Railtrack Successor Company: Funding (Hansard, 17 October 2001)

§ The Minister of State, Department for Transport, Local Government and the Regions (Lord Falconer of Thoroton)
My Lords, the Government proposed that a private sector company limited by guarantee should succeed Railtrack. Public money would be paid to such a company when it can deliver effective management control over its business, with stronger performance incentives within an appropriate framework of regulation. We believe that would provide greater value for money for public support for both rail users and the taxpayer.

§ Baroness Blatch
My Lords, I am grateful to the noble and learned Lord for that Answer. On Monday this week the noble and learned Lord answered the noble Lord, Lord Palmer, when he asked how the money was going to be raised, in this way: The new company will be able to raise capital on the basis that it will be a company limited by guarantee, with certain assets guaranteed by certain people".—(Official Report, 15/10/01; col. 394.) Who will be the guarantor? What are the "certain assets"? Who are the "certain people"?

§ Lord Falconer of Thoroton
My Lords, in order to raise money, the company will need to have reserves and have the ability to raise debt investment in the City. In order to do that, it will need to have a triple B rating and we will set up a structure to do that. That will enable it to raise the money it needs to continue trading.

§ Lord Barnett
My Lords, does my noble and learned friend share my surprise at the loss of memory of so many noble Lords opposite as to who was responsible for this sorry mess in the first place? Does he also agree that it seems a remarkable success by the present Minister for the directors of Railtrack to be seen as the good guys? The noble Baroness made a good point. What rate of interest is likely to be offered for bonds that may be issued to the new company without any government guarantee?

§ Lord Falconer of Thoroton
My Lords, the ability to raise money in the market on the basis of debt 594 investment will depend upon the credit rating that the company obtains. The higher the credit rating, the cheaper it will be to raise money in the market. A triple B rating—that is the structure we intend to introduce—will be sufficient to raise money at reasonable market rates. Unlike my noble friend, I am not surprised that there appears to be a sudden loss of memory on the Benches opposite as to who set up the structure that led to this.

§ Lord Bradshaw
My Lords, this morning's Financial Times said that disposal will generate large fees for experts. Will the Minister please tell us that we are going to spend more money on the railway in future and a lot less on the experts who seem to jump on every gravy train that noble Lords care to invent?

§ Lord Falconer of Thoroton
My Lords, as we discussed in this House on Monday this week, this is a real opportunity to ensure that we put in place a structure for the railways that delivers high quality service for the travelling public. It is right that we should consult as widely as possible. It is also right that we should take sensible advice for which reasonable fees are paid. We should ensure that there is no gravy train on to which such consultants can jump.

§ Baroness Noakes
My Lords, will the noble and learned Lord answer the questions put by my noble friend? Who will be the guarantor? What are the assets? What people will be involved?

§ Lord Falconer of Thoroton
My Lords, there will be no need for guarantors. The position is that if the company has a triple B credit rating, it will be able to borrow money in the market.

Lord Berkeley
My Lords, is my noble and learned friend aware that part of the problem with Railtrack over the past six years has been that it has not known what its assets are, as we saw after Hatfield? Does he agree that no due diligence could have been carried out when Railtrack was privatised? How will lie ensure that proper due diligence is carried out now so that those who might invest in or lend to Railtrack know what the assets are against which they are making their investment?

§ Lord Falconer of Thoroton
My Lords, it became apparent, during the period leading up to the appointment of administrators, that Railtrack was not aware, for example, how much money it would need to invest for the future in order to survive. It was perfectly plain that there were significant areas where inadequate control had been exercised over a long period of time. That is why I said that there would not be an input of public money until there was effective management control over the business to which that money is to be paid.

§ Lord Geddes
My Lords, to the best of my hearing the noble and learned Lord has still failed to answer the three specific questions initially raised by my noble 595 friend Lady Blatch and subsequently raised by my noble friend Lady Noakes. Will he do the House a service and answer those three questions specifically?

§ Lord Falconer of Thoroton
My Lords, I believe I answered those questions. The critical point is how money will be raised by the new company. The noble Baroness, Lady Blatch, asked about guarantors. I indicated that there will not be a need for guarantors because the company will have a sufficient credit rating to raise money in the market.

§ Lord Faulkner of Worcester
My Lords, does my noble and learned friend agree that there is now a great opportunity to undo the damage that the fragmentation of the railway created? We can now move forward to a situation where there are clear lines of accountability and responsibility so that we get away from the blame culture where everybody is searching for an alibi and looking for someone else to blame when things go wrong.

§ Lord Falconer of Thoroton
My Lord, I believe that this is a day to look forward. It is a day to see that there is scope for a renewed railway which will produce real service to the travelling public.