House of Commons Hansard Debates for 2 Nov 1993

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financial security that those assets would otherwise bring. Their business will be largely specified by the franchising director, heavily regulated and yet subject to the fierce competition of car, coach and air, which British Rail faces now, and which any rail operator will face in the future. As demand for rail travel rises or falls in line with the economy, even when business is bad the operator will still have to meet the obligations given to the franchising dirhon. and hon. Friends will welcome the view of potential management-employee buy -outs that they merely want a level playing field. It demonstrates that they are already embracing the free market principles of fair and equal competition. That was referred to at length during our debate on the guillotine motion this afternoon. They understand that in that way the railway will change for the better and will offer a better service and, crucially, better value for money.

My right hon. Friend the Secretary of State has assured me that those are his objectives, too ; and I believe him when he says that those are the objectives behind the amendment that stands in his name. I welcome those assurances and the stands that he has taken. I much regret the comments made by Opposition Members and their supporters outside the House who are seeking to undermine and rubbish the Government's proposals with rumours and innuendo worthy of a Machiavelli, which are thereby causing a lot of quite unnecessary worry among present rail users and present rail pensioners. That was the context in which I made some comments earlier this afternoon. The Bill is complex. I want to try to help Opposition Members and perhaps my right hon. Friend the Secretary of State by inviting him to take this opportunity to give the House once again the assurances that he has given me and my hon. Friends. The first concerns a small point that was raised by the hon. Member for York (Mr. Bayley) towards the end of the debate on the guillotine motion. It is to do with the future right of British Rail's museums to the artefacts, free and clear of any cost in the future, as it has been given that right in the past. That matter has been raised before in the Chamber.

I had the opportunity of raising the matter in the last few words of the last speech before my right hon. Friend summed up on Third Reading. It has been touched on in the House of Lords and I believe that reassurances can be given--I hope that reassurances can be given--even though it has not been written into the Bill. Whether it becomes the responsibility of the franchising director in a similar way to that in which he becomes responsible for stations that are franchised individually, or some other responsibility, I believe that we should have some reassurance as to the present rights of that magnificent British Rail museum.

Returning specifically to the amendments, which I know that you, Mr. Deputy Speaker, will want me to do, paragraph (4) of Government amendment (a) permits--I emphasise the word "permits"--the franchising director in certain circumstances to determine that neither the British Railways Board, nor a wholly owned subsidiary, shall be allowed to bid for a franchise.

There is no requirement on the franchising director to do that. He can act only under the specific circumstances set out in the amendment. As my right hon. Friend has told

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us, those circumstances are designed to ensure a level playing field. He said that in his opening words and I believe that he should say it again when he sums up. He should go on to say that provision of quality of service and value for money are indeed the overwhelming reasons why a particular franchise will be granted.

I understand it to be the Government's intention that the franchising director would exercise those powers to that end and to no other. Were that not to be the case, I am sure that the Public Accounts Committee would soon be examining the activities of the franchising director. I hope that my right hon. Friend will therefore confirm to the House that that will be the case and that the franchising director as accounting officer will be required to come before the Public Accounts Committee to justify his actions in terms of seeking the maximum value for the public money for which he is accountable.

Mr. David Nicholson (Taunton) : As a member of the Public Accounts Committee, I am encouraged by what my hon. Friend has said in that regard. Does he agree that decisions by the franchising director, which might be controversial, might be open to judicial review?

Mr. Rathbone : I agree with that and I will come to that point in just a few moments.

I particularly welcome the requirement on the franchising director to promote competition for franchises. I hope that my right hon. Friend will confirm to the House that, in most cases, that will require the inclusion of British Rail in the bidding process to promote competition and to provide the benchmark against which new entrants to the Rail industry will and can be judged.

I must tell the House, however, that I was concerned about the reference in the amendment to

"preventing or reducing the dominance of any person or persons". That is a highly judgmental factor and one which, if abused, could give the franchising director carte blanche to buy bids by the British Railways board willy-nilly. [Interruption.] If hon. Members on the Opposition Benches would stay comfortably quiet, I should be most grateful.

It seems to me that, in the absence of open access competition, every franchise operator will be a monopoly provider of rail services within his area and therefore dominant, except in a limit number of cases such as Gatwick Express. In my constituency of Lewes, the local franchisee is certainly likely to be the only operator.

I have the assurance of my right hon. Friend that it is not his intention to use that provision universally to bar British Rail from bidding. It is difficult to understand how paragraph (5)(d) of his amendment will operate. I hope that he will be able to give the House an indication of what is meant by the word "dominance".

I was considerably reassured by a letter that I have received from Sir Bob Reid in answer to questions that I put to him. He indicates a proper approach to that sensitive issue. It is clear that British Rail will be prepared to submit to proper scrutiny of any of its bids ; that it will do so in co-operation with the Government ; and that it accepts as a minimum requirement a robust accountancy system to prevent subsidy leakage. That is being built into the restructuring which is already in hand.

A crucial part of the Government's amendments is the requirement for the franchising director to publish his decisions. That will allow them--here I come to the point

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raised by my hon. Friend--to be tested in court if necessary by way of application for judicial review. As my right hon. Friend has told me, that is a vital safeguard if the franchising director is to be given the power to bar British Rail from bidding.

I am advised, however, that it would be difficult for aggrieved bidders successfully to petition for leave for judicial review if the franchising director has not given the reasons for his decision. I hope, therefore, that my right hon. Friend will be able to give the House some comfort on that point. He may be unwilling to include such a requirement on the face of the Bill, but I hope that he will be able to give the House an assurance that the franchising director will give reasons for his decisions when he takes them, and not just in his annual report.

I have one further concern relating to those cases where, despite the franchising director seeking bids, he is unable to appoint a suitable franchisee and British Rail remains the operator. In those cases, it is my view, and the view of many of my right hon. and hon. Friends, that such an arrangement should be in force for the franchise period.

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In his draft objectives for the franchising director my right hon. Friend the Secretary of State has recognised the importance of the effect on morale and the need for a period of stability. But those draft objectives refer only to a reasonable period of time before seeking potential franchisees again and, if I heard him correctly, my right hon. Friend used exactly the same phraseology in his opening speech today.

My concern is that those continuing the running of difficult services or taking over unpopular franchises should be rewarded with a degree of stability. As a result of the changes that my right hon. Friend has agreed to the Bill, British Rail will be long-term operators and not just caretakers. I hope that my right hon. Friend will be able to reassure me and the House that the final version of his objectives for the franchising director will be more specific on that point and establish that such continuing British Rail operations will be at least for the length of the franchise period on offer. Perhaps the most important feature of my right hon. Friend's amendment, on which I particularly congratulate him, is subsection (8) where he removes any question of his being able to direct the franchising director in these matters. If, therefore, the franchising director is to bar British Rail from bidding, the decision will be his and his alone after consultation with the regulator and the British Railways Board.

However, I have heard it said that that subsection prevents the Secretary of State from directing the franchise director only in that specific context, a point which I believe my right hon. Friend also made in his opening speech today. It has been alleged by others that the Secretary of State could use other powers of direction within the Bill effectively to ensure that British Rail would not be awarded a franchise if any other bids were made.

The argument runs that the Secretary of State could direct that another bid be awarded the franchise. It has been argued that the amendment to clause 4, which was successfully moved in another place by my noble Friend the Earl of Caithness, the Minister for Aviation and

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Shipping, would place a duty on the Secretary of State to direct the franchising director to accept MEBO bids above all others. I have my right hon. Friend's assurance that that is not his intention, but, if he will excuse me, Secretaries of State tend to come and go, and nowhere more frequently than in the Department of Transport. I am sure, therefore, that the House would welcome some reassurance that the powers contained in the Bill should not be interpreted in that way.

In that context also, I remain concerned that the franchising director must submit to the Secretary of State for approval any proposal to offer vertically integrated franchises wherever those seem appropriate even though any such proposal can be made only with Railtrack's agreement. Therefore, I hope that the final objectives will delete that requirement as well as clarifying the previous requirement to which I have referred.

I return briefly to the crucial issue with which I started that the Bill and my right hon. Friend's amendment have the sole intention of achieving value for money and quality of service through fair and equal competition between all those who bid for franchises, so that the best future operator wins each of the franchises, so that in turn much needed increased investment is made to improve services, particularly in such areas as the Kent coast line serving the constituents of my hon. Friend the Member for Ashford, the south coast central franchise area and the Sussex coast services which serve my constituents.

I know that my right hon. Friend the Secretary of State will be able to confirm that and give the assurances that I invited him to state, and I am confident that those assurances from my right hon. Friend will enable my right hon. Friends to join me in supporting the Government amendment.

Mr. Keith Hill (Streatham) : The hon. Member for Lewes (Mr. Rathbone) did the House a service, about which the Government will not be unduly perturbed, when he highlighted a central contradiction in the Government's amendment in his reference to subsection (5)(d). This will not be an open access railway. In granting franchises, the franchising director will inevitably be conferring not merely dominance in a particular railway but a monopoly in the railway. When proposals were put forward for the deregulation of the buses, it was precisely because the Government were worried about the potential abuse by franchisees that they rejected the concept of franchises in connection with buses.

On many occasions in the Select Committee on Transport and the Standing Committee which considered the Bill, we have drawn attention to documentation published in the mid-1980s which demonstrated the anxieties of departmental officials that the franchisee would capture the franchiser. The argument is that, in due course, railway passengers will pay the penalty for the situation that the Government are establishing.

However, that is not the main burden of my remarks this evening. Initially at least, I wish to pursue a line of questioning raised by my hon. Friend the Member for Cunninghame, North (Mr. Wilson) about the compatibility of the Government's amendments in relation to our obligations under the treaty of Rome.

The Secretary of State, who has just left his place, will doubtless be aware that those matters were raised by my noble Friend Lord Clinton- Davies, himself a former Commissioner, which adds authority to the reservations

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that he expressed in another place on this matter. Even the most sympathetic perusal of the record reveals that the Minister for Aviation and Shipping in the other place was unable to supply anything approaching an adequate response to the issues raised by my noble Friend Lord Clinton-Davis.

There is no doubt that the Government's amendments confer a privileged position to management-employee bids for franchises. There can be no other interpretation of the words :

"for the purpose of promoting the award of franchise agreements to companies in which qualifying railway employees have a substantial interest".

Those words confer rather more than a level playing field to the advantage of MEBOs in these approaching bids.

However, there are potential objections to the Government's proposals under three heads of European Community legislation. Article 7 of the treaty states :

"Within the scope of application of this Treaty, and without prejudice to any special provisions contained therein, any discrimination on grounds of nationality shall be prohibited." It is at least arguable that the present provisions put forward by the Government implicitly discriminate in favour of nationality. It is certainly an argument that merits a response.

Article 85 of the treaty defines as having the effect of prevention, restriction or distortion or competition within the Common Market, and therefore in contravention of the treaty, agreements, decisions and concerted practices which

"apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage".

It is certainly arguable that another potential franchisee could take exception to the preference offered to a MEBO and it is hardly satisfactory for the Government to reply, as did the noble Earl of Caithness, that the Government would seek an exemption under article 85, paragraph 3. That power might be sought by the Government, but do they have any grounds to believe that it is likely to be granted? In other words, are there grounds to believe that the provision is compatible with the treaty?

I draw the Minister's attention to article 90 of the treaty, which states :

"In the case of public undertakings and undertakings to which Member States grant special or exclusive rights Member States shall neither enact nor maintain in force any measure contrary to the rules contained in this Treaty."

That relates in particular to the rules provided for in article 7, which I have quoted, and in articles 85 to 94 to which I have referred.

The Government amendments place MEBOs in a privileged position and that privilege will be enshrined in statute. There is no doubt that the statutory provision could be used in evidence against the interests of the MEBO. These matters should have been subject to serious consideration before the Government drew up their amendments. I wonder whether they seriously investigated the implications of the proposals in light of our treaty obligations. Did they consult the Commission? Are the Government sure that their proposals meet our treaty obligations? If they did not consult the Commission, and if they are not entirely sure that they have met the treaty obligations, is it not improper to ask the House to approve the amendments? Should not the amendments be withdrawn?

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If the Government press the amendments to a vote--I suspect that they intend to do so--Conservative Members should be aware that the next Session may bring amending legislation to the Bill.

I shall turn briefly to the main thrust of the Government's proposals in the amendments. Conservative Members have expressed disquiet about the Government's earlier resistance to the amendments from Lord Peyton on British Rail's right to bid. If those hon. Members are willing to fall for the proposals, I fear that they are liable to fall for anything. It appears that Conservative Members wanted to secure a reasonable opportunity for BR to enter competitive bids to provide services. We have heard a good deal about the level playing field. The truth is that the Government are denying BR that level playing field and are saying effectively that it may compete only, if no private operator is interested in running the service. By any standards BR is an efficient railway undertaking. There are Conservative Members who do not believe that. Why, I wonder, are those hon. Members so enthusiastic about the enlisting of the support of BR managers through the proposed MEBOs? In any comparative terms--capital investment, railway undertakings, the proportion of GDP expended upon railways--BR is an outstandingly efficient and productive railway system. Why should BR be effectively and extensively denied the right to compete for the franchises? There is an inconsistency here with earlier Government legislation which provided for competitive tendering in local government and in the health service. The Government have always permitted the public sector to bid. After all, BR knows something about running a railway, unlike virtually every other potential franchisee in sight. Is it not true that the Government are fearful that BR would win most of the franchises? In the public sector and in local government, the public sector won three out of every four contracts and, I might add, Swedish railways have won most of their work.

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Is it not true that the Government are aware that there is virtually no interest in the franchises? Are not the Government seeking to exclude BR to make it easier for the pathetically few private bidders--however expensive and however inefficient they are likely to be--to enter the scene? It is beyond my comprehension that the Conservative Members who apparently were willing at an earlier stage to go out on a limb to secure a reasonable opportunity for BR to provide these services are to be bought off easily. I hope very much that those hon. Members will listen carefully to the strength of the arguments made by my hon. Friend the Member for Cunninghame, North and by other Opposition Members and that they will join us in the Lobby tonight.

Sir David Mitchell (Hampshire, North-West) : In the original Bill, my right hon. Friend the Secretary of State provided, I believe wisely, that British Rail could not bid for franchises, but that the franchise director need not accept a franchise bid and could leave BR as the operator. The Lords have amended that to permit BR to bid for franchises and my right hon. Friend has tabled an amendment which goes part of the way to meet the Lords amendment.

I regret the Lords amendment, which I believe was short-sighted and misdirected. If BR bids, the private

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sector will be frightened off. There have been continual references during the debate to the need for a level playing field. I do not think that there is any way in which a level playing field can be achieved with BR as a bidder. I shall explain why I think that is the case.

BR has enormous financial clout and there will be fear by those who are invited to bid for franchises that BR will cross-subsidise. I regret to say that I disagree with my hon. Friend the Member for Lewes (Mr. Rathbone), and that is unusual. To bid for a franchise, any bidder needs to know the cost and overheads and how to apportion and predict the movement of those overheads. Does the House, my right hon. Friend or anyone who knows BR intimately believe that there is any way in which BR knows what its costs are and can predict them? It is not organised to do that.

I do not believe, nor does anyone who knows the industry, that BR would be capable of putting forward a clean bid on a level playing field. I know that, many hon. Members know that and--more important--anyone thinking of putting forward a MEBO knows that only too well. If BR is to bid, there will be cross-subsidisation, which I as a taxpayer have every right to be fearful of. BR would be using taxpayers' money and that would be cheap and nasty ; cheap for BR and nasty for the taxpayer. That would inevitably frighten off bidders from the private sector.

There are important points which my hon. Friend the Minister should not overlook when he winds up the debate. The benefit of private sector culture will be lost if BR continues to hold a franchise. One can take a photograph of the situation at any particular moment, but the situation is moving. Looking forward over the period of the franchise, there will be opportunities for innovation and for change. It is that innovation and change at which BR is so bad and at which the private sector is inevitably better. The real difficulty is that, if BR is to be compared with a private sector bid, the facts will be concealed. BR will rumble on as it has for so many years, whereas the innovative private sector bidder could bring new ideas and new ways of capturing the market and of pleasing the customer.

Mr. Keith Hill : During the hon. Gentleman's earlier incarnation as a Transport Minister, he leaped around the counties of Hereford and Worcester in pursuit of buses to pave the way for bus deregulation. I suppose that the hon. Member would argue that we have seen the benefits of innovative creativity from bus deregulation and privatisation, which has led to a total loss of 13 million bus passenger journeys each year since its introduction.

Sir David Mitchell : The hon. Gentleman will know that bus deregulation has been a considerable success in Worcester. In many parts of the country, innovative ideas have been introduced, such as the minibus, which virtually did not exist before the Transport Act 1985 was passed. If the hon. Gentleman wants to know what happened, one result of bus deregulation was the introduction of a whole series of new ways of providing services which were of substantial benefit to the consumer.

Yes, there is a long-term downward trend in the number of passenger miles. That is simply a result of growth of the use of the private car, with all the convenience that it can

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offer. That trend has not altered. I shall come back to the hon. Gentleman's point about buses in a moment; I do not want to detain the House for too long.

We must bear in mind the serious point that if British Rail can bid, the level playing field that Members on both sides of the House believe should exist will not be provided. Management buy-outs will be stifled. No manager will bid against his employer knowing that if he loses the franchise, he will continue to be beholden to that employer for his employment. Indeed, managers will think two or three times about whether they dare to put their future employment prospects on the line, mortgage their houses and do the other things that might go with a buy-out. There is serious anxiety about whether managers and employees will dare to bid against a British Rail franchise offer.

The last reason why there will not be a level playing field is that managers will have to put up their own money, mortgage their houses and take real risk while British Rail will bid with the bottomless purse of the taxpayer. The Government amendment says that nothing should prevent British Rail or its subsidiaries from being franchisees, subject to the right of the franchise director to forbid it, if desirable, for the purpose of promoting competition for franchises, encouraging management and employee buy-outs, encouraging new entrants to railway operations in the United Kingdom and preventing market dominance by one operator. I find it difficult to live with that. I am prepared to do so and to put confidence in my right hon. and hon. Friends this evening, but the original Bill was much more sound in ensuring that genuine innovative new bids were brought into the working of railways.

The hon. Member for Cunninghame, North (Mr. Wilson) feared that large increases in subsidy would be required when franchises came in. The hon. Member for Streatham (Mr. Hill) spoke about buses. There is one lesson to be learned from bus deregulation. I refer to it in the narrow aspect. When socially necessary bus services were put out to tender, service after service which previously needed a substantial subsidy needed much less and, in many cases, no subsidy. That was to the astonishment of the county and metropolitan councils which had been paying the subsidy thinking that they were obtaining value for money.

Mr. Bayley : Will the hon. Gentleman give way?

Sir David Mitchell : Certainly.

Mr. Deputy Speaker (Mr. Michael Morris) : Order. We cannot go into a long discussion about the pros and cons of buses.

Sir David Mitchell : In that case, I will not give way. I conclude by saying that some £40 million was saved by county and metropolitan councils throughout the country when they discovered to their astonishment that, by putting bus services out to competitive tender, they saved substantial amounts of subsidy. I believe that there will be considerable astonishment when it is found that the same thing applies to the railways.

I bow to your wisdom, Mr. Deputy Speaker, in not pursuing the argument about buses any further. I shall support my hon. Friend the Minister in the Lobby, but we would have done better to reject the Lords amendment and stuck to the original Bill.

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Mr. Harvey : One would find it easier to believe that the Government had had a significant change of heart and were making a concession on this point if their change of heart was not so late in the day. As others have said, it came after the Government's defeat in the Lords. Their response has been cobbled together on the back of an envelope and as the hon. Member for Streatham (Mr. Hill) said, there is considerable doubt about its legal validity.

The argument about allowing British Rail to bid has been with us for a long time. When the White Paper was issued, long before the Bill was published, I asked from this Bench whether British Rail would be allowed to bid. The point was raised again on Second Reading, throughout the Committee proceedings, on Report and Third Reading and in the Lords, where the Government were defeated. Only after that defeat, when the Government faced the prospect of the same thing happening in the House of Commons, did the Secretary of State wave his magic wand and come up with the strange formula that we have before us.

We were told earlier that the leaked document from the Department of Transport which said that the privatisation process would double the level of public expenditure was just a model. But surely the model of allowing BR to bid with some handicap was considered earlier. If it was ruled out as invalid then, why has the option been whipped out at this late stage as the basis of the legislation which is shortly to go on to the statute book?

Allowing BR to bid is simply a device to allow Conservative Members who have threatened to rebel to walk away without loss of face. It has nothing to do with the running of the railway service or choice for passengers. Nor does it do anything to guarantee the position of the taxpayer, who has poured money into the nation's rail network for decade upon decade. The prospect of allowing British Rail to bid was the only guarantee that the service would not be taken away and dismembered by spivs who would come in briefly to run a railway service, find that they could not, bale out and leave the mess behind them.

The suggestion that risk is being transferred from the public to the private sector and that some value should be put on that gives the game away. I wonder whether it is true. If the risk that will be taken by the private sector will not be bailed out by the taxpayer when the crunch comes, the fears that have been voiced by Members of Parliament and people elsewhere that services will close will be realised. If there is a risk transfer, who will pick up that risk? At this point we should be discussing the Government's rail policy for the future. A proper policy would seek to avoid the doubling of road use by 2025. A sensible policy might reasonably seek to double use of the railways by the end of the decade. People want to use the railways more. They are put off by the ridiculously high fares that they have to pay. The Bill will make that worse. We shall see a net transfer of not only freight but passenger traffic away from rail back on to the roads.

Ministers are fond of saying that, if the amount of freight carried on the rail doubled, it would reduce road traffic by only 5 per cent. That is false, because it ignores the distance of the journeys involved. If the railway doubled its share of the 200 km-plus market, it would reduce long- distance lorry freight by 50 per cent. That would be a popular move. It would be a great deal more

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popular than building a motorway from Felixstowe to south Wales and the south-west--a proposal that is coming on to the agenda. The Bill is not about safeguarding the taxpayer or improving choice for the passenger. It is not about facing up to the real crisis of under-investment in the railways or exploring new ways of doing something about it. The game has been given away during the debate. We have heard that the Bill is about cutting public subsidy. I belhe policy still exists and the Government are true to the faith. The Government amendment is ridiculous. It says that BR can bid, but that in any circumstance that any sane man can think of, the bid is to be disregarded. There are four reasons why it can be disregarded. One is to feather-bed management buy-outs, which will be the only real prospective bidders. The second is to feather-bed private sector buyers. There is no sign of any of them. The third is competition, although by the time competition has been skewed twice, one has to query whether it is worthy of the name competition. The fourth reason why the bid can be disregarded is to prevent anyone from having a dominant position in the market. British Rail has 100 per cent. of market at the moment. That means that, at any given point, on any franchise that is considered, British Rail can be disregarded because it is a dominant supplier. The catch-all enables the franchising director to disregard BR's bid on any occasion for any reason that enters his mind. We need British Rail to be a strong, vibrant bidder, an on-going committed public transport provider that is going to guarantee quality to the public and to guarantee value for money to the taxpayer. We do not want BR to be an impotent bidder of last resort.

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The consequences of the amendment are no different to those that would have occurred before the amendment was tabled. The Government were initially saying that, if the private sector management buy-outs did not produce a worthwhile bid, BR would be left as the operator as the last resort. What sort of service is it to operate as the provider of the last resort? What sort of service will the passenger get on lines run by the operator of the last resort?

Under those circumstances, BR should be given the franchise. BR should be given a guarantee that, for a period of seven, 10, or 15 years, it will be running that service and it should have the same incentives and objectives as any other bidder or anybody else operating any part of the rail network. Damage has already been caused to morale and unity among BR employees by the work that has gone on in putting together the shadow franchises.

I wonder why, even at this late stage, the Government did not take the opportunity to save themselves from the ridiculous ideology of trying to prevent BR from bidding. Even the Evening Standard --hardly a renowned bastion of left-wing thinking--asked in an editorial in the summer, what on earth all this is for? Who is going to benefit? Will it end up with fares going up, services being reduced and a new level of bureaucracy being created just to split BR into franchises? It said that the game is not worth the

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candle. The late Robert Adley summed up the Bill as the poll tax on wheels. That description and what he meant by it it will come home to roost.

I deplore the Bill for the passengers and I deplore it for the taxpayers. The only thing that prevents the Conservatives from plunging on to their own sword is the hope that the franchising director will save them from themselves and allow BR to bid.

Mr. Peter Luff (Worcester) : Opposition tactics over the Bill, especially in the past two days, have consisted of little more than delay, scaremongering and, most appallingly, threats. When the hon. Member for Kingston upon Hull, East (Mr. Prescott) described yesterday what would happen, in the unfortunate event of a future Labour Government seeking to renationalise the railway, to those managers who dared to try to provide a better service to the customer, we saw the Opposition's real enthusiasm for involving management and employees in running a better business. I was deeply disappointed with what he said.

The words of the hon. Member for Kingston upon Hull, East were not surprising. We know that the Opposition want to kill the Bill. They are not, and never have been, interested in the consumer. Their interest is in the producer, the provider of services. I was disappointed to hear the hon. Member for North Devon (Mr. Harvey) sharing that same prejudice. I shall tell the House what the Bill is about. It is about providing new ideas, new investment and new involvement in the railway from the management and employees of the railway. That is why I was so anxious to speak on this group of amendments.

I expect significant private sector interest in the franchises to be offered by the franchising director. I think that that interest will often be expressed in partnership with management and employee teams, and very often I expect management and employee teams to take the lead in bidding for the franchises in their own right--and I welcome that. We must ensure that no potential new participants are frightened from bidding for the franchises by anything in the Bill. I sincerely hope that the concessions that have been made by the Government in this group of amendments in an attempt to get the Bill on the statute book before the end of the Session will not have that frightening effect. I fear that there is already some evidence that managers are becoming less enthusiastic as a result of their concern at this concession. I shall ask my hon. Friend the Minister to assure me on a number of specific points.

The British Railways Board fought a clever campaign to try to frustrate the Bill. One senior BR representative said recently : "The board will not stand by and preside over its own suicide" Frankly, that is no concern of the House. Our concern must be for the quality of service, not the preservation of the British Railways Board. It is essential that we look carefully at the Government's new amendments to see whether they go too far, whether they will frustrate management and employee buy-outs and whether they will betray the confidence of those managers who are currently preparing bids and who believe that they can run a better railway. Contrary to the view of the hon. Member for Cunninghame, North (Mr. Wilson), there are many more than three managers currently preparing bids who were named in The Daily Telegraph yesterday.

Over recent months, I have spoken to a number of managers who are interested in preparing bids and they

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have warned of the consequences of accepting the amendment as it stands. The concerns that I shall express are not mine, but those of railway managers who want to bid. First--

Mr. Nick Raynsford (Greenwich) : Out of self-interest.

Mr. Luff : Their interest is not self-interest, not exclusively self -interest. Yes, they will make some money, but they will provide a better service to the passenger. That is the important point. The British Railways Board has access to money at different rates from managers or outsiders bidding for franchises. There is a real danger of unequal competition as a result of that consideration. Secondly, the board would always have been the operator of the last resort if the franchising director declined to accept any other bid. I still worry whether that process needs even the limited double chance that it is being given by the amendments.

Thirdly, in many areas, many managers feel that the board has failed to reduce central administration adequately under the Organising for Quality initiative, landing individual managers with excessive central costs. Managers must be allowed a chance to show what they can do when they choose how much central administration to buy.

Fourthly, many outside bids could be non-compliant. They may seek greater vertical integration than the Government seem prepared to accept. A large central compliant bid from the British Railways Board would automatically rule out outside bids, thus inhibiting the evolution and development of the railway. I hope that, under the Government's new proposals for the objectives of the franchising director, that danger will be carefully monitored.

Fifthly, managers of British Rail know that they have an unsaleable brand, with 45 years of adverse associations. During that period, the railways share of the passenger transport market has declined slowly, but consistently. Under the new regime, the managers to whom I have spoken are looking for a new start for new products that can succeed. I hope that the Minister will assure me that there is nothing to stop bidders grouping together to sustain the one British Railways brand that has real value in the marketplace : the InterCity brand. Sixthly, the Government will continue to provide the British Railways Board with money through public service obligation grants to run those parts of the railway with which it is entrusted. If the BRB is allowed to bid for franchises, there is a real danger that it will direct funds to franchise bids. That could worsen the service elsewhere on the passenger railway.

Seventhly--a point that has been made by many hon. Members and commentators --there will be a conflict of interest if managers are forced to choose between whether to work on a British Rail bid or on their own. I must welcome what the Government have done to clear the way for those bids.

It is now too late to fine-tune the plans. I hope that the amendments meet the seven specific concerns of the managers that I have expressed. I will be carefully scrutinising the activities of the franchising director to ensure that he uses his powers well to address those seven concerns. How well he does so will determine the success of the Bill, which provides an opportunity for the liberating winds of choice, competition and concentration on the

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customer--something so often lacking in so many parts of the British Railways Board's activities over the years--to blow through the railway. I wish the franchising director well in that onerous task.

Mr John Gunnell (Morley and Leeds, South) : I was watching television on Sunday afternoon and saw the Secretary of State receive the news about the extra £2 billion expenditure. I have heard him say tonight that it was only the 79th paper from the working group and therefore that he is discounting figures that gave him such a shock on that programme. Will the Minister tell us whether there are to be increased costs?

Sir David Mitchell : Is the hon. Gentleman aware that, in the past, British Rail has had to show an 8 per cent. return on new investment? The paper to which he referrred dealt with the consequence of the wholly new concept of having to apply an 8 per cent. return to all the old investment. That is not likely to become a practical reality, and if somebody has worked it out as one of the options in the Department, the hon. Gentleman should not put too much weight on it.

Mr. Gunnell : I am not about to put any weight on it. The Minister for Public Transport, in his discussions with passenger transport authorities, has agreed that, next year, their public service obligation grant--the money that they get through the section 20 agreement--will need to be increased by 50 per cent. to cover the extra costs of the changes that will be taking place. Therefore, he has accepted that the extra money is a result of the Bill. Sadly, because of the guillotine, we shall not be able to debate the necessary arrangements to reschedule the section 20 grants. It will come as no surprise to the Minister or to any hon. Member to hear that PTAs wish BR to bid for every franchise in which they have an interest. They fear that, if BR becomes only a residual operator, management motivation will be lost and efficiency will drop. Over a number of years, PTAs and their executives have exerted considerable pressure on BR to improve financial and operational performance. When I was leader of a metropolitan authority, I had a number of such meetings, in which we demanded increased efficiency from British Rail. The Government have acknowledged the success of PTAs and written into the Bill provisions to continue, and perhaps strengthen, the role of PTAs and their executives.

By keeping the maximum pressure on British Rail to maintain efficient management practices and seek innovative solutions, the PTAs will be able to continue to improve local services. If they cannot continue to do so, they fear a return to escalating costs and declining standards. If there is a mixture of organisations, with a residual operation by British Rail--if that is what it becomes--it will have no long-term goals except its own extinction.

I accept that there may be bidders for franchises from management buy-outs. Another possibility is bus companies, and some major bus companies have been looking seriously at bidding, but have already decided that, as the franchises are too large for them, they will not bid. No one has yet mentioned possible bids from foreign railway operators. Will the Government be prepared to sanction bidding from such companies, which may then charge a higher price than BR to run the service? There might also be bids from non-transport companies--we do

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