Railtrack (Hansard, 25 March 2002)

§ The Secretary of State for Transport, Local Government and the Regions (Mr. Stephen Byers)
With permission, Mr. Speaker, I would like to make a statement on the bid for Railtrack plc made today by Network Rail.
As the House will be aware, Railtrack was taken into administration on 7 October as a result of a High Court order. As Mr. Justice Lightman said at the time:
This is clearly a case where the making of a railway administration order is not only appropriate, but absolutely essential, and I shall therefore make that order immediately. Railtrack was put into administration because it was, or was likely to be, unable to pay its debts. But let us remember also that it had failed to maintain the railway safely and properly. It had failed to gain a proper understanding of its assets. It had failed to manage modernisation projects such as the west coast main line. Let us not forget that Railtrack was at the heart of the flawed and failed privatisation carried out by the Tories.
The Government have always said that what we need is a successor to Railtrack that is focused on the public interest and on the needs of passengers. Railtrack has made some progress during administration under the management of John Armitt, and his appointment as chief executive has been widely welcomed in the industry, but I agree with the Transport Committee, which said in its latest report, the first for this Session: It is imperative that the process of administration be completed as soon as possible. Because of the difficulties in putting together a business plan and the limited knowledge that Railtrack had of its own assets, the administrator has indicated that there will be further delays in launching his competitive process.
What we need is an end to administration, so that the improvements that we all want to see to the country's rail infrastructure can be delivered as soon as possible. There is therefore a value to the Government, the taxpayer and rail users in an earlier exit from administration. Network Rail's bid reflects that approach.
Network Rail says that its proposal could if accepted by the shareholders take Railtrack plc out of administration as early as the end of July this year. Network Rail would be a company limited by guarantee. It would not have shareholders, so it will not be paying out dividends. Unlike Railtrack, its operating surplus will be reinvested in the rail network. Its core focus will be the maintenance and renewal of Britain's railway. It will focus on the needs of the travelling public, not short-term profit for shareholders. It will be able to raise capital for investment more cheaply—a better deal all round for the travelling public.
The Government have always said that Railtrack shareholders should get the value in the company to which they are entitled. Railtrack Group has assets that could be used to provide value for its shareholders. My understanding is that Railtrack Group has over £350 million in cash deposits; it has an interest as owner in section one of the channel tunnel rail link; and it has some property interests.
The Government have indicated that a grant of £300 million will be made available to reflect the benefits of an early exit from administration. I must inform the 582 House that, if such an early exit is not achieved, the money will not be available. An earlier exit from administration, resulting in a more focused and efficient rail network operator, would lead to a quicker realisation of efficiency savings, reduce performance penalties, and allow 10-year plan projects to proceed more quickly.
Network Rail's proposal, based on the concept of a company limited by guarantee, is designed to be more efficient than Railtrack, with lower financing costs and no dividends to pay. That is why the Government are prepared to make this payment. For the Government, it will be self-financing from savings that will be made. It therefore follows that, if there is not an early exit, the savings will not be made, and in such circumstances the £300 million will not be made available.
Since Railtrack was taken into administration, the Government have said that every single penny of taxpayers' money must be used to improve the rail network. That is exactly what the grant of £300 million will do. It will benefit the travelling public, and that has to be our top priority.
The administrator has said that he is actively reviewing Network Rail's proposal in the context of the administration. If today's bid were successful, it would enable a company limited by guarantee to become the successor to Railtrack. As the House will know, the Government have said all along that they view a company limited by guarantee as an attractive successor body.
Network Rail is committed to engineering excellence. Its bid has the potential to bring the rail industry together and overcome the fragmentation that has all too often characterised it in the past.
It is now for the administrator to decide how he should conduct the process in the light of today's bid. He has confirmed that he will treat any further proposals that might be made on their merits. Getting Railtrack out of administration must be done on the basis that it will produce a viable, financially sound company—one that takes a long-term perspective, and that puts the emphasis first and foremost on operating a safe, efficient and reliable rail network.
Taking action on Railtrack has been criticised by some, including the Conservative party—[HON. MEMBERS: No."] Yes. But today's developments demonstrate what, can be achieved. As a result of today's bid by Network Rail, we can now see a railway system that is united and not fragmented; a railway industry with a shared strategic vision; a railway industry that values its employees and will invest in them; and a network provider that will answer to the interests of passengers and not private shareholders.
That is all now possible as a result of today's proposals. We are now in a position to lay Railtrack to rest and to put in its place a successor body that will deliver for the travelling public. On that basis, I commend today's developments to the House.

§ Mrs. Theresa May (Maidenhead)
And so the entertainment continues—as Fred Karno's army parade one by one this afternoon. Today's two statements have one thing in common: from the Post Office to Railtrack, the originator of the problems is the Secretary of State for Transport, Local Government and the Regions.
583 I refer hon. Members to the declaration that I made on 14 January, at column 33 of Hansard.
How many times since Railtrack was put into administration on 7 October last year has the Secretary of State come to the House clinging to his political life only to be saved by the support of the Members on the Benches behind him—support given because of statements such as the one he made last October when he told the House that the Government are not here to fund the shareholders of private companies."—[Official Report, 15 October 2001; Vol. 372, c. 959.], or what he said to the Financial Times, also last October: I can say for certain that there will be no taxpayers money made available to support shareholders. Indeed, in his statement today, the Secretary of State said:
Since Railtrack was taken into administration the Government have said that every single penny of taxpayers' money must be used to improve the rail network. That position was confirmed by the Prime Minister, who made it clear to the House in response to questions from my right hon. Friend the Leader of the Opposition—I note that the Prime Minister is not in the Chamber to support his Secretary of State—in November and December last year and earlier this month, that money should go into improving the rail network and not to shareholders. But what do we see now? The Secretary of State has performed a 180-degree turnaround and there can be no weasel words about new money, extra money or money going to the company or, as the right hon. Gentleman put it earlier, "a grant to reflect the benefits of an early exit from administration". There is only one early exit that would benefit the railways and that is the Secretary of State's.
If the £300 million that will be used to fund the purchase of Railtrack is not new money, what work to improve the railways will be abandoned to pay for it? It is passengers who will pay the price for the Secretary of State's incompetence.
The Secretary of State repeated the point about an early exit: he said, "There is a value to the Government, the taxpayer and rail users in an earlier exit from administration." I wonder whether his indecent haste in trying to conclude the deal has anything to do with his desire to avoid legal action by Railtrack's shareholders. Of course, such action would have required him to explain, under oath, why he sought a court order to wind up Railtrack, given that funds from the rail regulator were available to keep it afloat. Some £300 million of taxpayers' money is being spent to save the Secretary of State's face—because we now know that a deal was on the table that would have compensated shareholders, sorted out Railtrack's finances and brought it out of administration early, and which would not have required money from the taxpayer.
I have this question for the Secretary of State: given his repeated assurances—in and outside this House—to Members, to journalists, to the public and to his own party that this Government would not use taxpayers' money to compensate shareholders; given the Prime Minister's assurance that taxpayers' money would not go to shareholders, but would be spent instead on improving the railways; and given that a deal was on the table to compensate shareholders without using taxpayers' money, 584 why has the Secretary of State broken his word yet again by spending taxpayers' money on compensating shareholders? That is one question—and I expect an answer.

§ Mr. Byers
I will answer in my own way. There was one element of the hon. Lady's question that I agree with—that there is a link between the two issues of the Post Office and Railtrack. On looking back, people will see that it is this Government who are tackling the Conservatives' failure in respect of the Post Office—[Interruption.]

§ Mr. Speaker
Order. Hon. Members must allow the Secretary of State to reply to the hon. Lady.

§ Mr. Byers
The reality is that Railtrack was a Tory creation that was failing the travelling public, and I make no apology for taking action on it; it was part of the problem with our railway system, not part of the solution. The Conservatives would have thrown millions more into it, but it would not have delivered an improvement in our railway system.
The hon. Lady raises a number of important questions. [HON. MEMBERS: "One."] No, there were a number of questions, as I think the record will show. She said that the £300 million will be taken away from other transport projects, but as a result of changes being made that sum will be self-financing through savings elsewhere. The simple explanation is that Network Rail will be able to raise money more cheaply than Railtrack was ever able to do.
On the hon. Lady's specific question, if there was a precise deal on the table that involved spending no taxpayers' money, the Government would consider it. Indeed, as I pointed out in my statement, the administrator has made it clear that, if further proposals are put forward, he will consider them. It is right and proper that he should do so. That is the answer to the hon. Lady's question. If there is a deal on the table, it will be for the administrator to deal with it.

§ Mr. Iain Duncan Smith (Chingford and Woodford Green)
Why make the statement, then?

§ Mr. Byers
I am making the statement because I felt that it was appropriate that the House should be informed. The £300 million is money that the Government are prepared to make available because of the savings that we will make as a result of an early exit.
The hon. Lady raises the question of the winding up of Railtrack. No application was made to the regulator by Railtrack. It could have applied for an interim review, but it failed to do so. Railtrack attended the court, but it did not object to the administration order being made. That is the truth of the situation.
The hon. Lady asked about the statement that not a single penny would go to shareholders as opposed to the railway, but every single penny of the £300 million that we are committing will be used to improve the railway network. That is what will happen as a result of the deal that has been announced today. The difficulty the Conservatives have is that they cannot come to terms with the fact that their creation, Railtrack, is now being laid to rest and the alternative will put the travelling public first.

§ Mrs. Gwyneth Dunwoody (Crewe and Nantwich)
No one doubts that the sooner we have a non-profit-making 585 company in charge of the infrastructure of the transport system the better for every passenger who uses the system. However, in a week in which the Secretary of State has issued letters of comfort to the private companies involved in the public-private partnership on the underground and an extension of the insurance to the aviation industry, I would be grateful if he could now clarify the Government's attitude to finance for transport. If this money is to be found, will the company be compensated from Government funds? If it is to be allowed to do the job that desperately needs doing—upgrading the west coast main line and modernising the other systems—it is essential that the cash is found. Will my right hon. Friend make it clear that in future infrastructure projects will be wholly Government projects or they will be private deals, and that we will see far less of these monstrosities that leave the taxpayer with the ultimate burden but not with the advantages?

§ Mr. Byers
I know that I have a disagreement with my hon. Friend on the role that the private sector can play. Private finance has a legitimate role to play in some of our major public sector contracts. However, it has to be on clear terms of value for money and it has to be for a reason. The reason must be that it will drive up the standard of provision.
In relation to the 10-year transport plan, we have £180 billion that will make a significant difference to the quality of the transport infrastructure. In relation to the £300 million grant that might be made available if there is an early exit from administration, none of that sum will be cut from existing projects because it is money that will be saved because of the efficiencies that will come from a company limited by guarantee.
I shall remind the House of the situation. Railtrack plc came to the Government to ask for additional resources—for £1.5 billion to be brought forward into control period 2. At the same time it was paying £709 million in dividends to its shareholders. There is a clear contrast between the two. The company limited by guarantee will have the interests of the travelling public first, and savings will be made as a result. Indeed, savings will come from the fact that the company limited by guarantee will be able to obtain money more cheaply than was possible for Railtrack. I agree with my hon. Friend that we must be clear about the benefits when we involve the private sector in such arrangements. The greater clarity we have will also be so much to the good.

§ Mr. Don Foster (Bath)
I am sure that the Secretary of State will acknowledge that although Liberal Democrats have been highly critical of the way in which he has handled the administration of Railtrack, we nevertheless gave full support to the principle of a not-for-profit public interest company to replace it. At the same time, we also fully supported the Secretary of State's earlier statement that no additional taxpayers' money should be used to bail out the shareholders of a company that has so badly let down the travelling public. He will be badly letting down taxpayers if he now uses more of their money to provide compensation for the shareholders—because however he seeks to wrap up the £300 million, that is exactly what it is.
Despite the confusion in the Secretary of State's statement, will he make it absolutely clear that only Railtrack plc is in administration, and that Network Rail 586 seeks to purchase the assets of that part of Railtrack Group only? If so, can we be absolutely assured that Network Rail will focus solely on activities that are directly related to improving the running of our railways, and that it will not be bidding to obtain further of Railtrack Group's assets and turn itself into the multi-headed monster that was the Railtrack Group?
Will the Secretary of State explain the basis on which Network Rail has made its bid? On what basis has he apparently given it his full support? As he admits in his statement, it is not the case that the administrators have not yet made available their analysis of the assets or liabilities of Railtrack plc or their method of sale. Can we therefore be absolutely sure that Network Rail has had no access to information that has not been available to other potential bidders? Given the latest revelations to which the hon. Member for Crewe and Nantwich (Mrs. Dunwoody) referred—that the Secretary of State has given written letters of comfort to potential London tube bidders to the effect that they will have to accept little or no liability for future problems—can we be absolutely assured that no such letter has been given to Network Rail by the Secretary of State?
Finally, given that the new chief executive of Railtrack plc has said that he is not yet in a position to judge the financial robustness of any replacement company, on what basis is the Secretary of State so confident, and on what basis can the public be confident? Given that the Secretary of State agrees that the Conservative party sold off Railtrack far too cheaply, is he not in danger of buying it back too expensively?

§ Mr. Byers
The hon. Gentleman has raised a number of points. He is right that Railtrack plc is the body in administration. Railtrack Group is not in administration; it is the parent company and is still functioning. Network Rail has put in a bid for Railtrack plc and wants to operate the licence. I welcome that for the same reasons as the hon. Gentleman—it can be focused on the maintenance renewal of the network, which is crucial if we are to improve punctuality and reliability. I am sure that the administrator has treated everybody who is interested equally, as he would be bound to do. I am sure that he has provided all the appropriate information to any interested party and that he will have discharged his legal responsibilities. Network Rail has brought forward a robust business plan and it is on that basis that the Government have today been able to indicate this level of support. As I said, we believe that a company limited by guarantee would be a good successor body as far as the railway network is concerned.
The letters of comfort can hardly be described as a revelation—I know that not many people read Hansard, but I replied to a parliamentary question last week to make that point. The £300 million will be made available only if there is an early exit from administration. If that does not happen, the money will not be made available, and will therefore not be available to Railtrack Group. We are making that grant available on the basis that we and the travelling public would receive benefits as a result of administration coming to an end earlier than would otherwise be the case.

§ David Taylor (North-West Leicestershire)
Does my right hon. Friend agree that we on the Back Benches deserve a rather fuller explanation of this volte face in 587 relation to the £300 million bail-out of shareholders than he has so far given? Is it not the case that it appears to many that the cosy relationship with the City seems to involve the development of a risk-free zone on transport projects? As my hon. Friend the Member for Crewe and Nantwich (Mrs. Dunwoody) suggested, such projects include the public-private partnership for the tube and the plans for National Air Traffic Services and Railtrack, but why should we cushion speculative investment on public projects from any form of risk whatever? Is that not a disgrace?

§ Mr. Byers
When my hon. Friend has had the opportunity of reading the detail of what I have said this afternoon, I think that he will recognise that that is simply not the case. The reality is that the shareholders wanted £3.60, and they will reflect on what now might be possible. They will look carefully at the basis on which we are prepared to make available the grant. It will be available only if there is an early exit, because we will receive savings as a result of that. No other transport project will be adversely affected.
I ask my hon. Friend to think of where we are today as a result of the action that was taken. Six months ago, the railway network was operated by Railtrack, a company with private shareholders as the paramount concern. We are now talking about our railways being operated by a company limited by guarantee, a body which has one overriding priority—the interests of the travelling public and not private shareholders. I happen to believe that we have come a long way in six months. The Conservatives do not accept that, but we do because we know that we now have in place potentially a successor body for the railway network that will make a real difference, turning away from Railtrack and embracing the interests of the travelling public.

§ Mr. Christopher Chope (Christchurch)
Why is the £300 million not being made available as a grant to other bidders on an equal basis? Everything that the Secretary of State says increasingly suggests that the £300 million is effectively a bribe to a stooge company that is being organised by the Government and on which he will stand in judgment when the rival bids come in. If £300 million of taxpayers' money is available, should it not be made available to all the bidders?

§ Mr. Byers
The £300 million is being made available for the benefits of an early exit. If someone else or another proposal can deliver that early exit, that money will, of course, be available. We have been very clear that there is no favouritism. If another proposal offers an early exit, that sum of money could, of course, be made available provided that the benefits are achieved that we believe would be achieved from Network Rail.

§ Mr. Tam Dalyell (Linlithgow)
My right hon. Friend refers to Network Rail aspiring to engineering excellence. Given that there is the real problem of a shortage of engineers, with poaching from one company to another taking place, what will be done to increase the total pool of rail engineers? They are crucial to any advance.

§ Mr. Byers
My hon. Friend is right to stress the importance of skills in the industry. That is why I was 588 particularly pleased that one of the first acts of John Armitt as the new chief executive of Railtrack was to double the number in Railtrack's graduate intake. It has also increased the number of engineers, and it has set a target of having 1,000 engineers in Railtrack. I believe that, as we move away from the short-term approach to the industry to a more long-term one, the skills deficit will need to be addressed. One of the ways in which that will be done—this was stated in the strategic plan—is through the development of a national rail academy. That offers the opportunity of developing skills in the industry so that we do not have the problem that we face at the moment of not having the skilled engineers, the drivers and the people to make the network operate well. That will change not through the short-term approach that has handicapped the industry in the past, but through a longer-term approach that will deliver the skills that the industry needs for the future.

§ Mr. Gregory Barker (Bexhill and Battle)
On 15 October, the Secretary of State, in respect of paying taxpayers' money to shareholders in Railtrack, said: We believe that it would be wrong to make new money available, and we will not do it."—[Official Report, 15 October 2001; Vol. 372, c. 955.] Has not he completely shot any credibility that he had? Would it not be fair to the travelling public and taxpayers if he did the decent thing and resigned?

§ Mr. Byers
Once people have had an opportunity to see the context of what I said on 15 October—it was in relation to the £3.60 that was being claimed by the Railtrack group—they will see that we are not compensating shareholders. We are putting the interests of the travelling public first. When people have the opportunity of seeing the big change that we are making to the network, as a result of the prospect of a company limited by guarantee taking responsibility for the railways, they will be able to compare what happened with Railtrack with what will happen with the company limited by guarantee. When they can see that and compare the difference, they will know that today's developments are good news for the travelling public.

§ Hugh Bayley (City of York)
As a representative of a great railway city that has hundreds of skilled engineers working for the train-operating companies and a wide range of infrastructure companies, may I say that what the railways need is a clear future for infrastructure, which this statement gives, and it will be widely welcomed in my constituency? [Interruption.] Conservative Members have forgotten that the failure to grant a long franchise extension for the east coast main line was a result of Railtrack's failure to bring forward its costed proposals for the infrastructure renewal. Railtrack was dragging the railways down—

§ Madam Deputy Speaker (Sylvia Heal)
Order. The hon. Gentleman must ask a question.

§ Hugh Bayley
Will my right hon. Friend emphasise the importance of Network Rail bringing forward costed proposals to use the great increase in investment that the Government are putting into the railways?

§ Mr. Byers
My hon. Friend is right to point out the devastating consequences of rail privatisation for the 589 people and the city of York, where literally thousands of jobs were lost as a result of the programme implemented by the Conservatives when they were in government. My hon. Friend is also right that Railtrack failed as far as large infrastructure projects were concerned. The east coast main line was one example; the west coast main line is probably the other major example of that. That is why we want the successor body to concentrate on renewals and maintenance of the network and not to be involved in those large infrastructure projects, where we feel a different mechanism is needed. We are learning from the mistakes made by Railtrack to ensure that Network Rail concentrates on running the network for the benefit of the travelling public. That is what Network Rail wants to do and what we want to happen.

§ Mr. Nick Hawkins (Surrey Heath)
The Secretary of State will be aware that one of the very interested observers of his antics over the railways has been the rail regulator, in whom the Government used to say they had huge confidence. Can the Secretary of State explain why the rail regulator, speaking to the all-party railways group last week, said that he had severe concerns about a company limited by guarantee? Will the Secretary of State explain how his company limited by guarantee will improve on an equity model that would provide a buffer against poor performance, as the rail regulator has put it? While we are talking about the buffers, has not the Secretary of State hit the buffers in a terminal way?

§ Mr. Byers
The rail regulator will have his own views about the company limited by guarantee. I have not heard a report of his comments at the all-party group, but he has not raised with me any difficulties with the idea of a company limited by guarantee. As far as the equity model is concerned, it became clear that Railtrack's difficulty was that it had to put the interests of shareholders first; it had no choice, legally. There was a great conflict between the needs of the travelling public and the interests of shareholders. In the end, legally, Railtrack always had to put the interests of the shareholders first The Conservatives may still believe that that is the right model to pursue; we do not agree. We believe that a company limited by guarantee, which puts the interests of the travelling public first, is far better.

§ Mrs. Louise Ellman (Liverpool, Riverside)
What would the speedy setting up of Network Rail mean for west coast main line modernisation in contrast with the abject failure of Railtrack? How much taxpayers' money did the failed Railtrack cost the people of this country? How much would it cost to keep the administrators in being for every additional month after they are required, as that seems to be what the Opposition want?

§ Mr. Byers
The costs of administration are not borne by the Government. Ultimately, they are borne by the shareholders, so it is not in their interests for the situation to go on.
I know that my hon. Friend is concerned about the delays and lack of progress on the west coast main line, which will go down as the most tangible illustration of Railtrack's failure to manage major upgrade projects. There are many meetings taking place to resolve the difficulties around the west coast main line. That is being pursued irrespective of the position on administration, so in a sense, the issues are 590 separate. Nevertheless, my hon. Friend makes an important point about learning the lessons of the difficulties surrounding the west coast main line and ensuring that the company limited by guarantee or any successor body to Railtrack do not repeat those mistakes.

§ Mr. Howard Flight (Arundel and South Downs)
How can the Secretary of State say that the Government are entirely neutral towards the decision to be taken by the administrator when today's statement to the House is clearly intended to support and prejudice a decision in favour of Network Rail? Is that not yet another case of "Animal Farm" language, which we have seen throughout the Railtrack saga?

§ Mr. Byers
We have been consistent about saying that the model of a company limited by guarantee is attractive, and that is the point that I have been making today. Network Rail has put forward such a proposal, and I think that we should welcome it. However, the point that I made in my statement is that the administrator has made it clear that if there are other proposals, they will be considered. The administrator will look carefully at the proposals and will then make a recommendation to me if it is a transfer scheme. [Interruption.] For the benefit of the House, the Railways Act 1993 is not the basis on which Network Rail has made its approach to the Railtrack group. [Interruption.] No, the House needs to be aware of this. The proposals made by Network Rail are not under the 1993 Act. Its proposals will be voted on by Railtrack's shareholders; they are not for the administrator or the Secretary of State to determine.

§ Mr. Kelvin Hopkins (Luton, North)
My right hon. Friend rightly received unanimous support on this side of the House when he put Railtrack into administration. We thought that that was the right thing to do as a significant step back towards public ownership. The whole railway industry is now in trouble—the train operating companies require extra money, the maintenance companies are in chaos and we know about Railtrack. Given that the railway industry is a natural monopoly, providing a vital public service, and that the ultimate risk is always taken by Government, is it not about time that we seriously considered bringing the industry back into public ownership?

§ Mr. Byers
That is a point of view, but it is not shared by the Government. We believe that the company limited by guarantee model, which has been put forward today and has the interests of the travelling public at its heart, is the best way forward. The benefits that we will get from a company limited by guarantee may not completely convince my hon. Friend but I hope that they might go some way towards convincing him that this is real progress and will benefit the railway industry.

§ Chris Grayling (Epsom and Ewell)
Has the Secretary of State approached the European Commission to seek state aid approval for any of the support that he is giving to the company limited by guarantee, and if so, what was the response?

§ Mr. Byers
It would be premature to do that, but the hon. Gentleman is absolutely right to say that any proposals would need state aid approval.

§ Mr. Jim Murphy (Eastwood)
Like most people in our party and in the country, I welcomed the Secretary of 591 State's decision to take Railtrack into receivership. Can he confirm that his announcement represents the end of the line for public financing for the shareholders, notwithstanding the fact that the Tories are still demanding further handouts for them? In his discussions with Network Rail, will he ensure that on the agenda is not only the modernisation of the west coast main line but the integration of the rail network in the north-west of the United Kingdom, and in particular the link between Glasgow airport and the modernised west coast main line?

§ Mr. Byers
Ultimately, it will be for the Railtrack shareholders to decide whether to accept Network Rail's proposal. If they do, there will be a speedy exit from administration and Network Rail will operate the licence, which will bring real benefits. On integration, there is clearly an issue about the interface between wheel and track, and that is the subject of a Strategic Rail Authority inquiry. On the specifics of developing the rail network in Scotland, there are several major projects that would make a significant difference, one of which is developing the links with Glasgow airport. I know that the SRA is examining that closely, as a result of representations that have been made both by Labour Members and by the Scottish Executive.

§ Pete Wishart (North Tayside)
We have paralysis on the tracks, a rail industry in Scotland that is riven by strikes, a Department that can only be described as bizarre and chaotic, and now we have this astonishing U-turn. Given that the Government were elected on the basis of the song "Things Can Only Get Better", can the Secretary of State think of a time when things were worse for the railways?

§ Mr. Byers
We were never going to improve significantly the quality of rail in the United Kingdom with Railtrack as the operator of the licence. I hope that the hon. Gentleman will agree with that. We had to make big decisions about Railtrack and its successor body. Those big decisions are not easy and are bound to be criticised, but they are the only way in which we can secure real improvements. In the end, we will be judged on whether the punctuality and reliability of our rail network have improved. I believe that the changes in hand will produce real improvements in punctuality and reliability in Scotland, as elsewhere in the United Kingdom.

§ Mr. Ivan Henderson (Harwich)
Is it not a fact that the previous Government were warned several times that the privatisation of our railway infrastructure would be a disaster, and did not the Conservatives privatise it as an afterthought, because our country's finances were in such a mess that they were scratching around for extra cash? Is there any other country that privatised its railway infrastructure in the same way?

§ Mr. Byers
It is true to say that it was a pretty unique form of privatisation. On the £300 million that the hon. Member for Maidenhead (Mrs. May) is so excited about, hon. Members should read the excellent report published by the Public Accounts Committee when the current chairman of the Conservative party was its Chairman. The report shows very clearly that Railtrack was floated and 592 sold for less than £2 billion, and that within 18 months the value of the shares was up to about £8 billion—a £6 billion shortfall for the taxpayers of this country. Conservative privatisation brought a shortfall of £6 billion, as well as worse service on the railways. Our proposals will make a real difference and improve the quality of rail travel.

§ Miss Anne McIntosh (Vale of York)
I remind the House of my interests in Railtrack, Eurotunnel and First Group.
I know that the Secretary of State does not drive, but he has performed a U-turn, and so has the Prime Minister. Why? Is it because he feels that he should not after all have put Railtrack into administration and that he should have taken the advice of the independent rail regulator and granted an interim review, or is it because he is frit of a legal action that would force him to give evidence on oath? This offer is time barred. What happens if Railtrack does not come out of administration, the offer fails and the shareholders get nothing? May I remind him that 90 per cent. of Railtrack employees hold shares? Why has he changed his mind?

§ Mr. Byers
Railtrack could have applied for the interim review; it had the power to do so, but it failed to do so. Its representatives sat in court and did not oppose the petition for administration. The £300 million is available only if there is an early exit from administration. If that does not happen, it will not be available to the shareholders. That is why it is not compensation; it is money that is being made available for the benefits that we, as a Government, will get from an early exit from administration. If the shareholders do not support the proposal, they will lose the benefits and we will not get the benefits, so the £300 million simply will not be available. We will then go through the competitive process, which the administrator will put in place. That will take time, so we will not get the savings of an early exit, which is why the £300 will not then be available.

§ Mr. Gary Streeter (South-West Devon)
In relation to transport, will the Secretary of State please tell the House what part of his job he thinks he has done well since he was appointed last year?

§ Mr. Byers
The taking of Railtrack into administration was absolutely right for the simple reason that Railtrack was at the heart of all that was wrong with our railway network and many of the problems. Conservative Members will disagree with the action that I took in relation to Railtrack—we can all understand why—but I firmly believe that that action was necessary. Railtrack was put into administration because it could not pay its debts or was unlikely to pay them. Most importantly, we are now putting in place a new structure for the railway industry that will provide us with the opportunity to bring the industry together, to get away from the fragmentation and to put the interests of the travelling public first. That is what a company limited by guarantee will do, and I hope that the hon. Gentleman, who is concerned about transport to the south-west, will recognise that those real improvements will be delivered for the south-west as well as the rest of the country.

§ Bob Russell (Colchester)
May I congratulate the Secretary of State on his impeccable timing? He chose to 593 make his statement on the very day when the problems on the Colchester to Liverpool Street line were so bad that my constituents took up to five hours to complete a one-hour journey. I was lucky; my journey took only three hours. Does he agree that, despite the fact that the previous Government caused the problem in the first place, after five years of Labour Government, the situation is worse now than it was in 1997? Who does he blame—himself or the former Transport Secretary, the Deputy Prime Minister? Has he stopped digging, or is he going to fill himself in?

§ Mr. Byers
I have been very clear with the House in saying that we have to take responsibility, and I will take responsibility for the performance not being as good as it should be, which is unacceptable and we must move forward. However, we will never see the sort of improvements that the hon. Gentleman and I want by tinkering around at the edges and playing around at the margins. We have to take the big decisions that will make a difference to our railway industry, which we are now doing. Some people find that uncomfortable, but it has to be done if we are to achieve an improvement in the service from Colchester to Liverpool Street—a line that I know very well—as well as elsewhere in the country. I honestly believe that we can do that, and I think that the measures that are being taken and today's developments will lead us to a far better future for our railway industry.

§ Mr. Michael Jack (Fylde)
Will the Secretary of State tell us precisely from which part of his Department's vote will the £300 million come? Will he be more specific about the savings that he mentions? He says that the costs of administration will be borne by the shareholders, so there appears to be doubt about where the Government will get their savings from. Finally, will he agree to the National Audit Office making an early inquiry into his proposals to ensure that the taxpayer gets good value for money?

§ Mr. Byers
Of course we always co-operate with any National Audit Office inquiry. The savings will not come from the costs of administration to the Government. As with every other administration, those costs are borne by the shareholders, so it is not a call on the Government. The savings to the Government will come about because Network Rail's proposals are designed to be produce greater efficiency than Railtrack. It will have lower financial costs and no dividends to pay, so it will be easier and cheaper for it to raise money. There will be a quicker realisation of efficiency savings and a reduction in performance penalties, which will come about as a result of a company limited by guarantee and the fact that Railtrack is no longer responsible. Those are all benefits and savings that the Government will get, from which we will be able to fund the £300 million without that being a claim on another part of the railway budget.

§ Mr. Julian Brazier (Canterbury)
Can the Secretary of State answer the questions repeatedly asked by a number of my hon. Friends? What has changed since his original statement that has led him to make a U-turn on compensation for shareholders?

§ Mr. Byers
I repeat that the £300 million is available only if there is an early exit. If that does not happen, it is not available, so it is not compensation for shareholders. 594 It is linked to an early exit from administration and the savings that the Government will obtain as a result. There is no change. It is absolutely consistent with the statements that I have made since 15 October last year.

§ Richard Ottaway (Croydon, South)
In response to a question on how the grant is self-financing, the Secretary of State replied that Network Rail will be able to get money more cheaply. Is not that the real reason why he introduced the package today, because if he had not, the City would have charged him higher penalising interest rates for future infrastructure projects?

§ Mr. Byers
No. If hon. Members look at the refinancing deal of some £4.1 billion announced by the administrator this afternoon, it is clear that no premium is being charged by the City. The City makes a clear distinction between the position of Railtrack, a company quoted on the stock market, with all the risks that arise from that, and the public-private partnership approach in which the Government enter into contractual obligations. That is the difference, and it is understood by the City. As a result, no premium has been charged.

§ Mr. Andrew Robathan (Blaby)
Before conjuring up the £300 million that every newspaper describes as compensation for shareholders, what legal advice did the Secretary of State receive on the impending shareholders' action? Was he led to believe that he might easily lose a legal action? Was he told that he might be found to have acted illegally by taking Railtrack into administration without providing compensation and, indeed, to have acted in a manner akin to theft?

§ Mr. Byers
The proposals by Network Rail have been produced because it thinks that this is the right time for it to make this approach. It has nothing to do with any action or threat of action by Lovells on behalf of the shareholders of Railtrack.

§ Miss Julie Kirkbride (Bromsgrove)
The Secretary of State has given an unclear and confused picture of who takes the decisions from hereon in. Can he clarify what he said? Who is going to take the decision to remove Railtrack from administration and go forward with the new company—is it the Secretary of State, the administrator or the shareholders, because he told the House that they, too, will take that decision?

§ Mr. Byers
There are two possible routes to get Railtrack plc out of administration. One is to use the Railways Act 1993, which allows the administrator to propose a transfer scheme to me as Secretary of State. Network Rail is pursuing a different approach, however. It involves a bid for Railtrack plc in which the shareholders decide the outcome. There are two separate routes, one under the 1993 Act and one that has been adopted by Network Rail, which is to make a straightforward bid for the shares of Railtrack plc.

§ Mr. Mark Francois (Rayleigh)
Is not the simple fact of the whole matter that the Government and the Secretary of State in particular forced Railtrack into administration prior to Christmas and that the same Government are now proposing to spend £300 million of taxpayers' money to bring it out of administration? Some trains in my 595 constituency were delayed by up to four hours coming into Liverpool Street this morning. My constituents are utterly sick and tired of the shambles over which the Secretary of State presides. They dearly hope that he will soon depart and that the problems are put right.

§ Mr. Byers
The problems that Conservative Members are referring to have come about because of Railtrack's failure to invest in its assets—that is the truth of the situation. We need to get Railtrack out of administration and get the benefits that will come from that. The Network Rail proposals will do precisely that. We will get benefits and the hon. Gentleman's constituents will get benefits from having a railway network that is far more efficient and effective than it is at the moment.

§ Mr. David Cameron (Witney)
Will the Minister confirm that if an offer is made that does not involve spending £300 million of taxpayers' money, it will be accepted? If not, will he confirm that he will have to issue an instruction to his permanent secretary to accept a deal that does not represent good value for money for the taxpayer?

§ Mr. Byers
If that were done under the Railways Act, an approach would be made to the administrator, and it would be for him to consider it. Today, Network Rail has adopted a different approach, which goes to the shareholders, and I hope that that has clarified matters for hon. Members.

§ Sir Robert Smith (West Aberdeenshire and Kincardine)
Following his earlier answers about who will make the final decision, will the Secretary of State provide clarification? If Network Rail's bid is successful, will not it still need a licence to operate? Is not the licence decision for him to make, and therefore does not he make the final decision?

§ Mr. Byers
I will need to go to the court to apply for the administrator to be discharged from his responsibilities. I will then have the responsibility of allocating the network licence.