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
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]:
1: Clause 1, page 1, line 4, leave out “or railway services on it”
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 the 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 regulations allow higher charges for links such as the Channel Tunnel Rail Link under Article 8.2 of directive 2001/14. However, there are certain conditions attached to that. It is probably contrary to the intentions of the EU legislation, if not the actual text, that the regulatory body—in this context, the department—has had a financial interest in the sale of the two companies.
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.
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:
“For the avoidance of doubt”,
the ability of the Secretary of State,
“to fund the rail link or railway services on it”.
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 Minister made a noteworthy departure from the usual government stance during the closing remarks at Second Reading, saying:
“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.
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.
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 what sort of problems that can lead us into; for example, the intergovernmental commission that exists to regulate safety through the Channel Tunnel, which has proved incapable of moving with the times in terms of the safety regime through the tunnel.
I finish the words of the Minister. He says that, overall, the Government
“will depend crucially on stronger and more independent national regulatory authorities”.
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.
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.
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 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 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 Government rescinding that possibility in this legislation because they would by definition get a higher price for the sale if it remained in the hands of the UK Rail Regulator, the Office of Rail Regulation. That is an important consideration. There are a number of confusing and conflicting elements here that also link up with the amendment tabled by the noble Lord, Lord Hanningfield, on a slightly different consideration, and I have some sympathy for his points as well. It is incumbent on the Minister, if he can, to clarify those points before this legislation proceeds further.
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.
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 confusion in the debate on that. The Secretary of State is not the only regulatory body for High Speed 1. The Office of Rail Regulation also has a very important appellate function, which is how it currently operates. One can fairly argue that it is operated to good and reasonable advantage.
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.
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.
I think I have replied to most of the particular issues raised by noble Lords and, having heard those points, I hope that noble Lords will feel content to withdraw their amendments.
I want to check that the Bill does not in any way box in international services to the stretch from St Pancras to the tunnel. I take the point that the Secretary of State cannot support or subsidise any international services, but would that in any way preclude starting an international train in Birmingham?
I am grateful to my noble friend for his response but I would like a little more clarification on a number of points. The amendment of the noble Lord, Lord Hanningfield, has identified some clear problems. Article 8 of directive 2001/14 makes it quite clear that there must be no discrimination in access charges between operators. A French operator—by French I mean, say, SNCF—a German operator and a British operator all have to be charged the same amount under these regulations for the same type of train. Whether they are subsidised or not does not really matter. I suspect that they have to be charged the same as for a domestic train of the same capability.
The noble Lord has raised an interesting issue which I shall come on to from the other side of the coin in responding to my noble friend. The Minister said that the Secretary of State needs the ability to give financial assistance to this link and to the train operators through Section 6 of the Railways Act 2005. Of course he could do it that way, but the Secretary of State gives a lot of money to the existing railways, to Network Rail and in subsidising some of the TOCs in a way that does not need special legislation.
I am confused about what my noble friend said about the financial situation of Eurostar. I thought the requirement was to have open access on this network. Leaving freight aside—I declare an interest as chairman of the Rail Freight Group and I will talk about freight later—Eurostar surely cannot have any more priority for access on to this line than any new operator that may come in. In other words, Eurostar cannot reserve capacity to the detriment of other operators and should be charged the same amount. If there is a financial problem with Eurostar that has not yet been sorted out, it could perfectly well be done by lowering the track access charges and reducing the subsidy to Eurotunnel. There are many ways of doing it. Can my noble friend say whether there is going to be open access on the Channel Tunnel Rail Link? If there is not, that would be illegal on my understanding.
Of course, the rail regulator has a role in regulating some parts of the CTRL, and no doubt we will talk about that later. My point—I think that the noble Lord, Lord Bradshaw, and some of his colleagues share this view—is that there is no reason why the regulator should not have the same responsibilities as apply to the rest of the network. I am afraid that my noble friend has not persuaded me that the differences between the 1996 Act and this latest Bill cannot be resolved by turning this line into a small part of the rest of the UK network.
Finally, my noble friend says that many regulators in Europe are not independent of government. That is something that the Commission is working very hard to avoid and I think he will find that some regulations come forward from Brussels this year that make it a legal requirement for all regulators to be not only independent of government but independent of train operators and infrastructure managers. Therefore, we may as well draft our legislation in a way that complies with that. I shall be glad to hear his comments.
I am anything but satisfied with what the Minister has said because he has not demonstrated to me what the advantage would be of regulating this rail link differently from any other railway. The Office of Rail Regulation is sufficient in all other cases, so why is it deficient in this one? Is it because the Government hope to get more money?
I think that the Minister used the word “whimsical” to describe something that I had said, but in fact the word could almost be turned back on his department. Since the department has taken over responsibility for ordering rolling stock, for example, despite being told every couple of weeks that 1,300 new carriages are on the way, there are no new carriages. That has seized up the system when under privatisation it was supposed to be fluid. I am afraid I am anything but convinced by what he has said about there being good reasons, other than perhaps those dreamed up by someone in the Treasury, for including this clause and excepting this link from the generality of rail regulation.
I am sure that the Minister did not intend it but I think he has added to the slight confusion among us. It may be wise if he reflects on our discussion today and writes to us. For example, at Second Reading he said that the Secretary of State wanted the flexibility to subsidise international operators but today he has said that that is not true, so he has contradicted what he said at Second Reading.
I believe there is also confusion about what the Bill does to the 1996 and 2005 Acts and how they fit in with this Bill. Perhaps the noble Lord could reflect on all the questions that have been asked today and write to us, setting out with more clarity answers to the arguments that we have put forward. I think that most of us are a little unhappy and uncertain because we have not had the answers that we would like to have had from the Minister.
I join the litany of speakers who say that perhaps the Minister has not answered some of the points raised in the debate with the fullness that we have come to expect from him, but there may be various reasons for that. Not least, the position of the European Commission is still unanswered and remains rather open and vague. I agree that at first sight, prime facie, the Bill, be it nasty or neutral—whichever adjective my noble friend Lord Bradshaw may prefer to use—looks eminently like a technical adjustment Bill. However, one has to be careful about these things, and it is the Government’s job to be cautious in handling matters because the Bill’s implications go wider than its text. That can be the case with a number of what are seemingly adjustment Bills; they can appear to be technical and reasonable, simply providing for contingent possibilities, and yet they can get the Government and indeed the policymakers on UK railways into difficulties.
There is a wider European scene. The background is the gradual coming together of the high-speed networks of European countries. Britain has lagged behind, but now has at least 110 kilometres of high-speed track, whereas France has 7,400 kilometres. Spain is getting together with Germany; Belgium is getting together with Germany and Holland; and France, Italy and Spain are getting together to create high speed networks. While the Minister is conferring with his officials, he is not necessarily listening to the points made in the debate. From the point of view of the UK taxpayer and the UK national interest—being a laggard country in high-speed railways and thinking about the project for the high-speed line to the north and so on—the best bidder for this sale, if it goes through, of the infrastructure plus London and Continental Railways, perhaps as two transactions, may well be the German railway or other private railway bidders from other countries involved in creating the collective network of high-speed trains. I know the Government have been following that discussion quite thoroughly, and it could be very important to getting the right entity bidding. It is important that we get this right and get the best price for the British taxpayers if these transactions take place. Can the Minister be a little fuller in his answers in the second round of this debate?
I think noble Lords are making too much of this. I have checked the record of what I said at Second Reading and I cannot see that there is a contradiction between what I said and what was said in another place, or with what I have said today. Perhaps noble Lords are reading more into my comments and observations than is there. I try to be as clear as I can at all times and do not like to leave confusion.
Let me make a few more observations about open access because I think the noble Lord, Lord Berkeley, was trying to suggest that we might be closing that down. Eurostar will be charged the same as any other operator with the same agreement. Eurostar is an open-access operator and would have to release any reserved capacity that it is not using. It is clear that that is the way we expect it to operate.
The noble Lord asked whether Eurostar would have priority on the line. The answer is no. There is nothing in the Bill that changes the nature of the relationship. New entrants are entitled to access the railway in accordance, as I think I said earlier, with the 2005 regulations. The noble Lord, Lord Bradshaw, made a point about regulation by agreement. Other railways are regulated in the same way as High Speed 1. What is proposed is similar to how the Channel Tunnel and the French railway system are regulated. On the suggestion made earlier by the noble Lord, Lord Bradshaw, that independent regulation would secure more value, that is speculation, but whether a contract with the Secretary of State would be less attractive than independent regulation will depend on what the contract states. It is a key document in defining relationships and comes at a cost. There are relativities here. The details of that contract are not yet developed, although some of the key principles, particularly on access charges, are already understood.
We all need to reflect on this discussion. It has been useful. I can see that some noble Lords need more convincing, but there is nothing in what we are doing here that falls outside the scope of what is currently operational and understood. As the noble Lord, Lord Dykes, made clear, it is important that we achieve best possible value because, as I said earlier, that will enable us to continue the high level of investment that we have more generally made in the rail network.
I am not sure whether I can add anything else today. However, between now and Report stage, if noble Lords want further clarification and better understanding of how we intend to secure best value, fulfil our commitments to open access and so on, I am more than happy to facilitate further discussions.
I grateful to my noble friend. We have had a good debate and we need to reflect on what has been said. When we have read the record, I am sure that we will take up his offer of a meeting between now and the next stage. It will be interesting to reflect on his response to what would happen if a bidder came along and said, “I will give you £X million if it is regulated by you and £X million plus 10 per cent if it is regulated by the regulator”. We will see what the reaction is but, with that, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 2 not moved.]
On Question, Whether Clause 1 shall stand part of the Bill?
I have chosen to oppose this clause standing part of the Bill in order to continue the discussion that we had at Second Reading regarding the development of Waterloo International station. We are of the opinion that the clause should make it explicit for the avoidance of doubt that the Secretary of State is able to fund and develop this vital part of the rail link legacy under the 1996 and 2005 Acts. This is, of course, especially pertinent given that funds are likely to be received following the restructuring and sale.
The decisions about Waterloo International seem to have the air of afterthoughts rather than being timely and properly thought out. In 2004, the decision was taken to move all Eurostar operations from Waterloo International to St Pancras. Part of that deal was to develop the vacant platforms left behind. At that time, Eurostar’s director of communications listed a key benefit of the move as being that,
“domestic commuters will benefit from faster access into Waterloo and the opening of more train platforms”.
Waterloo station sees an estimated 60 million passengers a year, with trains frequently overcrowded and passenger growth set to increase.
I understand that the Government have plans for the station but I have not had a totally satisfactory response to my question as to whether funds raised from the sale of High Speed 1 could be used to address the urgent capacity problem. The Minister explained the Government’s plans as they currently stand more fully in his written response, and I can see from that the costs and timescales of the proposed work. The length of time it will take fully to utilise the asset beyond platform 20 is disappointing. It was mentioned that the timescale for implementation of the project across the south-western network is likely to be 2012 to 2014 due to the twin requirements of rolling stock procurement and platform extension to take 10 and 12-car trains. Have the Government exacting plans in place for platform extension or is the matter to be reviewed in the future? How certain is it that implementation will meet the timeframe?
The Waterloo legacy has already proven somewhat disappointing and any further changes will serve only to add to this. Given the capacity there, I am looking for a firm commitment from the Government on this matter to ease the lives of commuters from Waterloo. I hope that the Minister will be able to provide this reassurance.
There is a danger of course that one will repeat observations made at Second Reading. The capacity at Waterloo has only just been released through the development of St Pancras station as the new international centre. We have been thinking for some while about this and what we would do with the capacity that is there. We have an investment programme which extends into the future, and the noble Lord is well aware of that. This is one of the largest ever investment programmes in developing capacity across the network that we have had in recent decades. I am proud that our Government are taking this forward. There has to be a list of priorities. Of course it is frustrating that we cannot immediately turn the capacity that is there into additional capacity on the network, but it is our intention that platform 20 will come on stream later this year.
As I explained to the noble Lord the last time we had an outing on this issue, certain changes have to be made to track and platform to make use of the other capacity that is there. We shall do that and there is a timescale for it. That is clearly understood. More than that I cannot say, other than that of course the disposal of the CTRL will bring more resources into the department and enable us to expand capacity generally. I do not think there is confusion in our minds about the need to do that; we have made that very clear over the past few months. We are now beginning to roll out the way in which that extra capacity will manifest itself.
I share part of the noble Lord’s frustration but we have a timeframe and plans for investment. We are bringing platform 20 on stream and such matters have to take their place in a list of priorities. I believe that we all share the dream of expanding the capacity of the rail network, and the Government have a responsibility to make that happen, which is exactly what we plan to do.
One cannot make that explicit commitment, as the noble Lord knows. That is not in Treasury rules and is perhaps living in Wonderland. The expectation is that the more finance that is available in general terms, the more we will be enabled to continue our high levels of investment into the railways, on which I know the noble Lord has congratulated us.
In local government, we increasingly try to ring-fence money from sales in a service area for that service area. I suggest that perhaps the Government should think more like that as well. We might get more done on the railways if all this money went back into the rail system instead of to the Exchequer. I could talk about the Thames crossing and all the revenues from that which go into other things. It would be nice if that money could be invested in our infrastructure.
I thank the Minister for his reply. There is concern about platforms being vacant and it is a matter of trying to keep to timetables. Increasingly in this country we say that something will happen but it does not happen until five years later. It would be nice if we could keep to a timetable and see Waterloo improved dramatically because of Eurostar moving to St Pancras. There could be a twin win because we would have St Pancras and a better Waterloo. I tabled my intention to oppose the Question that Clause 1 stand part because I wanted another go at this. I hope that the Government will continue investment in Waterloo.
Clause 1 agreed to.
Clause 2 [Access contracts]:
3: Clause 2, leave out Clause 2 and insert the following new Clause—
“Repeal of ss. 16 and 17 of 1996 Act
Sections 16 (licensing) and 17 (access agreements) of the 1996 Act are repealed.”
The noble Lord said: This is a probing amendment which concerns Sections 16 and 17 of the 1996 Act. The present Bill would amend Section 17, but I want to probe what my noble friend can tell us about Sections 16 and 17. Section 16 concerns licensing—it comes from the Railways Act 1993—and requires all network operators to have a licence. It does not seem to apply to the Channel Tunnel Rail Link. All train operators and infrastructure managers in the UK, which includes not only Network Rail but London Underground and many other railways, must have a licence. These licences contain stewardship obligations, which are imposed either through the licence or in some other way. The licences are either issued by the Department for Transport, with the approval of the Office of Rail Regulation, or the other way round.
I shall not read out the 75 pages of the main licence document which applies in the case of Network Rail, but it is extremely detailed. It is the basis of the Rail Regulator’s regulation of Network Rail and covers stewardship of the network, asset management, insurance, timetabling, co-operation with others, accounting rules, restrictions on the type of business, provision of information, environmental matters, disposal of land and dealing with dependent persons. I see no obligation on the infrastructure manager of the CTRL to have a licence and I am not sure how it will be regulated, even if it is by the department, when things go wrong. I may have missed something.
We have all experienced the regulation of Network Rail, and Railtrack before it, over the years. A network licence and the many sub-documents that go with it are an integral part of the whole operation. I am not sure how that will happen with the Channel Tunnel Rail Link because I do not see it in any legislation. It may be that I have got it wrong and the Minister can put me right.
The amendment would repeal also Section 17 of the 1996 Act. In the case of the rest of the railway, if a customer or operator, be it passenger or freight, wants access to a network, to create a connection or change a station, and the infrastructure manager refuses to reach agreement, the applicant can ask the independent regulator to direct the infrastructure manager to reach agreement, and he can more or less set out the terms. One may say that this does not matter very much for the Channel Tunnel Rail Link, but we may want changes and extra connections in the future. If somebody had bought the infrastructure—perhaps the friend of the noble Lord, Lord Bradshaw, or somebody else—and they turned out to be not so friendly, one might need something like Section 17 to make them reach an agreement, forced on by an independent regulator. I do not see that happening on the CTRL and it worries me. The amendment would repeal the two sections en bloc. This would mean that the normal railway regulatory structure applied to the CTRL, which would be beneficial. I beg to move.
I support what has just been said. On the rest of the railway, the Rail Regulator would be the person who adjudicated when there was a dispute about access. We all hope that many people will want access to the Channel Tunnel Rail Link for various reasons. If the Minister can prevail on his colleagues to scrap the intergovernmental agreement on the Channel Tunnel, there may be other passenger operators—and, I am assured, a number of freight operators—who have plans to link up with the Channel Tunnel Rail Link. If the link is extended towards Birmingham, as was suggested by my noble friend Lord Mar and Kellie, whoever is in the north of England will no doubt wish to have access. Access is important, and the Rail Regulator has a mechanism for dealing with it. If we are reading the Bill correctly and the powers pass to the Secretary of State, we can be certain that the process will be delayed.
The noble Lord, Lord Berkeley, has explained his amendment very well. The combined effect of the amendment will be to bring High Speed 1 within the regulatory regime of the Railways Act 1993 so that the operator would require a licence, and all access contracts would be subject to regulation by the Office of Rail Regulation. It would also give rise to the possibility that access charges for High Speed 1 could be set by a periodic review by the Office of Rail Regulation, although to implement that would require amendment to secondary legislation.
The Government have made it clear that we do not consider that High Speed 1 should be subject to full—
My guess is that it is the interaction of different clauses that puts that in place. Let me take the Committee through the argument.
The Government do not consider that High Speed 1 should be subject to full economic regulation by the Office of Rail Regulation under the Railways Act 1993 in the same way as Network Rail is. We have said that on many occasions. We have already had some of that debate this afternoon. We argue that that regime was designed for a different type of asset base—a complex and historical network—and we do not think it is appropriate for a new single line such as High Speed 1. There is clearly a disagreement about that.
Instead of that lighter touch regulation under the access and management regulations 2005 in relation to access to and charges for High Speed 1 is proposed. That would operate in conjunction with the contractual controls over the operation of the railway that the Secretary of State has under the development agreement, which are considered to be sufficient to balance the interests of passengers, train operators using High Speed 1 and High Speed 1 itself. There is a similarity, if you like, between a licence—which as my noble friend Lord Berkeley quite rightly described is not there in the same way as it is for the rest of the rail network—and the development agreement, which is a contract and describes those relationships in a similar way to those in the national rail licence conditions. Of course that is a public document. It is clear how it is intended to operate.
The amendment would also result in High Speed 1 being subject to more onerous regulation than currently applies to Network Rail. Both the Office of Rail Regulation and the Secretary of State would have regulatory oversight of the railway—the former under the Railways Act 1993 and the latter through her contractual rights under the development agreement and her duty to set the charging framework for High Speed 1 under the 2005 regulations.
We do not consider that this amendment is necessary or appropriate since it would impose an unnecessary burden of regulation. Clauses 2 and 3 aim to ensure that there are clear divisions between what the Office of Rail Regulation does and what the Secretary of State does. The Secretary of State has an important role in regulating High Speed 1. She will maintain oversight of access charging on High Speed 1 because the level and structure of access charges affect the value that the Government will recoup on their investment in any sale.
The Office of Rail Regulation will retain the role it has as the appeal body for any disputes over access to and charges for High Speed 1. That role provides a valuable check that statutory obligations to grant access to the railway on fair and non-discriminatory terms are being properly observed. That right of appeal is very important. As I have said on two or three occasions, the ORR is the appellate body. It can direct High Speed 1 to enter an access contract if at all necessary. I doubt whether that will come to pass but it has that power.
I hope the noble Lord now better understands how we see the relationship and the mechanisms working and why we do not think it is appropriate to use the licensing regime in the way in which he obviously understands it. It is in Section 16 of the 1993 Act.
I am grateful to my noble friend for that full answer. He mentioned that the contents of Network Rail’s licence were effectively covered by the contract between the Secretary of State and the infrastructure manager. I have two questions. First, does it cover safety and standards, stewardship within the licence holders’ network, environmental matters, timetabling and all the other things to do with Network Rail’s licence? Secondly, and most important, is it in the public domain or will it be in the public domain? Network Rail’s contract is very much in the public domain, which is appropriate.
My noble friend referred to Section 17 and said that the ORR can direct High Speed 1 to enter into a contract, but Section 17(1) of the 1996 Act states that it specifically cannot do that. I am not quite sure what that means. Section 17(1) states:
“No directions under section 17(1) of the Railways Act 1993 … may be given to a rail link undertaker in relation to a rail link facility”.
That is why I have suggested that the clause should be removed.
Basically the noble Lord is asking whether the obligations are the same as in the Network Rail licence. No, they are not identical but they are very similar with many overlaps. The High Speed 1 access contracts do not, as a general rule, require the prior approval of the Office of Rail Regulation in order to be enforceable. There is one exception to that general rule in the 1996 Act, which relates to those sections of High Speed 1 which connect with the national rail network. The binding access contracts for interconnecting sections of High Speed 1 infrastructure need prior approval from the ORR unless access is to be limited to that part of the infrastructure used for services on HS1. St Pancras is perhaps the most relevant example. A domestic train operator which wants access to St Pancras in order to provide services on the national rail network is likely to have an access contract which will require the approval of the ORR in order to be enforceable.
All HS1 access contracts should be subject to the same regulatory rules, which is what Clause 2 seeks to achieve. As all access contracts to HS1 are subject to scrutiny by the Secretary of State, this change ensures that train operating companies do not need two sets of regulatory approvals for the same access contract. This has no impact on the ORR’s powers in relation to safety which already apply to the whole of High Speed 1 and will continue to do so. Importantly, it is worth noting that High Speed 1 will be subject to a performance regime which should achieve the same or similar objectives for that line in relation to health and safety, environmental performance and so on.
The noble Lord asked earlier about Section 17 and whether it deals with periodic reviews. I did not respond to that, but it does not. However, the Office of Rail Regulation can carry out a periodic review only if there is provision for that in an access contract. Clearly the ORR regulates access contracts which could contain such a provision.
I hope that helps deal with the noble Lord’s confusion. If it does not, I apologise. I may have confused him further, but I hope that I have not.
I am very grateful to my noble friend. I think that we should probably exchange correspondence and have a meeting before the next stage, but let us leave it there. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 2 agreed to.
Clause 3 [Duties of Office of Rail Regulation]:
4: Clause 3, leave out Clause 3 and insert the following new Clause—
“Repeal of s. 21 of 1996 Act
Section 21 of the 1996 Act (duties of the Office of Rail Regulation as to the exercise of regulatory function) is repealed.”
The noble Lord said: This is similar to the previous amendment but it concerns Section 21 of the 1996 Act and is to do with the powers of the Rail Regulator. As my noble friend said, in the 1996 Act, the Rail Regulator still has powers in relation to the CTRL, but there is one major difference between the regulatory powers and duties in connection with the rest of the network and those in connection with the Channel Tunnel Rail Link.
On the rest of the network, the regulator’s duties basically come under Section 4, which is amended by the Railways Act 2005, but the principle is that he has a duty to promote the use of the network for the carriage of passengers and goods. We debated this matter at length when we considered the 2005 Bill, but that principle still holds good.
Section 21(1) of the Channel Tunnel Rail Link Act 1996, as amended by the Bill, states:
“The Rail Regulator shall have an overriding duty to exercise his regulatory functions in such a manner as not to impede the performance of any development agreement”.
In plain language, that means a duty to make as much money as possible for the infrastructure manager, which, frankly, is what has happened with the Channel Tunnel. Of course, it is not regulated in the same way and it is owned by a private company, but that company has sought to make the charges as high as possible. That has resulted in there being quite a few Eurostar trains—there would be an awful lot more if the prices were lower—and very few freight trains, which are more sensitive to price.
The Government should consider very carefully why this link should be different from the rest of the network, where the regulator has a duty, as does the Secretary of State, to promote the railway for the carriage of goods and passengers. However, here the duty is to promote the railway for the financial benefit of the person who has bought it from the Government. I do not think that that fits together very well with my noble friend’s many statements, in which he has said that he wants to see lots of trains on this route and the expansion of the railway and so on, which of course I support. Here, the company buys the link—whether it is with or without the regulator, I do not know—with the expectation that it can make as much money as it likes, and the Government will encourage that because our regulators will be independent but not quite as independent as the independent regulator.
I look forward to hearing what my noble friend has to say about this. It is very serious that on this line, which, one hopes, will be the first of a number in this country, the developer comes first and passengers and freight come very much second. I beg to move.
When the Minister comes to respond, I hope that he will be able to tell the Committee whether he is satisfied with the amount of freight using the Channel Tunnel or whether he believes that there should be more, and, if so, what he is going to do about it.
The points made by the noble Lord, Lord Berkeley, are very pertinent. In the end, people and freight will use a system which is at market price. If it goes above market price, there will be a lot less traffic than would be the case if it were at market price.
I would like the Minster to be fairly explicit in his response as to whether it is the Government’s intention to use this railway line and set prices which are reasonably attractive to both freight operators and passengers, or to set the prices high and squeeze whatever they can out of the people who can pay and, as it were, devil take the hindmost. It is important that this national asset is used for public benefit.
The amendment would remove the Office of Rail Regulation’s duty from the 1996 Act not to impede the development agreement—which I ought to make plain to the noble Lord, Lord Berkeley, as I thought I had, is a public document—when carrying out its functions under the Railways Act 1993. That duty has been in place since 1996. It is still relevant today. If it were removed, it could have an adverse effect on the value the Government would secure for the taxpayer on the sale of High Speed 1. Potential investors might well be concerned that the ORR’s regulation of the national network could have unintended consequences for HS1’s revenues if this duty were removed.
The circumstances where the ORR would have to take this duty into account might include: if a train operator wanted to run international services on parts of the main domestic network; or if a line were blocked because of engineering works, and services on HS1 had to use the domestic network, or vice versa. Without Clause 3 it is possible that either of the two scenarios I have described could occur and, in the case of the first example, that could potentially drive Eurostar out of business. The overriding duty gives the Government and any potential investor in High Speed 1 comfort that its interests will be fully taken into account. It is designed to protect value overall, so, for those reasons, we cannot support the amendment.
In moving his amendment, the noble Lord, Lord Berkeley, said that the overriding duty is about making money. We do not quite see it that way. The purpose of the duty is to provide security over stability of income, and not to tie income to any particular level. Access charges will be capped by a contract with the Secretary of State.
The noble Lord was concerned about competition. High Speed 1 access charges will be set in accordance with existing and future European rail directives, which are intended to promote competition. High Speed 1 has, as we know, spare capacity which the Government are keen to see used.
The noble Lord, Lord Bradshaw, asked whether it was the intention to set prices high. It is not. Consultation proposals for international passenger services would substantially reduce access charges. There are currently no proposals for freight access charges, but High Speed 1 is carrying out market studies to gauge the level at which charges should be set to attract freight traffic. I have made it plain in the past that we see that as highly desirable.
The noble Earl, Lord Attlee, asked me whether I was satisfied with the level of freight going through the tunnel. No, I do not think that anybody could be satisfied with the level of freight; we obviously want to see more of it. In the end, of course, it must be a commercial matter for Eurotunnel to agree with freight operators. The Government have already agreed some limited support for freight services generally. I do not think that we are, as the noble Lord, Lord Bradshaw, seemed to think, setting access charges too high. We are setting them at an affordable level, and that is certainly the intention. Obviously, we want to ensure that HS1 is well used and that the traffic in it develops over the next few years because it has tremendous potential, as I think we all recognise.
When the Minister writes to us, will he be explicit about a number of issues? First, he just said that we want to encourage international traffic. Will he explain what the Government are doing about the intergovernmental commission? It is using the Channel Tunnel as a drawbridge against this country by setting safety standards that are not set by the Swiss, who have just opened a massive tunnel through the Alps, or elsewhere in Europe. The Government shelter behind saying that it is because of a treaty with France, but treaties can be altered. Everything the Minister said about encouraging traffic comes to nothing unless he deals with that problem.
Secondly, I am sure that the best price will be secured by independent regulation because that is what bidders want. They do not wish to be subject to the whims and fancies of any Secretary of State. They trust the Rail Regulator, whose processes are open. People can go along to hearings, have their say and hear what other people say. It is not like that in Marsham Street, where the doors are locked and what goes on inside is a mystery to us all and sometimes bemuses us. Lastly, the Minister spoke about wanting more freight and said that Eurotunnel comes into the consideration. Eurotunnel has shown its commitment by purchasing locomotives with the object of pulling freight trains. What is needed is access at a price that freight operators can afford.
I think we need to go back to first principles. This Government rescued this project. If it had not been for John Prescott, when he was Secretary of State with responsibility for this, we would not be where we are now with High Speed 1 and this important cross-channel rail link speeded up on the UK side. There has been no lack of commitment from the Government on this project. The noble Lord raised a valid question about the international government agreement. We always look to perfect these things, and discussions continue. It is important that we do as much as we can to encourage better freight use of this line. I cannot be clearer than that. That is where we are in terms of our policy objectives. I understand some of the frustrations experienced by those who quite rightly lobby on behalf of getting more freight on to our network, but we are doing our best.
What goes on in Marsham Street might be a mystery to the noble Lord, but I can speak with confidence when I say that we in Marsham Street are determined to make sure that we get best value from this line. It is a superb piece of rail engineering, and we want to ensure that in future it operates well commercially, in a commercial framework, and delivers what we expect in getting more passengers on to the rail network and, over time, building up and strengthening the freight sector.
We have had a good discussion on this amendment. Before I withdraw it, which, of course, I will, I remind my noble friend that the European Commission’s proposals already strongly suggest that the body that organises access to a piece of infrastructure and determines the charges should not only be separate from train operators and infrastructure managers but should be separate from the Government. My noble friend said, “This is the way the French do it”. I do not think France is a good example. Rail freight in France has gone down by 40 per cent in the past five years. The service quality is, in parliamentary language, not good and they are about to change it. I think we will find proposals coming from the Commission to make it a legal requirement that the regulatory body across Europe should be totally independent in the future, which I think will be beneficial. I shall be ashamed to have to come back in a couple of years’ time to change the regulations or the law because we have not foreseen what the Commission will do.
One of the benefits in the UK is that freight has grown by 60 per cent in 10 years, partly because of government policy. I commend them not just for that—they also rescued the CTRL, which is great—but for having an independent regulator. Having a partly independent regulator in the CTRL does not send the right message to the market. I shall leave the matter there and no doubt we shall return to it later. I shall read what everyone has said with great interest. In the mean time, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 3 agreed to.
Clause 4 agreed to.
Clause 5 [Meaning of “development agreement”]:
On Question, Whether Clause 5 shall stand part of the Bill?
Clause 5 concerns Section 56 of the 1996 Act, which is full of definitions. As all the other definitions effectively concern the construction of the link, and as we have already discussed the fact that there should not be a development agreement but that there should be another way of regulating and having licences instead for the link, there did not seem to be much point in having Section 56. However, I am sure that my noble friend will say that many things still need to be included and that it is just a tidying-up exercise following the previous discussion on the development agreement.
The clause amends the definition of “development agreement” which, as my noble friend has observed is in Section 56 of the Channel Tunnel Rail Link Act 1996. LCR designed and constructed HS1 in accordance with the terms of the development agreement that it signed with the Secretary of State in February 1996. That agreement contains the terms of the concession to operate the railway, which will continue post-construction. To reflect more clearly that the provisions of the 1996 Act referring to the development agreement continue to apply during the operational phase of the railway, this clause amends the definition of “development agreement” to include “operation”. It does no more than that. There is not much else to say about that clause.
5: After Clause 5, insert the following new Clause—
(1) The Railways Infrastructure (Access and Management) Regulations 2005 (S.I. 2005/3049) are amended as follows.
(2) After Regulation 11(9) insert—
“(10) For the avoidance of doubt, it is hereby declared that this Regulation applies to a rail link facility.””
The noble Lord said: I move on to the 2005 regulations. A few weeks ago, my noble friend responded to my Written Question about the network statement for the CTRL, which I submit, under these regulations, should have been produced when the first section opened in November 2006. It is now one year and three or four months later: we have seen a draft network statement, but we have not seen anything else. As my noble friend said, the charges are still being discussed. I tabled this amendment because if Network Rail had been a year late with publication of a network statement, it would have been fined £5 million, £10 million or £20 million. The CTRL is a year and a bit late. Is my noble friend going to fine it? What is he going to do about it? It has not got very far with its charging proposals. As he said, it is still discussing the matter. It is good to have the discussions, but why this delay? It again indicates a slightly cosy relationship compared with that between the Rail Regulator and Network Rail, which jolly well does produce its network statement in time. It is a very fine document.
Can my noble friend give me some assurance that, while the Secretary of State is the regulator in this respect, the Government will try to enforce the regulation as it should be so that we get a network statement that is meaningful? The noble Earl, Lord Attlee, asked why there is no freight on the line. The answer is that the freight does not know how much it is going to pay. How can it start preparing a service if it does not know how much it is going to pay? I rest my case. I beg to move.
I want to think carefully about what the noble Lord has said. I think that we may be working at slightly crossed purposes here. I am not entirely sure what the noble Lord is really after. Regulation 11 of the Railways Infrastructure (Access and Management) Regulations 2005 requires an infrastructure manager to publish a network statement. That has to contain information prescribed in the regulation, including details of access charges and the procedure for requesting access to the railway. Decisions of the infrastructure manager in relation to the network statement have to be produced in accordance with Regulation 11 and can be appealed to the Office of Rail Regulation.
We do not think that there is any uncertainty about whether Regulation 29 applies to HS1—it does. For that reason, we think that the proposed amendment is wholly unnecessary.
Furthermore, the addition of these words to Regulation 11 would call into question whether other provisions in the 2005 regulations, which do not contain similar “clarifying” wording, also apply to the rail link. Therefore, the amendment could give rise to doubt rather than avoiding it. I suspect that there is an unintended consequence at the root of the noble Lord’s amendment.
I cannot comment on freight charges. It is not for me to talk about that today; it is a discussion for another time. I understand the point the noble Lord makes. Clearly, the cost of access is a consideration. We had some discussion in the House when we were debating this issue some months ago. The point was fairly made by the noble Lord, Lord Bradshaw, and others—as well as the noble Lord, Lord Dykes, who is no longer here—that it is clear that there has to be some movement commercially on that issue; otherwise, we will not be able to achieve better access for freight to the Channel Tunnel, which would be a missed opportunity, as we all agree.
Is this not just going back to the point that if the Rail Regulator was responsible, the infrastructure provider would come forward in a timely manner with the regulations? Is this not the point that we have been driving at all along? The Department for Transport is not an efficient regulator, and probably never will be, because it never sticks to the sort of timescale that the Office of Rail Regulation does. A quinquennial review does not mean later in the year or sometime next year; it means five years. We are driving at that preciseness on which business decisions have to be made, and which is being sought by the would-be purchasers of the rail link.
Noble Lords have been banging on about this issue all afternoon, but the arguments do not get any more persuasive; they are merely being repeated.
I am trying to take a balanced view of the current debate. Noble Lords are making one fundamental mistake here: there is no proof that one sort of regulation will necessarily be better or worse than the other. This is not an argument that I would normally deploy but, given the importance of maximising the value of HS1, it would be a foolish Government who did not ensure that they made timely decisions about the way in which the line works. There is a great deal of political pressure on the Secretary of State to get things right. That is an important pressure point because the Secretary of State is a visible and accountable figure.
On the issue of network statements, the subsidiaries of LCR responsible for managing the line have network statements. When HS1 is consolidated, it will be a single company and will have to produce a clear network statement. There is also a right of appeal in that regulatory mechanism.
The noble Lord, Lord Bradshaw, made a point about periodic reviews being every five years. There is no proposal to subject HS1 access charges to periodic review within the life of the concession. I am not quite sure how relevant the noble Lord’s observation is in that context. Perhaps he can better explain his concern.
I cannot agree these amendments because I am not sure that they take us any further.
Possibly the Minister’s reply has elevated what I call the protection of the back of the Secretary of State, who is accountable for the protection of the interests of potential users. This will go on for much longer than the life in office of any particular Secretary of State.
I am grateful to my noble friend and the noble Lord, Lord Bradshaw, for their comments. I particularly like my noble friend’s comment that the department was keen to make timely decisions on the network statement, which is already one year and four months late. I had better leave it there before I suggest finding someone again. In the mean time, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
6: After Clause 5, insert the following new Clause—
(1) The Railways Infrastructure (Access and Management) Regulations 2005 (S.I. 2005/3049) are amended as follows.
(2) In Regulation 12 the following are revoked—
(a) paragraphs (3) and (4), and(b) in paragraph (8), the words “and (4)(c)”.”
The noble Lord said: The amendment refers to the charging regime relating to Regulation 12. I do not want to repeat what I have said before—we will all get tired over this—but it will be interesting to see how the charges come out. We have spoken about the return on the investment. The people running High Speed 1 have been helpful over freight and have offered 20 train paths a night in each direction. There has been some debate about how it should have been built and whether it has been built to the design for 300 kilometres an hour or 120, but I think that has been resolved. The key is to get continental gauge trains into Barking, Dagenham and places like that. That would bring enormous benefit to rail freight, assuming, as the noble Lord, Lord Bradshaw, said, the Channel Tunnel comes right.
According to the European directive, the charges for freight have to be short by a marginal cost, but there is still to be an allowance for mark-up or financing up to the level of how much the market can bear. It is very interesting, because the regulator is doing exactly the same thing in his review of Network Rail’s access charges. I heard one of his senior people this morning explain how the charging worked. There is a limit to it, which is based on the level of charging that any market sector can bear. The regulator defines a market sector as spent nuclear fuel, coal and things like that, so they are quite constrained. I do not know who will make these decisions for the Channel Tunnel Rail Link, because it will not be the regulator; it will be the Department for Transport, taking advice, I presume, from people who want to make as much money as possible on the line.
We have a long way to go on this. I shall not speak further at this stage, except to say that setting the charges will make or break the link. It is surprising that nobody has picked up on the fact that, nearly a year and a half after the link opened, there is no freight on it, even though it is designed for it. Not even rates have been set. I beg to move.
As the noble Lord will know, access charges for HS1 must be set in accordance with the charging framework established by the Secretary of State through the development agreement—I have explained that several times today. The amendments would change that arrangement so that the charging framework would be set by the Office of Rail Regulation by way of a periodic review. We do not think that HS1 should be subject to full economic regulation by the Office of Rail Regulation—I have made that clear in earlier debates. That regime was designed for a different type of asset base—a historic and complex network—and is not appropriate for a new, single line such as High Speed 1.
Instead, we want lighter-touch regulation under the Railways Infrastructure (Access and Management) Regulations 2005 in relation to charges for HS1, as proposed. It is anticipated that the charging framework will be set by the Secretary of State and will enable the infrastructure manager to recover operating, maintenance and renewal costs from train operators, plus a charge to reflect the level of investment in the railway. That investment recovery charge is likely to be subject to a maximum cap. There are no proposals at present to make the charging framework set by the Secretary of State subject to periodic reviews, although there will be scope for variation by agreement with the infrastructure manager.
The level and structure of access charges will affect the value which the Government recoup on their investment in any sale. If that value is to be maximised, potential bidders need certainty that they will remain stable post purchase.
The ORR will retain its role as an appeal body for any disputes over charges for High Speed 1, so it has that important checking responsibility. It will ensure that statutory obligations to charge on a fair and non-discriminatory basis are observed, which should give comfort, particularly to the freight sector. I am grateful to the noble Lord for his amendment, which has enabled me to restate our position with, I hope, more clarity.
7: After Clause 5, insert the following new Clause—
“Role of Secretary of State
(1) The Railways Infrastructure (Access and Management) Regulations 2005 (S.I. 2005/3049) are amended as follows.
(2) The words “or, in the case of a rail link facility, the Secretary of State through the development agreement” are revoked from—
(a) regulation 13(1),(b) regulation 13(3), and(e) paragraph 2(1) in Schedule 3.(3) The words “or, in the case of a rail link facility, the Secretary of State,” are revoked from—
(a) regulation 16(1), and(b) regulation 28(2).”
The noble Lord said: The amendment relates to a slightly different aspect of the regulation of the CTRL. It interests me, because, as noble Lords will know, the Office of Rail Regulation is going through the process, which has taken about two years now, of reviewing Network Rail’s access charges, including how much money it needs to operate and maintain its network in a stable condition. In the last periodic review, it required Network Rail to reduce its charges over the five-year period by 31 per cent, and I think that Network Rail is more or less on line to achieve that. The regulator told us this morning that he was minded to ask for much the same reduction in the next five years. At the moment, Network Rail is not very happy with that and the debate is continuing. This issue is also tied in with how much money will be available through HLOS, as my noble friend will be fully aware.
However, that is not the point. The regulator has found that Network Rail will probably be required to reduce its costs—not its charges—by 60 per cent over 10 years. As the Channel Tunnel Rail Link Act and the Bill now stand, the role of setting the infrastructure manager’s costs will, as I understand it from Regulation 13, be down to the Government. Therefore, how does my noble friend think that the Secretary of State will do for this rail link what the Rail Regulator is doing for Network Rail? The regulator is spending two years and putting enormous time and effort into carrying out international comparisons right across Europe and North America to check on Network Rail’s efficiency so that its costs, and therefore its charges and also the amount of money that the Government have to pay, come down. Presumably, under Regulation 13, which concerns infrastructure costs and accounts, the same thing will happen with the CTRL. Do the Government mind how much CTRL spends and charges or will they be watching that? If so, how will they do what the regulator does for the rest of the railway network? I beg to move.
Again, this simply underlines the fact that the department does not really know what it is taking on in terms of regulation. The Office of Rail Regulation has a highly skilled and quite well paid group of people. As the noble Lord, Lord Berkeley, mentioned, it has spent a large sum of money overseas accurately benchmarking the costs and has then proceeded to enforce its views quite vigorously on Network Rail. Will that really be done by the department? I find it impossible to understand that as it is a very skilled job. To mention another industry, the Civil Aviation Authority has just completed its review of the charges at the London airports. Looking at the way in which Ferrovial’s shares shot up in price yesterday, there must be some doubt, even after all the work that has been done, as to whether it has done it efficiently. Therefore, the department is taking a huge burden on its shoulders, and it is one which I think it may live to regret.
In these debates, there is the risk of repetition in the moving and responding speeches, and I apologise in advance for that.
I remind the Committee that under the Railways Infrastructure (Access and Management) Regulations 2005 the Secretary of State has the function of setting the charging framework for HS1. Ancillary to that function, she is also required to make provision to ensure that infrastructure expenditure for HS1 balances with its access charge income, public funding and surpluses from other commercial activities. She must also ensure that the infrastructure manager has incentives to reduce costs and the level of access charges, and she has also to approve the levying of mark-ups charged by the infrastructure manager in accordance with the requirements of the 2005 regulations. In addition, she must ensure that access charges levied by the HS1 infrastructure manager comply with the requirements of the 2005 regulations—notably, as I have observed before, that they are levied on a fair and non-discriminatory basis. The Secretary of State is also able to establish a framework for the allocation of capacity on HS1 but is not required to do so. The amendment would transfer these ancillary functions to the Office of Rail Regulation.
As I have explained, the Government consider it important that the Secretary of State should retain responsibility for setting the charging framework in order to secure best value in a sale of the railway. On the basis that she will do so, the Government’s current position is that these directly related ancillary functions should also be retained by the Secretary of State rather than be transferred to the Office of Rail Regulation.
That said, certain of the functions to which these amendments relate are of a supervisory nature—for example, the requirement to ensure that the charges set by the infrastructure manager comply with the requirements of the 2005 regulations. There may be a case for transferring those supervisory functions to the ORR in view of the expertise and resources that it has in that area. The Government propose to consider this more carefully once the charging framework for HS1 post-restructuring is more certain. That will probably be of some comfort to the noble Lord, Lord Berkeley.
The noble Lord raised the issue of the Secretary of State’s ability to define the HS1 cost base. We do not think that it is an overly complex matter—the asset is far less complex than the historical rail network. We are not sure that the burden will be so great. After all, it is a bit more like a new road. We will, of course, ensure that there are incentives to reduce costs. We see that as very important in this case.
I am grateful to my noble friend. He would be very wise to use some of the ORR expertise for some of this cost checking. I hear what he says; this is a new railway and maintaining it should not be too difficult. However, there are tunnels, bridges and high-speed track, and I suspect that the ORR employs somewhere between 100 and 150 people to look at the costs of Network Rail and work out how to get them down, which is a significant amount of work. I am pleased by what he said—if I understood him correctly—about using some of the ORR’s expertise. This is again something to follow up. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
8: After Clause 5, insert the following new Clause—
“Separation of infrastructure services and carriage services
For subsection 14(1) of the 1996 Act substitute—
“(1) A nominated undertaker may operate the works authorised by this Part of the Act for the purpose of providing infrastructure services.
(1A) A nominated undertaker may use the works authorised by this Part of this Act for the purpose of providing services for the carriage of passengers or goods.
(1B) There shall be no financial link between the nominated undertakers providing services under subsections (1) and (1A).””
The noble Lord said: We are nearly there. Amendment No. 8 is a probing amendment and is designed to encourage my noble friend to confirm that the nominated undertaker for the infrastructure manager of High Speed 1 will be totally separate—financially, corporately and in everything else—from any train operator that uses it in compliance with the current and expected EU rules and the regulations that we have been discussing at length. I am still interested in who will own Eurostar UK in future, how the sale will be made and how the sale of the infrastructure will be made. Will it be by competitive tendering, by negotiation behind closed doors or what? Is there a timescale for it? This is a tidying-up amendment. I am sure that my noble friend will be able to answer all these questions and confirm that the nominated undertaker will be separate from the train operator. I beg to move.
We have been over this territory before, but it is perhaps worth setting it out some more. The Bill is a preliminary step towards the restructuring of LCR's constituent businesses. One of the purposes of that restructuring is to separate those three businesses—HS1 infrastructure, its interest in Eurostar and its property business—and sell them. The first sale anticipated is that of the HS1 infrastructure, which is planned to take place in 2009. As a result of that sale, Eurostar and HS1 will no longer be in common ownership, and therefore the vertical links that currently exist will be removed without the need for legislation.
A key reason for separating LCR's constituent businesses is that they will attract different investors as and when they are disposed of. Whoever the future infrastructure and train operators are, they will of course have to comply with relevant UK and EU legislation, including competition and open access regulations. Of course, it is possible that the new owner of HS1 could have interests in other train operating companies which may run services on HS1. There are existing legislative provisions to address the potential conflicts to which such an interest could give rise.
Specifically, the Railways Infrastructure (Access and Management) Regulations 2005, which implement EC directives in relation to access to railway infrastructure, require that the infrastructure manager and any associated train operator each prepare separate accounts, and that the infrastructure manager responsible for setting charges for and allocating capacity to the railway is—in its legal form, organisation and decision-making—independent from an associated train operator. If it is not, it is required to delegate the function to an independent charging body and independent allocation body respectively. It also requires that there is no cross-subsidy of public funds provided to either the infrastructure manager or train operator.
We consider these provisions are sufficient to deal with the potential conflicts of interest that this amendment is designed to prevent. We seek to achieve what the noble Lord would like to see put in place but we do not think that his amendment is necessary or would give effect to that end. We think we have got it about right.
9: After Clause 5, insert the following new Clause—
(2) The following are revoked—
(a) regulation 18(12),(b) regulation 28(4),(c) regulation 29(8), and(d) regulation 29(9).”
The noble Lord said: I am grateful to the Committee for its forbearance. I am not going to spend too long on this one.
Framework agreements for access rights would be particularly applicable to Eurostar. I think the latest EU regulations say that formal access rights can only last for a year or something, but you can have framework agreements for rather longer. Another arm of the Department for Transport has been seeking a framework agreement for Crossrail trains of 50 years, and the regulator is suggesting that 30 years is all right for that one. Does my noble friend have any views on how long it would allow Eurostar to have a framework agreement for using the Channel Tunnel Rail Link? I think that he said it would not have a take-or-pay contract, but if I am wrong he could correct me.
What kind of a framework agreement would be planned for Eurostar? The standard on the rest of the railway is not more than 10 years. I beg to move.
This amendment is a tidying-up provision following on from earlier amendments. It appears to give the Office of Rail Regulation rather than the Secretary of State the function of supervising negotiations between the HS1 infrastructure manager and a train operator to ensure compliance with the requirements of the 2005 regulations. It would also remove the obligation on the ORR to consult the Secretary of State and take account of her representations before taking a decision on an appeal in relation to HS1.
I have already explained why it is considered important that the Secretary of State should retain responsibility for setting the charging framework in terms of best value. On the basis that she will retain this key function, it is clearly sensible that the Office of Rail Regulation should consult her before taking a decision on appeal in relation to HS1.
Likewise, the Government’s current position is that the Secretary of State should retain the ancillary function of supervising access charge negotiations. Having said that, it is recognised that, as I said earlier, there may be advantages in transferring some supervisory roles to the Office of Rail Regulation in the future because of its particular expertise. I gave a commitment that we will consider that issue once restructuring proposals are more certain.
A third change, which I notice is introduced by the amendment, is directly related to the proposal to bring HS1 access contracts within the ambit of ORR regulation. The Government do not consider that that will be appropriate, given that it would result in a situation overlap—or, if you like, dual regulation—by both the ORR and the Secretary of State. We resist the amendment for those reasons.
My noble friend asked how long it would be before the Eurostar access framework was in place. We have not taken decisions on that. We will be looking at precedents, including Crossrail, which he mentioned, but we have not yet reached a view on that. I cannot advise my noble friend further than that. I am grateful to him for this and the other amendments, which have enabled us to set out at greater length our view on some of the issues that I recognise fully concern the noble Lord.