HOUSE OF COMMONS
Third Standing Committee on Delegated Legislation RAILTRACK GROUP PLC (TARGET INVESTMENT LIMIT) ORDER 1996
Wednesday 20 November 1996
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The Committee consisted of the following Members:
Chairman: SIR ROGER Sims
Body, Sir Richard (Holland with Boston)
Bradley, Mr. Keith (Manchester, Withington)
Brandreth, Mr. Gyles (City of Chester)
Bright, Sir Graham (Luton, South)
Chidgey, Mr. David (Eastleigh)
Dicks, Mr. Terry (Hayes and Harlington)
Dixon, Mr. Don (Jarrow)
Etherington, Mr. Bill (Sunderland North)
Hall, Mr. Mike (Warrington, South)
Hill, Mr. Keith (Streatham)
Howarth, Mr. Alan (Stratford-on-Avon)
Keen, Mr. Alan (Feltham and Heston)
MacGregor, Mr. John (South Norfolk)
Mates, Mr. Michael (East Hampshire)
Pickthall, Mr. Colin (West Lancashire)
Ryder, Mr. Richard (Mid-Norfolk)
Shepherd, Mr. Richard (Aldridge-Brownhills)
Tredinnick, Mr. David (Bosworth)
Watts, Mr. John (Minister for Railways and Roads)
Mr. T. W. P. Healey, Committee Clerk.2 3 Third Standing Committee on Delegated Legislation Wednesday 20 November 1996
[SIR ROGER Simsin the Chair]
The Chairman: As this instrument is subject to the negative procedure, and the motion that triggered its referral to the Committee was tabled by the Leader of the Opposition and the hon. Member for Manchester, Withington (Mr. Bradley), I call the hon. Member for Withington to move the motion.
Mr. Keith Bradley (Manchester, Withington): I beg to move, That the Committee has considered the Railtrack Group plc (Target Investment Limit) Order 1996 (S.I. 1996, No. 2551). I do not intend unduly to delay the Committee, but I want to raise some questions with the Minister about the intention behind the statutory instrument. I certainly do not intend to use this opportunity to go over the history of the privatisation of Railtrack and how that was handled—both in the House and outside. I am sure, Sir Roger, that you would not want me to do that. The statutory instrument is important, and we should be absolutely clear what the Government's intentions are regarding their holding in Railtrack plc. I hope that the Minister will answer a series of questions, so that we can be clear about the way forward for investment through Railtrack. Will the Minister clarify precisely how the holding is calculated? The 0.8 per cent. and the 0.45 per cent. target investment limits produce the total of 1.25 per cent. Will the Minister clarify whether that is the maximum investment holding under the first order, or whether that is a slightly smaller amount than the maximum permitted under the first order. If it is slightly less, what is the reason for not taking the maximum eligible under the first laying of the order against investment? Will the Minister confirm that the sole purpose of the Government's holding is to ensure the entitlement of individuals to share bonuses? If that is the Government's sole intention in holding investment in Railtrack, by how much and over what time scale do they intend to divest themselves of that holding—presuming that their eventual intention is to reduce that holding to nil? 4 In Railtrack's prospectus, it was stated that the Government "does not intend to use its rights as a shareholder to intervene in the commercial decisions of Railtrack and does not expect to vote its shareholdings on resolutions moved at general meetings, although it retains the right to do so". If the sole purpose of the Government's shareholding is to meet their obligations concerning share bonuses, can the Minister confirm that there are no circumstances in which they would use their right to vote at general meetings—or, conversely, in what situations they might intervene at such meetings to use their residual shareholding? As I have said, I do not intend to go over the history of the privatisation of Railtrack this afternoon, but will the Minister explain why the Government have decided not to hold what may be called a golden share in Railtrack, thereby having a more substantial shareholding in the company? They could have had much more influence over the future operations of the company than they appear to have under the statutory instrument. Should not the Government should have considered using such a golden share to influence investment policy in Railtrack? In our debates on the Floor of the House last week we identified a number of instances of the progress of crucial investment schemes being hindered, either by delay or by the renegotiation of schemes that had already been proposed and appeared under the British Rail regime to have had approval and which were ready to progress to fruition. The Minister may say that it is the privatisation process itself that has delayed such decisions, but I cannot understand why the Government did not want to take a more hands-on, but arm's-length approach—if there is such a thing. One would need very long arms to be hands on. The Government could have taken a more proactive view of the way in which Railtrack's investment policy operates. We have been led to believe only today that Railtrack has underspent its maintenance budget to the tune of a quarter of a billion pounds. I should have thought that the Government would want to take a firmer view on such expenditure, which taking a larger shareholding may have allowed, rather than using the regulator system and having no direct influence. Similarly, do not the Government want to have greater influence over a track access pricing policy to encourage the movement of passengers and freight from roads to the railway network, for example? The Government could use Railtrack and a strategic arm of government to be more influential in such mattersmatters. They could influence the use of income from property or land sales. We raised that matter on the Floor of the House in our debate last Friday and the Minister kindly agreed to write to me about the precise relationship between such land sales and the proceeds from them. I am not suggesting that I should have received that letter by now, but I mention it to remind the Minister if he is not clear on the position this afternoon. Such influence could lead to the harmonisation of standards for design, maintenance and operational rolling stock, as recommeded by the Health and Safety 5 Executive's report following the Stafford crash. The Government could use their holding to have a clearer view about the operation of Railtrack. Similarly, they could use such influence for the upgrading of the west coast main line—a matter that is very dear to my heart and to the hearts of many other hon. Members. Many people believe that there have been unnecessary delays in investment proposals. Considerable sums—millions of pounds—have been spent on consultants, preparing bids and so on, whereas a much more active approach by the Government could have been used to secure not only the modernisation of the west coast main line but its full upgrade, and the costings involved could have been completed by now. We could already have reduced the projected time scale for the upgrading of that line from the proposed 10 years to a more realistic five years, which the industry believes could be achieved. Again, a more active role by the Government in pursuing Railtrack on such matters could be generally beneficial. If the Government are to fulfil their commitment to shift freight on to the west coast main line and lines linked to it, the full upgrade must include the upgrading of bridges so that schemes such as piggy back will be most effective. Will the Government give assurances on that and will they instruct Railtrack to get on with it, so that upgrading takes place as soon as possible? I hope that the Minister can respond to some of those questions and clarify precisely what the target investment limit is for, how it is calculated and how the Government intend to use that small element to influence future policy on Railtrack's development.
The Minister for Railways and Roads (Mr. John Watts): The order is simple in effect. It places a limit on Government shareholding in Railtrack at 1.25 per cent. of the ordinary voting rights exercisable at a general meeting of the company. The absolute maximum level permitted under the Railways Act 1993 is 1.3 per cent., as the Government's current shareholdings represent 0.8 per cent. of the relevant capital and the Act allows a limit to be set at 0.5 per cent. above that. As the hon. Member for Manchester, Withington (Mr. Bradley) correctly said, the purpose of our current holding is to meet obligations to those private shareholders who will qualify for bonus allocations of shares in 1999. The limit is greater than what is simply required by the shareholding to cover the eventuality that some who subscribed for the shares would not meet the second instalment, which falls due next year, and whose shares would therefore be forfeit and become part of the Government's holding. There is a generous allowance for such a circumstance, although given the shares' performance, it is unlikely that anyone would consider it worthwhile not to pay the second instalment and thus forfeit the share. 6 The 1993 Act requires the order to be made no more than six months after the company has ceased to be publicly owned. The six-month period was set because it was thought it might be needed to verify the exact level of the residual shareholding. The Government have made it clear that they do not intend to use their rights as a shareholder to intervene in Railtrack's commercial decisions and they do not expect to vote at general meetings. To use a 0.8 per cent. shareholding would be a blunt and inelegant way to raise matters directly at general meetings and influence the company's policy. The various arrangements to regulate the industry—particularly the powers of the rail regulator in setting track access charges, the mechanisms by which the franchising director can provide subsidy to passenger train operators to support passenger operations and the freight grant regimes to support rail freight for environmental purposes—are more direct and elegant methods of guiding the development of rail policy in the direction the Government want. The hon. Gentleman asked about the west coast main line upgrade. Railtrack and the franchising director announced that they had reached agreement on a package of investment to upgrade the route to enable the operation of tilting trains, which would significantly reduce journey times. Such services could be in operation by 2002.
Mr. Bradley: I shall not repeat the fact that the press release announced a figure of £150 and not £150 million for the upgrade, although some of us thought that they were probably trying to get away with just £150. Is the Minister confident that the core investment of £857 million, with the £150 million upgrade, will enable the London to Glasgow line to be completely upgraded, tilting trains to be run at maximum efficiency and the track, bridges and other infrastructure to be enhanced, to allow piggy-back operations, for example? Will the sum enable not just modernisation but the full upgrade of the line that the 250 campaign and others wish for so desperately?
Mr. Watts: The core investment programme, which is part of Railtrack's obligation to maintain the standard of its network, is already funded through track access charges and must be fulfilled; the regulator would doubtless intervene if he were not satisfied that that were being done. The hon. Gentleman rightly detected that £150 million would not be enough to pay for that. A properly engineered and costed agreement between Railtrack and the franchising director will give new franchise operators the possibility of running tilting trains to bring about significant reductions in journey times throughout the line. On freight, the studies undertaken by Railtrack on the additional works necessary to permit piggyback operation have not yet been concluded and I cannot comment further on them. The hon. Gentleman referred to revenue from property. He is right that I have not yet sent him my letter on that, although I have a draft of it; I shall tell him what it says and then send him the letter as I promised. It says that Railtrack was vested only with 7 land that was thought necessary for its operational purposes; non-operational land was vested in the British Rail property board and remains in that ownership. None the less, there are development opportunities associated with operational land; in our recent debate I cited the development at Oxford station as an example of that. In order that excessive profits should not be made from the development of operational land, a claw-back arrangement will take back 25 per cent. of the increases in property income, over and above the level that was assumed when the regulator set the track access charges. If the income derived from property—which will go into the single till proposed by the regulator—is above the level assumed in his calculations of the charge that the operators could reasonably set to remunerate Railtrack for the upkeep of the network, that excess will be taken back and taken into account in the resetting of track access charges.
Mr. Bradley: I have not seen the details of the letter, but the Minister seems to be saying that, possibly because of the original undervaluation of the property assets, only 25 per cent. of any excess profit will go back to the taxpayer. Could he justify why the proportion is only 25 per cent. or explain how the figure of 25 per cent. was calculated? Why was it felt that that was a reasonable return on excess profits rather than a far higher figure that would ensure that the taxpayer would not lose out further from the undervaluation that occurred when the assets were sold off in the first place?
Mr. Watts: I probably should not be drawn into a lengthy argument about the valuation of assets. The hon. Gentleman will know that there was no specific valuation of Railtrack's assets; they were floated on the stock exchange and the sum realised for the taxpayer was that which the market judged them to be worth.
Mr. Bradley: The Minister has already stated that no one will decline to take up share options because they have done so well on the market. There was never any question but that their value would rise significantly, because it could be argued that it was a good deal at flotation as they were undervalued.
Mr. Watts: Some people might have been foolish enough to have believed the hon. Gentleman's colleagues, one of whom, who occupied the position that he now occupies—his hon. Friend the Member for 8 Oxford, East (Mr. Smith) now holds the other position—claimed that privatisation would be halted in its tracks. Clearly, the political risks surrounding investment in the privatised rail industry are now much less than they were perceived to be at that time. That is probably a significant influence on the current market value of the shares. Obviously, the appropriate level of clawback is a matter of judgment. However, the 25 per cent. clawback will feed through into reduced charges to train operators. The judgment is that Railtrack should have some incentive to develop its property. For example, hotel or retail developments adjacent to railway stations go a long way towards fulfilling some of the objectives of the Government's transport policy of providing employment and shopping opportunities that do not depend on employees or shoppers using cars. Such developments should be encouraged as part of those green transport and planning policies. If a Government were too greedy in clawing back the profits that might be realised from such developments, there would not be an adequate incentive for them to be built. I am sure that the hon. Gentleman's judgment on that differs from mine and will continue to do so. I think that I have explained the reasoning behind the order and answered the questions that the hon. Gentleman asked. I hope that, having heard my comments, the Committee will endorse the order.
Mr Bradley: I just want to respond to that final point. I was extremely interested to learn that all the property developments that Railtrack undertakes will be part of a wider Government transport strategy to stop people using their cars. I am grateful to the Minister for putting that policy objective on record for the first time. I shall look with interest at future developments by Railtrack to ensure that they comply with that requirement which the Government have now clearly imposed on them.
Mr. Watts: We are not trying to impose an obligation on people not to use cars. However, it is clearly beneficial if developments can be undertaken in conjunction with rail and bus services so that there is no additional dependence on car use. That policy will be assisted by the sort of developments that Railtrack can undertake on some of its operational land.
Question put and agreed to.
Resolved, That the Committee has considered the Railtrack Group PLC (Target Investment Limit) Order 1996 (S.I. 1996, No. 2551).
Committee rose at eight minutes to Five o'clock.9
THE FOLLOWING MEMBERS ATTENDED THE COMMITTEE:
Sims, Sir Roger (Chairman)
Body, Sir Richard
Bright, Sir Graham