TUESDAY 12 DECEMBER 2000

RT HON LORD MACDONALD OF TRADESTON, CBE, AND MR BOB LINNARD

  980. Royal Mail are controlled by a regulator, they have targets, they are expected to meet certain commitments in the same way railway companies are and I have been talking to them since this began. Does it not seem to you that they have contractual obligations, they have been working hard and they have been very badly treated?
  (Lord Macdonald of Tradeston) Indeed. It is clearly something that is of great regret to us because we are very concerned about the delivery of the mail, but I know it is of great concern to EWS as well. They are working hard obviously to keep the relationship with the Royal Mail. Railtrack tell me that they too are trying to ensure that the Royal Mail trains which predominantly travel on the main lines will be improved as soon as possible, but they have also got other priorities concerned with the commuter services particularly around London, so it is a job for them to try and find a balance in all of this. Again, we have the freight companies, Freightliner and EWS, with the Rail Action Group at this moment.

  981. Can I ask how quickly this compensation will come through to these companies? I have a company in my constituency, Links, which took over the old British Rail Red Star Parcels and it has failed because there are no parcels coming by train. How quickly will that company be able to go through all the minefield of recovering compensation? Will your recovery team be giving some direction in this?
  (Lord Macdonald of Tradeston) I am at a disadvantage because the Rail Action Group is meeting at this moment and discussing the freight question. But having brought it to my attention, certainly if there are issues like that on particular companies I will very happily take it up with the companies involved.

  982. Finally you mentioned changes in Railtrack's management. I know it has been a few minutes since you said it but it sounded rather to me like certain sort of creatures jumping off ships. Do you think the recent senior management changes at Railtrack give enough prominence to engineering and technical considerations?
  (Lord Macdonald of Tradeston) That is certainly a concern we have expressed and others have expressed publicly. Railtrack moved to allay those concerns by bringing forward a number of engineers into higher ranks inside the company.

  983. If I could remind the Committee of my interest declared. Is there a crisis in the rail industry, Minister?
  (Lord Macdonald of Tradeston) There is a crisis, indeed I think it is a multiple crisis, as I tried to say unsuccessfully the other day.

  984. In your view has the Government contributed to this crisis?
  (Lord Macdonald of Tradeston) I believe that the Government has tried to manage the crisis. As I said last week, it is a multiple crisis. Part of the crisis is one we have inherited with the fragmentation of the railways and also the lack of investment in the railways over many years.

  985. In your view would you support the separation of the track and the ownership of track from the operation of services on that track?
  (Lord Macdonald of Tradeston) What my priority is at the moment is to make sure the railway gets back and running. I therefore am concentrating all my efforts on making sure that the system as it exists at the moment works as efficiently as possible because to contemplate any radical changes in that at the moment might be destabilising.

  986. Are you prepared to review the role of the Regulator insofar as the performance targets such as punctuality that the Regulator is setting may conflict with the safety requirements?
  (Lord Macdonald of Tradeston) As you may have heard from Sir Alastair Morton, he has a number of working groups sitting at the moment and they bring together all sides of the industry to try and ensure that any perceived conflicts that there might be between efficiency, punctuality and safety are tackled and dispelled. We do not believe, and I am sure Alastair and Mr Winsor have said to you that they do not feel it is incompatible to run an efficient company and a safe company.

  987. When in your view did the problem of gauge corner cracking first become appreciated in this country?
  (Lord Macdonald of Tradeston) My knowledge of it is only since the Hatfield disaster. I am told that engineers were aware of it but not that it had spread so widely or indeed its propagation, as they call it, could take place in rails that were perhaps only a year or two old. I think the assumption had been that the track would have to be much older than that before this phenomenon hit it. We do have studies going on at the moment and we look forward to hearing within a matter of days just what the initial conclusions have been of those studies.

  988. In evidence we took from Tom Winsor, the Regulator, last week, page 25, paragraph 879, I asked the Regulator what would happen if the franchised passenger operators cannot pay the amounts because the numbers of people and amount of freight do not materialise over a five-year period. He told the Committee that they would get it from the Government, the Government would have to pay more. Is there any provision for extra payment if by the end of this year or next year there are fewer passengers and freight travelling on railways?
  (Lord Macdonald of Tradeston) First I should say it is an anticipation shared by the industry that they can get back to the previous levels of passengers on the railway in a relatively short time, and I hope the same will be true of freight although that will need further inquiry. Inside our 10-year plan there are unallocated provisions there which might be able to help fund any kind of unexpected shortfall of that kind, but at the moment we have not made any provision for it.

  989. Mr Grant, on the other hand, said he would accept it if companies went bankrupt.
  (Lord Macdonald of Tradeston) Indeed, I think Mr Grant and Sir Alastair would accept that if a train operating company was not viable then it could indeed get taken over or go to the wall in the normal course of business, but, as you know, Sir Alastair has powers of last resort were a company not taken over but there does not seem to be any shortage of interest in those companies that have been less than financially robust in the past.

  990. How much is this unallocated money?
  (Lord Macdonald of Tradeston) I will let Mr Linnard come in here.
  (Mr Linnard) I have not got the figures with me but it is quite significant in the latter period of the ten-year plan for unallocated transport capital.

  991. I would like to get to the bottom of how much money there was that was not allocated. Presumably you had to fight Treasury to get the money so there must have been some vain hope that it would be spent on something. Are we losing something in order to get the money for this purpose?
  (Mr Linnard) There is a sum of money in the ten year plan, largely in the years five to ten, which is allocated to transport capital but not allocated as between road or rail or the other spending programmes within transport. That is simply because it is impossible to set with total precision the allocation of capital spend across the different modes and across the different programmes.

  992. Are we going to get a by-pass in order to get us out of this difficulty?
  (Mr Linnard) That does not follow.

  993. What does follow? Can you give us some clear information? Presumably you did argue fairly strongly with the Treasury that that money was needed for something. If it was needed for something and if it is going to be spent in a different way, we are not going to get what it was needed for.
  (Mr Linnard) Out of the total expenditure provision in the ten year plan there is a total of about nine billion which is unallocated. One would expect, anyway, that railways would get a proportion of that when the spending priorities and the investment cases become clearer.

  994. Investment as opposed to reimbursement for losing passengers and income.
  (Mr Linnard) Yes. I think that is a distinction that we need to keep very clearly in mind. What Mike Grant was saying, I would imagine, is when he is awarding franchises there is no total safety net that stops a private sector train operator from ultimately going bust. What Mr Winsor, I imagine, would have been saying in the evidence that he gave is that what he has set in his periodic review is the amount, in his judgment, which Railtrack needs to maintain and renew the core railway over the next five years. That is money which is due to Railtrack and has been settled by Mr Winsor in the periodic review.

  Chairman: To increase its payment in dividends.

  995. Would you agree, Minister, that safety on railways over the last 10 years has been infinitely greater than safety on the road? What are you doing to boost confidence in the railways and to encourage people to go back on to the railways?
  (Lord Macdonald of Tradeston) I, of course, agree that railways are a far safer mode of travel than on the road. It is true too that over the past 10 years there have been some significant area of progress in terms of better safety on the railways—signals passed at danger have been coming down steadily across the last decade. If you look at the numbers of serious incidents in terms of collisions or derailments, there is a downward trend there too. We always have to bear in mind that inside those generally encouraging statistics there is the possibility of the awful disasters we have seen at Paddington, Southall and most recently at Hatfield.

  Chairman: Mr O'Brien.

  996. Minister, my interests are heightened when you talk about, if some of these operating companies do not do well there is plenty of other people lining up to take-over; is that correct?
  (Lord Macdonald of Tradeston) From the limited experience we have there has not been a shortage of interest in people looking to take over companies that might have been weakened. There have not been too many companies, as I recall, in that condition.

  997. It is a fact that shares in GB Railways and Anglia Railways franchises have fallen to an all time low and some of the companies are saying that if they do not increase their income, their profits, then they will go to the wall. This is happening. What contingency plans are the Government operating to ensure that any new bidders will take over the consequences of safety and other issues without further subsidies.
  (Lord Macdonald of Tradeston) The Strategic Rail Authority are deferring penalties that they might have been collecting. I also believe that Railtrack's board have taken a decision to try and stand behind companies that might be in temporary trouble for cash-flow, and so on.

  998. Would you agree that, perhaps, some of the problems that are causing a reluctance to invest in rail are because of the fact of the shortage of skilled staff?
  (Lord Macdonald of Tradeston) I think there has been a problem of de-skilling across the railways. We saw it, and also skills shortages created in some areas after privatisation, when, for instance, train drivers were paid off and then there had to be an attempt to recruit them back very quickly after that. We can see too, just on the increase in salaries, for instance, that the shortage of staff there has lead to an increase in salary to try and attract more people into those grades. More broadly it was judged a couple of years ago to be a developing problem and, indeed, the mechanisms were set up to try and increase training in the railways. The comments made by the Department for Employment and Education showed that the take-up, for instance, of some of the vocational qualifications inside the railway are very low. There is a real problem with training in the railways. Of course the 10 year plan with that 60 billion extra investment could exacerbate that. At least the comfort we can take is that if you have a 10 year commitment to investment and expansion then companies should be able to begin to recruit and train with greater certainty than in the past.

  999. Is there any matter or any issues involving the new franchises where they have to apply skills training and there has to be an upgrading of skilled staff in the companies? Is this written into the franchises?
  (Lord Macdonald of Tradeston) I am not entirely clear, maybe Mr Linnard would know.
  (Mr Linnard) It is certainly one of the things that the SRA look very carefully at when they are judging between different bidders and when they are taking decisions on who should be allowed to qualify for bids. I am not sure whether they look specifically at training, but they certainly do look at technical and managerial competence in some detail. What the SRA have also done as a cross-industry initiative is to participate, I think they are actually one of the main movers, in setting up the Institution of Railway Operators to provide a much clearer focus on training and links with the City University, and so forth.