TRANSPORT (FINANCIAL PROVISIONS) BILL

HC Deb 20 January 1977 vol 924 cc649-707

Order for Second Reading read.

4.5 p.m.

The Secretary of State for Transport (Mr. William Rodgers)

I beg to move, That the Bill be now read a Second time.

Later today—and as soon as possible, I hope—we shall turn to a wide-ranging debate on transport matters. In a sense, we are taking the discussion the wrong way round. I understand why this order of business suits the convenience of Members. But, in turn, I hope that it will be understood if I limit myself more closely to the substance of this Bill than a Second Reading might otherwise justify. In any case, a short debate requires at least a shortish speech from the Minister if other Members are to have a fair chance to intervene. Matters of detail will be appropriate to the Committee stage.

I shall be focusing in our further debate on the White Paper that I hope to publish later this year. That will look to the future. This Bill, on the other hand, is simply a step to keep some of the present arrangements working until we have reached and implemented any changes that may prove necessary.

The transport element is concerned with powers to support losses by the British Railways Board and the National Freight Corporation. Such grants are already being paid on the authority of the Appropriation Act. It has, however, been the practice of the House to provide specific authority for grants of this kind, and the Bill does precisely that.

When my right hon. Friend the Member for Sheffield, Park (Mr. Mulley) recommended what is now the Railways Act 1974 to the House, he said that he did not claim that the arrangements then introduced would prove a lasting solution to the railway problem. Nevertheless, they represented a step forward. One result of those arrangements was that the costs imposed on the railway by the rail freight and passenger businesses were separately identified in a new way of which I think the House approved at the time. The expectation was that the rail freight business on this new basis would be able to break even.

Unfortunately, that turned out to be optimistic and the delayed effects of price restraint, increases in costs and the recession in the economy so combined that in 1975 the rail freight business proved to be incurring a substantial deficit. There was no statutory provision for meeting that deficit which was threatening to undermine the Board's finances.

The Board took short-term measures. But it was clear that, in order to establish the rail freight business upon a firm basis and to give it an assured future, further examination of the whole underlying strategy was needed. This was developed as the fundamental review of the rail freight business described in Chapter 8 of the transport consultation document which will be the basis for debate later today. The Government meanwhile announced in July 1975 support not exceeding £70 million for that year and last February a further grant of up to £60 million for 1976. At the same time the Board was asked to make substantial progress towards phasing out the deficit during 1976 and 1977.

Those who have been involved with transport matters over the years know that the rail freight business is heavily dependent for traffic on the heavy industries, such as coal and steel, which are the most severely affected by a recession. But, with the co-operation of the unions, the Board has been able significantly to reduce its costs while, by careful marketing, it has been able to increase its revenue substantially. It has also been able to win much larger carryings of coal and steel than expected. I am now glad to say that the Board has managed to contain its requirement for grant in 1976 to some £40 million, subject to completion of audit.

This is progress in the right direction. I would add that the recent changes I have made in the structure of the Board —and I might say something further about this later this evening and the House may wish to comment then—should help to reinforce the quality of management further by bringing the Board into direct responsibility for marketing and operation of the rail freight business.

I come to Clause 1 of the Bill. As I have said, decisions on the future of freight strategy depend, among other things, on the outcome of the transport policy review, as it is called—a description that I have inherited. The review resulted in the consultation document and it will result, in due course, in my own White Paper. All that Clause 1 provides, therefore, is specific statutory authority for the grant in 1977. Authority for grant currently in payment already exists in last summer's Appropriation Act. The clause identifies the terms and conditions of the remaining payments and enables me, with Treasury agreement, to provide a total amount not exceeding £45 million.

As for the grant in respect of 1977, this ceiling is consistent with the provision of £30 million envisaged in the last White Paper on public expenditure, Cmnd. 6393. The remaining £15 million—which hon. Members may notice is authorised in Clause 1 and makes up the total of £45 million—is needed because of differences between the rate at which support accrues and the timing of actual payments to the Board.

These are technical matters familiar to those who are aware of the problems of company accounts. The precise amount due for 1975 and 1976 will emerge only when the grant audits now in progress have been completed. The sums which the Department has retained against possible adjustments will then be paid over and will fall within the scope of the Bill. To sum up, the provisions of Clause 1 are intended to do no more than reflect the decisions already taken on transitional support for rail freight, which have, of course, quite properly been reported to the House.

I now turn to Clause 2, which provides authority for grants to the National Freight Corporation. The NFC has been receiving grant since last January. Clause 2 fulfils the undertaking given in August by my hon. Friend the Member for Dudley, East (Dr. Gilbert) to seek as soon as possible specific statutory authority for these grants.

Mr. Norman Fowler (Sutton Coldfield)

Will the Minister say exactly how much has been provided in grant for the NFC since January 1976?

Mr. Rodgers

I hope to do so in the course of my further remarks. Otherwise I shall seek to answer the point at a convenient time.

First I want to say a word or two about the circumstances which, although familiar to the House, deserve repetition on such an occasion as this and to indicate how the problems arose that led to the statement of my hon. Friend the Member for Dudley, East.

The NFC's financial problems stem largely from the difficulties experienced by two of its subsidiaries—National Carriers Limited and Freightliners Limited. Both these companies were part of British Rail before 1968. Like rail freight, both have been badly hit by the combined effects of the recession in the economy and the effect of inflation.

Another problem in 1976—and I remember that the hon. Member for Sutton Coldfield (Mr. Fowler) discussed this matter in the debate that we had earlier this year—was the Corporation's European subsidiaries. Here the NFC quite properly took a business risk. I say quite properly not only because the NFC has the statutory authority to acquire companies but because it is entirely right that it should have the same freedom as its private sector competitors to take commercial opportunities as they arise.

The essence of the strategy was to bring together and rationalise existing companies. But the recession in Europe—and again this was discussed in the House earlier this year—affected the whole operation and the oil crisis in particular affected the two largest French companies in the tank haulage business. Early in 1976 the NFC decided that the time, money and effort needed to carry through the European strategy could not be justified—again a decision that it made quite properly—and that the right course was to close or sell the loss-making subsidiaries.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

The Minister said that he thought the NFC should be free to engage in such venture activities. Does he still think so after this experience?

Mr. Rodgers

Yes, I certainly do. The NFC has statutory obligations, but it also has rights that have been set down in legislation by the House. While I believe strongly in a mixed economy, I think it is also right that the public sector, within reasonable constraints laid down by Parliament, should have the opportunity to take risks. Sometimes risks succeed and sometimes they do not, but I see no reason why the public sector should be inhibited in that way.

The NFC, although no doubt wiser as a result of its experience, should not be inhibited in the exercise of its business judgment. This is an area where the House is right to discuss policy and strategy but should support the management of public corporations, once they have been appointed, in carrying out day-to-day responsibilities and seizing opportunities when they exist.

Mr. A. P. Costain (Folkestone and Hythe)

I have received representations from trade unions in my constituency suggesting that the shipping side, which is making a loss, should be sold off and given to more profitable private enterprise shipping companies. Does the Bill give any power for us to insist on that happening?

Mr. Rodgers

I am not sure whether the hon. Member is referring to the National Freight Corporation, which I was not aware had any shipping subsidiaries. British Rail would say that its shipping subsidiaries were a worthwhile part of its business. We shall not provide solutions to the problems of British Rail and the NFC by unnecessary restrictions or by any attempt to break up two important businesses that can serve the nation well.

Mr. John Farr (Harborough)

Does the Minister agree that a proper way in which the NFC could display its interest would be by encouraging the development of a large commercial hovercraft of the type whose development the French Government have piloted and that is about to enter into service in the Channel? Is there not a risk that we are in danger of losing our pre-eminent position in the hovercraft industry because of a lack of Government enthusiasm?

Mr. Rodgers

I am most grateful to the hon. Member for drawing my attention to that point. I have sympathy with the view that this country has often advanced technological developments on which the initial steps have been taken and has then failed to exploit them commercially. Whether this is a subject in which the NFC can interest itself I am not sure, but I shall direct it to the NFC's attention and consider, in the light of statute, whether it would be a proper matter for its consideration. I am grateful to the hon. Member because he has brought out a point that I had not expected to make.

Of course we must expect successes and failures in public corporations to be a matter for debate in the House, but we should not ignore the way in which public corporations push forward frontiers and set improved standards. The NFC has provided an important means of management training for employees who have then gone out into the private sector to play an important part in its prosperity. It is proper and desirable that such people should not be restricted. Let us recognise the extent to which the public sector can make a contribution.

Mr. Stephen Ross (Isle of Wight)

I want to express thanks to British Rail and to the Minister's predecessor. In my constituency we are competing with the French hovercraft that has just been mentioned. We are stretching the British SRN4 hovercraft and we shall be in competition with the French this summer. Although we have left it a little late, we are now catching up.

Mr. Rodgers

The hon. Gentleman has been typically generous. His remarks will be noted by the House and appreciated by British Rail. The House will not wish to be less generous than the hon. Member in recognising the problems. I am not seeking to minimise the problems in the continental operations of Freightliners Ltd. and NCL. They add up to about one-third of the NFC's business.

The bulk of the business—United Kingdom road haulage and associated companies—could have weathered the difficulties of 1974 and 1975. The Corporation should be given full credit for that, though we should not minimise the problems that it still faces. There is, however, an important, profitable and successful part of its business.

The overall position clearly called for vigorous management action. I am sure that the chairman and the Board would not deny that there were lessons to be learned and a need to improve the immediate position and to look at the structure and strategy of the Corporation. I am glad and I am sure that the House will be glad that the measures taken by the Corporation have brought about a considerable improvement. The Board has been helped by the full co-operation which the management has received from the trade unions.

The NFC as a whole is now expected to record a trading profit of about £4 million in 1976 compared with a trading loss of £7 million for its United Kingdom companies in 1975. The picture for some of the NFC's major activities, notably the BRS group, which had another encouraging year, and Pickfords heavy haulage, is encouraging.

However, when overheads and interest charges are taken into account, the NFC will still have a total loss for 1976. The grant paid so far is £22 million and the loss in 1976 is likely to be about £16 million. I do not seek to dismiss this as insignificant, but we should bear in mind that the loss in the previous year was £31 million, and that indicates how quickly the business is being turned round. Clearly, further cash support will be needed and Clause 2 therefore provides additional transitional support within the limit of £50 million.

Mr. Michael McNair-Wilson (Newbury)

The Secretary of State has given some optimistic figures about the Corporation, but can he say whether Freightliners Ltd. shows any sign of breaking even?

Mr. Rodgers

There has been a considerable improvement in Freightliners and the NCL, though it would be wrong to say that in their different ways they do not represent awkward problems. Freightliners Limited presents a different case and the handling of small parcels is a problem which confronts everyone. We have to consider it in terms of the service provided and the need for Freightliners to pay its way. However, there have been improvements in these sectors and I am grateful to the hon. Gentleman for enabling me to put that on the record.

Grants provide only a temporary respite. I am not prepared to rest on the improvement we have seen, welcome though that is, or on the provisions of the Bill. I am currently examining not only the results of the consultants' review, but the NFC's own corporate plan, which I received last month.

I do not wish to exaggerate the extent to which it is easy for any business of this kind to produce a corporate plan to stand the test of time, but this is a move in the right direction and a promising indication of the responsible way in which the Board and the Corporation are facing their longer-term problems.

My hon. Friends will be pleased to hear that I am also examining the Corporation's claim that its inherited interest and pension liabilities are a burden that puts it at a disadvantage against its competitors.

There are problems in deciding where the burden should properly lie, but I was grateful to have these problems drawn to my attention at a recent Question Time. They are a factor that must go into the equation in any assessment of how the Corporation has performed. In addition, I am considering how further appointments to the NFC Board from among those with successful careers in executive rôle with the Corporation might strengthen it and add to the invaluable experience of the part-time members.

These are important steps that will yield results and in the meantime the grant authorised by the Bill should be sufficient to meet the NFC's cash requirements until we can see measures put into effect to achieve long-term stability. Most of the improved results in 1976 were brought about by carrying the same volume of traffic at reduced cost rather than by winning new traffic—a desperately difficult task in a fiercely competitive market. However, the fact that the same volume of traffic could be carried at reduced cost indicates an improvement in efficiency, which the House should welcome.

We have also had to require the NFC to restrict its investment in 1977–78 to an amount that, with its need for grant support, will not exceed the amount provided for in last year's public expenditure White Paper as reduced following the Chancellor's statement on 22nd July. This requirement was necessary to achieve the aim, set out in the Explanatory and Financial Memorandum to the Bill, that the resources required for the grant will be found within the public expenditure totals envisaged in the White Paper.

Neither Clause 1 nor Clause 2 offers open-ended subsidies; these are transitional grants. Nothing I have heard since taking up my present office in September has led me to see a justification for long-term subsidies to any mode of freight transport. I intend to move accordingly and I know that I shall have the support of the Boards of the two industries concerned. I would not recommend the Bill to the House on any other terms. I am confident that we are moving in the right direction and without delay.

Mr. Ian Gow (Eastbourne)

So that the House may be quite clear what the right hon. Gentleman is saying, will he explicitly compare like with like? After all interest payments, the loss of the Corporation for the year ending 31st December 1975 was just under £31 million. We appreciate that the figures are not finally available, but what is the estimated loss after all charges for the year ending 31st December 1976?

Mr. Rodgers

I gave the figure earlier. It is about £16 million. Compared with £31 million, it shows a considerable improvement, though there is some way to go.

I hope that hon. Members will address comments and criticisms to Ministers and not to those, whether in management or trade unions, who have made a considerable improvement in the Corporation's position in the past year.

Clause 3 deals with waterways. These are not my ministerial responsibility, but the provisions fit in conveniently with the rest of the Bill. My hon. Friend the Under-Secretary of State for the Environment will be replying to the debate. Apart from his great knowledge and responsibilities in his new Department, he was previously in what is now the Department of Transport and is qualified to comment on all aspects of the Bill.

The House knows that the Government have decided that it makes more sense to treat the waterways as part of the water industry than as part of the transport industry. In the Green Paper published in March 1976 the Government put forward the proposal that the Board should be merged with the new National Water Authority. Response to that Green Paper is still under consideration and a White Paper will be published before long.

In the meantime Clause 3 is a technical provision needed to continue the present arrangements a little longer. Since the Board has a deficit on revenue account which is met by a grant, and since there is little by way of depreciation on its heavily written-down assets, it needs to borrow from the National Loans Fund for its capital expenditure. The limit on its borrowing was set in 1968 and will shortly be reached. As an interim measure, therefore, we propose to raise the limit by £8 million, which should serve for the time being.

The Bill is a modest if not a necessarily very welcome measure to ensure that three public bodies are able to continue their work while we reach and implement decisions about the way in which they should develop. It does not raise new or difficult issues and there will be an opportunity later today to debate the broad issues raised by Clauses 1 and 2. I commend the Bill to the House and I hope that the House will find it worthy of support.

4.32 p.m.

Mr. Norman Fowler (Sutton Coldfield)

The Bill is basically concerned with subsidising the freight operations of the National Freight Corporation and British Rail. My hon. Friend the Member for Faversham (Mr. Moate) will deal later with the British Waterways aspects of the Bill.

The first question is one of principle. Is there any justification for a freight subsidy to subsidise not passenger movements but the movement of goods? Our emphatic view is that there is no such justification—either for subsidising rail freight or, and I emphasise this, for subsiding road freight. In case there is any doubt I must make clear that that is also the declared position of the Government, and we have just heard the right hon. Gentleman repeat it. The right hon. Member for Grimsby (Mr. Crosland) made the position clear in his consultation document, which we debate next, when he said that there is no social or environmental reason for a freight subsidy. When the right hon. Member for Stepney and Poplar (Mr. Shore) became Secretary of State that policy appeared to change. But now the Secretary of State has returned at least by declaration to the original policy, although it appears to be a policy of "Make me good, O Lord, but not yet".

The Bill provides for freight subsidies of up to £95 million. The House is being asked on the basis of a minimum of information to vote that money and, in the case of the National Freight Corporation, we are not even told where the money will cone from; whether there will have to be offsetting savings to keep us within public expenditure limits; and, if so, where such savings come from.

Let us first consider the freight operations of British Rail. In July 1975 the then Minister of Transport bravely and openly set out his policy in a Written Answer. He said that he was making a grant to meet the estimated loss of British Rail freight operations. In 1975 the loss was £67 million and in 1976 £40 million. So, over the last two years there has been a total loss of over £100 million. In addition to that we should always remember—and this is also from information contained in the Government's consultation document—that freight operations are already treated favourably within British Rail's accounting system. When freight operations share lines with passenger services the passenger side meets the cost. They pay only their track costs on freight-only lines.

The case that I want to put on British Rail freight is even more fundamental. It concerns how British Rail shares its costs. We have raised before the question of the absence of any breakdown of costs in British Rail services. We know that costs of separate services are not kept. Not only is that inadequate but there are considerable doubts about whether costs are accurately shared between the passenger and freight business. The problem in this country may be more of a freight problem than is shown by the accounts and therefore less of a passenger problem.

I shall seek to set up the position between 1964 and 1974 as shown by the figures in the consultation document and the annual reports of British Rail. The position that the figures appear to reveal is that over the 10 years from 1964 to 1974 British Rail made considerable savings and improvements in efficiency. There is no doubt of that, and British Rail and its staff have received insufficient credit for those improvements in productivity and efficiency. However, the worrying question is whether too much of these savings has been credited to the freight business side rather than the passenger business side. If this is the case, the impact on the railway debate is important. It means that the passenger side has not received its fair benefit. It means that rather than subsidising the passenger services to the extent shown in the accounts, we have been subsidising freight operations to a far greater extent than shown.

Let us examine the figures from 1964 to 1974. There was a dramatic reduction in staff from 380,000 to about 210,000 on mid-year figures. That accounts for a saving of about £450 million in staff costs and probably a true saving of about £500 million. We can probably agree that that was an important saving.

Let us now examine the costs. Using the figures in the consultation document and subtracting the London Transport passenger element one finds that the cost of the railway passenger service rose from £200 million in 1964 to just over £600 million in 1974. In other words—in spite of economies—the cost of the passenger business rose by over three times.

But now let us compare the cost of the rail freight business. The costs of that increased from £340 million in 1964 to £380 million in 1974. So on the freight side there was an increase of only 12 per cent.—with only a small fall in traffic.

The consultation document asks us to accept that in the period 1964 to 1974 the average cost of railway passenger travel rose from 0.60p per kilometre to 2.0p per kilometre. In the same period the average cost per tonne of rail freight only rose from 0.90p per tonne to 1.10p per tonne. In the same period, incidentally, the cost of road freight is shown as having increased by three times.

We know about the favourable accounting treatment that British Rail receives on track and signalling costs and there have been important improvements in productivity. But the position shown by the figures can be explained only if virtually all the savings over the last decade were on the freight side. But patently that has not been the case. In the last ten years there has been an improvement in passenger train speed of 46 per cent. Passengers per train-hour went up by 51 per cent. The number of passenger stations was reduced by 34 per cent. The figures suggest a number of important implications.

The railway industry tends to be judged by the public in passenger terms. It is, therefore, portrayed as woefully inadequate on achievement, because it appears that whatever is done, all that happens is that fares and subsidies go up. But it may be that we are considerably understating the achievement of the passenger side. Of course, for the passengers the effect is also of fundamental importance, because if the passenger side should be credited with more, it follows that the passenger subsidy is currently being overstated.

Once more it makes the point that British Rail really must produce accounts which we here can use as a reliable guide to policy making. Its current accounts do not provide such a guide, and indeed, they appear to mis-state the position. Frankly, we do not know what the true freight deficit is, yet we have been asked to vote on the principle of supporting it. That is obviously a position to which we shall wish to return time and again in Committee. However, let me say on Second Reading, that I should like some guidance from the Government on the figures that the Government are publishing.

The position is already bad, but next let us take the National Freight Corporation. The announcement of a freight grant for the NFC was again courageously made in Written Answer on 21st January 1976. The then Minister said that because of the economic recession, the NFC expected in 1975 to make a loss of £30 million. He said that therefore the Government were making available an immediate grant of £8 million. Now, in addition we have discovered that during the last 12 months he has also made available grants totalling £15 million, so as to make a global total for the year, as I understand it, of £23 million—£15 million and £8 million.

In addition to this, however, we have now this Bill, which basically provides for £50 million-worth of losses to be paid out for liabilities after 1st January, 1977. In addition to that we are told that a reorganisation, or restructuring, is also taking place. Therefore, in that case it may well be that the Government will come to the House again for further money.

That, then, is the position with which we are being presented. Therefore, in considering this proposal from the Government, we shall want to look back over the immediate past three or four years.

During 1975 the NFC had a record loss. There is no question about that. Last year that loss was reduced from £31 million to £15 million. Clearly, we on the Opposition side of the House totally welcome that improvement. The Secretary of State will forgive us if we are not altogether taken by surprise. The NFC public relations machine has been working overtime in the last few weeks. A number of my hon. Friends have been enjoying its hospitality—to such an extent that I thought that the NFC had actually joined the catering business.

Mr. Ridley

Name them.

Mr. Fowler

Then, at the weekend, transport circles in Fleet Street—I think that would be the best way of describing them—reached a sudden unanimity that better figures were on the way. The Times "believed" it, the Financial Times "expected" it, and The Guardian "forecast" it. Remarkably they all had the same figures that were disclosed—if that is the right word—by the right hon. Gentleman today.

Let me say, however, that even within those totals we are still talking about a £15 million loss, and we are still talking about National Carriers, which is apparently still making a loss of £5 million. If the Financial Times is right, for the first time since 1957 Roadline—which was previously BRS Parcels—has made a loss. We shall certainly expect the Under-Secretary to say something about that in his summing-up.

Obviously the future prospects of NFC are considerably relevant in this debate; but so, too, I suggest, is the past performance. I would suggest that a consideration of the NFC record over the last few years is not only of importance but is essential for evaluating its plans and its estimates for the future.

It is beyond argument, as I have said, that in 1975 the NFC made a record loss. I am conscious that in any analysis of that performance I could be vulnerable to the charge of being wise after the event, so I should like to go back to the report of 23rd October 1973 of the Select Committee on Nationalised Industries. There we find a marked contrast in approach. On one side we have the NFC bullish and optimistic. On the other side we have the more cautious approach of the Select Committee.

In its evidence, the NFC described its plans and then set out its commercial philosophy. What it said was this: None of these plans will prevail if we live in a world of subsidy, especially if this only serves to cushion and protect inefficiencies, overlaps, obsolescent practices and weak management. The NFC added, We seek to be judged by the same criteria as private industry. We can then aim to be the pacemakers in environmental and social matters through our commercial success. That was what was said to the Select Committee in October, 1973.

The return on capital was estimated to rise from 11.3 per cent. in 1973 to 14.5 per cent. in 1975—the year of the record loss. When questioned, the chairman disagreed that such forecasts were over-optimistic. Let me add that, as far as I can see—and I have gone through all the evidence—at no stage in this inquiry did the NFC mention capital reconstruction, pensions or free fares for ex-British Rail staff.

In contrast, the Select Committee was decidedly more cautious in its expectations and it proposed two fundamentally important measures—a plan to eliminate the losses of National Carriers, and a proposal to sort out the muddle in the publicly-owned parcel carrying business.

In August 1974, the Secretary of State for the Environment, then the right hon. Member for Grimsby, replied. First of all, he said that the Government noted that "an enterprising start" had been made in developing European activities. "Enterprising", I think, was a word that the right hon. Gentleman used today. It is certainly one way of describing what was happening at that time, for, although this development was too late for the Select Comimittee, at the end of 1974 the NFC completed the purchase of a number of French companies. A report of this was contained in the January 1975 issue of Motor Transport, and referred to in the 1974 annual report. All told, the NFC bought five road haulage companies concentrating on the bulk transport of petroleum and chemical products. It involved a fleet of 600 vehicles.

The result of this venture was shown in the 1975 annual report, which said, It is perhaps fortunate that the experience was gained in a comparatively short time scale and decisive action has been possible to contain the position. Although it may not be immediately apparent from those words, the decisive action referred to was that the business was closed down. The only question is, what was the loss that was involved here? In the 1975 report of the NFC, the costs of closure are estimated at £5 million. But that is only part of the story, because at November 1975 the subsidiaries had a trading loss of £6.4 million, so we are talking already in terms of a loss of £11 million. In addition, it again appears from the accounts that £2.6 million was written off for the acquisition of goodwill in 1974. So now we have a total loss of between £13 million and £14 million on this French venture.

Therefore, what we clearly want to know from the Minister—and what was totally absent, and noticeable as such, from the Secretary of State's speech—is what is the current estimate of the loss from this French venture? The fact is that on the figures before us, one of the biggest losses in 1975 had nothing to do with pensions, free travel or even the parcels industry. It came directly from a disastrous entry into the French market. Obviously we want that information, because, frankly, I see no reason why the British taxpayer should be asked to fork out millions of pounds in this way. Also, I do not regard it as one of the tasks of the National Freight Corporation to rationalise the petrochemical market of France. I do not think that that is included within its terms of rationalisation, particularly when there is enough rationalisation to be done at home.

That brings us to the major point made by the Select Committee, namely, that operations between National Carriers and Roadline should be rationalised, and, if it proved impossible to make National Carriers a profit-making enterprise, its complete integration with Roadline should be considered.

In response to that suggestion from the Select Committee, the Government said in August 1974 that they accepted the judgment of the National Freight Corporation that National Carriers should be given a further opportunity to continue the trend towards profitability as a separate organisation. But in 1975 National Carriers lost £10 million.

A further major point made by the Select Committee was that the public sector parcels business was in a mess, that the National Freight Corporation, British Rail and the Post Office were all in the same market, and the characteristic result was loss for all concerned. As Sir Richard Marsh said, with some understatement, in evidence to the Select Committee there can be no doubt that the three public sector organisations are producing a less than optimum result for the taxpayers. Sensibly enough, the Select Committee urged that there should be an inquiry into the operation of the public sector parcels service as a matter of urgency. Back came the Government's inspiring reply: Because of the complexity of the issues concerned, the Government are not yet in a position to reply substantively to this recommendation of the Committee". That was in August 1974, and I suppose that rocking the boat was not considered a good idea at that stage.

Mr. John Prescott (Kingston upon Hull, East)

As a member of that Select Committee, I consider that the hon. Member is quoting very selectively from the report and conclusions of the Committee. When investigating that matter, we were concerned to press upon the Government of that time, the Tory Government, that they should consider putting the three nationalised organisations together and to make a decision as to which one should carry the parcels traffic. That was avoided by the Government of the time, who refused to intervene.

Mr. Fowler

It is true that the Select Committee made its report in October 1973, and although I am prepared to accept full responsibility on behalf of that Government—of which I was not a member—for the two or three months that we remained in power, that was the response from the Government. I do not want to make any particular point about it. But the problem was well known, and whether it was a Conservative Government or a Labour Government in office, action should have been taken sooner.

Lastly, I make three points about the National Freight Corporation. It is clear that the NFC has made some totally wrong decisions. Let us be blunt. Its entry into France was a disaster. There is no question about it or excuse for it, and only slowly, bit by bit, is the full extent of the loss becoming clear. It lost millions of pounds. It caused dispute with the French trade unions, and, according to those who know the position there, it has had a bad effect on the reputation of British operators generally. It had totally the opposite effect of what was planned. Nor could anyone conceivably be happy with the Secretary of State's attitude on this question, because it seems from what he said that he is quite happy that such a venture should take place all over again.

Second, the judgment of the NFC, set out for all to see in the 1973 Select Committee Report, has been proved wrong. It may have a case on pensions, although it was not stated then, and in any event its position could have been eased had it not gone ahead in France. Surely, the Minister for Transport, who announced in 1976 that the NFC was facing difficulties because of inflation and recession, could not have believed that the NFC was the only company in this country suffering from the effects of inflation and recession. What the NFC has to explain is why it could not cope when its nearest equivalent in the private sector, the Transport Development Group, continued to be profitable. Moreover, when private sector companies encounter difficulties they are sometimes forced to realise assets. There is an example of one major company doing that at the moment. Has the NFC even considered doing it—perhaps with its cold storage company—and if not, why not?

Third, the Government, faced with that situation and the losses of National Carriers, should have acted sooner. The evidence has been here since the Select Committee Report of 1973, and the Government have served no one by their failure to recognise it. We shall recognise it now. I do not think that the Government, the NFC or British Rail have made out a case for freight grants, either in practice or in principle, and I urge my hon. Friends to vote against the Bill.

4.55 p.m.

Mr. Tom Bradley (Leicester, East)

At the outset, I declare an interest in that, until very recently, I was president of the Transport Salaried Staffs Association and I am now the acting general secretary of that trade union. To that extent, I have to represent the interests of thousands of members who have invested their lives in the organisations which we are discussing on this measure.

The hon. Member for Sutton Coldfield (Mr. Fowler) spent a large part of his time attacking the management of the National Freight Corporation. As one who from time to time has to negotiate with that body, I must say that the management of the NFC and its subsidiaries does not deserves the hon. Gentleman's strictures. The managers have the welfare of the industry for which they are responsible very much at heart and are making considerable progress, as I shall demonstrate.

The two principal State corporations which we are discussing share something important in common in matters of finance. Both British Rail and the National Freight Corporation are expected to show big reductions in their losses last year when the figures are published. I shall deal first with British Rail. Big strides have been taken by British Rail management towards eliminating Government support for its freight business in the last three years.

When we discuss British Rail's freight activities and operations, we must not overlook how closely British Rail freight movements are linked with the heavy basic industries of this country, such as coal and steel. It was no coincidence that when, in 1975, steel ingot production was the lowest for 25 years, this was reflected in the accounts of British Rail.

On the specific question of British Rail's accounts, I agree with what was said by the hon. Member for Sutton Coldfield. A great deal of clarification is needed in the presentation of the railway accounts, because they are very hard to follow, and I support 100 per cent. the request made by the hon. Gentleman in that connection.

The recession in the iron and steel industry in 1975 was one of the principal reasons why the Government's support for British Rail's freight operations reached £67 million. For last year, we are told, the requirement will be much lower, between £40 million and £45 million, and I believe that there is every prospect that in the current year, 1977, British Rail will keep below the previously published Government intention to have a limit of £30 million.

At a time of national economic recession these are noteworthy achievements, when British Rail and all other operators are fighting for every ton of traffic. In the case of British Rail, it is the result of better marketing efforts, a stronger pricing policy and an improved and more intelligent use of resources. The introduction of a modern national air-braked merchandise service will improve still further the prospect of British Rail.

The hon. Member for Sutton Coldfield raised the important question whether it was right in principle to subsidise freight operations. I believe that it is equally relevant to look at the payments in support of freight operations in the context of the statement in the consultative document that no fewer than 150,000 heavy goods vehicles did not meet their costs to our road system to the extent of over £130 million last year. If we are to engage in arguments about subsidy, we must take account of that kind of estimate.

I appreciate that in this debate we are not very much concerned with passenger activities on British Rail, but we are aware that likely support in that area will amount to £20 million below the limits set by the Government, and certainly below the 1975 level. That is no mean achievement when it is set against the background of the inflationary period through which we have passed.

I want to say how pleased the trade unions are with the new Chairman of British Rail, Peter Parker. I have seen many chairmen of British Rail and of the British Transport Commission come and go, and indeed I go back to Sir Brian Robertson's days in office. I believe that Peter Parker has brought a positive and purposeful outlook to his job. He believes in the expansion of rail freight and passenger operations, and I think that he commands the confidence of the work force in British Rail to a degree that has not operated with chairmen for many years. The morale of railwaymen has not been high for some time and in my judgment Peter Parker is bringing new standards, a new approach and a refreshing outlook into a difficult industry that is competing in a highly competitive market.

I now turn to the National Freight Corporation, which played a prominent part in the remarks of the hon. Member for Sutton Coldfield. The Corporation was set up under the Transport Act 1968. Many of us at that time doubted whether that was a wise thing to do, but when it came into operation many thousands of former railway employees suddenly found themselves, at the stroke of the legislative pen, with a new employer. That meant for the trade unions a whole set of new negotiations on service, pensions and all the rest of it. Management, too, found that it had to take on new obligations. I shall say a few words about pensions a little later in my remarks.

The problems of the NFC relate principally to two subsidiaries, Freightliners and National Carriers Limited. The Freightliner business is going very strongly indeed. Last year it was the only NFC organisation that increased its business substantially, and it did so against the transport trends in 1976. It has turned a loss of £1 million into a profit of £1.3 million in 1976. Expressed in another way, in real terms, the number of containers conveyed by the Freightliner organisation last year was 730,000 compared with 624,000 in 1975. This should be compared with a figure of 30,000 containers when the organisation was set up in 1966. Obviously it is a business with a future, but it requires new investment at transhipment points, and many terminals require resiting.

Many of us believe, and we have said so publicly, that Freightliners should be returned to British Rail. I am still of that view, but I appreciate that it is a matter for the Minister. Whether or not it is returned to British Rail, I am sure that its employees under the present management can have every confidence in the future as a result of the new marketing techniques adopted and the number of new contracts achieved.

I gather from the Press that the NFC had a final loss last year of about £15 million, compared with an overall loss of £31 million in 1975. I am talking not about trading losses but about overall losses, taking account of factors such as interest. When we consider that of the overall loss of £15 million predicted for last year a figure of £16.7 million is attributable to one concern, namely, National Carriers Limited, we can see that but for that factor the National Freight Corporation would be in the black.

If we examine the trading basis alone, it is in the black because a loss of £10 million in 1975 in trading terms was converted into a profit of £4 million last year. I concede at once that this is nothing like enough to cover future investment requirements. That is why the capitalisation of the NFC requires urgent attention.

I am sorry that my right hon. Friend was unable to enlighten us a little further on his thinking in this connection. At the time of the takeover of sundries traffic from British Rail in 1969, the NFC inherited from British Rail not just an annual deficit of over £20 million in its current accounts, but also an historic burden of capital debt.

To return to the current trading position, we should appreciate the degree of rationalisation that has taken place from the point of view of those in National Carriers Limited, and we must also appreciate the extent of the staff co-operation provided under the new management. In 1969 in National Carriers Limited there were 250 local depots employing 24,500 staff and utilising 9,000 vehicles. That figure is now down to fewer than 100 depots with 14,000 staff utilising 6,800 vehicles. In other words, 12,000 staff in NCL have gone out of the business and nearly all with redundancy payments. That has cost the NFC between £40 million and £50 million. The 14,000 staff remaining in NCL are now working hard to get things right for their company.

After a set-back in 1975—which was a bad year for the small parcels business, because the level of trading activity in the country as a whole has a severe impact on that form of operation—the company has resumed the improving trend that began in 1969. It cut its trading loss from £10 million in 1975 to a figure under £5 million last year. Here again, the emphasis is being laid on new marketing policies. A nationwide, blanket service is giving way to specialised flows of traffic geared to inter-city routes, and more and more manufacturers are committing themselves to NCL.

I know that the Corporation considers the drain on its resources arising from the pension liabilities that it inherited from British Railways in 1969 to be a serious injustice. The Corporation, partly responsible for Freightliners and wholly responsible for the old sundries division of British Railways, which is now known as National Carriers Limited, acquired obligations not only to the work force that was transferred to it but towards those who had already retired on pension from British Railways. In other words, the Corporation inherited not only pension obligations towards future retired members of the work force but towards members of the work force that had already retired from British Railways.

That represents a substantial burden. It means that before trading starts in any given year the Corporation has to find £2½ million. The Railways Act 1974 relieved British Rail of its pension burden. Surely it is only right that the Corporation should have its case answered when it asks why it cannot be afforded similar treatment.

I have heard previous Ministers, both Labour and Conservative, say that it was always the intention to refinance the business of National Carriers Limited from sales of valuable land that is held throughout the country. However, when the Community Land Act was mooted £50 million was removed from the company's capital value.

Mr. Ridley

Hear, hear.

Mr. Bradley

I fully expected a response from the Opposition Benches. I mention that matter not in a party political context but as a matter of fact. However, as is known on the Government Benches, the Community Land Act has wider benefits. In considering this specific financial problem we should not underestimate the effect that it has had on the capitalisation value of the Corporation and its subsidiaries.

All these matters add up to the need for financial reconstruction. We must be put into the picture about the Government's intentions at the earliest possible moment. I firmly believe in public transport and the vital rôle it can play on behalf of the economy and the community. I strongly reject the inference of the hon. Member for Sutton Coldfield that we can leave transport to the free interplay of market forces. In my judgment that would produce so much waste and duplication as to put an intolerable burden on our national finances.

We need a clearer definition of transport policy. I believe that that is what my right hon. Friend and his consultation document is all about. I refer to the document that the House will shortly be considering. I am pleased that my right hon. Friend is bringing a fresh mind and, if I may say so, a shining intelligence to these matters. He has applied his mind to transport problems over very many years. I entered the House in 1962, at almost the same time as my right hon. Friend, and I remember his speech on the Beeching Report in 1963. He has a record and a background of deep interest and involvement in transport affairs and we are right to place every confidence in him. We look forward to the policies that we know he will produce.

5.15 p.m.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

The hon. Member for Leicester, East (Mr. Bradley) speaks most convincingly and attractively, but he sounds like one of his more senior colleagues, the Chancellor of the Exchequer, who blames all misfortunes upon inheritance and always predicts sunshine next year. I do not believe that the hon. Gentleman, the Minister or anyone else believes that next year the National Freight Corporation and the Railways Board will miraculously break into sunny economic climates. However, it is a sort of ritual of those who support these ossified bodies that they have always to say that that will be so, otherwise there is no way in which they can support the thesis that no change should be made.

I know that these debates are embarrassing to Labour Members. I noted that the Minister said at the beginning of his speech that he hoped that we would move on to the policy debate as soon as possible. It is clearly embarrassing for him to have to discuss pounds, shillings and pence and the effect of Government policy. He then said that we were not to attack the management of these loss-making concerns. He seemed to be suggesting that I must be a decent, honourable sort of chap and lay off attacking management. But supposing this had been a financial company such as Slater Walker or Keyser Ullmann. Would someone from the Government Benches have told me to lay off attacking the management, explaining that it was all the fault of the shareholders?

I do not think that I can excuse management entirely, although I shall mainly direct my remarks towards the economic climate in which the Government force enterprises such as NFC to live. We have in the National Freight Corporation a sort of public sector V & G, a poor man's Keyser Ullmann. There is no way in which that can be disguised, overlooked or disregarded. Whether we care to blame management—in my case I prefer to blame the Government—we must blame someone. It cannot be that mistakes of this order go by, like the drought, as an Act of God for which no one has to make any sacrifices.

The latest report of the Corporation is a sort of apologia, but, worse than that, it seems to ask for our sympathy. It is suggested that things were very difficult and that the Corporation had a bad year. It is even suggested that we should feel sorry for it for losing £31 million, that it was really jolly hard luck that it had to do it. It is the attitude that never has anyone been wrong and that there has been no mistake that is so intolerably offensive about the tone of the NFC and the remarks of the hon. Member for Leicester, East.

My hon. Friend the Member for Sutton Coldfield (Mr. Fowler) quoted a sentence from the Second Report from the Select Committee on Nationalised Industries. Mr. Pettit, as he then was, said: they will be judged by the same criteria"— that is the same criteria on which the private sector is judged. I shall make a further quotation from page 83, where Mr. Pettit said: We do not rule out the fact that in the private sector businesses that do not succeed go to the wall and also that where profit margins are small in relation to certain traffic it is abandoned. We have this very much in mind in our strategy. That seems to link up with the earlier quotation from Mr. Pettit's remarks—namely, his contention that he wanted the disciplines of the private sector.

Where he went wrong was in thinking that assets should be sold or that other assets should be liquidated to pay for his capital needs. He did that with the two shipping companies. He sold those companies because he thought that others could manage them better and because he needed the capital. That is the discipline of the private sector. That is what was done by Joe Lyons, which similarly fell upon hard times but which managed to recover by selling assets.

Why have not the Government made the Corporation realise assets to cover the £31 million in losses two years ago and the £15 million or £16 million that it lost in the past year? If the Secretary of State says "We want to take risks. We want to go into enterprising ventures in France. We want to see whether the Corporation can behave like a commercial company", he must accept the disciplines of the commercial company. Failures must be met by selling assets or closing down loss-making activities. If the right hon. Gentleman is to ask for the disciplines of the private sector, as he has, and as Sir Daniel did in 1973, the House should demand that he accept the difficulties and disadvantages as well.

I should like the Corporation to be told that next year that it must make 17 per cent. on its capital, which is the going rate, and that if it does not do so, something not very favourable will happen to the management. If the management claims that, as the hon. Member for Leicester, East and others have alleged, it has unfair economic burdens, that it had to inherit pensions which were not properly its own or that it had uneconomic social obligations—and there are many reasons why that could be so—it should tell the Government "If you want us to support these pensioners, to carry this parcels traffic or keep open a depot in an area of high unemployment, we want a certain amount of money to cover the cost." Then we should know what was social, what was unfair and what was a commercial failure. It is very difficult to know that from the accounts put before us. As long as the chairman of a nationalised industry can say "The Government asked me to do this or forced me to carry that", which is not quantified, he can always imply that the vast bulk of his loss was due not to commercial failure but to a social obligation put upon him by the Government.

Mrs. Gwyneth Dunwoody (Crewe)

I hope that the hon. Gentleman will forgive me if I remind him that when he applied those solely arbitrary methods to a semi-autonomous body, the National Film Finance Corporation, when he was a Minister, he insisted on conditions which made it impossible for it to work. All that he did was to neuter that unit so efficiently that it has never recovered. The hon. Gentleman's own Government had so much faith in his ability that they asked him to leave.

Mr. Ridley

It is probably out of order to say this, but I must confess that I think I made a mistake. I managed to persuade the Conservative Government to match pound for pound money raised by the National Film Finance Corporation in the City to finance commercial films. My colleagues said "Do not pour more good money after bad", but I got the scheme set up, with their grudging consent. I think that I should have been wiser not to do so and that they were right.

To return to transport, I think that the method I have described is the way in which we should deal with uneconomic activities. It is the way in which British Rail's uneconomic activities are dealt with. I have talked to Sir Richard Marsh, who is convinced that it is possible to quantify the cost of socially desirable activities which are not commercial. I believe that of all the nationalised industries, British Rail has at some stages been nearest to having a form of financing which is understandable and has a certain degree of accountability, because if the railway from X to Y is to be continued we know that it costs £Z. Therefore, we can judge the value of that branch line in terms of what it costs.

If all economic activities are rewarded, we have a measure of the varying efficiency by the profit and loss, after taking account of grants at the end of the year. I do not want to question the grants to British Rail, because I believe that there has been at least an attempt to quantify the burdens upon it.

It does not seem to me good enough in terms of public accountability that we should accept the position outlined by the Minister in regard to the National Freight Corporation. He should tell us what he will do to reduce the loss to zero and put the Corporation into profit. He should also tell us what will happen if he does not succeed. The crunch is what happens if a target is not met. If the loss goes on, who will be sacked, who will be made to sell assets, how is the taxpayer's investment to be safeguarded?

I understand that requiring the Corporation to cover its losses by selling assets would result in its ceasing to exist after a very short time, because it would sell off all its assets. That could not be a bad thing. European Ferries was pre-prepared to pay the Corporation £5 million for a wasting, loss-making shipping asset, and has made it profitable. No one has lost his job and the taxpayers are not losing money on that shipping line. The Corporation is freed of a responsibility that it did not want.

Where a public industry fails the nation, it should be part of the inbuilt discipline that it must sell its assets, close them down, or, in some cases, raise its prices to cover its losses. No amount of bland talk such as we had from the Minister and the hon. Gentleman, about how next year will inevitably be better, is acceptable. There is no other way in which they can believe in public enterprise. They have a large public sector. They have what was wanted from the early days of Socialism, when the desire was to see public ownership of the means of production, distribution and exchange. Now they must stop hiding behind bland optimism and devise disciplines which will make the wretched public sector work.

I entirely support the desire of my hon. Friend the Member for Sutton Coldfield to vote against the Bill. I do so in the purely negative sense of knocking this unsuccessful public Corporation but because it is essential to bring home to the Labour Party and, I suspect, to civil servants that they must now make the thing work.

The hon. Member for Bolsover (Mr. Skinner), who is not present, has often said that we Conservatives will be stuck with the public sector if we come to office again and that there is nothing we can do to dismantle it. He mocks us. I accept that what he says is partially true, but the two sides of the House have a combined responsibility to stop the sort of thing that is happening now.

Because of the utter complacency of the Corporation's report and the Minister's speech I shall vote against the Bill with glee and with high hopes that it may be the last measure of this sort to be put before the House.

5.28 p.m.

Mr. John Prescott (Kingston upon Hull, East)

The debate has shown the difficulty of differentiating between the Bill, as it directly relates to providing subsidies to maintain the present position, and the policies involved in the nature of the subsidies. I support the subsidies.

We are being asked to support them as a stop-gap, but at the same time to question whether the policies that they are intended to help are correct, and whether my right hon. Friend the Minister should perhaps give a little direction to the bodies for which the £95 million is intended. My right hon. Friend made clear that if we had criticisms in that respect we should perhaps direct them to him instead of those bodies. I am not sure that that is correct since the Minister has been quick to point out that this should involve the entrepreneurship of the Chairman of the Corporations and that we should leave them to pursue their commercial judgments. The Minister cannot have it both ways. There is a certain amount of contradiction in that view.

Another important point with regard to subsidies in the nationalised industries—in this case British Rail and the Freight Corporation—lies in the present public expenditure policy started by the Opposition. As a result of the public expenditure cuts, directions have gone out to those companies telling them that they now have ceilings to which they must operate.

I am concerned about uneconomic railway lines which for social reasons should be retained. It seems that there is a political decision that determines the way in which such a line stays in being and whether the Government will subsidise it.

There is an example of this in my own constituency with regard to the Eastern Region of British Rail. We are told that it will receive only "X" amount of subsidy and that it can decide where to put the money. In so doing, it will effectively be taking social and political decisions normally made by Government. It will now be determining a commercial criterion, but the management will have to decide whether to put the money into the improvement of track or to use it to subsidise some particular line.

In my own constituency the Hull-Bridlington-Scarborough line is important. But it cannot make a profit because it has no commercial freight that it can carry. It is a classic case of a line which serves a community but which cannot necessarily meet the normal criteria used for profit.

A similar policy was pursued in the ports industry by the Opposition. It was a disastrous policy and led to the previous Tory Government reversing some of the ports policy. I am seriously in doubt about some of the policies being pursued at present in support of these subsidies.

It is right for us to question the track record of companies, but anyone trying to work through a Select Committee report knows that there is a mass of detail and that it is not possible to cover every part of that report. Those of us who are members of the Select Committee have the advantage of remembering more about the report. I can assure hon. Members that the point about pensions was brought to the attention of the Select Committee. I would recommend the hon. Member for Sutton Coldfield (Mr. Fowler) to read the report more closely.

Mr. Norman Fowler

Where?

Mr. Prescott

I do not have the report with me but I shall look at it and let the hon. Gentleman know. I am sure that I was involved in questioning particularly in regard to pensions. It was a problem that faced the National Freight Corporation at that time.

I want to make a number of remarks about the considerable amount of attention that has been given to the National Freight Corporation. I do not make these remarks in any kind of ideological sense. I have a committed political position with regard to transport.

However, it is clear that there are differences in philosophy between the two main political parties about transport. I am not so sure that I even completely support the policies that my own Government tend to pursue. Whereas the Conservative Party believes in the marketing system, we believe that the kind of money involved in an integrated system should be developed, and we await the Government's plans.

Some of the remarks made by the Opposition have been somewhat biased. I would remind them that the National Freight Corporation was given the responsibility of changing to integrated road and rail while at the same time the private sector was left to take the most profitable sectors. This led to an uneven situation between the two sides.

The National Freight Corporation inherited a £20 million deficit and was given four years to clear it. The organisation made an impressive start. That was the opinion of the Select Committee at the time. But one can also say that there was a serious deterioration after that. The Corporation became involved with the European operation. I questioned that in the Committee and said that I was seriously in doubt about it. I seriously criticised the Freight Corporation for selling off its shipping interests, which were not loss-making. The Atlantic Steam Navigation Company, which was a State organisation, made its 17 per cent. profit.

That was a very short-sighted view and I assume the Corporation took the decision to accumulate capital because of its debt problem. The National Freight Corporation inherited a considerable problem and faced recession problems that all transport companies have to face.

I would point out to the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) that two-thirds of the Freight Corporation's operations—in companies such as BRC and Pickfords—are equally competitive with any private company. Their returns compare in a positive way with the private sector.

But National Carriers causes considerable concern. It was a debt that the Corporation inherited. I do not think any organisation could deal effectively with it. I hope that the transport integration policy will look at this. As a result the Freight Corporation was left with a loss and could do very little to improve it.

I would point to some of the other things that the Freight Corporation does. It is one of the major trainers of licensed lorry drivers of heavy goods vehicles. But the private sector pinches them and is not prepared to pay the heavy costs of training.

The Freight Corporation is one of our main contributors to training skills. It has always been. There is also no doubt that with regard to environmental matters, and industrial democracy the Corporation has made considerable advances that are much better than anything in the private sector. It is concerned to modernise and it should have the capital to carry it through its problems. The Select Committee discussed that also.

I was extremely critical of the European operation, which at the moment is involved in a legal case in France. Before making a judgment one should perhaps wait to see whether that legal case proves that direct misrepresentation was involved.

The Freight Corporation forecasts a loss of about £50 million. But a political decision was taken which made it more difficult for the Corporation. That is something to be considered when we are passing judgment on the Corporation and its activities.

Freightliner has now had a remarkable turnround. The question was asked whether it would see a turnround or whether it would break even. The figures show that it made a profit last year. There has been a considerable turnround in Freightliner, and I praise it for not closing down Hull Freightliners. With my colleagues who represent Hull constituencies, I have been pressing about this matter, and my attitude to this Bill might have been flavoured differently if precipitate decisions had been taken in that area. We fought a constant battle, and I want to put it on record that, when we talk about the type and quality of management in this industry, we have there in Mr. Bleasdale a manager who is as good as anyone to be found in the private sector. Whether an industry is State-owned or private, the quality of management is important.

Mr. James Johnson (Kingston upon Hull, West)

As the constituency Member for the Dairycoates depot, I am glad to say that there is now a better spirit among the staff and that my hon. Friend and I can feel a great deal happier about it. They have had a stay of execution and are now doing much better. They feel now that, as a result of their efforts, they will escape what my hon. Friend and I feared some weeks ago, and Hull Members will be going to see Sir Dan Pettit about it any time during the coming week to suit his convenience.

Mr. Prescott

I agree with my hon. Friend. We work together closely on these matters. But the Freightliner difficulties are not restricted to Hull. My remarks are directed to the finance in this Bill which is going directly to the National Freight Corporation, on which Freightliner may have some claim. It is profitable at the moment—it is not a drain—but its capital programme may require some of these assets.

To my mind, the accounts of these organisations leave a great deal to be desired. The hon. Member for Sutton Coldfield said that we should look more closely at how the accounts are prepared and that more details should be put into them so that this House might make a better judgment of applications for additional subsidies. My right hon. Friend knows that in the case of Freightliner there have been seriously contested views about how accounts, if produced in one way, can be made to show a loss and, if produced in another way, can be made to show a profit. That causes considerable concern. Frequently, part of an organisation is threatened with closure as a result when, very often, accountants disagree about the true way of dealing with the accounts. These matters are being discussed with Sir Daniel Pettit and others to see whether we cannot thrash out some understanding. It is a very important point, and I hope the Government will consider whether we cannot get a better way of dealing with accounts when they are reviewing our transport policy.

I leave the House with one example of that which arose during a meeting of the Select Committee. We asked Sir Richard Marsh how he arrived at the figures for charging Freightliner for an engine to take haulage from one point to another. This is a very important part in financing Freightliner operations and in deciding whether a line is making a profit or a loss. He said that he did not really know and that it was very difficult. In our report, we asked the Government to look carefully at this and to try to arrive at a formula which was acceptable to all. Unfortunately, the Government replied that this was difficult to do. I found that extremely unsatisfactory.

But what happened was even worse, because Sir Richard Marsh saw this as an excuse to increase charges for haulage on British Rail, thereby making the link on the Hull line much more precarious. His arbitrary decision to increase the charges threatened the prospect of Freightliner development in the area. I hope that the Minister will bear in mind these matters when he is studying these problems.

We have heard many comments from Opposition Members about the shipping industry. As the House knows, it is the industry with which I am most conversant. It is the financing of the industry—the amount of money available from the State or from the parent company, British Rail—which determines the quality of service. Anyone looking at the history of British Rail shipping will discover that it was the first to develop hovercraft, container ships and roll-on/roll-off ships. It has a history of innovation which is not matched by the private sector.

The great problem was that it did not have the money. It was denied capital by the major corporation, British Rail, which was losing money and not prepared to put it into shipping. The denial of capital to certain of its parts puts the State sector at a serious disadvantage compared with the private sector, and the result is that its capital structure in terms of ships is twice as old as that of its private competitors. The Fishguard lines—the Irish routes—are all showing signs of dilapidation because of the denial of capital, about which we are making representations to the Minister.

In my contribution, I have tried to suggest that we should not give the impression that this House will provide money and leave judgments to managements outside. The judgments should be ours as well. They are not solely commercial ones. They are also political, social and economic ones. We have a responsibility and we are answerable to our constituents. I hope that perhaps we shall be able to combine the financial obligations with the political decisions which are needed in transport.

5.45 p.m.

Mr. John Cockcroft (Nantwich)

One of our difficulties today is the successive writing-off of losses by State industries in general and by the transport industries in particular over many years. This applies especially to the railways. We have now reached the situation where it is almost impossible to say in real terms what is a profit and what is a loss.

We see what might be described as the endless search for the Holy Grail of an integrated transport policy. Everyone knows about it because it is the fashionable "in" phrase. But no one is clear what is meant by it. It is a vague idea. Mainly, it seems to involve integrating the timetables of the railways and the buses. People have latched on to the idea that no one should waste more than a quarter of an hour at Cambridge Station before being able to catch a bus to Grantchester, for example. Beyond that, it is a rather elusive concept. What I hope that it does not mean, although I fear that in many minds it does, is that eventually we shall see the deliberate elimination of competition between the different forms of transport.

In the case of the railways, there is the perennial question of track costs vis-à-vis road transport. Large lorries—the so-called juggernauts—pay very heavy annual taxes at fixed rates. Otherwise their marginal costs—the cost of moving a vehicle from A to B—are relatively minimal. That immediately raises the question whether, if we are to have more roads, we should not have more tolls to pay for them. The system of tolls which is very general in America seems to work perfectly well on American highways. I do not see why it should not work here.

The railways in this country have inherited most of their track from the more distant past which, with the excessive writing-down of capital, costs them very little in terms of amortisation. On the other hand, they have very heavy running, signalling and general costs in maintaining the track which exists already, unlike road hauliers who use our roads largely free of charge, having paid very heavy taxes. This is one reason why the railways lose money—a great deal of money on many lines. It is a great problem to know how to distribute overheads on the railways between the regions and from the centre to individual lines. This is a problem which has dogged the railways for many years.

During the debate, there have been references to the hearings of the Select Committee in past years. I am fortunate enough to be a member of that Committee. We have taken a great deal of evidence at many hearings and we have made fact-finding visits both here and abroad to try to discover the position of the railways and other forms of transport in different parts of the country, as well as the London region, and in other countries.

It is well known, and has been borne out by our inquiries, that railways in most parts of the world lose a great deal of money. Therefore the question arises what can be done about this. Many of our investigations have been devoted to the sort of measures which should be used to bridge the gaps between costs and revenue. There is a fundamental problem here and we shall never solve it completely.

There have been so many formulae over the past two decades—the successive writing down of capital on the railways; the so-called social grants for railway lines which were regarded as socially necessary—not that I am against that in principle; periods of telling the railways that they must break even, taking one year with another; financial targets set by the Treasury which were hardly ever met but which were in principle desirable; periods of restraining prices under almost every Government; and grants-in-aid made—the measures which have been adopted have been legion. This has been not only because of the changes of Government but because the problem is basically insoluble.

British Rail is a paradox. It is among the most technically advanced railway systems in the world. The high-speed trains which run on western routes—and they will shortly go up to Crewe and beyond—are an example of this. We are abreast of all the latest technical developments on the railways. But at the same time there is overmanning. This problem has been exaggerated by some people, but nevertheless there is a degree of overmanning despite a run-down in staff in recent years. There is also generally low morale, and I sincerely hope that Mr. Peter Parker will put right the serious failure in communications between management and unions. Also it would be a help if there were only one union on the railways instead of three eventually.

There has been a general lack of understanding of the investment problems of the railways. We were told in the Green Paper that the investment levels would be held or even reduced in real terms for at least the next few years. We read about existing lines having new electrification schemes, such as the Bedford and Cambridge lines, while it is manifest that a lot of the existing stock is being run down. Here again there is a failure of communication on the part of British Rail to explain what it is trying to do. I do not disagree that previous electrication schemes were largely a great success. There is no doubt that traffic on the London to Manchester and London to Liverpool lines, which has been in direct competition with the shorter airline hauls, has increased—at least until recently when the fares went up so much. Many people feel that British Rail should not go into these prestige schemes when it cannot run trains from Chessington, Surrey, to Waterloo, for example, on a regular basis.

The main difficulty in the many debates we have in this House on transport is in assessing the real costs of running a railway engine. In some ways the cost of moving a heavy lorry is more easily quantifiable, and a more exact price can be put on it. However, there is the general problem of road jams and the loss of resources caused by traffic conges- tion in major cities such as Birmingham, Manchester and Coventry during rush-hours. No one can really say how much it costs if tens of thousands of people are stuck in their cars. Some of them are highly paid executives who are wasting time in a traffic jam when they could be travelling by rail.

Nor can anyone put a price on the cost of pollution which comes from enormous lorries going through small villages and virtually running them to pieces. I am fortunate enough to have an Adjournment debate on Thursday next week about the need for a bypass of the villages of Holt in Denbighshire and Farndon in Cheshire. In that part of the world there is a 14th century bridge and some ancient houses which are actually crumbling into the ground because the weight of heavy traffic on the roads is too great for them to bear. These are things on which one cannot put a price.

Finally, I make a plea to the Minister that nothing drastic or irrevocable should be done about transport in the next few years. Nothing should be done which would be comparable to the situation in America where the New York State Railway network was run down, and this decision could not be reversed. If we do irreversible things we may rue the day we did them.

5.56 p.m.

Mr. Michael McNair-Wilson (Newbury)

This has been a most interesting debate. All the comments that have been made about rail freight and the National Freight Corporation have added considerably to the knowledge of many of us. I listened to the Secretary of State with great interest, and I hope that he will forgive me if I say that at the end of his speech I was not very clear how this total sum of money was to be spent. I believe that £45 million is to go to British Rail and £50 million to the National Freight Corporation, but I feel that the Minister himself was not absolutely sure how it was to be spent. I think that he was faced with a couple of bills and he knew that he had to pay them. However, he did give us plenty of warning that this was to be, because he made a statement to this effect in February last year.

My hon. Friend the Member for Sutton Coldfield (Mr. Fowler), in an outstanding speech placed great emphasis on one point which I wish to follow up—that is, how we can find out where the money is going and how we can have a more accurate form of accounting from State corporations. Obviously this applies to any State industry, but because we are talking about transport today I shall restrict my remarks to British Rail and the NFC.

I declare an interest. Like my hon. Friend the Member for Nantwich (Mr. Cockcroft), I am a member of Sub-Committee A of the Select Committee on the Nationalised Industries, and at the moment we are inquiring into British Rail. I endorse much of what my hon. Friend said. We on the Committee have had an opportunity to see a great number of Western European railway networks and we came back from Europe much prouder of British Rail than we were before we went there. Until then we did not realise how much more European countries spend in subsidising their rail services than we do. We have learnt a lot from these visits, including the fact that most Western European railways carry much more freight than British Rail. This is a point worth considering when we talk about money for British Rail services.

I thought that my hon. Friend the Member for Sutton Coldfield's criticism and indictment of the way in which the National Freight Corporation is run was perfectly fair. I was a member of the Select Committee that investigated the Corporation. I do not want to make a blanket criticism of those who are running it, but at the end of our inquiry I do not think that any of us were satisfied that the NFC was on the way to a great success. Therefore, when we hear of the recurring losses and see the 1975 annual report—which I received this morning—and when we read of the progress or otherwise of the various parts of the Corporation, we feel deeply concerned that it is not going the way that those who panned it hoped it would. It is right, therefore, that we should all consider how every penny of public money is being spent, and whether the Corporation is meeting its criteria. If it is not we must consider what we can do about it.

If the criticisms sound harsh and the indictment severe I hope that those who run the Corporation will consider the criticisms carefully, and I hope that the Secretary of State will do the same. We are impressed by the freshness of his approach to the transport business.

Mr. Gwynfor Evans (Carmarthen)

Does the hon. Member agree that it is not altogether a good thing that British Rail is so secretive about its income from the carriage of freight?

Mr. McNair-Wilson

I entirely agree with that point, and I hope to enlarge upon it.

We are holding our debate against the background of the recession of 1974–75, which lapped into 1976, and we recognise that all freight services have had a cut-back in the goods they were hoping to carry—a cut-back which has affected them financially. I fear that the dream that I shared with others, of switching much of the freight that goes by heavy lorry on to the railways, will not be realised to the extent that once seemed possible. But I still believe that there is room for moving more of that freight by rail. The massive switch will not occur, and the consultative document says more or less just that, but there is room for initiative by the State carriers to expand their activities.

I should like to know how much of the £45 millions going to British Rail will be used to finance or subsidise private sidings for factories. Perhaps the Secretary of State will say that this item is not covered by the £45 million. Nevertheless, I should like to know whether the programme will go ahead. One fact which came out of our Western European tour was that in France in particular there is a very large number of private sidings. One French railway official told me that because the sidings were there the freight continued to be run into them. He said that because of our Beeching cuts, far too many of our sidings had been closed down and British Rail had therefore lost the opportunity to move freight from siding to siding. Quite a lot of investment has gone in this direction and I hope the Minister will explain whether the money set out in the Bill covers that point.

The hon. Member for Carmarthen (Mr. Evans) is right to talk about the vagueness of British Rail's accounting. In the evidence given to the Select Committee by the Department it was made clear that for freight-only lines, the freight business is charged the total infrastructure costs; for lines shared with passenger services, however, the bulk of the expenditure on track and signalling is charged to the passenger business, the safety and comfort requirements of which dictate the standards of provision and maintenance. In other words, what cost is the freight business really carrying? How many of these freight-only lines are there and, therefore, what is the total cost of running the freight business, leaving aside manpower, sidings, handling equipment and so on? If there is a loss, to what is that loss attributable, and how will the £45 million meet it?

That takes me on to the question of which lines are making losses and of precisely how an answer can be discovered. In Sweden we met the railway authorities and we found them a most impressive group of people. They said that they could tell us almost with certainty which of their lines were profitable and which were not. They said that if their Government were to say that they wanted a commercially viable network the authorities could tell them what that network would be. However, it was recognised that running the railways provided certain social advantages even though some of the lines might lose money. The organisation operated essentially in a commercial way. It estimated the social subsidy, which it described as the collective ticket, and that was the ticket that it presented to the Government for running the loss-making lines.

That must be the right approach. I hope that in the review the Department will give the greatest emphasis to discovering which lines are commercially viable and which are not, which are socially necessary and which are not, and how much of the existing network we should retain. I therefore say to the Minister that while we pursue a policy of public service obligations with a blanket subsidy to British Rail we shall not get that information, as was made clear by the Minister's officials who were asked about the point at the Select Committee. They said that as matters stood it would not be possible for the Department to produce a calculation for Southern Region. The Committee was told by an official It is not a part of the grant calculation to determine what is the full loss, if I can put it like that, on the Southern Region or the Western Region or any other region of British Railways, and there is a route problem about allocating the costs which are joint or common, such as particularly the track and infrastructure. In other words, we do not know which losses the blanket subsidies cover. I suggest therefore that we take a leaf out of the book of the Swedes and find out. Once we do that we shall start spending the money in the best way possible for the taxpayer, thus getting a true social return.

The French railway official told me that in Britain all freight was handled at goods depots by railwaymen. In France, he said, it was handled by those who were moving the goods. That was a very different approach. If a man knows that his goods are in the goods yard he will go and get them. If he waits for British Rail to bring them, British Rail will not know the priority and there may be muddle and confusion, so that the next time the man will send his goods by road. The French approach to freight seemed to provide the sort of enthusiastic approach that we need if we are to get rid of the rail deficit and make British Rail freight services as good as they could be.

I turn now to the National Freight Corporation strictly and solely within the terms of Freightliners Ltd. I was delighted to hear from the Secretary of State that this year's results are so much better than those of 1975. He was not quite so sure as some of his hon. Friends that Freightliners was actually making a profit. I wonder whether we can have the right figure on that point.

In the 1975 report, which I received this morning, I was struck by this sentence on page 14: At the end of the year, rail services from Sheffield were discontinued and South Yorkshire is now served by road, principally from the Leeds terminal. I do not know about other hon. Members, but it caused me to have severe doubt about Freightliners Limited, as run by the National Freight Corporation. I should like that service to be expanded. When I am told that South Yorkshire is no longer to have Freightliners, I ask "What is the future of that service?" As has been said, it is nice to know that Freightliner Limited is still running, but what kind of network is it running on?

When I received further evidence from the National Freight Corporation to the effect that the air-braked Supervans, by which British Railways are placing so much store in terms of regaining freight traffic, may act as a serious and damaging competitor to Freightliners, I ask "what kind of world does the NFC think we are all living in?"

For my part—the Minister will find that I made this point in a minority report, if that is the right word, to the Select Committee Report of 1973—I should like to see Freightliners returned to British Railways. I am reminded of a remark by Sir Richard Marsh when he gave evidence—that the people who most care about selling rail freight are railwaymen. With Mr. Peter Parker and the new enthusiasm which he has brought to British Railways now in charge of that Corporation, I should like the railways to take on Freightliners, to increase their freight sidings, to buy new wagons and expand the computerised TOPs system rather than to adopt the defeatist, pessimistic view which the NFC gives in its report—that South Yorkshire is no longer on the container line and that the Supervan looks as if it will damage Freightliners still further. That means that Freightliners will soon not exist, and the loss will be great to the country, to British Railways and to all who work for them.

If Western Europe can make a success of railway freight, so can we. I admit that the distances in this country are much shorter than in Western Europe overall. For that reason, I regret that the Channel Tunnel project did not go ahead. Had it done so, what Sir Richard Marsh described as Eurorail would have come into existence. if so, our railway freight system would have had the advantage of long haul into Western Europe, which would surely have been profitable.

Mr. Ronald Atkins (Preston, North)

I agree with the hon. Gentleman about the Channel Tunnel. However, he may not be aware of another reason why freight transport by rail is stronger in Western European countries than in this country. One reason is undoubtedly the large amount of subsidy which freight receives from Governments on the Continent. The figures appeared in the Financial Times two or three days ago. The German railways, which are roughly comparable to ours in size and are subsidised by £2,500 million a year, had a deficit of £1,250 million largely due to losses on freight.

Mr. McNair-Wilson

That is an extremely interesting intervention. I did not refer to West Germany when naming certain Western European services, because the West German Government are now looking at their railway network more acutely than we are looking at ours. They are determined to reduce that vast loss to the greatest extent possible. But German trade unionists, whom we met, were extremely interesting about the type of freight now being carried. They said that too many railway systems had a traditional approach to the type of freight to be carried and had not adapted to the fact that whole trainloads of goods might not necessarily be the best mode of transport at which we should be looking in future. The ability to break up the train, which we may be able to do with the air-braked wagon, could be the way forward.

The German Minister whom we met—an SDP member—forcefully made the point that, in his view, vast subsidies to an unprofitable State organisation was the worst waste of socially available funds that he could think of. Looked at in that way, the idea of giving subsidies to organisations which are inefficient, uncompetitive and unprofitable takes on a completely different complexion and should make us all realise that it is not the way to get the best out of the contribution being made by ordinary people by way of taxation.

We must know more about how these sums in the Bill are to be spent. If we are to expand rail freight—I believe that is possible—we must in turn give British Railways a measure of security regarding the network that they will be operating. Unless British Railways can say to those whose goods they wish to move that they will have the network to move those goods, then those goods will be lost to the railways.

I refer now to the competitiveness of freight rates. Railwaymen in Wales whom we in the Select Committee met told us they were demoralised because they felt that British Railways had not got their freight rates policy right and that they were being asked to approach people with freight rates which they knew would lose them business before they started. British Railways must break even. It is not for me to say that their marketing men do not know their jobs. Railwaymen are keen to make their freight services a success, but they feel that they are not living in a truly competitive world. Therefore, freight rates are of crucial importance.

The reliability of services cannot be overstressed. If one asks any industrialist why he has gone to road haulage, he will give one of three reasons: first, that British Railways are uncompetitive and he is living in a competitive world where every penny counts; secondly, that the distance is too short; or, thirdly, that he cannot rely on the railways to get his goods where he wants them to go. British Railways are aware of this problem.

Lastly, I turn to the problem of fiscal measures to create a more competitive environment. We must be very careful about this matter. Railways people always say that road has an advantage and road people say that road has no advantage of which they are aware. What matters is that British goods should go where they are wanted at the right price so that we may remain competitive and get the markets which we sorely need. I am not saying that there is not an argument for looking at comparative costs, but we would be unwise to pin our hopes to so altering the tax borne by road haulage as to give a theoretical fairness to British Railways. I we thought that was the way out, we might end up with higher freight rates all round and British goods less competitive.

6.18 p.m.

Mr. Ian Gow (Eastbourne)

The House has become so used to Ministers coming to the Government Dispatch Box and asking for further sums to subsidise the public sector that I suppose we should at least be thankful today that the sum asked for is the relatively small amount of £103 million. Nevertheless, I do not think that we had a sufficiently contrite attitude by the Secretary of State when he introduced the Bill. One thought, listen- ing to the right hon. Gentleman, that this further borrowing power of £8 million for the British Waterways Board and this £95 million, which is not a loan but a grant, were almost part of the grand design, and that we were on course. There was no confession of sin, no contrition and no acknowledgement that the public sector had gone catastrophically wrong.

I congratulate the Minister on having said that the main responsibility for the three public entities that we are debating this afternoon rests firmly with him as Secretary of State. Any criticisms I may make in the course of my remarks about the National Freight Corporation will be directed not at the management or employees of the Corporation but at the system over which the Secretary of State presides. Sir Dan Pettit, his colleagues on the Board of the NFC, and the Corporation's employees are, in a sense, helpless victims of a system over which they have no control.

I want to emphasise to the House the extent of the Secretary of State's responsibilities for the administration of British Rail. Clause 1(2) of the Bill refers to the Railways Act 1974. Section 3(1) of that Act says that the Secretary of State: may give directions to the Board imposing on them obligations of a general nature with respect to the oeration of the whole or any part of their railway passenger system. Subsection (4) says: The Railways Board shall, in formulating policies and plans for the general conduct of their undertaking and the business of their subsidiaries, act on lines settled from time to time with the approval of the Secretary of State. This underlines the principle of the proposition that it is upon Ministers and the Government that the responsibility for the Bill and this request to the taxpayer for another £105 million rests.

I have only one observation to make about Clause 1. The Secretary of State says that the additional £45 million referred to there would be used for only the freight sector of British Rail. There is certainly no reference to such an undertaking in the Bill. If I understand the wording correctly, the British Railways Board could, with the consent of the Secretary of State, use the £45 million for any purpose quite unrelated to freight. Will the Minister address himself to that point?

I now turn to Clause 2. The Minister spoke at length about the improved performance of the NFC and told us that the loss in the year ended 31st December 1976—we have not yet received the final accounts—would be in the region of £16 million, compared with £31 million for the year ended 31st December 1975. I noted that he gave no apology. Indeed, it was held to be a triumph that the NFC was operating at a loss of only £16 million.

While listening to the Minister, I thought, as perhaps even he did, of what is said in Section 41 of the Transport Act 1968. Whatever failings I and my hon. and right hon. Friends may have had in the past, the charge cannot be levelled at us that we were responsible for that Act. The Labour Party was responsible. Section 41(2) says: It shall be the duty of each of the authorities to whom this section applies so to perform their functions under the Act of 1962 or this Act as to secure that the combined revenues of the authority and of their subsidiaries taken together are not less than sufficient to meet their combined charges properly chargeable to revenue account, taking one year with another". In other words, stripped of the verbosity of the parliamentary draftsmen, there is a statutory duty upon the NFC to break even. That is what is meant. Yet the Minister came to the House today and told us that in the last year the NFC lost £16 million.

Mr. Ridley

The Minister said that the NFC had an operating profit of £4 million but said in parenthesis that there were additional costs of £20 million as though that did not really matter. It is important that we do not talk about operating profits when we mean blooming great losses.

Mr. Gow

My hon. Friend will note that I have rightly referred, in accordance with proper accountancy principles, to the loss as defined by Section 41(2) of the 1968 Transport Act. When one looks at the record of the National Freight Corporation one finds that in six out of the eight years of its existence it has made a loss and the statutory obligation laid upon the Corporation has been breached. Has the Minister responsible for this come to the House to say "I apologise. I have sinned and I must do better in future."? Has the Secretary of State apologised to the British people who will be asked to finance the further £16 million loss of the NFC? Such words did not cross the Minister's lips. He should have appeared at the Dispatch Box upon his knees asking for forgiveness.

I have one other observation to make. The National Freight Corporation is responsible for 15 per cent. of all freight movement in this country. It is not in the classical, monopolistic position of having virtually all the market. There is no reason why a subsidy should be given to 15 per cent. of the market while no subsidy is given to the other 85 per cent. of freight operations that are carried out by the private sector.

There was another matter to which the Secretary of State did not refer. He overlooked the classic words of Sir Dan Pettit in the 1975 annual report of the National Freight Corporation. The ministerially-appointed Chairman said of the system of public ownership that the Minister claims is serving the nation so well: The financial structure of the Corporation is bad practice reminiscent of mediaeval usury. That comes as no surprise to me, but what proposals are there for putting an end to this bad practice? Sadly, the Government have no proposals.

My hon. Friend the Member for Sutton Coldfield (Mr. Fowler) made—as we expected—an unanswerable case for opposing the Bill. We oppose it in the interests of financial discipline and rectitude; we oppose it because it is time that we stopped handing out loans, grants and subsidies to a public sector which will serve the nation's needs only if it is subjected to the disciplines to which the private sector is inevitably subjected.

6.30 p.m.

Mr. Roger Moate (Faversham)

One point of immense significance has commanded almost unanimous support from both sides of the House. Several hon. Members have emphasised the need for greater clarification of British Rail's accounts and a breakdown of costs between services. I was struck by the 100 per cent. support given by the hon. Member for Leicester, East (Mr. Bradley) to the demand of my hon. Friend the Member for Sutton Coldfield (Mr. Fowler) who demanded a proper breakdown of costs. My hon. Friend the Member for Newbury (Mr. McNair-Wilson) also emphasised this point in his helpful and constructive speech.

We shall not get proper accountability and efficiency unless we have publication of the full facts. The absence of proper information in British Rail's accounts has been a source of frustration to everyone who has tried to discover the facts in the last year or two. I hope that the Secretary of State has taken on board the fact that there is widespread support for a change and that if he persuades British Rail to open its books we shall have not just a change in presentation or a cosmetic change.

There must be a fundamental change in philosophy. It cannot be right that we cannot tell from the accounts how track and signalling costs are allocated between freight and passenger transport or the true cost of commuter services. We also need to know the losses sustained by the various regions.

If the accounting formula devised by the 1974 Act prevents us being given the full facts, we should look at the Act again. We shall not get efficiency unless there is full accountability and we shall not get accountability unless there is full publication of all the facts. If only that point emerges from the debate, it will have served a constructive purpose.

The Secretary of State said that it was wrong to blame the management of British Rail, because any blame should be laid at the door of politicians. However, if the management seeks public acclaim for financial success, it must be ready—and probably is ready—to take the blame for commercial failure.

Tributes have been paid to Mr. Peter Parker, and he knows that he starts his reign at British Rail with considerable good will from all sides. I hope that we shall be able to lavish praise upon him in future, but if there are failures, the management must be ready to carry the can. Of course, managements are only likely to be as good as the economic and financial disciplines imposed upon them by the Government. The Government lay down the disciplines—or fail to lay them down—and create the economic environment in which nationalised industries have to operate.

The Government came into power three years ago, claiming that they be- lieved in an integrated and co-ordinated transport policy but did not believe in freight subsidy. They must take a full share of the blame for having to ask for yet another major subsidy for freight. This is a condemnation of their management of our transport services.

The Secretary of State said that the Bill was a modest and not very welcome-measure. We agreee that it is unwelcome, but not that it is modest. It involves £95 million of subsidies for freight. However, that is only part of the story; the Secretary of State told us that the figures are very much greater. He said that there was nothing new in this, but it is the first time that we have had the figures presented to us and had the scale of Government support for freight revealed.

Total Government support between 1975 and 1977 inclusive is likely to be not the £95 million mentioned in the Bill but between £200 million and £250 million. It would be helpful if the Minister who is to reply to the debate could give us the precise figure, because, as my hon. Friend the Member for Newbury said, we were not much clearer about the figures involved even after the Secretary of State had finished his speech.

I arrive at the figure of between £200 million and £250 million by putting together the figures that I have managed to glean from newspaper reports and other sources in recent weeks. It seems clear that Government support has already been extended to make good British Rail's freight losses of £66 million in 1975 and £40 million in 1976. There is also the support given to the NFC, which made a loss of £31 million in 1975 and £15 million last year, though it seems that the grant payment will probably be about £22 million. These payments, already made on the taxpayer's behalf, total, perhaps, £130 million—if I am wrong I shall be glad to have the correct figures—and we must add the £95 million provided for in the Bill.

A considerable sum of taxpayers' money is being spent on the subsidy of freight—a purpose which the Government disclaim as their objective. We are entitled to demand a much clearer explanation from the Government of how the losses have arisen and whether they are satisfied with the steps taken to ensure that we shall not face a continuing drain on taxpayers' resources for the subsidy of freight.

Information in the Bill is sparse in the extreme and the House would be right to reject the measure for that reason alone. We cannot exercise proper scrutiny of Government expenditure when legislation is put forward in this way.

I said earlier that subsidising freight was contrary to Government philosophy. The consultation document stated with admirable clarity that there was no case for a general subsidy for freight. It went even further when it said that investments in freight should offer rates of return as good as those in the private sector. We can all commend those worthy intentions, but the Government then spoil it by saying that interim arrangements would be necessary so that these sectors could return to profitability.

How often have we heard those words before? The 1968 and 1974 Acts said that there should be no freight subsidy, yet in the first full year after the 1974 Act—in which British Rail presumably accepted the philosophy of breaking even on freight—a loss of £66 million was made on freight and parcels on a turn-over of £330 million. It is argued that this was due to the recession, but it is significant that the tonnage carried in 1975 was almost the same as in the previous year. If the recession were to blame, one would have expected a drop in the volume of goods carried.

It is a matter of concern when a philosophy is accepted that there should be no losses but that when a substantial loss is produced the Government agree to bail out that operation not just for one year but for subsequent years. Far from it being a break-even situation, The Sunday Times, no doubt using official information, says: The British Rail Board was told last Thursday that the 1976 loss target of £60 million set for freight had been significantly beaten". I find that loss target an interesting concept. By statute, British Rail is not permitted to make a loss on freight. It has no legal basis for this loss, and yet it has become part of Government philosopy to accept it. British Rail knew that it could turn for further subsidies to the Government if it needed to. That undermines management and causes economic disciplines to break down. Had the Government said that such a loss was unacceptable, British Rail would have been forced to introduce more realistic pricing policies and would not have been in the position that it is at present.

I now turn to the hidden subsidy to freight which was discussed by my hon. Friend the Member for Sutton Coldfield. We are entitled to some figures from the Government about the amount of track and signalling costs that have been allocated to freight. In British Rail's 1975 accounts track and signalling costs and relevant general expenditure totaled £308 million. The probability is that nearly all of that was allocated to passengers. We do not know the breakdown but it is likely that a fair allocation of costs to freight should be between £100 million and £120 million. That is only a guess, because we do not have the information. If the commuter is being blamed for these massive losses when part of them is caused by the freight operation we must be given the facts. In the long term it is not in the interests of British Rail, the taxpayer or an efficient economy to distort the true cost of the carriage of freight.

I now turn to the National Freight Corporation and the Bill's provision of £50 million for it, for the future. I say "for the future" because I understand that past requirements have already been funded by the Government, and therefore the £50 million must be for some future purpose. We have not been told what that purpose is. We must have a clear explanation from the Government. We are being told how desperate is the need for the money and at the same time that the National Freight Corporation has turned the corner and is moving towards an operating profit. It may require some finance to cover its current operating losses, but surely not of the magnitude of £50 million.

We are aware of the possible financial reconstruction of the Corporation, but I hope that the Minister will not say that the Bill will be used for that purpose. That would be a totally improper use of the legislation. We must know what the £50 million is for.

When dealing with the National Freight Corporation the hon. Member for Leicester, East suggested that my hon. Friend the Member for Sutton Coldfield spent too much time attacking the man- agement of the Corporation. That was a little unfair. Even the NFC will not deny that it must accept some blame for a degree of over-optimism in 1973. I am sure that it would also agree that it must accept some blame for the massive losses incurred by the French operation.

We recognise that the road-based companies of the NFC seem to have operated commercially, competitively and profitably, and that must be a reflection of the qualities of management at NFC. But management must also take its share of the blame. We are entitled to a fuller picture of what happened over the French losses. It is difficult to glean the figures but the losses could amount to £12 million, £13 million, or £14 million. That will have to be paid by the taxpayer in some form or other. I hope that the Under-Secretary will tell us the total figures involved in that venture.

Mr. Eldon Griffiths (Bury St. Edmunds)

Has my hon. Friend ascertained whether the NFC has been able to get off its back the substantial dynamised pension charge which it inherited from previous British Rail employers who had never even worked for it.

Mr. Moate

We certainly recognise that there is a case for reconsidering those inherited liabilities. One recognises the difficulties that the NFC has had with National Carriers Limited. In the Bill we are asked to provide £50 million, and the purpose of that is not clear. We are aware of losses for which there should be a public explanation. There is a general agreement that certain inherited burdens should be reconsidered.

Mr. Leslie Spriggs (St. Helens)

Is the hon. Gentleman aware that the responsibility for having to find all this money for current pensions is the result of an agreement between the Board and the Government for financing of the pension fund? The employers never paid a contribution. Only the employees contributed. That is why there was always a deficit.

Mr. Moate

There is a case for this to be examined.

It would be churlish to ignore the British Waterways Board, which is covered in Clause 3 and is the particular responsibility of the Under-Secretary who is to reply. We have been told that there will be a White Paper and therefore there will be further opportunities to debate the matter fully in the House. In the meantime, it seems that an increase in borrowing powers from £12 million to £20 million is not unreasonable after nine years, but I was alarmed when the Secretary of State said that he thought that this sum would serve for the time being. I hope that he does not mean that the Board will spend £8 million before the White Paper is discussed in the House. We must consider this in detail in Committee, and have to take note that the grant in aid increased from £2½ million in 1971 to £8 million in 1975.

I return to the principal part of the Bill, which concerns the freight subsidy provision. The figures that have been revealed should cause great alarm to hon. Members. The Bill provides for major public expenditure on the flimsiest of evidence. There is no economic or social case for freight subsidy on this scale. After three years the Government should have exercised tighter financial disciplines to prevent the necessity for a Bill of this kind. I hope that the House will decide not to give it a Second Reading.

6.49 p.m.

The Under-Secretary of State for the Environment (Mr. Kenneth Marks)

I shall be as brief as possible, but I hope to reply to most of the points raised by hon. Members. Some of the arguments were more appropriate for discussion in Committee and I am sure that the detailed figures will be examined at great length there.

Some of the speeches—almost in their entirety—were more appropriate to the debate on transport policy which is to follow. That debate will be much more wide-ranging, and hon. Members who have not taken part in this debate will then have an opportunity not only of discussing the future policy of British Rail, the National Freight Corporation and the British Waterways Board, but all the other ramifications of our transport system.

My right hon. Friend and the chairmen of the Corporations referred to in the Bill will have noted the many things said about past endeavours and possible past errors. I want to deal with a number of points that have been raised.

Mention has been made of the accounting by the nationalised boards. The National Economic Development Office has now issued a report on the nationalised industries which, as well as making recommendations about board structure, relationships with Ministers, and so on, has made more detailed recommendations about financial matters. The Government are considering these and, taken together with the Sandilands recommendations on company accounts generally, it is likely that carious changes in the presentation of accounts will emerge, although it is too soon to say exactly what will emerge.

The hon. Member for Sutton Coldfield (Mr. Fowler) posed a number of questions. The first concerned offsetting savings in the grant to the NFC. In the public expenditure survey provision was made for the amounts that are shown in the Bill. The hon. Gentleman mentioned the British Railways Board sharing the costs and asked how much of the savings had gone to freight. As he knows, this is an extremely difficult matter. For instance, the wages element on the passenger side has been very considerable. In the figures for 10 years that the hon. Gentleman gave, he mentioned that there was a considerable decrease in the number of railwaymen employed but that wages nevertheless remained at between 60 per cent. and 70 per cent. of the costs throughout, and, indeed, that there was a substantial increase—I believe a much-needed increase—in railway pay, particularly towards the end of that period.

On the question of pensions and the NFC's share, it is true that British Rail was exempted from some costs and that the NFC was not. This is proving to be a considerable drag on NFC finances—as much as £4 million, I understand, and not the lower figure mentioned by my hon. Friend the Member for Leicester, East (Mr. Bradley). The whole question of the NFC and this burden is very much under consideration.

Mr. Bradley

Does my hon. Friend know that on 2nd January 1969—the day after vesting day—British Rail advised the NFC that it had got the figure wrong and that it was double what it had originally been told?

Mr. Marks

I was not aware of that. However, that will be taken into account in the consideration of this matter.

I come to the question of the increase in the losses on the European subsidiaries of the NFC. The only figures that I have available at present are those shown in the annual report for 1975. They show a net deficiency of £6.4 million as at 30th November, plus provision for closure costs of £5 million. I gather that in practice closure costs are likely to be higher than those originally estimated, but the final outcome will depend on a number of factors, including the outcome of legal action which the Corporation is taking against the vendors of certain of the businesses that were sold to it and the proceeds of sale of assets abroad not yet realised.

The question of parcels will be taken into account in the debate to follow, with the whole of transport considerations. This question has to be raised not only in the context of the organisations that we are now discussing but in the context of the Post Office and, in some cases, of the municipal and county enterprises which are going in for this traffic. We hope to put something in the White Paper on this matter after consideration of the consultative document.

My hon. Friend the Member for Leicester, East put forward a great number of facts in response to what was said by the hon. Member for Sutton Coldfield. I welcomed my hon. Friend's assertion that the morale of British Rail workers has improved. When I went into that side of the Department in December, I could not have arrived at a time when there was a greater ebb of morale in the workers. What my hon. Friend said about that and about their increased faith in the management of British Rail is to be welcomed.

I have no doubt that the overall figures in the Bill will be discussed in Committee. It must be emphasised that the Bill gives authority for grant to be paid to the NFC up to the maximum of £50 million. The NFC may well not need all of that, but the figure is based on an assessment of its cash flow needs while measures to achieve viability are being put into effect.

Mr. Norman Fowler

Will the hon. Gentleman therefore confirm that any costs in restructuring or reorganising the NFC would be in addition to this £50 million?

Mr. Marks

Yes, we can say that at present.

I come to British Rail and the £45 million. My right hon. Friend went to some lengths to explain this matter when he talked about Clause 1. Some of the payments are overspill payments from 1975 and 1976, and there is £30 million provision in PESC for freight for the coming year.

My hon. Friend the Member for Leicester, East also mentioned development land tax, which will have an effect on the NFC. Like any other business, the NFC is now liable for development land tax when disposing of surplus land. This may mean some reduction in the proceeds that the NFC obtains from such disposals, which up to now have been mainly of land owned by National Carriers Ltd. As my right hon. Friend made clear, the objective is that the NFC should become a fully viable business. This must mean a business in which finances are not dependent on shortfall benefit from windfall land sales. The Bill is designed to cover the Corporation's cash flow deficit as the Corporation moves to viability.

Mr. Eldon Griffiths

Will the hon. Gentleman give way?

Mr. Marks

We are short of time.

Mr. Eldon Griffiths

I apologise for intervening in a debate that I have not attended throughout. However, the hon. Gentleman will know that I have a previous interest in this matter. Will he give a categorical assurance that the £50 million covered by the Bill in respect of the NFC will in no circumstances be used for the capital reconstruction that we anticipate will be needed in a relatively short time?

Mr. Marks

I think that my right hon. Friend has made clear already that that cannot be done under the Bill.

The hon. Member for Nantwich (Mr. Cockcroft) made a speech that was mainly one for the following debate. However, he mentioned the problem of quantifying costs. This is an extremely difficult problem in railway matters. As he said, we do not really know the cost of road transport to the community. That is an important point.

The hon. Member for Newbury (Mr. McNair-Wilson) recognised that the recession was an important factor. I welcomed his knowledgeable views on various matters as a member of the Select Committee. He mentioned the sidings grants. They are not included in the Bill. Sidings grants are separate and go to firms and not to the nationalised corporations. There is a £35 million grant over the next five years. I note what the hon. Gentleman said about Sweden, in the Western European context As he pointed out, some countries have railway problems that are different from ours.

The hon. Gentleman asked about the results of Freightliners Ltd., in 1976. Only preliminary figures are available, because it is, after all, only two weeks since the end of the calendar year which Freightliners Ltd., use. It is estimated that the trading levels will show a plus of £1.5 million, but that after interest charges, headquarters charges, and so on, there will be a minus of £1.5 million. There have been big improvements, and I recollect speaking in similar debates last year when the outlook was a lot blacker than it is now.

The hon. Member for Eastbourne (Mr. Gow) says that Ministers of Transport should adopt a more contrite attitude and go down on their knees. There have been losses for six years out of the past eight, so not all the Ministers who should go down on their knees would have come from the Labour side of the House.

We take note of what has been said about accounting and the need to get as much detail as we can.

I realise that I have not answered all the points that have been raised, but further questions can be asked in Committee.

The hon. Member for Faversham (Mr. Moate) is right; total grants for the period 1975 to 1977 will amount to £200 million if the total here is included.

As my right hon. Friend said at the beginning of the debate, the Bill is intended to ensure that the three bodies concerned are able to continue their work during a period when we shall be reaching and carrying out decisions on their future development. I urge the House to give the Bill a Second Reading.

Question put, That the Bill be now read a Second time:—

The House divided: Ayes 181, Noes 148.

[For Division List 42 see c. 809]

Question accordingly agreed to.

Bill read a Second time.

Bill committed to a Standing Committee pursuant to Standing Order No. 40 (Committal of Bills).