§ The Secretary of State for Transport (Mr. Alistair Darling)The rail regulator published on 12 December 121WS the final conclusions of his interim review of track access charges (TACs), setting out his determination of what Network Rail needs to spend over the next five years, and how this expenditure should be financed.
I welcome the regulator's conclusions. In total, these represent a significant increase in Network Rail's income requirement over the next five years compared with the conclusions he reached in his October 2000 access charges review, but with a requirement for substantial efficiencies and improvements in performance. It is essential that the industry now works together to ensure that these are delivered.
The regulator is providing flexibility for Network Rail to reprofile its grant payments over time, including increased borrowing by the company in the short term. He has said that he expects Network Rail to use this flexibility. In respect of the years. 2004–05 and 2005–06, as long as he is satisfied that the balance of Network Rail's total income requirements will be met in full by borrowing, the regulator may confirm by the end of February 2004 a lower level of income from track access charges and grants for Network Rail than he has set out. From April 2006 Network Rail will receive the full revenues that the regulator has established.
It is common practice for companies to borrow to fund a peak in investment. I believe that on the basis of the sound financial footing that the regulator has established for Network Rail and the strength of its financial structure, including its proposed securitisation and proposed modifications to its existing support facilities, it should be able to increase its borrowing above the levels presently assumed by the regulator. For 2004–05 and 2005–06, taking account of the flexibility offered by the regulator for Network Rail to increase its borrowing, I expect the results of this review to be accommodated within the Government's existing expenditure total. Final decisions on how to fund the increases beyond that will be taken in the spending review next year.
In line with the Government's fiscal rules which prohibit Government borrowing for current expenditure over the economic cycle, it is appropriate that Government support for capital expenditure by Network Rail is funded through capital grants paid by the SRA, rather than through track access charges paid by train operators. The regulator is providing a mechanism under which the balance between grants and TACs will be also be determined by the end of February 2004.
The total income requirement determined by the regulator is unaffected by the relative proportions which are provided by network grant and TACs. The fact that a high proportion of Network Rail's income may be provided as grant from the SRA does not mean that they acquire any control or influence over the company. Network Rail must continue to operate at arm's length from the SRA. It must focus on meeting the needs of its real customers—the freight and passenger operators. I am sure this point is understood by all concerned.
In February 2003 I laid before the House a letter of comfort to the Strategic Rail Authority (SRA) setting out the Government's commitment to fund the SRA so that it could meet its financial obligations. I am aware that the SRA has a contractual obligation to fund in full increases in TACs resulting from access charges reviews. 122WS In addition, the SRA will enter a contractual commitment to pay the network grants determined by the regulator in his access charges review. Letters of comfort cannot and must not fetter the Secretary of State's discretion, but the letter to the SRA is a correct representation of my current intention in these matters.
In a statement to Parliament in June 2002, I set out the key overarching principles for the regulatory framework for railways. Independent economic regulation was one such overarching principle for which there was an "essential continuing requirement". This remains the Government's position.
In July 2004 the powers of the individual Regulator will transfer to a regulatory board, in line with reforms to regulatory authorities in other sectors. The checks and balances in decision making by a suitably structured Board should reinforce the independence of regulation. The functions and duties of the ORR are not being changed by the transfer to a regulatory board.