§ 2.53 p.m.
§ Lord Taylor of Gryfe asked Her Majesty's Government:
§ When they expect to invite bids for the Scottish region of British Rail (Scotrail) and what is the anticipated return on assets which will be the basis of Railtrack charges on this service.
§ Viscount GoschenMy Lords, it will be for the franchising director to invite bids for the Scotrail franchise. My right honourable friend the Secretary of State for Transport has set him a target for the award of the first six franchises, including Scotrail, by the end of 1995.
Access charges for Scotrail will reflect Railtrack's overall financial regime. Railtrack will be set a target real rate of return on its assets of 8 per cent. to be achieved by 1997–98.
§ Lord Taylor of GryfeMy Lords. I thank the Minister for that reply. Is he aware that, despite the presentations including ministerial visits, the Edinburgh financial community has shown little or no interest or enthusiasm for investing in Scotrail?
Secondly, if he anticipates an 8 per cent. return by Railtrack on investment, can I assume that the valuation on that investment will be at replacement value? If that is so, what charges will Scotrail have to assume on the replacement value at 8 per cent. on the Forth Bridge, which is now 100 years old? Will the Minister give us some idea of what kind of burden will be placed on investors in Scotrail based on those calculations?
§ Viscount GoschenMy Lords, I can reassure the noble Lord that there has indeed been a substantial amount of interest in the Scotrail franchise.
On the second point, Railtrack will maintain accounting information both on an historic cost basis and on a basis which reflects the effect of changing prices on tangible assets.
Lord Bruce of DoningtonMy Lords, would it not be better if the Government were to publish their own detailed calculations on the matter rather than presenting everyone with a fait accompli based on what may conceivably be phoney figures?
§ Viscount GoschenMy Lords, I do not accept the noble Lord's point. Railtrack's newly appointed auditors, Touche Ross, have been asked to advise on the opening values to be ascribed to Railtrack's opening balance sheet.
§ Lord Peyton of YeovilMy Lords, can my noble friend indicate whether there has ever been a time in railway history when it has been possible to earn 8 per cent. on the kind of assets that will be transferred to Railtrack? Does he agree that, if Railtrack's earnings are to be at that level, the charges which it makes to train operators will make running trains very expensive indeed, and travelling in them even more so?
§ Viscount GoschenMy Lords, the point is that the level of access charges levied by Railtrack, and hence its return on its assets, will be commensurate with its being set up as a commercial organisation. The franchise agreement with the operator will take account of the level of those access charges.
Earl AttleeMy Lords, would it not be more efficient to allow Scotrail to be vertically integrated and therefore in full control of all its costs?
§ Viscount GoschenMy Lords, both Houses of Parliament have passed the British Railways Act. We feel that the very best future for railways in this country will be through the privatisation process which we have developed.
§ Lord SkelmersdaleMy Lords, is my noble friend aware that, in a recent Monopolies and Mergers Commission inquiry into the workings of British Gas under the Gas Act 1986, the MMC recommended a figure of between 4 per cent. and 4.5 per cent. on existing assets? Why should Scotrail be any different?
§ Viscount GoschenMy Lords, I believe that the noble Lord may possibly have misunderstood the issue. The return that we refer to is to be made by Railtrack. That is its return on the value of its assets.
§ Lord Carmichael of KelvingroveMy Lords, does the Minister agree that an 8 per cent. return on Railtrack will mean that other parts of the railway network will be under considerable pressure? For instance, does he realise that the subsidy at present given to the Strathclyde regional passenger transport executive—an area which accounts for two-thirds of the Scottish rail passengers—is guaranteed to increase in the first year to meet the charges? Without that important area, the whole system will be in great difficulty. Can the Minister assure us that the subsidy will be guaranteed by the Government until the viability in which the Government believe actually occurs?
§ Viscount GoschenMy Lords, the Government have given categoric assurances both to the Regional Council and to the PTE about the level of funding to be provided for rail services in 1994–95 and thereafter.
§ Lord Mackie of BenshieMy Lords, does the Minister expect a big rush for the franchise from Inverness to Wick? Is that in the Minister's brief?
§ Viscount GoschenMy Lords the Scotrail franchise will be awarded as one unit. Indeed, as I have already stated, there has been considerable interest in that franchise, not least from the Scotrail management team.
§ Lord Taylor of GryfeMy Lords, perhaps I may return to the question which was put much more succinctly by the noble Lord, Lord Peyton of Yeovil. If we assume an 8 per cent. return on the assets of Railtrack, and those assets are calculated on replacement values, as in any other business, how can Scotrail possibly carry such charges and run an economic railway which will attract investors on the one hand and give reasonable fares to the public on the other?
§ Viscount GoschenMy Lords, the franchising director, of course, has in his power the ability to offer subsidy. That will be taken into account in the negotiating arrangements for the franchising agreement. No doubt the successful party which is awarded the franchise agreement will be happy with those financial arrangements.