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Grand Committee
Wednesday, 12 March 2008.
The Committee met at quarter to four.
[The Deputy Chairman of Committees (Lord Brougham and Vaux) in the Chair.]
Channel Tunnel Rail Link (Supplementary Provisions) Bill
The Deputy Chairman of Committees (Lord Brougham and Vaux): If there is a Division in the Chamber, whoever is speaking at the time will be asked to stop and we will adjourn for 10 minutes. Welcome to the Grand Committee on the Channel Tunnel Rail Link (Supplementary Provisions) Bill.
Clause 1 [Powers of Secretary of State]:
Lord Berkeley moved Amendment No. 1:
The noble Lord said: The amendment is also in the name of the noble Lord, Lord Bradshaw. Like many of the amendments, it is a probing amendment. It is about the role of the development agreement and seeks advice from the Minister on its point, operation and structure. Getting the development agreement was necessary for the construction of the Channel Tunnel Rail Link, which has been a great success, but I question whether it is appropriate to widen it to cover the operations of either the infrastructure or the operator, Eurostar. An argument could be made about whether the department’s taking some of the functions of the Office of Rail Regulation as they are applied to the rest of the railway—this will come up on other amendments—complies with Article 4 of directive 1991/14 and the Railway Infrastructure (Access and Management) Regulations 2005, SI 2005/3049; I will give its full title only once. The infrastructure manager and the train operator both have financial links to the department. That is because it would be the department, rather than the rail regulator as on the rest of the railway, which would approve the charges for using the infrastructure and the arrangements for access to it.
My understanding is—perhaps the Minister could confirm it—that the Government are selling the UK share of Eurostar and the infrastructure of the high-speed line, which is called High Speed 1 now. They will also sell off some of the land—I do not think that we are really concerned about that. It is clear that the Government are seeking the highest price for these sales. It is in Department for Transport’s interest to sell these companies in such a way that it can say to them, “We are going to be the regulator of access to and ability to charge for use of the rail link, so that will reduce any regulatory risk that you will take when you become infrastructure manager”. It believes, therefore, that it will get a higher price. In other words, the Government will say to them, “You can fix the charges; you’ve got to fix them in accordance with the regulations”. The
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Before on subsequent amendments we go into more detail about the whys and wherefores of where this might end up, I ask my noble friend whether the Government have checked with the European Commission that there is no conflict with EU legislation in this proposed sale of the UK part of Eurostar and/or the infrastructure manager, coupled with the continuing regulatory oversight of the companies sold by the department and the possible financial links between the sale price and the future regulation by the department rather than by an independent regulator. I think that there probably is a conflict. It looks slightly dodgy.
As I shall say in moving many other amendments, the answer is for the complete infrastructure to be regulated, like the rest of the railway, by the Office of Rail Regulation under various sections of the Railways Act—it started off as Section 4 of the 1993 Act, as amended. From my wide inquiries and discussions around the industry, including with people who work for High Speed 1, people would much prefer that proposal. It would be interesting to hear what my noble friend had to say about the role of the development agreement, the sale and whether the Government’s view is that it complies with European legislation—whether they have actually checked with the European Commission. I beg to move.
Lord Hanningfield: Amendment No. 2 is coupled with Amendment No. 1. It is on a slightly different issue on which I have quite some comments to make, because it relates to our discussion at Second Reading. The first clause reiterates:
the ability of the Secretary of State,
To a certain extent, that is what the noble Lord, Lord Berkeley, was talking about. My point, on which I would like to go into a little detail, is that there was substantial concern in another place about the Secretary of State’s ability to subsidise international operators running on High Speed 1. From the clause, that would seem to allow funding of international services through the Channel Tunnel, and potentially therefore services on the Continent. That would clearly be neither acceptable nor desirable.
The Government have sought to reassure those concerned by insisting that the intention is that the power will be exercised only in relation to domestic services in the longer term. In the other place, the Government were insistent that, in any case, the power of the 2005 Act to support services extends only to Great Britain. That apparently means that the Government could not subsidise international operators, even if they were to try. However, the
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“Clause 1 gives the Secretary of State the same commercial flexibility to support HS1 as she has for the national rail network, including flexibility to subsidise international operators in the same way as we currently support domestic franchise operators”.
The Minister went on to mention that it was not the intention of the Government,
- “to subsidise international services through a franchise or any similar arrangement”,—[Official Report, 19/2/08; col. 146.]
but he said that it was possible, which is contrary to other comments made.
What exactly is the intention of the Government? It now seems that direct subsidy would be a possibility, as no mention was made by the Minister of the precluding 2005 Act, which was mentioned so frequently in another place. Therefore, we seem to have moved to a position of intention rather than legislation ruling out direct subsidy of international operators on High Speed 1. It is for this reason—now more than ever, given the apparent confusion—that provisions should appear in the Bill to prevent direct subsidies to such operators. If, as the Government suggest, long-term funding of international operators is not the intention, will they not accept that my amendment would be a relatively minor concession? Until now, we have been told that it will not be possible due to the continuing need to provide historic support in the short term, which we do not disagree with. In the past, of course, Eurostar UK Ltd was provided with rolling stock, lease guarantees and access charge loans. The Government have argued that any amendment would preclude the provision of such historical support.
I have attempted to devise an amendment that would cover this issue. I appreciate that it may not be the most refined amendment in terms of wording, but the inclusion of a caveat excepting any historic support will, I hope, alleviate the Government’s concern. I can certainly see that removing the support in full would be too stark a change, as I said just now. However, given the level of the Minister’s remarks at Second Reading, what is there to prevent the Government having a change of mind and offering a direct subsidy to international operators? If the intention is for Eurostar UK to be fully self-standing over time, Amendment No. 2 will presumably allow for a sufficient and necessary bridge of historical funding.
Although the Government have repeatedly claimed that accepting such an amendment is not necessary, what is to prevent the Secretary of State offering non-direct support in the longer term? Could not access charge lines, rolling stock leases and other such things be offered in the future? I understand that international services are operated on an open-access basis but, as has been demonstrated, support does not solely take the form of a direct financial subsidy. I therefore suggest that my amendment is necessary and would serve to alleviate both the Government’s and our concerns.
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Lord Bradshaw: I return to the points raised by the noble Lord, Lord Berkeley. It appears that the Bill, which I have heard described as a nasty little Bill in places, simply prepares the ground for the Government to sell assets which have been acquired at public expense. The Government will say that that will be at the best price, but it is in fact a Bill preparing for sale. The Government believe that that sale is on the best terms.
In order for this situation to come into being, the Government have decided that the line will be subject not to the powers of the independent regulator but to those of the Secretary of State. I find it quite objectionable that a railway in this country should not be subject to the powers of the independent regulator. However, it may interest the Minister to know that, in the past 24 hours, I have had lunch with serious bidders for this piece of infrastructure. They are long-term bidders, unlikely to disappear into the dust as fast as they emerge, and interested in buying it to retain it as a railway and fully exploit its potential. They were quite adamant that they would be much happier if it were subject to independent regulation rather than the whim of the Secretary of State, whoever he may be in the future. So if the Government are trying to secure the best price, it can be secured by making the line subject to independent regulation.
Secondly, I draw the report of the European Union Committee on the single market to the Minister’s attention. Although I was not party to that report, I am now a member of that committee and have had a copy of the response from the Department for Business, Enterprise and Regulatory Reform. In it, the Government say that they believe,
- “that Member States should commit themselves to greater independence for national competition and regulatory authorities, and agree to regular independent evaluation, which could be undertaken by the Commission, to benchmark national competition regimes”.
Furthermore, the document says that the Government would like to see greater regulatory co-operation across the EU:
“A flexible regulatory framework will require greater regulatory coordination and consistency coupled with a robust process for reaching agreement on cross-border issues”.
I submit to the Committee that in fact there is much more likelihood of the Office of Rail Regulation reaching agreement with comparable operators on the Continent than there is of the Government reaching agreements with other Governments, which of course is subject to a good deal of political vicissitude.
Lord Berkeley: Surely the noble Lord is saying that the Government as regulator of the CTRL would have to reach agreement with the French regulatory authority rather than the French Government. It is Government to regulator rather than Government to Government.
4 pm
Lord Bradshaw: That may be the case. On the other hand, because it is the Government here it may actually require the Government over there. We know
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I finish the words of the Minister. He says that, overall, the Government
We have two Ministers saying entirely different things. They sit alongside each other on the same Bench and we get different solutions from both of them.
The Earl of Mar and Kellie: I am not sure whether Amendment No. 2, tabled by the noble Lord, Lord Hanningfield, is a probing amendment. Based on what we were saying in this Room only six days ago when we were considering the benefit of substituting rail service for air, we do not want the Bill to do anything that will prevent the commencement of services, say, from Birmingham to Brussels and Paris. Such services would be a very good thing. I hope the Bill will do nothing to prevent that type of alteration to railway services.
Lord Dykes: I rise briefly in support of the amendment proposed by the noble Lord, Lord Berkeley, and endorsed by my noble friend Lord Bradshaw. I have less expertise than they have, but as I raised the issue of the Channel Tunnel rescue scheme for the new mark 2 company last year, I would appreciate the opportunity to register my anxieties, and I think those of a number of Peers, about the confusion that is arising—a matter that has been expressed already by the mover and the seconder of the amendment.
It was very important for the noble Lord, Lord Berkeley, to refer with some emphasis to the idea of a possible conflict with the policy formation of the European Commission on these matters on transport links and railways—it is developing apace in Brussels, as we know—and with the national regulatory authority matrix, which is currently governed by both the Government and the Rail Regulator.
The Government appear to be keen, as far as we can tell, to effect the sale of the infrastructure for High Speed 1 from St Pancras to Folkestone and the tunnel, and the Eurostar service itself. As my noble friend Lord Bradshaw has indicated correctly—and I support this entirely—if the Rail Regulator’s role is removed by this legislation and the Government remain the bureaucratic regulator through the powers of the Secretary of State, that certainly restricts the open market nexus of this matter in respect of any change of ownership. It also therefore makes it more difficult for the Channel Tunnel company mark 2 under Jacques Gounon—mostly with French shareholders now, and in a very successful operation last year in the spring, as we know—to get the best conditions for his company, which is an important matter. There are a number of linking elements and interlocking considerations.
In conclusion, if potential market practitioners and new owners are coming in and saying—as the noble Lord, Lord Bradshaw, indicated—that it is much less attractive to have the Government as regulator, there is a taxpayers’ interest in the
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Lord Bassam of Brighton: I was going to offer the noble Earl, Lord Attlee, the opportunity to speak because everybody else has, and I thought he was missing out. This is an interesting group of amendments, and I listened very carefully to the debate. It is not often that the noble Lord, Lord Bradshaw, gets me so interested and excited about his lunching arrangements, but he managed to do that this afternoon. I shall follow his diary with greater interest in future.
Clause 1 makes clear that the Secretary of State's powers to support the national rail network also apply to High Speed 1. It does not create any particular funding obligations, but is a necessary power for any future Secretary of State who might choose to support services on High Speed 1 in a range of different ways. Amendment No. 1 makes it less certain that the Secretary of State is able to provide any support to train operators on High Speed 1. That could, for example, rule out the provision of any subsidies to the domestic franchisee, even if agreed through a competitive process. As a result, the Government cannot support this amendment, and I hope the noble Lord will withdraw it.
Amendment No. 2 seeks to accomplish a similar goal, perhaps by a different route, which is to prevent the Secretary of State providing financial support to train operators, although it is slightly more complicated. This amendment allows the provision of assistance to domestic services with provision for international services excluded, as we understand it. The amendment is aimed at preventing the Government providing any support to Eurostar when LCR is restructured.
I should start by saying that the power the amendment seeks to clarify—the power to support services in the 2005 Act—extends to Great Britain only. The Secretary of State does not have the ability to fund continental train services under existing legislation, making this amendment otiose. In the other place, the Minister made clear that the Government's intentions are to reduce long-term public support for international services and to ensure that they can be run sustainably on a commercial basis. The Government have supported international operations through Eurostar UK's access charge loan and guarantees of the company's rolling stock lease payments, hedging obligations and ability to pay High Speed 1 access charges. For the purposes of this discussion, I am assuming that that is the “historical support” referred to in the amendment, although the drafting is not, perhaps, as precise as it might be.
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The Government’s long-term objectives are to reduce or remove those types of long-term support when LCR is restructured and to ensure that the business is able to compete as a sustainable stand-alone entity. However, to pull away any possibility of support is probably unrealistic now and undesirable in the longer term.
Amendment No. 2 would constrain the Government's ability to alter the historical funding structures already in place for Eurostar during the restructuring period. If it became possible to deliver better value for taxpayers or to achieve a higher sale price by reorganising the current support arrangements—for example, by rationalising the rolling stock leases—this amendment would prevent us doing so.
Any changes would presumably fall outside the definition of “historical support”, leaving the Secretary of State unable to continue to provide financial support and stripping value from Eurostar. I do not think noble Lords want to do that. No decisions have been taken on when or how Eurostar will be restructured, and this amendment constrains the Government's ability to take commercial decisions in the best interests of taxpayers.
Understandably, noble Lords used the amendment to raise some questions, particularly about the role of the regulator. I shall try to deal with some of those issues now. The noble Lord, Lord Berkeley, asked about the definition relating to development agreement. Clause 5 amends the definition of “development agreement” in Section 56 of the Channel Tunnel Rail Link Act 1996. In addition, the term “development agreement” occurs in four provisions in the 1996 Act, three of which are of a legal and technical nature: Section 21, the duty of the ORR not to impede the performance of the development agreement in carrying out its regulatory duties under the Railways Act 1993; Section 33, the effectiveness of undertakings given by the Secretary of State in the development agreement; Section 40, application of landlord and tenant law to obligations and rights of parties to a development agreement lease; and Section 41, the disapplication of Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 to a variation of the development agreement. The amendment of the definition of “development agreement” in the Channel Tunnel Rail Link Act 1996 has no effect on Section 6 of the Railways Act 2005.
The noble Lord, Lord Berkeley, asked what the point is of the development agreement. Post-construction, we expect this agreement to include the contractual obligations that the Secretary of State will want to put in place to assist the owner of High Speed 1. Those obligations might include capping access charges at an appropriate level; and ensuring that future access and charging arrangements are consistent with competition and other legislation.
The noble Lord, Lord Berkeley, also looked at the interaction with the Commission. We shall be seeking state-aid clearance from the Commission in relation to restructuring. It is worth pointing out the role of the regulatory bodies—there has been some
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I have answered the point made by the noble Lord, Lord Hanningfield, about subsidising international services. It is not the intention of the Bill to do that—only in respect of those international services that occur in the UK. Generally, on the point of the Office of Rail Regulation and the Secretary of State’s role, it is important that there is clarity on key commercial points before any sale process starts. Issues such as the level of access charges will remain with the Government as they will affect the value and the Government will recoup on their investment in High Speed 1. That is a benefit because it enables us to ensure continued investment into the rail network as a whole.
Under the development agreement the Secretary of State oversees access contracts between the High Speed 1 infrastructure operator and train operating companies for High Speed 1 track and stations. Under the Railways Infrastructure (Access and Management) Regulations 2005, the Secretary of State is also responsible for setting a framework for High Speed 1 access charges and ensuring that the charges comply, quite properly, with the requirements of those regulations. The ORR is the appeal body.
It might be worth responding to the point made by the noble Lord, Lord Bradshaw, about regulation by the Secretary of State being somewhat whimsical. I do not think it is; we do not see it that way and the Secretary of State certainly does not see it that way. We are trying to ensure that we have a framework for access charges through a contract. It goes without saying that such a contract would not seek to give the Secretary of State open-ended rights to change the access-charging regime. We have to have a disciplined approach.
4.15 pm
The noble Lord, Lord Bradshaw, referred to EC advocacy of independent regulation. The EC directive which underpins the 2005 regulation permits the regulatory body of railway infrastructure to be the member state—that is, the Government. It is not uncommon for that to be the case across Europe.
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