My Lords, this is not a great time to address the rather arcane subject of what is and what is not public expenditure. But it is absolutely vital to the future of the railways, and this group of amendments is one of the most important in the whole Bill.
Any Government have limits on how much they can borrow, and we discovered two years ago what happens if a Government go through those limits. Within those limits, there is fierce competition between spending Ministers for access to borrowing to fund their projects. That process is probably going on as we speak, with competition between social housing, new hospitals and the rest.
Historically, as I said on Second Reading, transport fared very badly under that system when it was nationalised. Final decisions are made in a star chamber, or equivalent, and as I know from experience, transport gets squeezed. One advantage of privatisation was that a big chunk of investment was shifted off the government balance sheet on to the private sector, and as a result there was a huge increase in investment.
Railtrack was clearly in the private sector. When Network Rail was set up by the previous Labour Government, they were very anxious that it should be a private company and so kept off the PSBR. They devised a rather elaborate form of corporate governance. It was a company, but it had no shareholders. Instead, it had 114 members—some licence holders and some members of the public. That kept it off the books for a bit, but the Treasury was so worried about this that it told Labour Ministers at the time to stop criticising Network Rail bonuses in case the ONS should use that as an excuse to reclassify it. Eventually, reality caught up and Network Rail was reclassified, in 2014. It could no longer borrow what it needed to keep the projects going. My concern is that what happened to Network Rail is going to happen to GBR, and the Government are taking a gamble in setting it up.
When Network Rail was reclassified, it had to divest around £1.8 billion by selling property assets, including retail units and spare capacity on the telecoms network. It deferred renewals works and postponed completion dates. It had to renegotiate a whole lot of contracts. As a result, its underlying costs increased. The question is: how will GBR be classified? It will not have the pretence of a private company like Network Rail; this will be a nationalised industry. The Minister is unable to give any assurance that it will not be reclassified or classified as public sector, as he said in response to my noble friend on Amendment 19.
The Minister has argued that this will not make any difference because the TOCs do not spend capital. I recognise that that was the case during the pandemic and after it, but it certainly was not before. I will not repeat the example I gave earlier of Chiltern, which spent a substantial amount of private capital investing in the railway, including building new stations. The noble Lord, Lord Snape, endorsed that comment.
The Minister has also argued that, because the roscos remain in the private sector—this is an amendment the noble Lord, Lord Sikka, may speak to—the investment in new trains they made during the franchise system, by borrowing money privately and purchasing the rolling stock, will continue to flow. He told us during the first day of Committee, on Monday, that, whatever the position regarding the future nationalised industry,
“it must already apply to the four publicly owned train companies”
.—[Official Report, 21/10/24; col. 506.]
He has used those four TOCs ordering new fleets as evidence to support his claim that ordering new trains will continue as before.
However, to compare the present accounting arrangements for TOCs that are now in-house, which the current law treats as being prepared to be returned to private sector competition, with the accounting arrangements that would exist for a permanent public monopoly—which GBR is—is to compare apples with oranges. The creation of GBR will create a completely new system, which will change the way in which the ONS categorises expenditure. Those different accounting treatments will make investment in rolling stock harder, as it will be in competition with other demands for public investment.
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At the moment, given that the private operators have only short-term contracts, only a fraction of the full liabilities is counted in the national accounts. However, if all operators are permanently within the public sector—that is what is proposed—meaning longer rolling stock leases, this could add billions of liabilities to public sector net debt. The integration of track and train within a single entity, as set out clearly in Labour’s Getting Britain Moving document, will mean that GBR will fail the ONS market body test, meaning that its liabilities will be consolidated into the DfT’s accounts. If GBR’s accounts are fully consolidated, much as National Rail’s are, this means that ordering and leasing new trains would create an increased liability that would immediately appear on the Government’s balance sheet, increasing national debt, even if the money to manufacture the trains was coming from the roscos and raised on the capital markets. So we are back to where I was when I was Transport Secretary, competing against other demands—new hospitals, new schools and the rest.
Without knowing the structure of GBR, I am afraid that the Minister simply cannot say with any confidence that there will be no impact from public ownership on the way the ONS classifies liabilities. If he cannot say how the ONS will classify liabilities, he simply cannot say that there will be no impact on investment.
In a nutshell, I am concerned about the gamble the Government are taking with the future of the railways by going back to the pre-privatisation system, where Ministers will have to compete against other spending departments for what the railways need. I beg to move.