Clause 1

HC Deb 14 June 1977 vol 933 cc266-76

GRANTS TO BRITISH RAILWAYS BOARD TOWARDS CERTAIN REVENUE DEFICITS

5.8 p.m.

The Under-Secretary of State for Transport (Mr. John Horam)

I beg to move Amendment No. 1, in page 1, line 9, leave out from 'undertaking' to end of line 10.

Mr. Deputy Speaker (Mr. Oscar Murton)

With this we are to take Amendment No. 2, in page 1, line 9, leave out from 'undertaking' to end and insert: on condition that a statement of any relevant deficit shall be made annually to Parliament".

Mr. Horam

The portion of Clause 1(1) that we are now discussing reflects an amendment successfully moved in Committee by the hon. Member for Newbury (Mr. McNair-Wilson). As he knows, I am by no means unsympathetic towards his underlying objective of securing more disclosure of railway finances, wherever this can be done without harm to the commercial interests of the railways.

If hon. Members have had a chance to look at the British Railways Board's annual report published last month, they will know that the board shares this objective. But, as I warned the Committee, there were a number of technical and practical objections to the hon. Member's amendment as originally drafted. I subsequently wrote to him explaining why I should be obliged at this stage to seek to reverse it. I added that I would be considering how I could assist him.

I shall be placing in the Library a copy of the principles and procedures for the calculation of compensation for the public service obligation grant. That is what I am now holding in my hand. It will be available to hon. Members after today. It is a fairly thick document, as the House can see. It goes into the basic methods of calculating the PSO grant, which was subject to some debate in Committee. That is an indication of my willingness to help the House and, indeed, the extent to which I share the hon. Gentleman's views about providing information on British Rail finances.

In addition to that, I note that the Opposition have tabled an amendment that overcomes the technical and practical objections that I had, which I outlined to the hon. Member for Newbury. Unfortunately, I do not see him in the Chamber at the moment. I shall not go through them, because I wrote to the hon. Member and explained them. As the Opposition have tabled an amendment which overcomes those technical and practical objections, perhaps it might be best if I sat down at this point and allowed the hon. Member for Sutton Coldfield (Mr. Fowler) to say something in support of his amendment, and if I could find that agreeable I would certainly be happy to accept it.

Mr. Norman Fowler (Sutton Coldfield)

The Under-Secretary made a passing reference to the absence of one of my hon. Friends. I think that it is quite remarkable that any of my hon. Friends or any other hon. Members are present at all at this stage, considering the precipitate speed at which the previous business was disposed of.

As the Under-Secretary said, this is an important issue. The Government were defeated on it in Committee. It is important that the House should understand the basic reason for that defeat. It was because the majority of the Committee wanted more information about British Rail's operations. The issue was the issue of public accountability, and that remains the issue today.

The Under-Secretary has said that the amendment moved by my hon. Friend the Member for Newbury (Mr. McNair-Wilson) was defective, and he was kind enough to supply me with a copy of the letter that he wrote to my hon. Friend on 4tb May on this issue. It is with some relief that I see that my hon. Friend the Member for Newbury is now with us in the Chamber. He enters the House at a convenient time, because we are just considering his own amendment, so I bring him up to date with progress so far.

As the Under-Secretary has said, my hon. Friend's amendment was defective. Very well: we have sought to draft an amendment that corrects the technical defects in the amendment passed by the Committee. It is an amendment that is drawn wide, but it seems to me to have the merit of allowing the maximum information to be given to the House. Whatever view we may take upon British Rail and its management, that is a requirement that I think that very few would dispute. It is a point that has been put by the Opposition as eloquently as it has been put by Labour Members. Given that the Government have now accepted our view that there is no social or economic justification for freight subsidies, the kind of amendment that we are proposing is of importance, and it will be of increasing importance.

However, the real importance of the amendment is that it gives clear notice to British Rail that more financial information will be required from British Rail—more and better information. I must say that I still remain dissatisfied with the ways that costs are apportioned between the passenger and freight business of British Rail. Nor, let me emphasise, is this in any sense a theoretical point. It affects the running of the whole railway system, because the process of the allocation of costs between passenger and freight must crucially affect the level of prices to customers and fares to passengers.

5.15 p.m.

I should like to give just one example of what I mean. As we all know, there was a big improvement in productivity in British Rail between 1964 and 1974 resulting from the fact that the staff were heavily reduced in that period—from 380,000 to 210,000. I think that the staff of British Rail and the British Rail unions have not received sufficient tribute for what was undoubtedly a very difficult time but a process in which they co-operated and for which they deserve great credit.

However, the expectation would be that because of that improvement in productivity a similar improvement would be shown in both the passenger and the freight businesses, yet, according to the Government's consultation document, the fact is that between 1964 and 1974 passenger costs rose by 300 per cent. and freight costs rose by a mere 12 per cent. In other words, massively, disproportionately and decisively, the savings went to the freight business.

Throughout the Committee stage, we were waiting for an explanation of that from the Under-Secretary. Although he has done his best to produce one or two reasons, in my view he has not answered the basic case. That is, how does he explain that massive difference between 300 per cent. and 12 per cent.? The suspicion remains that the passenger business is being blamed for too much.

There is one further point. The Government's White Paper on transport is expected next week, I believe, or if not then, the week after—at any rate, very soon, it is understood in Whitehall circles—all 30,000 words of it, which certainly suggests some kind of new record in the length of a White Paper. It is also expected, if we are to believe the Financial Times and The Observer, that it will propose that local authorities will be expected to provide support for some rural railway lines, or, at any rate, that the method of support will be changed. But, again, the point will be that if one brings the local authorities more into railway accounting, at the very least those authorities will require information on costs and how they have been arrived at, and much deeper and better information than we have at present.

Therefore, I believe that our amendment is not an end in itself but a start, a start to the process of putting British Rail accounts under more public scrutiny, a move to more openness and making them more accessible to the general public, the taxpayer and this House. I believe that that process will be helpful to the railways but, above all, I believe that it will be helpful to passengers, the customers of British Rail, and to taxpayers, who are currently making a massive contribution to the running of the railway industry.

Mr. Michael McNair-Wilson (Newbury)

First, I should like to thank the Under-Secretary for the very courteous way in which he wrote to me about the amendment that was carried in Committee and, indeed, for setting out the reasons why he and his Department felt that, as worded, it did not really stand up and was not likely to be the effective instrument that I think we on the Opposition side wished it to be.

Having said that, I should also like to welcome the fact that the Undersecretary has agreed to accept the amendment standing in the name of my hon. Friend the Member for Sutton Coldfield (Mr. Fowler). In so doing, I should simply like to add one or two comments that I think will be relevant.

I had the honour to be on the Select Committee on Nationalised Industries. I am sure that the Under-Secretary of State is aware that the Committee recently produced a fairly formidable report on British Rail. In paragraphs 304 and 305 of the first volume the Committee goes to some length to explain the uncertainties about the way in which British Rail is financed and about the need for a better breakdown of the sums going to the various parts of the railway network.

I pay tribute to British Rail for being as concerned as we are that there is so much uncertainty about the way in which its accounts are drawn. It is interesting to note the sentence in paragraph 304 in which the Chairman of British Rail, Mr. Peter Parker, expressed general sympathy for the idea of developing 'a clearer, cleaner way of showing what deal it is we have with society.' It is in the light of that sort of comment that my original amendment was tabled. It is in the light of that sort of comment that the Opposition amendment has been put forward, which the Government have accepted.

I underline the point that the House is remarkably ill-equipped to scrutinise nationalised industries and their accounts. I do not know how many hon. Members are aware that the Select Committee on Nationalised Industries goes through the annual report and accounts of every one of the industries that are committed to our charge. I doubt whether many hon. Members ever bother to get from the Vote Office the records of the question and answer sessions in which we engage. That scrutiny has taken place for two years at the most.

The annual report and acounts may be delivered by the chairman of the industry to the Secretary of State, but hitherto there has been no way in which the shareholders—namely, the taxpayers—have been able to get at the actual figures that make up the report and accounts that are presented to the House, the taxpayer so often having to pay whatever deficit is outstanding.

It was with some interest that I obtained a copy of the 1976 annual report and accounts. I wondered to what extent Mr. Parker had been able to produce the transformation that is required both in the annual report and in any statement to Parliament in his short time with British Rail. The one message that comes through in his personal report is his concern that the public, society and the customer who uses British Rail should know what British Rail is doing, what services have been provided and the cost of the services, so that they may have confidence that a great organisation is being run efficiently and economically.

If that is Mr. Parker's intention, I am sure that we all wish to applaud it. However, all annual reports, whether from nationalised industries or from private companies, can give or hide as much or as little as the accountants and those who run the companies wish. For that reason I think that the additional statement to Parliament of any relevant deficit, albeit on an annual basis, will provide a new check on the way in which money is being spent and on further money that is required from the taxpayer.

Mr. Horam

I think that we are all agreed on the need for open government and the need for the House to scrutinise properly and effectively the spending of taxpayers' money. In the case of British Rail, that is quite a lot of taxpayers' money.

I welcome the views of the Select Committee, of which the hon. Member for Newbury (Mr. McNair-Wilson) is a member. The Committee has made a valuable contribution and the Government will be studying its conclusions. I hope that we shall be able to take them into account both in the White Paper and in the separate statement that we are obliged to make, and are happy to make, on the Select Committee's general views.

The hon. Member for Newbury was not in the Chamber when I said that I shall be placing in the Library a rather thick, bulky and technical document that sets out principles and procedures for calculating the PSO grant, which is the basis for providing the taxpayers' support for British Rail's passenger services. In the words of the chairman, we make a contract with British Rail whereby it provides passenger services and we provide a certain amount of necessary support for social reasons. However, it is important that we know clearly and in some detail on what basis the sums are provided and the way in which they are calculated. The document will be in the Library and I am sure that the hon. Member for Newbury will be interested to study it.

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made: No. 2, in page 1, line 9, leave out from 'undertaking' to end and insert: 'on condition that a statement of any relevant deficit shall be made annually to Parliament.'—[Mr. Norman Fowler.]

Mr. Deputy Speaker

Amendments Nos. 4 and 3 fall in the same place in the Bill. It will be for the convenience of the House if I follow the tradition of practice and call first the amendment that would make the largest reduction to the sum of £45 million, which is Amendment No. 3 in the name of the hon. Member for Sutton Coldfield (Mr. Fowler). It will be in order to discuss with it Government Amendment No. 4. If Amendment No. 3 is defeated, I shall call Amendment No. 4 immediately thereafter for a vote.

Mr. Norman Fowler

I beg to move Amendment No. 3, in page 1, line 19, leave out '£45 million' and insert '£25 million'.

In Committee we pressed to reduce the total grant that could be paid to British Rail for its freight operations from a total of £45 million to a total of £25 million. We did so for a number of reasons. First and foremost, we did it because, as the Government now acknowledge, there is no justification for subsidising freight operations, whether they be by road or by rail.

This marks a significant agreement between the parties on this issue. The Opposition have argued that there can be no social or economic justification for the subsidy of goods being taken from one part of the country to another. We welcome the Government's acceptance of that proposition. It can hardly be claimed that freight subsidies can be justified at a time of almost unprecedented crisis in public expenditure.

It is worth pointing out that British Rail already benefits from a favourable internal accounting system. It benefits from the avoidable cost basis of accounting. Clearly, we could go into considerable detail in dealing with British Rail's accounting system, but suffice it to say that it is conceded in the Government's consultation paper, and doubtless in their forthcoming White Paper, that it is a basis of accounting that in no way is unfavourable to British Rail's freight operations.

5.30 p.m.

Thus, both in the general and in the particular, there is no reason for subsidising freight operators by road or rail, but particularly not the freight operations of British Rail. We are talking exclusively of its freight operations, not its passenger services.

We were told in Committee, although not by the Minister, that we were being unsympathetic to British Rail and that a reduction was not possible. We now see that it is possible, since the Government amendment suggests a reduction in the freight grant from £45 million to £30 million. The Government amendment relating to the National Freight Corporation proposes to reduce the freight grant from £50 million to £30 million. In other words, £35 million will have been sliced off the public expenditure originally proposed. That is a significant improvement in a time of public expenditure crisis.

We congratulate those responsible for British Rail's freight operations on reducing their deficit in the last accounts. I think that the Minister will agree that there has been an encouraging improvement in the last year.

Mr. Deputy Speaker

Order. I am sorry to interrupt the hon. Gentleman, but the Chair is not altogether clear about which amendment he is discussing. The amendments before the House relate to Clause 1. I thought that I understood him to refer to the National Freight Corporation, which comes in the next group of amendments.

Mr. Fowler

I did lump the two together in a global total at one point, but clearly I will confine myself to British Rail. My general point was the undesirability of freight subsidies, both for road and for rail. I am sorry to have caused alarm by that passing remark.

Mr. Deputy Speaker

Alarm, perhaps, but not despondency.

Mr. Fowler

I am most grateful, Sir.

As I was saying, we congratulate those responsible for the success of British Rail's freight operations. This is an encouraging start for the new Chairman, Mr. Parker. We want to see that improvement maintained and the rail freight subsidy totally elimnated by the end of this financial year. We look forward to that information in the first annual report for which Mr. Parker will have been solely responsible, and we hope that this loss will remain eliminated.

We on this side of the House take some credit for having pressed the Government in Committee and got them to reduce the totals. Depending on what the Minister says, we shall not argue about the difference between our total and his. We regard our proposal and its acceptance as a victory for common sense.

Mr. Horam

I am not sure whether the hon. Member for Sutton Coldfield (Mr. Fowler) was giving greater credit to British Rail and its employees for this reduction or to himself and his colleagues. However, it is British Rail which can be congratulated on achieving an improvement in its freight prospects.

The effect of Government Amendment No. 4 is to reduce the limit on grant payable to British Rail from £45 million to £30 million. Opposition Members tabled an amendment in Committee to reduce it to £25 million, but they withdrew the amendment in response to my undertaking to consider the amount in the light of the latest information. This amendment is the result of my doing so.

Amendment No. 4 proposes a substantial reduction—although not so substantial as Conservative Members had proposed. I note that they have again tabled the amendment that they tabled in Committee, but when they have heard my reason for proposing a higher figure, I hope that they will again withdraw it.

It is common ground that the original limit of £45 million can reasonably be reduced. It may help the House if I explain why that figure was inserted in the first place, and then go on to account for the reduction.

The £45 million consisted of two elements: £30 million, which at the time that the Bill was published was expected to be the cash limit on grant for 1977, and £15 million to allow for payments that might have to be made in respect of previous years—1975 and 1976—after the Bill had come into effect. Such payments would then count against the provision in the Bill and not be borne on the Appropriation Acts as hitherto. They would cover release of retention moneys or accounting adjustments on completion of full audit procedures for those years. Thus we had a provision of £30 million in respect of 1977 and £15 million which might be payable after the beginning of 1977 in respect of earlier years.

The reduction of £15 million comes about as follows. First, the cash limit for freight grant for 1977 is now £25 million rather than £30 million. This reduction of £5 million results from the public expenditure measures announced by my right hon. Friend the Chancellor of the Exchequer last December, after the Bill was introduced. The new limit was announced in the White Paper on cash limits, Cmnd. 6767, published on Budget day. That is £5 million accounted for.

Second, the Bill was originally drafted to take effect as from 1st January 1977, but has been amended in Committee to take effect simply on enactment. In the meantime the Department has made one payment of £5 million to British Railways in respect of freight losses since the beginning of the year and this will not, of course, count against the total in the Bill. So it is appropriate to reduce the total in the Bill by another £5 million on that account.

Third and finally, we now have more information than we did six months ago about the likely need for grant to cover the earlier years, 1975 and 1976. We do not yet have final figures for either year, but from audit reports now under discussion we judge that provision for earlier years can reasonably be reduced from £15 million to £10 million, that is, a further £5 million, making a total reduction of £15 million. In short, the provision for this year can be reduced from £30 million to £20 million—that is, the new cash limit less the amount already paid this year—and the provision for adjustments for previous years can be reduced from £15 million to £10 million, thus giving the revised total of £30 million.

Like the hon. Member for Sutton Coldfield, I have every confidence in the board's ability to live within the reduced ceiling which this amendment will provide. My confidence is based on the track record of the railways, management and employees alike, in tackling the problems of the freight business over the past two years. This is not the time to look further ahead than the present year, but I am sure that the foundations for the future prosperity of the business are being well laid.

The assurances which I gave in Committee are still valid. The new figure is a ceiling, not an entitlement We shall not pay the board any more than it actually needs to cover the freight deficit, nor would it want us to. If it proves to need less than £30 million under this Bill, less it will have. But this is the figure which, on the best information available, I judge to be a safe maximum, and as such I commend Amendment No. 4 to the House.

Mr. Norman Fowler

Having listened to what the Under-Secretary has said, with his assurance that even the reduced figure is a ceiling and not an entitlement, I wish to accept the Government's amendment, and I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made: No. 4, in page 1, line 19 leave out "£45" and insert "£30".—[Mr. Horam.]