Lord Hendy of Richmond Hill (Lab)

My Lords, I thank all noble Lords for this debate on group 5 and will echo the noble Baroness, Lady Pidgeon: it is a delight to see the noble Lord, Lord Bradshaw, in his place this afternoon. I am sure that the rest of the Grand Committee wishes him, as I do, a very happy significant birthday for yesterday. I have also read and heard what he has argued carefully and, as he is a man of huge experience in the railway, I will reflect on what he said. The Committee will be relieved to know that I am not going to redebate the status of GBR companies and subsidiaries. I thought I would leave it to the noble Lords, Lord Lansley and Lord Moylan, to fight that out. I think I had the same clarity as the noble Lord, Lord Lansley, at the end of that debate. I think noble Lords’ amendments are, collectively seeking, first, that the Secretary of State considers GBR’s duties, her long-term rail strategy and the wider planning considerations when determining GBR’s funding settlement; secondly, that that funding settlement is transparent; and thirdly, that it is protected. Finally, the noble Lord, Lord Moylan, seeks to ensure that it is in place two years before the next financial period. I start by providing some explanation of the provisions. The Bill already establishes a comprehensive funding framework. Schedule 2 sets out that the Secretary of State must publish a statement of objectives for the railway. In doing so, she is absolutely bound to consider her duties and her own strategy, and she will, of course, consider wider planning and the impact of the network. Following the statement of objectives, the Secretary of State must then publish a statement of funds available, so that GBR can understand its funding parameters and produce a high-quality business plan. Schedule 2 then provides that GBR must produce, publish and keep up to date the five-year integrated business plan across both infrastructure and passenger services. The Office of Rail and Road will advise the Secretary of State on the effectiveness of the business plan, including whether it represents good value for money. If it does, the Secretary of State will then approve the plan and issue a five-year settlement. Under paragraph 7 of Schedule 2, as in the proposal of the noble Lord, Lord Moylan, the Secretary of State is required to publish details of the five-year funding settlement she gives to GBR, including the funds agreed. She will absolutely ensure that that these published details are clear enough to allow stakeholders to understand the settlement, meeting the noble Lord’s request for transparency, while protecting key commercially sensitive information. GBR’s business plan will also contain all its planned activities, costs and how it plans to meet those costs. This plan will be updated and published annually after the initial settlement. A clear summary of ORR’s advice through the funding process will also be published, as set out in paragraph 4(6), which means that the desires of the noble Lord for an annual report on GBR’s financial performance will be delivered. Other further reporting requirements are duplicative and unnecessary, and all this amendment would do is increase the time GBR spends on bureaucracy instead of getting on with its job of delivering. On protecting the funding settlement, which the noble Lords, Lord Bradshaw and Lord Moylan, spoke about, I agree that when maintaining and renewing long-term railway assets, certainty of funding is critical. It provides a stable basis of planning, supports efficient delivery and helps build investor confidence throughout the supply chain. I repeat that the intention behind setting a five-year settlement is that it should endure for the full five-year period. On the amendment of the noble Lord, Lord Moylan, I can assure him that the Secretary of State must publish any updates to the settlement that are likely to have a material impact. If she wishes to make a material change to the settlement, she must also notify the ORR, which will advise on the likely impact on the railway, and that is one of its important and critical roles. This will ensure that there is transparency around any funding changes and that there will be scrutiny if material changes are proposed that will not support an effective railway. On Amendment 55 from the noble Lord, Lord Moylan, I do not agree that the Secretary of State should be restricted to changing the funding settlement only in emergencies. As the noble Lord, Lord Harper, says, the Government have a lot of priorities to deliver across healthcare, housing, transport and public safety, which all require funding. While, of course, in my mind, the railway is absolutely the most important of those priorities, I recognise that the Government and Ministers need to be able to move money in response to changing circumstances, because choices about funding priorities are ultimately for the Government of the day. On the details of Amendments 74 to 77 from the noble Lord, Lord Bradshaw, the first key point is the question of which funding changes the ORR should get involved in. The Bill already requires that the ORR is notified when changes to the funding settlement are material enough to affect delivery, but not in every circumstance. This approach is proportionate. There may well be some smaller accounting-type changes to funding needed, which will not affect delivery and do not require a true statutory formal change process. This could, for example, include GBR offering to return small underspends back to the Government where efficiencies have been found but, of course, material changes, as I have said, should be notified to the ORR. This process ensures that they will be. The Bill currently requires that the Secretary of State notifies ORR before a material funding reduction is made to the five-year infrastructure settlement. This allows ORR to exercise its independent and expert judgement when it receives notice of a potential change. I can reassure noble Lords that the ORR would absolutely act if significant funding were taken out of the railways, including by advising the Secretary of State and publishing that advice. This approach is most practical, rather than requiring ORR to respond to each change in funding in a set way. To summarise this point, certainty is crucial for the railways, the Government and the wider supply chain, but it must be proportionate and balanced against the ability of Ministers to allocate public resources. The noble Lord, Lord Moylan, raised the question of rolling stock manufacturers and the Government’s answer to this is to construct and publish in due course a rolling stock and infrastructure strategy, the first for more than 30 years, in order to give that part of this market the long-term certainty it craves and which will keep the production facilities and jobs going. Finally, I agree that, given the amount of investment on the line, it is important that funding is in place in good time to allow GBR and industry to prepare for the next settlement. Although I do not think this should be in primary legislation, because requiring funding levels to be confirmed two years before the start of a funding period would reduce flexibility and risk settlements becoming outdated before they can even take effect, I reassure the noble Lord that details of the timing will be managed by the ORR, as they have been in successive control periods, to ensure that the financial settlement is never at risk. Schedule 2 sets out that the statement of funds available must be published early in the process and created to timelines determined by the ORR. I can confirm that in practice, as seen under the periodic review process, this information will be published significantly in advance and has to be more than a year ahead of the final settlement to work. I understand that the ORR will ensure that the process concludes fully with time for industry to prepare. I hope this is a reassurance. I reassure the noble Lord, Lord Bradshaw, that the Bill leaves flexibility to fund more of GBR’s activity through the five-year settlement, once this becomes once this becomes practical and Ministers are more comfortable funding an integrated entity. If Ministers fund passenger services through the five-year settlement using the route in the Bill, all the protections we just discussed would already apply. Turning to a related issue, on Amendment 65, I reassure the noble Lord, Lord Lansley, that we are in agreement, and the outcome of Amendment 65 is already achieved by the Bill’s provisions. Under paragraph 4(3) of Schedule 2, GBR will be required through its business plan to set out its activities, the costs of those activities, and how it proposes that those costs are met. In practice, this means that the business plan must cover everything that GBR does, through its subsidiaries as well as the parent company, and must cover its revenue sources across all its subsidiaries. I turn to Amendment 70—and once again I confirm for the Committee that the Bill already requires the full business plan to be published and kept up to date, in paragraph 4(7), and there is a commitment to update it in paragraph 5(3) of Schedule 2. However, the Bill contains slightly more discretion for GBR to redact sections of the business plan than this amendment proposes. This is because it is important that all types of sensitive data, not just commercially sensitive, are able to be protected. Personal data, security-sensitive information about stations and public places, or anything legally privileged are all examples of content which may need redaction from the final plan, and a flexible requirement can be better used to navigate these nuances. That flexibility is important, but I should be clear that GBR cannot withhold information simply to avoid scrutiny. The ORR will assess and advise the Secretary of State on the unredacted version of the business plan, and GBR’s public law duties and wider accountabilities framework will ensure that GBR will not be able to hide important information relevant to public scrutiny. I understand that the intention of Amendment 73 is to prevent the Secretary of State circumventing the process as set out through the Bill, by restricting access to the broader funding powers in the Railways Act 2005. The purpose of paragraph 6(7) is to make it clear to Parliament that the Secretary of State can use her other funding power in the 2005 Act. This will be necessary when funding activity outside the five-year settlement, such as individual enhancement projects or one-off funding packages, are needed following a natural disaster, for example. I assure the noble Lord that this does not reduce transparency over GBR’s funded activities. GBR’s business plan, covering all GBR’s activity, will be costed, updated and published as GBR’s outputs change. The business plan will include enhancement projects and will show clearly where the funding for them has come from, therefore transparently identifying the use of the 2005 power for Parliament and others to scrutinise. I therefore hope that the noble Lord can see that the inclusion of paragraph 6(7), to allow the Secretary of State to use other funding powers, is purely practical. Finally, I thank the noble Lord, Lord Moylan, for Amendment 78. For clarity, relevant subsidy control law does not apply to infrastructure funding. However, it applies in full to passenger services funding, as we discussed in the ticket retailing debate on Tuesday. Railway infrastructure being exempted from subsidy control rules is something that happens on the current railway; railway infrastructure funding provided to Network Rail today is not subject to subsidy control law. The Bill does not change this principle but simply enshrines it for clarity and transparency. Over many years, funding provided for the operation and management of the main national railway infrastructure has not been treated as subsidy as this market has been effectively closed for competition, because there are not multiple infrastructure managers operating on the same infrastructure. That position has underpinned the funding arrangements for Network Rail and continues to be appropriate for GBR as its successor. Removing this provision would not change the way that the railway is subsidised; it would just mean continuing to rely on previous legal interpretations, rather than the additional transparency provided by this clause. Part 3 in Schedule 2 therefore provides clarity and legal certainty, and it makes sense for this stance to continue as there is no competitive market for the railway infrastructure that GBR will be responsible for, so there is no need to waste resources administering this funding as if there is. I therefore urge noble Lords not to press their amendments.