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The Minister of State, Department for Transport (Mr Simon Burns)
Thank you, Sir Alan, for calling me to speak. It is a pleasure to serve under your chairmanship and I congratulate the hon. Member for Ayr, Carrick and Cumnock (Sandra Osborne) on securing this debate. I think that all hon. Members taking part in it will join me in wishing her a speedy recovery from her affliction, although it did not seem to impinge in any way on her ability to make her case.
I also give the hon. Lady a commitment. I have just over 10 minutes in which to speak; if I do not deal with all the points she raised in her speech, I will write to her about them.
I will start by making two points that need to be made clear at the outset. First, the framework of charges for both freight and passenger operators is set independently of Government by the Office of Rail Regulation, which, as the hon. Lady knows, is the independent economic regulator for the railways in Great Britain. The ORR establishes the charging framework by means of a periodic review, which also establishes Network Rail’s outputs and funding.
Secondly, the proposals in the ORR’s consultation document are just that—proposals. The ORR has received a number of responses to those proposals, which it is now considering. I understand from the ORR that it intends to publish its decision on whether to introduce a freight-specific charge in its consultation conclusions document, which is to be published next month. I should reiterate that no decisions have been taken yet and that the ORR is aware of the concerns that have been raised by the hon. Lady, other hon. Members and other interested parties.
Given the fact that these are matters for the ORR, it follows that there is a limit to the extent to which it would be appropriate for me to make any comment on them. However, I can explain the steps the Government are taking to promote continuing growth in the rail freight industry.
We support the ORR’s plans to give the freight industry early assurance over the level of access charges by setting a cap on them. It is crucial to any industry’s forward planning that it has a clear indication of what its likely costs will be. The Government wish to facilitate the continuing development of a competitive, efficient and dynamic private sector rail freight industry. We are committed to ensuring that policies and regulations should work to that end and not create unnecessary transactional costs or other obstacles to the achievement of those objectives and future growth.
Although the Department for Transport cannot direct the ORR, we can and do provide guidance on the overall approach that we see as the framework for the ORR’s activities, and we expect the ORR to take that guidance into account in its decision making. For example, in an industry where planning and operational decision making are increasingly devolved, we want the ORR to have regard for the importance of sustaining efficient and commercially predictable network-wide freight operations when it takes decisions about access rights and charging structures.
Of course, as the hon. Lady will realise, it is not only the Westminster Government who provide guidance to the ORR; the Scottish Government provide guidance too. Scottish Ministers have stated that they expect the ORR, in developing the track access charges arrangements for freight operators, to use a mechanism that recognises the impact that freight operators have on the network but maintains the attractiveness of rail to freight customers and is sufficiently adaptable to prevent the outputs of businesses in Scotland from becoming uncompetitive in their key markets.
The Government’s strategy for the railways was set out in the March 2012 Command Paper.
Sandra Osborne
Given all that the Minister has said about the position of the Government and of the Scottish Government, is he surprised that the ORR could even think of coming up with this proposal, which is so obviously going to be damaging?
Mr Burns
The hon. Lady makes a pertinent point, but I think that she is trying to tempt me. What I said at the beginning of my comments—and this is perfectly valid—is that the ORR has made a number of suggestions and proposals that have been put out to consultation and it will reach conclusions on the right way forward when it makes its announcement in November.
As always in consultation documents, there is a range of options to be considered, some of which will be adopted while others will be discarded. That is part of the consultation process and it is perfectly valid, provided that the ORR considers the responses to the consultation and any guidance and advice that the British Government, the Scottish Government or others give them.
I was referring to the March 2012 Command Paper before the hon. Lady’s intervention. It set out how our passenger and freight railways support the Government’s overall transport vision: by supporting economic growth; by facilitating business, commuting and leisure journeys; by providing a greener transport option than road and aviation; and by relieving congestion on our road network. Among other things, the Command Paper states that there is a strong case for Government to continue providing support for the rail freight industry, to create a level playing field.
The rail network transports approximately 90 million tonnes of goods per year. It is of strategic importance—rail freight delivers more than a quarter of the containerised food, clothes and white goods we use and delivers nearly all the coal for the nation’s electricity generation. It also invests heavily in the provision of its services; there has been about £1.5 billion of private sector investment in rail freight since 1995.
The role of the rail network in the delivery of coal to the electricity supply industry should not be underestimated. In winter, coal-fired electricity generation regularly contributes more than half the country’s daily electricity needs, and even in summer it can commonly provide 40% of the supply.
I know that the Scottish coal producers play an important part in providing coal to power stations in England; more than 60% of their rail deliveries to the electricity supply industry are to English power stations. Clearly, the Scottish coal industry has a keen interest in the ORR consultation and in any determinations that could have an impact on its market, especially when about 78% of the UK power industry’s demand for coal burned by power stations is already met by imports rather than by domestic production—a point that the hon. Lady made very clearly in her speech.
There is a very delicate balancing act to be managed here, between trying on the one hand to ensure that Network Rail can recoup an appropriate share of the infrastructure management costs from the rail operators—the ORR’s proposals would be worth around £50 million a year in additional track access charges—and on the other hand trying to ensure that the charges on individual market sectors are not more than they can realistically absorb.
There are a number of elements to the charges that freight railway operators pay for access to the network: a capacity charge; a traction electricity charge; a fixed charge designed to recover the cost of freight-only lines; and the variable track usage charge that is the subject of this debate.
For the next funding control period starting in 2014, the ORR is proposing to replace the current freight fixed charge with a new charge designed to ensure that freight operators pay a contribution towards Network Rail’s fixed costs that are associated with rail freight. That charge would be levied on rail freight market sectors that have the ability to bear the charge.
The level of the charge, and the different sectors’ ability to pay it, is, as the hon. Lady knows, the basis for the ORR’s initial conclusions, which are at the heart of the consultation launched in May. Those initial conclusions suggest that the charges should be levied not only on electricity supply industry coal and the movement of spent nuclear fuels—as they are now—but on iron ore and other coal movements, and that these charges should be based on rail tonnage and possibly on distance travelled.
There is fierce competition in the logistics market, not only between the various freight operating companies but between the rail freight operators and the road haulage sector. It is also important to remember that whereas the rail sector is expected to pay all the external costs for its mode of transport—the cost of wear and tear on the infrastructure, and the cost of measures to mitigate environmental impacts—that is not currently the case for road transport.
That is one of the reasons why rail freight operators pay only a proportion of the track charges paid by franchised passenger operators. It is also one of the ways in which the Government have been seeking to level the playing field between road and rail. Moreover, it is worth bearing in mind that in control period 4, which covers the period from 2009 to 2014, rail freight benefited from a 29% reduction in its access charges.
As I am now running out of time, I say again that I will write to the hon. Lady on the other points that I had wished to make in response to this debate. However, in conclusion I will just come back to the point that I made at the beginning. The ORR has made its proposals as part of a consultation exercise and it has received a large number of representations. As is the case with any consultation, the ORR will now consider the arguments that have been made in the representations that it has received, in order to review its proposals before it takes further steps.
I assure the hon. Lady that the ORR will give full consideration to all the representations it receives from a wide group of people—from hon. Members, the British Government, the Scottish Government and others—before it publishes its recommendations later this year.
Sir Alan Meale (in the Chair)
I thank the Minister and hon. Members for their contributions to the debate. I particularly thank the hon. Member for Ayr, Carrick and Cumnock (Sandra Osborne), who secured the debate; I also wish her good health.