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Duncan: Railtrack affair is testament to Labour's deceitful conduct

Speech in Commons Opposition Day debate

"This debate is about one thing and one thing only. It is about the conduct of New Labour in government. It is about the way in which the decencies and proprieties of how we are governed have been by-passed, corrupted and polluted. It is about the erosion of independence in the civil service, the abuse of power by ministers, the arrogance of unelected advisers, and the institutionalised contempt displayed by New Labour to the power and authority of Parliament.

This debate is about how the sorry episode of Railtrack's demise illustrates all these faults, and it is about why the Government is so profoundly culpable for what they did.

Today's debate is not about matters being considered by the Standards Committee. We are acutely aware of the important dividing line which separates the issues we are focusing on today, and the issues being considered by that Committee. We will be extremely careful, Mr Speaker, not to trespass on the accusations against the Rt Hon Member for Tyneside North which will be considered by that committee. There is no need to do so. The guilt of this Government is palpable, and can be proved without any such reference.

Nor Mr Speaker is today's debate about the Railtrack shareholders' case against the Government. As the judge made clear, he was required to adjudicate only on the one specific charge of misfeasance, an accusation which presented a very high legal hurdle, namely that the then S of S had acted with targeted malice. Far from vindicating the Government in all respects, as they try to claim, the court case merely excused them of this one extreme and specific charge. The Judge was not asked to undertake a review of the Government's conduct, nor to express any opinion on their actions more generally. As the judge categorically made clear, that is the duty of this House, and that Mr Speaker is the duty we now face.

It's not as if the judgement was itself uncritical. Even when it came to the RHG for Tyneside North, Mr Justice Lindsay inimitably said of him "His explanation as then given seemed to me to be little above gibberish, but it will be for Parliament to assess what he meant."

Indeed - and Parliament will assess what the RHG meant. Parliament must now also assess the Government in respect of its wider conduct.

Even the Gov't's own counsel said:

"This case….has aroused intense political interest but, Your Lordship, it is not a political tribunal, or even in this case a court of judicial review, and the question therefore is not whether this decision was wise or careful or fair or reasonable or procedurally sound, it is simply whether it was malicious." (Jonathan Sumption QC)

The court case left many aspects of this despicable issue unscrutinised, and it is now our duty to engage in that scrutiny.

All of us in this House now face a test. It is a test of moral probity. We can choose simply to follow the party line or we can exercise our conscience on this matter of justice and take the necessary steps to remove from our government those whose standards have fallen so grievously low.

This House is the place for the redress of grievance. We all do it in our daily constituency work. We must do so now on a graver matter. The court has looked only at one very specific accusation. This House must now look at the broader questions of injustice and impropriety which the court was not empowered to study.

We can do so in a climate of gratitude to the British legal system. Now, thanks to the disclosure in the process of litigation, we have the benefit of many many documents which were not publicly available in the immediate aftermath of Railtrack's collapse. Those documents paint a sorry picture of deception and deceit on the part of this government. The entire apparatus of government conspired to behave in the most despicable way on a crucial matter of public policy. So we now owe it to the Railtrack shareholders, and to all who want honesty in government, to pursue this matter vigorously and make all involved fully responsible.

As Andrew Chalken, chairman of the Shareholders' Action Group said after the court case "We now look to Parliament to hold the Government and Stephen Byers to account." We must not dash their hopes.

Neither is this debate about the merits and demerits of how Railtrack is or was owned. We are not here to discuss the intricacies and rights and wrongs of who owns the Railways. Any attempt to turn this debate into one about who should own the railways, or even that Railtrack was failing to perform well, are utterly outside the intended remit of this debate. Any such attempt would be a diversion from the focus of this motion, which is entirely to do with the Government's conduct.

This debate, and the action that must follow from it, is entirely about the corruption of the proper process of Government by the then Dept for Local Gov't, Transport and the Regions, by the Chancellor, by the Treasury, and even by the Prime Minister.


This House, by election and majority control, lends authority to the decisions taken by government. Parliament should be the forum for discussion and approval of anything that affects the nation.

We have over centuries established proper and abiding procedures for doing so. This Parliament and its many governments have earned an enviable reputation in the world for honesty and incorruptibility in our dealings.

As the Ministerial Code makes clear:

'When Parliament is in session, the most important announcements of Government policy should be made, in the first instance, in Parliament".

Policy should be clear, and openly expressed; that's what we have Green and White Papers for. Significant changes in policy, and significant decisions taken, should be explained to the House of Commons.

Background to Railtrack

The debate over private versus public ownership has been at the heart of political difference for decades, if not centuries. In some respects it defines the difference between Left and Right.

But today's debate is not the place for that argument. Our motion is only about the process of government, and Ministers' and officials' conduct within it, when they took back ownership of Railtrack.

We have to some extent been here before. My Rt Hon friend, the member for Maidenhead led a debate on 13th Nov 2001. It was in many respects a remarkable speech that she made. Within a matter of weeks, thanks to the thoroughness of her research, she asked some extremely prescient questions. Now, five years later, we can see that she homed in on exactly the right details, and also that she received in response evasive, mealy-mouthed and inaccurate answers.

But now we know much more than we did then. During the course of the High Court case this summer, a mountain of incriminating evidence was presented to the court and a stream of letters and meeting notes have additionally been released to me and to others.

All this evidence shows a catalogue of impropriety: a deceitful plan to manoeuvre to present Railtrack as insolvent, and so force a Railway Administration Order on the company as a means of getting it back for free.

The Government believed that formal renationalisation was too expensive an option

It is clear that the Government believed renationalisation in a formal sense - that's to say buying out Railtrack - was far too expensive an option to be seriously considered.

As the then Transport Minister, the HM for Streatham, told this House on 1st May 2001:

"Re-nationalisation would probably take a couple of years and involve complex and controversial primary legislation. During that time, the industry would effectively be paralysed…What we now need is evolution rather than revolution, especially when the revolution would be at enormous cost to the public purse and deliver nothing directly in improved rail services".

But the Government clearly wanted the company back - it was viewed as a 'discredited Tory privatisation', but they wanted it back without paying for it. Perhaps that is why, in court, the RHM for Tyneside Nth crowed that he had reversed the privatisation of Railtrack.

The Secret Plan

We now know, despite this Government's best attempts to prevaricate, dodge the truth and conceal this plan from Parliament, that there existed a covert plot to force Railtrack into administration during the summer of 2001.

They may have got rid of their Clause 4, but they secretly replaced it with Clause 5. No more overt nationalisation of industry. Replace it with the covert nationalisation of industry. No more budgets for nationalising a company. Use Clause 5: and just steal it.

But the RHM for Tyneside North. was merely the front man for this: the real puppet master was in the Treasury. And crucial to the Chancellor's involvement was the aggressive and insensitive figure of Shriti Vadera, dubbed by Martin Sixsmith 'Gordon's representative on earth.' It was she who code-named the plot Operation Ariel. It was she who first asked "Can we engineer the solution through insolvency?" (E-mail 31st July 2001).

It is only now clear what a central role the Chancellor played in this whole plot.

The RHM for Tyneside Nth told the High Court about a special list that had been nicknamed the 'The Ten Commandments' of conditions that needed to be satisfied before the plan to crush Railtrack was hatched.

Can we guess who the 'Ten Commandments' came from?

They came from the Chancellor, of course.

And it gets better. I have obtained from the Permanent Secretary at the Department for Transport minutes of a very interesting meeting in September 2001, where further details of this plot were being discussed behind Parliament's back.

I would like to quote from the official record of this meeting:

'The Secretary of State [Mr Byers] asked when the Chancellor would be in a position to be able to agree his questions had been answered satisfactorily. Shriti Vadera thought this should be possible next Wednesday.'

It shows that the Chancellor was in this up to his neck.

There is abundant evidence produced in the Court case that all the time - from the very beginning of 2001 - six months before the RHM for Tyneside North became Secretary of State - that the Government planned to seize Railtrack's assets and use railway administration as the means to that end.

The papers show that right up to the day before they went to Court - on 7th October 2001 - the Government was seriously worried about not having adequate evidence of Railtrack's insolvency.

Again, I could give the House scores of examples where it is abundantly clear that this was so. I offer these few:

On 3rd August 2001, the RHM for Tyneside North wrote a memo to the PM in which he deals with options for dealing with Railtrack.

He talks of the not-for-profit trust - which became the company limited by guarantee option, which was soon after adopted - saying:

"The option of a not-for-profit trust has attractions as a non-nationalisation alternative to a failed private sector solution."

The House will know, that to be lawful, a minister may only use statutory powers - such as the power to apply for an administration order - for the purpose for which they were conferred. The administration power of the S of S was given to him by Parliament to enable him to react to the insolvency of a railway company. In this case, the evidence is overwhelming that the RHM for Tyneside Nth used - I would say misused - his powers to try to create that insolvency.

He continues:

"We have work in hand to ensure we are ready to use the railway administration procedure if necessary. We could be forced down this route by events or we could choose to go down it as an interim step to an eventual solution. It is clear that we ought not to contemplate taking Railtrack into administration, which we could achieve by withdrawing Government support, without being equally clear about how we would like it to come out of administration …"

Is this the language of reacting to Railtrack's alleged insolvency, or of creating it?

On 23rd August 2001, Mr Dan Corry, special adviser to the Secretary of State, e-mailed a civil servant in the DTLR:

"I have spoken to SOS about where we are getting to. … He is very attracted to the option of pushing them [RT] into administration. It does not cost too much, allows us to signal a big change."


And then we have the infamous minute provided to the Secretary of State by Mr Rowlands, now the Permanent Secretary at the DfT and then the number 2 in the Department, on 31st August 2001. He deals with how to take out Railtrack using the mechanism of railway administration. He writes:

"Under the legislation, however, Railtrack's funding and obligations are matters for the Regulator. We cannot see a way of proceeding without sidelining him. … [a] very short Bill to [give the Secretary of State] power to issue directions [to the Regulator] would remove his ability to frustrate Ministers' chosen solution."

On 13th September 2001 there is a meeting with the Secretary of State and his civil servants. The private secretary's note records the discussion:

Mr Linnard says: "if pull plug, may not collapse straight away" [clearly the Government wants the company to collapse and is disappointed that it might not]. He goes on to explain: "risk RT and [Rail Regulator] go to Court. Unreasonable. Got right of appeal to [Rail Regulator] under law"

So a clear picture emerges of the Gov't's intention to engineer insolvency, combined with an understanding of the regulator's power to stop it.

And we see also how the Renewco deal - which was to bring forward £1.5bn in government grants to Railtrack in 2001 instead of 2006 - presented problems for the Government because it was committed to using its best endeavours to set it up.

Mr Linnard says in the meeting: "SRA thinks we're going to do Renewco." Sir Richard Mottram replies: "Slow it down"

Then the Rt Hon Member for Tyneside North says, in relation to the chance Railtrack will appeal to the Rail Regulator for additional funding: "PM wants Regulator out of it"

On 14th September 2001, Mr Linnard (number 3 in the DTLR) writes a further note to the Secretary of State, discussing taking Railtrack out and replacing it with what he refers to as "a non-equity solution"

(a euphemism if ever there were one). He writes:

"… the non-equity solution could only be achieved through railway administration".

And so we see railway administration being used as a means to an end, the end being seizing Railtrack's assets and taking out a FTSE 100 company by the back door. This was political assassination writ large.

Shortly after Mr Linnard's memo, the Secretary of State sends another communication to the PM and the Chancellor, in which he says:

"Our advisers say they have unearthed no killer facts which I could use to force the company into railway administration.

And Counsel has warned that a contested petition for administration would be seriously risky and therefore to be avoided."

Is this the language of reaction to insolvency? It is clear that they did not even then think Railtrack was insolvent. Plainly the Government was misusing its powers.

On 25th September 2001, the Government's investment bank advisers begin to get cold feet about the plan to cut the company's financial lifeline by extinguishing the independence of the Rail Regulator. Mr Challen of Schroders writes to Mr Rowlands and Shriti Vadera:

"Furthermore we remain (as laymen) surprised that the Government can, with impunity (albeit through a Parliamentary process), remove the effect of a key component of the regulatory regime on the basis of which shares were sold, shares have been traded and contracts have been entered into."

And on 26th September 2001, Mr Rowlands again minutes the Secretary of State suggesting:

"short paving legislation … making the Regulator subject to Ministerial direction, so that he could not use the discretion available to him under current statute … to frustrate Government's new approach to Railtrack."

The next day, the Secretary of State met his officials together with Mr Adonis and Brian Hackland of the No 10 policy unit, Shriti Vadera of the Treasury and others. The minute of the meeting says (para 5):

"The Secretary of State said that [a] short bill [to take the Regulator under direct political control] needed to ensure that the option of an appeal to the Regulator was closed off."

And the handwritten notes of the meeting add colour to this:

Mr Rowlands is recorded as having said: "talking about closing [RT's] escape route", showing that the Government is no longer behind the company, which he calls a "hammer blow"

The HM for Warley, and then Minister of State adds: "legislation got to close off all options"

This is all about cutting the company's financial lifeline, not reacting to its insolvency.

Indeed, the company was not insolvent because of that lifeline. And since the lifeline would have taken highly controversial primary legislation to sever (and months to pass, and probably the use of the Parliament Act), they had a major problem. How could they present to the judge a convincing case that Railtrack was already insolvent when that lifeline was still intact?

They were seriously worried.

They knew they were planning to use the railway administration regime for a collateral, and therefore illegal, purpose. They knew that to get a railway administration order, they needed to convince a High Court judge that the company was insolvent. They knew that it was not insolvent as long as the Rail Regulator's jurisdiction was intact. They knew that they could not sever that lifeline without legislation which they could not get in anything like a short enough period of time. So they decided to present a case to the Court which contained some serious omissions.

The anxiety at the time was graphically illustrated by Ms Vadera in another of her incautious e-mails, this time on 2nd October 2001:

"[The Rail Regulator] is the total wild card. I hope we are all aware of the risks here. … We cannot silence him over the weekend and if he stands up and says he has a grand plan which could keep the company [note the word KEEP] solvent, we're up the creek."

Methinks, Mr Speaker, it's Gordon's representative on earth who's up the creek now!

Is this the language of a Government reacting to an insolvency, or of one which knows that its case for insolvency is shaky or even non-existent?

On the morning the Government went to Court - 7th Oct 2001 - the Secretary of State had a final meeting with his officials, his outside advisers and Dan Corry and the notorious Jo Moore. The minute of the meeting shows how shaky the evidence of insolvency is:

"… work had gone on overnight to consider whether the company was solvent or insolvent. This had been presented to [counsel] who had offered the opinion that on the evidence before him he would expect a Judge to conclude that the company was insolvent and that a railway administration order would be made."

And so, Mr Speaker, there most definitely was a plan to engineer the artificial insolvency of Railtrack without reference to Parliament, and as a means of reacquiring the company at no cost to the Government and at the expense of the shareholders. There are no two ways about it!

Mocking the shareholders/Undermining Investor Confidence

Perhaps the most pitiful example of New Labour's attitude towards private ownership has emerged during the course of this trial, and demonstrates beyond all doubt the utter contempt that Ministers and special advisers had for shareholders.

Perhaps I should remind the House that 90 per cent of Railtrack's employees held shares in the company and many of the shareholders were small investors - we're not talking about big business here or 'fat cats' as these memos imply.

Gordon's representative on earth has described shareholders as 'grannies' on many occasions.

If 'the grannies lose their blouses', Ms Vadera so cynically observed, it wouldn't matter: they were only 'shareholders who had added no value to the company'

What a motley bunch - The Chancellor, his contemptuous special adviser, and the little weedy lackey of a Secretary of State for Transport.

Yes Gordon, no Gordon, will you be nice to me in Cabinet Gordon? It's Carry On Chancellor. Grannies in old blouses to the left of him; grannies in old blouses to the right of him; and a right little girl's blouse sucking up to him.

'Gordon's representative on Earth' also let the cat out of the bag when she wrote in one of her memos:

'It's the American investors we have to worry about.'

How on earth can the Chancellor stand up and talk about a Britain of 'opportunity for all, not just a few' when his 'representative on Earth' showed such contempt for shareholders and was only 'worried about' 'American investors'?

This whole sorry saga has undermined investor confidence in government projects. It was the process of Government, the bypassing of Parliament and secret, back-room meetings that have precipitated this loss of trust.

And all this at such a crucial time for the Government: PFI initiatives are the cornerstone of many Government projects, and I'm sure the Minister will agree that investor confidence is critical to the success of these projects.

Just take a look at a letter, written by twenty-two senior city fund managers, to the Chancellor, in March 2002 in response to this Railtrack scandal.

They said:

'There is a straightforward issue of trust. A range of Government initiatives rely on the development of partnerships between the private and public sectors…We believe that many of our colleagues in the private sector will now be wary of entering into such relationships and that damage has been caused to the trust that previously existed between Government and the City.'

If an investment partner is so unreliable, how can anyone expect people to want to risk their capital when the Government has behaved so despicably in this case?

Role of the Rail Regulator

As the House knows, independence of economic regulation is of fundamental importance to the financial regime for the railway industry, especially as regards the financing of Railtrack. It was the company's financial lifeline, and it was and remains of immense importance

During the period up to and immediately after the administration order was made, the Government displayed two characteristics which were extremely damaging and alarming to confidence in the actions and the iron-control mindset of this Government:

- it showed that it did not understand the importance of independent economic regulation and regarded it as a disposable commodity; and

- it showed that it had such contempt for the constitutional significance of an independent institution that it had to devise a discreditable plan to extinguish that independence to avoid it interfering with its plan to seize the assets of a FTSE 100 company for nothing.

What does that say about the stability of the independence of other institutions, such as the other privatised industry regulators, the Bank of England and the rest?

Since he took over as Secretary of State, the RHM for Edinburgh South West has been at pains to stress how important he - and the Government - regard independent economic regulation.

On 12th June 2002 (Official Report, 12th June 2002, 1262W), he stated:

"As the Government announced in October 2001, they have been considering whether the railways regulatory framework continues to be fit for the purpose given the changing circumstances faced by the UK rail industry. The Government's considerations have been guided by … key overarching principles, including:

"Providing sufficient comfort and protection to operators and lenders through independent economic regulation and in order to regulate monopoly/monopsony elements and to secure private investment in the railways at an efficient cost; … [the Government regards this principle on independent economic regulation] as an essential continuing requirement."

On 15th December 2003, he said:

"In a statement to Parliament on 12th June 2002, I set out the key overarching principles for the regulatory framework for railways. Independent economic regulation was one such overarching principle for which there was an 'essential continuing requirement'. This remains the Government's position."

On 9th February 2004, he said:

"The Government recognises that maintaining fully effective and independent economic regulation is critical for retaining investor confidence."

Having so assuredly asserted the essential importance of independent economic regulation, is the Secretary of State now going to go back on all these statements - intended to steady markets and reassure investors - and defend the secret Bill of October 2001 and the extraordinarily detailed plans which were put in place in the summer of 2001 to extinguish the independence of the Rail Regulator?

Let us see how he both defends a violent attack on independent economic regulation in 2001 and at the same time asserts that independent economic regulation is an essential continuing requirement of private investment in the railways. If nothing else, it will be entertaining to see him try.

Wrecking of the rescue plan

There was also a rescue plan that the Government was well aware threatened their plot to takeover Railtrack. 'RenewCo' was a new company, and planned jointly between Railtrack and the Strategic Rail Authority. Through this mechanism, Railtrack would be able to bring forward billions in Government grants and also borrow extra money against this financial security.

Sounds like a good plan? Absolutely - this was a massive threat to the Government's plot to present Railtrack as insolvent.

Again, the process of Government was totally ignored by Ministers and unelected special advisers; leaked emails and memos show the true extent of the deceit and plots that were hidden from this House.

We now know that in July 2001, 'Gordon's representative on Earth' was writing to colleagues and asking:

'Should we be approving Renewco at this point in time when it could enable Railtrack to avoid insolvency for a while and rob us of a cleaner insolvency trigger?'

This is clear evidence that the Chancellor's special adviser was seeking the block this deal.

The RHM for Tyneside North wrote in that crucial memo in September 2001 to the Prime Minister and the Chancellor (I bet he's beginning to regret writing that one now) that with regard to the RenewCo rescue plan:

'I therefore conclude that we should not proceed with it. This will hasten the onset of Railtrack's financial problems'.

So there we have it. The Secretary of State for Transport was seeking to 'hasten the onset of Railtrack's financial problems'. Damned by his own words.

Pressure put on the ONS

But it gets worse. A central element of the Government's attempts to wreck this rescue plan was to ensure that any RenewCo debt was classified as public sector debt - that way the Chancellor could refuse to agree to the plan, claiming it was unacceptable for its debts to appear on the public accounts.

But what about the Office of National Statistics? They decide the classification of where the debt lies.

So this was another obstacle for the Government. They needed another battering ram to smash through and plough on with the plan to 'engineer the solution through insolvency'.

'Gordon's representative on Earth' described the ONS in one of her emails as

'the joker in the pack and a deal killer'

The National Statistician has confirmed, in a written reply to the Rt Hon Member for Maidenhead, that

'originally the ONS decided to classify 'RenewCo' as a private sector institution',

but after receiving 'new information' from the Treasury they concluded by 5th October 2001 that the company

'would be classified as public sector borrowing'

We have now seen this evidence, as it has been released to the High Court, showing precisely what was going on behind the scenes at the Treasury.

We now know that officials from the Treasury emailed the Head of ONS' public sector accounts encouraging him to re-examine his original classification of RenewCo.

This Treasury official wrote:

'A holding reply today would help. It is very urgent. Something along the lines that you want to reconsider the case in the light of this new information'

How can the Chancellor possibly claim that his department was not attempting to influence this classification in the face of such damning evidence?

There is now no doubt - his order to 'reconsider the case' was a deliberate strategy to wreck the rescue plan.

As this evidence makes perfectly clear, it was not the ONS advising the Treasury, but the Treasury ordering around the ONS.

It is now time we saw all the communications between his department and the ONS on this issue.

The Rail Regulator

But there was one more obstacle, a formidable obstacle, to the Government's secret plan: the Independent Rail Regulator.

I emphasise the word Independent as this Office - established in 1993 - is an overseer for the economic regulation of the railways. Independence from government has always been critical.

But the Government was very worried; Ministers and special advisers were quaking in their boots.

Why? Because in situations of difficulty for Railtrack, the Independent Rail Regulator had the power to throw the company a financial lifeline.

The Office of the Rail Regulator during the summer of 2001, therefore posed a significant threat to the Government's secret plans.

Perhaps this is why Brian Hackland, the Head of the Prime Minister's Policy Unit in Number 10, emailed colleagues in September 2001 to ask:

'Could the regulator thwart us?'

'Thwart' is a telling word. The Regulator was a potential threat to their covert plan. Even 'Gordon's representative on Earth' was panicking.

What the court was and was not told

On 7th October 2001, the Secretary of State's officials called the High Court to get the duty judge - Mr Justice Lightman - available to hear an urgent matter. It's a Sunday - it no doubt interrupted his gardening. He receives a stack of papers from the solicitors to the Secretary of State in the early afternoon, and a hearing is convened at the offices of the Government's solicitors at 5.45 pm.

As the House knows, it is the duty of the Government, when engaged in any kind of litigation, to tell the whole story to the court. It is not entitled to assume that the judge already knows the facts, and of course in this case the judge could not have known the facts. Until then, the Government had done an excellent job of keeping everything secret.

The crucial thing was for the Secretary of State to convince the judge that the company was insolvent. If they could not do that, there could be no Railway Administration Order.

I remind the House that the legal advice the Government had received from its own counsel was that a contested petition for administration was seriously risky and must be avoided. And the advice that morning from its counsel was carefully hedged - it was - I remind the House - that "on the evidence before him he would expect a judge to conclude that the company was insolvent".

But what was the evidence before him and, more importantly, the court? And was it complete?

The papers which the judge saw on 7th October 2001 were helpfully placed in the House of Commons Library by the Government on 23rd October 2001. They were also produced in the Railtrack shareholders' case. A careful examination of them reveals not only what the judge was told, but more importantly what he was not told.

It appears that many extraordinary assumptions were made about the judge's knowledge of the details of the powers of the Rail Regulator and the fact that, earlier in 2001, he had announced that he would do two interim reviews of Railtrack's financial requirements in the light of the Hatfield accident.

This is because the papers given to the judge do not adequately explain the nature of the powers of the Rail Regulator - powers to advance potentially billions of pounds more in financial support to Railtrack - or the fact that he had twice announced - in January and May 2001 - his intention to do such a review. The judge was told nothing of this.

The economic regulatory regime for the railways is extremely complex. No judge could be taken to know about it in the level of detail which would have been necessary to obviate the need to inform him of the Rail Regulator's powers and public statements in 2001.

Indeed, if the judge could be taken to have such detailed knowledge of the regulatory regime, why was it necessary - in the papers which he was given and in the oral hearing - to explain to him much simpler and more easily accessible features of that regime, namely the railway administration provisions of the Railways Act?

The evidence of insolvency which was put before the judge was extremely thin.

Arthur Andersen report

The principal basis of the Government's case that Railtrack was insolvent was a report from Arthur Andersen. This said:

"We have no information regarding Ariel's [that was the code name for Railtrack] ability to raise additional funding via alternative sources."

This report was heavily relied upon as evidence of Railtrack's insolvency.

The evidence of the then Rail Regulator to the High Court in the shareholders' case says that if Arthur Andersen did not know about the power of the Rail Regulator to award additional money to Railtrack in higher access charges, someone should have told them, and in any case someone should have told the court.

In this respect, I ask the Secretary of State to tell the House why the court was not told about the availability of an alternative source of finance via the Rail Regulator, and whether it was assumed that a bald statement that the Government had decided to introduce a Bill to enable the Secretary of State to give directions to the Rail Regulator was enough to excuse the need to explain this.

Hatfield statement

Why too was there no mention of the Hatfield statement by the Rail Regulator of 15th January 2001, and repeated on 24th May 2001? This was undeniably crucial information about the willingness of the Rail Regulator to conduct an interim review. This was not disclosed to the judge.

The Secretary of State may say that the judge was told that the independence of the Rail Regulator would soon be blown away, so there was no need to tell the judge about his powers.

But the RHM for Tyneside North told the House on 13th November 2001 (Hansard column 730) that if the judge had known that the Rail Regulator had the power to do an interim review and had started the process, he would probably not have made the administration order. This is a stark admission.

This could only be because until the Rail Regulator's independence had been removed and he had then been stopped from doing an interim review, the company was not insolvent. That independence had not been removed and the Rail Regulator showed, by his offer to Railtrack on 6th October 2001 (when the senior management called the Regulator to ask for a review, to be told that he was willing to start the process and make an announcement to that effect), that he had not been stopped from doing the review. The Government had tried to intimidate him with the threat of legislation, but the Rail Regulator was not intimidated. It was Railtrack which had been scared witless by the threat. That is why they foolishly turned down the Rail Regulator's offer to start the interim review process.

It could not be assumed that a short Bill to enable the Secretary of State to give directions to the Rail Regulator would pass in time to stop the Regulator's interim review proceeding. The Rt Hon Member for Tyneside North admitted in court in 2005 that it could not have been passed in time.

And given that when the Rail Regulator did carry out the interim financial review which the Government had been prepared to legislate to stop (after Network Rail took over), he awarded the company an extra £7.4 billion over and above his October 2000 settlement to the company, how could it possibly have been assumed that Railtrack was insolvent when that jurisdiction was still in place in October 2001?

Until the legislation could be passed and brought into effect - if it could be passed at all - the jurisdiction of the Rail Regulator and his announced intention to use that jurisdiction meant that Railtrack was not insolvent.

This much is apparent from the internal communications from and between the Treasury and the DTLR. For example:

1. Why else would Ms Vadera say in her e-mail of 2nd October 2001 that the Rail Regulator was the "total wild card" and that everyone should be aware of the risks, including the possibility that "if he stands up and says he has a grand plan which could keep the company solvent we're up the creek"? In particular, the use of the word "keep" clearly indicates that the company was not insolvent and that the Government knew it.

2. Why would Mr Linnard be recorded as saying - on 24th September 2001 - that emergency legislation would be needed "to ensure that the Rail Regulator cannot frustrate our plans to restructure Railtrack"? Why would numerous meeting notes and e-mails speak of the need for legislation to close off Railtrack's escape route via the Rail Regulator?

3. Why would Mr Rowlands, in his minute of 31st August 2001 to the Secretary of State, have said that "We cannot see a way of proceeding without sidelining [the Rail Regulator]" given that "Railtrack's funding and obligations are matters for the Regulator"? He explained that emergency legislation would "remove [the Regulator's] ability to frustrate Ministers' chosen solution".

4. Why, at the transport stocktake on 18th September 2001, did Mr Rowlands say that Railtrack could fight the petition for railway administration in court and might win, and how the Rail Regulator had to be "closed off"?

5. Why would the Government's counsel advise that a contested petition for administration was "risky and must be avoided", if the company was genuinely insolvent?

There are many other examples. They all point to one thing - that the company was not insolvent and the jurisdiction of the Rail Regulator was the one thing that would keep it solvent.

If - as might be asserted - the company was insolvent despite the powers and declared intention of the Rail Regulator to do an interim review, it would not have been necessary for the Government to go to such extraordinary lengths to neutralise it with its disgraceful emergency legislation, and to keep secret the fact that it planned to do just that. That was why the legislation was needed.

Nothing of all this was put to the judge on 7th October 2001.

Railtrack's stance and the High Court

Recent statements on behalf of the Secretary of State have said that it was the High Court, not the Government, which put Railtrack into administration. The House of course knows that.

What needs to be disclosed and explained concerns the facts which the High Court was and was not given to enable it to make that decision.

The Secretary of State will no doubt say that Railtrack did not oppose the application for the administration order. We know that too. That is completely irrelevant. It was the obligation of the Government to tell the whole story to the judge, whatever was or was not said by Railtrack.

By the time of the court hearing, Railtrack's senior management had made many mistakes. Perhaps the greatest was not to realise how the powers of the Rail Regulator insulated and protected the company against a political assault of this kind. By then they were like rabbits frozen in the headlights, the headlights of a Government juggernaut bearing down on them.

The Secretary of State must now explain the actions of his predecessor and his officials and advisers in this affair.

I contend that the Government had a duty to tell the Court in October 2001 all the facts, and it deliberately withheld this crucial component.

The failure to make an honest disclosure to the Judge about the power of the Rail Regulator is yet another, perhaps the most, shameful scar on the honesty of this Government. It is an absolute scandal.


This High Court case has shed light on a sly, deceitful plan to implement a clandestine policy without telling Parliament.

The proper process of Government has been corrupted yet again by New Labour.

The proper process of Government would have been genuinely to seek all channels of finance to assist Railtrack in avoiding financial difficulties.

The proper process of Government would have been to respect the Independence of the Rail Regulator - and not corrupt the position with the stench of the political games of this Government.

The proper process of Government would have been for Ministers to make decisions at Cabinet level, not use unelected puppets to control operations from the Treasury.

And the proper and decent process of Government would have been to come to Parliament in June 2001 and announce that a review of the Railways was underway.

The proper process of government would have been to disclose all the material facts to a judge in chambers, and not conspire by deceit and complicity to deny him the facts as they knew them.

Mr Speaker. Success has many fathers; failure is an orphan. The Chancellor called all the shots on this issue, and now he's trying to hide.

He was the organ grinder and the RHM for Tyneside North was but the monkey.

The Chancellor wrote the score, his 'representative on earth' sang the song.

The proper processes of government have, yet again, been shamefully sidestepped by New Labour.

It is to the detriment of our democracy. And it is an enduring testament to the corruption, deceit and arrogance of this pitiful and mucky government."

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