Railways Act 1993 (Determination of Turnover) Order 2005

rose to move, That the Grand Committee do report to the House that it has considered the Railways Act 1993 (Determination of Turnover) Order 2005. The noble Lord said: I will take the opportunity to discuss the issues raised by the order with the Committee. The purpose of the draft order is to define ““turnover”” for the purposes of considering the financial penalty that may be imposed on a railway operator in specified circumstances, in accordance with the enforcement regime contained in the Railways Act 1993. The order is not concerned with the policy approach to imposing penalties. That is a matter for the person imposing the penalty. The order is needed because the Transport Act 2000 introduced a new requirement that any penalty imposed on a railway operator may not exceed 10 per cent of its turnover. The 1993 Act sets out the overriding principle that, first and foremost, any penalty must be reasonable. Once it has satisfied that criterion, it must not be allowed to exceed 10 per cent of turnover, determined in accordance with the definition set out in the order. The Strategic Rail Authority and the Office of Rail Regulation exercise the enforcement powers in the 1993 Act. Provisions in the Railways Act 2005 will, when brought into force, transfer the SRA’s role to the Secretary of State and—I note that the noble Earl, Lord Mar and Kellie, is listening carefully—to Scottish Ministers and, in the case of the SRA’s current role relating to certain conditions of licences, to the ORR. An operator can be subject to a penalty if he contravenes the terms of his franchise agreement, the conditions of his licence, or any condition to which he is subject in relation to an agreement that a railway service, station or network may be closed. In addition, an operator could be required to pay a penalty if he failed to comply with any of the terms of an enforcement order issued under Section 55 of the 1993 Act. Alternatively, a requirement to pay a ““reasonable sum”” may be included in an enforcement order, to be paid if the operator contravenes specified terms of that order. The draft order defines turnover by reference to what should be included in the ““applicable turnover”” of an operator. It also sets out the period over which the applicable turnover may be measured. The ““applicable turnover”” is defined as the turnover derived from an operator’s railway business activities in Great Britain during a business year, net of discounts, VAT and other taxes but inclusive of grants and subsidy from government sources. The order includes a non-exhaustive list of other income that is relevant. The definition of ““applicable turnover”” is relatively wide. That is to avoid circumstances arising in which there is limited turnover available on which to base a penalty in the case of a particular contravention, while the operator may in fact have a substantial income from wider railway activities. It also ensures flexibility to consider a substantial penalty if the circumstances warrant it. I turn to the period over which turnover may be measured. Where a contravention has lasted for any period of up to 12 months, the preceding business year’s turnover will be taken into account. It is anticipated that most contraventions will fall into that category, as most contraventions are detected quickly and put right; I am sure that that reassures the Committee. However, for contraventions that continue for longer than a year, additional turnover will be added, depending on the duration of the contravention, up to a maximum of 24 months. We must also avoid undue risk from exposing operators to the prospect of a penalty that could grow indefinitely. There is therefore a two-year cap on the maximum amount of turnover that may be considered when a contravention has continued for longer than 24 months, a development which we hope will be very limited. In addition, circumstances could arise in which it was deemed necessary to impose a penalty on an operator who had less than one year of previous accounts. If there is no preceding business year the amount of turnover in that current year should be used. In practice that may mean that the authority imposing the penalty will tend to calculate the cap on turnover by reference to turnover for the year to date, although it could wait until the year had ended and the operator’s figures for a full year were available. I hope that I have explained a highly technical but specific order. I beg to move. Moved, That the Grand Committee do report to the House that it has considered the Railways Act 1993 (Determination of Turnover) Order 2005.—(Lord Davies of Oldham.)