Clause 4 - Use of access charges reviews for

Railways Bill – in a Public Bill Committee at 10:00 am on 16 December 2004.

Alert me about debates like this

Question proposed, That the clause stand part of the Bill.

Photo of Greg Knight Greg Knight Shadow Minister (Environment, Food and Rural Affairs)

As the Committee will see, the clause is not particularly enlightening. It merely gives effect to schedule 4. I therefore have a choice as to whether I should state our views about schedule 4 when we come to it or speak now, because the clause implements that schedule. I think that it would benefit the Committee if I set out our views at this stage, before we get into a more detailed debate on the schedule.

The clause relates to the independence of the regulatory authority. There has been some comment in the press saying that that independence is under threat. I do not believe that independence is the major point. The major point is the jurisdiction of the regulatory authority; in other words, what that authority can do, unfettered by interference from the Government. The Secretary of State's insistence that the ORR will remain independent is to some extent missing the point. It is the scope of its jurisdiction that we should be worried about, because the Bill seriously undermines it, which could jeopardise private investment in the railway industry and in other independently regulated authorities.  

The word of the British Government is at stake in their dealings with the private sector, and I hope that the Minister will say how he intends to square what he proposes to do in the Bill with the statement that the Secretary of State made to Parliament in February in answer to a written question tabled by the hon. Member for Scarborough and Whitby (Lawrie Quinn). I look forward to hearing the Minister's reply, because the two statements—the written statement of the Secretary of State on 9 February and the contents of the Bill—cannot be reconciled.

The power to carry out an access charges review—an assessment of the financial needs of Network Rail for the competent and efficient stewardship of the network—is the regulatory authority's most important function. It gives Network Rail, freight and passenger train operators, rolling stock lessors and suppliers, and infrastructure, maintenance and renewal companies the necessary certainty and security that the provider of the national infrastructure, Network Rail, will have enough money for the competent and efficient operation, maintenance and renewal of that infrastructure for five or more years at a time.

In carrying out an access charges review, the ORR is required to apply an important list of statutory criteria, such as the promotion of efficiency and economy in the industry. It is also required to consider the interests of freight and passenger users of the railway, and the growth and development of the industry. It is not allowed to apply political criteria, because it is recognised that the application of short-term political considerations will be detrimental to private sector confidence. So the establishment of independent economic regulation free of political controls has been shown to be essential to private sector confidence and investment in every privatised industry, including the railways. It is that confidence and investment that finally assures the industry of a bright future and gives investors confidence.

The Government have accepted that principle. One of the first things that they did on coming to office in 1997 was give independence to the Bank of England, but they now appear to be refusing to sustain the same principle in the case of the railways, and I ask the Minister why. Until this Bill was introduced, the Office of Rail Regulation or the Office of the Rail Regulator that it replaces had the right to make that assessment and set access charges accordingly.

Under the franchise agreements between the Government's agent, the SRA, and the private sector passenger train operators, the train operators are entitled to indemnities from the Government against any increase in access charges that may be determined by the independent regulatory authority. Those indemnities are extremely important; they are essential parts of the bargain that the state made with the private sector. They are not limited in amount, so they provide that the state will keep the risk associated with the uncertain condition of the assets of Network Rail; the state takes the risk. It was on the basis of that indemnity that the private sector came into the railway industry, and in my judgment, it is on the basis of that indemnity that it is willing to stay in the industry and continue to invest. That is a   fundamental part of the relationship and it should not be interfered with as the Bill proposes.

When the last rail regulator decided in December last year on a £7.4 billion increase in Network Rail's income for 2004–09, the Secretary of State publicly welcomed the decision. He confirmed, as he was legally bound to do, that the Government would honour the indemnities in their contracts with the private sector operators. However, I suspect that while that was going on, the Treasury was very unhappy with the fact that the rail regulator's decision had consequences for it. In essence, it was not happy about the indemnities.

What do the Government propose to do? They cannot dishonour their contracts of indemnity, of course, because private sector operators would be entitled to enforce those contracts and the Government would have no defence against any case. It appears that the next best thing as the Government see it is to limit the jurisdiction of the independent regulatory authority, or in effect to cap the indemnities by legislation. That is what proposed paragraph 1G under schedule 4, to which clause 4 gives effect, seeks to do. Paragraph 1G provides that the ORR may raise access charges at an access charges review only to the limit imposed by the Treasury. The limit is stated to be the public financial resources available.

That is a serious interference in the contracts that the state has made with the private sector; it is a unilateral watering down of a valuable provision that the Government now find uncomfortable. It is an amendment without compensation to the private sector operators, whose contracts are being interfered with, and it could well be a breach of the human rights convention. What advice has the Minister taken on whether the provision indeed breaches that convention?

If the Government are prepared to interfere with private contracts to which they are a party to that extent and in that way, it raises serious issues about the constitutional position of any contract with the state for any public project, not just with the railways. If the Government are prepared to use the pen of legislation to change without compensation the terms of a contract that they have come to dislike, what will be the ongoing effect on other projects?

Ministers appear to be ignoring the fact a solemn contract has been undertaken with the private sector ensuring that the state has to pay money in certain defined circumstances. Having committed themselves in a contract to a set of obligations, the Government should not be able to say that they wish that they had not done so and that they are going to change the rules to their advantage.

With regard to the rail review that was announced in January and is partly to be implemented by the Bill, in a written answer to a question from the hon. Member for Scarborough and Whitby published on 9 February, the Secretary of State assured the House, the railway industry and the wider world that the

''railway is and will continue to be a public-private sector partnership.''

Referring to the review, he went on to say:

''The independence of economic regulation has already been clearly set out in my statement . . . The Government also rules out any change to the rights of third parties, which will be protected. There is no question of weakening the effectiveness of economic regulation. The Government recognises that maintaining fully effective and independent economic regulation is critical for retaining investor confidence. There will be no diminution in the regulatory protection of the private sector investors in the railway.''—[Official Report, Monday 9 February; Vol. 417, cc. 1237-8W.]

How can the Minister possibly maintain that this clause and schedule 4 respect those principles and honour those assurances? By interfering in the ORR's jurisdiction, and therefore diminishing the rights of private sector operators to the protection that they are given in legislation, what the Secretary of State said shows how little faith can now be placed in the Government's word. Not only the Government's standing and reputation are at stake in respect of their dealings on the question of sanctity of contract, but those of the country. The provisions are fundamentally objectionable. They should not be in the Bill and we want to see them removed. A few years ago, new Labour got rid of one clause 4; it should do the same with this one.

Photo of Tony McNulty Tony McNulty Minister of State, Department for Transport

With your indulgence, Mr. Griffiths, I shall follow the lead of the right hon. Member for East Yorkshire (Mr. Knight) and conflate the two debates on clause 4 and schedule 4, as one implements the other.

The shame about many of the right hon. Gentleman's eloquent rhetorical flourishes is that I do not recognise the schedule that he was talking about. I have said repeatedly that the Bill is not about negating existing contracts or retrospectively tearing up contractual and financial obligations between various parties. If the world in terms of schedule 4 was as he characterised it, with the unilateral tearing up of contracts and the consequent impact on private investors, I would be a tad fearful if I were a private investor—but it is not as he characterised it.

It cannot be a right starting point for public policy that the office charged with the economic regulation of the railways sets their cost to the public purse. As the right hon. Gentleman said, the Office of the Rail Regulator determined last December that, regardless of Government priorities across the fiscal and budgetary piece and of what they determined in a Queen's Speech or Budget, or in any other fashion, £x billion had to be spent on the railways. I defy any Government to work on that basis across any aspect of public policy. So that is where we start from.

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Environment, Food and Rural Affairs) 10:15, 16 December 2004

Would the Minister accept that that is not what the Office of Rail Regulation says? It says that it consulted with the Government and that the Government had every opportunity to change the amount that would be available or the obligations that would be placed on the railways to deliver outputs.  

Photo of Tony McNulty Tony McNulty Minister of State, Department for Transport

I simply would not. I accept half of that. Of course it consulted and there was extensive debate, but under current statute law, the second half of what the hon. Gentleman suggests is wrong. The absolute bottom line under the prevailing circumstances before we made changes is that there is no subsequent recourse of appeal of any description for the Government of the day when the rail regulator determines the final bill. The last stop is with the ORR. For such a significant chunk of public finance, in such a significant and important area of public policy, that simply cannot be right.

The Office of Rail Regulation is charged with economic regulation, and does it extremely well. It puts that in the balance of public and private mix, and that is entirely right. I repeat what my right hon. Friend the Secretary of State said in February:

''There is no question of weakening . . . economic regulation . . . There will be no diminution in the regulatory protection of the private sector investors in the railway.''—[Official Report, House of Commons, 9 February 2004; Vol. 417, c. 1237W.]

There is, and will remain, more than £70 million per week being invested by the private sector. The Association of Train Operating Companies, the principal voice of the private sector in the train operating part of the railways, welcomes the White Paper and the Bill.

All that schedule 4 does is to amend schedule 4A of the 1993 Act, which provides a process by which the conclusions of an access charge as agreed by the ORR are taken forward. In carrying out such a review, which is clearly laid out in schedule 4, the ORR seeks to establish the level of access charges needed by those providing the railway infrastructure, such as Network Rail. Schedule 4 also establishes, as I have said, the formal process for the prior stage of conducting a review. That includes, in particular, how the Secretary of State and the Scottish Ministers make inputs at various stages of the review. It is not a world as described by the right hon. Member for East Yorkshire (Mr. Knight). It is not about tearing up, in such a cavalier fashion as he described, existing contracts, but it is a key element of where we want to get to in terms of the new vision for railways in this country.

Clearly the focus of much coverage has been on the SRA, but our vision was always about a recalibration of all the key actors involved in the railways industry once the SRA was no longer one of those players. It was not simply—I know that it has been characterised in this way—to take the SRA out of the equation. We would be left with exactly the same arrangements with the Department for Transport: the Government would do the SRA bits and the relationships between Network Rail, the TOCs and the ORR would all be the same as before. There are fundamental changes and a recalibration of the relationship between each of the remaining players left in the rail industry. As the right hon. Gentleman rightly notes, that is an important shift in the definition of the relationship between ORR and Government. He is absolutely right about that point, but not about the subsequent doom and gloom that follows.  

As we shall come on to see—not in this Bill, but in the broader context—Network Rail's role changes in the new world, for want of a better phrase. How it relates to the TOCs, the ORR and back to Government, equally, will change. All those elements in terms of the recasting of relationships in rail are very important.

It is worth spending a few moments considering the underlying philosophy of schedule 4, and why its provisions do not undermine the independence of economic regulation or Network Rail's private sector status. The Government are clear that a private company is best placed to provide the operational and management leadership for the rail industry. At the start of a charges review, the Government can articulate the outcomes that they seek and the funding that is available; but it is for the regulator, and him alone, to determine, on the basis of those views, what outputs it is reasonable for Network Rail to deliver and what funding it will need.

The challenges are ones of delivery. A private company is well placed to blend the necessary management, commercial, technical and operational expertise and competencies necessary to meet those challenges. We have always said that civil servants and Ministers are not well placed to deal with the substance or details of such work and should not—we will not—get involved.

The regulator will ensure that Network Rail has the responsibility and freedom to deliver. However, being a private company does not make Network Rail unaccountable—or accountable only to shareholders, as was Railtrack. Network Rail is accountable to the regulator under its licence. It is accountable also to its members, which include passenger representatives, train companies and others involved in delivering rail services. That means that Network Rail works in the interests of all those who have a stake in using or delivering rail services.

That results in a strong and robust structure for delivering rail services, with each party doing what it does best—the Government developing the overarching strategy; Network Rail working in the environment of independent regulation for delivering services for rail users; and the Office of Rail Regulation discharging its duty of independent economic regulation.

In that context, I say as strongly as I can that the fears outlined by the right hon. Gentleman are, in this case, misplaced. It is a recalibration of the relationships, but it is absolutely not a challenge to existing contracts with the private sector. It is not a question of weakening the independence of economic regulation, and there will be no diminution in the regulatory protection of the private sector.

Somewhere in my speech, I have probably moved schedule 4, spoken against the right hon. Gentleman, and spoken pre-emptively against amendments Nos. 50 and 51.

Photo of John Pugh John Pugh Shadow Spokesperson (Education)

On a point of order, Mr. Griffiths. I was going to speak on schedule 4.  

Photo of Mr Win Griffiths Mr Win Griffiths Labour, Bridgend

We are having a stand-part debate on clause 4, which leads us on to schedule 4. I have therefore allowed a wider debate on the clause.

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Environment, Food and Rural Affairs)

What the Minister said will not wash. It is not only the fears outlined succinctly and appositely by my right hon. Friend the Member for East Yorkshire that are of concern. Fears have also been expressed by the Office of Rail Regulation itself. The Minister talks about recalibration—another example of Labour newspeak.

Photo of Tony McNulty Tony McNulty Minister of State, Department for Transport

Rather than throwing out an accusation, the hon. Gentleman should provide the Committee with substantive evidence that the Office of Rail Regulation has challenged the provisions of clause 4 and schedule 4—in writing.

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Environment, Food and Rural Affairs)

I will do exactly as I am told. The Minister leads me to the ORR's response to the Select Committee on 4 July 2004. In paragraphs 17 and 18 of its response, the ORR said:

''For the reasons given below, the Government already has all the power it needs in relation to the future financing of the railway. It only requires the will to use it . . . If there is any change to the jurisdiction of the ORR in this respect, it will have to be brought about by legislation. Such a step would be a clear breach of the formal assurances which the Secretary of State gave to Parliament and the financial community on 9 February 2004, which is why the Government should not and will not do it.''

The Government are now doing it, in defiance of the assurances given to Parliament.

Photo of Tony McNulty Tony McNulty Minister of State, Department for Transport

I clearly asked the hon. Gentleman to provide evidence in writing that the ORR is in conflict or otherwise with clause 4 and schedule 4, but all that he has done thus far is read out a report from July. However pressing the issue is, the ORR cannot, in formulating its view, pre-empt publication of the clause and the schedule by five or six months. Therefore, can the hon. Gentleman, as he suggested in his opening remarks, provide evidence from the ORR that it has objected in writing to the clause and the schedule, or will he freely admit that he inadvertently misled the Committee in suggesting that he had the ORR's view on the provisions? By that, I do not mean the view set out in its report from back in July, but its view of the provisions in the Bill, as published last month.

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Environment, Food and Rural Affairs)

It is as plain as a pikestaff that clause 4 and schedule 4 change the economic regulatory regime, and, in anticipation, the Office of the Rail Regulator said during the consultation process that there was no need for the Government to do so because they already had the necessary power in relation to the future financing of the railways. It also said that if the Government acted in the way in which they are now acting, they would be in breach of the formal assurances that the Secretary of State gave Parliament and the financial community on 9 February.

My right hon. Friend the Member for East Yorkshire has referred to quite a lot of what the Secretary of State said in answer to a written question from the hon. Member for Scarborough and Whitby (Lawrie Quinn) at column 1237W on 9 February, but let us look at it again. He states:  

''The review which I announced on 19 January 2004 . . . will not change the Government's acceptance of the Regulator's determination of Network Rail's income for the next five years as set out in his December 2003 Final Conclusions and any further conclusions he may reach; and the Government will ensure that the Strategic Rail Authority has sufficient funds to meet its resulting commitments. As I made clear in my statement of 15 December 2003 . . . regulatory promises will be honoured, and the Government recognises, and is content, that only the Regulator can re-open his determinations.''—[Official Report, House of Commons, 9 February 2004; Vol. 417, c. 1237W.]

However, the Bill gives the Government the power to force the rail regulator, against his wishes, to reopen his determinations and to change the whole regime.

Photo of Tony McNulty Tony McNulty Minister of State, Department for Transport

This simply cannot persist. The hon. Gentleman has said again that we are going against the wishes of the rail regulator, leaving the Committee with the clear impression that Mr. Christopher Bolt, the current rail regulator, who is chairman of the ORR, is against clause 4 and schedule 4. We know from his July statements that Tom Winsor is against virtually everything, and that is perfectly fine. However, the hon. Gentleman cannot persist in invoking him and his words in July, giving the Committee the misleading impression that they are the words of the current incumbent at the ORR.

I must tell the Committee—the hon. Gentleman has not been forthcoming with any evidence to the contrary, and it would be wrong, even if he did—that the current ORR is fully satisfied with the clause, the schedule and the relationship that they establish. The hon. Gentleman has given us a nice history lesson, but it is utterly misleading to suggest that the current ORR is against the provisions, because they are not. He can give us a history lesson and wax lyrical about the previous incumbent, but Tom Winsor's views do not prevail today; the ORR is signed up to the clause and the schedule, and it is wrong to suggest otherwise.

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Environment, Food and Rural Affairs)

I am not going to get drawn into discussing who is a stooge of the Government and who is not. What I am concerned about is that the independent ORR

Photo of Tony McNulty Tony McNulty Minister of State, Department for Transport

On a point of order, Mr. Griffiths. It cannot be in order for the hon. Gentleman to call Mr. Christopher Bolt, the current incumbent at ORR, a stooge of the Government, or at least to imply that. I ask the hon. Gentleman to withdraw that implication, if not the direct reference to Mr. Bolt.

Photo of Mr Win Griffiths Mr Win Griffiths Labour, Bridgend

That is not a point of order. The phrase is used in debate, and does not relate to the proceedings in which Members directly call each other things. I hope that the hon. Member for Christchurch has heard what has been said.

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Environment, Food and Rural Affairs)

Obviously, I have heard what has been said. I said that I did not want to go down that route, and I shall not go down that route.

Photo of George Howarth George Howarth Labour, Knowsley North and Sefton East

On a point of order, Mr. Griffiths. Is it not a convention of the proceedings of this House that if an hon. Member—I stress the word ''honourable''—gives misleading information to a Committee or elsewhere, he should correct it?  

Photo of Mr Win Griffiths Mr Win Griffiths Labour, Bridgend 10:30, 16 December 2004

The Minister has already pointed out that in quoting from the report and the ORR's view at the time, the hon. Member for Christchurch is accurately reflecting what that office believed at the time. The Minister has also accurately pointed out, however, that with the changes that have taken place, there has been no such direct comment on the Bill itself. We have debated this matter, so perhaps we can move on to the substance of the clause and what it implements in the schedule.

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Environment, Food and Rural Affairs)

I am grateful, Mr. Griffiths.

It is important to consider why it is necessary to introduce the clause and the accompanying schedule at all. The ORR's report is not ancient history; it was published in July, which is only a few months ago. It may be very embarrassing for the Government, who may want to draw a line under it—an expression that is popular with them. In paragraphs 69 and 70, the ORR recognises the following:

''It is for government to decide how it wishes to spend its money. Overall and in the long-term, all government expenditure on the railway is discretionary. But once it has made that decision and entered into binding commitments in that respect—i.e. through franchises or other contracts—it has exercised its discretion and the expenditure has become non-discretionary. Government must honour the commitments it makes. And it must make them in a timely way.

It is of course perfectly lawful for government to make binding commitments—franchise agreements and associated instruments—which last for only a year or two, perhaps three, at a time. This would allow government to sculpt its expenditure obligations to its political priorities and change them from time to time in the short-term.

Such an approach would mean that the railway industry would return to almost the annualised financial regime it had under nationalisation with the attendant harm to private investment, lack of confidence, stability, predictability and the opportunity to make reliable and sustainable plans, but it could be done.''

That is exactly what the Government are doing in clause 4 and the accompanying schedule.

In paragraph 71, the ORR continues:

''Equally, it would be inimical to private sector confidence if the contracts government makes were to provide for a unilateral right of government to turn down the quality or extent of the network on which train operators and their backers rely, unless there were secure provision for the payment of adequate compensation. Even then, it is likely that private sector businesses would be more reluctant to invest in new rolling stock if they face the risk of a politically-imposed slow decline in the quality of the infrastructure on which they must run, for fear of the difficulties, delays and expense of securing adequate financial compensation for the effects on their businesses of that decline. Government does not need this right to act mid-term in the life of a contract. It has all the power it needs to make its plans before franchises and other contracts are let, and to communicate those decisions to the regulatory authority in good time and then allow the system to set the network outputs and the charges accordingly.''

That sets out the ORR's regime and understanding, and that background should inform our debate on the clause and the schedule. One of the Government's problems is that they know jolly well that they could have intervened in the previous debate on access charges, and they could have effected a different result, but they funked doing that because they did not want to take the political blame. Now, they are trying to set up a regime in which they can transfer the blame for such decisions, which have a major impact on the   quality and nature of our railways, to the Office of Rail Regulation. That is a despicable way to behave, and the Government are absolving themselves of what should be their full responsibilities.

It is worth reminding ourselves of where the Government reached in the reviews and debates about the level of access charges. The ORR said at paragraph 30:

''There have been two access charges reviews since Railtrack was privatised in 1996. The first concluded in October 2000; the second ended in December 2003. In both cases, government could have acted early to secure a result which would not have led to the increases in access charges which in fact came about. But its engagement would have had to have been much greater. In the first access charges review . . . the degree of engagement by the SSRA (as the agent of government) was not strong, and the regulatory authority was compelled to conclude that broadly the existing pattern of services should be rolled forward, with some improvements in performance. Access charges were set accordingly and Railtrack became entitled to a 50 per cent. increase in its income.

In the second access charges review . . . things did not go according to plan either. Whilst the SRA, the Department for Transport and the Treasury were much more closely involved with the regulatory authority, and had access on a continuing basis to a very large amount of information about the emerging picture as the 15-month review proceeded—which showed by how much the revenues of Network Rail would have to rise to maintain the existing pattern of services—they failed to take the necessary avoiding action which could have led to much lower levels of access charges and compensating grants . . .

In February 2003, the Rail Regulator informed government that if access charges were not to rise substantially at the end of the review (to be announced in December 2003 and take effect from 1 April 2004), the SRA should then (early 2003) be making material changes to its franchising and other strategies to impute lower (and therefore cheaper) network outputs. It would have done this by:

(a) not entering into new franchises for service patterns which implied network outputs as high as the existing levels;

(b) renegotiating existing franchises so as to lower implied network outputs;

(c) exercising rights under existing franchises to lower passenger service requirements; and

(d) negotiating compensation for freight operators to persuade them to lower their network output demands''—

Photo of George Howarth George Howarth Labour, Knowsley North and Sefton East

On a point of order, Mr. Griffiths. Is it not normal practice that when an hon. Member addresses the Committee with lengthy quotations, he or she at least references them? The hon. Gentleman seems to be quoting almost at random from a document without giving any referencing or indicating where the quotation begins or ends. That seems an unacceptable way to proceed.

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Environment, Food and Rural Affairs)

I hope that the hon. Gentleman and his hon. Friends have a copy of the fourth special report of 2003–04. If they have and they wish to go through with me the extracts that I am reading from the Office of the Rail Regulator, I hope that they will then be able to join in the debate. I have already said—

Photo of Mr Win Griffiths Mr Win Griffiths Labour, Bridgend

Order. At one point in the hon. Gentleman's speech, he referred specifically to parts of the report, but in the past five minutes or so it was not absolutely clear in my mind whether he was continuing to quote from where he had started or had moved on to another part of the report. I cannot recall his giving any page or paragraph numbers.

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Environment, Food and Rural Affairs)

Recently, I have been quoting from paragraph 34, which is on page 27. Prior to that, I was quoting from paragraphs 30 and 31. I shall now quote   paragraph 35, and I hope that the point of order raised by the hon. Member for Knowsley, North and Sefton, East will not have broken the Committee's train of thought.

In paragraph 34, the rail regulator emphasised that the Government had various options that they could have exercised but funked. Paragraph 35 states:

''The SRA did not do these things, possibly because government did not want it to. They would probably have meant cuts in the intensity and geographical reach of existing services, no new services, no new enhancement, severe reductions in the amount of renewal to be done with consequent higher numbers of temporary speed restrictions and poorer performance, and passenger fare rises well above inflation.''

The Government had options, but they did not want to face up to any of the consequences.

Paragraph 36 continues:

''Government and others have to face the fact that, under the existing system, it is not possible to have 100 per cent. of the existing service pattern and the infrastructure which is necessary to support it for 50 per cent. of their efficient cost.''

Paragraph 37 states:

''In July 2003, the regulatory authority asked government what changes to the SRA's strategies were to be made in the light of the regulatory authority's emerging conclusions in the access charges review. The effective answer given was that the regulatory authority should assume that the existing pattern of services would continue and be rolled forward. It was on that basis that the decision in the 2003 access charges review was taken. It is therefore not correct to say that the regulatory authority decided what the pattern of services should be or, in setting network outputs, went against what government intended. Full account of government's settled intentions was taken.''

Paragraph 38 continues:

''In acting as it did, government by default accepted that its subsidy to the railway would have to rise substantially. If it had cut back on the pattern of SRA-supported services and the intensity of the demands which those services would make of the network, government would have faced a much lower bill. But, as explained above, this would have required government to face the political consequences of severe cuts.''

We are talking about the Government not wanting to face the political consequences of severe cuts, but also being embarrassed about the financial consequences of maintaining the railway in its present condition. They have fudged and funked the matter during the course of this Parliament. Under the auspices of the Bill, they are now trying to enable themselves after the next general election to make cuts in services and railways, to increase fares and so on, and to try to transfer the blame to the new Office of Rail Regulation. That is intolerable, and I hope that if nothing else has been achieved by my right hon. Friend the Member for East Yorkshire in drawing attention to this matter, the public will realise what the Government are up to.

Photo of John Pugh John Pugh Shadow Spokesperson (Education)

We have had a slightly intemperate debate on an important clause and the subsequent schedule. The system in our country that we are trying to regulate is one of private companies renting trains to private operators franchised by public bodies that run on track owned by private but not-for-profit companies that are subsidised by other public bodies in the public interest, adjudicated by an independent public body, with the backstop of the Competition Commission. That is a somewhat Byzantine arrangement, which needs a fair degree of sorting   out. I wonder who invented such a complex and difficult to run system.

When we survey those facts, it has to be said that there is not a perfect market—we are not dealing with a standard marketplace in any sense. Uncannily, it does not always work smoothly. Criticism so far has been directed at the peculiarities of that particular market. It has been fiercely criticised because it has involved huge amounts of public subsidy going to private companies, which have shouldered very little risk in the process. That is why people are trying to change or tighten up some of the arrangements, while preserving some of the features established by a previous Government.

All clause 4 and schedule 4 do is to provide that when the complex Byzantine system breaks down it can be reviewed reasonably coherently, and lay out a way in which that can be done and a set of procedures associated with that. The provisions put various triggers in place whereby affected parties can get access charges reviewed.

The bulk of schedule 4 seems sensibly inclined towards getting people to share as much information as possible. A number of the paragraphs in schedule 4 begin by saying that information should be provided by one person to another. The clear implication is that in the past decisions have been made without adequate information or without adequate notice being taken of the interests of all the affected parties. To that extent, that has to be a bit of progress. Nobody is against information being shared and people taking notice of all the priorities of all the parties concerned.

The meat appears to be in new paragraphs 1G(1) and 1G(2). The right hon. Member for East Yorkshire pointed out that 1G(1) was the real bugbear here. It does slightly change the rules of the game. It states:

''The Office of Rail Regulation must conduct an access charges review in the manner that it considers is most likely to secure that the implementation of the review will make the best and most practicable contribution to the achievement of—

(a) what the Secretary of State wants to be achieved''.

That is an adjustment to the market. Given that the Government are putting considerable amounts of public funds into the process, it is not an improper adjustment.

Neither paragraph alters who ultimately makes the decision. 1G(2) concludes:

''it is to be for that Office to determine, for the purposes of the review, how much of what is wanted should be achieved''.

It then adds that if the public funds do not accommodate what the Secretary of State wants, the ORR will make the decision about what is to be done thereon. No private company will be put in a position of having to deliver some public good that is clearly not resourced for. That strikes me as fair, as does 1G(1), because it simply adjusts the rules of the game in such a way as to make it impossible in future for the rail regulator to splash out huge amounts of public funds against the public interests. That cannot be a proper   thing for any public body, independent or otherwise, to do. It was severely criticised by the Select Committee.

There is a change in the market here. I think that the Minister will be honest enough to admit that. But we never had a perfect market in the first place. No one should pretend that any of the players entered it believing or understanding it to be a perfect market. If they did, they simply did not understand what the privatisation of railways had involved.

Photo of Tony McNulty Tony McNulty Minister of State, Department for Transport 10:45, 16 December 2004

That is a fairish reflection. I would only challenge the hon. Gentleman's point about there being a fundamental change to the market. There is not. There is a fundamental change to the relationship between the ORR and the Secretary of State. The Government set the strategy and the ORR is still absolutely responsible for economic regulation. That is not appropriately characterised as a change to the market, but it is a substantive change to the relationships within, as I suggested earlier. There are substantive changes, post-SRA, to the relationships that exist in the rail industry. We made that clear. That is essentially the purpose of the Bill.

The hon. Member for Christchurch was 100 per cent. wrong in what he said. I repeat purely for the record that when he refers to the ORR he is referring to the previous incumbent and a report that predates the Bill by some five or six months. The hon. Gentleman is free to characterise the ORR as a stooge; it is a shame that he did not withdraw that remark but by implication that was there. The previous incumbent and the ORR are, as of today, perfectly comfortable and relaxed about schedule 4 and clause 4.

The notion that schedule 4 is about disengaging the Government from blame or decision making could not be further from the truth. Schedule 4 is about requiring the Government to engage fully in, among other things, a review of access charges. It is not about transferring blame for unpopular decisions to the ORR. Its point is to ensure that it is clearly the Government who determine rail strategy, fully taking into account all their obligations to private sector contracts, and the effects of those on the total funding needed for the railways. It must make sense. The Government have set out a strategy for their outputs: yes, of course, independent economic regulation; and yes, of course, a regular quinquennial review of Network Rail and what it needs for the forthcoming five years. All that makes perfect sense. With the best will in the world, the hon. Gentleman's intemperate rant is entirely for the birds.

Photo of John Pugh John Pugh Shadow Spokesperson (Education)

Will the Minister clarify one point, which is important for the rail industry? New paragraph 1G(1) of schedule 4 does not anticipate, so far as I understand it, that in the process of reviewing access charges there will be any reneging on contractual responsibilities entered into by a private operator with any franchiser.

Photo of Tony McNulty Tony McNulty Minister of State, Department for Transport

I repeat that the Government are not in the business of reneging on extant and live contracts freely entered into, either, specifically, in terms of a review—although I repeat that I am no lawyer—or, in the wider context, in the transition from where we are now and where we want to get to in the railway   industry. That is simply not the case. To cast it as almost renationalisation without compensation, as the right hon. Member for East Yorkshire did, is an over-characterisation, to say the least.

The ORR is very comfortable with the Bill, as is the wider industry, not least the private sector. It recognises the risk of recalibration without challenging at all the independence of the economic regulator, and that fits in well with our new vision and structures for the rail industry. In conclusion, I commend clause 4 to the Committee and reserve the right not to say much more about schedule 4 at all.

Photo of Mr Win Griffiths Mr Win Griffiths Labour, Bridgend

I should like to make a ruling to give hon. Members some guidance before we get on to the two amendments to schedule 4. We have had quite a wide-ranging debate on what clause 4 seeks to do in schedule 4, and I am minded not to have a wide-ranging debate on schedule 4 unless a member of the Committee specifically tells me which parts of schedule 4, outside the issues that have already been discussed, need further discussion. I shall need a very clear indication that an hon. Member wants to look at parts of clause 4 that have nothing to do with the debate that we have had so far.

Photo of David Wilshire David Wilshire Assistant Chief Whip, Whips

On a point of order, Mr. Griffiths. Would you clarify whether the two amendments to schedule 4 standing in my name will be debated?

Photo of Mr Win Griffiths Mr Win Griffiths Labour, Bridgend

Yes, amendments Nos. 50 and 51 will be debated. However, I want it to be clear that we have had a very good debate on the principle of what schedule 4 is trying to do by having clause 4 in the Bill. I do not want to go over the same ground in a general debate on schedule 4. If an hon. Member wishes specifically to consider parts of schedule 4 that are not covered by the amendments and have not been covered by this debate, I shall listen to what he or she has got to say before I give a ruling on whether I shall allow further debate.

Photo of Greg Knight Greg Knight Shadow Minister (Environment, Food and Rural Affairs)

That is a very fair ruling, Mr. Griffiths

We now have a new adjective to cover a whole range of unacceptable behaviour, such as breach of trust, breach of faith, using legislation to water down commitments and cutting the jurisdiction of the regulator. The word is ''recalibration''. It is a reneging on the commitment given by the state to the private sector; it is objectionable to my party and we shall oppose it.

Photo of John Pugh John Pugh Shadow Spokesperson (Education)

I wanted to make the simple point that ''recalibration'' is a noun.

Question proposed, That the clause stand part of the Bill.

The Committee divided: Ayes 10, Noes 4.

Division number 4 Adults Abused in Childhood — Clause 4 - Use of access charges reviews for

Aye: 10 MPs

No: 4 MPs

Aye: A-Z by last name

No: A-Z by last name

Question accordingly agreed to.

Clause 4 ordered to stand part of the Bill.