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10.52 am
The Economic Secretary to the Treasury (Ms Patricia Hewitt): I congratulate the hon. Member for Louth and Horncastle (Sir P. Tapsell) on securing the debate and on his fascinating and wide-ranging speech, which, as the hon. Member for Grantham and Stamford (Mr. Davies) said, again displayed his skills and knowledge as a historian. I also congratulate the hon. Member for Grantham and Stamford on his promotion to the Front Bench. We heard in yesterday's Finance Bill Committee that we were to lose two of the Front-Bench team from the Opposition. We welcome him and his colleagues to their new places.
In this extremely interesting debate, we have heard the two traditions, if you like, of attitudes towards gold. We have heard from the hon. Member for Louth and Horncastle of the mystical significance of gold--I was waiting for that word to appear and he did not disappoint me. During the sensible contributions of the hon. Members for Kingston and Surbiton (Mr. Davey) and for Chichester (Mr. Tyrie), we heard of the alternative view that was taken by Keynes in the 1930s--of gold as a "barbarous relic".
I regret only that I have been left so little time to respond to the multiple points that have been raised, but I dismiss first the wilder rumours to which the hon. Members for Louth and Horncastle and for Grantham and Stamford both referred. They are nonsense. It is important that we do not in the House take at face value such absurd rumours, which occasionally float around the markets. We should be careful not to give currency to such rumours by remarks in the House that may verge on the irresponsible.
Several Members have asked why the Government have decided to restructure the reserves and to reduce our holdings in gold. The answer is simple. We have reviewed the nature of our portfolio--the assets that we hold in the reserves. We believe that the size of the holdings and their spread across currencies and gold should be determined by the balance of the risk and reward that is offered by gold, and how that compares with the other assets that are held in the reserves.
As some hon. Members have pointed out, gold has been a very poor investment over the past 20 years. The gold price in June 1979 was $280 dollars an ounce. It is little changed on that today, although it shot up to an unsustainable peak of some $800 an ounce in 1980. By contrast, other investments have offered capital gains, or reinvestment of substantial interest earnings over that period. What we are looking for in the restructuring of the reserves is a sensible diversification of the assets.
We are not saying that gold will continue to be a poor investment. As the hon. Member for Chichester said, none of us knows, but we would not be planning to retain a significant proportion of the reserves in gold if we believed that it had no place as a store of value.However, what has happened to the real value of gold should caution the House against some of the more exaggerated claims in its favour.
We continue to believe that gold is a valuable asset and that it performs an important role in countries' reserve assets, but it has to justify its share in terms of its contribution to the overall balance of risks in our reserves portfolio. A key objective in that portfolio's management is to minimise the risk to the taxpayer of fluctuations in the value of the reserves. Financing a large part of the reserves through borrowing in foreign currency largely eliminates that currency risk, as the hon. Member for Grantham and Stamford has acknowledged, but considerable risk is borne on the remaining net foreign currency and gold reserves, totalling the equivalent of $14 billion.
The hon. Member for Louth and Horncastle asked why we use that measure of net reserves. Perhaps I may draw his attention to the advice of the International Monetary Fund that countries should disclose not only their gross reserves, but their currency liabilities, so that a proper judgment can be arrived at of net reserves.
Almost half of this country's net reserves have been held in the form of gold. Without taking a view on the prospects for gold, that is a very big exposure to a single asset. Reducing our gold holdings from 715 tonnes to some 300 tonnes over a number of years will gradually bring gold's share of the net reserves down to about a fifth. We believe that that will achieve a better balance in the portfolio.
We will have a better diversified portfolio. We will not be as concentrated in gold as in the past. At the moment, we are twice as exposed to movements in the gold price as to movements in the value of the dollar. Therefore, it is a simple portfolio decision, designed to reduce the risk borne by the British taxpayer.
The hon. Members for Louth and Horncastle and for Grantham and Stamford raised the question, as did other hon. Members, of the timing. The decision to sell now was not motivated by any view that the gold price was about to fall further, or by any of the wilder fantasies that have been suggested. The decision follows a careful review of the role for gold in the UK's reserves. As I have said, it is about portfolio restructuring, not about playing the market, which the hon. Member for Grantham and Stamford seems to want us to do.
Of course we considered various routes for selling the gold before we decided that an auction programme offered advantages of transparency, spreading sales out over a lengthy period. If we had sold outside an auction process, we risked uncertainty over the timing of sales and much greater undermining of the gold price. If we had gone for covert sales on that scale, it is extremely likely that the sales would have been possible only at a discount to the market price. The House would rightly have been critical of such a course.
The gold market has become increasingly sensitised to central bank sales in recent years, of which, as some hon. Members have reminded us, there have been many throughout the world. There would have been a real danger that the market would have realised that a major central bank was selling and would have over-reacted to the volumes actually sold. As the Governor of the Bank of England has indicated, even with the orderly and transparent procedure that we have adopted, the market reaction has been somewhat overdone.
The Financial Times said there were three questions to ask about the--
Mr. Deputy Speaker (Mr. Michael J. Martin):
Order. We now come to the next debate.
Mr. Jim Fitzpatrick (Poplar and Canning Town):
In opening this debate, I do not think that it is at all inappropriate to seek your indulgence, Mr. Deputy Speaker, simply to mention that this is national bike week, and that today is national cycle to work day, which is strongly supported by the Department of the Environment, Transport and the Regions. This morning, I personally participated in the events, by cycling from Barking to Westminster, via Tower Hamlets and Covent Garden.
I am sure that the House will wish to congratulate everyone involved in supporting those events, including the all-party cycling group and the British Heart Foundation, which--wholly appropriately, Labour Members may think--was giving out red roses. I should also like to thank the Minister for Transport in London for her personal support for cycling and cyclists. Her support is very much appreciate by those who are involved in cycling.
Yesterday, in his statement, the Deputy Prime Minister best summed up the essence of this debate when he described a "joined-up London". That is exactly what is required.
I shall briefly deal with only three matters--as I know that several colleagues also wish to speak--the first of which is the definition of integration. Secondly, I shall give some examples of good practice in my own constituency and in east London generally. Thirdly, and most importantly, I shall describe the creation of a London orbital line, which would link the East London line, the South London line, the West London line and the North London line.
Integration is not only about theoretical connections or construction projects. Although those are important, integration also encompasses many other matters, such as accessibility generally, and the ability of people with disabilities to access the transport system. Integration is also about ensuring that connecting modes, such as the bus network--which is much maligned, but does an excellent job--feed adequately into the underground system, the rail network and the docklands light railway. It is also about signage--including the language used--in transport hubs and connecting stations, so that individuals feel comfortable with where they are and where they are going.
One of the most advantageous aspects of the London underground is that even tourists seem to be sufficiently comfortable with how the system operates to be able to arrive at a station, look at a map, enter the underground and arrive at a completely different part of London. Maps are therefore very important. I commend DLR for producing integrated maps showing transport modes other than DLR--a model which is being copied by other operators, and can only improve transport in London.
Security in the transport system, too, is very important, and is achieved not only by closed-circuit television but by ensuring that stations and other venues are staffed.
The debate is about user-friendly transport--which includes indicator boards notifying passengers when the next bus or tube will arrive--so that we have not only theoretical integration, but physical and even emotional integration, allowing people to feel comfortable and
confident in using public transport. Everyone involved in the issue is promoting that type of integration, and much progress is being made in achieving it.
I should like to echo the comments made yesterday by the Deputy Prime Minister in paying tribute to all of London Transport's staff. In the majority of their activities, despite many problems, they are very efficient, helpful and courteous. I am sure that many hon. Members have seen many more rude passengers than rude staff members, who provide an excellent service.
In Poplar and Canning Town, unlike in some parts of London, we are well served by transport links. In my constituency, we have the docklands light railway, the Jubilee line extension, London City airport, a variety of bus routes, the District and Central tube lines and the London-Tilbury-Southend line. We are also right next door to the channel tunnel rail link, which will be in Stratford.
My constituency also has many good examples of integration, such as at Limehouse station and the newly reconstructed West Ham station, and especially at Canning Town--which has a state-of-the-art station to interface the bus network, the Jubilee line extension, Silverlink and DLR. The Canning Town station is clean, safe and efficient. Consequently, it is becoming ever more popular.
Public transport in east London generally is becoming busier, as it carries ever more passengers. DLR, for example, previously carried about 20 million passengers annually, but is now carrying 28 million passengers a year. Although passenger numbers will be reduced significantly when the Jubilee line extension opens--from 29 million passengers annually to 21 million--they will rise to 40 million when the Lewisham extension opens. The Government office for London and the Department of the Environment, Transport and the Regions are considering provision of extra DLR trains to deal with those increased numbers.
It has been well argued that east London will be the engine for this great capital city, to drive us into the next millennium. East London's transport infrastructure will be critical in ensuring that east London is successful in playing that role, and the London orbital should be one of the main aspects of that infrastructure.
The purpose of the London orbital is to link the East London, South London, West London and North London lines into a circular line. The South London line is run by Connex, the West London and North London lines by Silverlink, and the East London line--which has recently re-opened after a three year refit, and has some new connections, particularly at Canada Water--by London Underground.
The problem to date, however, has been that the lines do not quite link up. There is a missing link between Dalston and Whitechapel, where there is a disused railway viaduct, and another missing link between Surrey Quays and Queens Road station, in Peckham.
London Underground has proposed two schemes to join up those missing links. The first is a northern extension, which London Underground Ltd. authorised to proceed in 1997, but needs additional funding. The second is a southern link, on which, last year, the Deputy Prime Minister authorised preparatory work, and on which a decision will be taken this summer.
The two schemes would cost only £150 million. Moreover, when the links are built, London Underground could run a line from Highbury, down the East London line to Peckham, and then--on Connex lines--on to Clapham Junction, Wimbledon or Croydon. Although Wimbledon or Croydon are currently the preferred options, after working for 13 years as a firefighter at Battersea fire station, I prefer the Clapham Junction option. However, I do not think that that argument will sway LUL.
Completion of the links would make it possible to run trains right round an orbital route at no extra cost. I believe that that should happen, and much of the Deputy Prime Minister's statement yesterday seemed to be advocating such a course.
The main benefits of such an approach are that the initial stage could be under construction within the lifetime of this Parliament, and the links would reach parts of London that currently are not on the tube, such as Peckham, Battersea and Hackney. Such an approach would be an important step towards integrating tube and rail networks; improve the accessibility of regeneration areas, such as the docklands; and create new cross-London railways at one twentieth the cost of a new tube line.
The orbital would also give through-London passengers an alternative to going via the centre, improve radial journeys, and put more of south London--which currently has 40 per cent. of London's population, but only 11 per cent. of stations--on the tube map. I am not sure what south London ever did to offend the powers that be who originally designed the tube network.
Thus, at no great expense, an orbital network could be devised for London, because most of the lines needed for such a network are already in place. One can travel from Clapham Junction to Willesden Junction and on into the east end via Highbury and Islington and the North London lines with only one change. The East London line, which reopened in March last year, currently runs between New Cross and New Cross Gate. London Underground is currently looking into the pros and cons of extending that line north from Shoreditch, via Bishopsgate, to connect with Dalston. In a reply to a written question tabled in July last year, the Government stated that they were considering how best to take that project forward. The scheme, whose estimated cost is only £150 million, is relatively inexpensive because it uses much existing infrastructure. Yesterday's statement by my right hon. Friend the Deputy Prime Minister clearly moves that agenda forward, which is welcome.
In respect of the southern extension, London Underground appears to have two favoured alignments: New Cross Gate to East Croydon or West Croydon, or from Surrey Quays on to South London rail lines, but with services to Wimbledon via Streatham and Tulse Hill. The Surrey Quays link would make use of largely disused land to connect with existing rail lines north of Queen's road, Peckham.
London Transport, Railtrack and the Association of Train Operating Companies attended a conference last year to discuss ways in which the organisations could work more closely together. The objective was to improve integration, and I understand that my hon. Friend the
Minister for Transport in London attended. As a result, four different working groups were set up to consider different aspects of integration. The first is physical integration, and LT has appointed a project manager to ensure that action is taken quickly on matters such as joint maps and a combined timetable. There are working parties on fares and ticketing to improve links; on public affairs issues; and on long-term schemes and strategies, in a joint arrangement with ATOC. The long-term working group is considering the bigger issues, preparing briefing documents for the new mayor and assembly next year, and working toward a common stance.
On the orbital network, LT would argue that, in world-city terms, there might be a role for enhancing the network, but it will obviously depend on the mayor's strategy. In addition, there is the question of funding. The Government have stated that, if road pricing is to be acceptable, the money derived from it must be used to fund public transport, such as bus priorities, road calming measures or pedestrianisation. However, revenue derived from car travel could usefully be used for schemes such as the extension of the East London line, which would be relatively inexpensive. The extended line would naturally form part of an inner orbital network. It is possible that the mayor might be encouraged to form an orbital network if it conforms with his or her other policies and priorities.
The orbital might come about naturally: as other schemes came to fruition, they would simply need to be linked up--for example, the Croydon tramlink already covers one quarter of the outer orbital network. Yesterday, the Deputy Prime Minister spoke of "joined-up London", and referred to the London link plan connecting the five airports with the channel tunnel rail link. He mentioned expanding the network from its current form by adding the Jubilee line extension, the docklands light railway extensions, the Croydon tram and the Thames water taxis. I believe that London's transport network is doing an excellent job in the circumstances, but it could do much better.
11 am
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