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Lord Bradshaw: The noble Lord, Lord Berkeley, has raised a very fundamental issue, which applies throughout the privatised industries. In most of the industries there is a mechanism by which the regulator may make provision for "stranded" assets; that is, an asset in which someone has invested money and which, through no fault of his own, becomes useless or less useful and therefore he cannot derive any value from it.
As a totally theoretical example, one could take a power station from which the output is no longer required. There is a mechanism within the electricity regulation for people to compensate—to use the word of the noble Lord, Lord Berkeley—the company for the asset from which the output is no longer taken. That can be replicated across quite a lot of industries. The noble Lord said, "We hope that things do not go wrong on the railway", but almost every week lines are shut for engineering work and the network does not perform as it should. That has a deleterious effect on both freight and open access operators. It also affects franchise operators, but they get some compensation through the franchise arrangement.
The other thing that can go wrong is the economy. The economy has been successful for eight years. I give the Government a lot of credit for that. But if we were to enter a period of economic downturn, cutbacks may be made in expenditure in all departments, and freight and open access operators could be at risk of being adversely financially affected.
I support the amendments of the noble Lord, Lord Berkeley, at least until we have heard what the Minister has to say. This is a real problem, not a joke one. We are not casting aspersions on the Rail Regulator, for whom we have the highest regard but, in the end, if through the iterations between the Secretary of State and the rail regulator the sums do
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not add up and something has to give—we will talk later about closures—we want to know what is to happen, because that is the prospect that faces us.
Viscount Astor: I support in principle the amendment moved by the noble Lord, Lord Berkeley. I see that the Secretary of State will issue guidance to the Office of Rail Regulation. Obviously, the Office of Rail Regulation must be mindful of the guidance. That is helpful, but there is one problem: the guidance affects only the Office of Rail Regulation, not the Secretary of State, who issues it and can change it at any time. The problem is that it is all very well the office having guidance, but it may not have the funding to achieve what the guidance asks it to do.
The noble Lord, Lord Bradshaw, asked, "What happens when the sums do not add up?" That is the point. It does not matter what the guidance says; if there is no money to deliver it, what happens then? That is the fundamental flaw that runs through so much of the Bill, especially Clause 4 and Schedule 4. The Secretary of State—in effect, the Treasury—will have total control of the purse strings. It is the funding that will matter. The Office of Rail Regulation may want to take some decisions that require compensation. The question is: how will it get the money and what will happen? There is a grey area here and we cannot leave it at that.
The noble Lord, Lord Berkeley, said that the Secretary of State can give assurances, and so on. That is perfectly true, but Secretaries of State and Ministers change. There need not be a change of government. From my time in government, I remember giving what I thought was an absolute assurance, but I was then reshuffled to another department a month later and my successor totally ignored what I said. The people who had received the assurance were somewhat upset. So there does not need to be a change of government; it can happen within a government. A different Minister took a different view.
I support the principle, and the Minister might be able to say some helpful things, because we need some clarity on this issue. There is a concern that we are giving the powers for, in effect, commercial contracts to be freely entered into by those in the private sector, and government bodies are going to be amended without any form of compensation. Of course, they will be open to judicial review, legal challenge, and so on.
However, do we really want to set up a system where that will happen? After all, we know that in the forthcoming case on Railtrack—which will arrive in June, just too late to seriously embarrass the Government if the election is on time—we will probably find that the former Secretary of State will be questioned in the witness box for three days. There are 50,000 angry shareholders out there. The Government have had to release a vast number—some 20,000 or 30,000 pages—of documents on this case. That is not a satisfactory position to be in. We want to make sure that we are not setting up any form of legislative process that will allow something like that to happen again.
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3.30 p.m.
Lord Davies of Oldham: I am grateful to those noble Lords who have contributed to this short debate and to my noble friend for highlighting the issue with his amendments. There is a slight note of "harbingers of doom" about, with regard to the overall position. I understand if the Front Bench spokesman opposite may wish to cast a pessimistic air about the future position of the economy, although on every occasion in the past when they sought to do so under a Labour Government they have been substantially rebutted. Even if one verged towards the pessimistic, it would be stretching things a great deal further to suggest that an access charge review might result in a reduction in the capacity, or capability, of the network. If it did, we clearly are not basing this Bill on such a pessimistic assumption—quite the opposite. We are about the expansion of the railway and investment in it; and this Bill is meant to be a facilitator of that commitment.
We are concerned that the legitimate commercial interests of freight operators should be protected. I am sure that my noble friend is aware that an exchange of letters took place recently between the chairman of the ORR and the Secretary of State. The purpose of the exchange was to address the concerns of the freight industry arising from the changes to the process of undertaking an access charges review, which is set out in the Bill in Schedule 4.
Let me make it absolutely clear; we are certainly keen to allay those concerns. There is an agreement that the contractual framework and the regulatory framework, as amended by the Bill, do provide sufficient protection. However, to reinforce those protections, and in the light of the representations made, the Secretary of State will issue, as part of his general guidance to the ORR, additional guidance related to the charges review. I have been keen to emphasise that in previous discussions on the Bill. It is envisaged that the guidance will cover the need to ensure that access charges reviews are undertaken in a transparent and consultative way; the need to take account of the provisions of all existing access contracts; the need to consider explicitly mitigation where necessary, and compensation where it appears likely that the quality or capability of the network could be worsened following a charges review. The Secretary of State will also ask the ORR to advise him during the preparation of the high-level output specification of any case where there could be a requirement for such a mitigation or compensation. In his letter, the Secretary of State also undertook to take account of expected demands for freight services and the interests of freight operators when preparing his high-level output specification.
That should provide the assurance that my noble friend is seeking in Amendment No. 16. It will be recognised that, throughout the rail review, the benefits of independent economic regulation were constantly highlighted by the industry. The issue fits firmly within that framework. The parties to the access contracts should use the remedies within them when there is a breach.
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We have a basic structure on how the matter works that commands the confidence of the industry. I recognise the point raised by my noble friend—and by opposition Members of the Committee who reinforced it—that there is some anxiety on certain aspects with regard to freight. The Secretary of State's response has been positive, and I hope that my noble friend will recognise that in respect of Amendment No. 16.
Amendment No. 19 probably arises from a misunderstanding. The process set out in the Bill envisages a series of iterations between the Office of Rail Regulation and the Secretary of State with respect to what outputs can be delivered for the funds available. Those will take place over a long period, before the Office of Rail Regulation issues its notice which starts the review process. The three months provided in the Bill is sufficient time for the Secretary of State and Scottish Ministers to provide the Office of Rail Regulation with information about their desired outputs and finances, as is of course required under the Bill. I hope that my noble friend will therefore think Amendment No. 19 unnecessary.
Amendment No. 23 is also unnecessary, as the list is permissive. The Secretary of State and Scottish Ministers would not be precluded from including such objectives and standards in the information that they provide to the ORR in advance of its access charges review. We are not concerned with being restrictive in those terms.
We have had the discussion on Amendment No. 26 before. The definition of railway services includes the carriage of goods and passengers.
Amendment No. 30 has the effect of giving any specification prepared by freight operating companies and their customers equal status to those prepared by the Secretary of State and Scottish Ministers. The appropriate place for the freight industry's aspirations to be taken into account is through the route utilisation strategies. There can be no doubt that they will use them. Although freight operators fund the network for the incremental costs of their operations and enhancements in the short run, it is ultimately government who fund the long-term costs of the network. My noble friend will fully recognise that.
My noble friend is aware that the Office of Rail Regulation is permitted to prepare and publish such model clauses for inclusion into track access agreements as it sees necessary. Amendment No. 34 would therefore introduce no new powers. I hope that, on his main amendment—Amendment No. 16, which has occasioned this significant debate—he will accept the reassurance that I have given. On the other amendments, he will recognise that the Bill and the arrangements proposed in respect of it meet the points made.
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