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Lord Clark of Kempston: My Lords, does my noble friend agree that the good economic figures that were announced yesterday--that is to say, the reduction in the basic rate and in unemployment--augur well for the future? Does he further agree that it augurs well for the future in that the PSBR will go down?

Lord Mackay of Ardbrecknish: My Lords, my noble friend is right. The PSBR is but one of a number of figures that measure the health of our economy. Other figures which do that are the inflation figures, which are showing a continuing downward trend, as my noble friend said, and the interest rate reduction announced yesterday. That will be warmly welcomed by business, commerce, housing and everyone else; except, perhaps, the party opposite.

Lord Peston: My Lords, I believe that we all know the elementary arithmetic. The error in the difference of two large figures is itself very large relative to the difference. That is the correct way of putting it! But the fact remains that the Government ask us to take these figures seriously. The difficulty, particularly having listened to the reply to my noble friend, is this: do the Government want us to take the figures seriously or not? They can either say that the difference is subject to enormous error, so forget about it, or they can say that the PSBR actually matters. I thought they took the view that it did. Does the Minister agree, therefore, that it then follows that if the PSBR turns out to be larger than projected, which it has, one cannot wriggle around and say that that is due to the errors? Does the Minister further agree that it is due either to a serious mis-forecast or a failure of policy?

Lord Mackay of Ardbrecknish: My Lords, I am grateful to the noble Lord for so eloquently putting what

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I was trying to say at the beginning of his question. He makes the point in answer to his own question, because the PSBR is important. But one can only judge it within the margins of error that operate for those figures. Perhaps I may just remind him of what his noble friend Lord Barnett said in his interesting book, Inside the Treasury. He began Chapter 12, headed "'Fiddling' the Figures", with these words:

    "In retrospect it will surely be seen that what baffled and dominated the life of the 1974-79 Labour Government was what I called 'four damned letters'--the PSBR".

Lord Boardman: My Lords, as a major contributor to the PSBR and those two very large figures--public expenditure and gross domestic product; which are now at 42 per cent. this year and will be down to under 40 per cent. in two years time--is it not perhaps somewhat bizarre, if I may use that term, that the noble Lord, Lord Barnett, raises this Question because when he was Chief Secretary to the Treasury that figure was at an all-time record of 47.5 per cent.?

Lord Mackay of Ardbrecknish: My Lords, perhaps that is why the noble Lord wrote the words in his book which I have just quoted. The serious point about the PSBR, which the noble Lord, Lord Barnett, recognised as being of importance, is that it is one of the balancing figures between government spending and what they have to take in taxation. We are firmly of the view that we should get the PSBR down as low as possible and to do that one has to control government spending and yet at the same time ensure that the tax burden on people is not insufferable.

Lord Barnett: My Lords, I am glad that the Minister has seen fit to read my book and, I hope, for the second or perhaps the third time. It may be that he will quote other parts of it later. Can he now answer the simple question that I posed as my first point? Is the Chancellor's forecast for the end of the century firm but flexible or firm?

Lord Mackay of Ardbrecknish: My Lords, the Chancellor's forecast for the end of the century is obviously just that: it is a forecast. Given the margins of error that we have discussed and agreed, and which the noble Lord, Lord Peston, has put more elegantly than I did, they have to be looked at within those margins of error. That is the forecast that my right honourable friend has put forward.

Lord Ezra: My Lords, will the noble Lord indicate whether the PSBR estimate for next year is dependent on a growth in the economy of 3 per cent., as indicated by the Chancellor in his statement, which is generally regarded as being over-optimistic?

Lord Mackay of Ardbrecknish: My Lords, it remains to be seen whether or not it is over-optimistic. The forecast is dependent on a number of factors, including the rate of inflation, which, as I have already pointed out, is coming down, and on the level of growth. With the decline in interest rates yesterday--for which

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thanks are due to my right honourable friend for his sensible economic policies--we hope that growth will hit that 3 per cent.

British Rail: Privatisation

3.19 p.m.

Lord Dubs asked Her Majesty's Government:

    Whether they are satisfied with the performance of Mr. Roger Salmon, the franchising director responsible for the privatisation of British Rail.

The Parliamentary Under-Secretary of State, Department of Transport (Viscount Goschen): My Lords, yes.

Lord Dubs: My Lords, is the Minister aware that the first contracts for the privatisation of British Rail's services, which the franchising director wants to issue shortly, allow the private companies to cut services? Is it not deplorable that even before the services have been privatised, further cuts in services are already being contemplated by the franchising director?

Viscount Goschen: My Lords, the noble Lord should take on board the fact that the passenger service requirement means that for the first time there will be a guaranteed level of service. Of course, operators will be able to offer other services if they see commercial advantage in doing that, but for the very first time the guaranteed minima are laid down.

Lord Clinton-Davis: My Lords, is the Minister aware that his so-called "guarantees" are almost certainly a prescription for cuts? How does the noble Viscount explain how the franchising director could have considered as preferred bidders a company called Resurgance Railways when its managing director had been a director of a double-glazing company which had gone into liquidation owing £60,000, and was someone who had no experience at all of railways? How could the Government have considered Stagecoach, one of the biggest bus operating companies in the country, when 24 inquiries had been made by into it by the Office of Fair Trading and the Monopolies and Mergers Commission, and when one of its subsidiaries was described in August as adopting predatory and deplorable actions against the public interest? What are the Secretary of State and the franchising director up to in allowing such companies to emerge as bidders?

Viscount Goschen: My Lords, I am certainly not going to discuss the individual companies which may or may not be bidders for the individual franchises at this stage of a competitive bidding process. To do so would be irresponsible and I shall not follow the noble Lord down that route. The franchising director is following the role that was set out for him by Parliament. He is doing so and is making good progress in taking the franchising programme forward.

Lord Peyton of Yeovil: My Lords, I recognise that it will probably be well beyond the ordinary bounds of optimism to expect the franchising director to take much notice of what is said in your Lordships' House, but

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could my noble friend arrange for the franchising director to receive a small nudge and to be told that hope springs eternal?

Viscount Goschen: My Lords, I was trying to work out a clever answer to that, but I am afraid that I fail to understand exactly what my noble friend wants me to do apart from bringing to the attention of the franchising director the proceedings in your Lordships' House, which I certainly undertake to do.

Lord Clinton-Davis: My Lords, the Minister dismissed the idea that people who really have no business entering the franchise stakes should even be considered in this House, but will he perhaps consider how the French state railway could begin to acquire a stake in British Rail's rail freight network when British Rail is not permitted to hold on to it? Is not that absolute nonsense?

Viscount Goschen: My Lords, the noble Lord opposite is opposed to the whole policy of rail privatisation. He has stated his reasons on a number of occasions. We take the contrary view. We believe that it will result in better services for passengers and better value for taxpayers. Those must be the essential considerations which take us forward.

Earl Russell: My Lords, does the Minister agree that the franchising director's powers are those which he may exercise under the relevant Acts of Parliament and the secondary legislation under them, and that in case of dispute the extent of those powers is a proper question to be decided by Her Majesty's judges?

Viscount Goschen: My Lords, I believe that the noble Earl is referring to a case that is before the courts at the moment and which concerns the franchising director. Beyond recognising that that is the case and that these matters are sub judice, I do not believe that it would be appropriate for me to comment further.

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