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The Parliamentary Under-Secretary of State, Department of Transport (Viscount Goschen): Oh!

Lord Carmichael of Kelvingrove: My Lords, surely the Independent is not a proscribed newspaper in this House. The reference is:

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It gives figures for British Steel, British Aerospace, the National Freight Corporation and others. It gives about 10 privatisations. The amount written off in present day prices totals £22 billion.

Lord Graham of Edmonton: How much?

Lord Carmichael of Kelvingrove: My Lords, £22 billion. The same will happen with rail. Sir Edward Heath, who has always been a moderate understanding man, said this was a privatisation too far. That is something with which we all agree. The public may not know all the details, but in their bones they think that privatisation has gone too far. This is one that they will not stand. It will be another way by which we shall gain power whenever the Government decide to call an election.

7.28 p.m.

Viscount Goschen: My Lords, I thank all noble Lords from all parts of the House who have spoken in today's fascinating debate, as ever, on the railways. I owe my particular thanks to the noble Lord, Lord Clinton-Davis, for choosing the subject of today's debate. I do not believe that there is a subject on Government policies which I would rather debate with noble Lords than the benefits of privatisation to the travelling public and the benefits in terms of encouraging freight onto the railways.

The debate is largely and rightly about passengers, which is what is specified in the Motion. So I was somewhat surprised that the noble Lord, Lord Clinton-Davis, did not largely talk about passengers but concentrated upon the timely, yes, and important, I would certainly agree, subject of the Railtrack privatisation. I hope to deal with some of the points that the noble Lord made on that, at times, technical issue.

The debate reinforces my conviction that privatisation is the only policy which will arrest the long-term decline of the rail industry. It is the only policy which provides the industry with a direct incentive to compete with other modes. It introduces new ideas, skills and resources and produces a sharper focus on the needs of the customers. Last month my right honourable friend the Secretary of State for Transport published a comprehensive statement on transport policy entitled Transport: The Way Forward. I was pleased that the noble Baroness, Lady Castle, and the noble Lord, Lord Berkeley, referred to it and welcomed it.

The noble Baroness wanted to see decisive policies. I do not believe that she has found any coming from the Bench in front of her but she has found one coming from the Benches directly opposite her. The railway privatisation is the biggest shake up, the biggest structural change, in the railways for a long time. It was a key policy in the manifesto of the Conservative Party on which the electorate voted and wisely kept the party opposite out of office for some 17 years.

Perhaps it might be worthwhile to look at the effects of nationalisation of the railways before we consider the effects of privatisation. Between 1953 and the mid-1990s the railway industry's share of the passenger

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transport market shrank from 17 per cent. to just 5 per cent. Its share of the freight market dropped even more dramatically. Successive governments came to power with warm words and good intentions. They wanted to effect a shift from road to rail. But the fact is that year after year the railways lost ground. We must face the issues and ask ourselves why.

The era of state ownership was marked by poor industrial relations, low productivity, rising fares and a poor public profile. It was often said that the British public loved the railways but resented British Rail. As my noble friend Lord Astor rightly said, the old railway was a monolithic, monopolistic nationalised industry which never had the opportunity or the incentive to focus on the needs of its customers. It was insulated from the commercial pressures of private ownership and its command structure was not geared to the needs of customers.

Despite the almost unique admiration of the noble Lord, Lord Ewing of Kirkford, for the standards of service put forward by the old British Rail there has been a problem with the motivation of staff. Almost anyone involved with the railways will appreciate that point. The basic problem with the railways was structural and not financial. The Railways Act addressed those structural deficiencies for the first time and the benefits of that bold initiative are becoming more and more apparent with every passing week.

Privatisation is a reality. Over half the rail industry--worth more than £4 billion by aggregate turnover--has now been transferred to the private sector. We have sold the three rolling stock leasing companies and most of the domestic freight and parcels businesses. We have sold six of the infrastructure maintenance units, four of the track renewals companies and a large number of other former BR businesses, including BR telecommunications. In addition, 80 per cent. of the passenger railway by revenue has either been sold or is on the market and almost one-third of the passenger railway by revenue is now in private hands. Six franchises have been awarded and five are already running services. LTS is being retendered. Prequalification has been completed and bids invited for a further five and the prequalification process is under way for a further eight. Overall, some 53 former BR businesses are now in the private sector. Privatisation has acquired an irresistible momentum.

The latest example of the ongoing privatisation process is the flotation of Railtrack. Your Lordships will know that on 1st May the prospectus for the sale was published, starting the final leg of the journey to transfer the owner of the national rail network to the private sector. The noble Lord, Lord Clinton-Davis, felt that insufficient information was available and complained that he had not received a copy of the prospectus until recently. If your Lordships feel that that has been the case I apologise for not providing the House with the information at an earlier stage. On the basis of the indicative price range, that gives the market capitalisation of between £1.75 billion and £1.95 billion. Expressions of interest from small UK shareholders are encouraging with around 1.9 million potential investors having registered their interest with share shops by the closing date.

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The noble Lord, Lord Clinton-Davis, claimed that the prospectus was misleading. I entirely reject that suggestion. It went through an exhaustive process of verification and to the best knowledge and belief of the Railtrack directors and the Secretary of State for Transport it contained all the relevant material information and no material omissions.

The noble Lords, Lord Clinton-Davis and Lord Carmichael of Kelvingrove, questioned the issue of Railtrack and the expenditure required to maintain and renew its infrastructure. They believe that that had been underestimated. I understand that CEDG was commissioned to inform the directors of Railtrack as to the expected future costs of maintaining and renewing certain of its assets. CEDG's report to Railtrack was produced over a short time-scale, was based on an extrapolation of a small sample and used less sophisticated and analytical techniques than those subsequently used by W. S. Atkins. It was based on assumptions about asset lives which were not in accordance with prudent management of the assets concerned. Its cost estimates were inconsistent with historical spend in that area. The report was rejected by Railtrack. Having regard to the matters above and the superseding works of W. S. Atkins, its contents were not regarded as material or appropriate information for inclusion in the Railtrack prospectus. I hope that that covers the particular matter.

We are already seeing the successes of our rail privatisation programme elsewhere. Take the franchising of passenger services. For the first time key services are contractually safeguarded in franchise agreements. It is worth reflecting that all six of the franchises awarded so far will maintain the same levels of service as were previously operated by BR. In a number of cases franchisees will be adding new services to the timetable to fill gaps in the market which BR had not previously spotted. I believe that that is in direct contradiction with the scare stories put around before we reached that stage in the privatisation process. Take Midland Main Line as an example. On MML, National Express will run an extra half-hourly weekday service between St. Pancras and Loughborough; or London and south coast providing new off peak and Sunday services for south London; or Stagecoach doubling services between Southampton and Salisbury. Franchising means rail services are safeguarded and improved.

Key "network benefits"--such as through-ticketing and discount cards for the elderly and the disabled--are contractually safeguarded under rail privatisation. Indeed, these benefits are being legally safeguarded for the first time as a direct result of rail privatisation. The rail regulator has been set up to act as an independent defender of passengers' rights and the Railways Act gives him far-reaching powers to intervene if those rights are ever threatened. Franchising takes customer benefits, which might have been eroded under the old nationalised industry regime, and gives them an explicit legal foundation.

Tonight we have heard criticisms of not caring for the railway as a whole and of fragmenting the railway. I do not believe that the criticism is rightly placed. We have certainly split up the railway into new, smaller, more

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focused companies better able to meet the needs of their customers. But we have preserved the essence of the railway network so that, as far as passengers are concerned, their journeys across the country should, as far as possible, be no less convenient than under British Rail. And while there will be some competition and rivalry between franchisees, there will also be extensive co-operation so that trains continue to connect with each other and through tickets continue to be available. It is clearly in private-sector operators' interests to make it easier not more difficult for passengers to use their trains. That way they will attract more customers and increase their revenue.

Those fundamental points were missed when a little while ago we had all the scares about the loss of network benefits and so forth. It is clearly in the companies' commercial interests to address even the hideous spectre of the commercial interest raised by the noble Lord, Lord Ewing. It is clearly in their commercial interest to keep such arrangements going and working well.

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