FINANCIAL DUTY OF EXECUTIVE (Hansard, 19 May 1969)

§ Captain Walter Elliot (Carshalton)
I beg to move Amendment No. 8, in page 9, line 32, at end insert: '(provided that such period shall not exceed five years in each case)'.

§ Mr. Speaker
I suggest that we take at the same time, Amendment No. 9, in page 9, line 45, at end insert: (c) and where such period as is referred to in paragraph (a) of this subsection shall exceed one year, the Executive shall publish at the beginning of the period a detailed forecast of the principal revenues and expenditures anticipated for that period.

§ Captain Elliot
This is a most important Clause because it deals with the financial duty of the London Transport Executive, and, in view of the mammoth size of the concern which we are establishing, it is necessary that the matter be closely controlled. We had long and detained discussion on the subject in Committee, but at the end we were still not clear what the position was.
As I see it, the executive is given an accounting period—presumably, by mutual agreement between the G.L.C. and the executive—and at the end of that period it should more or less break even. In addition, there will be an annual statement of accounts. In the first place, we consider that a limit on that accounting period should be written into the Bill. That is the purpose of Amendment No. 8. Our fear is that, although the executive, under subsection (3)(b), has to get out of deficit, it may be able to extend the accounting period so that it never reaches its target.
That is the effect of the argument as it was put in Committee by my hon. Friend the Member for Finchley (Mrs. Thatcher). In reply, the Minister said: The Executive has to get out of the red in the year following that in which it gets into it"— and he added, a few moments later— but it might help if I put on record a definition of paragraph (b). … It provides that if the aggregate of the net balance of the consolidated revenue account of the Executive and of any subsidiaries, plus the net balance of the general reserve of the Executive, is in deficit at the end of an accounting period—which would normally be one year—the Executive 112 must do all it can to make that aggregate positive again by the end of the next accounting period—that is, within one year."—[OFFICIAL REPORT, Standing Committee A. 22nd April, 1969; c. 239–41.] The right hon. Gentleman seems to assume that the accounting period will be one year, but he is not certain. I shall not repeat all our arguments, but he himself said that it might be two or three years, or, perhaps, as in the case of nationalised industries, five years.
Amendment No. 8, if accepted, would clarify the situation and everybody would know where he stood. In Committee we suggested a shorter period, but we thought that it might be too short. We therefore propose five years, which seems reasonable.
When we were creating this great monopoly, we discussed at length the responsibility of the G.L.C. to the electors. The Minister often stressed that a vital safeguard for the efficient running of this concern would be the sanction of the electors. But the executive has a most complicated task and it will be extremely difficult for the ratepayer, who will have to pay the piper in the end, to decide whether its operations are being conducted efficiently. To do that, he will need all the information that he can get. If Amendment No. 8 is accepted he will have something to go on. It will help him to decide at the appropriate time how he will apply the sanction of his vote.

§ Mr. Marsh
As the hon. and gallant Member for Carshalton (Captain W. Elliot) said, we had a long discussion on this point in Committee.
Dealing with Amendment No. 8, there is no figure which is the right figure. It can be argued that it should be four, five or six years. We say that it is for the executive and the G.L.C. to reach agreement on the matter in the way which best suits them. The legislation places stringent financial controls and obligations on them, and we do not feel that the Government or the House should lay down this rigorous requirement. There is no reason why the figure should not be four, five or six years. One can pick any figure out of the air.
We say that the best people to do this, given that they have to meet their financial obligations, are the G.L.C., which 113 will carry the can, and the L.T.E., who will be operating the organisation. This is a degree of inflexibility which we do not need. The matter can well be left to the discretion of the G.L.C. and the executive to decide on whatever periods may be appropriate for the settlement of a target in the light of the circumstances at the time. They should not be bound by a constraint which must, by its nature, be purely arbitrary.
A very onerous obligation is proposed in Amendment No. 9. I am not sure that the G.L.C. or the L.T.E. would be very enthusiastic about it. It provides that where such period as is referred to in paragraph (a) of this subsection shall exceed one year, the Executive shall publish at the beginning of the period a detailed forecast of the principal revenues and expenditures anticipated for that period. To place upon them or any commercial undertaking, the task of publishing this amount of detail, say, five years in advance and to expect them to publish what they think are likely to be wage movements five years in advance, would place the executive and the council in an intolerable position.
No organisation is asked to publish this sort of detail, or to say that it believes that wages will rise by £X in one year and £Y in two years. I can imagine that some of my hon. Friends would think this a not unattractive proposition. I know what I would have done in a different situation wearing a different hat. But it would not be fair to hang this requirement round the necks of the G.L.C. and the executive.

§ Mr. Michael Heseltine
The Minister seemed to argue that the requirement proposed in Amendment No. 8 would be particularly rigorous and that it is not the desire of the House or the Government to impose a rigorous requirement of this sort on the London Transport Executive. But the whole concept of the Clause involves an extremely rigorous financial objective. To say that the executive shall so carry out its functions that, allowing for the possibility of using up its general reserve over a period, it will break even is, in terms of providing public transport, laying down a very rigorous objective. It is not reasonable, therefore, for the right hon. Gentleman to suggest that there should not be a 114 refinement of the definition of the sort envisaged in Amendment No. 8.
The reason why the period of five years has been chosen is that, as the Minister rightly said, it is impossible to define these matters with precision. It is arguable that the period should be three, six or perhaps seven years. There will always be a case against choosing a particular period within which the financial objectives must be hit. Therefore, the Minister says, "We shall not define the period". But the moment we move to that stage we make a nonsense of the provisions in the Bill. Unless there is a fixed period within which certain targets must be achieved, it is open to the G.L.C. at any time to lengthen the period and to say that it will achieve its targets at some time in future.
In this case, there is no time when one will know whether the financial disciplines in Clause 7 are being met. One has to take an arbitrary decision about the time involved. Five years is a perfectly reasonable period. In Committee, the Minister referred to the period of five years in the context of the target which we were discussing. For that reason, we went on the Minister's word and took five years, which was not unreasonable.
When dealing with a financial target spread over a period as long as five years, unless one has a phased budget, it is possible during the first, second, third and fourth years to say that the bonanza will come in the fifth year and that if only people will have patience the profits will come rolling in. The only way in which one can ascertain whether targets are being reached and whether the programme is on course is to have a phased budget in advance.
I am the first to accept that to try to set a detailed fixed budget over five years is extremely difficult. But that is the concept of the legislation. Therefore, that is the definition within which we must operate. It is totally unacceptable for the Minister to say, on the one hand, that it is necessary to have a long period within which certain financial objectives should be reached and, on the other hand, to say that because he has set a financial objective over a long period it is unreasonable to ask for detailed forecasts over that period. The two things seem to be contradictory.
115 It may well be that in Amendment No. 9 there is a precision which makes a nonsense of the safeguards which we were trying to achieve in drafting it. The sort of examples which the Minister gave are not capable of being incorporated in detail in a five-year programme. It is impossible to say that costs will rise over five years by X amount per annum, although the right hon. Member for Be1per (Mr. George Brown) was not deterred in producing the National Plan which covered five years, giving the most detailed calculations industry by industry to show precisely what would happen throughout the economy.
At that time, the right hon. Member for Belper was only too happy to argue volubly that this was a reasonable way of running the economy. Now, when we try to do the same in a relatively restricted form, we are told that it is impossible because one cannot take account of the increases in costs which will occur. It is reassuring that the right hon. Gentleman the Minister of Transport has seen the error of his Government's ways, but this objection is easily overcome with by dealing with real costs adjusted for 1969 purposes, thereby disregarding any inflationary elements in the five-year period.
This would be a reasonable course. I am sure that it is not beyond the ingenuity of the Ministry to find a new form of words which would remove "detailed" from Amendment No. 9. But I come back to the certainty, that unless we place a fixed end to the financial period over which the targets have to be met and which is not capable of being adjusted when it suits the politicians to do so, and unless we have a budget to cover the period, the financial disciplines of Clause 7 will, in practice, not be easy for the general public or legislators to follow.

§ Mr. Lubbock
I wonder whether we should be talking of financial disciplines as though this were a Bill for a nationalised industry. We are discussing a new executive which is to come under the Greater London Council. If we start off by laying down in detail how it is to behave and what financial responsibilities it is to assume, the electors of 116 Greater London, to whom this body is to be indirectly responsible, may well ask what is the point of making the transfer if, ultimately, Parliament still lays down the rules.
I would prefer an even more flexible financial arrangement than is contained in the Clause. I disagree fundamentally with the hon. Member for Tavistock (Mr. Michael Heseltine) when he tries to place this restriction on the G.L.C.'s freedom of action. As a Greater London elector, I am satisfied that I will be able to exercise my privilege of voting against the G.L.C. if it acts contrary to my interests.

§ Mr. Michael Heseltine
I am not trying, and we have never tried, to put tighter discipline into this Bill than is already there. We are trying to make the disciplines built in by the Government and the G.L.C. interpretable to members of the general public.

§ Mr. Lubbock
What the Opposition are trying to do with Amendment No. 8, and even more so with Amendment No. 9, is to circumscribe the freedom of the G.L.C. in deciding how it is to behave towards the executive and what the accounting period should be. We shall have to agree to disagree on this. It is a matter on which perhaps our judgments are somewhat subjective. The House must make up its mind, since this is the last opportunity we shall have of considering the matter.
As far as possible in the Bill I want to leave the council complete freedom of action in the financial control of the executive. If we begin by laying down what the accounting period should be, we shall be giving them all sorts of rules in advance which it may be inconvenient for them to carry out. Let us leave it to the G.L.C. to decide. If we disagree with the way it conducts its affairs, the remedy is in our hands as London electors.

§ Captain Elliot
I was disturbed by the reply of the Minister. He said that what we asked would be an onerous task for the executive. I think that it would be but I would have no compunction in giving it to the executive. This great organisation will have tentacles reaching all over the country and will be in a position to establish monopoly conditions over the Greater London area. It is bceause of 117 this that we must surely write into the Bill what the right hon. Gentleman called an onerous task so that the ratepayers can judge how things are going. Does the right hon. Gentleman really expect the ordinary ratepayers to assess whether the executive and the G.L.C. are properly carrying out their duties unless they have some reasonable information to go on?

§ Mr. Archie Manuel (Central Ayrshire)
I support my right hon. Friend the Minister of Transport. It is nonsense to have a strict period for return on revenue or capital accounts. Does the hon. and gallant Member for Carshalton (Captain W. Elliot) really mean that the period should be five years? Does not he mean, in practice, six years? If he does mean five years, then there cannot be an accurate financial return because there is a lapse of one year before one can begin to get accuracy in the way he wants.
What the Bill proposes is quite common practice among many local authority undertakings because of the breadth of operation, the varying degrees of expenditure and the uncommon difficulties which can arise during the course of any accounting period and which cannot be forecast. The Amendments could not be carried out in practice. I agree with my right hon. Friend and the hon. Member for Orpington (Mr. Lubbock).

§ Mr. Marsh
I think that there is a certain amount of misunderstanding here. In this part of the Bill we are dealing with two limbs of the same obligation. Clause 7(3)(a) deals with the period for forward targets, which can be any period agreed between the G.L.C. and the L.T.B. This is the right course because any business undertaking must be protected from being forced to take measures which might be undesirable at the time purely to avoid going into deficit for a limited period. It is reasonable, therefore, that the G.L.C. and the L.T.B. should be able to fix the period target according to the circumstances at the time.
The other limb of the argument is Clause 7(3)(b), which lays down the annual period and that any deficit has to be put right in the following year. Since the G.L.C. will have to pay the bill at the end of the day if the undertaking's finances are not right, there will be a limited amount of time in which it can go on running into deficit each year. The 118 targeting must be able to take into account, as in any other industry, the circumstances of the time.
To ask a commercial undertaking to publish the detailed assumptions on which it bases a five-year forward plan is to ask it to do something which hon. Members opposite would get excited about if anyone, in their wilder moments, suggested it of private enterprise. There cannot be a valuable forward plan of a large organisation which does not take account of movements—and there are bound to be some—over a period.

§ Captain W. Elliot
The Minister talks about not asking a private undertaking to do this, but he will appreciate that if a private undertaking calculates wrongly its shareholders will suffer the loss. If the G.L.C. or the Transport Executive calculates wrongly, the ratepayers will suffer, and this will remove a great incentive to the executive to run its business efficiently.

§ Mr. Marsh
The analogy is a good one. We are here producing a situation where the shareholders can sack the board, the shareholders being the G.L.C., and this is rather more difficult in many private companies. The people who are operating the policy are elected by the shareholders at three-yearly meetings, and it would be a significant electoral issue if large sums of money were coming out of the rates.
I come back to the point that under subsection (3)(b) they have an obligation to put the deficit right in the following year. Hon. Gentlemen and the hon. Lady opposite, all of who are extraordinarily reasonable people, will, I am sure, on reflection, recognise that their fears are unjustified.

§ Mrs. Thatcher
I refer specifically to Amendment No. 8, about which the Minister is making a great fuss. Without this Amendment the only obligation on the G.L.C. and the executive is not to run the reserve plus the revenue account into a deficit for two years in succession. In meeting that obligation they could run down the total reserve to nothing, go into deficit for a year and then come back the following year, so that all the reserve which is being built up as a result of the latest increase in fares which the Minister has just approved could go right 119 down to nothing in one year, be in deficit for a year, and in the third year would just have to come back to nought. That is the only obligation upon the executive and the G.L.C., and it is an obligation which patently allows them to use up every penny of the reserve which is built up.
All we are saying in the Amendment is that the G.L.C. and the executive must agree a target for their reserves plus their revenue account and, at the end of a period of up to five years, they should then have an accounting, to see how they are getting on. It gives them a great deal of flexibility. They can take as the target period for reserves plus profit from revenue account two, three, four or five years, but they cannot go on moving the period indefinitely without measuring their performance at the end of five years.
This is all we are asking for, and it is eminently reasonable that at the end of five years the council and the executive must be compelled to measure their performance against their target. I am amazed that the Minister should run so hard and so fast away from this. He owes it to those travellers who are building up the reserves which, without this Amendment, may be frittered away.

§ Mr. Marsh
No.

§ Mrs. Thatcher
Yes, because if the Amendment is not made the only obligation comes in the other limb. The Minister owes it to the travellers and the ratepayers to see that any body to whom he is transferring such powers measures its performance to its target at least once every five years.

§ Mr. Manuel
The hon. Lady is suggesting that there would be complete secrecy and the periods could be extended so that the balance or the deficit would never be known, but she will be aware of the government auditors who do their work scrupulously and make returns, and therefore the position which the hon. Lady envisages could not arise.

§ Mr. Lubbock
The hon. Lady is so obviously reasonable. I agree that the accounting period in subsection (3,a) should not exceed five years but is not it certain that the Greater London Council 120 and the excutive will agree on a period which is not more than five years, so why not leave the decision to them?

§ Mrs. Thatcher
To take the first intervention first, of course we shall know the results in the annual accounts, but we shall not know how far those results fall short of the target and we shall have no means of knowing.
In reply to what the hon. Member for Orpington (Mr. Lubbock) has said, in passing over far-reaching powers to another body, it is up to this House to decide upon the limits of those powers. It is right for us to say to a body to whom we pass over extensive powers that it must look to see how it has exercised those powers at least once every five years. It has been said that the management could be sacked once every three years, but how can that be done if within five years it is not known how the performance has measured up to the target? The facts will not be available upon which to make a judgment. Only the annual accounts will be available.
The Amendment is eminently reasonable. Had we stuck to the direct terms of Amendment No. 8, which provide; that the G.L.C. and the executive should measure their performance at least once every five years, I would have thought that almost every hon. Member would have agreed to it. The Minister has given a poor reply, and has tried to swing on to the Amendment which was not moved but which was discussed. Will he consider the essence of Amendment No. 8 in another place?

§ Mr. Marsh
Since the question has been asked directly, the short answer is, "No." Any organisation must be given the opportunity from time to time to look at its finances and decide what it wants to do in the light of those circumstances. A commercial undertaking may from time to time, for example, decide to operate on a deficit rather than to take short-term decisions which may be highly undesirable.
For all those reasons, I have more faith in the Greater London Council than has the hon. Lady and, since that Council will be operating this body, this is one phase where Whitehall can stay outside.