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Rail Freight (EUC Report)

Volume 713: debated on Friday 23 October 2009

Motion to Take Note

Moved By

That this House takes note of the report of the European Union Committee on Recast of the First Rail Freight Package (10th Report, HL Paper 90).

My Lords, I shall translate into plain English what this debate is about—the need to strengthen and implement EU law to create an open and competitive rail freight market. After all, the original purpose of what is now the European Union was a common market in which goods and services could move freely and competitively.

I thank the noble Lord, Lord Faulkner of Worcester, for agreeing to answer this debate. The noble Lord, Lord Young of Norwood Green, in winding up the previous debate, acknowledged that one has to be very careful, because there are always one or two people who know more than you do about a subject. At least two noble Lords who are going to speak know far more than I do about it. I particularly thank the noble Lord, Lord Bradshaw, a member of Sub-Committee B, and the noble Lord, Lord Berkeley, whose knowledge and involvement in furthering an open and competitive rail industry, not just freight but passenger, know no bounds. His activities over the past 30 years in this field deserve congratulations and thanks from us all.

I thank colleagues on Sub-Committee B, which deals with the internal market, including Professor Chris Nash, who was our special adviser. Indeed, I think that he was an adviser on an earlier report on a similar topic. Thanks, too, to James Whittle, who has moved on to become second clerk to the Select Committee chaired so excellently by the noble Lord, Lord Roper. I am quite certain that James Whittle will go further and higher in his career—I hope, very much, in Parliament.

We took evidence from 23 different bodies and 14 of them gave oral evidence, an indication of the degree of concern, which I shall shortly describe, about the failings of the first rail freight package, which dates back to 2001. There have been several other attempts in the intervening years between now and then to try to develop a competitive market for rail freight, but the original initiative was eight years ago. We produced our report in June this year, and on the same day as publication had an informal response from the noble Lord, Lord Adonis, who was then Minister of State at the Department of Transport. I pay tribute to the degree of interest and expertise that he has developed over a great number of years in the rail industry. He welcomed the report informally. Then we had a formal response from Sadiq Khan MP, the present Minister of State at the Department of Transport. That came very quickly—in July. If Select Committees of this House are going to produce reports, a timely response from government is helpful to your Lordships and to those who represent us in Brussels, as well as to the Commission, Parliament and Ministers who have either given us evidence or taken an interest in our proceedings. I welcome the very positive response from Mr Sadiq Khan. There were areas of minor disagreement or reserve, which the Minister may wish to outline a little later on, but overall it was a positive response, and I therefore hope that the committee’s report has been helpful.

The first rail freight package was delivered in 2001. It was a directive, and when concluding my remarks I shall come on to why I believe—I think that the committee generally agrees—that regulations are, frankly, sometimes more effective than directives. Although some would argue that it is not perhaps as democratic as a directive, which allows Parliaments to interpret into their own laws its purposes, a regulation says, “This is what should be done to develop a competitive market”.

The purpose of the rail freight package was not only environmental—to take more traffic off the roads and onto the railways—but, more importantly, to try to open up an efficient and competitive market for rail freight moving within the European Union. Obviously, we have looked at the difficulties encountered by UK rail freight operators travelling through the tunnel, then through France to other destinations in Europe, and at the restrictions, problems and headaches that they have encountered. Eight years on, the Commission has finally realised that things have not worked out as well as they should. In June 2008, 24 member states were written to, pointing out where they had not fully complied with the requirements of the first rail freight package. I believe that, today, 21 out of that 24 are still in breach of their duties in implementing the directive. I do not wish to single out any particular countries, but I shall mention four that our rail freight operators seek to pass through: France, Germany, Spain and Belgium. I anticipate that those four are shortly to be subject to infraction proceedings for not implementing the package.

I appreciate that there has been an economic downturn and consolidation in the industry. Particularly in Germany and France, the larger railway undertakings have been able to snap up, at attractive prices, smaller operators. Once you get that consolidation, competition is therefore obviously under threat. Doubtless, the noble Lords, Lord Berkeley and Lord Bradshaw, and other colleagues, may wish to deal with that issue in greater detail, but for the convenience of your Lordships I shall run through the seven key conclusions that we reached.

First, we believe that, as in the United Kingdom, the infrastructure—that is, the track—should be under separate management and, indeed, ownership from the train operators. This happens in the United Kingdom, with Network Rail being separate from the passenger and freight train operators. That is important, because you enhance competition if the individual new entrant to a particular new industry is able to deal with a common infrastructure—of track ownership and maintenance—so that there is a level playing field not only for United Kingdom rail freight operators seeking to pass through European countries, but for anyone from the 27 nations.

Secondly, we believe that the regulators should be independent not only of the track owners and train operators but of Government. Government may appoint regulators, but the regulator—as in the United Kingdom’s Office of Rail Regulation—is genuinely able to reach clear, justifiable and economically based decisions. In several European countries the regulator is either part of a government department or, indeed, controlled by the infrastructure under a manager. That cannot be right.

Thirdly, we believe that there should be a common definition and transparency in calculating the track access charge—that is, the charge that the freight operator pays to travel along the railway lines in an individual country. Those charges are not transparent at present. They vary widely across Europe, and if there could be a common formula for the calculation it would be fairer, and easier, for the freight operators to calculate the costs of moving their goods. Fourthly, we think that all of the freight operators should have open access to what we call rail services, such as terminals, ports and sidings. That is not true at present, and it is a restriction of trade.

Fifthly, we have argued that, as is the case in the United Kingdom, there should be multi-annual funding contracts from Government to the track managers. In this country, as your Lordships will know, we have a five-year periodic review of those charges, which is a long enough period for the manager of a track not only to calculate the access charges over the longer period but, frankly, to give the freight operators from other countries some degree of confidence when they plan their prices and offer their services. Sixthly, we think that legal pressure should continue through the infraction proceedings. The Commission has a duty to take before the courts the failure of Governments to implement the package.

Finally, at the same time we think that we have to proceed with a recast—that is, a reformulation—possibly by way of regulation as opposed to directives. We want the Commissioner and his staff to have the courage to say that, in Europe, we have failed over the past eight years—and it will shortly be nine—to have a free and competitive market. It is important for the vitality of the economy of the European Union, and they should get on with the job. I beg to move.

My Lords, it gives me great pleasure to speak in this debate. First, I thank the noble Lord, Lord Freeman, for his very kind words about my activities in rail freight over the past few years. I also want to thank him and his committee for a really major contribution to the debate about rail freight—on the need to restructure, transparency, independent regulation and everything that leads to growth. I declare an interest as chairman of the Rail Freight Group in the UK; I am also this year’s president of the European Rail Freight Association, where I had the honour to be asked to give evidence to the committee.

From my discussions and trips around Europe, I believe that this report has had a great and significant effect. It has been very much welcomed by the industry, not just by the railway undertakings, and particularly the private ones, but by the customers. Of course, it is usually the customers who decide how freight is going to get moved. It is worth recalling that with the structure that we have in the UK to which the noble Lord, Lord Freeman, referred, rail freight has grown by about 60 per cent in this country since privatisation, whereas in France, which the noble Lord also mentioned, it has gone down by 40 per cent, because there is no competition. The recession is affecting us all, and I shall come on to that later, but the key to this report, as noble Lords will not need reminding, is that it was based on evidence.

I thought that the witnesses’ evidence, both written and oral, was extremely strong. I was therefore quite surprised to hear that an incumbent operator in a major continental country had approached their Government, asking, “Would you please tell the British Government that the House of Lords committee report was totally out of order? It said all the wrong things—could you get it cancelled?”. I do not think they quite understood the difference between Government and Parliament, or a few other things. Anyway, while I do not know what our Ministers here said, the report is still very much with us. I hope that it stays with us; I know that it will. I also welcome the response from the Secretary of State, in that it was generally supportive of the recommendations, as of course I am.

I should like to bring out one thing from the infraction proceedings to which the noble Lord, Lord Freeman, referred. There is a useful list of which countries have failed in which regard, and that list is very long. Thirteen member states failed on regulatory independence and scope. I will not go through all the others because it is a five-page document, which is indicative of the extent of failure.

Sadly, from my discussions around the states, the list of the issues on which the Commission intends to take member states, eventually, to court—which is excellent—is only the tip of a very large iceberg. The problem is that it is not one iceberg but 21, all of different shapes and sizes. Leaving the sea and icebergs aside for a moment, I think noble Lords can understand the difficulty for a train operator of trying to start up in a new member state, with all its particular problems, and then trying to get to the next one where the problems are all different. It is a real nightmare.

The UK Government have got off pretty lightly on some of these things, I think. We are not one of the 21. However, I am not really convinced that here, good though the structure and everything else are, the infrastructure manager—that is, Network Rail—has anything like enough incentive to reduce costs. The regulator is doing what it believes to be its best, but there is a great deal to be done and Network Rail failed by 4 per cent to reduce its costs. It was supposed to reduce costs by 31 per cent over five years in the period that ended in April, and it was 4 per cent short, which is quite serious, although big bonuses were still given for achieving that.

Also, we do not do anything like enough to encourage the managers of infrastructure to minimise disruption. Passengers do not like going on buses and freight cannot go on buses. Yes, sometimes you can have diversionary routes. Network Rail scored a real own goal during the Labour Party conference in Brighton. Somebody came up to me at one of the fringe meetings and said, “Do you know that Network Rail has closed both lines to Hastings over the weekend?”. There are two completely separate lines to Hastings; surely one could have been kept open and the public told, but no—Network Rail closed both at a time when all our Ministers were in Brighton and heard about it. I cannot say more than that, but there is quite a long way to go.

Since the report was written and the evidence taken, sadly, the economic situation has got worse in the recession. The market share of rail is holding against road—if not getting better in some cases—but, of course, the volumes are down. This means that there is stronger pressure on all operators. There are financial pressures as well as everything else. There has been an increase in complaints from the European association to the Commission about failures in member states. There are serious failures in even the first railway package issues. For example, in Poland the incumbent has not paid access charges for a year. How can the independent operators compete with somebody who has not paid access charges? The incumbent said that it did not have any money. When I was there I was asked what I would do. I said that I would stop the incumbent operating trains and let the independents do it.

In Romania—which is, I know, another eastern European country—the incumbent is losing market share to the private sector, which is good for the private sector, but the infrastructure is in an appalling state because, for a reason that is not yet clear, Romania was given €3 billion to invest in the infrastructure when it joined the European Union and has not spent it. We heard recently that in France the Government have announced a very welcome €7 billion package to help rail freight. However, much of it appears to be going to SNCF. Some will be going to RFF, the infrastructure manager. If it goes to one operator, surely, in these days of open access, other operators should be given the chance to compete.

One of the biggest problems is that of the incumbents buying up small private operators, as the noble Lord, Lord Freeman, referred to. As he said, there will be less choice, but I question how the incumbents find the money to buy up private operators when half of them have their hands out for state aid. It may be for passengers, it may be for infrastructure, but with a lack of transparency, again, it is a serious problem. That is why I very much welcome, in paragraph 84 of the report, the committee’s encouragement of the Commission to use more competition law. We have to consider how to define the market when there is a dominant position. Is it a market for rail freight within a member state? Is it on a corridor, such as that between Rotterdam and Italy? Is it for coal or containers?

The one question that I would ask my noble friend to answer when he responds is whether the Government can press the Commission to produce guidelines or something similar on how it would assess the markets in these different sectors, so that when there is a proposed buy-up of a private company, it could be assessed against whether it was going to cause a dominant position in a particular market. When it comes to the private sectors the Commission tells me that a private operator must make a complaint. I say that, first, it is very difficult to do that and, secondly, it is very expensive and they do not have the money. It would be very good if there were some guidelines from the Commission on doing that.

Similarly, on state aid, I went to the European Council of Ministers of Transport conference in Leipzig in May. There were three Transport Ministers on the platform, from Italy, France and Poland. I could not resist the opportunity to ask them a question. They had all complained that the railways are broke. I said, “Why don’t you sell off your rail freight companies to the private sector? First, they will be able to compete more fairly with the private operators and, secondly, you will get some money to help your infrastructure”. I got looks of incomprehension from all three. Finally, the French Minister said, “Yes, but we have a problem getting into Hamburg”. I could not go back but I was going to ask him who he meant by “we”. Was it la France, was it SNCF, or what? Was it a problem with access to Hamburg port? Anyway, he did not answer. It just shows that there is an awful lot more to do.

I have talked about independent regulation. Mr Khan’s letter seemed to suggest that things will be better when directive 2007/58 comes into force. There is absolutely no evidence of any change at all across Europe since the committee took evidence. Member states are taking no notice. Half of them do not even know what regulation is. I know our Office of Rail Regulation is trying to help those who ask for help. There is a long, long way to go, so we should not take much comfort from that. I believe that the report is absolutely right in pushing for the recast and for taking member states to court if they do not comply. The recast needs strong and independent regulation, and fair and open access to terminals, as the noble Lord, Lord Freeman, said. At the moment, independent operators in Poland sometimes get charged 50 times what the incumbent is not charging itself. Multi-annual contracts are absolutely right. The noble Lord, Lord Freeman, is right about better structure of charging. Twenty years after the fall of communism, the reason for rates being higher in eastern Europe is that in the communist days rail freight subsidised passengers. There was no competition with road.

It really has to change. The Commission and the whole EU have to support the change. Again, there should be total separation of infrastructure managers from passengers and freight. There may be an argument for requiring separation of passenger freight operators in the absence of proper transparency between them. I have mentioned competition issues and state aids.

Finally, the committee and the noble Lord, Lord Freeman, mentioned the question of a regulation or a directive. The noble Lord is right to raise it. I believe that the committee is right. On the basis of the failure of member states even to implement the laws of the last 18 years, since 1991, a regulation would be a very good idea. However, it will mean a big battle in Brussels that I hope—indeed, I know—the Government will support.

At the end of the day, as the noble Lord, Lord Freeman, said, we are trying to create a single market for rail freight—that is the objective; that is what the law says—and we have to finish it somehow. I know that our Government are being very supportive. We have a keen Commission and a slightly reluctant commissioner, although we do not know who will be commissioner next year. We have to ask other member states: do you really want open access and competition for freight or does the single market that we have all dreamt of somehow not apply to the rail freight business?

I am very grateful to the committee for its report. I congratulate all its members on an excellent publication.

My Lords, I always feel that anybody speaking in the gap should start with an apology for interfering with the orderly flow of debate, but as a member of Sub-Committee B of the European Union Committee there is one point to which I should like to draw attention, which walks through the report without actually disclosing itself fully. I wholly agree with what the noble Lord, Lord Berkeley, said about regulation, but we need to recognise the comment made by Brian Simpson, quoted at paragraph 45 of the report, and that of Network Rail, that the present European Union regulators, in the absence of an EU, pan-European regulator, represent an,

“unbalanced group at the moment”.

One might have said the same about the England cricket team at the outset of the summer but they still won the Ashes. One hopes very much that these regulators will similarly rise to the occasion. They do, however, have a very big task before them, because the whole of this issue was encapsulated beautifully by a member of Sub-Committee B, who said that rail freight in Europe is drinking in the last chance saloon. That is very much the way that it is at the moment, as we see it.

If we are to have a successful European rail freight system, it has to start by becoming thoroughly competitive, which means having the right access, and the right costs of access, on a pan-European basis to make it work. But you have to acquire that access at a national level and it will involve participating and interfering in the national access of other states as well. That will not only be a price issue but will also become a safety issue because the access may impact adversely on the maintenance and service requirements of other states. Very careful and insightful regulation will be needed to make it work. At present, in the absence of a pan-European regulator, it is very hard to see how there is going to be an umpire capable of taking the difficult decisions to resolve those problems. Just as we won the Ashes with an unbalanced group, I hope very much that the word “premature”, which appears in the final conclusions about pan-European regulation, is not read as “permanent”.

My Lords, I thank the noble Lord, Lord Freeman, for his constructive and encouraging chairmanship of the sub-committee. I also thank the staff who greatly helped us.

My first concern involves the independence of a regulator in this regard. It is all based on the fact that the statement of funds available for the railway (SoFA) is safeguarded so that when the regulator makes his settlement for Network Rail we know that those funds will be available for five years. Otherwise, we shall get back on the old treadmill of annual funding or inadequate funding, from which the railways have suffered for so long. I hope that the noble Baroness, Lady Hanham, who will speak after me, will say whether a Conservative Government would retain the statement of funds available, should we have a change of government.

Further to what the noble Lord, Lord Freeman, said about the report, I refer to the importance of access to terminals, services and other ancillaries, because you can grant free access to the railway but you can effectively block it by making it impossible to get locomotives or fuel, or to get to the ports and to the people.

The noble Lord, Lord Berkeley, referred to infractions. I have a list of them which I do not intend to read out. However, I shall refer to the government response, signed by the Minister, Sadiq Khan. On page 2 of the response the Government rather rejoice at the fact that infraction proceedings are not to be taken against the UK. We do not have insufficient incentives for infrastructure managers to reduce infrastructure costs and access charges—or do we?—and perhaps we do not suffer from the absence of a performance regime to encourage infrastructure managers to minimise disruption. This is an absolute nonsense. The cost of maintaining the railway in this country is wickedly high. I have listened to the management of Network Rail repeat year after year that we are going to have a 24/7 railway, alternative routes will not be blocked, train operators will find it very much easier to operate their trains and passengers will find the railways much improved. What action, if any, do the Government propose to take to curb the monopolistic and arrogant attitude of Network Rail, or is this publicly funded body out of control? I should be interested to hear from the noble Baroness, Lady Hanham, what ideas the Conservatives have for bringing this monster under control.

Competition is a very interesting subject. I am not a lawyer and certainly not a competition lawyer but I know that competition depends on market definition; namely, the market that you are talking about. This concept is very important as regards the bus industry where you just draw a line around a town or a group of routes, but I submit that it is wrong to talk about the railway in isolation in terms of international traffic as a huge proportion of the traffic, and probably an even greater proportion in the future, is conveyed in competition with sea transport, inland waterways and, more particularly, road transport. I propose to spend some time discussing that subject as other modes must enter into the picture.

What progress is being made in this country in making foreign lorries pay to use our roads? It is not a case of my being against foreigners, but in a fair system everybody should pay to use the facilities. The Minister is probably as aware as I that Germany has a system of lorry charging, which works and discriminates in favour of the most environmentally friendly vehicles. I believe that from a technical point of view it would be possible to introduce it into this country. It does not require a lot of beacons and is very simple to operate. However, we are told repeatedly by the department that it is not appropriate to introduce lorry charging at present. I would like to know why that is the case.

I would also like to know the department’s views on the House of Commons Transport Committee report, The Enforcement Activities of the Vehicle and Operator Services Agency, (VOSA), as I have not seen them. International vehicles represent a substantial proportion of vehicles stopped for abusing drivers’ hours regulations, overloading and being in a poor mechanical condition.

An article in Freight magazine states:

“Some 11,000 fixed penalty notices have been issued for a range of traffic offences since VOSA started issuing graduated fixed penalties on 28 May. Over 800 vehicles have been immobilised and more than half a million pounds have already been collected”,

in fines. That is all very well and good, except that more than 60 per cent of penalty notices were issued to foreign-registered vehicles from the European Community. Therefore, probably most railway operators obey the law while a large number of lorries on our roads operated from abroad are disobeying the law. I ask the Minister: what sort of answer is the House of Commons Select Committee getting?

We have a rising number of non-compliant vehicles, yet we have in place a graduated fixed penalty scheme, a financial penalty deposit scheme—which means that if you have no money you must deposit your credit card, passport or something—and an immobilisation scheme whereby the lorry may be stopped. However, the report states that the fines are small and recommends that they be increased. My charge to the Government is that the amount of money that people make out of breaking the law is huge. To fine them £60 is small change and will do nothing to correct the abuse, unless the system is considerably strengthened. The Government should look very hard at the exchange of information between European partners about breaches of the regulations which, as far as I know, is being blocked due to the provisions of data protection legislation. That is a hindrance, particularly to Her Majesty’s Revenue and Customs in collecting money and building up intelligence about people who are breaking the law. In previous Parliamentary Answers I have been told that the same drivers and firms are repeatedly being caught—yet the penalties are regarded by such people as a part of the expenses of running a business.

Has the Minister given any thought to the paragraph in the report about access to port premises where road vehicles enter the UK? Many of these abusers could be stopped at the point of entry and should not be allowed on our roads if they are unroadworthy, if the driver has not had sufficient rest or if the vehicles are in bad mechanical condition. Ministers should not shy away from legislative action. I know that the ports do not like it, because it delays unloading ships, but it is not safe to allow such vehicles onto our roads.

On the question of the heavy lorry, I refer to an article in the Sunday Times which I do not usually read. I am sure that my reservations about half-truths, sleaze and sensationalism of the press are shared by other noble Lords. However, that newspaper stated:

“Brussels to override Britain’s ban on mega-lorries”.

I can assure noble Lords that if 60-ton lorries are introduced throughout Europe, rail freight will take a nosedive in volumes. The article names a person—John Berry, a former civil servant working in Brussels—who is apparently a great advocate on whether we should have these lorries, which are 21 feet longer than any existing lorry on our roads, and which are almost certain to cause more accidents. Is that person being paid by Her Majesty's Government in any way? If he is, is he advocating a policy that we should have these lorries? The noble Baroness, Lady Hanham, may care to comment on whether the Conservative Party supports the introduction of 60-ton lorries. If they do, that will be very bad for the environment and for rail freight.

I witnessed two incidents last week of 44-ton lorries being stopped in the centre of the historic town in which I live in Oxfordshire. They stopped all the traffic, the drivers were obviously lost, and they had passed weight-limit signs of 7.5 tons—which in any case relate only to access. If drivers cannot read our road signs they are either not properly trained or our road signs are not big enough to read. Road signs, whether they are protecting railway level crossings or our small towns, should be observed by anyone who drives on our roads. If they are unable to observe them, they should not drive here.

I am sorry that my remarks have been directed mainly at the road sector, but it is a huge part of the freight market. What costs have been incurred by central and local government in introducing 44-ton lorries to this country? It is not a trivial sum; a lot of money has been spent on roads, bridges and the roadworks of which we are all victims.

I should very much like to hear the Minister’s answers. Perhaps he may write to the committee if he does not have them to hand.

My Lords, I thank my noble friend Lord Freeman for initiating this debate and for chairing the European Union sub-committee. This report is on a subject that will keep on going for some time. I am disappointed in the limited number of speakers, because a lot of powerful people sat on that committee and I am sure that they would have had much to add to this debate. The noble Lords who have spoken played a significant part in the committee, including my noble friends Lord Freeman and Lord James, and the noble Lord, Lord Bradshaw. The noble Lord, Lord Berkeley, submitted a great deal of evidence to the committee, and that is demonstrated in the notes on proceedings.

It is not my job, as opposition spokesperson, to answer the questions posed by the noble Lord, Lord Bradshaw. First, he tempts me to make a commitment on spending, but I could not do that even if I were standing here in the role of shadow Minister for Transport. Secondly, as he admitted, his speech had nothing to do with the report we are debating today—as he was a member of the committee, that is slightly surprising—but has everything to do with road transport. While we acknowledge that that has a role to play in freight, it is not what the report is about.

We greatly welcome the report and appreciate the hard work that the committee has done to compile one that is thorough and well researched. However, it is clear from the report that there are problems on a European-wide basis—the noble Lord, Lord Berkeley, touched on those in particular—that need to be addressed, hence the need for the recast of the original proposals on the rail freight package to open up the railways across Europe to more freight trains.

We have long supported the wider objectives of the first rail package to tip the balance of freight carriage from roads to rail and to lower the environmental impact of the vital movement of freight across countries and borders. That is especially so as in recent years our roads have become more and more congested, with motorways representing 1 per cent of road infrastructure but carrying 40 per cent of traffic. We want to see rail freight become an increasingly attractive alternative to road haulage.

That would help reach the commitment set out in the Government’s climate change legislation to cut carbon emissions by a quarter by 2020 and by a half by 2050. Rail freight can help reach this figure as every tonne of freight carried by rail produces at least 80 per cent less carbon dioxide than by road. Therefore, more rail freight would help to tackle congestion. The Freight Transport Association estimates that one freight train can take 50 lorries off our roads, yet in 2008-09 there were 316,684 freight train movements, which was a 4.7 per cent decrease on the previous year’s total. In 2008-09 more than 20 billion net tonne kilometres were moved by freight train. But that was another decrease at 2.6 per cent compared with 2007-08. Therefore, despite what the noble Lord, Lord Berkeley, said, this is the second consecutive year that the amount has fallen, meaning that it is currently at one of its lowest levels.

So the aim must be to tempt freight from the roads and on to trains. But if this is to happen, significant improvements are going to have to be made. There are clearly serious infrastructure failures, congestion problems and efficiency issues that need to be addressed. However, the proposal for the recast of the first package comes at a time when the second and third railway packages have yet to be fully implemented. Deutsche Bahn has warned that implementing this latest remodelling could delay other initiatives by two years. So my first question to the Minister is: what assurances have the Government been given that the recast will not stagnate progress rather than facilitate it?

While attempting a simplification of the rules of the original package, the recast is, none the less, largely a restatement of the Commission’s original intentions. Whatever rules and regulations this legislation introduces, it cannot disguise the reluctance of Governments and the agencies that form the rail freight industry to co-operate and ensure they are implemented. What will the Government do to help foster better collaboration among all those concerned, not only in this country but across those which are meant to be co-operating to ensure a relatively smooth passage of freight across the continent?

For a measure so concerned with fair practice and transparency, little thought appears to have been given to how it might be supported by competition law and other related legislation. Do the Government agree that such consideration would lend more weight to this package?

I am sure that there is little disagreement among us that the main issue is that rail freight is increased and that the processes which would make that possible are fair and fully understood by all those involved in this sensible policy. We are not sure that the current practice in the United Kingdom alone, never mind in other EU countries, bears this out. The problem is that there is not enough capacity on rail. The amount of freight able to be moved during the day in this country in particular is limited by the encouragement to people to use the train rather than to travel by air or car, so there are more passenger trains. That means that there is not enough spare capacity. In the evenings and at weekends, rail links are suspended or reduced because of repairs and refurbishment.

Building high-speed rail lines would have a number of benefits for the freight sector, not least by freeing up capacity for freight on the existing network and reducing traffic congestion by taking lorries off the roads. I will ask the Minister a further question. In the short and long term, what plans are the Government putting in place to prioritise freight movements on UK lines?

The report suggests that it would be best to separate operation managers and operating companies for both train and track. While we agree that in a privatised industry separation of function is important, it is as important to create an environment in which the two can work together. We must end the culture of train operators blaming Network Rail in this country and vice versa, and promote easier working relationships between the two agencies. What action are the Government taking to ensure that there is co-operation between the rail and freight operators, and to strengthen and extend the duties imposed on Network Rail to keep them properly informed on matters relevant to the efficient running of services?

We agree with the Government and the committee that there should not be an EU-wide regulator, as this would take away too much power from individual nations. The last thing that the Office of Rail Regulation needs is for power to be taken away from it. If anything, it needs more powers to do its job effectively. Does the Minister believe that the Rail Regulator currently possesses the necessary powers to perform its job effectively and to have a stronger say on the governance of Network Rail?

Finally, will the Minister tell the House what the infraction was that made the United Kingdom one of the countries that infringed the first rail package? Having told us what it was, will the Minister assure us that the infraction has been rectified—or, if it has not, what problems lie behind it? I thank the committee again for an interesting and influential report.

My Lords, this has been a small but perfectly formed debate. I warmly congratulate everyone who has taken part in it. I particularly congratulate the noble Lord, Lord Freeman, on presenting the EU Committee report with such clarity and enthusiasm. He said that there was scarcely any difference between the conclusions of the committee and the Government’s position. I have been hunting and have found just one, to which I will refer later in my speech.

I commend all the members of Sub-Committee B who carried out the inquiry and thank those who gave evidence. Some of it was of the highest quality. I am pleased to echo the noble Lord, Lord Bradshaw, and my noble friend Lord Berkeley in congratulating the committee. I also thank the noble Lord, Lord Freeman, for his acknowledgement of the speedy response of the Government. As he said, my noble friend Lord Adonis gave an almost instantaneous reply of warm welcome, which was followed by the Government’s official response less than two months from the date of publication. I do not know if that is a record, but it is not a bad response.

I will start by putting the freight industry in Britain into context and pick up on the point made by my noble friend Lord Berkeley about rail freight volumes. He said that they had grown by 60 per cent since privatisation. The figure that I have is 59 per cent, but I will not quibble. The Government agree with him that one underlying reason for the growth is that we have one of the most liberalised market structures for rail freight in the EU. This growth is projected to continue both within Great Britain and on our international through services via the Channel Tunnel.

Developments in the Channel Tunnel have been particularly encouraging. New operators have entered the market and launched new services, including the first for a number of years to haul temperature-controlled produce from Italy and Spain to the UK. The opportunities for long-distance rail freight services through the Channel Tunnel will be further enhanced once locomotive modifications have been completed that will allow conventional European-gauge freight services to run on the Channel Tunnel Rail Link HS1 route. That is one of the answers that the noble Baroness, Lady Hanham, was seeking. This will be good for the railway business and good for the environment.

Again, I warmly welcome the Conservative Party’s commitment to support High Speed Two on a non-partisan basis. There is very little difference between the two parties on the desirability of building High Speed Two and we hope to have Conservative support when the feasibility study is presented before Christmas. One of the components being carried out is consideration of the impacts of released capacity on the existing network that would be created by a new high-speed railway. There is the potential for some current long-distance express services to transfer to the new line, freeing up existing capacity for new rail freight services on routes which are presently congested and also providing the opportunity for new regional and local services.

The Commission’s aim of encouraging the establishment of an efficient, well integrated and sustainable rail freight market is therefore broadly similar to our government policy. Like the noble Baroness, we believe that there are clear gains from increasing rail freight.

The legislation contained in the first railway package is crucial for Europe. It was intended to lay the foundation for the opening of the European rail market. We support the Commission’s view that, in reality, the package may have started this process but to date has not fully achieved its declared objective of market opening. In 2006, the Commission published a report which concluded that, although member states had formally transposed the rail access directives in national law, a number of important provisions had not been implemented effectively and correctly. A further Commission report from 2007 found that, although competition had increased, a genuine European rail transport market had not yet been created and that a number of entry barriers and other inefficiencies remained.

On 26 June 2008, the Commission wrote to all but one of the 25 member states, the exception being the Netherlands, alleging varying degrees of failure to transpose the first railway package adequately into national law. I should emphasise that it wrote to member states with a rail system, because not every member state has a rail system. There are not many railways in Cyprus or Malta, for example. As the noble Baroness correctly observed, the UK received a letter of formal notice from the Commission for alleged non-conformity with the first railway package. I am pleased to tell the House that the alleged infringement was based on a misunderstanding and concerned the time taken by the regulator to approve track access agreements and to hear appeals. In our reply to the Commission of 8 August 2008, the Government stated their belief that our procedures were fully consistent with directive 2001/14/EC. From subsequent informal meetings with the Commission, we understand that it is content with the UK’s response and that no further action on this point will be required.

On 8 October 2009, the Commission sent reasoned opinions to 21 member states regarding their failure properly to implement the first railway package. The Commission believes that important issues still remain to be solved for opening up the railway markets to competition in a large number of member states—as noble Lords indicated in the debate, 21 of them. The noble Lord, Lord Freeman, particularly mentioned France, Belgium, Spain and Germany. Happily, this time, the UK was among the six member states which did not receive such a letter.

In the reasoned opinions, the Commission highlighted shortcomings such as: the lack of independence of the infrastructure manager in relation to railway operators; insufficient implementation of the directive’s provisions on track access charging, such as the absence of a performance regime to improve the performance of the railway network; the lack of incentives for the infrastructure manager to reduce costs and charges, and of tariff systems based on the direct costs of rail services; and the failure to set up an independent regulatory body with the necessary powers to remedy competition problems in the railway sector.

The Government therefore fully support the Commission in its efforts to make the international rail freight market more attractive and competitive. As your Lordships’ committee recommended, we also endorse the Commission’s dual-track strategy of achieving this objective by ensuring the proper and comprehensive transposition by member states of existing legislation and by reviewing the first railway package with the overall aim of clarifying and strengthening the legislative framework.

With regard to the Commission’s imminent review of the first railway package, there is evidence that the separation of infrastructure management and train operations, as practised by a number of member states in everyday operational situations, has not achieved the desired intention of ensuring transparent, equitable and non-discriminatory access to rail infrastructure for non-incumbent, independent operators. Any recast of the first railway package needs to address that lack of separation to create what is probably the most important precondition to allow competition to take place under transparent and non-discriminatory conditions. The Government, therefore, agree with the committee’s recommendation, mentioned by the noble Lord, Lord Freeman, that the Commission should use the recast to ensure that infrastructure managers treat all rail freight and passenger operators fairly. We believe that this is best achieved by the full separation of rail infrastructure managers from railway undertakings. That will help to ensure fair treatment for freight customers and passengers.

The Government also agree with the committee that more detailed provisions about the powers and remits of regulatory bodies are needed. We believe that national regulatory bodies should be given the necessary powers, independence, funding and resources to undertake their roles in a manner which is consistent with the spirit of the first railway package. This is how we have configured the regulatory system in the UK. However, in many European member states, as noble Lords have indicated in this debate, rail regulators seem to lack the competences, the resources and the necessary independence from government to be effective local enforcers of European rail legislation. The recast of the first railway package needs to address this aspect of the regulatory approach across Europe. National regulators need to be empowered to act as effective national enforcement bodies of both the letter and the spirit of the first railway package.

As the noble Lords are aware, the Commission's proposal for a regulation concerning a European rail network for competitive freight has been agreed at Council and will now go to the European Parliament for Second Reading and possible adoption. The proposal requires that regulatory bodies co-operate with each other and with infrastructure managers on cross-border issues. The Government welcome this development and see that as improving on the current requirements of the first railway package for both regulatory bodies and infrastructure managers.

The EU committee also recommends that the recast should include a requirement that regulatory bodies should be independent of government. The Commission has already sought to address the issue of independence by means of Article 2.5 of directive 2007/58/EC which amends directive 2001/14/EC. The directive requires that,

“the Regulatory Body shall furthermore be functionally independent from any competent authority involved in the award of a public service contract”.

Directive 2007/58/EC is part of the third rail package and had a transposition deadline of 3 June 2009, so member states should have now implemented this requirement. However, it may be too early for the Commission to say what impact this provision has had on the independence of regulatory bodies throughout the EU, although it is a step in the right direction. In essence, however, we agree that regulatory bodies should be independent of government, as is already the case in the UK.

The committee recommends that the Commission should not propose establishing an EU-level regulator. The Government agree with that recommendation. That point was touched on by the noble Lord, Lord James of Blackheath, in his intervention. We believe that increased co-operation between national regulatory bodies, with the necessary powers, independence, funding and resources, should be able to oversee cross-border services in an effective way. It would be undesirable to have an EU-wide single regulator.

The committee recommended that the Commission include in the recast mandatory definitions of which costs can and cannot be included in infrastructure charges. The Government believe that the principles of calculating track access charges differ widely from member state to member state. There is also evidence that in some member states the setting of infrastructure charges lacks transparency and consistency, which is likely to hinder the development of competition in the European rail freight and passenger market.  We agree that the principles and methods for the calculation of infrastructure charges should be clarified and made more transparent and consistent.

The committee also recommends that the recast include a requirement for member states to agree multi-annual contracts with their infrastructure managers. The Government are aware that in some member states funding remains exposed to the vagaries of annual government budgeting. I do not blame the noble Baroness for not responding to the challenge posed to her by the noble Lord, Lord Bradshaw; I should have been astonished if she had. That leads to unforeseen and sudden shortfalls of funds available for infrastructure management. The consequence is that infrastructure managers try to recoup funding shortfalls with increased track access charges in order to balance expenditure and income. In some cases, that makes the running of rail freight operations, which often suffer from low margins, and rail passenger services prohibitively expensive. The Government therefore believe that funding of infrastructure managers should be placed on a more reliable and predictable footing. The UK system of the five-year periodic review creates the necessary continuity and stability of funding. We think that that is an essential precondition for sound and efficient infrastructure management.

Regarding rail-related services, the committee recommends that member states should be required to give regulatory bodies the power to act in this area. From a UK perspective, the Office of Rail Regulation has those powers already through measures introduced through the first railway package and transposed into UK legislation which has extended the opportunities for freight users to seek access to other operators’ terminals and those terminals previously exempt from regulation. In some other member states, there is anecdotal evidence that access to tracks, terminals, ports and services remains a problem for non-incumbent, independent operators. In particular, operators are having difficulty obtaining evidence that the charges which are quoted for access to tracks, facilities and supply of services reflect the cost of providing the service, calculated on the basis of actual use. We therefore support that recommendation.

The committee recommends that the Commission explore the potential for the package to be complemented by the use of competition laws—a point referred to by my noble friend Lord Berkeley. The Government agree that the Commission should investigate the possibility of making use of competition laws if and where that is appropriate, but hope that proper enforcement and the recast of the first railway package will ultimately rectify the current lack of real competition of rail freight and rail passenger services within the UK.

Finally, the committee recommended that the Commission consider recasting some of the railway package’s provisions into a regulation, which would be directly enforceable in all member states, rather than using a directive, which requires transposition into national laws. That is the only area where the Government take issue with the committee and do not agree. We understand that the Commission is already considering that option. However, recasting some of the provisions of the first railway package by means of a regulation would be scrutinised more closely during negotiations and could therefore result in watered-down legislation.

To summarise the situation in the UK, the Government believe that the key principles of the first railway package have been transposed properly and comprehensively. There is a clear functional and structural separation of infrastructure management from train operations. Capacity allocation and charging work in a transparent and non-discriminatory manner, permitting all operators equitable access to the network, and we have a functioning regulatory system with a well resourced, independent regulator, the Office of Rail Regulation, which has comprehensive powers of economic and safety regulation.

If I may, I shall now try to answer points made by individual speakers in the debate. My noble friend Lord Berkeley asked about guidelines issued by the Commission. We would welcome the Commission providing clear guidance on a number of points when recasting the first railway package, such as which elements of cost can be included in track access charges and which cannot, and the general conditions of access to the infrastructure. The Government will engage, and indeed already are engaging, with the Commission on these and other ideas that need to be clarified.

The noble Lord, Lord Bradshaw, asked a succession of questions that related not directly to the report but to rail freight. There were some questions on infrastructure maintenance costs and the operations of Network Rail. Decisions on the efficiency of Network Rail’s operations and how to improve them fall to the independent regulator, the Office of Rail Regulation, under the five-year funding settlement that has recently been implemented.

The ORR continues to task Network Rail with delivering further challenging efficiency targets on the operation, maintenance and renewal of the national infrastructure. I certainly endorse the noble Lord’s comment that the quicker we can move to the seven-day railway, to which he referred, the better. We are maintaining pressure on the rail industry to improve engineering-work planning procedures to reflect better the needs of passengers and freight passengers. The ORR’s requirements on Network Rail for control period 4—2009 to 2014—to reduce the disruption to passenger services by a third by 2014 are a good start, but we want rail improvements to come into effect as soon as possible.

The noble Lord, Lord Bradshaw, also asked about the Government’s progress in making foreign lorries pay for road use in the UK. Following the conclusion of the freight data feasibility study in 2008, the Government decided against a vignette scheme at this time due to what were seen as the limited benefits that could be achieved when compared with the costs. It was decided that greater benefits are achievable through other measures, such as enforcement. The Government are undertaking a foreign vehicle data survey to refresh data on foreign vehicle movements throughout the UK and to provide up-to-date evidence and this is expected to conclude this year.

My Lords, I am slightly at a loss to know how better enforcement has anything to do with the cost of using the highway. They are two separate issues; one is about obeying the law, and one is about paying for a service.

My Lords, the Government take the view that enforcement and better knowledge of foreign lorries are the priorities for the immediate term. The costs of an alternative system in the short term are seen to be very high.

The noble Lord, Lord Bradshaw, also asked whether the regulations are being properly enforced. We have made an additional £24 million available to the Vehicle and Operator Services Agency over a three-year period from 2008 to enable it to carry out more enforcement checks on HGVs on international journeys. A high proportion of these vehicles are foreign-registered.

In April 2009, we introduced a graduated penalty and fixed deposit scheme. This empowers both the police and VOSA to demand on-the-spot payment of a financial deposit from non-resident drivers, including heavy goods vehicle drivers, who commit road traffic offences. Offenders are given the option to go to court and to have their deposit returned to them if they are subsequently cleared of the offence. In practice, almost no foreign drivers elect to go to court, and well over £700,000 has been collected in deposits since April.

Powers to immobilise vehicles were introduced at the same time. The police and VOSA can now fix immobilisation devices to heavy goods vehicles that prevent them from being moved until the safety defect or overloading has been corrected or a driver has taken a sufficient rest period under drivers hours’ rules. Immobilisation devices are also fixed if a driver cannot immediately pay the required fixed penalty deposit and removed only when the money is forthcoming.

The noble Lord, Lord Bradshaw, referred to the report of the Transport Select Committee in another place on VOSA. The response is now being finalised and will be with the House of Commons shortly. It would be discourteous of me, speaking from this Dispatch Box, to anticipate a report which is going to the other place.

He also asked about the risk of allowing 60 tonne lorries on our roads. I would point him to a statement made by the Secretary of State on 3 June 2008, which informed the House of Commons that large, 25.25 metre longer and heavier goods vehicles, which are of a 60 tonne double trailer combination, would not be allowed on United Kingdom roads for the foreseeable future. That decision was based on the result of a study commissioned by the Department for Transport, which highlighted a number of issues that make implementation of LHVs in the UK impractical either on a permanent or a trial basis. The issues that were influential in the Government’s decision are the risk of increased CO2 omissions and other drawbacks, including the modal shift from rail to road, a point to which the noble Baroness referred in her speech; the management of the road network; the substantial investment which will be needed for the infrastructure; uncertainty about their efficiency; new safety risks; and the fact that tougher safety or manoeuvrability standards cannot be mandated because of EU trade rules.

The noble Lord, Lord Bradshaw, asked about an individual who is working at the Commission in Brussels. My understanding is that this individual is an official within the DG TREN unit at the European Commission. It would not be appropriate for me to comment on for whom he speaks or what views he may or may not hold. All I would do is counsel the noble Lord not to believe everything that he reads in the newspapers.

I think that I have covered most of the points made in this debate. If I have not, I will write. I am conscious that I might have missed one or two of the points made by the noble Baroness. If I have not covered her points, I will write.

I should like to reiterate the Government’s strongly held belief that, in order for international rail freight to become a more attractive and competitive alternative and to enjoy a level playing field for passenger operators, it is imperative for the Commission to pursue with determination and vigour two indispensable objectives: namely, proper and comprehensive transposition by member states of existing and any future legislation, and a review of existing legislation, such as the first railway package, with the overall aim of clarifying and strengthening the legislative framework. A truly open European rail market will be achieved only when both those conditions have been met.

I conclude as I started by congratulating the committee on an excellent report with which the Government are in almost total agreement and the noble Lord, Lord Freeman, on the way in which he introduced it.

My Lords, I thank the Minister for that comprehensive and most welcome response. It is not usual to thank officials, but I should be grateful in this particular instance if the Minister could communicate with Mr Kahn, the Minister of State at the Department for Transport, asking him, through the Permanent Secretary, to thank transport officials not only for the speed of response but also for its clarity not just in terms of this report, but in the pattern that has developed. We should thank them. The noble Lord, myself and other colleagues, having served as Ministers, realise that 99 per cent of the work is done by officials and that in some cases the Minister is just the delivery mechanism.

I thank my noble friend Lady Hanham for her very helpful contribution to the debate. Let us hope that she will have the opportunity in due course as a Minister of actually delivering an official response, not only in this department but perhaps in others. Indeed, we seem to have a tripartisan approach from the three Front Benches which is most welcome and perhaps unusual in debates in this House. I thank in particular the noble Lord, Lord Bradshaw. He clearly argued the case for an early inquiry into road transport, and I shall support him as and when he puts that request to the Select Committee.

Finally, with the agreement of the chairman of the main Select Committee, the noble Lord, Lord Roper, I hope to make a rather unusual request of the Minister. So that we can follow through with this debate, will he ensure that the Commissioner in Brussels receives a copy of Hansard with the Minister’s response translated into Italian, with no redactions and with exclamation marks left in?

Motion agreed.

House adjourned at 1.16 pm.