the lack of any appearance by the Chancellor of the Exchequer or even, so far as I have observed, any Treasury Minister. The Opposition motion is extremely critical of the Chancellor of Exchequer, because his special adviser orchestrated the policy and because he was mainly responsible for the way in which the Government planned to restructure Railtrack. I cannot remember a Minister who, having been personally chastised by a motion on the Order Paper, did not bother to stick his nose around the corner of the Chair, and it will be interesting to see whether his name appears in the Division list.

In my opinion—I am sorry to give this news to anyone who has not heard it—the Chancellor of the Exchequer will be the next Prime Minister of this country. Under the present Prime Minister, standards of parliamentary accountability have declined to a quite unacceptable degree, but I fear that the next Prime Minister will make the present one look like a democratic saint. The next Prime Minister is a control freak who disdains any criticism on the Floor of the House of Commons and leaves his colleagues to look after such matters for him.

One of the worst things that has been revealed by this case is the undermining of the independence of the civil service and the misuse of the role of special adviser—a subject on which I have previously made entire speeches. The Government always promise to introduce a civil service Bill to restore the independence of the civil service and to protect the civil service when it is made to do things of which it doubts the wisdom; unfortunately, the legislative programme never includes enough time in which to introduce it.

The special advisers in this case acted in an extraordinary manner. I will not repeat all the allegations against the special adviser to the Chancellor of the Exchequer, but she is obviously a formidable lady and she played a leading role. I pity the unfortunate officials in the then Department for Transport, Local Government and the Regions who had to contend with Jo Moore, who is, by all accounts, a very difficult lady, and who ended the ministerial career of the right hon. Member for North Tyneside for the time being.

The Chancellor's special adviser was also obviously regarded as extremely formidable. When she summoned meetings, all the officials attended, and when she gave guidance on the Treasury's view, it was followed. The right hon. Member for North Tyneside, who at least has the courtesy to smile, must remember the times when he wondered who was in charge of his Department. He had to take instructions from the people who came to see him from the Treasury.

Many of my hon. Friends who are present in the House tonight were formerly special advisers to Conservative Governments. I can see five former special advisers, and two of them were special advisers in the Treasury in my time. All those hon. Members will confirm that they would have been sacked if they had behaved like that. If my hon. Friend John Bercow, who was a special adviser in the Treasury, or my hon. Friend Mr. Ruffley, who was also a special adviser, had sent such e-mails to the Department for Transport and had addressed the Secretary of State and his officials in the same way as the current Chancellor's special adviser, they would have been sacked. However, I would have expected any half-decent Secretary of State for Transport to have thrown out the Chancellor's special adviser and sent her back to the Treasury. When the Chancellor wants to issue instructions, he should have the courtesy to call a meeting and issue them himself.

What were those instructions, and what was the Government's motive? The right hon. Member for North Tyneside has attempted to evade the whole point of the debate. He relies heavily on the fact that the court found in his favour, but it did so because the shareholders had to climb the extraordinary mountain of seeking to demonstrate that he was acting out of a sense of personal malice against them, which they failed to do. The court expressly left open the politics of the matter, and I do not think that a court was the right place to determine the proper conduct of government, the parliamentary process and other things.

I have no personal malice against the right hon. Member for North Tyneside, but he cannot escape either on the grounds of the court judgment or on the evidence he cited, where he was just being disingenuous. He says that he was motivated by a concern for the travelling public, but they are not mentioned—there is not even a passing reference—in the e-mails. [Laughter.] Suddenly, he remembered Hatfield and Ladbroke Grove. There is nothing in the papers about punishment being imposed for the undoubted lapses in maintenance standards at Hatfield and Ladbroke Grove. He talked about how much he resented having the legislation, which was not his creation, that gave the regulator his role, and how it was really all the Conservatives' fault that that was there in the first place. He is a Blairite—a pro-privatiser. When the privatisation of the Royal Mail is proposed, if the Government can sort it out, he might even agree with me on that—I have no idea. During all his years in government he never showed the slightest interest in renationalising anything. For four years, his Government were in office and did nothing whatever to change the structure that they had, including the role of the independent regulator.

Let us have none of this. The right hon. Gentleman and Ms Vadera were not driven by a sense of concern for the travelling public or by a sense of outrage at the evils of privatisation or the rail accidents that had occurred. They were interested in two things. The first, which we have not touched on today and is the subject for a much wider debate, is the Chancellor's overriding concern that the new body that was to be set up should be off balance sheet. That is why it failed and every other device failed. The thing that the Chancellor was most concerned about personally was that it should not appear on the books and that any future debt should be totally off balance sheet.—[Interruption.]

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee)

It is impossible to deny it: it is set out time and again as a given. There were 10 commandments, but one was the most important of all—"We must not have an honest Red Book; the public accounts should not reveal the truth about this creature we are going to set up called Network Rail"—and that had to determine everything. If the Chancellor had come here today, we might have had a go at him about this: given that he makes all these speeches about the need to have genuinely independent statistics of value and the importance of having an independent office, what on earth is he doing bullying the Office for National Statistics to reach, as it eventually did, the absurd decision—which no other statistician I know agrees with—that the current debts and liabilities of Network Rail should not be on the public balance sheet? The only reason the Chancellor is able to say that he is following his prudent borrowing rule is that £20 billion-worth or thereabouts of current Network Rail liabilities are shown as being in the private sector—at least, they are not included in the public debt and are never used when the Chancellor describes his actual fiscal position.

So the Government's first main motive was to keep any debt off the public accounts—that drove everything and virtually stopped any other solution being chosen. The second, and the one that caused all the concern after the case, was that they must get hold of the assets of Network Rail either free of charge or at minimum cost, at the expense of the shareholders. That is what makes this example of abuse of public power particularly bad. All of us politicians, and anybody with a concern for public life, wish to see Cabinet government, the independence of the civil service, and proper accountability to Parliament. Those are very important constitutional issues. Sometimes the victim is public interest generally, and the problem is one of the proper administration of affairs. In this case, people were the victims—the shareholders whose assets had to be acquired, at minimum cost. The shareholders—I will not repeat the quotes, as they have featured often in the debate—were treated with total contempt, even being described by the Chancellor of the Exchequer's special advisers as grannies who would lose their blouses. The special advisers did not often mention the railwaymen. Ninety per cent. of the staff of Network Rail had shares in their own company. They were the shareholders. Conservative Members have been accused of being more concerned about 250,000 shareholders than about the travelling public. A quarter of a million of our fellow citizens—not all of whom were small shareholders, but very many of whom were—were to have their assets taken from them at the very minimum cost to the Treasury. All these heaps of paper are taken up with constant contrivance to achieve that result.

Photo of John Spellar John Spellar Labour, Warley

Does the right hon. and learned Gentleman accept that the share price of Railtrack had dropped dramatically—to £2.80, as I recollect—as a result of the ineptness of the management? In fact, the shareholders got £2.50, having estimated in March that the actual value in the company was only 60p a share. How were they being robbed?

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee)

They were obviously wrong in March. Everybody seems to have left to try to work out what assets would be available if the company was wound up. The price did go down to £2.80, which was below the level that the company had been floated at. It had at one time been £17. The fact is that we will never know what the value of the company would have been if the proper process had been followed. I shall turn to that in a moment.

This company was not insolvent. We do not know what would have happened if a proper financial review had been conducted, because the right hon. Member for North Tyneside did not allow it.

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee)

I will give way in a moment, but I am about to move on to the key question, which the right hon. Gentleman has not answered. Before asking me his question, will he agree that the main aim was to get the company into insolvency—that is repeated time and again—and to get the assets at low value? Can he find any expression of concern for the shareholders in these documents, apart from the fear of class actions in the United States—the Government were very worried about the American shareholders, who are litigious—and the fear of the institutional shareholders, who decided to cut their losses and bale out? If he will answer that, I will answer whatever question he wishes to ask me.

Photo of Stephen Byers Stephen Byers Labour, North Tyneside

I know that the right hon. and learned Gentleman—[Hon. Members: "Answer!"] I am going to answer his question in two parts. First, he should read the judgment to see what the judge says about the way in which the term "grannies" was used; he is very clear about that.—[Laughter.] It is interesting that Conservative Members have obviously not read the judgment.

Secondly, the right hon. and learned Gentleman—this is the point on which I tried to intervene on him—is saying that taxpayers' money should have been used to give value to Railtrack shareholders. He must recognise, as the architect of Railtrack, that the regulator gives taxpayers' money as a result of any interim review, so he is saying, on behalf of the Conservative party, that taxpayers' money should have been used to increase the value of Railtrack shareholders.

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee)

On the first point, I concede that there are occasions when the word "grannies" can be used as a term of endearment, but it is not my interpretation that that was the tone being adopted by the Chancellor's special adviser.

On the second point, the right hon. Gentleman is misinterpreting what we are saying, as he and his right hon. and hon. Friends have done throughout the debate. We are not saying that if there had been a Conservative Government we would have put in a whole lot of money that the Labour party would not have put in. We are defending the then legal position of the independent regulator, which was undoubted. It was not for the Secretary of State to decide whether the company was solvent or received any income. We had legislated, I agree, for a situation whereby it was not a decision for the Secretary of State. The regulator had a statutory duty to make provision for these things. The whole basis upon which Railtrack had been floated was that of investment in the company by the shareholders. Of course the shareholders took a risk, but their measurement of that had to be based on what the judgment of the statutory regulator might be. That was the law—the right hon. Gentleman had made no attempt to change it. He acted because he feared that the powers of the regulator would stop him proceeding to his chosen route of insolvency.

Photo of Stephen Byers Stephen Byers Labour, North Tyneside

Will the right hon. and learned Gentleman confirm that, in line with the structure that he helped to create, the trigger for the review would have been a request from Railtrack's directors? If so, will he concede that they made no such request?

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee)

That is poor mitigation. The right hon. Gentleman is accused of a crime—I use the word loosely; he is accused of an offence—yet he says, "I now realise that I needn't have done it." It is surprising that Railtrack did not resist. As I shall show, it was offered the opportunity to resist but it did not take it. It amazed the Government and it slightly amazes me that Railtrack did not challenge the administrative order. The right hon. Gentleman did not expect that; that is not what he was warned it would do.

Let me make it clear again: I do not defend the board of Railtrack. Those who say that the shareholders and the travelling public have cause for complaint against the board of Railtrack have some grounds. It was in a lamentable state and I accept that any Government would have been obliged to consider restructuring the company to put it on a sounder footing, and to decide what had to be done to make the privatised railway, which the Government continue to run, work better. We are arguing about what they did and how they did it. They chose the route of insolvency and subsequently realised that they did not have the legal power to make the company insolvent because all the relevant powers were in the hands of a regulator.

The Government held all sorts of private discussions. The lady from the Treasury pointed out that the regulator was the truly wild card. We have heard about all the connotations and how it was made increasingly clear to the Government that the chosen route of insolvency could be stopped by Tom Winsor, the regulator. They were discussing his, not their powers. The then Secretary of State for Transport cooked up the idea of legislating to take away the regulator's powers to make any decisions about the company's financial state or to give it any financial support. That was catastrophic. The regulator's decisions determined 90 per cent. of Railtrack's revenue. The train operators paid it for the use of the track and the signalling, and the regulator determined the amount. He had wide powers to undertake a financial review. The Government decided to make the company insolvent because that was the cheapest way of proceeding, but suddenly became aware of the existence of a truly wild card—a guy who had the legal power to do something about it.

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee)

I shall do so for the last time because I do not want to detract from the main point.

Photo of Alistair Darling Alistair Darling The Secretary of State for Scotland, The Secretary of State for Transport

I am grateful. I allowed the right hon. and learned Gentleman to intervene in my speech on several occasions. Is not his problem the fact that Railtrack knew that it was insolvent? It unquestionably could not pay its debts. It had been telling the Government for six months before October 2001 that it was in deep financial trouble. It might have wanted to approach the regulator, but not to get a second opinion about whether it was insolvent. The only reason for going to the regulator was to get barrel-loads of public money to stop it being insolvent. For that reason, the right hon. and learned Gentleman's argument falls down. We are not considering a company that was solvent in October 2001. By its own admission, it could not pay the debts and it wanted "millions of pounds by Monday morning". It could not get that.

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee)

It was for the regulator to decide whether the company was insolvent. Railtrack knew that as well as the then Ministers. Railtrack despaired of following that route. Regardless of what it requested, it was up to the regulator to decide whether to give it anything. The regulator was independent and had rightly been severe about Railtrack's past performance. However, the route of approaching the regulator was cut off.

The former Secretary of State has no answer to the question of why he got, in a meeting, the Prime Minister's personal authority to legislate, unless he feared that the regulator would produce a financial arrangement that would block the insolvency. There was no need to ask the Prime Minister for legislation if the regulator intended to do nothing. There was no need to contemplate emergency powers if Railtrack had accepted that it would not approach the regulator. The only reason for the device was to force an insolvency that the regulator might have stopped.

The former Secretary of State told the regulator of his intentions only on the Friday before the Sunday when he made the application for the insolvency. I shall read the judge's account of the evidence that was given about the meeting with the regulator when the then Secretary of State told him of his intentions. Tom Winsor said

"that Mr. Robinson's reaction would be likely to be an immediate application for an early interim review. Mr. Byers said that that had been thought of and that if such an application were made he had the authority (as he had) of the Prime Minister and Chancellor immediately to introduce emergency legislation to entitle the Secretary of State to give instructions to the Regulator. Mr. Winsor pointed out what adverse effects such legislation would have not just on railway financing but on regulated industries generally. He spoke, too, of implications under the Human Rights Act. He made no headway; Mr. Byers said an application to put the company into Railway Administration would be made on Sunday."

The regulator was told that if he acted he would be sacked and that, even more important, his powers would be taken away. That makes it clear that there was only one motive: to ensure that he could not undertake a financial review and the company could not be rescued.

Railtrack rolled over on the Sunday. It did not oppose the administration. By that time, it was disheartened, but the regulator had tried to stiffen its resolve. By Saturday, Mr. Winsor was talking to the chief executive of Railtrack. The judgment states:

"Mr. Winsor, on the subject of the threatened legislation, pointed out that it would take time to be passed and was a difficult card for the government to play. It would be likely to be resisted by reason of its effect on other regulators and other regulated industries. It would be hard fought and might not be passed at all, but, despite that, Railtrack showed no interest. He suggested that they might call the government's bluff but Mr. Robinson just repeated that the government would do it."

The unfortunate Mr. Robinson had lost heart and despaired. He considered a financial review and was told that the Government would legislate to remove the regulator's power and that there would be no review. The independent regulator invited him to call the Government's bluff because it would not have been easy to get the measure through the House. However, it was lucky for the right hon. Member for North Tyneside and the Government that Railtrack had finally had the stuffing beaten out of it. It was presented with a pistol but it did not fire it. It agreed to administration and the victims were the shareholders—the people who never discovered what the value of their company might have been. The scheme of putting the company into administration had been successful because the people in charge of Railtrack would not ask for a financial review. When told that the Government would legislate, they despaired.

It is a sorry and disreputable story. It shows the process of government being subverted and misused. It shows motives that would never have come to light without the litigation. Only when the shareholders came to court did anybody know anything about the stage-by-stage discussion, planning and plotting that had gone on between a few people to produce such an appalling result. That is why we have tabled the motion and why the debate is important.

Sooner or later, the style of government must be improved. When the current Chancellor becomes Prime Minister, my red hot tip for his successor is the current Secretary of State for Transport, who led for the Government in the debate. I hope that he raises the standard of government by an inch or two. To be fair to him, he did not defend all the processes that had been used; he tried to defend only the decision.

To show that the matter is not simply a bee in the bonnet of Conservative politicians, I shall quote the comments that Simon Jenkins made in The Sunday Times on 17 July, when the judgment came out. [Interruption.] He is an independent commentator. He has said rude things about me in the past month or two, and about many other hon. Members. It is no good groaning about independent critics. He is also careful what he says:

"The case is of massive significance to the integrity of British politics. It is the common man against Leviathan, the evidence portraying squirming ministers, bullying officials, money beyond dreams of avarice, chicanery and lies. Laid bare have been the inner workings of Tony Blair's courtier style of government. The Scott inquiry into arms-for-Iraq was small beer in comparison. The case tells us more about Whitehall's view of the world than ever did Hutton. It deserves a Spielberg movie to itself."

I cannot say that that is overstated. I do not think that it is understated, either. We have had an opportunity, because of the court case, to see the veil ripped away and to see what actually happens in the new Labour Government when they handle a controversial decision. It is not a pretty sight. The Government should not escape censure for that, nor should the then Secretary of State for Transport, Local Government and the Regions. But the person who should be held responsible above all for this dreadful mess is the Chancellor of the Exchequer.

Photo of Stephen Ladyman Stephen Ladyman Minister of State, Department for Transport 6:50 pm, 24th October 2005

Finally, with Mr. Clarke, we have at the Dispatch Box one of the real authors of the Railtrack misfortune. The party that says that it wants to look forward has given us a perfect opportunity to examine its past and rolled out one of its crustiest dinosaurs for us to have a look at. But the fact that the dinosaurs could roar did not mean that they were not finished.

There was not a word of apology from the right hon. and learned Gentleman. We did not hear a word about his role in the creation of Railtrack.—[Interruption.] We did not hear a mutter of regret from any of the sad remnants of the Major Government who are sitting on the Front Bench today; I can see at least three of them. There was not a breath of apology, not a murmur of regret, so let me start by putting the record straight.—[Interruption.]

Photo of Sylvia Heal Sylvia Heal Deputy Speaker

Order. The House must come to order.

Photo of Stephen Ladyman Stephen Ladyman Minister of State, Department for Transport

The disaster that was Railtrack had its origins in the botched privatisation of the railway system, for which the Government whom the right hon. and learned Gentleman served were totally responsible. It was a disaster born of a feckless, economically illiterate and weak Government who were determined to force railway privatisation on the nation, whatever the price. As the price mounted, did the right hon. and learned Gentleman, who after all became Chancellor of the Exchequer before the privatisation was complete, once count the price? When he became Chancellor and the sale was being forced through before the general election, did he put his foot down and block the bargain basement disposal of national assets? Not at all. On the reorganisation of Railtrack, he was silent. When railwaymen and engineers were being elbowed from the board and replaced with retailers and property men, he did not utter a word to stop it—not a murmur.

In an intervention, the right hon. and learned Gentleman said that, when he was in office, things would not have been done as they were done by this Government. He said that the Conservatives would have convened a Cabinet Committee and exchanged ideas in memos. Did those memos and those Cabinet Committees stop the disaster that was Railtrack? Instead, that Government and that Chancellor pushed ahead. If anyone has lost money on Railtrack, if railway travellers wonder why rebuilding the railways has taken so long, and if taxpayers want to know why so much money went into the pockets of Railtrack for so little return, they need look no further than that Conservative Government and the right hon. and learned Gentleman. If they want to know what the Conservative party would have done in the same circumstances, they need look no further than the comments of Tory Front Benchers—[Interruption.]

Photo of Stephen Ladyman Stephen Ladyman Minister of State, Department for Transport

Nor from Tory Front Benchers was there a word of regret. There was none of the humility that Tom Brake suggested we should see from them. They have made it clear that, in the same circumstances, they would do what they did then, all leading to today's master-class in denial.

My right hon. Friend Mr. Byers reminded us of the state of the railways at the time. He reminded us that the neglect of those railways led directly to Hatfield. Not only was Railtrack insolvent, but it was not even fulfilling its basic obligations to maintain the railway.

Damian Green alleged that we wanted to renationalise, but provided absolutely no evidence of that. He mentioned special advisers. The role of such advisers was dealt with in some detail in the judgment, but time and again, Conservative Members said that those advisers were not considered in the judgment. I do not think that they have read it. They were dealt with in detail and that judgment vindicated the Government every step of the way.

On the matter of advisers, I quote directly from the judgment:

"Until a policy decision is made, at which point the government can be expected to present a united front in support of that policy, there are likely to be very different and often conflicting arguments within the several ministries or departments likely to be affected by the decision . . . One can thus expect, before a policy issue becomes a decision of government, that Ministers will be found to be expressing very different views as the prospective policy is thrashed out. Still less, at that or any stage, will views expressed by Ministers' respective Special Advisers be the views of government rather than their commonly being their individual attempts to argue their corner in support of what they know to be or what they hope to be their Minister's inclinations or with a view to leading the Minister to the inclination which the Special Adviser prefers."

It is clear that the judgment specifically dealt with the role of special advisers.

Grant Shapps mentioned that he was a director of a small business and said that its shareholders would be horrified at the idea that Government could take away their shares. The Government did not take away the shares of those who invested in Railtrack. Those shareholders were paid between £2.50 and £2.60 for each of their shares.

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

If insolvency was absolutely inevitable, why did the Government try to intimidate the rail regulator and threaten him with abolition?

Photo of Stephen Ladyman Stephen Ladyman Minister of State, Department for Transport

Insolvency was not only inevitable, it was a fait accompli because the directors of Railtrack themselves had admitted that the company was already insolvent. That comes out of every page of the judgment. It comes out of every page of the witness statements. It comes out of every page of the bundle of evidence provided to the courts. What comes out of every single page of the judgment is that the Railtrack directors understood themselves that the company was already insolvent. They even had a document that told them that, when the company shares were trading at £8, they were worth just 60p. They even got a letter from one of their own advisers saying that 60p was an exaggeration and that the shares were actually worth 58p. The Government did not make Railtrack insolvent—it was insolvent all along.

Indeed, post Railtrack being put into administration, the Government did act, when restructuring the industry, to provide £500 million for the shareholders of Railtrack, so the idea that we took away the shares and—

Photo of Stephen Ladyman Stephen Ladyman Minister of State, Department for Transport

I have no time. I am sorry. The right hon. and learned Member for Rushcliffe was only supposed to speak for 20 minutes, but like all his promises when in government, he broke that one, too.

I put it to the hon. Member for Welwyn Hatfield: what role does he think directors take in running a company? Whom should shareholders blame when things go wrong in a company? If his company went into insolvency, would he think that he had a right to go to his major customer and demand that it provide more money in return for no more services, just to keep his company going? Of course he would not.

As we have heard, the judgment is a complete vindication of the Government's position. After weeks of evidence and weeks of cross-examination, the judgment found—[Interruption.]

Photo of Graham Stuart Graham Stuart Conservative, Beverley and Holderness

Was gibberish a compliment, then, on the part of the judge?—[Interruption.]

Photo of Stephen Ladyman Stephen Ladyman Minister of State, Department for Transport

I am sorry, but I could not hear what the hon. Gentleman said because his Conservative colleagues were making so much noise.

The Government were right to put their contingency plans in place, and the idea that the Government should have funded Railtrack without limit and conditions was, in the judge's own words, a "hopeless proposition". The judge described what was the reasonable perception in Government of Railtrack in 2000 and 2001:

"It was seen as 'frankly a mess', with weak management at the zonal levels. It was pilloried in the Press for bad management. It had difficulty even in funding the necessary regular maintenance. It had major projects without the skills to manage them. It was being ground down by the Regulator (so said its own advisers)."

It was not the Government who sought not to go to the regulator. It was Railtrack itself that proposed to the Government that they should bail it out by giving it unlimited money, and freedom from the regulator for four years. When putting those plans to the Government, it insisted that the regulator should not be told about them.

The directors of Railtrack were directly responsible for the management of their company. The Opposition Front-Bench spokesmen and the remnants of the Major Government need to take responsibility for the fact that they put incompetent people on the board of that company, which led directly to its collapse and to the problems that we have experienced in the rail industry. The Labour Government have been vindicated, every step of the way, by the judgment. I suggest that we regard the Conservative motion in the same way as the judge described the shareholders' proposition: it is a preposterous idea.

Question put, That the original words stand part of the Question:—

The House divided: Ayes 174, Noes 343.

Division number 65 Railtrack

Aye: 174 MPs

No: 343 MPs

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Question accordingly negatived.

Question, That the proposed words be there added, put forthwith, pursuant to Standing Order No. 31 (Questions on amendments):—

The House divided: Ayes 323, Noes 176.

Division number 66 Railtrack

Aye: 323 MPs

No: 176 MPs

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Question accordingly agreed to.

Photo of Sylvia Heal Sylvia Heal Deputy Speaker

forthwith declared the main Question, as amended, to be agreed to.

Resolved,

That this House welcomes the judgement in the recently concluded Railtrack court case which, after weeks of evidence fully tested by cross examination, completely dismisses the claimants' allegation of wrongdoing on the part of Government; further welcomes the fact that the judgement exonerates entirely the way the Government responded to its growing concerns about Railtrack's financial position and the propriety of the process that led to Railtrack being put in Administration, including the Government's stance in relation to the Rail Regulator; notes that the judge described Railtrack's request for unlimited public funding and support, which was made in part to maintain its share price, as a "hopeless proposition"; and that there were good public reasons for the policy developed; congratulates the Government for bringing under control the situation which resulted from the previous Government's botched privatisation and putting ownership of the track into the hands of a not-for-dividend company operating in the broad public interest; and recognises the significant progress that is being made by Network Rail in improving performance on the railway and in bringing costs under control, in stark contrast to the management incompetence shown by Railtrack.'.