House of Commons Hansard Debates for 11 Jul 1995

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the figure has fallen way down and is more in the region of £1.5 billion--even before the declaration of principle from the Labour party, which I hope and expect this afternoon.

If Railtrack is privatised before the next election, we would support any steps necessary to re-acquire a majority holding at the issue price or the market price, whichever was the less, so there would be no profit to anyone who invests on that risk basis. If the sell-off is postponed, as it is likely to be, there is no cost. The cost to the nation and the Government is nil. That is why it is so important to make that statement now.

The repurchase can be spread over a number of years by means of a bond so that it would not suddenly be a blip in the public sector borrowing requirement over the first year or two of the lifetime of a Parliament. It will then be open to the Government--generally, nationally, regionally and locally--to determine access charges and investment priorities in furtherance of other priorities. I hope that the Labour party's position will be clarified by today's debate and we are glad to give Labour Members the opportunity to do so. The Labour party's current plans are confused, confusing, and certainly counter-productive to achieving progress. We know that the Labour party faces dissention from among the ranks of its traditional supporters in the unions. A few days ago the RMT president said:

"The Labour Party should understand and commit themselves in government to a railway, publicly owned, publicly accountable and run in the public interest.

Proper forward planning and an expansionist budget would "achieve the fully integrated transport system this country needs."

However, the Labour party's transport policy has yet to be hammered out. As "Rail Privatisation News" recently reported:

"When Rail Privatisation News suggested to Party insiders that a commitment to keep Railtrack in the public sector would be both electorally popular and appease the Party's left wing membership, the response was that `these things are settled in the Leader's office'".

The hon. Member for Bolsover (Mr. Skinner) is listening intently--I hope that he is taking due note as he may need to make

representations.

Mr. Skinner: As I was earlier trying to explain to the hon. Member for North Cornwall (Mr. Tyler), who speaks for the Liberal Democrats, the Labour party has a long tradition of being in favour of public ownership of the railways. When we get back into power, we shall take back the railways. If it was left to me, I should take them back without compensation, and would not give a penny piece of compensation.

Mr. Tyler: I see that the hon. Member for Oldham, West, who is listening intently to the rebellion in his ranks, is amused by that statement.

I believe that this afternoon, by endorsing our guarantee to the travelling public to retain Railtrack as a public service, the Labour party could give one signal and, by so doing, avert the derailment. I know that other hon. Members wish to contribute, so I shall be brief. In conclusion, let us heed the words of John Welsby, the chairman and chief executive of British Rail, who, last week, in his statement at the front of the annual report, said:

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"investment in the existing railway is not at a satisfactory level, and will not sustain the industry in the long term."

We should mark his words. He continued:

"It is important that fragmentation is not allowed to become an obstacle to worthwhile investment".

I submit to the House that they are wise words from the people who carry real responsibility for the rail system in this country. I hope that hon. Members on both sides of the House will support us and them tonight.

4.14 pm

The Minister for Railways and Roads (Mr. John Watts): I beg to move, to leave out from "House" to the end of the Question and to add instead thereof:

`believes that privatisation offers the best opportunity for reversing the historic decline suffered by the railway system under nationalisation; and further believes that the privatisation of Railtrack offers the best future for Railtrack, and for passengers and freight users, by making greater use of private sector skills in managing the network and in providing greater scope for private capital investment in the upgrading of the railway system.'. It is interesting to watch the Labour Front Bench gradually fill up as the debate develops. That is obviously occurring because of the severe challenge to the Labour party's position from the Liberal Benches. If I were the right hon. Member for Sedgefield (Mr. Blair), I would be shaking in my shoes in view of the skilful way in which the Liberal party's stance has changed. While the right hon. Member has been learning Tory phrases, pretending to adopt Tory values and borrowing--I could say "stealing", but that would have no place in the modern Labour party--our clothes, he is being outflanked on the left by the Liberals.

It used to be said that the centre ground was the battlefield of British politics. But as the Labour party has grabbed at our coat tails and tried to scuttle to the right, the Liberals have occupied the vacant turf to the left. The Liberal Party is now the only party that is prepared to stand up for nationalisation. Perhaps it is merely paving the way for even closer union between the Labour and Liberal parties, or perhaps it is simply nostalgia for the halcyon days of the Lib-Lab pact--I leave it to hon. Members to judge. The motion moved by the hon. Member for Cornwall, North (Mr. Tyler) refers to

"the privatisation threat on investment in the rail network". Let us examine the facts, as we have done in the past. During the period in office of the last Labour Government--who were sustained in office by the votes of the Liberals--investment in the railway averaged £924 million per year in current prices. In a comparable four-year period from 1990-91 to 1993- 94, investment averaged £1,350 million--no less than 46 per cent. higher than under the investment policies supported by the Liberals when they last had an opportunity to contribute to sustaining a Government in office.

Mr. Michael Meacher (Oldham, West) rose --

Mr. Watts: I shall give way to the hon. Gentleman, although I know what he will say.

Mr. Meacher: I am glad that the hon. Gentleman knows what I intend to say. In looking at the record of recent years, he ended significantly at 1993-94. Would he like to give the House the figure for investment in the rail network--excluding the channel tunnel--in 1994-95?

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Will he confirm that that figure, at £617 million, is far and away the lowest investment figure in real terms since the war?

Mr. Watts: I am happy to confirm that, following the years to which I have referred, investment last year and in the current year continues at around £1 billion. I will not accept the hon. Gentleman's invitation to ignore the substantial investment in international rail services. Is he suggesting that they are not part of the rail network?

Mr. Jacques Arnold (Gravesham): As to investment by British Rail, and therefore by the Government, is my hon. Friend aware that the people of Kent are extremely grateful for the hundreds of millions of pounds that are spent on new Networker rolling stock--as my constituents who commute to London prove every day?

Mr. Watts: My hon. Friend makes a very strong point.

I will not be tempted by the hon. Member for Oldham, West (Mr. Meacher) to ignore the substantial investment in international rail services any more than any other business, in announcing its performance, would say, "We've invested X billion pounds, but let's forget about all of our investment in developing a new business. Let's forget about the £400 million spent on upgrading track to provide better freight services through the channel tunnel, which is allowing rail freight to compete with long-distance road haulage--for example, runs from Glasgow to Milan now take 36 hours by rail and 72 hours by road. Let's forget about all of the investment in our new business, and let's pretend that the old business is all that matters and that that is all we must contend with".

In his concluding remarks, the hon. Member for North Cornwall referred to the comment by the chairman of British Rail in his last annual report, that, in his opinion, the level of investment in the year on which he was reporting was insufficient to sustain the rail network. The hon. Gentleman will recognise that the chairman of British Rail was referring mainly to investment, which will remain the responsibility of Railtrack, but let us leave that on one side and consider the regime within the arrangements that we have established for the privatised railway to ensure that there is sufficient funding for the necessary investment to sustain the core network.

Mr. Tyler: Is the Minister somehow suggesting that investment in Railtrack's responsibilities is a lesser priority than investment in British Rail? If that is the case, it is in direct contradition to what Railtrack is saying, which is that it now has a major problem with the hiatus in investment in basic maintenance to ensure that speed and weight restrictions do not have to be imposed on services, and to maintain safety standards.

Mr. Watts: No. On the contrary, Mr. Welsby and I agree with the hon. Gentleman that the major investment priorities for the railway are now in the infrastructure. That is why the regime approved by the regulator provides for access charges to provide funding for Railtrack's investments to run at around £600 million a year--the level judged necessary to maintain the existing core network. If the hon. Gentleman were to discuss Mr. Welsby's comment with him, he would not suggest that British Rail needs more funding for investment. Indeed, he has told us on many occasions that there is currently no business case

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for further investment by British Rail in rolling stock, and that the need for investment is in the infrastructure. That is where the major part of the investment is going.

Mr. Hugh Bayley (York): The manager of the Network SouthEast service that would have got the York trains, had they been ordered, argued strongly with the British Rail Board that there was a business case for investment. The Prime Minister's motion says that privatisation will provide

"greater scope for . . . upgrading the railway system." If the Minister believes that to be true, will he explain how the nationalised railway has managed to invest £800 million in electrifying the east coast main line, but the private sector has not been able to bring on stream the channel tunnel link?

Mr. Watts: First, I find it gratifying that, in the new atmosphere running through the rail industry, the directors of train operating companies strongly advocate the needs of their passengers. I am sure that, when passenger operating companies are in the private sector, that advocacy of the standard of service that they want to deliver to their passengers will be heard even more strongly.

Secondly, the hon. Gentleman picks up some points from misleading articles in the press today that the Member for Pendle (Mr. Prentice) sought to raise with Madam Speaker as a point of order. That speculation is totally without foundation. It is far from the case that the private sector will prove incapable of delivering the channel tunnel rail link, but the hon. Gentleman will have to wait for the competition currently under way to be brought to a conclusion. I accept that the hon. Gentleman will probably wish to be a doubting Thomas until I can show him proof.

Mr. Charles Kennedy (Ross, Cromarty and Skye): As the Minister is dealing with current issues, and particularly as the newly promoted Minister of State, Scottish Office, is on the Front Bench, will he explain the position vis-a-vis the new Secretary of State for Scotland?

In Edinburgh today, the Scottish Office has been briefing the press that the new Secretary of State is to call in John Ellis, director of ScotRail, in a fresh political intervention over the future of Scottish-Anglo sleeper links. Will the Minister confirm that the Secretary of State for Scotland has made that intervention? Is there a change of policy? What discussions, if any, have there been between the new teams under the Secretaries of State at the Department of Transport and the Scottish Office?

Mr. Watts: My right hon. Friend the new Secretary of State for Scotland has picked up on the close interest in the future of Scottish rail services shown by his predecessor, who is now President of the Board of Trade. I understand that my right hon. Friend the Secretary of State for Scotland is having discussions with ScotRail. I doubt that the hon. Gentleman is surprised, knowing my right hon. Friend.

I was referring to the regime of track access charges approved by the regulator, which will provide Railtrack with the funding necessary to invest about £600 million a year to sustain the quality of the existing network. In the current year, Railtrack expects to invest more than £700 million--an increase of one fifth over its expenditure in

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the past year. The hon. Member for North Cornwall mentioned the west coast main line. This Friday, Railtrack intends to invite tenders for the development of a new state-of-the-art signalling system that is the key to the £900 million project to upgrade the west coast main line.

I have been trying hard, but I have not yet detected where the so-called

"privatisation threat on investment in the rail network" is having an impact. If Railtrack were left as a nationalised industry, as the Liberals clearly want and as some members of the Labour party might want--and the hon. Member for Bolsover (Mr. Skinner) undoubtedly and definitely does want --Railtrack would continue to be subject to the constraints of public expenditure controls. It would have to compete year after year with bids from health, education, social services and so on. We all know that, whichever Government are in power, they never have a bottomless purse. If Governments act as if they do, that has a deleterious effect on our fellow citizens as taxpayers.

One main advantage of a privatised Railtrack is that it will be freed from those constraints, be free to make commercially driven investment decisions and have much wider access to private capital for investment in the upgrading of the railway system.

The hon. Member for North Cornwall expressed doubts about the structure that we have chosen, saying that the pattern was not well received or likely to be adopted in other countries. When I attended the recent European conference of Transport Ministers in Vienna, considerable interest was shown by our partners--to the extent that the Austrian Minister who hosted the conference invited me to give a paper on railways restructuring. It is clear that we are the market leader in setting the structure for a railway system for the 21st century.

The hon. Member for North Cornwall gave his party's views on the future of Railtrack. Our policy is crystal clear. Railtrack is to be sold by stock market flotation within the lifetime of this Parliament. The national railway network will remain as an integrated system, providing the train paths required by passenger and freight train operators.

The right hon. Member for Yeovil (Mr. Ashdown) started his assault on traditional Labour territory, in a recent speech in Perth.

Mr. Charles Kennedy: It was not that recent.

Mr. Watts: It was not that long ago. The right hon. Gentleman said:

"Unlike the Labour Party, the Liberal Democrats won't just criticise the Government for its plans".

There is the challenge for the hon. Member for Fife, Central (Mr. McLeish). He knows what he must say in his reply, because the hon. Member for North Cornwall told him. The right hon. Member for Yeovil continued:

"We will guarantee that, if privatisation goes ahead, we will put our rail infrastructure back under public control."

There were no empty, uncosted promises. He named his price. He is obviously a much more confident forecaster of the stock market than I would want to be. Although he did not use the word, he said that the cost of fulfilling that promise would be a snip:

"£200 million a year for five or six years."

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Mr. Kennedy: He did not say that.

Mr. Watts: He said £200 million a year. If the hon. Gentleman would like to read his leader's speech, I have it here. I accept that "snip" is my word, but I think that it indicates the right hon. Gentleman's attitude. He said that such action would cost £200 million a year for five or six years, and he went on to say: "Given that the government's total spending bill is £300,000 million a year, £200 million is perfectly affordable. Indeed, it is cheap".

There we have it.

Mr. Tyler: I do not think that the Minister heard my point. If Railtrack does not go into the private sector before the general election, does he concede that the price of buying it back would be nil?

Mr. Watts: In the unlikely event that the right hon. Member for Yeovil formed a Government, and we had privatised Railtrack--as we intend to--the Treasury would have received the money. The net cost in either event would be nil.

In the spirit of conciliation, I shall try to agree with the right hon. Gentleman on one point. He was right to say--I heard his hon. Friend the Member for North Cornwall repeat it--that the key to an integrated rail network is the track. Of course we are maintaining an integrated national system of track in our privatisation plans for Railtrack.

The right hon. Gentleman's reasoning is flawed because of his belief that it is necessary for the state to own the network. Why does he consider ownership such an essential ingredient in delivering integrated transport, whenever he might mean by that phrase? If ownership is the key, why does he stop at the track? Why does he not extend his principle to train operations? Indeed, in hearing the hon. Member for North Cornwall explaining how confusing he found it to be offered a choice of services at Gatwick, operated by five different companies, surely the logic of his argument is that he wants to nationalise train operators as well.

Mr. Kennedy: This is very interesting logic--let us pursue it. From the Government's point of view, if this is the direction in which one wants to go in this hypothetical argument, surely, if one is to privatise at all, one would want to privatise the track alongside the operators who will run the track, instead of splitting it up and making it an accountants' and lawyers' paradise, which is what we have turned it into.

Mr. Watts: I want to privatise the track; I want to keep it as a national system. I want to privatise operators who will run their services over the track and, in some instances, will be able to provide choice for passengers and freight customers, who will make use of their services.

Mr. Nigel Spearing (Newham, South): Will the Minister give way?

Mr. Watts: Not at the moment, but I might later.

The logic of the argument of the hon. Member for North Cornwall about the confusion that he found in having a choice of services at Gatwick and at Littleborough--I wonder what he was doing there--must be that he would want those services nationalised as well. Why stop there? If ownership and control is essential to the provision of an integrated transport system, whatever

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that means, do the British Airports Authority and British Airways need to be renationalised so that they can be integrated? Do buses and coaches need to be renationalised? What about the National Freight Corporation?

The logic of the arguments of the right hon. Member for Yeovil leads to the reincarnation of the British Transport Commission, and for every aspect of transport by land, sea and air to be owned and controlled by the state. Having been bold enough to adopt the orphaned policy of nationalisation, abandoned by its Labour family, why is the right hon. Gentleman shy of going the whole hog? This new commitment to state ownership and centralised control sits very uncomfortably alongside his other commitments to local

decision-making.

Mr. Tyler rose --

Mr. Spearing rose --

Mr. Watts: I shall give way first to the hon. Member for Newham, South (Mr. Spearing).

Mr. Spearing: Irrespective of ownership, does not the Minister's plan hinge on finance? If the rail service is to be as good--or bad--as it is now when it is under private operation, and if Railtrack is to be privatised with some notional return on capital, how will the financial surplus, or rather the deficit which is covered by the nation as a whole, be met? Will it be met entirely by the alleged efficiency of the operators and the alleged efficiency of Railtrack, which does not currently operate? How can the Minister square the financial matters, irrespective of ownership?

Mr. Watts: By continuing public subsidy to support socially necessary services, to which the Government have a strong attachment. But a new structure in which the parts of the railway industry that can operate on a proper commercial footing do so, and in which subsidy is targeted on securing services for passengers--replacing the miasma of cross-subsidy and lack of transparency--will ensure much better value for money for taxpayers.

Mr. Tyler: Will the Minister give way?

Mr. Watts: I will give way one last time; then I must finish my speech.

Mr. Tyler: I now understand better why the Minister's colleague in the Austrian Government is so fascinated by the intricacies that the Minister obviously enjoyed presenting to him.

Why does the Minister say that it is impossible for the infrastructure to be in public control as part of a public transport policy, and for different operators to be allowed to use it, when that is precisely what happens on the roads?

Mr. Watts: I do not say that it is impossible. Indeed, when I spoke in Vienna I said that I believed that substantial benefits could be gained from restructuring so that the functions were separated. We go further, however, believing that there are further efficiencies to be gained from transferring businesses to the private sector.

Nationalisation has not proved a conspicuously successful model for our railways. Over the last 45 years or so, Governments of all persuasions have poured money into British Rail--over £54 billion in current values. Despite all that, the railways have continued to decline.

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In 1953, 17 per cent. of journeys were made by train and 24 per cent. of goods were moved by rail. Today both figures are about 5 per cent., and they have been dropping.

Why is that? It is because state ownership, and thus state management, has failed the railways. The monolithic monopoly did nothing for the passenger; it did nothing for the freight customer; and it did nothing for the owners- -the taxpayers. Because of the structure, the old-style British Rail management was not in a position to be responsive to customers' needs. It had no incentives to improve performance. A giant unitary organisation cannot hope to supply services as well as a competitive private sector operating commercially.

Something had to be done. Someone had to be bold enough to grasp the nettle and create a new approach and a new framework for rail services in the United Kingdom. That is what we did with the Railways Act 1993. We did it for three reasons. First, we wanted to improve the quality of service to the customer. That comes first, because it must: it is the most important thing for everyone connected with the railway industry to remember. Secondly, we wanted to improve the efficiency of the railways. Thirdly, we wanted to halt and reverse the decline in the use of railways.

I cannot believe that more of the same--the failed structure and operation of nationalisation--is the preferred option among Opposition Members, especially given the example of the outstanding success of privatisation in other transport sectors. Let us compare privatised British Airways with loss-making nationalised continental flag carriers such as Air France; or let us consider BAA, which, in the private sector, invests on average three times as much each year as it did as a nationalised industry.

Privatisation will provide passengers with new guarantees that nationalisation has never delivered. Passenger service requirements will protect every station and every route on the network. Competitive bidding for franchises will ensure better value for taxpayers. Subsidy will be targeted more effectively. The fares regime announced by the franchising director will ensure that passengers share in the greater efficiency that privatisation will bring. Controls over key fares on every route will deliver fares 4 per cent. lower in real terms over seven years.

It is because of the outstanding achievements of privatisation in other transport sectors that we can be confident that rail privatisation will deliver for rail passengers what airline privatisation has already provided for airline passengers. That is why we have no fear of the future, and no nostalgia for the failed doctrine of state ownership and state control.

4.39 pm

Mr. Keith Hill (Streatham): Hope springs eternal, as they say, and it is evident from the somewhat unconvincing performance of the Minister of State that this is one privatisation too far. Despite the twists and turns of a Government increasingly desperate to proffer some crumbs of comfort to a sceptical public--most recently, for example, the highly misleading fare capping announcement and the so-called service guarantee, which is simply a myth--the public remain unpersuaded about the case for rail privatisation, and indeed deeply hostile to it.

Privatisation is undesired by rail passengers, and its structure--the separation of track, signalling and operations--has been condemned by virtually every

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railway professional at home and abroad. Its passage though Parliament was both time-consuming and profoundly contentious. The great rail sale has been greeted with almost total indifference by the private sector. Meanwhile, however, the uncertainty created by the privatisation has had a devastating affect on the rail manufacturing industry, and has placed a question mark over the 35, 000 jobs associated with that industry.

The Railway Industry Association, the representative body of railway equipment manufacturing companies, has pointed to significant shortfalls in the expected investment in both the track and signalling since the inception of Railtrack. There is still no prospect of the urgently overdue modernising of the west coast main line, which will require major new investment in both infrastructure and rolling stock. Rolling stock orders for the west coast main line are dependent--if the Government survive for that long--on the granting of a franchise for that line, and that is unlikely to occur until 1997 at the earliest.

The worst effects have been felt in the rolling stock manufacturing sector as a result of the uncertainty created by privatisation. As my hon. Friend the Member for York (Mr. Bayley) has pointed out, 1,800 jobs in York have been lost as a result of the hiatus in rolling stock orders. That is nearly 2,000 blighted lives and families as a direct result of rail privatisation.

Still, it is an ill wind that blows nobody any good, so let us not forget the real beneficiaries of privatisation. We have heard various estimates of the cost of rail privatisation, but let us go with the modest estimates of the Department of Transport. The Department now estimates that the cost of privatisation to date--for the work of legal experts, property and marketing consultants, accountants, tax specialists and merchant bankers-- amounts to a still colossal £240 million. Privatisation has been a gold mine for the Government's mates in the City of London. The City slickers have made a mint from the great rail sell-off, and that is a scandal which must not and will not be overlooked during the whole sorry saga of the railway privatisation.

In all likelihood, rail privatisation will cost us all as taxpayers an extra £500 million a year to run the same level of service--if we are lucky. In 1993-94, before the so-called restructuring of the railway finances, the cost of railway grants to the taxpayer were just over £1 billion. In 1994-1995, after the restructuring, the final outturn figure is £1,560 million.

By 1996-1997--on the basis of the Government's estimates of the likely spending of the rail franchising director and the projections of current costs and revenues of the railway--the total cost to the taxpayer of running the same level of services is likely to stand at £1. 7 billion per annum. If the Minister has any doubts whatsoever about these estimates, I suggest that he consults the trends set out in figures 16 and 17 of the Department's "Transport Report 1995". There will be an increase of at least £500 million in the cost to the taxpayer for a railway that will in all likelihood deliver the same level of services as before privatisation. It is difficult to see the benefit to the taxpayer or to the rail passenger of that massive growth in costs. What of the other proclaimed benefits of privatisation to the rail passenger?

Mr. Peter Luff (Worcester): I have considerable affection and some respect for the hon. Gentleman, and I

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may have missed him refer to this matter earlier on. He is talking about the potential benefits of privatisation to the passenger. I believe that I am right in saying that the hon. Gentleman is sponsored by the National Union of Rail, Maritime and Transport Workers. Could he be more concerned about the benefits to the members of that union?

Mr. Hill: I hardly think so. The members of that union perceive few benefits under the existing conditions on the railway, never mind in the future. I shall anticipate the hon. Gentleman, who may continue by attacking--as is traditional with Conservative Members--the strikes declared in the railway industry. I find those attacks only too typical.

Mr. Jacques Arnold: On a point of order, Madam Deputy Speaker. Is it in order that Members who address the House should declare their interests before speaking in a debate?

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