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Channel Tunnel Rail Link

3.31 pm

The Secretary of State for the Environment, Transport and the Regions (Mr. John Prescott): With permission, Madam Speaker, I wish to make a statement on the channel tunnel rail link. Mindful of your recent request, I shall keep my remarks as short as is possible for such a complicated subject of such importance to the House. To assist hon. Members, I will make arrangements for a memorandum to be placed in the Library.

In March 1996, the development agreement to build the channel tunnel rail link was awarded to London and Continental Railways, known as LCR. LCR also took control of the Eurostar service. Its plan was to commence construction in late 1997. The agreement provided for a taxpayer contribution worth £1.8 billion.

When I had the chance to examine the details of the deal put in place by the previous Government, I was appalled. They took the cheapest bid based on over-optimistic forecasts of Eurostar revenue, without even commissioning their own independent forecasts--a failing we have now put right.

The Government were seriously exposed because of the small financial commitment made by the private sector. Furthermore, as a consequence of the previous Government's intention to conceal public subsidy of the channel tunnel financing, Eurostar was hampered by the requirement to pay Eurotunnel for train paths that it was not using. Even this week I was asked to find £100 million to pay for specially designed sleeper trains which do not work, have never been used, and are now lying idle in a field.

The kindest thing that I can say about this whole agreement is that it was flawed from the start. In January of this year, it almost collapsed; the company could not fulfil its contract. At that point, I was faced with a clear choice. I could have abandoned the present contract with LCR and invited new tenders--but that would have meant two years or more of delay, with all the blight and uncertainty that that would have caused. The equivalent of two thirds of the grant would have been spent on Eurostar's debts and continuing losses, with nothing to show for it. Eurostar is losing £150 million a year. If we multiply that by four or five years compensation, it is clear that I would have had to pay an amount almost equivalent to the grant for the project, but would have got nothing in return. Alternatively, I could ask the company to reconsider the financing of the project and come forward with proposals to meet all its original obligations. That was the path I chose.

I explained that LCR had requested an additional £1.2 billion of taxpayers' money, on top of the £1.8 billion already committed. That was unacceptable. I gave LCR one month to come up with new proposals, and subsequently extended that period ultimately to this week. At the end of March, LCR made an improved proposal, but still failed to meet the Government's requirements.

I am aware of the importance that hon. Members on both sides of the House attach to this project, which was approved by the House. I have always believed that Britain should have a high-speed passenger and freight link to Europe that is the equal of those on the other side of the channel. This an important project, comparable to

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any that the Government are promoting. It is a key part of our integrated transport policy, and a national asset that will bring benefits not just to the south-east, but to all parts of Britain.

All parties supported the Channel Tunnel Rail Link Act 1996, which was unopposed on its Second and Third Readings. The project offers immense economic, transport, and environmental benefits, and improved speed, reliability and capacity for international and domestic services for passengers and freight. It will also play a major part in regenerating north Kent and the east Thames corridor, including Stratford and King's Cross. The Government want to see this project proceed, but, as I have made clear, not at any price.

My firm view was that LCR could carry on only if it were able to deliver the whole project from the tunnel to St. Pancras according to the contract. I made it clear that the Government also required a further reduction in the proposed additional cost to the taxpayer; a robust financing plan based on realistic forecasts for Eurostar; a balance of incentives that would ensure construction of the whole rail link; and increased risk transfer to the private sector.

For the past four months we have been involved in intensive negotiations, and I can inform the House of their outcome. The call on public finances represents good value for the taxpayer. There is a robust financing plan, which is based on a proper assessment of future Eurostar revenue. Incentives to complete the whole link are in place, and the private sector will take a greater share of risk. In short, there will be a high-speed channel tunnel rail link.

Today, I signed with LCR and Railtrack a statement of principles which meets all our requirements and which fulfils the contract agreed by the previous Secretary of State, the right hon. Member for North-West Hampshire (Sir G. Young), who I see is in his place. Under this public-private partnership, LCR has been strengthened. A new management team is in place, and LCR has agreed to raise more equity to support the project. Railtrack has agreed to take a key role in building the link. It will manage construction for the railway to north Kent, and will commit to purchase it upon completion. Railtrack will have an option to build and buy the remainder of the link.

LCR has secured a strong partner to operate Eurostar. Two very strong bids were considered--one from Virgin, the other from a consortium comprising British Airways, National Express and the national railways of France and Belgium. LCR today agreed to award the contract to the consortium. LCR has an obligation to build the entire 68 miles of railway from the channel tunnel to St. Pancras in London, via Ebbsfleet and Stratford, in accordance with the 1996 Act endorsed by the House.

The link will be built to the same route, the same specification and the same high standards as before. There will be the same environmental and heritage safeguards, and the undertakings and assurances given during the passage of the 1996 Act remain.

Construction will begin towards the end of this year. The stretch from the channel tunnel to the turn-off in Kent to Waterloo is due to be completed by 2003, and services from Waterloo will then benefit from the new high-speed line. Construction beyond that point is expected to commence in 2001, with the line through Ebbsfleet and Stratford to St. Pancras finished by 2007. That will

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include the proposed new Thameslink station at St. Pancras. The Eurostar consortium will operate trains from Waterloo to Paris and Brussels, and, in due course, services from St. Pancras. There will be no change of route under this agreement; it will be exactly as in the Channel Tunnel Rail Link Act.

I realise that many hon. Members want an early start to regional services. I can assure the House that LCR remains under an obligation to provide the infrastructure for regional Eurostar services. The trains for those services are currently lying idle. I have therefore asked the consortium to review urgently the feasibility of such services, and to put proposals to me before the end of the year. I shall inform the House of the outcome of that review in due course.

I know that the consortium has a vision of Heathrow as a gateway to Europe for services from across the country. The consortium proposes to establish, from as early as 2001, a service from Heathrow airport to Paris. Heathrow is the world's busiest international airport. It is already one of Britain's biggest bus stations; it is connected to the largest underground network in the world; and the Heathrow Express provides the fastest connection from any airport to a central urban area. That new service should, in time, establish Heathrow airport as an integrated transport interchange of international importance, connecting long-haul air services directly to the European high-speed rail network. It will be beneficial to the growth in passengers using the high-speed train.

I have always made it clear that the Government required a significant degree of risk transfer to the private sector, and this deal achieves that. If construction costs overrun, Railtrack will carry the full cost. If Eurostar revenues are less than forecast, Railtrack and the consortium will share the burden along with the Government. I have made it clear that there must be a strong incentive to complete the whole link from the tunnel to St. Pancras, and this deal achieves that. The Act requires the whole link to be built; the contract obliges LCR to build the entire link.

I have always made it clear that the Government required a fair deal for the taxpayer, consistent with the Government's existing obligations under the contract, and this deal most certainly achieves that. The basic grant remains at £1.8 billion. There will be no requirement for additional Government support before 2010. Moreover, following intensive negotiations, the extent of the Government's additional contribution will not be the £1.2 billion requested in January, nor the £700 million about which hon. Members may have read in the press this week. It will be £140 million. After 2020, our share in the benefits will probably more than compensate for the extra money that we are asked to provide in 2010.

All the parties have contributed to that improvement: LCR, Railtrack, the consortium and the Government. Recognising the unique features of the project and our commitment to strengthen international rail transport links, we have agreed that the Government's credit will stand behind £3.7 billion of bonds issued by LCR privately in the City to fund the project. [Hon. Members: "Who will pay?"] Hang on. That debt will be repaid out of the proceeds of the sale of the completed link. The risk of the Government incurring liability under the guarantees is therefore remote. The Government will support the financing package, which will allow this project to proceed now and at the minimum financing cost. It is a

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unique financing deal, and I should like to express my appreciation to the Chancellor and the Treasury for having arrived at that agreement. The alternative would have been considerable delay and increased costs.

The Government do not intend to offer taxpayers' support without asking for something in return--unlike the previous Administration.

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