House of Commons Hansard Debates for 25 May 1993

Mr. Harvey : From time to time, I am asked to explain to people what rail privatisation is all about and how it will work. When I inform them that the only operator in the country with any experience of running the railways is the one body that is explicitly barred from taking part in the franchise competition, they move from concern and doubt to complete astonishment and incredulity. Anyone--a butcher, a baker or a candlestick maker--with no

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experience of running a railway, can bid ; the only people who are specifically barred are the only people with any experience of running the railway.

The hon. Member for Southend, East (Sir T. Taylor), who is not present, managed, ingeniously as ever, to get the European dimension into this argument, as did the hon. Member for Harrow, East (Mr. Dykes), from a rather different perspective, perhaps. But the fact is that an operator from anywhere in Europe can bid to run these franchises, while our own national railways are debarred from doing so.

What will happen when there is only one bidder? Are the taxpayers not entitled to know that the cost of the franchise or the revenue from it will be preferable from their point of view to what British Rail could have achieved? British Rail, for all its faults, is a success story of a kind. In terms of train kilometres per staff member, it is half as good again as the European average. The Treasury support for it, at 0.14 per cent. of gross domestic product, is less than one quarter of the European average. It has more 100 mph-plus train services than virtually any other European country. The bidding process could improve this further, if the Swedish experience is anything to go by. In Sweden, the acceptance of the national railways' bids has improved the costs by 30 per cent. The whole idea that management buy-outs are the shape of things to come is nonsense. The picture that we were originally painted by the Secretary of State was that hordes of would-be private operators were being held back at the gates, such was their enthusiasm. But, as this debate has gone on over the months and we have smoked them out and distilled a little more clearly who the people are who have expressed this interest, upon which the hon. Member for West Bromwich, East (Mr. Snape) has already commented, it has emerged that the Government are pinning their hopes at this stage on management buy- outs. If these teams of managers have to take out second mortgages on their homes and stretch themselves to the limit to pay for the franchise, and then have to lease the rolling stock, where on earth will they find the money to make the investment that everybody realises the railways need to take us into the new century? They will be hamstrung in capital terms, in just the same way as management buy-outs in any other industry have been. They will not have the capital to make the investment that is needed, and they will not have any assets against which to borrow that capital.

The hon. Member for Eltham (Mr. Bottomley) would want to see that the current British Rail operation could be beaten. He wanted them, as the amendment proposes, to put forward a formal tender. I have another amendment, which will come up presently, that looks at similar matters to these. In that, I call for the bidders to have to show that they can beat the projected British Rail operating costs. Supposing operators from abroad --SNCF, or whoever it might be--undercut the bids made by the private sector here : will the Government, for ideological reasons, insist on accepting an inferior bid from a British private sector bidder?

The taxpayer and the National Audit Office have the right to ask serious questions if the bids coming in cannot beat the existing British Rail operating costs, or any bids

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that come from a public sector, whichever public sector that might be. At a time when the Chief Secretary to the Treasury is canvassing the possibility of pensioners having to pay for prescriptions, or people having to pay for hospital beds, any suggestion that these franchises should be awarded on the basis of bids that cannot undercut the current British Rail operating costs is completely unacceptable.

Why should the taxpayer have to pay for the ideology of a Government hellbent on pushing these things into the private sector? There may be a market there for the private sector to come in and run railway operations, and there may be not. It will evolve at its own speed. Surely keeping British Rail in the picture as an alternative in each and every case would enable the process to develop at its natural pace. It may be that the market will be able to take on the network over the next 20 or 30 years, but the Government are hellbent on doing it much more quickly.

Keeping British Rail in the picture, making it quote for running the service and insisting on behalf of the taxpayer that anyone else must beat that would be the best way of running the system.

Sir Keith Speed : This is an interesting debate, which goes to the heart of the Bill. When my right hon. Friend responded, he described some of my fears and those of some of my hon. Friends, but he did not deal with them all.

I have a worry, which has been echoed on both sides of the House, that management buy-outs, excellent though they are--and I entirely support them --may run into financial problems. I am sure that there will be corporate plans and very good people. As hon. Members on both sides of the House have said, British Rail managers are very good, and I am sure that they would make a good fist of a management buy-out. However, if there is not the finance, and we are talking about seven-figure financing at least for most of these franchises, there could be real problems.

I heard the powerful argument by my hon. Friend the Member for Hampshire, North-West (Sir D. Mitchell), but perhaps I could take it a stage further. If British Rail is not allowed to bid up front at the start, his fears about frightening off management buy-outs and the private sector will have been addressed.

Let us take the London-Tilbury-Southend line, where, as I understand it--my hon. Friend the Minister for Public Transport will correct me if I am wrong --from 1 April next year there will be a form of shadow franchise by British Rail which will provide a yardstick against which the director of franchises will be able to judge the bids. Let us also assume that either one or two bids come in that are nothing like as gMr. Harvey) in Standing Committee on 2 March, when he said :

"I agree with the hon. Gentleman for North Devon in what was clearly a useful debate, which helped my understanding of what might happen in 1994. The franchising director should take into account the prospective results of the lines to be franchised. At the end of the day, the franchising director will be accountable to the NAO and the PAC for achieving value for money. The bid that he accepts will have to be compared with what the public sector British Rail would have cost the taxpayer to provide a comparable

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service. That is a reasonable point which I have accepted."--[ Official Report, Standing Committee B, 2 March 1993 ; c. 506.] So far so good ; if we have either unsuitable bids or no bids, the service goes back to British Rail.

However, what is there to give the management and staff the motivation to say, "Now we have this faute de mieux, we have to make a really good fist of it, because we have seen off the private sector or they are not interested"? We also have to consider the stability of the line and the services, so that services are not cut and fares do not go rocketing up.

It is important that we at least devise a formula so that, without a shadow franchise or open bidding, where the private sector is unable or unwilling to take on a line, rather more motivation should be given to the people who made it possible--the managers and staff of that region.

If my hon. Friend could address that point in a way that will make sense, presumably through the franchise director, some of us might be more easy. Otherwise it appears to me that, whatever happens, we are being ideological, and, at the end of the day, like many hon. Members who have spoken, I want a better rail system, particularly for the passengers, and the right motivation for the staff so that they can improve still further where they have the opportunity.

In that spirit, when my hon. Friend winds up, I hope that he will be able to address not only those fears, but the real opportunities that exist for British Rail.

Mr. Hugh Bayley (York) : I start by declaring an interest : I am sponsored by the RMT union, but I speak on behalf of my constituency and all its rail employees.

York is above all else a railway town. Until some four years ago when the BREL carriageworks were privatised, British Rail was the city's biggest employer by a considerable margin. Even now, one in 12 of the work force in my constituency work in the rail industry, either for British Rail of for ABB Transportation Ltd.

The proposals in the Bill are likely to affect my constituency, my constituents and the prosperity of the city I represent as much as any other city in the country. At the moment, York is the headquarters location of two of British Rail's 10 zones. Within York itself, Regional Railways North-East employs 630 people ; 400 of them are employed in the headquarters operation, so their jobs quite literally are on the line. If they are unable to make a bid to preserve their own jobs, they will have to take their luck with whoever it is, private sector operator or managment buy-out, that wins the franchise.

The other zonal headquarters is the InterCity east coast main line headquarters which employs 1,400 people. It is a highly successful railway, something I wish those on the Conservative Front Bench would acknowledge without equivocation. The Government's franchising consultation and information document pointed out that the east coast main line made a profit of £220 million in the last year for which we have figures, a major achievement for any railway, public or private, and one which should not be just written off as a public sector incompetence that needs to be replaced by private sector initiative, if one is to believe the Conservative rhetoric, at the earliest opportunity.

Despite building up the east coast main line into a highly successful and profitable service, the employees who have achieved that will not be allowed to bid for the business that they have built. The question, "Why not?"

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has been asked by a number of Conservative Members. The only reason that the Secretary of State can give is that he does not believe that within the public sector there is the right attitude or culture to allow for the running of a successful rail service, despite one which is a showpiece for the whole of Europe having come about under British Rail's public sector management.

If the Secretary of State believes, as I am sure he does because he would not have proposed the Bill and taken it this far if he did not, that competition will improve the performance, the quality and the cost of rail services in Britain, he should go for competition. He should let British Rail compete with allcomers. He has hardly been knocked over in the rush by private sector operators desperate to run rail services. If he does not allow British Rail to compete, in many cases he will have only one single bidder, one insider management buy-out bid. They will know that they are the only people running after the franchise, they will know that they are in a monopoly position and they will not have to put in a competitive bid. Who will have to pay the additional costs of running a service which has been won on franchise without there being any competition?

One need look only at the ITV franchise bids to see that television companies which knew that they were up against competition had to make multi-million pound bids to win the franchise, whereas one, Central Television, discovered that it was the only competitor, bid £2,000 and got the franchise. That is not in the public interest in television terms, and it will not be in the travelling public's interest in railway terms.

The staff working for British Rail, my constituents, do not want a silver spoon in their mouths. They simply want a chance to bid so that they can continue doing the jobs that they are now doing. They believe that they can provide a better service more cheaply for the passengers than can anyone else. I urge the Government to put that to the test.

6.30 pm

The Secretary of State says that British Rail cannot be allowed to bid because it might undercut the competition. In whose interest could it possibly be for a lower price not to go in for the same service? British Rail is not, as is suggested, a huge, bureaucratic, monolithic whole. It has already, with its organising for quality initiative, split itself into separate businesses that account financially for their activities in a businesslike way.

If BR puts in a bid that is too low and it loses money, it will be under the same financial pressures as any private sector bidder. It would be absurd for BR, having won a bid, to come cap in hand to the Government and expect them to respond in any way different from the way that the Government would respond to Stagecoach, Sea Containers or any other company that underbid. The company in question would have to live with the financial consquences of a bad business decision. That is what the framework of the Bill is intended to achieve, and there is no reason why it should not apply equally to private and public sector entrepreneurs.

Why allow, on the east coast main line, Richard Branson, Stagecoach, National Express Coaches or any other company to bid but not BR? The only answer seems to be that given by the Secretary of State this afternoon

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--that he is afraid of public sector competition. The right hon. Gentleman shakes his head in dissent. Let him test his theory in practice and allow BR to bid.

The same should apply to Regional Railways North-East. It is not a profit- making railway, but it provides a good public service at low cost. It is possible that another company could provide a better public service railway at lower cost. The Bill says that that must be tested by a competitive franchise bid. If there is to be competition, let BR put in a bid in its own right. If the Secretary of State does not allow that to happen, he will never know whether he has been sold a pup by the private sector franchise bidder which wins the franchise, because he will not have seen that bidder operate against the full range of competition.

York city council recently commissioned a firm of transport consultants, a company which has become a household name during the consideration of the Government's privatisation proposals, to undertake some work. It commissioned Steer Davies Gleave to examine the employment implications of the Government's proposals on York. It concluded that, of the present 4,700 railway employees in York, privatisation would put 2,400 BR and ABB jobs at risk and would put 1,400 additional jobs locationally at risk.

In other words, if, for example, the winner of the Regional Railways North- East franchise were to decide to locate its headquarters in the constituency of my hon. Friend the Member for Morley and Leeds, South (Mr. Gunnell), those other jobs would not be lost to the country but would be lost to the city of York. We are speaking not simply of British Rail jobs that would be going. Netted off against the figures are the private sector jobs in York. The proposals would have a devastating effect on the economy of York. What does the Secretary of State think that that is doing for the morale of railway employees in my constituency? The result of debarring BR from bidding to continue running railway services against the competition will, I suspect, be that the best staff will progressively leave BR and go through management buy-outs or be head-hunted by private companies. They will leave and the expertise in running rail services that resides in those people will be lost to BR.

The rump of British Rail will be left with a lower quality of leadership, management and perhaps even a lesser quality of engineering expertise. Yet the rump of British Rail will be expected to step in and save the railways when the franchise-winning private sector companies fail. British Rail will be expected to retain the expertise to save the Secretary of State's face if and when there is a private sector franchise failure. That is a possibility which the right hon. Gentleman must face.

I meet regularly senior railway managers in my constituency. I assure the Secretary of State that there is no great enthusiasm for management and employee buy-outs. If it must happen, it will happen, but it will happen with a heavy heart because the people who have built up and managed the railway services, with their headquarters in York, want to carry on running them. If they have no other option, they will take the plunge, but they feel loyal to their present company. Why should that loyalty be chucked aside? Why should the staff and the team not continue to run the railway that they have built up into the excellent east coast main line?

On the international front, the Secretary of State said that there was nothing in practice to stop SNCF or the

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Belgian or German railways from bidding for a British railway franchise. Perhaps when local government refuse services were privatised people did not expect French companies to come in and scoop up the business. But they did, and while the Secretary of State says that he does not expect public sector railway companies from other EC states to come in and scoop up franchises, he acknowledges that that could happen because they have the right to do so. Where is the sense in allowing some less efficient European public sector railway operators to bid for franchises when highly efficient British Rail managers who have built up showpiece services are denied that opportunity? Indeed, if what is proposed is approved, I would expect it to be challenged in the courts under the rules of the single European market. I hope that judgment would go in favour of creating a real single market with a level playing field in which British Rail could compete against the competition on equal terms. On that basis, if British Rail could provide a better deal for the travelling public it would win, and if it provided a poorer deal, it would lose. That is provided for in the Bill, so it is a right that should go to British public sector railway companies in the same way as it will be going to foreign public sector railway companies. The position in Sweden bears examination because it is the only other country that has done what the British Government are proposing, namely, splitting the operation of track and infrastructure from the operation of trains. Track and infrastructure in Sweden remain in public hands, as is proposed for Britain under Railtrack, with independent operators bidding to run services. Nine out of 10 franchises have gone to Swedish state railways, but with cost savings to the public purse of about 30 per cent.

The Government have said that the whole point of privatisation is to inject competition so that there is no monopoly--one set of rail managers will have to bid against another. Whoever puts together the best deal, in terms of quality and the cost to the travelling public, will get the work. That is all we are arguing for. Let us forget the rhetoric about trying to leave British Rail unchanged. We may have differing opinions on that, but we recognise that the Bill will go through. For goodness sake, let us give the BR managers who have built the east coast main line and competitive regional services such as Regional Railways NorthEast the opportunity to carry on doing the job that they have been doing.

Mr. Dykes : I shall be brief, partly because I was not a member of the Standing Committee--a fact that I know will be greeted with enthusiasm in Scotland. Nevertheless, I have some important points to make.

My hon. Friend the Member for Ashford (Sir K. Speed) should be credited with our gratitude for making some helpful suggestions and with the skill with which he has tabled amendments which we enthusiastically support. I also congratulate him on the dignified and intelligent way in which he has handled the campaign in the media.

There has been a lot of interest in this subject, in part due to both a sentimental and an objective feeling about our late lamented colleague, Robert Adley, who knew so much about the railways. He was both a lover of the railways and a great expert in the nitty-gritty of the railways. The Government would be right to think meticulously about the importance of making concessions,

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partly for this reason. It is not enough on its own, however, despite the eminence and skill of our former colleague, who was widely respected inside and outside the House.

The Select Committee recommendations which our late lamented colleague produced with others amounted to a masterly series of suggestions for the Department of Transport. I am sorry if I sound naive--I probably always do- -but it is quite wrong that Governments should always feel obliged to regard Select Committees as pestilential nuisances to be resisted at all costs. To think in that way is absurd and immature.

My right hon. Friend the Secretary of State has often been credited not only with being courteous to the House but with other qualities. We sympathise with him, because we suspect that he is taking this legislation through with limited enthusiasm--particularly for the part of the Bill that excludes British Rail. I and many others fear that we are still living with the tail end of the Thatcherite Centre for Policy Studies era, which has given us so many of these bizarre ideas.

However, in my Adjournment debate on 14 May I urged on the Government second thoughts about privatisation and deregulation--I was not referring to a bonfire of controls either. My fears in this respect were allayed by the excellent response that I received from my hon. Friend the Member for Gainsborough and Horncastle (Mr. Leigh), who replied to the debate on behalf of the DTI by saying that the Government were not run by the Centre for Policy Studies. I was so moved by that truthful admission that I immediately realised that the Secretary of State for Transport was the ideal man to accept intelligent amendments to the legislation, including our amendment No. 57.

My right hon. Friend is entitled to be irritated, as we are, by the fact that the lead amendment in this group takes the form of an Opposition new clause. I hope, however, that that will not rule out intelligent consideration of these matters and that he will be persuaded seriously to consider accepting amendment No. 57. I believe that my hon. Friend the Member for Ashford has not gone far enough with his appealing arguments that try to meet some of the Government's objections to British Rail being given an equal role in bidding for franchises.

I must declare a general interest at this point, although it is wholly different from that declared by the hon. Member for York (Mr. Bayley). I am a founder shareholder of a City financial and communications company which, over the years, has been involved in most of the privatisations, together with other City institutions, the Treasury and Departments of State. Although this country has effected more privatisations than any other, I believe that enough can be enough. There is no shame for a Government in saying that we have come to the end of the privatisation period and that they will think twice before making any more such proposals.

6.45 pm

These days I am only a passive shareholder in the company--I have no executive role in it--although my wife is an executive employee. The company may be involved in giving advice to the Treasury, the Government and the Department of Transport on this proposal. It is not a privatisation in the conventional sense, and for that we are grateful. It aims to bring in franchising and to grant certain companies the franchises in question. That being

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so, I find it illogical and offensive that British Rail should be excluded. The illogicality of the situation has emerged in our debate, and I believe that BR must be reincluded.

Perhaps we could go for a compromise mechanism. My hon. Friend the Member for Ashford mentioned the problem of the motivation of BR management and employees if they are left in charge of some lines, areas or routes. British Rail would not necessarily bid on the same basis as management/employee buy-outs, and such employee buy-outs too must also be considered, and as private applicants. We would welcome them. There is general agreement about that. British Rail, however, should be allowed to be a bidder on the same basis as everyone else, bearing in mind the tremendous improvements that it has made in its operations and management, despite having been underfunded for years by a malevolent and mean Treasury. [Interruption.] I have said that often enough in the past ; it is hardly a new utterance. If British Rail were permitted to bid as part of a segmented approach--its regions or local departments, as representing BR, might be entitled to bid--that might be one way around the difficulty.

In a recent article in "The House Magazine" I mentioned the late lamented Member for Christchurch, and what I had to say bears repetition. I said that Robert Adley and his Committee colleagues "had already begun in the form of sensible advice to the Government on BR legislation. How nice it would be if just for once a Government could be seen to be really listening to the sagacious counsel that can come from select committees, instead of always resisting them". Members of the Select Committee and Opposition Members, if they were all obliged, however reluctantly, to accept this legislation, as amended in Committee and on Report, would probably agree that the single most important area in which the Government's mind had to be changed was this one : the exclusion of British Rail. I hope that my right hon. Friend can bring himself to reverse that tonight, perhaps by allowing localised components of British Rail, not British Rail as a whole, to bid. If he can, he will generate enormous gratitude on both sides of the House. He will not lose face ; this is the new era of moderate conservatism, and a change of mind would fit in well with the return to Cabinet government and a listening Government. I hope that he will meet some of the legitimate objections that have been expressed by Conservative Members.

Mr. MacGregor : I will reply briefly to some of the points, because I know that we have a great deal more to do tonight.

The hon. Member for West Bromwich, East (Mr. Snape)--who is not in the Chamber--accused me of basing my opinion of culture changes on some ideological material from Conservative central office. That is not the case. It is based on talking to a great many business men and people who have been through the process of changing from the nationalised industries to the disciplines of the marketplace in the private sector. Time after time, I have met representatives of companies and organisations--PowerGen, National Power, British Airways, BAA and Eastern Electricity, to name but a few, and many representatives from the transport world such as long- distance coach companies--and they have told me that they have seen the benefits very clearly. It is one of the crucial reasons why we believe that the structure that we are proposing for British Rail will secure better services for

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passengers and freight customers. My hon. Friend the Member for Ashford (Sir K. Speed) and I have talked through these matters and he has a very good understanding of them. Like my hon. Friend, I am not taking an ideological approach, in a political sense. What I am seeking is a system that will provide better services and better opportunities for staff.

Taking my hon. Friend's example of the London-Tilbury-Southend line, he is right that the starting point will be that a shadow franchise will demonstrate the track record and financial results of British Rail's current operations. Many Opposition Members tend to think that the only way to improve the railways is to pour in huge amounts of taxpayers' money. The London-Tilbury-Southend line is a good example of where better management is already yielding better services. With the extra investment that has recently been agreed, it will be able to build on that. My hon. Friend is right : it is on the basis of an operating record under the shadow franchise that bids can be judged. That will be the yardstick.

Let us take a hypothetical example and assume that the franchising director concludes--this may well not be the case--that the bids that he has received from the private sector do not give good value for money compared with the operating performance of

London-Tilbury-Southend. He may decide not to grant a contract to any franchisee. It may also be that the management have decided not to bid for a management-employee buy-out at that time, for a number of reasons, but would like to do so in the future when they think that they might be able to make a better bid. My hon. Friend is right in identifying as one of the difficulties the possible demotivation of the existing management if they felt that another bid from someone else could come through within three months. I think that we are in a dynamic situation and that there will be all sorts of different circumstances in the franchises as we gradually move them around the country.

There has been some misinterpretation in the press of my announcement yesterday. I want to make it clear, yet again, that, although we have announced all 25 potential franchises, we have also said that these will be gradually undertaken. This is a gradual process of franchising, as I made clear in the debate yesterday. I certainly do not wish to set a condition meaning that, for some time in the future, management and employees in, say, the London-Tilbury-Southend line could not bid for a management- employee buy-out, which might well be what they really wanted to do. I do not think that a clause or amendment could be constructed to deal specifically with my hon. Friend's point, but I accept it nevertheless : motivation for existing management and the stability of the operation are both very important in circumstances such as those that he described.

My hon. Friend has raised the point in discussions with me and I have discussed it with my special adviser on franchising, who I hope will become the franchising director. He entirely agrees with my hon. Friend that this is an important point for him to take into account. I suggest that I give the franchising director guidance and instructions under clause 5, placing weight on the need to ensure motivation for existing management and the stability of the operation. I do not want to be stuck with the specific wording ; obviously, we shall have to consider

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the wording very carefully. I assure my hon. Friend, however, that we shall produce a second draft of the guidance and instructions before the end of our parliamentary debates.

Let me tell my hon. Friend the Member for Harrow, East (Mr. Dykes) that, in my experience, the findings of Select Committees are not always resisted. If I am convinced that someone else has had a good idea, I will certainly take it on board. If my hon. Friend looks at the many recommendations in the Select Committee report, he will see that about four fifths of them have been accepted by the Government or, indeed, were met before final publication of the report. Of course, we disagree with some of them : the crucial one relates to vertical integration. I cannot go into it now, but there are good arguments on both sides.

We have accepted many of the Select Committee's recommendations. Yesterday, for instance, I based my remarks about the remaining franchises on exactly the approach that it had recommended. In paragraph 419, the Committee expressed the following view on the issue that we are now debating :

"There is a case for allowing BR, as well as individual groups of managers, to bid for franchises."

I have explained why I cannot accept that case. However, the report continues :

"At the least we recommend that the level of subsidy required by BR to operate a particular service should be weighed against any other franchise bids received."

We have made it clear that that will be--in the words of my hon. Friend--a yardstick.

My hon. Friends the Members for Blackpool, South (Mr. Hawkins) and for Hampshire, North-West (Sir D. Mitchell) made telling and powerful speeches. I know that my hon. Friend the Member for Saffron Walden (Mr. Haselhurst), who was a member of the Select Committee and was very much involved in our discussions, wanted to be present. I am sure that he would have made similar points about, for example, unfair competition, the disproportionate resources that British Rail would have and the huge disincentive for other bidders.

Mr. Dykes : I would be grateful--as, I am sure, would others--if my right hon. Friend would answer the point about British Rail being allowed to bid, not as a single national organisation but on a localised structural basis.

Mr. MacGregor : I have explained why I cannot accept bids from British Rail as a single national organisation and my hon. Friend the Member for Hampshire, North-West explained tellingly how difficult it would be to accept them on any other basis. I prefer to follow the points raised by my hon. Friend the Member for Ashford.

We are talking about encouraging existing employees--management and staff-- to participate in the bidding process. We are encouraging them to take the opportunity to continue to do the job. Of course, the new franchisees, having been selected, would want to employ and give new opportunities to many employees and of course the provisions of the Transfer of Undertakings (Protection of Employment) Regulations 1981 will apply. We are encouraging existing management-employee buy-outs. We want British Rail to establish an operating record against which bids should be judged : that means putting it to the test. We want to improve passenger services through a new structure--and that is what the Opposition are trying to prevent.

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Mr. Wilson : In the previous debate the Secretary of State gave something. We might disagree about how much he gave and whether it justified the withdrawal of the Tory new clause, but I do not quibble about what Tory Members did. In this case it is much more clear-cut because the Secretary of State has given nothing. Therefore, the position is clear for those who put their names to the new clause and, I should have thought, also for those who signed the report of the Select Committee, chaired by our late lamented colleague. In answer to the point made by the hon. Member for Harrow, East (Mr. Dykes) about the irritation of voting on a new clause tabled by the Opposition rather than an amendment tabled by Tory Members, we would have been happy if the vote had been on a Government new clause, but to ensure that there was a debate and that the issue was voted on, we tabled a new clause which in substance, content and spirit is no different from amendments tabled by Tory Members.

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As to the point about other state railways being allowed to bid, the Secretary of State blustered over it but essentially could not deny it. He is legislating for circumstances in which the French state railway, the Belgian state railway and the Irish state railway will be able to operate services in Britain. The only European state railway which will not be able to tender for the services is the British state railway. I find it very odd that a Secretary of State in a United Kingdom Government should legislate in that way. If the French state railway starts to run services into the heart of rural England, I am sure that the hon. Member for Harrow, East at least will join me in the hope that points such as Stafford and Southend will be included in the network. What an extraordinary thing for a British Government to legislate for. They cannot legislate against other state railways, but they are prepared to do so against their own, out of prejudice and spite.

We went to the heart of the debate when the hon. Member for Eltham (Mr. Bottomley) stood up in genuine puzzlement and said that he could not understand why it should be possible for private companies to bid or for management buy-outs to take place, yet British Rail is not to be allowed to bid as an entity. The classic exercise in prevarication from the Secretary of State, as he shuffled around for his notes to find out how that was to be explained, toldwould be the lowest bidder and, secondly, the City would be deterred. Those are not convincing explanations. The Government want competition. Having gone through the exercise, if British Rail was the lowest bidder, would not that be a plus? Having regard to what the Government want to do, would not it be an advantage? British Rail would have to compete. It would have to prove itself the most competent and cheapest operator. The disciplines of competition would be imposed upon it and passengers would get the best possible service from among the bidders. What is wrong with that in the opinion of the Tory party, never mind the Opposition? Yet that option is to be closed, specifically because it would result in the terrible evil of British Rail winning by being the cheapest and most efficient.

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The second reason was that the City would be deterred from investing in potential buy-outs because it would be constrained by the fact that there would be a cheaper bidder. In other words, the calculations of investors will not be based on the market or on competition, but on what they can get away with bidding for franchises in the absence of the most competitive alternative bidder. What a set of criteria on which to dispose of national assets. As to the alibi on management buy-outs, every Opposition Member agrees that if privatisation is to go ahead there should be attempts at management buy-outs. There is very little enthusiasm for them, but in many places the second last thing that people who have given their lives to the service of the railway want to see is the legislation going ahead. The last thing they want is that people with no previous connection with the railway and no experience of it should walk past them to take over what they have built up and their jobs. Inevitably, management buy-outs will be prepared and expressions of interest will be screwed out of managers in every area. The idea that there is a positive will for management buy-outs throughout the BR network is a fallacy. The Conservative party brief to its members told them to say that 30 management buy-outs bids were in course of preparation. They have had to retreat from that because it is untrue. The figure of 30 applies not to bids in preparation, for which the figure is zero, but to expressions of interest, which includes even that of Brian Scott in Great Western, who said specifically that he would not be interested unless there was vertical franchising. Having scraped together all the expressions of interest, the Conservative party misrepresented them as bids in course of preparation. There are three essential reasons why the management buy-out argument fails. The first is out of a sense of duty which should be felt on the Tory side to people who have worked within the public sector industry. Why, in order to participate in the brave new future, should managers, perhaps with young families and many

responsibilities, have to mortgage their homes and get into debt? Why cannot they continue to act through the public service provided by British Rail?

The second argument is that buy-outs are not for ever. Indeed, they can last for only a short time before being bought out again, so that we end up with straightforward privatisation. Many analogies have been drawn with the bus industry. I can quote a recent one in Scotland where Citylink bus company, the main arterial operator, which was the product of a management buy-out two and a half years ago for a bargain basement price, has been sold to a private operator to produce a monopoly. So in many cases management buy-outs do not last. They are bought out and become part of the private sector, with the result that many people who were involved originally and who gave their lives to the service are no longer involved. That is another argument against the management buy-out alibi.

Thirdly, management buy-outs would lead to fragmentation of railways. While privatisation is a daft policy, fragmentation is a dangerous and potentially destructive one. The Government's determination to break up an integrated network into dozens of companies, to separate track from operators and then to separate those who are operating on the track, is the truly destructive aspect of the legislation. It is not addressed through the so-called solution of management buy-outs.

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If French and Belgian railways can bid, let us speak for Britain. British Rail should be allowed to bid because it is likely to be the lowest bidder and the most experienced and efficient operator. If anything in Tory philosophy runs counter to that, it will be expressed in the Division Lobby. Let us put Britain first and let us support the right of British Rail to bid. Let us prevent the fragmentation of the railways on the basis of political dogma, with services being run by people who have no experience or qualifications to do the job.

My hon. Friends and I, as well as some Tory Members, are fighting for the railways. If the legislation is passed and things go wrong, it is not to the Opposition alone that Tory Members will have to answer but to their constituents who, in overwhelming numbers, are opposed to and concerned about the destruction of British Rail for ideological reasons. Let the Government give us investment in the railways rather than ideology. That is the message from the country which should be listened to now and reflected in the Division Lobby. Question put, That the clause be read a Second time :

The House divided : Ayes 290, Noes 309.

Division No. 281] [7.8 pm

AYES

Abbott, Ms Diane

Adams, Mrs Irene

Ainger, Nick

Ainsworth, Robert (Cov'try NE)

Allen, Graham

Alton, David

Anderson, Donald (Swansea E)

Anderson, Ms Janet (Ros'dale)

Armstrong, Hilary

Ashton, Joe

Austin-Walker, John

Banks, Tony (Newham NW)

Barnes, Harry

Barron, Kevin

Battle, John

Bayley, Hugh

Beckett, Rt Hon Margaret

Beggs, Roy

Beith, Rt Hon A. J.

Bell, Stuart

Benn, Rt Hon Tony

Bennett, Andrew F.

Benton, Joe

Bermingham, Gerald

Berry, Dr. Roger

Betts, Clive

Blair, Tony

Boateng, Paul

Boyce, Jimmy

Boyes, Roland

Bradley, Keith

Bray, Dr Jeremy

Brown, Gordon (Dunfermline E)

Brown, N. (N'c'tle upon Tyne E)

Bruce, Malcolm (Gordon)

Burden, Richard

Byers, Stephen

Callaghan, Jim

Campbell, Mrs Anne (C'bridge)

Campbell, Menzies (Fife NE)

Campbell, Ronnie (Blyth V)

Campbell-Savours, D. N.

Canavan, Dennis

Cann, Jamie

Chisholm, Malcolm

Clapham, Michael

Clark, Dr David (South Shields)

Clarke, Eric (Midlothian)

Clarke, Tom (Monklands W)

Clelland, David

Clwyd, Mrs Ann

Coffey, Ann

Cohen, Harry

Connarty, Michael

Cook, Robin (Livingston)

Corbett, Robin

Corbyn, Jeremy

Cousins, Jim

Cox, Tom

Cryer, Bob

Cummings, John

Cunliffe, Lawrence

Cunningham, Jim (Covy SE)

Cunningham, Rt Hon Dr John

Dafis, Cynog

Dalyell, Tam

Darling, Alistair

Davidson, Ian

Davies, Bryan (Oldham C'tral)

Davies, Rt Hon Denzil (Llanelli)

Davies, Ron (Caerphilly)

Davis, Terry (B'ham, H'dge H'l)

Day, Stephen

Denham, John

Dewar, Donald

Dixon, Don

Dobson, Frank

Donohoe, Brian H.

Dowd, Jim

Dunnachie, Jimmy

Dunwoody, Mrs Gwyneth

Dykes, Hugh

Eagle, Ms Angela

Eastham, Ken

Enright, Derek

Etherington, Bill

Evans, John (St Helens N)

Ewing, Mrs Margaret

Fatchett, Derek

Field, Frank (Birkenhead)

Fisher, Mark

Flynn, Paul

Forsythe, Clifford (Antrim S)

Foster, Rt Hon Derek

Foster, Don (Bath)

Foulkes, George

Fraser, John

Fyfe, Maria

Galbraith, Sam

Galloway, George

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