HC Deb 05 November 2001 vol 374 cc19-29 3.32 pm
Mrs. Theresa May (Maidenhead)

(by private notice): To ask the Secretary of State for Transport, Local Government and the Regions if he will make a statement on the process of consultation and decision taking that led to Railtrack being put into administration.

The Secretary of State for Transport, Local Government and the Regions (Mr. Stephen Byers)

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

At the time of the April agreement, the Government felt that we should make it clear that our role was to support the railway network but that we should not be seen as acting as guarantor of individual companies or their shareholders. We therefore agreed with Railtrack a statement of principles. The first point in the statement states: The Government stands behind the rail system but not individual rail companies and their shareholders who need to be fully aware of the projected liabilities of the companies in which they invest and the performance risks they face". In May, June and July, Railtrack's position worsened dramatically. On 25 July, at a meeting in my office, the chairman said that the position was far worse than had been thought in April, and that it was clear that, unless extra financial assistance from the Government was provided, on 8 November, when Railtrack was due to give its interim results, it would be unable to make the critical statement that it was "a going concern." The effect of that would have been disastrous. Immediately I ordered intensive discussions with Railtrack.

In August, Railtrack's advisers came back to the Department and said simply that there were three options available; restructuring, renationalisation or, as they described it, receivership. Thus it was Railtrack's advisers who first raised the possibility of insolvency if no additional funding was made available by the Government. I immediately asked my officials to investigate the restructuring option, which involved the provision of more funding to Railtrack. Railtrack asked for funding from the Government to cover all its costs, plus a profit and a four-year suspension of regulation. Those were Railtrack's proposals.

Given the company's demands, we began to prepare for the possibility that we might be unable to provide additional funding and that, as a consequence, Railtrack would be insolvent. As I told the House on 15 October, in order to protect passengers' interests, it was clearly right to explore the need for railway administration on a contingency basis.

As part of this contingency planning, draft railway administration orders were drawn up. A draft of the rules was printed by The Stationery Office on 28 September. The rules were made when a copy of that document was signed by me on 6 October to indicate that I concurred in the making of the rules. They came into force on 7 October.

The allegedly leaked rules, as some have described them, were produced to the court as evidence on 7 October and laid before Parliament on 8 October. They formed part of the bundle of documents placed before the court and have been deposited in the Library of the House.

As regards the printing of the draft rules on 28 September, I have already made it clear to the House that since Railtrack plc's view was that administration was the likely outcome if the Government refused to provide further funding, I had to consider, on a contingency basis, how, if Railtrack plc were proved to be insolvent, I could ensure an orderly process resulting from administration without disruption of the railways. The drafting of the rules was finalised as part of this contingency exercise and a print of them was obtained from The Stationery Office, in case they should be needed. The order runs to some 71 pages. It could not be drawn up overnight once a decision had been taken. It had to be prepared on a contingency basis.

As I reported to the House on 15 October, we carried on discussions with Railtrack until 3 October, but there was no way out of the dilemma: either we gave a guarantee on money, or the company became insolvent. So, on Friday 5 October, I reviewed all the relevant papers and considered all the options, including Railtrack's proposed rescue package, and I decided that no further Government funding should be made available to Railtrack. I decided that we could no longer give Railtrack a blank cheque.

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

Railtrack was a creation of the Conservative party. Clearly, the Conservative party cannot come to terms with the fact that a failed Tory privatisation has been brought to an end by this Government. Railtrack represents much that was wrong with the Tory privatisation of the railways, with the travelling public seen as an inconvenience, getting in the way of the interests of shareholders. The time has come to put delivery to passengers before dividends to shareholders. That is what the Government have done.

Mrs. May

Although I am grateful to the Secretary of State for his response, we had heard most of it before. He has signally failed to answer adequately many questions that remain in the minds of passengers, staff and shareholders about the Government's handling of winding up Railtrack.

On 15 October, the Secretary of State made a statement in which he claimed that he had decided to put Railtrack into administration on Friday 5 October. Since then, as he has just confirmed, it has become clear that the relevant statutory instrument had been prepared in September and was published on 28 September—at least a week before the Secretary of State claims he made his decision.

There is a wealth of difference between assessing the implications of a decision, ascertaining what is necessary to make it and implementing it by using parliamentary draftsmen and others. The information calls into question the timing of the Secretary of State's decision to wind up Railtrack and the validity of his statement to the House on 15 October. It suggests that staff and shareholders were misled.

Sadly, when the Secretary of State had already decided to wind up Railtrack, thousands of its employees were investing more of their hard-earned savings in the company. For the Government to allow people to invest their annual dividend while they signed away the railways' future is at least morally questionable. It is now open to legal challenge, and staff and passengers face months of uncertainty.

The Secretary of State prays in aid the statement of principles that was agreed between the Government and Railtrack. I suggest that he considers the third principle, which makes it clear that the Government agreed that The company…needs to receive sufficient Government funding, as determined by the Regulator. Will the Secretary of State confirm that the Government threatened the regulator with legislation if he used his powers to intervene in Railtrack?

There are other signs that the Government's decision was taken before 5 October. Will the Secretary of State confirm that the arrangement for the chairman of Railtrack to attend a meeting with him at 4.45 pm on Friday 5 October was made on the afternoon of the previous day. Thursday 4 October, and that Railtrack was told that the time of the meeting could not be changed and had to be after the market had closed? Does he agree that that means that Lord Falconer was wrong in his statement in another place on 31 October that during the course of the afternoon the Secretary of State reviewed the papers, made up his mind and called immediately for the chairman of the board of the company"—[Official Report, House of Lords. 31 October 2001; Vol. 627. c. 1486.]?

In the light of the fact that the Secretary of State's private office had arranged the meeting on the previous day, will he reconsider his statement of a few minutes ago that the chairman of the board was called in immediately after he had reviewed the papers on 5 October? If he did not know on 4 October that he was going to put Railtrack into administration, why was the meeting called and why was its timing so critical?

The Secretary of State has admitted that administrators were first approached on 23 August. Will he publish the instructions that they were given then, and any changes to them that the Department subsequently made? When he decided that Railtrack was insolvent, did he take any account of the value of the stations that the company owns? Will he confirm that he was not able to proceed with winding up Railtrack without the authority of the Treasury and other Cabinet colleagues? When did he receive that authority? When was the Prime Minister's office made aware of his intention to put Railtrack into administration?

Will the Secretary of State confirm once and for all when he decided in principle to put Railtrack into administration? All the evidence suggests that the Secretary of State had decided to wind up Railtrack before the decision was announced to the company and the markets, and that the decision of 5 October related to the timing of the announcement and not to whether the company should be wound up.

We are not simply considering the Secretary of State's job but the credibility of the Government. Will the Secretary of State lay all anxieties to rest by agreeing to an independent public inquiry into the Government's handling of Railtrack?

As the pieces of the jigsaw come together, it appears that, far from the decision being made on the afternoon of 5 October, it was a drawn-out act of wilful destruction by the Secretary of State. It is clear that he has been bent on destroying Railtrack from the start. As a result, schemes will be delayed, investment postponed and the industry placed in a protracted period of stagnation. There is a huge obstacle in the way of future investment in the railways. That obstacle is the Secretary of State. He must go.

Mr. Byers

The hon. Member for Maidenhead (Mrs. May) raised several specific questions and I am more than pleased to answer them, because it is right that the House should be made aware of the facts and not allegations that have no substance. The first relates to the railway administration order. That document is 71 pages long and could hardly be drawn up overnight. As I said to the House on 15 October, in order to protect passengers' interests, it was clearly right to explore the need for railway administration on a contingency basis. That was part of sensible contingency planning. That is the reality and it is as simple as that. There is no way that a railway administration order running to 71 pages could have been produced after I had had the conversation with Mr. Robinson on the afternoon of 5 October. It was therefore prepared on a contingency basis—as I said to the House on 15 October, before that issue was raised—in case railway administration was necessary.

The second issue relates to the chairman of Railtrack being invited to a meeting in my office on the afternoon of 5 October, after the markets had closed. The hon. Lady should be aware from my statement on 15 October that the Government were considering two clear issues. One was whether to go for railway administration and the other was whether to agree to the request from Railtrack for further Government funding. I said to the House on 15 October that I took the decision—just after midday, I think it was—on 5 October that we could not afford any further Government money to bail out Railtrack. Had I made the other decision—to provide additional Government funding for Railtrack—my advice was that it would also have been market-sensitive information. Whatever decision I took had to be communicated to Railtrack when the markets had closed, whichever the option was. The meeting was set up for 4.45 pm on the Friday, because whatever decision I took—and we did not know when it was arranged—would have been market-sensitive and had to be communicated.

In relation to the involvement of the Treasury and the Prime Minister, the decision was taken in the normal way. It was a Government decision which I took on behalf of the Government. [HON. MEMBERS: "When?"] It was taken on Friday 5 October. That is the 20th time I have told the House that and it is the truth of the situation.

In relation to the value of stations, those issues were considered by the High Court judge when he decided whether to agree to the petition. He agreed, because he realised the difficult situation faced by Railtrack. In terms of threats, there was no threat. In terms of the use of the regulator or denying the regulator his position, I was clear that the first people to raise the issue of suspending the regime of regulation were the advisers to Railtrack in August, when they produced the information. Of course, in my conversations with the chairman of Railtrack on 5 October, we covered the issue of how the regulator would deal with those matters, but the position was made clear at that time.

In terms of the responsibilities, surely the question that shareholders should be asking concerns the responsibility of the directors of Railtrack. They knew the financial situation of Railtrack—that without additional Government funding, they would be unable to make a going concern statement on 8 November—so why did not the directors, who have a legal responsibility to their shareholders, tell them about the financial situation? The directors failed to do so.

On the point that the hon. Lady raises about the demand now interestingly being made from the Conservative Benches for compensation to Railtrack shareholders, let us be clear what that would mean.

Mrs. May

I did not mention it.

Mr. Byers

If the hon. Lady is not arguing for compensation for Railtrack shareholders, she should say that clearly. It was not clear in her question. The argument was clear—that £3.60, the claim that they are making, is reasonable. It would mean over £1 billion of extra taxpayers' money going to the interests of the shareholders.

On the issue of the stations, the value of the stations was a matter for the High Court judge when he considered the petition on the Sunday afternoon.

That is the sequence of events. The Opposition may not like it. When the right hon. and learned Member for Folkestone and Hythe (Mr. Howard) was in government, he was a sponsor of Railtrack. We have destroyed one of his better ideas, which says a lot about the right hon. and learned Gentleman. Railtrack had its time under the Conservatives. This Government have rightly brought it to an end.

Mrs. Gwyneth Dunwoody (Crewe and Nantwich)

Is my right hon. Friend aware that, if anyone has set out in this sad sorry saga of incompetence to destroy Railtrack, it is the directors and the managing directors, who have made it clear to the market, which has responded by making a clear judgment on the worth of the shares, that they were not capable of continuing to meet their obligation? Is he aware that it was Railtrack's figures that put it in the difficulty where it was not able to meet the costs of the modernisation of the west coast main line? Will he give an undertaking that, whatever comes into being as a result of this appalling incompetence, the new organisation will not only be transparent and responsible to the passenger and taxpayer, but very different in kind from Railtrack?

Mr. Byers

My hon. Friend makes an important point from her experience as the Chairman of the Transport Committee. I think that we now have an opportunity to look at how to restructure the railway industry to put the interests of the travelling public first. What most commentators recognise is that the way in which Railtrack was constructed originally denied it the opportunity to put the interests of the travelling public first. We have overcome that. It was because of Railtrack being unable to meet its debts that the High Court allowed the petition for railway administration. Now we can move forward and put in place a structure whereby, because it will be a not-for-profit organisation, any operating surpluses can be used for the interests of the railway network. At last we can make progress towards providing a railway network that is fit for the fourth largest economy in the world, which simply is not the case at the moment.

Mr. Don Foster (Bath)

Although the way in which the Secretary of State has handled the Railtrack issue has led to some confusion, not least in relation to the ownership of various assets, I believe that he has broadly followed the right way. Does he not agree that it was absolutely sensible to work up in detail the various proposals before making a final decision, and that today's effort by the Conservative party is basically nothing more than whingeing on behalf of the shareholders, who since May 1996 have received £700 million in dividends and who, incidentally, obtained Railtrack plc in the first instance for a knock-down price, undervalued by £6 billion?

Does the Secretary of State not agree that what the vast majority of the travelling public are interested in is ensuring that we have a safe, reliable and affordable railway system? To that end, on the question of decision taking, having specifically promised an end to the self-defeating system of penalties and compensation, can my right hon. Friend tell us what action he has taken and what decisions he intends to make? Having promised greater co-operation and collaboration between rail and track, can he tell us what decisions he has taken on that issue?

Finally, may I ask the Secretary of State this: having promised a not-for-profit public interest company, limited by guarantee, can he once again give the House an absolute assurance that the new body that he will allow to come into being will categorically not see the recreation of that obscene conflict, in a monopoly, between shareholder profit and passenger safety?

Mr. Byers

The hon. Gentleman's figures are right: since 1996, the shareholders of Railtrack have received about £700 million in dividends. His figures are also right in relation to the knock-down price for which the Railtrack shares were sold. In fact, the current chairman of the Conservative party, when he was Chairman of the Public Accounts Committee, conducted a most useful investigation into the circumstances of the privatisation of Railtrack. As Chairman of the Select Committee, he concluded that the shares sold by the Conservative Government at that time were undervalued by about £6 billion. That was taxpayers' money that could have been put to useful purposes. It is helpful that the current chairman of the Conservative party was able to provide that information for the benefit of the House.

Some of the confusion has been caused by the fact that there are two companies: Railtrack plc, which holds the licence to operate the network and which is in administration; and Railtrack Group, which is not in administration and is still run by the directors of Railtrack. Any value in Railtrack Group can be made available to shareholders. That will be a decision for the directors of Railtrack Group—rightly so.

We are looking at penalties and compensation—as I think I noted in my statement on 15 October. We shall set out proposals and ideas to the House later on.

In relation to moving forward, I believe that the appointment of Richard Bowker as the new chairman of the Strategic Rail Authority has been widely welcomed. He will bring renewed vigour to the work of the authority and will give a real sense of direction and purpose.

Finally, yes, I can confirm to the hon. Gentleman that whatever structure is put in place—as is made clear in the guidelines that I announced last week—we do not want to repeat the structural mistakes that were made in relation to Railtrack and privatisation.

Mr. Dennis Skinner (Bolsover)

Is the Secretary of State aware that when someone invests in that gambling den, the stock market, shares are likely to go up and then to fall again? When we consider Railtrack, it is almost incredible that the company made a hash of it. Now the Tories and their friends are worried about the money in their pockets. Will my right hon. Friend tell the House that when he discussed the three options the first was the present course; the second was to carry on handing over tons of money; and the third, which he has skimmed over very quickly, was renationalisation—I assume, without compensation? My right hon. Friend should not dismiss that option so lightly. When we consider the whole mess of British Rail and its 20-odd different pieces, at some time or other we shall have to come back to the question of a fully, publicly owned rail system in Britain.

Mr. Byers

My hon. Friend makes a case that some of us have heard before about the need to nationalise the railway industry. That was one of the three Rs put to us by the advisers to Railtrack: receivership, renationalisation or restructuring. I hate to disappoint my hon. Friend, but it was not an option that we pursued with a lot of vigour. However, the options before us as a result of going for railway administration will give us the chance to provide a railway network fit for our country.

My hon. Friend is right to say that shares can go up or down. What is interesting about Railtrack—uniquely for a private sector company—is that fully two thirds of all its income came directly by Government grant. That was the real problem for Railtrack. Of course, the company always depended on the Government to bail it out and sign the cheque but in the end it came once too often and the Government had to say no.

Sir Brian Mawhinney (North-West Cambridgeshire)

The right hon. Gentleman talks about market-sensitive information. How can anyone have confidence in the integrity of his proposals when he stood back and allowed employees and the public to invest in Railtrack shares while he was working behind the scenes to devalue those shares? Does he not understand that he may retain the title for the time being, but that he is in grave danger of losing the moral authority that underpins it?

Mr. Byers

I can understand the anger that the right hon. Gentleman expresses because, of course, he was a member of the Government who put Railtrack in place. It is as simple as that, and the position is very clear.

Sir Brian Mawhinney


Mr. Byers

Shares in Railtrack were devalued because of the actions of Railtrack directors, and the right hon. Gentleman needs to consider the fact that the price of Railtrack shares dropped dramatically over the years because of the way in which the company was run. As a former Secretary of State for Transport, he will know that there is no obligation on a Secretary of State who receives information in confidence from a company to give the details to shareholders. He knows very well where that responsibility lies: in law, it lies with the directors of Railtrack. They knew the financial situation that they faced and that the chairman had come to me on 25 July and said, "If you don't give me more money, I cannot make a statement on the 8th of November that we are a going concern." What did he tell his shareholders?

The Parliamentary Under-Secretary of State for Transport, Local Government and the Regions (Mr. David Jamieson)


Mr. Byers

That is right—nothing. He said not a word to his shareholders. I discharged my responsibilities, but did the directors and the chairman of Railtrack discharge theirs?

Mr. Bill O'Brien (Normanton)

My right hon. Friend must be aware that a substantial number of rail passengers support his action because of the problems and difficulties that they have witnessed during the years of privatisation. He will also be aware that there are still a number of issues to be addressed on the east coast main line. Will the new authority undertake to complete the outstanding phases to bring the east coast main line up to standard? Even today, we experienced a 90-minute delay in services between Leeds and King's Cross, and passengers are complaining about that kind of service. Will my right hon. Friend ensure that the new authority will continue to maintain and improve the east coast main line?

Mr. Byers

One of the benefits of the new proposals is that the operator of the licence will no longer be responsible for major upgrades to the network. One of the great difficulties that Railtrack faced with the west coast main line was the fact that the cost was originally estimated at a little more than £2 billion, whereas the estimates are now £6 billion or £7 billion, perhaps even more. That crippled Railtrack's finances. Under the new structure that we want to put in place, the network operator will be responsible for renewals, operations and maintenance of the network, but not for major infrastructure work.

We propose a special-purpose vehicle, whereby the Government, the Strategic Rail Authority and the private sector will work together to ensure that major projects can be completed. I am confident that the east coast main line could provide us with one of the first opportunities to use a special-purpose vehicle to carry out the work that I, as a user of that line, know will be so important in future.

Mr. Andrew MacKay (Bracknell)

What advice on the timing of the Railtrack announcement did the Secretary of State receive from his special adviser, Jo Moore?

Mr. Byers

No advice.

Mr. Gerald Kaufman (Manchester, Gorton)

Does my right hon. Friend accept that he would have been irresponsible if he had not put in train the detailed contingency work required to deal with the incompetence of the gang of feckless mendicants that was put together by the Conservative party? The fact that Conservative Members are unaware of the need for such contingency plans shows how far away they now are from the responsibility of government. If they continue with such absurd and pointless antics, it will be far longer before they can even form a credible Opposition.

Mr. Byers

It is noticeable that, since Railtrack was put into administration, no great difficulties have arisen. I want to take this opportunity to thank and congratulate all the workers in Railtrack. While the company has been in administration, they have turned up daily and worked in a dedicated and highly motivated fashion: they are railway people, putting the interests of the railways first.

In taking the decision to go for railway administration, we had to prepare for a range of issues, of which the railway administration orders are an example. The House would rightly have been critical if we had not been able to act on our decision to go for railway administration because we had not put the contingency arrangements in place. We had to make such arrangements—it was one of the options available to me. Therefore, when I took the decision on Friday 5 October, 1 had to make a judgment between railway administration or additional Government funding for the proposals from Railtrack. I took the decision that no further Government money would be made available, and we had the appropriate contingency planning in place for that decision.

Mr. Peter Lilley (Hitchin and Harpenden)

The Secretary of State ended his rather partisan statement by saying that privatisation had prevented money from being invested in services for passengers, and that instead it had been paid out in dividends. Will he confirm the answer that a junior Minister gave me: that the total invested by private investors in Railtrack exceeds by a factor of nearly three the amount paid out in dividends? Will the Secretary of State explain how people are to be persuaded to invest in other public-private finance initiatives when they know that the Government, having pocketed their money, may suddenly cease to pay dividends or to return any of it to them?

Mr. Byers

As the right hon. Gentleman knows, the Government made crystal clear our response in relation to Railtrack on 2 April, but I shall repeat that important statement for the benefit of the House. When we agreed on 2 April to make available £1.5 billion to Railtrack—£337 million of which was paid on 1 October—we wanted our approach to Railtrack and to other companies in the railway sector to be made clear to shareholders. That is why we said: The Government stands behind the rail system but not individual rail companies and their shareholders". Nothing could be clearer. Railtrack's shareholders should have seen that and asked whether the Government were going to continue to bail out the company. In the end, we decided that no further Government funds should be made available.

The right hon. Gentleman will also be aware that the City knows that Railtrack is a unique being. The City is still interested in public-private partnerships because it knows that they are quite different from the privatisation of the railways that he so enthusiastically supported.

Dr. Howard Stoate (Dartford)

I thank my right hon. Friend for the helpful statement that he will put the travelling public first. That is more than we hear from Conservative Members, who seem to be interested only in shareholders.

My right hon. Friend will be only too well aware that the channel tunnel rail link phase 2 will not just benefit the travelling public but will be enormously important to the economy of this country. It will bring huge regeneration opportunities to north Kent, east London and all points north. Will he therefore assure the House that major projects such as the rail link will go ahead on target? That would reassure my constituents in Dartford that it is business as usual and that we will have the economic development that we badly need.

Mr. Byers

My hon. Friend is right to point out the importance of the channel tunnel rail link phase 2. He will be aware that it is a good example of how a special-purpose vehicle can be used effectively. The project is on time and is under budget, and we are confident that it will proceed. It will be unaffected by the changes made as a result of Railtrack going into administration.

My hon. Friend asked me to give assurances to the people of north Kent and east London who want the channel tunnel rail link to proceed. I can give them the commitment that they want: the project is moving ahead; it is on time and on schedule; and we look forward to receiving the benefits of that investment.

Mr. Nick Hawkins (Surrey Heath)

As co-chairman of the all-party railways group, I put it to the Secretary of State that in all his statements on this sorry fiasco he has sought to define three separate categories. He has mentioned the travelling public and employees, and has exhibited his and his Back Benchers' visceral hatred of shareholders and the private sector. However, he has failed to understand that much of the travelling public and an even greater proportion of the employees are shareholders. Will he answer the specific allegation that his inaction between the end of July and early October created a false market in Railtrack shares? He misled shareholders and, in particular, did not discharge his responsibilities in the last week? Having talked about his three Rs, he should add a fourth—his resignation.

Mr. Byers

The decision was taken on 5 October not to provide additional funding for Railtrack. As a consequence. Railtrack could not cover its debts because it could not control its costs. It would be interesting to know what approach the hon. Gentleman would have taken. On 25 July, I received information in confidence from Railtrack's chairman that unless it received more Government money it would not be able to make a going-concern statement on 8 November. Would the hon. Gentleman have expected me to tell Railtrack's shareholders of that on Monday? Clearly not.

There is a conflict in the Conservatives' approach. Information is given to a Secretary of State in confidence, which he abides by and respects, and he discharges his legal duties up to 5 October. Why did not the chairman of Railtrack ensure that his shareholders knew that without extra Government money he would not be able to make a going-concern statement? That is what the hon. Gentleman needs to answer.

David Winnick (Walsall, North)

Should not my right hon. Friend be grateful to the Opposition for raising this subject? It constantly reminds the public of the disastrous privatisation of the industry, the misery that has flowed from it and the vast sums of public money that have gone into private pockets. If I were Secretary of State, I would suggest that the Opposition continue to raise it time and again.

Mr. Byers

I am more than happy to discuss the way forward for the railway industry. As I think I said in my statement on 15 October, the circumstances of Railtrack going into administration are regrettable, and no one will celebrate them. However, now that it has happened, we have a golden opportunity to create a railway network fit for the 21st century. The real challenges lie ahead. We have to put in place changes to franchising, the structure and regulation to ensure that the railway system can respond to the new pressures and demands of the time. That is exactly what we intend to do with the new opportunities that are available to us.

Several hon. Members


Mr. Speaker

Order. We must move on.