Network Rail (Hansard, 15 July 2002)

§ Viscount Goschen
asked Her Majesty's Government:
What influence they will have over the management of Network Rail.

§ Lord McIntosh of Haringey
My Lords, the Government will not have new statutory or other powers over the management of Network Rail, but the Strategic Rail Authority will have a non-executive director on the board of the company and will set a framework within which Network Rail must deliver a required output.

§ Viscount Goschen
My Lords, given that Network Rail will be operated in accordance with the Strategic Rail Authority's strategic plan; that it will be regulated by the SRA; that its accounts will be incorporated in those of the SRA; and that the SRA, a government body, will be providing an equity cushion—a de facto guarantee—how can that company be determined to be a private company?
Secondly, will the Minister now answer the Question that I asked his noble friend Lord Macdonald of Tradeston on 27th June: how much will that synthetic structure cost the taxpayer in the additional costs of borrowing commercially, rather than on the gilt market?

§ Lord McIntosh of Haringey
My Lords, the noble Viscount is right to say that the National Audit Office has ruled that Network Rail will be a subsidiary of the Strategic Rail Authority and that the SRA's accounts will include Network Rail's assets and liabilities. That accords with generally accepted accounting principles. It is also true that the Office for National Statistics, which is of course an independent body, has ruled that Network Rail is not a public sector company. It made that ruling in line with the European standard of accounts 1995. Different rules are produced for different purposes. We as a government intend as far as possible to accord with generally accepted accounting practice and have been outstandingly successful in so doing.
I am not familiar with the exact question that the noble Viscount asked my noble friend Lord Macdonald, so I shall have to write to the noble Viscount about that.

§ Lord Barnett
My Lords, on the question of accounting practices, can my noble friend confirm that the Government are guaranteeing the overdraft of the new company? Under the new set of accounts that the Government will have to prepare under their latest Bill, will that not appear as a contingent liability of the Government?

§ Lord McIntosh of Haringey
Yes, my Lords, my noble friend is entirely correct. That will appear as a contingent liability. The credit facilities will be provided by the SRA—they constitute a large sum at present because there has been a substantial lack of investment. Under the 10-year plan, we propose an annual investment in the railways, on top of running costs, of £4.6 billion a year on average, which is three times the figure devoted to the railways during the 10 years before 1997.

§ Viscount Astor
My Lords, is not the Answer that the Minister should have given to my noble friend Lord Goschen that Network Rail has fallen between two stools? It is not a government organisation, so it does not have the advantage of being able to borrow cheaply on the gilt market, which could save it hundreds of millions of pounds a year; but it is not a private company, so it does not have the advantage of private sector involvement and accounting ability? It is a mess.

§ Lord McIntosh of Haringey
My Lords, as for the advantage of private sector accounting ability, Network Rail will have roughly 100 members, of whom about 40 will be from the rail industry. The rest will represent the public interest and the Strategic Rail Authority.
As for what Network Rail will have to pay for its finance, we shall see. Clearly, bridge finance will need to be provided—the current amount is up to £10 billion. But Railtrack was taking money from the taxpayer on a very large scale after privatisation and before we got a grip of it. Let us see. I think that 960 Network Rail will be able to arrange longer-term credit facilities, in the manner that Eurotunnel did rather successfully.

§ Baroness Thomas of Walliswood
My Lords, one way or another, very large sums are being provided for the new company by the Government. How will the Government explain to ordinary people, whose money in effect it is, how improvements will be obtained in three of the matters that cause the most concern: first, the lack of a proper engineering ethos within the former Railtrack; secondly, provision of safe and reliable services now; and, thirdly, the rapid increase in capacity of our rail services?

§ Lord McIntosh of Haringey
My Lords, the formal answer to the question asked by the noble Baroness is the one that my right honourable friend the Secretary of State gave in his Statement on 27th June: the performance targets will be aligned to the Strategic Rail Authority's long-term plans, as well to Network Rail's obligations to its customers under its network licence. But the noble Baroness is right to say that the public will have to be convinced that that is the case.

§ Baroness Noakes
My Lords, the Minister explained that the Government chose to follow European rules to keep Network Rail off the Government's balance sheet. Can he give one good, substantive reason for doing that? Can he explain how the Government differ from Enron, which also chose the accounting that suited it best?

§ Lord McIntosh of Haringey
My Lords, the Government did not keep Network Rail off the balance sheet, it was the Office for National Statistics, which is independent of government, which decided to act under ESA 1995, with which the noble Baroness will be familiar. That is how we have to account to other European member states, so that serves a useful purpose. It is certainly entirely different from Enron, which concealed the fact that matters were off its accounts. We have been public in every way on the matter; we have declared everything to Parliament; we are in no way worried by such accusations.