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Mr. Paul Boateng (Brent, South): We owe the hon. Member for Hendon, South (Mr. Marshall) a debt of gratitude for enabling us to discuss legal aid and legal services this morning. It is right that the topic--all too often neglected in the Chamber--should find its place on the fist Wednesday morning sitting. For that, we owe the hon. Gentleman a debt of gratitude.

During the debate we have heard a litany--a veritable rogues' gallery has been paraded before us by Conservative Members--of people who have abused the legal aid system. We heard of Mr. Levitt, Mr. Hashim and Mr. Saunders. Strangely, given the litany of rogues, one name was missing: the name of Mr. Asil Nadir. I wonder how that name came to be missed--

Mr. Ashby: I would have mentioned him if I had been called.

Mr. Boateng: I hear from one independent spirit on the Conservative Benches that, had he been given the opportunity, he would have mentioned Mr. Nadir. It is so often the case with Conservative Members that they are just about to mention Mr. Asil Nadir, that well-known contributor--

Madam Deputy Speaker: Order. I must caution the House that, if my recollection is correct, the case is not concluded. It may be in indefinite suspension, but I think that it is still around.

Mr. Boateng: We shall be suitably cautioned, Madam Deputy Speaker, and will not pursue that matter further. Who knows--the legal aid cornucopia involving that individual may yet begin to flow. But the serious point is that we would be most unwise to fashion a policy on legal aid and legal services based on those particular individuals, their experiences and abuse of the system. We need a more rational and coherent approach. I have listened to the contributions of hon. Members this morning and it may well be that, in fashioning that approach, it is possible to achieve some agreement on the basic principles.

There is one critical principle on which we must all agree if we are to fashion a legal aid system and legal services that are capable of meeting the interests of justice. It is vital that a system of legal aid and legal services for which the taxpayers of this country pay

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should be able to deliver legal aid, advice and assistance, and where necessary representation, to many more of those taxpayers than is currently the case.

The scandal of legal aid is the way in which, in civil matters, unless someone is in receipt of income support, he can forget public assistance when pursuing a just, reasonable and meritorious claim. It cannot be right that people who work, but are of modest means and contribute to the cost of the service through direct and indirect taxation, should effectively be excluded from access to justice.

Mr. Ashby: I am sorry that both I and the hon. Gentleman--who would, I am sure, like to declare an interest--have been deprived of a fee this morning. The hon. Gentleman will have heard my interventions on the way in which we are responsible for the increase in legal aid. I am sure that he will agree with that in terms of both civil and criminal matters.

Does he also agree that we are having a debate on the increased cost of legal aid without considering one aspect--we have an extremely good form of justice and legal service, which is dirt cheap? It is not an expensive service when compared with those of other countries and what they deliver.

Mr. Boateng: I am afraid that I must beg to differ. What the hon. Gentleman has to say smacks of complacency, which is unacceptable to the Opposition. I do not believe in doing down our system, but we must face the fact that it has become bloated and inadequate in terms of being able to meet the challenges of the end of the 20th century. We need to reform it in quite radical ways if it is to meet the needs of the times and deliver access to justice.

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

Mr. Boateng: I regret that I am unable to give way again.

Mr. Ashby: The hon. Gentleman has misunderstood.

Mr. Boateng: It is the fate of politicians to be misunderstood from time to time--I fear that that has affected the hon. Member for Leicestershire, North-West (Mr. Ashby) this morning.

We must recognise the importance of reforming the legal aid system in a way that is consistent with, and carried out at the same time as, our reform of the practices and procedures of the law. We must also reform the way in which the professions and their practices and procedures are structured. An element of restrictive practice remains in the organisation of the legal profession which requires reform. We welcome the work of Lord Justice Woolf, but there is an urgent need to reform the procedures of the civil justice system. We need to minimise delay and unnecessary replication of tasks. We must ensure that the focus is always on moving forward litigation when it is inevitable, but avoiding it when it can be avoided.

Inadequate attention is paid to mediation and alternatives to law, particularly family law, which swallows one third of the civil legal aid budget. That attention needs to be paid not, I hasten to add, as part of a Treasury-inspired cost-cutting exercise--although it is an effective way of reducing costs--but as a way of delivering a better, more cost-efficient and effective

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service to consumers of legal services. The time has come to put the consumer of legal services first and to recognise that consumers are losing at the moment.

I shall give one example of the way in which the legal aid system is currently failing to meet the needs of those who deserve advice, assistance and representation. Mr. Vincent Oliver came to see me. The Legal Aid Board found that he had proper cause for action in a claim for compensation against St. Mary's hospital for an operation in which his voice box was mistakenly removed.

That is a terrible trauma in itself but, worse than that, this man has no savings or disposable capital and he does not enjoy a grand life style-- there is nothing to mark him as being anything other than an ordinary bloke. He receives benefits to the sum of £343 per month, and he is being asked to contribute £44.80 towards the cost of his legal aid. He is incapable of paying that sum without considerably reducing what is already a very modest standard of living. That cannot be right.

What about those people who are denied legal aid altogether--those people who have saved a little extra, or pensioners who have worked hard and saved all their lives but are now denied access to legal aid advice and services? That cannot be right; the system needs urgent attention.

That is why I ask the Minister, in the context of this short debate, to consider how he intends to address the issue of the under-spend in the current legal aid budget. The Minister will be aware of the Lord Chancellor's commitment to reviewing the issue of eligibility for legal aid if there is an underspend in the total legal aid budget. Last year, there was an underspend of some £70 million, and it is predicted that this year the sum will rise to more than £90 million.

We recognise the need to keep a tight control on the budget, but if that is the case we must find a way of utilising some of that money to meet the needs of the many deserving people who are currently legally unrepresented and unassisted. There is scope for using that money effectively and I urge the Minister to give an assurance that the underspend will be used to meet the needs of those deserving people who, because of the changes in legal aid eligibility, are currently denied access to legal services.

By all means, have a debate about the delivery of legal services, but that debate should not be led by what are essentially Treasury considerations rather than the interests of justice. Let us put justice and the consumer first and see how we can best deliver justice to people who are currently denied it.

12.44 pm

The Parliamentary Secretary, Lord Chancellor's Department (Mr. John M. Taylor): Until a few moments ago, I thought that the adversarialapproach which is always present in litigation had drained out of politics this morning. However, I am reassured that it is business as usual.

I thank my hon. Friend the Member for Hendon, South (Mr. Marshall) for not only securing this historic debate on our first Wednesday morning sitting but deploying his case in an extremely impressive manner, taking many hon. Members on this side of the House with him.

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I congratulate my hon. Friend the Member for Somerton and Frome (Mr. Robinson) on his very thoughtful contribution to the debate. I particularly single out his remarks about the citizens advice bureau. I think that it plays a tremendously important and unheralded role, and I take humble pride in the fact that I helped to establish a citizens advice bureau some 22 years ago. I think that that organisation's worth in society is under-regarded.

My hon. Friend the Member for Beckenham (Mr. Merchant) made a very lucid and urgent speech, with periodic interventions from my hon. Friends the Members for Blackpool, South (Mr. Hawkins), for South Hams (Mr. Steen) and for Leicestershire, North-West (Mr. Ashby). Most of what the hon. Member for Brent, South (Mr. Boateng) said was very convincing, and he made a valuable contribution to the debate. I turn to his last point with which he wanted me to deal. Legal aid is demand-led and, as such, it is almost impossible to plan for. However, we have endeavoured to forecast, as best we can, in one of the fastest growing and erratic areas of public expenditure. What the hon. Gentleman calls an "underspend" is actually 7 per cent. more than we spent last year. I think that Government Members will urge me to be careful when discussing what temporarily appears to be an increase of 7 per cent over last year. I do not wish to get involved in an incautious, over-rapid response to performance over a relatively limited period of time.

Mr. Ashby: In talking about a 7 per cent. increase in expenditure over last year, we should bear in mind that the recent changes in the rules of the High Court have meant an increase in the cost of litigation of about 30 per cent. The rules of the High Court need to be looked at.

Mr. Taylor: The House will not be surprised to learn that by far the highest single component in the increasing cost of legal aid is lawyers' bills. My hon. Friend the Member for Leicestershire, North-West will know how long-winded lawyers can be. We should do everything we can to expedite litigation or find alternatives to it. I turn now to some other points, not least the consultation paper issued by my noble and learned Friend the Lord Chancellor, which contains a chapter dealing with the subject of legal aid for foreign nationals. The Lord Chancellor and I recognise that this issue raises strong feelings. We would welcome views on whether the Government are correct in their present view that it would not be right to impose nationality restrictions on the availability of criminal or civil legal aid.

On the increasing cost of legal aid, it is useful to say that the number of people being helped is increasing. In 1993-94 therewere 3.5 million legal aid acts of assistance and just over £1.2 billion was spent. By 1997- 98, we expect the number of people helped by the scheme to rise to about 4.5 million and the cost of the scheme to rise to more than £1.6 billion. We estimate that approximately half of households are currently eligible for civil legal aid on income grounds.

Mr. Hawkins: Does my hon. Friend agree that, as our hon. Friend the Member for Hendon, South said in opening the debate, there is scope for checking more carefully people's eligibility for legal aid? If those who

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are claiming legal aid fraudulently are weeded out of the system, it will ensure that more funds are available for those in genuine need.

Mr. Taylor: I am not sure that that question needs an answer: it is self-evident that we should take care to check that people qualify for legal aid, not least in a world full of trickery--a point which my hon. Friend the Member for Hendon, South made rather well. He wondered whether the small proportion of people who were ultimately prosecuted represented all those who were putting their best foot forward, or perhaps doing something slightly more dishonest than that.

On the inequality between legally aided and non-legally aided parties, there are circumstances in which a successful non-legally aided defendant may seek costs against the Legal Aid Board or the legally aided opponent. The restrictions on those circumstances may seem harsh in some cases, but they establish a compromise between protecting those who would otherwise suffer financially and protecting public funds.

Legal aid is granted after both means and merits tests in civil cases. The merits test is designed to rule out cases deemed to be frivolous. I am unable to comment on individual cases, but we should not forget that what might appear relatively frivolous to someone who is not directly involved may be a matter of the first importance to the parties immediately concerned. The Legal Aid Board is responsible for deciding on the merits of the case in civil legal aid, and it takes its duties very seriously in that respect.

It may be helpful to the House in response to the points raised by my hon. Friends if I take a little time to describe the proposals on possible changes to legal aid that the Lord Chancellor set out in his speech to the Social Market Foundation on 11 January 1995 to which my hon. Friend the Member for Somerton and Frome referred in his excellent remarks.

The Lord Chancellor is considering a number of possible new initiatives. He has said that they are only the preliminary ideas. We appreciate that there is a lot of work to be done to put flesh on the bones of a reformed legal aid scheme. The Lord Chancellor and I would welcome views on the proposals.

The basis of the legal aid scheme as it exists today is that help should be provided to those falling within the qualifying limits. Up until now, that help has generally been provided in the same way since the inception of the scheme--by the private legal profession, funded on a case-by-case basis.

The legal aid scheme cost £685 million in 1990-91. In the current financial year, the cost will exceed £1.3 billion--an increase of more than 7 per cent. over 1993-94. That represents a rate of increase much faster than inflation. Unfortunately, the rise in the cost of the scheme is not only because of the greater numbers helped: far too much of the rise is attributable to an increase in the cost per case; at the same time, many people who need legal aid are excluded from it.

As has been made clear by the debate today and by previous discussions in the House and elsewhere, although the legal aid scheme is one of the fastest growing Government expenditure programmes, it is also increasingly under attack from a variety of directions.

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Therefore, the Lord Chancellor and I have concluded that radical change is needed. The hon. Member for Brent, South said as much as well.

The purpose of the Lord Chancellor's proposals is to establish a better, more efficient, more responsive and more flexible legal aid scheme. The overall cost of legal aid must be affordable and controllable. What is needed is a system which forces those who are providing advice and assistance to assess and reassess frequently whether what they are doing is providing value for money both for the client and for the taxpayer.

It is the Lord Chancellor's intention that a future legal aid scheme should operate under a cash limit. That will provide a discipline for the provision of a quality service, and will contain incentives for suppliers constantly to improve the quality of the service. Such a sense of discipline has been sadly lacking up to now.

It is true, as the Lord Chancellor has made clear, that some cases may not be brought under the new scheme that are being brought now. In practice, however, a cash limit is more likely to mean that more people are helped, in more deserving cases, as priority will be set on the basis of need and effectiveness.

The Lord Chancellor has made it clear that most of what he said about his ideas for future of legal aid on 11 January related to the advice and assistance and civil proceedings. In the light of the distinction between civil and criminal legal aid, we shall need to think carefully about how those ideas might apply to criminal legal aid.

We shall, of course, be considering carefully whether to consider the separation of budgets for different areas of legal aid--or ring fencing, as it is called--so that the risk of one area swallowing up another may be avoided.

The Lord Chancellor proposed that the future legal aid scheme should operate by a system of block contracts. The idea would be that the Legal Aid Board should contract for the provision of services with a range of suppliers. Each legal aid area would have a budget for the provision of a full range of publicly funded legal services. Suppliers would be contracted to supply advice, assistance and representation within their competence. Where it was necessary to refer a case on because the original supplier did not have the requisite skills, it would be to suppliers who had made arrangements with the Legal Aid Board to do such work.

The use of block contracting will enable the board to operate within a cash limit and to set priorities. It is a way to bring alternative suppliers into the provision of legal services. As the Lord Chancellor has said, very valuable work is being done by, for example, law centres, citizens advice bureaux and other advice agencies.

It has long been the Lord Chancellor's wish to see them brought into greater use within the legal aid scheme. The opportunity provided by a reformed scheme to build on the Legal Aid Board's non-solicitor agency franchising pilot project, and extend the involvement of advice agencies will be welcomed by us all. As hon. Members will be aware, the current legal aid scheme is heavily biased towards certain proceedings and court- based solutions. The reform of the scheme should allow the Lord Chancellor to encourage different ways of resolving problems, using not only advice agencies but also mediation and arbitration, where appropriate.

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It has been suggested in some quarters that a cash limit will lead to the money running out towards the end of the year. Frankly, that is scaremongering. Whatever contractual arrangements are devised, we shall need to ensure that there are mechanisms to guard against unreasonableness.

The elimination of waste in the system--that is, waste of time in court proceedings or in waiting for court proceedings--is a priority for the Lord Chancellor and myself. Lord Woolf's current review of the procedure of the civil courts, referred to by many hon. Members this morning, will help in that matter, but the problem of legal aid cannot be solved simply by tackling waste in the system.

The Lord Chancellor and I understand the concerns expressed about the current scheme. We intend to establish a system that enables to us set priorities for legal aid more effectively according to need, to weigh the benefits against the costs, to break down the present lawyer-led system in a way which encourages a variety of providers and different ways of doing the work and to encourage early advice and different ways of resolving problems, and thus reduce the need for litigation.

The points raised by hon. Members today will contribute to our thinking, and I thank my hon. Friend the Member for Hendon, South for initiating the debate.

On perhaps a slightly lighter note, in the context of an essentially very serious subject, not least to the many people involved, unwillingly and unenthusiastically perhaps, in appearing before law courts--I have met few litigants who have enjoyed the experience of appearing before a law court-- I dare say that, although there are challenges for advocates in the courts, and that challenge may be enjoyable in a way--from time to time, I have enjoyed it--to be a litigant and to be a party is daunting. To be involved in such proceedings with only limited resources is even more daunting. It is frightening wondering whether one has the means to meet the costs. The first English statute providing for legal aid dates back to 1495--it did not all begin in the 1940s. In the reign of Henry VII, provision was made for the representation of poor people in courts of law. The only trouble was--here is an echo of the same problem we face today--that Act did not attempt to define a poor person.

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York Carriage Works

1 pm

Mr. Hugh Bayley (York): Trains have been built at York carriage works for 150 years, and rail engineering underpins the local economy. The York works are not a smokestack industry from the past. Asea Brown Boveri, which owns the works, has invested £50 million in York in the past four or five years in buildings, machinery, technology and training. The York factory is the most modern of its kind in Europe and produces the only trains that meet the full European crash-worthiness certification. Despite that investment and those achievements, however, time is running out for the York works. In the course of the past year, ABB has shed 900 of its 1,600 work force, and 10 days ago the company chairman said that he had only eight weeks left to secure a further order--and that if he did not succeed the corporate board in Zurich would have to decide to close York because a factory employing 700 people cannot be kept open if there is no work.

Are the Government saying that Britain can afford to throw away an industry and a plant as important as York just because the British Railways Board has in its wisdom decided to defer for two or three years placing an order for badly needed replacement trains? The ABB board in Zurich finds the Government's attitude utterly incomprehensible. That foreign company bought a chunk of the British Rail system and invested £50 million in York and a further £50 million in the Derby carriage works; yet it is being told that that investment must be written off. What kind of advertisement is that for inward investment or for the Government's rail privatisation policies?

York is currently building the first 64 of 600 class 465 carriages promised to commuters on the Kent coast lines. That stock is to be delivered later this year--three months ahead of the agreed date, which says something for the York works. Everyone expected the contract to roll forward to a second tranche. The existing contract has a follow-on clause, which would not have been included in the contract if British Rail, the Department of Transport, the Treasury and the company had not expected a further order to be placed. The former Minister for Public Transport, the right hon. Member for Kettering (Mr. Freeman), said last year that he expected to receive British Rail's business case for a follow-on order last June and to be able to finalise an agreement with full Treasury and Department of Transport approval by September.

Just two weeks ago, however, everything was thrown into confusion. The British Railways Board announced a delay of four or five years until 1999 in any further orders for Networkers for Kent coast lines. The board said also that it did not intend to trigger the follow-on clause and felt that any future order would have to be subject to Europe-wide competition. If that happened, even if ABB were to win the contract, the York works would have closed before retendering was concluded.

The British Railways Board says that the reason for delaying is that there is no business case for ordering more stock at present, but that is not the view of Richard Fearn, director of South East Trains--the part of British Rail

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which operates the service. In a letter last December to the hon. Member for Beckenham (Mr. Merchant), who was in his place a moment ago, Mr. Fearn said:

"I am currently working hard with colleagues in the Department of Transport to try to secure a much larger build so that we can fully replace our old trains on Kent Coast over the next two to three years."

The view that there was no business case for further stock was not shared either by the right hon. Member for Kettering last May, when he said at the York Rail Forum:

"There is a prima facie case for Kent coastal rolling stock." The Central Rail Users Consultative Committee says that the average passenger loading on Kent coast trains in the morning peak is 2.6 per cent. higher than that permitted on safety grounds and that the overloading factor almost doubled in the past year. The Capital Transport Campaign produced figures this morning showing that the overloading factor on some trains is as much as 27 per cent. above the maximum allowed, including both seated and standing passengers. No one claims that those ancient, overcrowded slum trains are fit for the purpose of carrying Kent coast passengers. They are history on wheels. In reply to a written question published in Hansard today, the Minister for Railways and Roads informed me that 424 out of 792 carriages on the Kent coast line date from 1959. Those carriages have been in continuous service longer than all but three Members of the House. They are clapped out and should be chucked out--I refer of course to the carriages, not to the hon. Members. New trains would provide a better, cleaner, safer, quicker, more comfortable and more reliable service, and would divert traffic from road to rail. The introduction of new trains built at York on the Chiltern line increased the number of passengers by 40 per cent. immediately after they were introduced. If the Government are serious about shifting traffic from roads on to the railways on environmental grounds, the rolling stock replacement should go ahead.

Mr. Harry Barnes (Derbyshire, North-East): My hon. Friend made the point that the ABB situation applies to Derby as well as to York. At a time when investment is required, there is investment blight because the Government's privatisation plans mean that planned development cannot occur. My hon. Friend made a powerful point in respect of the provision that should be made for public transport. Derby is very much involved in the debate.

Mr. Bayley: My hon. Friend makes an important point. I am aware that he and others of my hon. Friends representing Derbyshire constituencies have been campaigning hard for orders to ensure a future for the Derby carriage works. The whole country needs an investment plan that will sustain its railway manufacturing base. New trains for the Kent coast lines would save fuel because their running costs are much lower; they would reduce maintenance costs and they would free space on Kent coast lines which is needed to provide access for Eurostar channel tunnel services until the new link is constructed.

There are also the safety considerations. The Hidden report into the Clapham junction crash stated that all slam-door carriages of 1950s vintage used by British Rail had to be either strengthened or scrapped by 1999: it did

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not state that they all had to remain in service until 1999, which seems to be the decision that the British Railways Board has taken.

Mr. Stanley Orme (Salford, East): I know that my hon. Friend is aware of early-day motion 404, which has been signed by 48 Members who are sponsored by the engineering union. I happen to be chairman of that union, the Amalgamated Engineering and Electrical Union. We are all concerned about the loss of manufacturing skills. The closure of the works would be a blow to York and to British industry generally. I hope that my hon. Friend will continue the campaign that he has led so magnificently. We must fight to achieve reversal of a policy that is based on privatisation and not on providing what is needed by the country.

Mr. Bayley: I am most grateful for my right hon. Friend's intervention and for the support that I have received from my hon. Friends on the Front and Back Benches. I know that my hon. Friend the Member for Glanford and Scunthorpe (Mr. Morley) has been lobbying hard, and there are suppliers to the York works in his constituency.

Mr. Elliot Morley (Glanford and Scunthorpe): Will my hon. Friend give way?

Mr. Bayley: In view of the time, I must say no to my hon. Friend. I thank him, however, for the support that he has given. Indeed, there has been support from hon. Members on both sides of the House. The hon. Member for Ryedale (Mr. Greenway) has supported the campaign. I know that hon. Members representing Kent constituencies have done so as well. There has been support throughout the country. I have received dozens of letters from people expressing concern about the threat to the York works. I have also had support from the EU's new Commissioner with responsibility for transport, who has taken a close interest in what has been happening.

I am not trying to score a party political point. Common sense says that the works should be saved, as does public opinion. Successive Conservative Ministers have said that the full fleet of Kent coast trains would be replaced and the present Minister has spoken to me on many occasions in the past two weeks since British Rail made its unfortunate announcement. Given the commitment of previous Transport Ministers, both to rail manufacturing and to maintaining that base, and to providing replacement carriages for Kent coast passengers, what will the present Minister do to ensure that a follow-on order is placed with the York works before the deadline, which is only eight weeks away? If no order is placed in the next eight weeks, the works will close.

1.12 pm

Sir Roger Moate (Faversham): I congratulate the hon. Member for York (Mr. Bayley) on securing this debate at such a crucial time and on the campaign that he has fought, together with my hon. Friend the Member for Ryedale (Mr. Greenway), whom he generously mentioned, to save the York works. I thank the hon. Gentleman for allowing me a few minutes to speak on behalf of the population of Kent and of all Members representing Kent constituencies, who make common cause with him on the campaign to secure an early order so that there can be a continuation of the Networker express construction programme.

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I agree with the hon. Gentleman that this is not a party issue. It is common sense that we want to keep the production lines open at York. It is common sense also that we should not be deterred from placing an order for new rolling stock merely because, even by British Rail's admission, there is a time problem of a year or two. I endorse all that the hon. Gentleman has said about the need for new rolling stock in Kent. In case there is any

misunderstanding--there should not be--I emphasise that 16 new four-car units will be delivered for the north Kent service this year. They are coming ahead of schedule. There will be high-profile new trains on the network in the autumn timetable. They are just a start. They will whet the appetite of all Kent commuters, who will want more new trains. The 16 were always seen as just a start.

To be fair, there was not a firm contract arranged for the follow-on order. There was a clear understanding, however, that we were at the beginning of a continuous process to replace the Kent rolling stock. I pay credit to Network SouthEast. In good faith, it has always expected that there would be a follow-on order. It came as a surprise to us, therefore, when we heard that British Rail felt that it could not continue the negotiations.

Kent Members had a meeting with the chief executive of British Rail. It is on record that he said that the door is still open for negotiation, and we would all be shocked if earnest and serious negotiations did not follow to ensure that a way is found of placing the follow-on order for much-needed rolling stock. The existing rolling stock will be time-life expired in the next three to four years. It would be stupid indeed not to place a new order now, merely for the sake of a dispute about perhaps a couple of years, at the end of which the present rolling stock will be even less safe than it is now. It will be clapped out and breaking down.

We also need new rolling stock for jobs in Kent. It is needed as much in Kent as the York works needs to build it. Kent is happy to make common cause. Now it is for British Rail seriously to put together a business case to submit to the Minister. I should be extremely disappointed if my hon. Friend were to say that a good business case put by ABB to British Rail and by British Rail to the Minister was not likely to receive endorsement. I think that it is the will of the House that we should get on with replacement and have first-class rolling stock in Kent and for rail passengers everywhere.

1.16 pm

The Minister for Railways and Roads (Mr. John Watts): I congratulate the hon. Member for York (Mr. Bayley) on securing a debate at such a civilised hour and on presenting his case in such a civilised and well reasoned way. I pay tribute to his efforts and to those of my hon. Friend the Member for Ryedale (Mr. Greenway) and my right hon. Friend the Member for Selby (Mr. Alison) on behalf of York and those of their constituents who are employed by ABB.

I acknowledge the crucial importance of railway employment in York. I congratulate ABB and its work force on the efficiency improvements that have been achieved at York and at other sites since privatisation, with the benefit of the substantial investment to which the hon. Gentleman referred.

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Given the age profile of the rolling stock fleet and the long life span of the stock, orders are cyclical, as was exemplified by the substantial orders--they were still under construction-- for Networker trains to replace Kent inner suburban trains. It was inevitable that there would be a downturn in orders following that peak. The long-term replacement need is below the recent rate of new build.

Mr. Morley: I understand what the Minister says about the cyclical nature of orders, but the long-term investment and planning of companies such as ABB, for which my constituency is a major supplier, means that they find it difficult to switch on and off. It would be much better for rail commuters and manufacturing industry to have long-term orders.

Mr. Watts: Indeed. I recognise that it is desirable for us to have a vibrant railway manufacturing industry and, if it can be achieved, a less cyclical pattern of investment.

The downturn in commuting into London since the peak of 1989-90 has compounded the problem. In the late 1980s, it seemed that the Network SouthEast fleet would need to be expanded to meet growing demand. Instead, we have experienced a decline related to the recent recession. That has hit British Rail passenger revenue extremely hard. We expect to see some growth as recovery takes hold, but we cannot be certain when rail commuting will return to the peak of 1989.

British Rail's estimates of rolling stock requirements in the 1980s were made in good faith, as were any related comments made by my predecessors, my right hon. Friends the Members for Enfield, Southgate (Mr. Portillo) and for Kettering (Mr. Freeman). With hindsight, it is clear how commercial demand for new trains has changed since the 1980s.

The Government would welcome a further BR leasing deal following the current £150 million contract with ABB for Networker trains, subject to two points. First, there must be a commercial need for new rolling stock and a good business case for it. British Rail cannot scrap sound and serviceable trains prematurely. Those are matters of judgment. I have no intention of going further in commenting on the sound and serviceable nature of trains, because to do so would be inviting hon. Members, particularly my hon. Friends from Kent, to seek to lynch me or have me certified under the Mental Health Act 1983.

Mr. Jacques Arnold (Gravesham): Should not British Rail take into account what its passengers think about its carriages, and also the commercial consideration that, if passengers do not think much of its carriages and switch to the coaches which run from Kent to London every day, its revenues will suffer. British Rail should take that into consideration.

Mr. Watts: My hon. Friend is right. I am sure that one of the features of the privatised railway industry will be a much greater responsiveness to the needs of passengers.

Those must be matters of judgment for British Rail. The Government cannot generate that commercial need or second-guess BR's judgment, although my right hon. and hon. Friends are free to do so. Secondly, the financial terms offered by the private sector for financing the acquisition of trains must be acceptable as a long-term lease. Transfer of risk is

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paramount here. A "genuine and substantial" proportion of risk must be taken by the lessor. It is not possible to lay down mechanistic rules, because of the complexity and subjectivity of the issue, but residual value risk is considered to be pre-eminent.

The previous £150 million leasing deal did not satisfy private finance initiative guidelines, but was approved exceptionally as a step towards developing a rolling stock leasing industry. Any subsequent deal will need to go much further on risk transfer. The industry has always been fully aware of that position and the Department is ready to do whatever it can to clarify the PFI rules and to assist in configuring the deal, for which there is a good business case to fit within those rules. I have given that undertaking on many occasions, both in the House and in discussions outside.

The Government are committed to privatising the rolling stock leasing companies during the course of this year, but at present it is British Rail's responsibility, as owner both of the RoSCos and of the operating companies, to assess the business requirements for new trains. There is therefore no question, as the hon. Member for Derbyshire, North-East (Mr. Barnes) suggested, of privatisation being responsible for the present position on orders. Uncertainty is not a factor. If there is a good commercial case and acceptable leasing terms, I am sure that the legal structure of ownership need not be an obstacle.

In making that assessment, BR looks at such factors as the capital cost of the trains, the projected cost of maintenance and any revenue to be gained from greater speed or reliability--points to which some of my hon. Friends have referred. It also looks carefully at the comparative cost of maintaining existing units. This is not a theoretical exercise, but one based on detailed experience of the condition and current repair cycles of components.

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