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Channel Tunnel Rail Link (Supplementary Provisions) Bill

Volume 700: debated on Monday 31 March 2008

Report received.

1: Before Clause 1, insert the following new Clause—

“Regulation of the rail link

(1) From the day twelve months after this Act comes into force—

(a) any railway undertaking operating on the rail link will be subject to regulation under the Railways Act 1993 (c. 43), the Transport Act 2000 (c. 38), the Railways Act 2005 (c. 14) and the Railways Infrastructure (Access and Management) Regulations 2005 (S.I. 2005/3049), and(b) any reference to a “rail link facility” in those Regulations shall cease to apply.(2) In subsection (1) “rail link” has the same meaning as in the 1996 Act.”

The noble Lord said: My Lords, it was nice to listen to the finale of the Climate Change Bill and to hear the congratulations which followed it and the unanimity described. In this case, the Minister faces opposition from all sides of the House.

In Grand Committee, the main point the Minister made concerned getting the best deal for the taxpayer. I have reread that debate and the only plausible argument—it is not a sound argument—put forward by the Minister concerned the independence of regulation. In the debate following the report of the European Committee, his noble friend Lord Jones of Birmingham said:

“On regulation of the railway sector, I entirely agree that the focus should be on free, undistorted, liberalised and competitive markets. In the same way that the Government have influenced the energy sector with a view to opening it up, so we will continue, I assure the House, to work with the European Commission in pushing for a better regulated and more competitive railway sector. The Government would like to see greater regulatory co-operation across the European Union. The key is co-operation; the key is independence of regulators”.—[Official Report, 14/3/08; col. 1705.]

On the day of that debate we saw the noble Baroness, Lady Vadera, in her office. She reiterated the Government’s commitment to independent regulation. She banged the table and said, “That is what we believe in”. In the Regulatory Enforcement and Sanctions Bill, the next Bill to come before the House, the noble Baroness, Lady Vadera, has tabled an amendment to Clause 71. Amendment No. 102 provides for the independence of the economic regulators of the Gas and Electricity Markets Authority, the Office of Fair Trading and the Office of Rail Regulation. In all, five bodies have been excepted from the general regime laid down in the Regulatory Enforcement and Sanctions Bill which applies to other regulators.

These regulators have been excepted because each of them was set up by statute and their duties are clearly defined in statute. These duties include granting access rights and reviewing the efficiency with which the infrastructure operator conducts its business. If the regulators feel that an infrastructure operator is charging too much or is being inefficient, they say so. It is not a question of saying so when it suits the department, which we all know can be a changing feast; the department may or may not make up its mind, this year, next year or sometime never. The rail regulator has to produce a quinquennial review to a very strict timetable.

The Minister’s arguments have turned on two things. On the question of the independence of the regulator, the Government are speaking with two distinct voices. It is incompatible that you should argue in this Bill for the department to carry out the regulation and argue for the independence of regulators in another Bill. In Grand Committee, I repeated that I had been told by a significant and serious potential purchaser that it would rather have the competent, consistent regulation of the Office of Rail Regulation than the kind of regulation that would undoubtedly be operated by the department as part of the political process, which could change, not change or not be issued. Anyone who invests wants certainty and the potential purchaser would choose to be regulated by the Office of Rail Regulation, which it has become used to and which operates with other rail regulators in Europe. The noble Lord, Lord Berkeley, may have something further to say on this.

I am sure the noble Lord would never accuse me of being a half-hearted friend of the railways. I am absolutely consistent in my support of the railways. I have received in the past few weeks—they passed through his hands—some terrible, evasive answers which have not given information, given misleading information or given information that does not answer the question. We want satisfaction on this issue. When the Minister responds, I hope he will either give us satisfaction or say that he will take the matter away, talk to other Ministers and come back with a formula that satisfies us. This is a serious issue and I am not playing around. I beg to move.

My Lords, I support the amendment, to which I have attached my name. I shall not repeat what has been said, but it is important to note that the Bill as it stands will increase the regulatory remit of the DfT. However, with the DfT also being the vendor of both the infrastructure and the UK arm of Eurostar, it could result in a number of potentially damaging consequences, including higher access charges, lower levels of utilisation and conflicts of interest, as well as all the other consequences mentioned by the noble Lord, Lord Bradshaw.

It is essential that we avoid these pitfalls and I hope the Minister will be able to give us some reassurance on this. The ORR should be the economic regulator of the CTRL. Independent regulation is essential for consistent and robust governance and we should promote it in the House. We all echo the points made by the noble Lord, Lord Jones, who advocated that governance should depend upon strong and independent national regulatory authorities. He also said that he was taking a particular interest in this legislation. I repeat what the noble Lord, Lord Bradshaw, said: we need more satisfaction on this issue before we complete the process of legislation and I hope the Minister will be able to help us today. I support the amendment.

My Lords, I, too, support the amendment, which is designed to create the same regulatory framework for the CTRL as happens on the rest of the network. As my noble friend says, if the text is inadequate perhaps he could suggest some improvements, but that is the intention.

As both noble Lords who have already spoken have said, the idea is to enable the independent regulator to fulfil duties not just to set the original charges in accordance with the regulations, which is very important, but also to be able to manage—actually, “manage” is probably the wrong word—or to oversee the operation of the infrastructure manager and, if necessary, require it to introduce efficiencies.

To return to the setting of charges, there is no doubt at the moment that the lack of charges is putting off other operators from using it. The noble Lord, Lord Bradshaw, mentioned a potential investor. I happen to have met today another equally credible investor who could buy the infrastructure manager. I got exactly the same answer to my question as the noble Lord did. It is not a question of whether the regulator would provide a better deal than the Department for Transport would. For the past 10 to 15 years the regulator’s office has established a precedent, a method of operation and a credibility that make it probably one of the best regulators in this country and certainly the best in Europe—although the latter is maybe not saying a great deal. I shall come on to that.

These companies are saying they want certainty. It is the risk of changes of mind by the Department for Transport, or changes of policy, that they cannot price. These investors start off, not with the politics of the House of Lords or the House of Commons, but with a spreadsheet, and they do not like uncertainty. Even though they may be told by the Department for Transport, “We’ll make sure the charges are really high so you’ll get lots of lovely revenue and therefore you can pay us more”, they will not believe it. They will probably realise that, as with the Channel Tunnel, high charges do not necessarily mean extra revenue.

Here we have two investors, whom we happen to have met, who are saying that they would much rather have the thing regulated by the Office of Rail Regulation alongside the rest of the railway. Then we would probably pay more than if it were not, which to some extent puts paid to my noble friend’s argument that the Government want to do it this way because they will get more revenue. If he has evidence from other investors—if I and the noble Lord, Lord Bradshaw, have got it wrong—we would like to hear about it. At the moment, that is my view from the point of view of the investors.

Then there is the question of those who will run trains on the line. We shall come to this again when we discuss the second amendment in the name of the noble Lord, Lord Hanningfield. One of the operators I have spoken to who wants to do this said, “Since we don’t know what the charges are going to be yet, or the regulatory framework, we are not investing in the equipment that needs installing in the locomotives to enable them to work with the signalling on this line”. They have delayed investment.

As I mentioned briefly in Committee, there is still no approved network statement nor any charges, nearly two years after the first bit of the line opened. If this had been regulated by the ORR from the start, the infrastructure manager would, quite rightly, have received a hefty fine. If you do not know how much you are going to pay, you are not really going to bother to decide whether you are going to run trains on the line. You do not know whether you can do it without making a loss. This is another example of the lack of stringent regulation that we find because the ORR is not doing it.

I return to the costs. One usually finds a relationship between the costs of maintaining a piece of railway and the charges. The regulator, as we all know, is doing an enormously complicated assessment of how much money Network Rail needs to maintain its network. It is likely to say, “You already reduced your costs by 31 per cent last time and this time we will probably want somewhere between 20 per cent and 30 per cent”. It is easy to say that the Channel Tunnel Rail Link is a new line and it will be very efficient, but it is actually being operated by Network Rail at the moment under a kind of subcontract from the present owners. I suspect that if the Office of Rail Regulation got its teeth into this, it would find ways of saving money even now and might well say to the operators, “You can save 20 per cent in the next five years”. Again, the lower the costs, the lower the charges and the more traffic that will use the line. It is really quite simple.

I look upon the noble Lord, Lord Jones, as a kind of ambassador for many good things that we do in this country. He made a speech during a debate on 14 March, when we were focusing on energy and transport issues. While he is going around the world, he clearly believes that the kind of private sector arrangements we have here for the network industries and the regulation that goes alongside them are something that we are proud of. Personally, I am proud of what is happening on the railways now; it is rather good. The noble Lord said in the rest of the paragraph, which the noble Lord, Lord Bradshaw, did not quote, that:

“A flexible … framework will require greater regulatory co-ordination and consistency, coupled with a robust process for reaching agreement on cross-border issues”,—[Official Report, 14/3/08; col. 1705.]

and all that. He is really saying that we want to sell this to the rest of Europe. We cannot do that unless our own house is in order. I have been talking to people in the Commission about this today. They said, “Well, Tony, it’s all very fine you saying what a great regulatory framework you’ve got, but if your Department for Transport decides it wants to regulate something because it’s easier and it thinks it’ll make a bit more money, how are you going to sell this to the rest of Europe?” That is what our railway business wants from this country—many companies are starting to operate on the Continent—but we have to have a sound home base.

For me, this is quite simple. I hope my noble friend can answer this question: what is making the Government continue down this path when two major investors and one major operator say that they would pay more money if the Government went down the road of making this railway regulated in the same way as the rest of the network? I look forward to hearing what he has to say.

My Lords, I support the amendment. It is important that the Channel Tunnel Rail Link, or High Speed 1, should be incorporated wholly into the public railway network in a uniform fashion because I hope that one day we will have a high-speed network, and I do not want the precedent to occur whereby the high-speed lines are for some reason governed differently.

My Lords, I am grateful to all noble Lords who have made a contribution to this debate, which I fully acknowledge is an important one. It has been the main thrust of concern and discussion on the Bill as it has gone through its various stages, so it was no great surprise to me when the noble Lords, Lord Bradshaw and Berkeley, later joined by the noble Lord, Lord Hanningfield, put this amendment down for further discussion today. They have been commendably clear in terms of what they are after, and I congratulate them on that. It is very welcome that we can clear the air on this. I hope that noble Lords will bear with me; I have a lengthy series of points to make, but I ask them to follow through the argument. I shall also try to answer some of the points that have arisen during the course of their contributions.

As explained, the amendment would subject High Speed 1 to the same regulatory scrutiny by the Office of Rail Regulation as the national rail network. I disagree with the suggestion of the noble Earl, Lord Mar and Kellie, that a separate system of regulation somehow separates the line in discussion from the rest of the network. That point is not entirely relevant to the debate. We have had much discussion on this, but I am happy to expand on the points and provide some of the assurances that noble Lords seek.

Noble Lords are concerned that the new railway falls outside the scope of regulatory arrangements which cover the national network. I clarify that the Bill makes only minor changes to the existing situation. It does not exempt High Speed 1 from regulation. High Speed 1 has never fallen within the regulatory regime in the Railways Act 1993 as a result of provisions within the CTRL Act 1996. This Bill is more of the same, with some minor differences.

In Committee, we discussed the dining habits and the dining partners of the noble Lord, Lord Bradshaw. We have been joined today by the dining partners of the noble Lord, Lord Berkeley.

My Lords, I apologise; that is what I thought I heard. The noble Lords have regaled us with their reflections on conversations that they have had, perhaps at lunch, perhaps on other occasions. When they got stuck into the hors d’oeuvre, and before the noble Lord, Lord Bradshaw, got round to sipping his nicely chilled Chablis, there was clearly a meaningful conversation to be had with a potential purchaser of High Speed 1, who indicated that it would be happier with regulation by the Office of Rail Regulation rather than with regulation by the Secretary of State. I hope that fair consideration was given to the issue in those congenial discussions, because it is clear that it requires some thinking through.

The noble Lord asked me to explain why the Government want to retain a regulatory role that has worked well. The answer is that we believe that keeping the current structure will secure a higher sale price by enhancing the commercial stability of High Speed 1. We did not come to this decision lightly, and we will consider which parts of the Secretary of State’s current and future duties can be undertaken by the Office of Rail Regulation as soon as the sale of High Speed 1 is under way next year. Coming to a definitive view on what those duties might be, and finalising the detail of the contract between the Secretary of State and the owner of High Speed 1, will be an important element of our thinking. I share the view of both noble Lords, who have made big contributions to this debate, that once the detail of that contract is agreed, and where functions of a regulatory nature continue to exist, the Office of Rail Regulation would be the obvious and competent candidate to undertake them.

The noble Lord, Lord Berkeley, raised the operation of the CTRL. There is a contract between LCR and Network Rail for the operation of High Speed 1 which lasts until 2086. The Department for Transport is in discussions with Network Rail. We will try to find a way to amend the current relationship so as to introduce more effective incentives to reduce costs. However, there is no possibility of it being transferred to the Office of Rail Regulation; it seems to us that the current arrangement works sensibly.

I return specifically to access charges. The noble Lord, Lord Hanningfield, mentioned them as did the noble Lords, Lords Berkeley and Bradshaw. The enterprise value of High Speed 1 is determined largely by the amount of income that the company will receive in future. The income stream is generated by the access charges paid by train operators. It makes commercial sense to assume that the more secure the income stream, the less risk that bidders and their lenders will associate with HS1’s business. For that reason, investors will see attraction in having a firm contract with the Secretary of State which defines precisely the parameters for them to set access charges in the long term. The Secretary of State will set the charging framework within that contract, because the level and structure of charges will directly affect the value that taxpayers receive in a sale. Our only concern is to protect value by providing potential bidders with certainty. Bidders will know that the maximum price that they will be permitted to charge train operators will not be reset at regular intervals, neither by the Secretary of State nor by the Office of Rail Regulation.

The rest of the rail network is subject to economic regulation by the Office of Rail Regulation, which allows it to review prices charged at regular intervals and to increase or reduce them if appropriate. That is necessary for Network Rail’s network given the historical uncertainty about the company’s cost base. In the case of Network Rail, it will provide comfort to investors in the same way as in the water industry, for example, where privately owned utilities also have complex, historical asset bases.

However, we do not see High Speed 1 in the same light. Furthermore, developments in EC legislation since the Railways Act 1993 and the Channel Tunnel Rail Link Act 1996 mean that charges for HS1 are subject to independent regulatory control by the ORR through the appeal mechanism in the Railways Infrastructure (Access and Management) Regulations 2005. Given these factors, subjecting HS1 to additional regulatory scrutiny through periodic reviews of access charges would introduce an unnecessary burden as well as unnecessary uncertainty for the business. The noble Lord, Lord Bradshaw, spoke about the necessity for certainty—I completely agree with him. Additional scrutiny would damage value, rather than enhance it. LCR, the present owner of the business, shares this view, and we are confident that investors will be comfortable with it, too. The relationship of HS1’s future owner with the Secretary of State will be similar to that between the Secretary of State and many other owners of public infrastructure, most obviously those operating under long-term concessions or PFI or PPP contracts. That is a well understood relationship, and investors’ cost of capital for those projects has decreased significantly as the market has matured.

In the context of the future restructuring of LCR, the Government have considered carefully whether there are good reasons to augment the EC model of regulation for HS1. The department took professional advice on the options available and discussed the plans with the Office of Rail Regulation. It concluded that there was no overriding reason to do so. The department has not received feedback from any of the parties to which it has spoken that would suggest concern in the industry about the regulatory arrangements for HS1.

The Government have no desire to undertake the functions of an independent regulator in relation to HS1. In the context of the restructuring, we will consider which powers can be transferred to the Office of Rail Regulation, given its expertise and available resources. For example, the duty to ensure that the charges set by HS1 comply with the 2005 regulations could usefully be managed by the ORR in the future, once a long-term charging regime has been put in place.

Until the sale process begins, the Government—as well as potential purchasers—can only speculate on whether the market as a whole will see more value in either a railway subject to periodic charging reviews by the ORR or one for which there is a charging framework established in a long-term contract with the Government. The key choice is the type of regulation, not a choice between having the Secretary of State or the ORR acting as the regulator. The case is not clear cut, and the course that we have chosen to follow is the one that we think will deliver the greatest possible return. In our opinion, any arguments against it are not sufficiently compelling to merit changing the existing regulatory arrangements.

My Lords, my noble friend said that the key to all this will be the long-term charging regime once it is in place. Is he aware that that is exactly what happened with the Channel Tunnel? A 50-year long charging regime was put in place when it was set up and financed 20 years ago. Because of changes to things outside, liberalisation and so forth, that more than anything else is now responsible for there being so little passenger and freight traffic through the tunnel. I suggest that that is not a good precedent.

My Lords, I made that point earlier—I certainly made it in earlier debates. We continue to want to increase freight through the tunnel, particularly with pathways for freight. We know that we have to work with our partners to achieve that. I do not think that that is necessarily a killer argument.

To be clear, HS1 access charges will be regulated. The charging framework is likely to set a maximum cap on the investment recovery element of the HS1 access charges. The prices offered by HS1 must comply with that framework, and with the specific requirements in the 2005 regulations. These are intended to ensure that charges are fair, non-discriminatory and, subject to certain provisos, cost-reflective. Operators who are not happy with the access charges for HS1 or the terms and conditions on which access is offered can appeal directly to the Office of Rail Regulation which will review whether those requirements have been met. If not, it is able to direct the infrastructure operator to remedy the situation.

Our current thinking—on which we sought views from industry late last year—is that the maximum access charge for passenger charges will be just over £2,000 per train on top of operating costs. We expect freight charges to be lower than that and understand that HS1 will produce proposed access charges for freight services. Details of the proposals that we put to industry at the end of 2007 are publicly available and I will ensure that copies of them are placed in the Libraries of both Houses. We are considering the responses that we received and expect to consult industry in the next few months on a revised proposal.

I know that the noble Lord, Lord Berkeley, had a particular concern about one of the features of the proposals previously put to the industry—that charges levied on particular operators might be allowed to rise and fall proportionately depending on total usage of the line. A number of the parties who responded to the consultation provided strong arguments against that proposal, with which both we and LCR have some sympathy. Although we are yet to develop all of the detail of the revised proposal, we and LCR both expect to move away from that feature of the previous consultation. Although the work is ongoing, I hope that that will provide noble Lords with suitable comfort that the arguments have at least been listened to.

In Committee, I was also asked how the Government would ensure that the HS1 concessionaire would be incentivised to reduce costs without the involvement of the Office of Rail Regulation. We have identified that that element needs further attention as part of the restructuring arrangements. As a result, we are working on a number of proposals to ensure that the new owner of HS1 has the appropriate levers and incentives to reduce costs while operating and maintaining the railway to an acceptable standard. We are discussing that with Network Rail which, as noble Lords will be aware, has a long-term contract to operate and maintain HS1.

For the sake of completeness, I should also mention the other areas of HS1's business which were excluded by the 1996 Act from some aspects of ORR regulation. In contrast to Network Rail, the operator of HS1 does not require a licence and its access contracts are not subject to prior approval by the ORR. In addition to the regulatory controls under the 2005 regulations, LCR has given certain covenants to the Secretary of State in relation to the operation of the railway in the development agreement that was signed between the then Government and LCR in February 1996. That contract will continue beyond the sale of HS1. Within the context of the restructuring, we will consider whether any new rights or obligations need to be put in place to ensure the appropriate level of regulatory scrutiny.

Although the development agreement does not duplicate the conditions of Network Rail's licence, it has some similarities, including covenants in relation to maintenance, insurance and environmental issues, restrictions on cross subsidies and a non-compete obligation in relation to the provision of passenger or freight services on HS1. The agreement prescribes standard terms and conditions with which HS1 access agreements must comply. It also reserves to the Secretary of State rights to prescribe the terms of access agreements with domestic franchisees requiring access to the line. There is no equivalent of the good stewardship condition which exists in Network Rail's licence, but we will consider whether that should be included when the development agreement is revised post restructuring. In addition—to build on the point I made in my Written Answer to the Question asked by the noble Lord, Lord Berkeley, in February—a Network Statement covering both parts of the rail link is publicly available already.

I hope that that lengthy explanation satisfies the concerns raised in Grand Committee which prompted this amendment and I hope that the assurances that I have given will enable it to be withdrawn. However, before I sit down, I want to touch on a final point in connection with the amendment which relates to the questions asked by the noble Lord, Lord Berkeley, in Grand Committee about whether the current regulatory position is consistent with EU legislation. That point was also touched on by my noble friend Lord Jones in his general comment on the value of independent regulation.

Our understanding of this legislation is that it imposes independence requirements on the regulatory body responsible for handling appeals in relation to access and charging disputes. It also ensures that the access charges set by the infrastructure manager comply with EC requirements. The setting of the charging framework for HS1 is not a function of the regulatory body and therefore, as regards that role, the independence obligations under relevant EU legislation are not engaged. On the other hand, they do apply in relation to the Secretary of State's supervisory functions in relation to access charges for HS1 under the 2005 regulations, where she is acting as a regulatory body within the meaning of Directive 2001/14. I sought at the outset to give comfort that the transfer of these functions to the ORR will be given serious consideration once the charging framework has been determined. I hope that that also gives comfort as regards the compliance of the regulatory arrangements for HS1 with EU requirements.

Before the restructuring can be finalised, we expect to submit a state aid notification to the EU Commission, to ensure that any aid that is restructured or left in place has the Commission's blessing. We expect that the Commission will want to examine the charging arrangements for HS1 as part of its review of that notification. That will be a final check on whether the line that we have taken meets EU legislative requirements. I make no apology for going on at some length because I think it has been valuable. I wanted to set out for the record very clearly how we see this relationship working. We have given the amendment serious consideration. I have worked through the major issues.

One final issue that is of concern to the noble Lord, Lord Berkeley, is that HS1 will set prohibitively high access charges for freight. That is obviously a concern, but HS1 has commissioned Intermodality to undertake a specific study to help identify commercially sustainable charges for freight service on the line to help identify what access charges might be affordable for freight services on HS1. Intermodality is analysing the freight market, particular segments within it and international comparators for pricing. We and HS1 expect the report to be completed by May. It will then feed into the subsequent consultation on access charges later this year. We recognise the importance of this issue. For that reason, we strongly support that study.

As I say, I do not apologise for the detail of my response, which I hope has been helpful to noble Lords. I am sorry that I have spoken for so long but I hope that the amendment can now be withdrawn.

My Lords, I thank the Minister for that reply but I am sorry to say that it does not satisfy me. He more or less put down my noble friend as regards the extension to the high-speed line elsewhere. I do not know whether I misunderstood but I took that to mean that it would be regulated separately from the rest of the network, which was the point he was making. However, it is quite wrong to have two railway lines regulated under different regimes which are interconnected with each other.

I do not think that the Minister has really grasped the point that this railway will operate in a competitive environment. In the end, the customer will decide what he will pay. The department can set whatever charges it wishes but if they are too high people will not come and people have got to make an effort to come. It is not as if there are lots of people out there who will swarm to the railway. There are people out there who are very sceptical about railways and need to be persuaded to use the service. Independent regulation will give confidence to investors in the new infrastructure, train operators and, more importantly, train operators’ customers that they are not dealing with the whimsical regulation that the Minister described, which is leading to the almost paralytic control now being exercised over rolling stock, and which has most train operators and rolling stock companies wringing their hands in despair.

I am dissatisfied. The Minister needs to discuss the matter with the noble Lord, Lord Jones of Birmingham, because we are getting inconsistent messages.

My Lords, I do not think that what my noble friend Lord Jones said is inconsistent at all. He was talking about the system of regulation in general. I explained in detail that this was a separate issue. The noble Lord will need to study what I said very carefully. I have read the relevant paragraph in the speech of my noble friend Lord Jones and nothing in it sets us at odds with him at all. He is absolutely right to make the case for independent regulation. It is a very different relationship.

My Lords, independent regulation means regulation based on assessment and study of the costs associated with the assets. The Minister referred to the water industry and the water regulator. However, there were horror stories about the amount of capital taken out of the water industry, which was privatised almost debt-free and now has mountains of debt because it was not properly regulated. As the noble Lord, Lord Berkeley, said, we have here a regulator who can and will set charges. I have no confidence in a charging regime that is cooked up between Network Rail and officials in the department. It has to be tested in the market independently.

I will read what the Minister said but I plead with him to discuss this within government because I believe that the whole speech he read out is totally inconsistent with what we have been told elsewhere. I have no doubt that we will return to the matter at Third Reading and we shall require change. With that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 1 [Powers of Secretary of State]:

2: Clause 1, page 1, line 5, at end insert—

“( ) For the avoidance of doubt, in subsection (1) “railway services” refer only to those services that both originate and terminate in the United Kingdom, excepting any historical support provided to international service operators.”

The noble Lord said: My Lords, we are rather repeating ourselves but I have chosen to table this amendment once again to further the discussion that we had in Committee.

I hope noble Lords will forgive me for introducing an aside here. I visited Colbayns school in Clacton on Friday, where the Minister was a pupil. It is a very successful comprehensive which has recently developed an extremely interesting skills department. I urge the Minister to pay the school another visit. I wanted to record the name of the school in Hansard as it is such a good one.

To return to the amendment, views on this one, short clause are manifold. It appears that in Committee there was some confusion, mainly due to some of the comments that the Minister had made at Second Reading. The Minister sought to reassure us and maintained that the clause did not need to be amended. Having read Hansard and upon reflection, I still feel that this clause could be tightened to satisfy the views of several noble Lords.

I understand that it is the given intention of the Government to reduce long-term public support for international services. However, our view remains that Clause 1 does not reflect this intention. Of course, it is important to prevent funding of services on the Continent, which would be neither acceptable nor desirable. In addition, much of our discussion last time focused on the need to create an environment to facilitate competition with international services on High Speed 1. A lot of what we discussed on the previous amendment was related to this. Any support provided to Eurostar in the form of access charge loans, rolling stock leases and the like surely has the potential to undermine this competitive environment. Presumably, this is one of the reasons why the Government intend to reduce public support in the long term.

The intention not to subsidise is all well and good, but can this not appear in the Bill for the avoidance of doubt? I foresee a situation where Eurostar, whoever it then belongs to, is treated more favourably in financial terms, which certainly would not be in the interest of open access competition. Even if this is not the intention, this clause would surely provide comfort to any operator thinking of starting a competing international service. Indeed, it must be said that Clause 1 in general is framed in such a way as to alleviate concerns of potential bidders, so the addition of this amendment would surely relieve potential operators.

I still maintain that the reasoning the Minister followed at Second Reading was a departure from that followed in another place and indeed from the stance adopted in Committee, where it was said:

“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”.—[Official Report, 19/2/08; col. GC 146.]

Will the Minister confirm exactly what is meant by this?

The Minister argued last time that this amendment is unnecessary due to the 2005 Act's application to Great Britain only. However, the provision of historic support would imply that funding in other ways is possible. I argue that for the avoidance of doubt this amendment should appear in the Bill. Clause 1 is all about clarifying what already exists in legislation, and this wording follows in that vein.

Finally, the Minister argued last time that this amendment would not be acceptable as it would prevent the alteration of historical funding structures already in place for Eurostar during the restructuring period. Accepting the amendment would prevent, for example, the rationalisation of the rolling stock leases and so prevent the achievement of a higher sale price. Is this the intention of the Government? If they do not like the wording of this amendment yet know that they require sufficient flexibility in the short term for restructuring, can they come back with a form of wording that is more acceptable? I beg to move.

My Lords, this is a very interesting amendment. I go even further than the noble Lord, Lord Hanningfield, in suggesting that the whole question of historical support should be resolved at a very early date. My noble friend said in Committee that all passenger operators—rather than freight operators—should be treated equally in terms of access rights and access charges on the CTRL. There is absolutely no reason why the Government should not sell Eurostar UK without any conditions, subsidies or anything else to the highest bidder on the basis of the charges.

On the previous amendment, my noble friend said that the charges for passenger trains, and I assume it is all passenger trains, would be £2,000 per train as a contribution to the financing costs of the CTRL, plus the operating costs. Several issues come out of that. First, if the Government start subsidising international services, it is inevitably a can of worms because you do not know what is happening on the other side of the Channel. SNCF or Deutsche Bahn might want to come in as competition, as we have discussed. You do not know what subsidy they are getting for which services, so it is a seriously slippery slope to start to subsidise any international services, including Eurostar. It should not be subsidised in the way that might be inferred from the last two lines of the amendment. I will leave that to the noble Lord, Lord Hanningfield.

However, there is an even bigger problem here, because the charges that appear to have been considered for using the CTRL are based on what they think they can get away with with Eurostar, which includes a £20 charge per passenger for using the Channel Tunnel, regardless of how many people go. I have been talking to some people who have an interest in local authorities in Kent, and they are still very upset that only one or two Eurostar trains a day are stopping at Ashford. We talked about the fact that it is a high-speed line and any train should be able to go on it, so a service such as Manchester-Birmingham-London-Stratford-Ebbsfleet- Ashford-Calais-Lille, for example, could be run by a competing train operator. The answer was, “Who is going to fork out £2,000 a train for going up 60 miles of track?”. That is a very high figure for a service to start. There will be the same problems as there are with the Channel Tunnel. I said on the previous amendment that the charges will be so high that no one will use it. The figure of £2,000 is arbitrary. I do not know whether any discussions have taken place with German or French railways or anyone else. Eurostar has little choice but to accept it, because it is owned by LCR, which is guaranteed by government; so it is hardly a discussion between equals.

There is one last problem that I would like to ask my noble friend about. On the rest of the network, train operators pay so much to use a station. If a train stops at a station, they pay so much to Network Rail for the services that may be provided, such as the platform being in good order. The international stations used by Eurostar are quite expensive and they are quite expensive to operate, because you have all the special facilities such as customs and immigration and the segregation that goes with that. Is the idea that there will be a separate charge made to Eurostar and anyone else who wishes to operate international services for calling at stations? At the moment, Eurostar probably either owns or operates the stations, but how will this work with open access? This is all a barrier to other operators coming in and providing competing services. This is the only opportunity that we have to talk about these things before it is all signed and sealed in the contract, and we suddenly find that we end up with another contractual disaster, which we have talked about already with the Channel Tunnel and other things. I would be grateful to my noble friend for some responses. There is merit in such an amendment, and maybe the noble Lord, Lord Hanningfield, will consider bringing it back on Third Reading.

My Lords, I am grateful to the noble Lord, Lord Hanningfield, for reminding me about my old school. It was not called Colbayns in those days; it was Clacton Secondary Modern School for Boys, and it became a comprehensive some time shortly after. I visited the school some years ago, and I was most impressed by the headmaster—I think it is Mr Pavitt—who has done a brilliant job of turning the school around. Since my words at the Dispatch Box are recorded, I offer to pay another visit, and perhaps Mr Pavitt will invite me again. I greatly enjoyed it the last time I went.

I thank the noble Lord for tabling this amendment and allowing me another opportunity to outline the Government’s position. Under the present legislation, the Secretary of State can support services in the United Kingdom. In the context of international passenger services, that has translated into supporting Eurostar UK Ltd, the part of the Eurostar joint venture that is responsible for paying the UK-side access charges. The Secretary of State has not stood behind the French and Belgian parts of the joint venture in that way; they rely on the French and Belgian state railways for any support they receive.

My Lords, when my noble friend says “support” I think that he means the support for paying the fixed charges relating to the Channel Tunnel. Is that correct, or is he talking about the Channel Tunnel Rail Link?

My Lords, the support that we have provided has been to Eurostar UK Ltd. That is the nature of our support. It is for the French and Belgian parts of the joint venture to provide support to their element of the part of the railway that they run.

The amendment would restrict the Government’s ability to provide any support for international services, other than that historically provided to Eurostar. As I have said before, the Government’s intention is substantially to reduce the public support for international services, mainly by putting in place a commercially sustainable, long-term access charging regime. In Committee, noble Lords were concerned that the Government’s position had changed since Second Reading. I assure them that this is not the case; our position on providing funding to Eurostar has remained unaltered since the Bill was introduced in another place.

At Second Reading, I said that Clause 1 gives the Secretary of State commercial,

“flexibility to subsidise international operators in the same way as we currently support domestic franchise operators”.—[Official Report, 19/2/08; col. 146.]

My point was that the provision of some continuing support to Eurostar and other international service operators may be desirable, not that Eurostar’s position is or will be akin to that of a domestic franchisee.

For clarity, Eurostar does not provide its services under a franchise agreement with the Secretary of State, and there is no intention that it should do so in the future. While it currently has the benefit of reserved capacity on HS1 until 2052 on a take-or-pay basis, it is proposed that this will be renegotiated as part of the restructuring, so that its position as regards access to HS1 will be the same as any other open access operator. The historical funding structures that are in place include the access charge loan, guarantees of Eurostar’s rolling stock lease payments, hedging obligations and its ability to pay HS1 access charges. Removal of this support now would damage Eurostar’s ability to compete as a sustainable, stand-alone entity. To damage that could be commercial suicide.

We also wish to retain the power to reorganise or amend these existing support packages to achieve best value for taxpayers through the restructuring. The amendment would prevent us achieving that, which is why it cannot be supported. I add for certainty that the Government do not intend to put Eurostar in such a position that it has an unfair advantage over prospective competitors; in any event, state aid rules prevent them doing so. 

Finally, although we have no intention of doing so now, we do not believe that a future Secretary of State should be left without the power to provide any new support for international services in future, should they choose to do so. No decisions have been made on the future of Eurostar, and Clause 1 seeks to provide the Government with as much flexibility as possible in their pursuit of the most economically advantageous return for taxpayers. For those reasons, I urge the noble Lord, Lord Hanningfield, to withdraw his amendment.

My Lords, two or three questions were asked, and if the noble Lord, Lord Berkeley, will let me I will reply to those; I suspect that his interruption might have been on them. He asked about the prices charged for stations. There is to be no charge, to incentivise operators to stop at stations. He suggested that access charges could become unaffordable. The Government intend to cap access charges at a level affordable to new entrants into the market. The analysis behind the level of access charge is based on the principle of affordability. The noble Lord also raised an issue about the Channel Tunnel and charges. We are setting charges now, with the benefit of more understanding of the market for international services than was available 20 years ago when Eurotunnel first raised debt. Eurotunnel now has the benefit of a 50 year-plus contract, giving guaranteed usage levels and charges for freight and passenger services. There is no equivalent long-term contract benefiting High Speed 1. I hope that I have covered his points.

My Lords, I am grateful to my noble friend for clarifying those issues. It might help if he were prepared to write to those who have taken part in the debate, to separate the possible government support that Eurostar gets from using the Channel Tunnel, because of the fixed costs that he mentioned—they are different on the French side—from the costs associated with using the Channel Tunnel Rail Link. I was getting a bit confused, so I am sure that it would be better if he wrote to us.

My Lords, the noble Lord is right to say that these things are complex. I will set out them out in correspondence for the benefit of all noble Lords who have taken part in the discussion. I think that I have answered the main point; obviously we wait to hear what the noble Lord, Lord Hanningfield, has to say.

My Lords, I thank the Minister for his answer. The exchange between him and the noble Lord, Lord Berkeley, hit the nail on the head. I have never said that I wanted to stop the historical funding. One recognises that there has to be historical funding during the restructuring, et cetera; I want to be absolutely clear on that. I may have tabled an amendment that would stop it, but that is why I ended my comments by asking the Government to help on the amendment, because I still feel that there is no real clarity about what will happen in future. That is what all this discussion is about. All our discussions slightly go round in circles. It is a bit like the first amendment in a way. We are basically behind the Bill, but the two discussions that we have had today are mainly through lack of clarity and understanding where the Government will go after the historical funding and restructuring.

We are giving the Government an opportunity to think and to clarify these things a bit more for us before Third Reading. I hope that the noble Lord, Lord Bassam, can take up the suggestion of the noble Lord, Lord Berkeley, and write to us to try to clarify the issues. I repeat that I do not want to stop historical funding; I just want to know where we are going afterwards. With that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.