Metropolitan Railway Grant

HC Deb 18 July 1995 vol 263 cc1493-513 5.54 pm

The Minister for Railways and Roads (Mr. John Watts)

I beg to move, That the Special Grant Report (No. 15) (Metropolitan Railway Grant 1995–96) (House of Commons Paper No. 470), which was laid before this House on 14th June be approved. Had my hon. Friend the Member for Mid-Kent (Mr. Rowe) managed to get his Bill through all its stages immediately, I might not have had the opportunity to detain the House briefly with this motion.

The special grant report sets out the measures that we are proposing to take to ensure that passenger transport executives in England obtain financial cover for the additional costs that fall to PTEs and passenger transport authorities this financial year—1995–96—as a result of railway restructuring. The House has already considered and approved the Scottish version of this report in Standing Committee on 5 July. That report covered the Strathclyde passenger transport authority.

The restructuring of the railways has changed the basis and level of charges for PTE rail services. Before April 1994, the PTEs were treated as marginal users of the network, under British Rail's charging hierarchy. The new charging systems endeavour to reflect the full cost of service provision in order to maximise transparency.

Railtrack's access charges and the rolling stock companies' leasing charges need to be at a level which will cover the cost of renewals investment and earn a return on their investment. Train operators also need to earn a rate of return on their operations. These adjustments reflect the real economic costs of providing the services in question.

Before April 1994, the Government provided support in respect of the PTE-funded railway passenger services solely by the provision of additional sums within the revenue support grant paid to metropolitan district councils. That support is known as the bolt-on. The total for the English PTAs is apportioned among the metropolitan district councils by formula. Although the sums are not hypothecated, the allocations for individual PTEs are published in the annual revenue support grant distribution report. The PTAs levy their constituent district councils to cover the expenditure requirements of their respective PTEs.

The revised charging regime that followed rail restructuring in April 1994 was unable to provide, at an early enough stage in the calculations of RSG for the year 1994–95, sufficient detail of access charges and rolling stock leasing charges to identify fully the extra charges to the PTEs. Consequently, the Government introduced the metropolitan railway grant as a transitional measure in 1994–95 to meet the funding gap between the bolt-on and the extra costs of the revised charging regime.

Calculation of MRG takes as the starting point the services for which the PTEs contracted in 1993–94, and the amount of grant represents the difference between the costs of providing those services under the old pre-April 1994 and new post-April 1994 charging systems. MRG was paid in 1994–95 by the Department of Transport direct to the PTAs, and the position remains the same under this report. The earlier report instituting MRG in England was debated in Standing Committee in May last year.

Because of the regulator's review of access charges, and the further development of the ROSCOs' and Railtrack's charging mechanisms, sufficiently detailed data on those charges were not available early enough to feed into the calculations of RSG for this financial year. In the circumstances, Ministers decided that, subject to parliamentary approval, MRG should be extended to cover the current financial year. The text of the report has been the subject of consultation with the PTEs and other interested bodies, including BR and the Association of Metropolitan Authorities. The report outlines the background to the PTEs' past and current funding arrangements, and sets out how the MRG will be calculated and the conditions attached to the payment of it.

Annex A to the report sets out some of the background to the PTAs, PTEs and rail support, and particularly how revenue support was provided by central Government in the past, and why it was necessary to introduce MRG in 1994–95. Annex B simply lists the English PTAs which will be paid MRG. Annex C sets out how MRG is to be calculated in 1995–96. The starting point is an individual PTA's relevant expenditure: BR's gross charges for providing railway passenger services to the PTE in 1995–96.

As the purpose of MRG is to compensate for the financial effects of restructuring, it is necessary first to deduct from the total charges the charges levied in 1993–94 on the old basis, and secondly, to deduct inflation on the 1993–94 cost base. Thirdly, a deduction is made in respect of payments made or to be made in 1995–96 under certain deeds of assumption governing the payment of money to PTEs to cover past capital grants to British Rail by the PTEs. Fourthly, there will be an adjustment—an addition to the grant total—to take account of any underpayment of MRG to the PTAs in the last financial year. The end result of that calculation will be the amount of MRG payable.

In the case of West Yorkshire and West Midlands, there will be a deduction in respect of the cost on the 1993–94 charging basis of service enhancements which followed from improvements in infrastructure. The final annex, annex D, sets out the conditions with which the Secretary of State has decided that the PTAs must comply in respect of payment of this grant.

The report covers this financial year, it ensures that PTAs and PTEs receive the additional costs that fall to them from rail restructuring for this financial year, and I commend it to the House.

6.1 pm

Mr. Henry McLeish (Fife, Central)

This is a very important motion, and I am grateful that we have an opportunity to discuss it on the Floor of the House.

Being a decent, honourable man, the Minister will never talk about privatisation. It is called restructuring. The Government never talk about artificial markets, but we have charging hierarchies.

Mr. Watts

The hon. Gentleman will know that last week I was very happy to talk about privatisation. It is a matter of accuracy that this report deals with the consequences of restructuring. As he will know, we have not yet let the first of the franchises for the private operation of passenger services. That will come later this year: he has only to wait a while.

Mr. McLeish

I am grateful for that intervention, which enables us again to realise that the Government are making no progress with the franchising of railways—and thank goodness.

It is important to consider the point about restructuring versus privatisation. We bring this report to the Floor of the House because it is all about privatisation of the railways. It is not about restructuring: it is about the dismemberment of BR into 95 bits. Part of the problem is that there are seven PTAs—one in Scotland, and six in England which are the subject of the motion. We will suffer greatly at the hands of this Government.

We will not divide the House on this issue, because, in a sense, if one creates a crazy situation, one has to pay up. That is what the Government are doing. They are bailing themselves out of a financial situation of horrific proportions, with which I shall deal.

We are concerned about what this money is to be used for. If the allocation was about providing more trains in Yorkshire, Merseyside and Greater Manchester, or more services, stations, railway stock or signalling, it would be something to debate. This report shows the price of privatisation—nothing more, nothing less. That is why, in tabling the motion, apart from using words to provide a camouflage for what the Government are doing, they will not tell the British people or this House what that money will be spent on. Our case tonight will tackle that issue, because it is germane not only to the motion but to the use of the money voted through tonight.

Of course nobody doubts that the PTAs have done an excellent job. They provide an opportunity to attempt public-private integration, to tackle congestion, and to address an integrated public transport network. So there is no dispute about their track record. The motion is about the cash they will get in the financial year 1995–96, yet huge questions are unresolved about what happens in 1996 and 1997 if this crazy privatisation should proceed to the extent desired by Conservatives Members.

This evening, we do not want to disguise our central proposition. If, as I said, the motion was about services, that would be one debate. Our proposition is that, for the foreseeable future, this Government are willing to squander £250 million every year to pay for privatisation involving the passenger transport authorities. That is worth repeating, because, until now, the PTAs have received regular support through the revenue support grant. That has averaged perhaps £100 million, £120 million or £130 million a year. This year, the PTAs will receive a staggering £380 million—an increase of £250 million.

Mr. Hugh Bayley (York)

Does my hon. Friend agree that a good way of illustrating the sum involved is by saying that £380 million was three times the amount of money needed to save the York carriage works by building another tranche of some 100 new carriages for use on suburban railways? The Government could have financed the building of 300 carriages for that amount of money and improved service to the public, instead of using it as a financing mechanism for privatisation.

Mr. McLeish

My hon. Friend is absolutely right. The opportunity cost of this folly will become evident this evening, because we will talk about the amount of money involved: £380 million. If it was a once-for-all increase of £250 million, it would still be a staggering sum of money. Ministers who always lecture the Opposition on probity in public expenditure are about to spend £250 million on simply nothing over the next five or 10 years—if they stay in power and privatisation proceeds on the basis that they want.

Obviously, I and my hon. Friends want to explore this crucial issue. To pay the price of privatisation, the PTAs will receive a 172 per cent. increase in the amount of money that they have to spend.

We have tried time and again to capture the right language properly to project what a monumental piece of stupidity privatisation is. Not only is it destroying the railways and threatening the PTAs, but it is squandering taxpayers' money on a grand scale. I hope that the Minister will address that central point. Will he confirm that we are right, and that money is being squandered, or is there some other reason behind the massive sum being poured into the black hole of the PTAs?

We have talked about the benefits that have accrued to the country of having PTAs, as I hope that all hon. Members would agree, but let us consider what is happening up and down the country. My hon. Friend the Member for York (Mr. Bayley) put his finger on what is wrong. Excellent schemes are being developed in every PTA in the country, they are desperately keen to provide integrated public transport, and they are yearning for stability.

The report highlights a policy in contrast to all those aspirations. If we had £300 million or £250 million to spend every year, what would we spend it on? The Government must tell us why, when there are so many priorities on the railways, they want to waste that money in such a way.

It goes without saying that this week, the Secretary of State for the Environment will meet representatives of local authorities. What would local authorities do with a quarter of a billion pounds across their departments? It is vital to stress that point, although it is outwith the report in the sense that other parts of local government are not covered by it. However, I know some chairmen of education, some chairmen of housing and some chairmen of other council departments in the Association of Metropolitan Authorities who would like to get their hands on a quarter of a billion pounds. The money is up for grabs. It is basically the price of madness—the price of privatisation.

The Minister might tell us about the discussions he has had with his colleagues about his being allowed to spend such an amount to support an artificial internal market, while other Ministers are desperate to get money to spend in the run-up to the next general election.

Mr. John Gunnell (Morley and Leeds, South)

Does my hon. Friend agree that local authority spending may not be as irrelevant to the matter as he suggests? When the bolt-on comes in for the next financial year, the money will go straight to the district councils. They will have the choice whether to spend the money on railway services or hold on to it for other purposes.

Mr. McLeish

My hon. Friend is absolutely right. This is a point that I shall address in a few minutes, because it is one of the uncertainties that has an impact on discussions about the railways and the PTAs.

My hon. Friend makes the valid point that, if the Government move from a specific metropolitan railway grant to a system in which the money is absorbed into the revenue support grant, there can be no guarantee that the money, which has been fed in for the railways, will get through a system that is under strain at present. The sum is massive, and the PTAs will depend on the good will of the local authorities to deliver the cash so that they can deliver the services. That is an important point.

Before leaving the question of cost and moving on to the uncertainties, it is worth repeating some of the ridiculous figures. Based on the PTAs' submission to the Select Committee on Transport, we know that South Yorkshire has a 150 per cent. increase to provide the same level of services. Strathclyde region, which is not covered by the report but which is relevant to the debate, will experience a 238 per cent. increase to run the same railway services this year as it ran last year.

The Minister must be alarmed that he is seeking the House's approval to spend a quarter of a billion pounds. Can the Minister be embarrassed?

Mr. Watts

indicated dissent

Mr. McLeish

The Minister indicates that he cannot be; I know that he does not mean it: I am sure that he can be embarrassed. We are 20 months away from a general election, and the country is informed that we have no money to spend. Why is it that we have so much money to spend on PTAs that we are talking about not £100 million or £200 million, but a quarter of a billion pounds every year? The Minister listens, and I am sure that he agrees that that is a large sum, which could be put to far better use.

Mr. Watts

Did I hear the hon. Gentleman correctly? Was he suggesting that it would be better not to spend this money on the provision of railway services in the metropolitan areas, but to spend it on something else? That is not an argument that I have heard from any of the PTEs.

Mr. McLeish

We should not have to spend such a sum if we did not have privatisation of the railway system. The privatisation of the railway system is logically and directly linked to the financial madness before the House this evening, and the Minister knows it. Of course we would like to spend money in productive ways on our railways. Until we stop privatisation—until we halt the madness—that will not be possible.

The Association of Metropolitan Authorities is obviously concerned about the future. It has on its hands a situation about which it can do nothing. It wants to provide the best services possible, but it cannot improve its services. Yet it still has to process the financial merry-go-round whereby the Treasury will give it extra money.

The Government will pay hand over fist to fatten up Railtrack and the leasing companies for privatisation, and they will, of course, pay money to the train operating companies. The AMA is not happy about the financial merry-go-round, as the Minister well knows. The Government are, however, paying the piper, and the AMA has to dance to the tune.

What about the future? Is the Minister willing this evening to give us a cast-iron guarantee that, beyond 1995–96, there will be no going back on a commitment to fund every extra penny of cost that the PTAs in England and in Scotland will have to pay for this privatisation? That point is vital, because the report leaves matters hanging in the balance.

At present, if the AMA and its constituent authorities accept the 1995–96 settlement, they will have to spend the money against a background of no guarantees about the kind of railway system they will have. They do not know whether the train operators will be franchised. They do not know what charges the leasing companies will impose, and what charges Railtrack will impose. It is important that we, as a responsible Parliament, ensure this evening that the Minister gives the guarantees that will be required if privatisation proceeds.

The next point concerns the transparency of the cash. Everyone knows that, at present, a grant is a fixed sum, it is given to the PTAs, and it can be spent. If it is then subsumed into the revenue support grant settlement, there is no guarantee that it will be delivered to the railways. There is no guarantee that the grant will be transparent in the sense that it can be discussed in the House. If the grant is subsumed in the RSG, there is no possibility that we shall have an order to debate. How can the nation, Parliament and the PTAs be reassured that public finance is being used for the purposes that the House intends?

I have already alluded to the next consideration. We live in uncertain times. The railways are a complete shambles, entirely due to the Government's policies on privatisation. This evening, we are saying to the PTAs, "Yes, you can have this quarter of a billion extra, and just get on with providing services." But the PTAs have no idea what the railways will look like in one month's, two months', six months' or a year's time. That is crass irresponsibility on the part of Government.

The Minister must tell us this evening whether Railtrack charges will be stabilised. Will not leasing companies fleece the train operators and the PTAs? Will we have stability in this so-called "artificial market"? What is the future for the railways, which impinges so heavily on what is happening with the PTAs?

The other important issue in terms of the RSG is capping. We must be reassured that the machinery of delivering special help to the railways through the RSG will not be the subject of capping procedures. We need a hard assurance on that, because it is no good for the Minister to say to the House, "Yes, it is a matter that we are looking at. Yes, it is a matter that we want to have further discussions on." Obviously, this deal will not be worth the paper it is written on if we do not have specific guarantees about what is going on. The long-term commitment of the PTAs is meaningless without long-term assurances about future funding and about the future of the railways.

I hope that the Minister will come clean about what the money is specifically to be used for. Is it really for the railways, or is it merely intended to prop up an artificial internal market to allow the Government to get on with privatisation, which no one wants outwith a small ideological clique in the Conservative party?

How can we ask the PTAs to continue to do such an excellent job, if their whole future is surrounded by uncertainty, by the notion that money may not be available, and by the possibility of the Government being hellbent on putting much of the railways into the private sector? It is worth while for the report to be brought to the Floor of the House, because it is the kind of matter that the Government like to smuggle through in Committee, so that they do not have to explain to anyone what they are doing and why the money is being used in a particular way. At the end of the day, they are doing no service to this House and they are certainly doing no service to the passenger transport authorities.

6.18 pm

Mr. Keith Hill (Streatham)

As you will be aware, Mr. Deputy Speaker, my interest in the matters before us has already been declared in earlier exchanges—by the Prime Minister, in fact. I am sponsored by the National Union of Rail, Maritime and Transport Workers. However, at least I and other Members of Parliament sponsored by the rail unions have an interest in and a concern for the future of the railways—a concern that is obviously not shared by Conservative Members, judging by the scandalously empty Benches behind the Minister.

I should begin by welcoming the fact that at least the metropolitan railway grant is being paid. As the Minister said, last year it was expected to be a one-off transitional grant, designed to meet the extra costs of the restructured railway. The passenger transport authorities and the passenger transport executives were left in considerable uncertainty about the funding of future operations this year, until the late decision formally announced on 14 June that the Government would make further MRGs for the current year.

The force of many of the representations to the Transport Select Committee in the course of its inquiry into railway finances was that, as a result of that delay, the PTAs felt themselves to be up against the wire in making decisions about future services, given the long lead times involved in making contracts with operators and then composing timetables.

That is extremely unsatisfactory for authorities responsible for such a major part of the railway network. It is worth remembering that the rail services in PTA areas carry twice as many passengers as the former InterCity part of British Rail, and account for three quarters of those carried by the regional railways. In total, PTAs act as a channel of provision for just under one fifth of the overall net subsidy required by the rail network.

It is therefore vital that the Government get the future funding of those authorities right. As my hon. Friend the Member for Fife, Central (Mr. McLeish) said, we know that the Government have decided from 1996£97 to return to payments towards the section 20 rail services by means of revenue support grant under the terms of the so-called standard spending assessment bolt-on that flowed from the Local Government Act 1988.

The Minister must be aware that the PTEs have expressed some dissatisfaction with the formula used to calculate the bolt-on. No precise detail about it has ever been made public, and we have no precise information about the way in which the bolt-on is made up, but, according to the PTEs, the money involved appears to be allocated on the basis of a combination of route miles and infrastructure costs. Again, the data involved have not been made public, and there is a strong suspicion within the PTEs that the information base may be flawed.

I am sure that the Minister will recall that, in 1994, the Environment Select Committee's report on standard spending assessments called for maximum transparency in their preparation. It is sincerely to be hoped that the Government will live up to the commitment of the most recent of many Secretaries of State for Transport to total transparency concerning the section 20 bolt-ons. Furthermore, the Minister himself has made an unequivocal commitment that future funding will match in full the level of support currently allocated by means of the metropolitan railway grant and the bolt-on. The Opposition will want to give that commitment the most detailed scrutiny in due course.

Even if future funding by the Government is at 100 per cent. of the present levels, the method they have chosen for making the grants is still bound to create uncertainty about the long-term provision of local rail services. The Government may make a virtue of the discretion that the grants paid to metropolitan district councils under the bolt-on arrangements offer to such authorities, but, as my hon. Friend the Member for Fife, Central has already said, the fact that such grants are not ring-fenced means that they could be diverted from rail services to bus services, or even to non-transport services.

Rail services, by their very nature, involve long-term commitments to investment in infrastructure improvements and, above all nowadays, to rolling stock leasing. It will certainly be regrettable if the inevitable uncertainties arising from the new system of funding for PTE rail services cause their level to decline. There is no doubt that the changes in the funding mechanism, together with the restructuring of the railways under privatisation, have given rise to a series of grievances and anxieties within the PTAs and PTEs.

For example, under the new track access regime, PTEs are now charged for the use of track on the basis of the periods for which the trains they support occupy the track. However, because local trains are slower, more frequent, and stop at more stations than InterCity trains, the PTAs legitimately feel that they are being asked to pay a higher proportion of the total costs, despite the fact that the heavier, faster trains run by InterCity train operating units cause more track damage.

Moreover, there is a general complaint among both the PTAs and the PTEs about the significant rise in the costs quoted by Railtrack for new works. In some cases, those have doubled, and there has been a similar escalation in the fees charged by Railtrack for design and supervision. That comes on top of the added complexity affecting all major new projects that has been caused by privatisation itself.

For example, in the past, a plan for an electrification scheme would simply have been agreed among the PTE, British Rail and the Department of Transport. But now, such a project involves many more agencies and businesses, especially if there is to be a transfer of rolling stock between services on other parts of the network as part of the project.

Even entering into an agreement for the provision of services has become considerably more problematical under privatisation, and PTAs will naturally be more hesitant about incurring substantial loan debt liability as parties to franchise agreements stretching over periods of seven or more years, unless they have firm assurances about funding for both revenue and capital purposes—funding that will be available for the full period of the franchise. However, there is no sign whatever that such a commitment will be forthcoming from the Government.

Underpinning all those anxieties and uncertainties, as my hon. Friend has argued, are the astronomical increases in charges to PTAs arising from the restructuring of railway finances from April last year. That has meant that the net claim on central Government funding for PTAs has increased from just over £130 million to the present £355 million-plus.

If nothing else, even if the future bolt-on covers the extra costs, it is bound to make metropolitan district councils think twice about passing on such colossal sums to PTAs. Of course, the Government will argue at one level that those are notional figures, and that the new money-go-round means that all the extra expenditure will flow back to the Treasury at the end of the day, at no extra cost to the taxpayer.

That may be true before Railtrack is sold off, but what will happen after the flotation, if it ever happens? There is no suggestion by the Government that there will be any significant decline in the charges levied by Railtrack, other than the marginal adjustments already proposed by the regulator. As we understand it, there is certainly no suggestion that the Government are planning to spend less on what constitutes essentially the same level of section 20 services. If they do plan to spend less, the Minister should certainly tell us about that this evening.

However, if Railtrack is sold off, the money will not go back to the Treasury next time. That money will be going into the pockets of Railtrack shareholders. In pursuit of their madcap goal of rail privatisation, the Government have massively increased public spending on the railways to enrich a handful of privateers at the expense of the rail passenger and the taxpayer. It is a racket and a scandal, and the Government will not be forgiven for it.

6.29 pm

Mr. Paul Tyler (North Cornwall)

The Minister made a valiant attempt at the outset of the debate to suggest that restructuring and privatisation were somehow totally different. Perhaps I could remind him of his letter to the chairman of the public transport committee of the Association of Metropolitan Authorities, dated 30 June, in which he said: I understand your concern that any additional costs arising as a result of rail privatisation in 1996/97 could have a further impact on districts' budgets. We would not be talking about the costs of restructuring were it not for the fact that the Government are hellbent on privatisation.

The passenger transport authorities in England which are the subject of the report have calculated the additional costs which they anticipate as a direct financial consequence of rail privatisation. They are as follows: West Midlands, £35.626 million; West Yorkshire, £28.254 million; Tyne and Wear, £3.951 million; South Yorkshire, £12.012 million; Merseyside, £49.894 million; Greater Manchester, £48.162 million. These are huge sums.

The hon. Member for Fife, Central (Mr. McLeish) was right to indicate the scale or weight of that investment. My only comment on the hon. Gentleman's contribution to the debate is that I wish that he had been as forthright, both in his speech and in his vote, in support of our motion last week on the sale of Railtrack as many of his colleagues on the Back Benches were. We welcomed their support.

This is an extraordinary chronicle of indecision and imprecision, a result of which will be major costs for the organisations concerned. I have seen the correspondence between the Minister and the AMA in recent weeks, and the one thing that stands out clearly is that the Department has left it to the very last minute to clarify the essential elements of the package that it is bringing before the House tonight. The status of the capping regime if the report is passed, and its provisions continued into next year, is still unclear. I hope that the Minister will address that point when he winds up this evening.

In terms of the travelling public, there is likely to be a hiatus in the services provided in metropolitan areas by the PTAs and PTEs. Our primary concern this evening should be the effect on the quality of services provided by Greater Manchester, West Midlands or wherever. Is there an implication for fare levels? Most important of all, will there be an impact on council tax payers? Will they have to pick up the bill? It is by no means clear from the exchange of correspondence between the Minister and the AMA that the last point has been tackled.

In a letter dated 29 June, the chairman of the AMA's transport committee specifically asked the Minister to address three points. He wanted clarification that the control total for support in 1996/97 is set at an adequate level taking proper account of the outcome of 1995/96 funding including provision through MRG … the additional costs will be supported 100 per cent. by Government funding and that no part of that cost shall fall on the council tax payers of the metropolitan district councils … any future capping criteria applicable to metropolitan district councils will recognise these costs of rail privatisation as reflected in the PTA levy and that due allowance be made in districts' budgets in order that the increased levy can be fully absorbed without impacting on other districts' spending. The Minister's letter to which I referred was a short one. I do not pronounce him guilty of that—we could all do with short letters at times—but it did not explicitly address those queries. This evening, we should ask the Minister to be explicit.

If anybody is in any doubt about the possible impact of the transitional changes on the areas concerned, they should consider the position of Greater Manchester, where the PTA's charges as a result of the change in arrangements have risen from £40 million to £90 million—a huge sum. Greater Manchester is the second largest metropolitan authority, and must negotiate with 10 districts. This could be very damaging, and potentially dangerous for the whole mechanism of apportioning grant to the public transport system in Greater Manchester. As a result—I hope that the Minister will be able to comment on this—all three political parties represented on the PTA have agreed to sever their links with British Rail, and have pulled out of their section 20 agreement under the Transport Act 1968.

The potential for chaos is such that those responsible for trying to make sense of the madness are finding it impossible to do so under the terms of the section 20 agreement. Given that Greater Manchester has the biggest collection of urban rail services of those authorities to which metropolitan railway grant is paid, and given that it has the largest number of district councils for which MRG is available, one can see the complexity of the matter. The Government's last-minute indecision is causing real hardship and confusion, and the impact on the travelling public could be considerable.

I do not think that the last-minute brinkmanship in the negotiations does the Department of Transport or the House any credit. It puts a lot of people who have a heavy responsibility for providing public transport in metropolitan areas at a considerable disadvantage. Inevitably, that will put the travelling public at a disadvantage as well.

6.36 pm

Mr. John Gunnell (Morley and Leeds, South)

As you have taken the Chair, Madam Deputy Speaker, and replaced my hon. Friend the Member for Pontefract and Castleford (Sir G. Lofthouse), I am left as the only Member in the Chamber who represents an area covered by a metropolitan railway grant. It surprises me that the Government Benches are so empty. I can think of a number of Conservative Members who represent seats in former metropolitan county areas. I can also think of a number of marginal seats in West Yorkshire.

Mr. Bayley

Does my hon. Friend believe that the almost total absence of Conservative Members suggests that there has been a collapse in support for rail privatisation among Conservative Members, and that they are no longer prepared to support Ministers in this ill-guided venture?

Mr. Gunnell

That certainly is the case. Conservative Members recognise the damage that is being caused by privatisation.

Mr. Andrew Rowe (Mid-Kent)

That is far from being the case. The real answer is that, on a day when amazing rail strikes are paralysing the nation, the benefits of rail privatisation are so self-evident that there is no need for Conservative Members to be present in large numbers.

Mr. Gunnell

That may be the hon. Gentleman's view, but it is not the view of the majority of the travelling public, and I am sure that he knows that. Many marginal seats will be affected by the removal of the grant, and by the promise that the Minister gave to the metropolitan authorities in a letter to the chairman of the public transport committee of the Association of Metropolitan Authorities. He made it clear that the 1995–96 settlement would continue to guarantee additional costs.

I welcome the report because it ensures that services in metropolitan county areas will continue. As I represent a seat in West Yorkshire, I am glad that the West Yorkshire passenger transport authority, which we built up over many years, is to remain. It must be said that its grant remains at the 1993–94 levels. Will the Minister say what reductions will be made? He referred specifically to reductions that would be made in West Yorkshire as a result of the changes in service there since 1993–94, and I am sure that he could give me the costs.

Mr. Watts

I was explaining that, in calculating the amount of metropolitan railway grant starting from the total cost of current services at current costs, it is necessary to make an adjustment in respect of the West Yorkshire and West Midlands PTAs for the 1993–94 cost equivalent of the enhancement in services that they have made subsequently. They are therefore compensated for the increased cost of services that arise from restructuring. But by not taking account of the cost that they were already bearing and for which they were already supported through their existing level of bolt-on grant, they do not receive the whole of the cost, effectively for a second time.

If I led the hon. Gentleman to believe that I was suggesting a reduction in current funding, which would lead to a reduction in services, that was not my intention.

Mr. Gunnell

I thank the Minister for that explanation. I had understood that the grant was meant to cover services that existed at the end of 1993–94 but that, where improvements had been made, the Minister anticipated that the cost of those improvements would be borne by the passenger transport authority. Is he saying that, in future, Government grant will cover services that existed on 1 April 1994 but that if any authority has increased its services, that increase will fall on the authority's resources?

Mr. Watts

Not from 1994. The services to which I referred in West Yorkshire and the West Midlands had been planned, and infrastructure investment had been made for them. They came into operation after the end of the financial year 1993–94, and are included in the existing base bolt-on. They are also covered by the metropolitan railway grant, which I hope that the House will approve tonight. Beyond the current year, however, any changes in service that local authorities wish to make will have to be funded out of whatever provision they receive from that level of funding, which I propose should be provided when we move from MRG to the new enhanced bolt-on. Current services are covered by MRG in respect of the effects of restructuring, and will continue to be funded in the future when we take the existing bolt-on plus the existing MRG and carry that forward into an enhanced revenue support grant bolt-on.

Mr. Gunnell

I thank the Minister for that explanation, which enables me to make a point that has not been made in the debate so far. During the period in which I, as leader of West Yorkshire metropolitan council, had some responsibility for transport, we were developing new railway services. We opened stations and introduced new routes, and improvements were made to the service. A big potential for rail in metropolitan areas is not yet being fulfilled. My concern about the additional costs that will arise as a result of privatisation is that they will make it much more difficult for those who exercise responsibility locally to bring about the developments in service that the public want.

Mr. Bayley

In annex A to the report that we are debating, the Government say: prior to railway restructuring on 1 April 1994, PTEs were generally charged by BR on a marginal cost basis that did not reflect the full costs of service provision. When British Rail was a public service, it was right to try to enhance the service to the public by recouping only the marginal costs. But the Government's proposal implies that any future improvement of railway services in metropolitan areas will be charged at full cost to make Railtrack, once it is in the private sector, more profitable. As the leader of a former metropolitan council, will my hon. Friend give us his view on whether the proposed regime will make it harder for local authorities to enhance their local rail services in future and move people off the roads and on to the railways?

Mr. Gunnell

I thank my hon. Friend for his comments. It is basically the same point as I made to the Minister. I was about to come to the phrase about "marginal costs". One of my jobs in the past was to be involved in the negotiations between the passenger transport authority and British Rail. British Rail made sure, on every point where it had any flexibility, that it charged the maximum amount that it could. We had very tough negotiations within the terms of section 20, and the Minister would have expected British Rail to give us a tough time on the costs of those arrangements. So significant charges were paid.

I refer specifically to West Yorkshire, where one can see clearly the cost of privatisation. My understanding of the £28.254 million is different from that of the hon. Member for North Cornwall (Mr. Tyler). I understand that we are not at a stage where we can say what the total cost of the bill will be. Only at the end of the financial year 1995–96—in April 1996—will the final bill be known and paid, because it depends on two factors: first, the level of grant; and, secondly, the revenue from train fares in 1995–96.

I am sure that the Minister will tell me if I have misunderstood the report, but I understand that the old section 20 money is covered by that £28 million, less income from what I would call the "fare box", although it is not quite a fare box in the case of trains. In addition, there will be a metropolitan railway grant, which happens to be about the same amount—some £30 million altogether for West Yorkshire. So the total cost of services in West Yorkshire in the current financial year will be a total of £58 million, which is a staggering increase on the figure before privatisation. Indeed, it represents more than double the costs.

In my time, fares covered 27 per cent. of the necessary money. We felt that 27 per cent. was low because ratepayers always compared the amount that came in from fares on the rail system with the amount that came in through fares on the bus system. They may have felt that they were not getting a good deal, but one knew that there were many vital, strategic reasons why it was important to maintain the rail network. We therefore gave that additional commitment.

According to the proposal, fares will account for less than 20 per cent. of total costs. The Minister should spell out clearly where the required additional money has gone. Opposition Members believe that the total bill to be paid as metropolitan railway grant is a not-so hidden subsidy towards the privatisation process.

The Minister is correct to say that the privatisation proposals have not got very far, but he also made it clear that the Government's efforts will continue. He anticipates that franchises will be awarded next year. Passenger transport executives and district councils are worried about the future implications of those changes. They believe that the prices charged will fluctuate.

The Minister has spoken to the PTEs and district councils about Railtrack and the restructuring that has taken place—the preparation for privatisation means that services have been split up in readiness for sell-off. He believes that the additional costs incurred as a result of those changes have stabilised. That may be so, but the rail system is not stable, because of the Government's intention to press on with railway sell-offs. Once that becomes reality, what control will the Government have on the rate of return charged by private companies? If the rate of return is higher than the current rate allowed to Railtrack and the other subsidiaries, the final bill to be covered by the metropolitan railway grant will be larger than the current one. District councils and PTEs are naturally anxious to know whether the 100 per cent. commitment on offer is a 100 per cent. commitment relating not just to bills now incurred, but towards the additional bill that will be incurred as a result of changes in current railway arrangements.

I agree with my hon. Friends that those additional costs are the most staggering and, at the moment, the most transparent and obvious cost of privatisation. I agree with my hon. Friend the Member for Fife, Central (Mr. McLeish) that the grant represents appalling expenditure on what is, at present, a theoretical system. It will enable dogma to be put into practice.

The structure of the railways will be changed, but the PTEs are doing their best to ensure that their services will continue to operate effectively in the new system, despite the fact that they will find themselves having to pay enormous extra charges. To date, the Government have been prepared to underwrite such charges because they regard the principle of rail services as important. I am not asking the Government to consider whether those charges should be paid, because it is vital to offer those services, but whether the cost of the proposed changed arrangements is worth it. We are worried about the future and I hope that the Minister can allay our fears.

Unless it is not possible for district councils to do so, they will be extremely tempted not to pass on the entire amount of grant that they receive for the provision of rail services. I know how joint services have been provided in former metropolitan county areas, and if there is no statutory rule, the budget has always been determined by that district that wishes to pay the least for those services. Most of the districts are hard up as a result of Government restrictions on local government finance. If councillors were able to decide to use just a little of the money put aside for rail services for their other services, I am sure that they would be strongly tempted to do so. I want to see how the Government will make the sum in question transparent, because unless they do that and make sure that the total sum is passed on, we cannot be sure that the money will automatically go to the PTEs. If they provide those assurances, why change the system? It will simply make life a little more complex for PTEs.

The Government must explain how authorities that normally are subject to capping will escape it when the grant represents a large increase in expenditure. What is the parallel for the end-of-year adjustments that will be made to the grant? The Minister is aware that, by April 1996, he will be in a position to make such adjustments. The RSG system—the Minister's bolt on-system—is not as flexible as the current system. How will he make such end-of-year adjustments according to the new bolt-on system?

Will the Minister underwrite the costs if, as we fear, privatisation and franchising go ahead despite the fact that costs have not stabilised? I know that he has answered those questions in letters to the metropolitan authorities, but we need to hear his answer tonight.

We have said nothing about fares. At the moment, PTEs have the power to set fares and to specify participation in multi-modal ticketing systems for travel within metropolitan areas. Will the Minister confirm that those passenger transport authorities will continue to hold those powers in the future? At the moment, they make important decisions that relate directly to the level of use of a rail service because there is a direct connection between the cost of a fare and passenger use. Will they continue to exercise that power in the future?

If the additional costs arising from rail development are borne by the passenger transport authorities, perhaps the Minister will be willing to explain to us how decisions will be reached on fares, if that is no longer to be the responsibility of those authorities. It is important that the power to determine fares for local services is held locally.

6.57 pm

Ms Glenda Jackson (Hampstead and Highgate)

I begin by declaring an interest as the only Member of the House to be sponsored by the train drivers union, the Associated Society of Locomotive Engineers and Firemen, ASLEF.

The metropolitan railway grant is paid by the Government to the six passenger transport executives in England and Strathclyde regional council in Scotland for additional costs which, according to the Department of Transport's special grant report of 5 May 1994, result from the restructuring of the railways in Great Britain following the passage of the Railways Act 1993, and the introduction of new charging regimes reflecting re-evaluation of assets, new rates of return to be earned by the railways and revised principles for the attribution of costs amongst different rail services". As my hon. Friend the Member for Fife, Central (Mr. McLeish) so tellingly said, according to the Department of Transport, restructuring is a euphemism for privatisation. There were at least three more such euphemisms in that quotation from the special grant report.

The metropolitan railway grant has been introduced because of the massive increase in the cost of operating rail services as a result of the introduction of track access charging regimes. In 1993–94, before track access charging was introduced, the public service obligation grant, the grant paid by the Government to British Rail to support socially necessary but non-profit-making services, was £949 million. A year later, with the introduction of track access charging, PSO support had almost doubled, to £1.7 billion. Adding in the metropolitan railway grant payment of £224 million, the introduction of track access charging increased the cost of operating rail services throughout the network by almost £2 billion in a single year.

At present, that money has not been lost to the taxpayer. That is because the PSO grant is paid to the franchising director, who passes the PSO grant to train operators in the form of track subsidy. Train operators then pass the grant on to Railtrack, which, because it remains a nationally owned company, returns that money to the Treasury. That is the money-go-round, as my hon. Friend the Member for Streatham (Mr. Hill) so accurately called it.

However, if Railtrack is privatised, the money paid by the taxpayer in track access charges will pass from the train operators to Railtrack's shareholders. Similarly, if the metropolitan railway grant is axed and local authorities are forced to increase council tax bills to support existing rail services, that money will go to Railtrack's shareholders. Even if the MRG is continued after 1996, it will simply mean that the taxpayer's subsidy will end up in the pockets of the shareholders of Railtrack and the private train operators.

The Government have said that they will provide MRG funding for an additional year, 1995–96, but that, after 1995–96, MRG funding will cease. At that time, any subsidy to support PTE services will be subsumed into the revenue support grant, when it will no longer be ring-fenced. If MRG funding is cut, councils contributing to the PTEs will have to supplement their contribution by increasing council tax bills or cutting services. Neither will be welcomed by the people of the country as a course of action.

It is not as though people are not only too willing to use their railways if the services are there for them so to do. I take the example of the St. Albans-Watford Abbey Flyer. That was a service funded by Hertfordshire county council, which is not part of a passenger transport executive. The council supported a Sunday service much used by the people of St. Albans. The cost of operating that service was £15,000. The council, however, was informed by North London railways in April 1995 that, as a result of the costs imposed by the new track access charging regime, council tax payers would have to find an additional £50,000 if they wanted that Sunday service to continue.

Another example is the electrification of the Bradford-London InterCity route, at a cost of£40 million. On completion of the project, InterCity East Coast found that the new access regime meant that it was uneconomic to run additional electric units, and it was forced to continue to run diesel trains along newly electrified track.

It is vital to the country, not least on environmental grounds, that we are encouraged and facilitated in using our railways, and that there is expansion of the railways. The PTAs have made a valuable contribution to that expansion and to the use of our railway system. They are more than eager to continue to provide that service, but the Government do not appear concerned to help them in that aim. The Government are concerned to break up our existing rail network system in this benighted attempt to privatise. As my hon. Friends said, the support for the Government's proposals among Conservative Members would appear to be nil, because the Conservative Benches are almost empty.

One can understand why Conservative Members would back off from the Conservative Government's proposals for Railtrack. A recent national opinion poll showed that 55 per cent. of the Conservative party's supporters oppose rail privatisation, one in six Conservative supporters are considering abandoning the party on that issue alone and 42 per cent. of Conservative supporters believe that services will become worse after privatisation.

Overall, 69 per cent. of all those questioned said that they opposed the selling off of our railways. That is the opinion of the majority of people in this country. The excesses which, as my hon. Friend the Member for Fife, Central said, the Government have entered into in spending a quarter of a billion pounds on increasing the metropolitan railway grant—grand not to provide better services to the travelling public, not to support overstretched metropolitan authorities, but simply to fatten up our railway services for privatisation—is something that we should vote against.

7.3 pm

Mr. Watts

In their speeches, the hon. Member for Fife, Central (Mr. McLeish) and several of his hon. Friends appeared to be under the misconception that new costs, and indeed new money, were involved in the arrangements. The figure of a quarter of a billion pounds was bandied about.

That is not the case. The costs were always there. It always cost money to provide the infrastructure over which services ran and to provide rolling stock. In the old arrangements, those costs were hidden, and covered by cross-subsidies. In the new structure of the railway, the various elements of costs are identified and attributed where they fall.

That applies to the instance cited by the hon. Member for Hampstead and Highgate (Ms Jackson). The costs of running the service supported, I think, by St. Albans, were always there, but effectively they were covered by the subsidy from general taxpayers, not by those for whom the additional service was provided.

Mr. McLeish

That is an ingenious method of trying to camouflage the real costs. Is the Minister arguing that, in the old system, the quarter of a billion pounds worth of costs to which he is now contributing was lost in the system, and a generous British Rail picked up the bill for all those costs? That seems astonishing, but I shall leave the proposition to discover whether the Minister agrees.

Mr. Watts

What happened was that the costs of the use of the track, for example, were being, I suppose, attributed to other operating units within British Rail. They were not being attributed to PTE services. In a sense, it did not matter. That was all simply taxpayers' money being put in and there was no intention in the industry to identify what anything cost. The purpose of the restructuring is to ensure that there is transparency—I shall discuss transparency in the matter of grant later—so that costs can be identified and attributed where they belong.

Mr. McLeish

There has been talk that the public service obligation grant nearly doubled; the increase in the metropolitan railway grant is now a quarter of a billion pounds extra. Are we to believe that those figures are not a cost to the taxpayer? Are we to believe that, before the so-called restructuring, all those costs were there but hidden, or paid for by some benevolent despot sitting in British Rail? That must be nonsense.

We are witnessing—as the Minister will surely agree—a naked attempt to fatten up certain elements of British Rail for the private sector and the creation of an artificial internal market, being supported by my money and the taxpayers of Britain. Is not that the case?

Mr. Watts

No, that is not the case. The costs were always there. The way in which they have been accounted for has changed, so that they are identified separately and can be attributed properly.

The hon. Gentleman asked me about costs for the future. In future years, as I believe I said in an intervention in the speech of the hon. Member for Morley and Leeds, South (Mr. Gunnell), the funding that is being provided through metropolitan railway grant will be continued into the new bolt-on revenue support grant enhancement. The difference is in the method of distribution, which will be through the revenue support grant mechanism, not by direct grant from my Department.

I found it unusual to hear Opposition Members argue that central Government should have more control and more direction of the way in which local government spends money. I understand the anxieties that some Labour Members may have that the constituent authorities of PTAs might not spend railway money on railway services. As I believe that the Labour party controls most of those authorities, if Labour Members have those anxieties, I suggest that that is a matter for the brethren to take up among themselves. I find it extraordinary that that argument should be deployed in this debate.

The hon. Members for Fife, Central and for Morley and Leeds, South raised issues that have been the subject of detailed discussion, correspondence and meetings between myself and my officials and the members of the PTAs and PTEs.

The first of those issues, to which I referred earlier, involves transparency. Due to the way in which the grant is to be paid in future, through the revenue support grant, the members of the PTAs and PTEs, quite reasonably, want to know whether there is a way in which that funding can still be identified so that they can argue their corner with the mean-spirited Labour authorities, to ensure that the money being provided by taxpayers to support passenger services in the metropolitan areas is fed through to the PTEs so that the services can continue. We had discussions and correspondence on the subject. Councillor Dowd, on behalf of the members of the Association of Metropolitan Authorities' PTA committee, agreed with me that the detail of how to achieve that aim could be left to officials to determine. We had agreed on the principles by which it would be done. My understanding is that the authorities are satisfied that a method can be found. Our undertaking is that we shall advise each PTA and each of its constituent authorities of the precise amount provided to them through the bolt-on enhancement for their rail services.

A more important concern is whether the continued funding will be adequate. I believe that, through the way in which MRG has been developed, we have found a way of identifying the additional costs of restructuring or in preparation for privatisation—I am not shy of using that word. As has been said, at the end of the financial year we are able to make any adjustments necessary to arrive at the precise level of grant that should be paid in respect of those additional charges.

This financial year is one in which we have reached a steady state on charging. The regulator has completed his review of track access charges and told Railtrack the amount by which those charges must be reduced this year and in ensuing years. Therefore, that major element of cost is settled. Similarly, as contracts for the leasing of rolling stock between the rolling stock companies and the train operating companies are in place, those costs are determined. The PTEs and the franchising director will be entering into contracts with train operators to supply the specified services. For all those reasons, I believe that we shall have reached a steady state. We have also agreed that, if significant additional costs arise and are identified, we shall take steps to make good that shortfall. I gave that undertaking in a letter dated 30 June this year to Councillor Dowd.

Mr. McLeish

While I accept the Minister's assurances that he is trying to work out a formula to ensure that the PTAs will be in no worse a position in future, I cannot resist the temptation to ask a final question. If the metropolitan railway grant costs £350 million this year, is it right that the Government are willing to spend £2 billion over the next five years to support the so-called restructuring of the industry? That restructuring will produce no extra services, but will fatten up the elements of British Rail, as my hon. Friends have suggested.

Mr. Watts

I do not recognise the figures that the hon. Gentleman is using. In 1994–95, MRG amounted to £146 million for the PTEs. In 1995–96, the figure is £145 million, or £103 million net of the payments under deeds of assumption. I am willing to give the hon. Gentleman the assurance that we intend to continue funding PTEs at that level, so that they can continue to provide the services that are provided now.

We reached an early and amicable agreement with representatives of the PTAs on matters of principle. I do not think that they are left with any doubts about the good faith of the assurances that I have given to them in meetings and letters, and which I have been happy to repeat. We shall work together constructively to ensure that the mechanisms are in place to deliver what I have undertaken to do.

Clearly, with the substantial sums involved in the grants—whether we use the figures of the hon. Member for Fife, Central or the ones that I have given—there is a justifiable concern that, if no adjustment is made to the capping regime and the authorities merely do what they should and pass on the money so that rail services can be provided, they could end up with capping difficulties. I have had discussions with my colleagues in the Department of the Environment and there is agreement that there will be an adjustment in the capping regime to take account of the extra funding being provided to the constituent authorities of the PTAs. As a consequence, they will be in no better or no worse a position as regards capping.

I have had further and recent correspondence with my hon. Friend the Minister for Local Government, Housing and Urban Regeneration following the most recent letter from Councillor Dowd. We are in the process of agreeing that an adjustment can be made to capping principles to reflect any further identified costs that arise in 1996–97. We have gone as far as the PTAs have asked us to do in meeting their concerns. I continue to be ready to discuss any matters that cause them concern. We wish PTAs to continue to fulfil the important role that they play in the provision of passenger rail services. We do not wish any matters of detail to stand in their way.

The hon. Member for Streatham (Mr. Hill) said that track access charges go straight into the pockets of Railtrack shareholders. He is assuming a heavy rate of profit. The major part of track access charges will be used to fund the running costs and the track repairs and, importantly, to provide the funds for investment in the core network, to maintain its integrity.

Hon. Members who were here for the debate last week will recall that I explained that the rail regulator had agreed on a track access charging regime to ensure that Railtrack had funding of about £600 million available for reinvestment. A small element that represents profit will go to the company, and it may distribute it to its shareholders. But it is a gross exaggeration to suggest that a figure of anything like a quarter of a billion pounds will end up in the pockets of shareholders.

The hon. Member for North Cornwall (Mr. Tyler) asked me about the withdrawal of the Manchester PTE on the instructions of its PTA. I have had no explanation from the PTA about why it made that decision. Of more importance is the fact that that decision will have no impact on the services provided for passengers. If Manchester thinks that it can take its ball away, it will quickly find that it does not own the ball; it is my ball and I shall take it away and give it to the franchising director. He will act, in place of the PTE, on behalf of passengers if the PTA does not wish to continue to participate.

The hon. Member for Morley and Leeds, South asked me about the fare-setting powers of PTEs. Those are not affected because, under the arrangements, PTEs continue to take the revenue risk and the grant regime covers the increased costs that they incur. The hon. Gentleman also asked why more of my right hon. and hon. Friends were not present in the Chamber. There is a simple answer to that question: they have confidence both in the arrangements that we are putting in place and in the skill of the experienced members of the PTAs, who I assure the House are very good at fighting their corner and defending their position.

One reason for moving away from MRG to distribution via the revenue support grant is that, if we stuck with MRG, it would have the effect of ossifying the services that are provided. We would continue to have to look back to costs that were incurred in 1993–94 and to compare them with current costs. Through the move to the revenue support grant as the main support mechanism, PTAs and PTEs will regain the flexibility that they had, prior to restructuring, to make changes to the services that they provide, but within the same quantum of available funding.

I hope that I have allayed the concerns that hon. Members have expressed on behalf of the PTAs and on their own behalf. I assure the hon. Member for Morley and Leeds, South that I shall write to him about the fairly detailed financial points that he raised concerning the breakdown of the budget of the PTE in his area. I would rather do that than conjure figures out of the air. I hope that the House will approve the motion.

Question put and agreed to.

Resolved, That the Special Grant Report (No. 15) (Metropolitan Railway Grant 1995–96) (House of Commons Paper No. 470), which was laid before this House on 14th June be approved.