2005 Chapter 14

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     These notes refer to the Railways Act 2005 (c.14)which received Royal Assent on 7^th April 2005

RAILWAYS ACT 2005

     EXPLANATORY NOTES

INTRODUCTION

1.     These explanatory notes relate to the Railways Act 2005 which received Royal Assent on 7^th April 2005. They have been prepared by the Department for Transport in order to assist the reader in understanding the Act. They do not form part of the Act and have not been endorsed by Parliament.

2.     The notes need to be read in conjunction with the Act. They are not, and are not meant to be, a comprehensive description of the Act. So where a section or part of a section does not seem to require any explanation or comment, none is given.

SUMMARY AND BACKGROUND

3.     The main purpose of this Act is to tackle the long-standing structural problems of the railways.

4.     The Act gives effect to the proposals that require primary legislation in the White Paper "The Future of Rail", published on 15th July, 2004.

5.     The White Paper set out the conclusion of the rail review which the Secretary of State for Transport announced on 19th January 2004. The aim of the review was to develop proposals for a simplified structure and organisation for Britain's railways.

6.     A list of Acronyms used in these explanatory notes is attached at Annex B.

OVERVIEW OF THE STRUCTURE

7.     The Act is in six parts with thirteen Schedules. The main provisions of the Act are as follows.

     Part 1: Transfer of Functions and Railway Strategy

8.     Part 1 provides for the Strategic Rail Authority (SRA) to be wound up, for the SRA's strategic and financial functions to pass to the Department for Transport and in some cases, to the devolved administrations, and for its consumer protection functions to pass to the Office of Rail Regulation (ORR). The Act also enables the SRA's assets, rights and liabilities to be transferred to third parties.

9.     The Act also transfers safety functions under the Health and Safety at Work etc. Act 1974 in respect of the railways industry from the Health and Safety Commission/Executive (HSC/E) to the ORR.

10.     The Act provides for changes to the access charges review process, with a duty on the Secretary of State to specify the outputs to be delivered by the rail industry.

11.     The Act also gives the Scottish Ministers the power to prepare and publish a strategy for carrying out their functions in relation to railways in Scotland.

Part 2: Public Sector Funding Authorities for Railways

12.     The Act provides a power for the Secretary of State to give financial assistance for any railway purpose.

13.     The Act also makes provision for the provision of financial assistance from the Secretary of State, the Scottish Ministers and the National Assembly for Wales (NAW) for freight services.

14.     The Act enables the Scottish Ministers to take increased responsibility for passenger services and infrastructure relating to Scotland. The NAW will also take on increased responsibilities for passenger services in Wales, and be made a signatory to the Wales and Borders franchise agreement.

15.     This Part also modifies the powers of Passenger Transport Executives (PTEs) so that they may, subject to the Secretary of State's approval, enter into franchise agreements and agreements relating to the quality of franchised rail services. The Secretary of State will have a duty to consult a PTE when preparing to let a franchise which involves services to, from or within the area covered by the PTE. It also provides for Transport for London to be given equivalent powers to PTEs.

Part 3: Rail Passengers' Council and Rail Passengers' Committees

16.     The Act establishes the Rail Passengers' Council as a single national body reporting to the Secretary of State and dissolves the formal federal structure of regional Rail Passengers' Committees.

Part 4: Network Modifications etc.

17.     Part 4 sets out procedures for operators and public sector funders to follow when they wish to discontinue all passenger services on a line or from a station or close all or part of a network or station. It replaces the current procedures in sections 37 to 49 of and Schedule 5 to the 1993 Act as amended by the Transport Act 2000.

18.     Where a rail service in an English PTE area is to be discontinued or otherwise reduced, this Part provides for bus franchising for substitution of rail services. The Act will amend the procedure for entering into a bus quality contract scheme where the scheme is specifically for a bus service, or network, which meets transport needs equivalent to rail services being reduced or closed, and is consistent with the local transport plan. This part also enables the Secretary of State, the Scottish Ministers and the NAW to secure the provision of substitute bus services where a railway passenger service has been temporarily interrupted or discontinued.

Part 5: Further Miscellaneous Provisions

19.     The Act enables railway operators to make bye-laws, subject to confirmation by the Secretary of State and, where appropriate, the Scottish Ministers, to enable them and the police to control the conduct and behaviour of people using the railways.

20.     The Act also makes provision for the Scottish Ministers to be empowered to make penalty fare regulations for Scotland.

21.     This Part also provides the Scottish Ministers with the power to prepare (and from time to time revise) a code of practice for protecting the interests of disabled rail users in Scotland.

22.     This Part also provides for the Scottish Ministers to be able to exercise the functions of the Secretary of State in relation to a railway administration order involving a Scottish railway company.

23.     The Act provides for a duty on the ORR to provide the Secretary of State, the Scottish Ministers and the NAW with advice and information.

24.     This Part also provides a duty for PTEs to give advice to the Secretary of State when requested, in relation to railway matters.

Part 6: General and Supplemental

25.     Part 6 contains general and supplementary provisions, including making provision for the consequences for taxation of the various transfers under the transfer schemes provided for in the Act. This Part amends the Secretary of State's powers under sections 118 and 119 of the 1993 Act, so that they can apply to trams and other guided transport systems. This Part also makes provisions relating to expenses and powers exercisable by statutory instrument.

COMMENTARY ON SECTIONS AND SCHEDULES

Part 1: Transfer of Functions and Railway Strategy

Transfer of Functions

Overview

     26.     The Government's review of the railways concluded that it would be necessary to wind up the Strategic Rail Authority. The reasons given were that it would improve efficiency, reduce bureaucracy and provide a clearer focus on leadership within the rail industry.

Section 1: Transfer etc. of SRA functions and abolition

27.     Section 1 provides for the abolition of the Strategic Rail Authority and for the reallocation of its functions, where they are not discontinued. The Strategic Rail Authority's strategic functions and its financial obligations (see also Section 6) will become the responsibility of the Secretary of State for Transport, together with many of its operational functions, such as the letting and management of railway franchises. Other Strategic Rail Authority functions will be reallocated to third parties. In some cases this will not require legislative provision. The Secretary of State may make an order for the abolition of the SRA when he is satisfied (having consulted the SRA) that the liabilities of the SRA have been adequately provided for and that it is no longer necessary for the SRA to exist.

28.     The intention is for the Scottish Executive and the NAW to take on increased responsibilities for passenger services and, in Scotland, infrastructure responsibilities. This section requires the Secretary of State to transfer the Strategic Rail Authority's interest in the Scotrail franchise to the Scottish Ministers. The SRA interest in the franchise agreement with Arriva Trains Wales is intended to be transferred under this section to the Secretary of State and the NAW jointly. The SRA interest in all other franchise agreements is intended to be transferred to the Secretary of State.

29.     The Rail Passengers' Council, currently funded through the Strategic Rail Authority, will become a body corporate and will be funded by grant from the Department for Transport. Rail Passengers' Committees will be disbanded and the newly constituted Rail Passengers' Council will be the sole national consumer body for rail.

30.     The section also provides for the transfer to the Secretary of State, and as appropriate the Scottish Ministers, the NAW and the Office of Rail Regulation of the Strategic Rail Authority's property, rights and liabilities, including shares in its subsidiary companies, such as BRB (Residuary) Limited. Provision is also made for the transfer of property, rights and liabilities to the Rail Passengers' Council.

31.      This section also gives the Secretary of State powers to make modifications of legislative provisions in relation to rail pensions that may be necessary or expedient as a consequence of the transfer of the SRA's functions or its abolition or as a consequence of a transfer scheme transferring its property rights or liabilities.

32.     The provisions of Part III of the Transport Act 1980 and schedule 11 to 1993 Act, among other things, set out mechanisms under which the Department for Transport provides funding to the trustees of a number of older, partially unfunded pension schemes some of which were set up by the pre-nationalisation rail companies. The role of the SRA as sponsoring employer is likely to be transferred, on its abolition, to the Department for Transport under a transfer scheme to be made under section 1(2). The purpose of the order making power under subsection (8) is to enable consequential provision to be made in the light of that transfer of liabilities.

33.     Further consideration needs to be given to the detail of the provision required. Currently, it is anticipated however that the Department for Transport will retain its existing statutory funding liabilities alongside liabilities, as sponsoring employer, which will be transferred to it from the SRA. Whatever provision is made will be designed to ensure that the existing position of beneficiaries of the relevant pension schemes and the funding of those schemes is unaffected.

34.     Section 244 of the Transport Act 2000 had the effect of converting the British Railways Board's (BRB's) customary practice of providing indexation for cost of living increases for these older pension schemes into a binding obligation of the SRA. Consequential provision will be required to reflect the abolition of the SRA. It is likely this will be to transfer this obligation to the Department for Transport to reflect the expected transfer of employer obligations for these schemes to the Department. The intention again will be to ensure that the existing position of beneficiaries of the relevant schemes is unaffected by amendments made.

35.     The affirmative resolution procedure will apply to any order made under subsection (8). The details of the affirmative procedure are described in section 55(4).

36.     It is anticipated that the SRA will be wound up gradually, and the transfer of its functions is to be completed before it is abolished. The section includes provision to allow the Secretary of State to reduce the membership of the Strategic Rail Authority as part of the transitional period leading to abolition.

Section 2: Transfer of safety functions to the ORR

37.     Section 2 brings into effect schedule 3, which concerns the transfer of safety functions under the Health and Safety at Work etc Act 1974 ("the 1974 Act") to the ORR.

Railway Strategy

Section 3: General Duties under s.4 of the 1993 Act

38.     This section amends the general duties of the ORR and the Secretary of State provided in s4 of the 1993 Act that apply to the exercise of their functions under that Act.

39.     Sections 3(2), 3(8) (a) and 3(9) provide that the general duties do not apply to the safety functions being transferred to the ORR under Schedule 3, to which quite separate considerations apply. Thus the transferred safety functions are not subject to the balancing of the general duties applicable to other functions. This reflects the need to ensure that the transferred safety functions are not compromised in the pursuit of the ORR's other functions.

40.     Section 3(3) provides an additional general duty to promote improvements in railway service performance in terms of reliability, punctuality and minimising overcrowding and journey times. It also removes the general duty to have regard to the SRA's strategies given the abolition of that body.

41.     Section 3(4) retains a duty for the ORR to take into account safety matters in the exercise of its general duties. This is distinct from the safety functions being transferred to the ORR under schedule 3.

42.     Sections 3(5) and (6) modify s.4(3A) of the 1993 Act which applies the general duties (specified in s4(1) to (3) of the 1993 Act) to certain functions undertaken by the Secretary of State. Section 3(5) provides that these duties apply to network modification functions undertaken by the Secretary of State. Section 3(6) applies these duties to functions undertaken by the Scottish Ministers in relation to improving, providing or developing railway facilities, or network modification. It also applies the duties to functions undertaken by the NAW in relation to network modification.

43.     Sections 3(8) and (9) modify s.4(5) of the 1993 Act which specifies further general duties applicable only to the Office of Rail Regulation. On non-safety function railway matters the ORR must have regard to general guidance from the Secretary of State and the funds he has available for the purposes of his railways functions. The ORR must also have regard to general guidance from the Scottish Ministers on Scottish railway matters with potentially different weighting where expenditure falls to the Scottish Ministers. It also must have regard to strategies and policies of the NAW on Welsh railway matters that the NAW notifies to it. Also the Secretary of State must consult NAW before giving general guidance to the ORR under section 4(5) of the 1993 Act. On matters relating to its safety functions (except enforcement functions), the ORR must have regard to general guidance from the Secretary of State only, under new section 4(5B) of the 1993 Act. Section 3(9) inserts an additional general duty, under new section 4(5C) of the 1993 Act, requiring the ORR, in considering anything affecting the interests of railway service users and providers, to have regard to the interests in securing value for money of those providing public money and of the general public.

44.     Section 3(10) inserts new Section (7ZA) of section 4 of the 1993 Act. This Section concerns general guidance given to the ORR by the Secretary of State, including in relation to the ORR's new safety functions and by the Scottish Ministers in respect of railway matters relating to Scotland at Section 3(8)(b). It permits the Secretary of State and the Scottish Ministers to vary or revoke any advice given in respect of the purposes set out above, and places a requirement on the Secretary of State and the Scottish Ministers to publish any guidance which they may issue for those purposes in such a manner as they may consider appropriate.

Section 4: Use of access charges reviews for application of strategy

45.     Section 4, which introduces Schedule 4, amends Schedule 4A of the 1993 Act which provides a process by which the conclusions of an access charges review by the ORR are taken forward. Schedule 4 of the Act also establishes the process for the prior stage of conducting the review. This includes in particular how the Secretary of State and the Scottish Ministers make inputs at various stages of the review.

Section 5: Railway strategy for Scotland

     46.     Section 5 gives the Scottish Ministers the power to formulate and publish strategies in respect of railways in Scotland and to revise them from time to time as they feel appropriate. They are not obliged to formulate or revise a strategy. However, where they do formulate or revise a strategy they must publish the strategy or revised strategy in a way which will bring it to the attention of those bodies likely to be affected by it.

Part 2: Public Sector Funding Authorities for Railways

Assisting and securing the provision of services

Section 6: Financial assistance etc. from the Secretary of State

47.     Section 6 provides a power for the Secretary of State to give financial assistance for any railway purpose. The assistance may take the form of grants, loans, guarantees or investments, and may be subject to such terms and conditions as the Secretary of State thinks fit. For the purposes of section 6 the term railway is deemed to have its "wider meaning". This term is defined by section 81(2) of the 1993 Act and covers a railway, tramway or transport system which uses another mode of guided transport but which is not a trolley vehicle system. The terms "guided transport", "railway", "tramway" and "trolley vehicle system" are defined by section 67(1) of the Transport and Works Act 1992.

48.     This section is similar to section 211 of the Transport Act 2000 (which is repealed by section 58 of and Schedule 13 to the Act) which enables the Strategic Rail Authority to provide financial assistance for railway purposes. It is intended that the Secretary of State's power will be used in particular:

• to provide financial support to train operators under franchise agreements; and

• to provide financial support to Network Rail for the provision of rail infrastructure.

     Where the support is in respect of services operated under a franchise agreement, it may only be given in accordance with the terms of that franchise agreement. The purpose of this provision is to ensure transparency, so that the provisions of a franchise agreement, which have to be published on a public register, under section 73 of the 1993 Act, cannot be amended by a private side agreement.

49.     The section also replaces a power in section 17 of the Ministry of Transport Act 1919 which covers some of the same subject matter as this section and is superseded by it.

Section 7: Notification of assistance from Secretary of State for freight services, Section 9: Notification of assistance from the Scottish Ministers for freight services and Section 11: Notification of assistance from Welsh Assembly for freight services

50.     Under the Transport Act 2000, the SRA has sole power (under section 211) to make or modify financial assistance schemes aimed at securing the provision, improvement or development of rail freight. The SRA must inform both the Scottish Ministers and National Assembly of Wales of these schemes (under section 249). The Scottish Ministers have the sole power to apply these schemes in Scotland and the National Assembly of Wales and SRA have joint powers to do so in Wales. These provisions of the Transport Act 2000 are repealed by this Act.

51.     Under sections 8 and 10 of this Act, the Scottish Ministers and National Assembly of Wales will have new powers to make and modify schemes of this kind themselves. The sections to which this note relates seek to encourage the co-ordination of such schemes, given that rail freight activities may cross the borders between England, Wales and Scotland.

52.     Section 7 requires the Secretary of State to notify the Scottish Ministers and National Assembly of Wales of any new or modified schemes. Sections 9 and 11 impose reciprocal duties on the Scottish Ministers and NAW to notify the Secretary of State of their own new or modified schemes.

53.     Section 6(4) requires the Secretary of State to have regard to the desirability of acting consistently with anything notified to him by either the Scottish Ministers under section 9 or the NAW under section 11. Sections 8(6) and 10(9) require the Scottish Ministers and National Assembly of Wales respectively to have the same regard to anything notified to them by the Secretary of State under section 7.

Section 8: Franchising and financial assistance in relation to Scotland

54.     Section 8(1)-(9) provides a power, based on section 211 of the Transport Act 2000, for the Scottish Ministers to provide financial assistance in connection with "Scottish services". Similar provisions apply to the Secretary of State under section 6 and to the NAW under section 10. This power applies to both freight and passenger services.

55.     Section 8 (1) enables the Scottish Ministers to provide financial assistance to any franchisee where the Ministers are party to a franchise agreement. They can provide financial assistance to buy services from the franchisee, including both Scotland-only services and cross border services. They can also provide financial assistance to the franchisee for any other purpose in relation to such services. This might include the provision of new passenger facilities, such as a station or the re-opening of a disused line, or improvements to existing facilities.

56.     Section 8(2) enables the Scottish Ministers to provide financial assistance otherwise than under a franchise agreement for "Scottish purposes". It will enable them to provide funding to a wide range of parties, so as to develop the railway services within Scotland and cross-border services.

57.     Section 8 (3) defines the meaning of "Scottish purposes" for the purposes of section 8 (2).

58.     Section 8 (4) clarifies what may constitute the provision of financial assistance by the Scottish Ministers for the purposes of section 8.

59.     Section 8 (5) gives the Scottish Ministers the discretion to enter into agreements and other arrangements to provide financial assistance to any party under Section (1) or (2) on whatever such terms and conditions they think appropriate.

60.     Section 8 (6) relates to section 7 (notification of assistance from the Secretary of State for freight services). It obliges the Scottish Ministers to consider whether or not, in providing financial assistance in relation to freight services, the effect is consistent with any scheme relating to the provision of grants for freight facilities that the Secretary of State has notified to them. The section does not require the Ministers to act in accordance with the Secretary of State's scheme.

61.     Section 8 (7) clarifies the way in which the Scottish Ministers may enter into agreements or other arrangements under Section 8(2) to provide financial assistance in respect of franchised services. This clarification is needed because Section 8(2) gives the Scottish Ministers a wide power, which enables them to provide assistance outside the terms of a franchise agreement. The clarification is that where the Scottish Ministers enter into an agreement or arrangement with a "relevant person" they may only do so under the terms of a franchise agreement. This is intended to ensure transparency in relation to franchise agreements, which are public documents, kept on the public register. Section 8(7) ensures that the Scottish Ministers only enter into agreements with franchisees etc. which relate to franchised services where those agreements are entered into in accordance with the franchise agreement.

62.     Section 8 (8) defines the meaning of a "relevant person" for the purposes of section 8 (7) as a franchisee, franchise operator, or employee, agent or independent contractor of the franchisee or franchise operator.

63.     Section 8 (9) defines the meaning of "Scottish service", "facilities" and "railway" for the purposes of section 8. For the purposes of section 8 the term "railway" is deemed to have its "wider meaning". This term is itself defined by section 81(2) of the 1993 Act and means a railway, tramway or transport system which uses another mode of guided transport but which is not a trolley vehicle system. The terms "guided transport", "railway", "tramway" and "trolley vehicle system" are defined by section 67(1) of the Transport and Works Act 1992.