HC Deb 24 May 1993 vol 225 cc637-49 '.—(1) The Franchising Director may enter into agreements with the Board or any wholly owned subsidiary of the Board for the provision by the Board or subsidiary of any railway passenger services which are not provided under a franchise agreement. (2) Any sums required by the Franchising Director for the making of payments under any agreement entered into by virtue of this section shall be paid by the Secretary of State out of money provided by Parliament. (3) Any sums received by the Franchising Director under any such agreement shall be paid into the Consolidated Fund' —[Mr. MacGregor]

Brought up, and read the First time.

Mr. MacGregor

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

Mr. Deputy Speaker (Mr. Geoffrey Lofthouse)

With this it will be convenient to discuss also new clause 27—Powers of Franchising Director to enter into agreement with the Board, etc.— '() (1)The Franchising Director may enter into agreements with the Board or any wholly owned subsidiary of the Board for the provision by the Board or subsidiary of any railway passenger services which are not provided under a franchise agreement. (2) Any sums required by the Board by virtue of this section shall be paid by the Secretary of State to the Board out of money provided by Parliament.'.

Mr. MacGregor

The purpose of the new clause is to put beyond doubt the ability of the franchising director to enter into agreements with the BR board or its wholly owned subsidiaries. As the House will recognise, this covers the period while franchising is being introduced, where the franchising director is to assume responsibility for payment of all subsidy in respect of passenger services to the board and to franchisees. The measure covers the BR board and its wholly owned subsidiaries because the franchising director's contracts may be directly with the shadow franchise operating units as they are formed rather than globally with the board. The new clause is designed to clarify that.

The new clause also enables me to say a word or two about the shadow franchise operating units. Earlier this afternoon I answered a question about the way in which we suggest that the rest of BR's passenger services should be set up as franchising units for ultimate franchising. Copies of the answer and of the document giving the breakdown of the different franchise units are now in the Vote Office.

Mr. Prescott

I hope that the right hon. Gentleman will accept that we are continually being fed information just minutes before debates take place. It is impossible to debate these matters properly when we are handed five or six pages just before a debate—and this comes on top of today's other statement about franchising. There is another document relating to the exemptions, to which the Secretary of State may refer today.

7.30 pm
Mr. MacGregor


Mr. Prescott

Even so, the right hon. Gentleman is creating real difficulties, and I hope that he will bear that in mind when he explains those documents. I was given some indication of the document to which the Secretary of State is now referring at 11 o'clock, and received it a little later than it would have been available to most right hon. and hon. Members, in the Library. We should be grateful for some explanation now.

Mr. MacGregor

That document does not affect decisions relating to new clause 16, so therefore it was not essential to produce it today. In fact, we could have delayed it for a considerable time. The exemptions document will be relevant to debates tomorrow.

The franchise proposals are to allow BR to start thinking about the restructuring of the remaining franchise units and to enable people more widely to see how we propose the breakdown. The document was not required for tonight's debate, but I thought that it would be convenient to mention it—since we are discussing shadow franchise operating units.

On Second Reading, I announced the first seven franchise units and British Rail is currently restructuring their management, operation and financial accounting. Those seven will be among the first to be franchised—one or two of them, we hope, later next year. It is important for BR to move ahead with those so that operational experience may be gained and the units can be set up with a track record under the new arrangements well before the franchising director puts those franchises out to tender. In that way, applicants will have some financial and other basis on which to make their bids.

The designation of the groupings that I published today is not a complete blueprint. There are proposals for 25 franchise units and we think that it will probably work out like that. However, the designation is incomplete for two reasons. For some parts of the network—InterCity cross-country services, Regional Railways long-distance inter-urban services, and the central region of Regional Railways—I have not yet taken decisions as to how they should best be packaged for franchising. They will be reviewed over the next few months.

Also, the final form of franchises will be determined by the franchising director, who will want—as we have emphasised throughout—to take a view of the market at the time and to respond to market indications. In some cases, the director may want the franchises to be handled differently. So the designation is not a blueprint, but an indication of how things are likely to end up—and the basis on which British Rail will restructure. It is substantially the plan for transferring the whole passenger network to franchises.

As I said, the network will be divided into 25 businesses, but the crucial point is that, by and large, we are basing them on existing British Rail profit centres. That has a number of advantages for BR in restructuring and for management-employee buy-outs—which we are keen to encourage and for which we are providing financial assistance—which will more readily recognise most of the franchise units. That arrangement is also much in line with the recommendations in the Transport Select Committee's final report. We took note of that Committee's views and that is another example of identity of thinking. We were working on the same lines, leading to the announcement.

Some units, however, do not follow the profit centres exactly. As 25 are announced and there are only 19 profit centres, it is clear that there are some splits. I have already announced that one is the Isle of Wight. That split is sensible, because the local community has long wanted to run its own railway, and it is a discrete unit. Others are based partly on responses to the original consultation document and partly on our belief that one can produce smaller but viable units that make perfectly good franchising sense.

That designation is now available to the House and to the wider public and I hope that it will prove helpful as a further development of our proposals in the gradual evolution of the reforms for British Rail.

As to new clause 16, it is our policy that the franchising director should be responsible for paying all subsidy in respect of passenger rail services, excluding payments made by the PTEs. While franchising is being introduced, that will mean the director making payments both to franchisees where franchises have been granted and to the BR board where they have not. As the new clauses indicates, he may also enter into agreements directly with the operating subsidiaries that BR will form to run the services in preparation for franchising—the shadow franchises.

We think that there is a clear case for making the franchising director responsible for paying all support in respect of passenger railway services, excluding that paid by PTEs from April 1994, but including payments to franchisees and to BR while it is still running passenger services. I therefore invite the House to reject new clause 27.

New clause 16 will make for clear financial management. Franchises will commence throughout the year—they will not all start at the beginning of the financial year and therefore they will not all be granted to commence on 1 April. It therefore makes sense for one person—the franchising director—to be responsible for making the necessary accounting arrangements, to switch subsidy between BR and franchisees in-year. If that were not done, there would have to be some shift of subsidy between whoever, under any alternative arrangements, makes the subsidy payments to BR and the franchising director, who would pay subsidies to franchisees.

There would be further transitional difficulties. If there were two separate pools of subsidies to passenger services, as new clause 27 indicates, their size would have to be settled in the annual public expenditure round—which would be announced in the autumn statement in November but almost certainly settled before then. If new franchises were to operate in the next financial year in question—from 1 April, say—they would not actually be settled until well after the autumn statement. There would then need to be further transfers. In terms of clear financial management, it makes sense to have subsidies allocated by one person.

Mr. Prescott

Presumably the moneys paid to the franchise director—however they may be apportioned between British Rail operations, shadow operations, and existing franchise operations—will still be seen as moneys paid from the public purse. So they will still be affected by anything that happens in the public expenditure round.

Mr. MacGregor

The hon. Gentleman is absolutely right. Those moneys would not only be affected by the public expenditure round but directly settled and decided in the annual public expenditure round in the normal way —because it would be subsidy direct from the taxpayer. Moreover; it is important to maintain public accountability.

Another advantage of adopting our approach is that it would establish a system under which, from the outset, the roles and responsibilities of the various players will be clear. The Secretary of State will he responsible for the total size of the budget for supporting passenger railway services, while the franchising director would be responsible for spending that budget in a way that will achieve his objectives and obtain good value for money.

The third reason for adopting our proposal and not new clause 27 is that it will assist the process of shadow running. Before a service is franchised, it will be run as a shadow franchise by British Rail, which will form a discrete subsidiary for each proposed franchise to run the services in question. Shadow running will generate information on both the operation and its costs. That information will enable the franchising director to take final decisions on the franchise to be offered to bidders, as defined in the invitation to tender, and on the value for money offered by bids, judged against the cost of British Rail continuing to run the service.

To channel the subsidy through the franchising director will, I believe, allow him to enter into agreements not just with the British Railways Board but directly with the British Rail subsidiaries. That has some advantages, which I think are important.

That brings me almost to the end of what I want to say in what I hope will be a short debate. The hon. Member for Kingston upon Hull, East wants, in new clause 27, grants to continue to be provided to British Rail by the Secretary of State. That means that the cost of supporting rail services would remain hidden within a vast block grant. For some reason, the Opposition do not trust the franchising director's ability to make payments to British Rail, or perhaps they are unhappy about the transparency that the new arrangements will bring. I can think of no other reason why they should want to delay the point at which the franchising director becomes responsible for the total budget for supporting passenger railway services. As I have already said, I see clear advantages in going down the route that we recommend. Therefore, I commend new clause 16 to the House and invite it to reject new clause 27.

Mr. Prescott

The Secretary of State stuck closely to his notes, but these matters are still under discussion and late decisions could be made. As he explained, new clause 16 gives all the resources to the franchising director, who will receive them, presumably, from the Secretary of State for Transport who will negotiate them with the Treasury. The difference between the two new clauses is that we have chosen to identify that section that he has already said is a candidate for franchising. It covers seven areas. Today, the Secretary of State identified another 18. Those 25 areas account for practically the whole of the railway system. The exception that he is still considering is the Isle of Wight, and perhaps another area.

The Secretary of State said today that he has now identified all the areas that are likely to make up the character of future franchises. Managements can now look at the railway system and identify those areas. They account for the greater part of the railway system that the Secretary of State—presumably after discussion with the franchising director—thinks will provide a commercial railway, or one that will be available for bids under the franchise arrangments.

The first seven are probably more attractive than the other 18 that have been announced today. Perhaps one should compare the InterCity east coast main line with the strategic route along the west coast main line. Those two main lines face completly different problems. A common feature of both lines is that both run from London to Scotland, with one going up the east coast and the other up the west coast, but that is where the similarity ends. There has been considerable investment in the track and rolling stock and in the electification of the east coat main line. However, investment is desperately needed on the west coast main line. About £1 billion of investment is needed to modernise the line from London up the west coast to Scotland. It is at this point that the differences begin to emerge.

The Secretary of State says that he considers that these lines are likely to be candidates for franchising. If somebody said to him, '"I'm interested in the west coast main line, but I want to go only as far as Manchester and I don't want to operate up to Scotland," I wonder what his reaction would be? People fear that that is where the west coast main line will end and that the route to Scotland will be by means of the east coast main line.

Can the Secretary of State guarantee that the InterCity network route to Glasgow will continue and that a through service will be retained from London up the north-west coast to Glasgow? That question arises from the implication of his announcement. InterCity is, effectively, finished. There will no longer be a corporate body, InterCity. All the argument about who will get the InterCity logo is finished. None of these lines could claim it. I suppose they could claim it to a certain extent, but a corporate identity, with one body providing a connection between all our main cities, will be removed. Those services will be provided by individual operators bidding for the franchises for about 25 services.

7.45 pm

I presume that the Secretary of State believes that those are the possibilities, but the services provided will be determined by the people who make the bids and by whether they receive sufficient subsidies from the Government to maintain them. Not all those services can be described as cherry-picked lines that will provide profits. The east coast main line makes a profit, which is estimated to be about £70 million. We should prefer the Secretary of State to have a global amount with which to provide a network service, because of the issue and principle of cross-subsidy.

I have listened to transport debates ever since I became a Member of Parliament 20 or so years ago. What characterises the difference between the two sides is the cross-subsidy factor. Many Conservative Members say that cross-subsidy undermines competition. Anybody who knows anything about transport, whether it be public or private transport, recognises that peak-time services are subsidised in one form or another. Under the InterCity network concept, it is recognised that some areas are less profitable than others and that a network service must be provided. A network service means that communities throughout the country can be assured of the maintenance of a railway network.

Let me give an example. My Hull constituency is tagged on to the InterCity network. There are only two services, one each way. I have no doubt that some people who run InterCity would like to lop off the InterCity service to Hull, because the part of the network that runs between Doncaster and Hull is probably not as profitable to them as it would be if they were able to run it directly from York to London. If it takes an hour for a complete set to be diverted from Doncaster to Hull and an hour for it to return to Doncaster, that amounts to one leg of the journey up to York. If it is thought that more money can be earned by providing a frequent service, the commercial ethos, the desire to maximise profit, will undermine the network requirement for a connection to Hull.

The Secretary of State will probably tell me that it will still be possible to maintain a service, that the franchising director will look at the old pacer train, or one of the new regional trains, and say, "Look, you can still get to Hull in the same time as the InterCity takes." But that will not be a through service. When travelling from one city to another, most people like to do the journey in one haul. They do not like having to change trains.

If we want to encourage people to get out of their cars and travel on public transport—to take the Hull example again—people will stay on the motorway to get to London instead of going by public transport, if there is no through service. The lack of a through service will lead to people being discouraged from using public transport. That is true of many other areas besides Hull. InterCity has cut off Cleveland, Shrewsbury and Blackpool. Substantial communities such as those are entitled to some form of network service to London, although perhaps not so frequent a service as the services to York or to our other main cities. At least one through service should be provided.

The provision of through services will not, however, be provided by the market. The market will determine what is the maximum revenue and the maximum profit. I cite as examples the east coast and the west coast main lines.

If the franchising operator gets the profits from our £500 million investment in the east coast main line, the £70 million will not be used to reinvest in the west coast line but will go to those operating the franchise. It will be profit for shareholders or those who have invested, and we shall presumably have to pay a considerable sum to whoever takes over the west coast main line.

The concept of cross-subsidisation is at the heart of a good transport policy. If we want to maintain that principle, it is critical that we get people out of their cars and on to the trains. I understand that the Secretary of State has found another solution—charge people to use the roads. On Wednesday, we shall perhaps hear more about road pricing and tolls and making it so damned expensive for cars that people will have to use the trains. That is one way of forcing people into the hands of those who will make money out of the syatem, but it is not the best or most rational way of dealing with the environmental and congestion problems.

Our approach to the Bill characterises our approach to transport in general. It is not surprising that we find the franchising process outlined in the Bill unacceptable for transport and environmental reasons and the reduction of congestion. We hear what the Secretary of State says, but we dispute and reject it. I should have thought that the process runs counter to the public service obligation which was originally introduced by a Labour Government.

The aim of the PSO is to recognise the need for a social railway system and to tell the management that we know it cannot make a profit but we shall pay because the community desires to maintain a network of 11,000 miles. That was the idea behind the PSO. It was called a PSO when we entered into the European agreement for the payment of subsidies. We entered into a social contract and agreed to pay a contribution to the running of a social railway.

However, we always specified that InterCity was different. We said that it was not entitled to a subsidy, but the Government are now going to pay to InterCity subsidies that they have not paid for a number of years. They always took the view that InterCity was not to be regarded as part of the social railway. The Secretary of State now proposes to bring InterCity into that category and, along with it, the freight system which we shall debate later. We are now to have a social freight service. I presume that another factor to be taken into account is that it is the Secretary of State who will govern the finances for the social railway. We shall not be absolved from responsibility but will presumably have to get the money and judge where it should be used to make up the difference in the track costs under the social freight concept which he has just announced.

The Secretary of State is introducing even greater subsidies without a guarantee for the network. I mentioned InterCity lines such as the west cost line which, because of the need for capital and massive maintenance costs, are not profitable. Would it not be better for the Secretary of State to cross-subsidise the whole system, issue the money in one payment and tell InterCity that he wants it to run a network service? He cannot do that if it is divided among different operators. That is the craziness of the system on which he has embarked.

Another criticism is that not only is the Secretary of State moving away from the PSO concept identified in the European agreement but he is doing something else that is causing considerable concern, as highlighted in our safety inquiries. Managers are obsessed with the organisation of the railway, not with how to produce a new, good or even a safe railway. They spend all their time jockeying to see what board they can get on and what they can do about their wages and conditions. Very little time is spent trying to produce the best possible railway with inadequate finances.

The Clapham inquiry warned us that so much time is being taken up by management concerns that the commercial ethos and the pursuit of profit are beginning to undermine the very safety of the railway. We were warned not to allow that to continue, but the Secretary of State's announcement is a signal to all British Rail managers to stand by to make a few bob because British Rail is finished and there will be no social railway system and no subsidised or non-subsidised railway. He is making it clear that the whole system is up for grabs, but he knows that, even if he wished it, that will not happen this century.

Some of the system may be gone. The Secretary of State may wave a few flags—like the Minister for Public Transport, who raised the flag on private organisations such as Stagecoach, which did not last six months—and say, "I launch this new privatised service." However, as the track will belong to someone else and, under the leasing arrangements, the assets will belong to another authority, we shall merely have caught people to manage the system. As Sir Peter Parker pointed out in his article today, they will not control anything because we shall merely be buying management skills, which will not make it difficult for us to bring the system back into public accountability, to which we are committed.

The process will not improve the railway system one jot, but will take the managers' minds off reality. The only way to maintain the network and the safety of the system is to make it clear, as we do in new clause 27, that, in the areas not passed to franchise operation, in the maintenance of a social network and in compliance with the European arrangements, the money should be paid for network provision to the remaining non-franchised parts of the service. That should he the Secretary of State's responsibility. If the right hon. Gentleman passes it wholly to the franchising director who is obliged to encourage as many private operators as possible, will there not be a danger that so much money will be given to private operators—as the Government are pressing him to do—that he will have no money left for the less profitable parts of the system?

It is true that the Secretary of State has now made it clear that the announcements that are made in the public expenditure round for the PSO payment—let us say that it is £1 billion, as it has doubled in the past few years—will no longer be governed by that particular year. When the legislation was first introduced, it was agreed that the figure could not rise above that announced in the public expenditure round. By removing that provision, the Secretary of State has made it clear that it is open ended. Open ended can mean many things but, in the Treasury's present frame of mind, it does not mean more money. It means that money will be squeezed. Does anyone believe that the railways will receive more subsidy against the background of a £50 billion public borrowing deficit? If it is left to the franchising director to decide, will it not mean that the least profitable and most socially necessary railways will suffer—the rural stations and the very areas for which we want to maintain 11,000 miles of track?

The essential point is that, according to the PSC), which we accepted under the European arrangement, we agreed not to reduce services but to provide sufficient money to maintain the system at its existing level, which was always measured to be 10,000 or 11,000 miles. How will that be maintained? How are we to observe the quality of service that we are obliged to provide under the European agreement? Will it be the franchising director's responsibility or the Secretary of State's?

The Secretary of State is the only one who signs the agreement and is responsible for the Government's policy. The franchising director is not independent—as we know from the legislation, at end of the day he is accountable to the Secretary of State. Will the money be provided to meet the obligation? We want the Secretary of State to be answerable. We do not want him telling the House that the franchising director had told him that he had enough money but that people were not efficient or that too many people were employed and paid too much overtime.

The Secretary of State has avoided giving answers about British Rail many times. He has caused more parliamentary questions to be asked than anyone else and does not come to the Dispatch Box very often to explain what he is doing. It is rare for us to get him into television studios, never mind the House of Commons. However, in spite of that and in spite of the nature of the present Secretary of State, we want him to be answerable.

We must rely on the fact that the PSO payment is largely about maintaining a social railway. Privatisation is about making profit for the private sector. We want the money to be retained by the Secretary of State for the maintenance of a public network. He should be answerable to the House, which is the purpose of new clause 27.

8 pm

Mr. Peter Snape (West Bromwich, East)

Listening to the Secretary of State is an enormously depressing experience. Anyone who has sat through railway debates over the years, as many of us have, must be struck by the sense that there is little new under the sun. There is nothing at all new about successive Secretaries of State, except the personality of the person at the Dispatch Box. Secretaries of State come and go. I read in the newspapers that this one is not long for us, and that he has other fish to fry and other jobs in mind. No doubt his successor will trot out the same fallacies that the right hon. Gentleman has given us this afternoon.

The Railways Act 1974, to which my hon. Friend the Member for Kingston upon Hull, East (Mr. Prescott) referred, came about in part because of the inexact nature of planning subsidies to the railways on a line-by-line basis. Before the 1974 Act, the subsidy paid to a particular line was based on an annual and occasionally twice-yearly passenger count on that line. It was, as I have said, a fairly inexact science, and one that most people connected with the railway industry were glad to see disappear following the passage of the 1974 Act. Therefore, to talk about returning to that method, in the way that the Secretary of State has done today, is enormously depressing.

My hon. Friend the Member for Kingston upon Hull, East asked the Secretary of State about the provisions of the 1974 Act and whether they would still apply if and when the Bill became law. Will there be some guarantee from the Secretary of State—not from someone whom he has appointed as franchising director—about the size of the network? Is it still the Government's intention that the 11,000 miles, to which my hon. Friend referred, should remain in situ, to be the railway of the future, as it has been over the past 20 years or so?

Given the view expressed by the Secretary of State and the Conservative party's general ideological view that the private sector is inherently good and the public sector inherently bad, what guarantee can the Secretary of State give us that any moneys allocated through the person whom he appoints will be fairly divided and will not go largely to the new private franchises at the expense of the rump railway operating in the public sector, at least until the unlikely day when the right hon. Gentleman can find someone to take it off our hands? What guarantee can he give us that the railways still operated by British Rail, albeit in the short term as the Government intend, will be properly treated in the allocation of funds?

Ministers trot out the phrase "value for money" all the time. All of us, even Conservative Members who support the Bill, know full well that franchises will be awarded to the lowest bidder. In those circumstances, there is no real guarantee of value for money. If the franchisee runs half a dozen trains during a day at a time that suits him or her, he or she will be able to put in a far lower bid than someone who wants to run a comprehensive day and evening service. Without some guarantee—[Interruption.] The hon. Member for Worcester (Mr. Luff) says something incoherent. If he has a point to make, I shall be delighted to give way.

Mr. Peter Luff (Worcester)

The hon. Gentleman is obviously unaware that potential franchisees will be invited to bid for specified timetables. They will not be able to pick and choose which services they deliver.

Mr. Snape

Although the hon. Gentleman has not been here long, his naivety does him no credit. Does he seriously think that there is any long-term guarantee of railway services on that basis?

Mr. Luff


Mr. Snape

The hon. Gentleman says, "Yes." He and I will debate these matters in a television studio at the weekend. I am looking forward to that immensely. As my hon. Friend the Member for Kingston upon Hull, East says, it is no wonder that the Secretary of State will not appear in a television studio. None of us is surprised if he sends along people such as the hon. Member for Worcester.

No real value-for-money judgment can be made about the proposals. The Secretary of State and his more emollient colleague, the Minister for Public Transport, have given us no guarantees. I hope that before the House comes to a conclusion on the new clause, guarantees are not only sought, but given.

Mr. Michael Stephen (Shoreham)

I do not subscribe to the view that the railway is badly managed. I am the holder of an Industry and Parliament Trust fellowship and in the short time in which I have held that fellowship I have met many senior and middle-level managers of British Rail. I have been impressed by the people whom I have met; they are excellent, dedicated people. However, no one in the country, even in the railway industry itself, believes that there is no scope for improvement. I have no difficulty, therefore, with the principle of introducing private sector management techniques into the railway industry. The people who work in the industry have no difficulty with that principle either.

I also have no difficulty with the desire to introduce private sector capital into the railway industry. The trouble with publicly funded industries, as we saw with water and electricity, is that there is only one source of money—the Treasury. The Treasury usually has only one word in its vocabulary, which is no. Especially in the case of industries such as the railways, one is always told by the Treasury that hospitals, schools and other areas have a far greater priority.

I have difficulty, however, with the implementation of the process. The privatisation of the railway industry proposed in the Bill is a very ambitious project and there is no doubt that there will be teething troubles. I ask my right hon. Friend, therefore, for an assurance that the privatisation process will be conducted on a step-by-step basis and that we shall learn from the errors that will inevitably be shown up when implementation begins. I ask my right hon. Friend for an assurance that we shall not rush headlong into anything.

Mr. MacGregor

By leave of the House, Mr. Deputy Speaker, I shall respond quickly to the points raised. The reason why the hon. Member for Kingston upon Hull, East and I were yesterday in the same studio, but discussing the matter separately, is that in the short time allotted to us we should have been talking very fast at each other. It was probably more productive for the distinguished interviewer to bring out separately different aspects of our policy. The hon. Gentleman knows very well that we have had many debates on these matters and I am sure that we shall have many more on transport matters for a long time to come.

My hon. Friend the Member for Shoreham (Mr. Stephen) made two good points, with which I entirely agree, about the present BR management. I know that many BR managers see great opportunities to produce better passenger services through the proposed systems. My hon. Friend also made a good point about private capital.

I have always emphasised that this is an evolutionary reform of the railways in a private sector direction; it is not revolutionary reform and will not happen all at once. I pray in aid a leader in the Financial Times today which my hon. Friend may have seen. It suggests that we should go faster than we are. It says: All the private sector is being asked to do is to bid for franchises to operate passenger services on British Rail's behalf. But even this small step brings the prospect of significant benefits—worthwhile improvements in productivity, a management motivated by financial rewards, and, it is to be hoped, the beginning of private sector investment in rolling stock. And because the chosen structure sensibly avoids a 'big bang' approach in favour of a piecemeal allocation of franchises over a period of years, there will be every opportunity to learn from experience as privatisation progresses.

Mr. Bob Cryer (Bradford, South)

At the expense of passengers.

Mr. MacGregor

Certainly not at the expense of passengers. I hope that that meets my hon. Friend's point. We shall benefit all the way through from better and better handling of the whole system.

Mr. Brian Wilson (Cunninghame, North)

This is the second time that the Secretary of State has referred to this morning's Financial Times editorial. In the interest of balance, every time that he quotes from today's Financial Times editorial, will he also quote from last week's editorial in The Daily Telegraph, or is The Daily Telegraph no longer an acceptable journal of opinion for the Conservative party?

Mr. MacGregor

The reason why I am quoting from the Financial Times is that an Opposition Member raised its editorial. I simply thought that the Financial Times put the point that my hon. Friend the Member for Shoreham made extremely well.

The hon. Member for Kingston upon Hull, East referred to Glasgow and I can give him a clear affirmative on that point for two reasons. First, British Rail has no plans to discontinue any services beyond Preston on the west coast main line. Secondly, as the hon. Gentleman will know, the invitation to tender will be based on the network as it exists immediately before that invitation.

That is very clear. The hon. Member for Kingston upon Hull, East will see that that is the case from the chart that has been produced today for that franchise unit. I can see that there are real merits in having competition under our franchising system between individual operators and between the west coast and east coast main lines.

The hon. Member for Kingston upon Hull, East referred to cross-subsidies. Under the system that we are proposing, where a line like the east coast main line has received substantial investment and where bidders are therefore likely to pay a premium in return from the profits which, as the hon. Gentleman indicated, are available on that line, that premium will be able to be offset—in effect, it will be taken into the calculation—against the total amount of subsidy that will be paid out in the bids for other franchises such as for the west coast main line where, I readily acknowledge, further investment on a significant scale will be required over the years.

That brings me to the next and very important point about PSO grants. We are continuing the subsidies. We believe that we have found a more effective way, in operational terms in respect of getting value for money, and in transparency, by allocating the subsidies in the way that we propose. However, the subsidies will continue.

The hon. Member for Kingston upon Hull, East also referred to inadequate finances, although he conceded that the current level of PSO is twice the level of recent years. He will be aware that the currrent level is much higher than for a very long time—[Interruption.] That was the hon. Gentleman's phrase. That is also why investment is at such a high level, including £500 million which has been spent on safety in the past three years.

Mr. Wilson

Will the Secretary of State give way?

Mr. MacGregor

No, I must make progress.

The hon. Member for Kingston upon Hull, East will also be aware that we have given clear commitments in relation to safety on the basis of the Health and Safety Executive report. This debate comes down to whether the subsidies are allocated through two different routes or through one. I have already said why I believe that it is right to proceed via the franchising director. I do not want to repeat the arguments, but that is why I commend new clause 16 and urge the House to reject the other new clause.

Mr. Wilson

If the Secretary of State had given way a moment ago, I would not have needed to intervene now as I wish to contribute literally three sentences. The PSO grant has been cut by 23 per cent. over last year's figure. Even according to the somewhat short-term thinking of the Conservative party these days, I do not believe that that counts as a very long time.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

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