§ Mr. Hugh Bayley (York)
The news that broke today that neither ABB nor GEC Alsthom will be submitting bids to build the next tranche of Networker trains for London commuters is the latest twist in the long and sorry saga of the sacrifice of Britain's manufacturing industry on the altar of rail privatisation. The Minister knows from the debate that we had on this subject a week ago that York feels betrayed by the unnecessary closure of the York carriageworks. ABB, which owns the works, feels betrayed because it invested £50 million against Department of Transport expectations that a large number of new commuter trains would be needed. As a result of today's announcement, Kent commuters will feel betrayed because they were promised that they would continue to receive new trains after the first 16 are delivered this autumn—they are being built at York—until all 800 antiquated vehicles in the Kent Coast fleet are replaced. That will not occur now because neither ABB nor its competitor GEC is prepared to submit a tender under the terms that the British Railways Board and the Government have laid down in the tender documents.
Since December last year when British Rail announced, to everyone's surprise, that it could see no business case for ordering new trains for the Kent Coast line, the Government have engaged in a cynical exercise to convince the public that rail privatisation is not the cause of the problem, but that the fault lies with British Rail for dragging its feet and with ABB for failing to submit competitive bids. Last week the Minister told the House that he had been pressing for an order in recent months. He said:I hope that the hon. Member for York will be generous enough to acknowledge that I have not been an entirely passive observer of those events".—[Official Report, 17 May 1995; Vol. 260, c. 385.]I acknowledged that fact and perhaps I was mistaken in doing so. In time-honoured fashion, this morning I received, anonymously, a draft of a letter that I believe was sent yesterday to the Minister by the director of the Railway Industry Association. In it, the director, Mr. Gillan, says:In the light of the current dearth of orders for rolling stock and in particular of the recent announcement by ABB to close their York works you may be surprised at the decision of our two members not to bid for this much needed order.However, the simple fact is that the terms under which bids have been invited are so unreasonable as to effectively preclude the making of compliant bids.In particular the requirement that the train leasing period could be for a maximum of seven years, with no assurances as to the likely usage of the trains for the rest of their working lives of up to 40 years, meant that no one could reasonably have been expected to bid. Indeed such are the terms that we are left to wonder what the point of the exercise was.Similar comments were made in the statement that ABB communicated to employees at the York factory yesterday. It said:Of particular concern is the duration of the lease where the Customer is unable to guarantee a lease period beyond the year 2004. This coupled with the uncertainty surrounding the forthcoming privatisation of the Rolling Stock Leasing Companies … and the future leasing market, means that we are unable to guarantee recovering our capital build costs, and it is clearly not good business sense to undertake orders on this basis.878 I support the use of private finance to build rolling stock. Indeed, it was my right hon. Friend the Member for Kingston upon Hull, East (Mr. Prescott) who first proposed leasing as a means of providing finance for new rolling stock. The latest developments revealed in the correspondence that I have just read to the House show that the Government's private finance initiative has been hijacked by the Treasury and turned into an excuse for cutting public investment, while at the same time preventing private investment in public services.
One has only to look at the Department of Transport's two most recent annual reports to see the scale of the squeeze on public resources that are available to the railway. Last year's departmental expenditure plans anticipated a cut of £292 million in the external financing limit for the railways. As a result of the Chancellor's statement last November, the funding gap has increased. That is recorded in this year's departmental expenditure plans, which show that the cut has been increased to £424 million for the railways this year.
That would not matter if the private finance initiative was making up the difference, but it is not. That is the cause of the problem: the private finance initiative should be freed from the Treasury's shackles. What is the Department doing about that? I also repeat a question that I asked in the debate last Wednesday but to which I did not receive an answer. How will the Government respond to ABB's statement that the only way to save the York works is to agree to a follow-on order for more trains of the type that it is building at the moment, which are the trains that were specified and ordered for the Kent Coast line? That is the only way to save the York works from closure and it is the only way that the Government can fulfil their promise to Kent commuters to provide the new trains that they need so desperately.
The response in York to the closure announcement of less than a fortnight ago has been immediate and involves a wide range of agencies. The city council, North Yorkshire training and enterprise council and ABB have pledged large sums of money to try to deal with the immediate problems. But the scale of those problems is enormous. The Government have created the hiatus in investment that they said would not result from rail privatisation. That has occurred and now the Government must help the local elected authority and other local agencies to find a solution. The problem needs a multi-departmental response from the Government.
I have a number of questions, some of which are directed to the Department of Transport, and I hope that the Minister will answer them today; others are addressed to other Government Departments. I hope that the Minister will undertake to refer those questions to the appropriate Ministers so that I may receive a response.
When the Railways Bill came before the House, York city council commissioned Steer, Davis, Gleave, a firm of transport consultants, to produce a report estimating the impact of rail privatisation on rail employment in York. It anticipated very substantial job losses. At the time, the right hon. Member for Kettering (Mr. Freeman), the then Minister of State, disputed the figures. He said that York was running scared and he agreed to establish the York Rail Forum, which he attended on a number of occasions, together with representatives of the local business community and elected representatives of all parties from the York area.
879 Since the present Minister was appointed, there has been one meeting of the York Rail Forum. We urgently need to hold another meeting, which the Minister will attend, to address the problems. I hope that the Minister will agree to invite a representative from the Government's Yorkshire and Humberside office so that we receive a response on a genuinely cross-departmental basis.
In 1992, when the House was considering the Railways Bill 4,690 people were employed by the railways in York—3,090 by British Rail and 1,600 by the carriageworks owned by ABB. By the end of last year, that figure had fallen by 1,190 to 2,750 employed by British Rail and 750 at the York works. If the works close, by the end of this year the figure will have fallen to about 2,500, taking account of the British Rail jobs that have already been declared redundant this year.
York is highly dependent on the rail industry. At the start of the process, about one job in 12 in the city was a railway job. What will the Department do to ensure that some of the new railway agencies created as part of the privatisation process are relocated in York, so that the jobs that have been lost will be replaced by other railway jobs? Will he consider the possibility of the Department of Transport moving some of its own jobs to the city of York? Other Government Departments—the Department for Education, the Land Registry, the Crown Prosecution Service and the Ministry of Agriculture, Fisheries and Food—have done so because of its central location and its good communications and because it is a sensible place to base public servants.
York, through its own efforts, has attracted a considerable amount of inward investment and jobs in the past few years. The city council opened a one-stop business advice shop in 1986, well before the Government's business links ideas, and its partnership for prosperity campaign, which it runs jointly with the chamber of commerce, has attracted some 2,000 new jobs to York since 1989. In addition to the jobs from Government agencies, investment came from Nestlè, which has invested £150 million in its York factory, from ABB, which has invested £50 million, from General Accident, which has invested £15 million and from the Shepherd Building Group, which is building its new corporate headquarters in the city. Other companies, such as Smith and Nephew and Samsung, have opened major centres of employment in the York area—Samsung has opened a factory and Smith and Nephew has opened a research centre. The College of Law has opened a new campus in the city of York.
That success must be set against a background of massive job losses in York's traditional industries. Between 1992—when rail privatisation started—and 1995, unemployment nationally has fallen by 13 per cent. In York, during the same period, it has increased by 5 per cent. In 1992, unemployment in York was below the national average: now it is above the national average—8.5 per cent., according to the Government's benefit count, and 12.1 per cent. according to their labour force survey.
The York economy also has structural problems. The loss of manufacturing jobs has been more than twice as fast in York than the national average, and so too has the loss of jobs in construction. York is now more dependent on part-time jobs than the national average. In Great Britain as a whole in 1991, 26 per cent. of the work force 880 was part time—roughly one in four. In York, the figure was 32.1 per cent. Almost a third of the jobs that remain in York are now part time.
We need assistance from the Government, both to rebuild and to restructure the local economy. We need Government Departments to work together and not to pull in different directions. The regional allocation for the training for work scheme does not allow resources to be diverted to the city of York because of our present problems. North Yorkshire training and enterprise council therefore gets no additional resources as a result of the ABB closure. That is a matter on which the Department of Employment could act to make changes and I hope that it will.
York does not have assisted area status, although the areas that are in receipt of the benefits of assisted area status are being reviewed. I hope that the Government will look favourably on including York as an assisted area as a result of the current review. We are eligible for support under the Government's single regeneration budget. I hope that that support will be forthcoming, although the city council has a particular problem in putting together an application, because the outline applications have to be in by next month.
We could get help from the Department of the Environment, through English partnerships, to generate new uses for redundant railway land, not just ABB land but other land around York station. The Department of the Environment should reflect York's pressing needs in its standard spending assessment for future years. At the moment, the city of York is not eligible for EU objective 2 funds, the criteria for which include the following reference. They are for areaswhich have recorded substantial job losses over the last three years or are experiencing or are threatened with such losses in industrial sectors of decisive importance for their economic development, including those losses brought about by industrial changes and changes in production systems, with a consequent serious worsening of unemployment in those areas.All those factors are reflected in York's current need for jobs in view of the dramatic and unnecessary decline that we face in manufacturing. I hope that the Government will support York's bid for objective 2 status.
Part of the job losses in the area are a result of the "Options for Change" downsizing of the armed forces. We have lost 230 pay corps jobs at Imphal barracks. We have seen the closure of the Royal Electrical and Mechanical Engineers workshop at Strensall and the engineering park at Hessay, on the outskirts of York. The Government have been allocated £74 million by the European Union under the KONVER programme and they will announce later this year how that money is to be split between local areas. I hope that the overall employment situation in York will mean that a fair share of resources come to York, because it will be that much harder for redundant MOD employees to find replacement jobs.
The Department of Trade and Industry must work with York city council and the Yorkshire and Humberside development association to direct overseas investment to York. The Government have a key role to play in identifying leads for people locally to follow up and in influencing decisions. If the York works close, for all the wrong reasons 400,000 sq ft of newly refurbished industrial premises and new offices will come on the market at the same time as 750 skilled engineering 881 workers. That provides an opportunity for the Government to help the city of York locally to pick up the pieces from the closure by marketing the opportunity of premises and skilled workers. The DTI should play an active part with the local authority and the company, of course, in marketing the site.
York is a great city. It is facing enormous economic problems at the moment. It is doing a great deal to help itself, but it needs help from the Government, because the scale of the problems is so great. I must ask the Minister: will the Government step away from their laissez-faire attitude, because they have, particularly on railways and defence, precipitated those job losses and they must work with the local agencies to help the city of York to replace them?
§ The Minister for Railways and Roads (Mr. John Watts)
The hon. Member for York (Mr. Bayley) was right to secure this further debate on the York carriageworks, although both he and I regret the need for it. I acknowledge his efforts and those of my hon. Friend the Member for Ryedale (Mr. Greenway) and my right hon. Friend the Member for Selby (Mr. Alison) on behalf of York and ABB's employees. I know that they have campaigned hard to avert the closure and that last week's announcement was a great disappointment.
ABB's decision is very sad news for the work force and the city of York. I recognise the proud railway tradition in the city and the importance of rail engineering to the local economy. The hon. Gentleman and I disagree fundamentally about railway privatisation but we can certainly agree on what a blow the redundancies are.
The closure of the York works is a commercial decision by ABB. It reflects the company's need to rationalise its sites following the completion of major contracts for Central line trains and Eurotrams, the failure to win recent orders for Jubilee line, Northern line and Heathrow express trains, and a cyclical fall in orders following the peak of investment in the late 1980s and early 1990s.
The fact is that the company does not have sufficient work to keep open all three of its present works. Nor, with the recent exception of the Eurotrams order, has it been able to attract sufficient export orders for York to supplement domestic orders won in a very competitive market.
I understand that the company could not justify retaining all its plants when either the York or Derby plant is likely to have sufficient capacity to meet forecast demand for new trains. The scale of surplus capacity is such that the company considers that one plant can accommodate all likely opportunities.
In the late 1980s, British Rail benefited from the boom conditions affecting the London economy. Central London employment levels and high personal disposable incomes helped to drive up Network SouthEast's revenues in real terms by more than 10 per cent. between 1986–87 and 1989–90.
British Rail's projections then of the need for new Networkers were made in good faith but were blown off course by the recession. In 1990–91, it was evident that the boom was ending and there followed three consecutive years in which revenues fell in real terms.
882 Commuting into central London fell by 20 per cent. and was to reach a 20-year low in 1993–94; only recently have there been signs that the tide may have turned. That is the background to the lower than expected orders for new Networker trains.
No manufacturer can expect the right to supply what it wants to supply when it wants to supply it, regardless of the customer's requirements. ABB must compete for whatever contracts are available in the marketplace. Part of ABB's problem is that it has failed to win enough of the orders in the marketplace to secure the work that it needs.
Faced with that situation, the company decided to concentrate its efforts in Derby where it has its headquarters. ABB's announcement emphasised that it was still very much in the United Kingdom train building business, and that it would compete aggressively for orders at home and abroad. It retains the capacity to build new trains when demand increases and it can win orders. Orders still under construction by ABB consist of the current £150 million Networker order for BR, and a £60 million contract for mail trains for the Post Office.
As the hon. Gentleman knows, in recognition of the United Kingdom industry's position, BR issued invitations to tender for a further tranche of Networker trains in March. That decision provided the opportunity for manufacturers to make competitive bids that meet the criteria of the private finance initiative. An opportunity to tender was created, but it was up to manufacturers to take advantage of it. One can lead a horse to water but one cannot make it drink.
The hon. Gentleman questioned whether the private finance initiative can work. I must refer him to the successful conclusion of the £400 million contract for the supply of trains for the Northern line. That was the private finance initiative in action, and it worked.
The hon. Gentleman also referred to the basis on which bidders were invited to tender. It was a demanding specification for a substantial transfer of risk, but bidders who put in a compliant bid were also able to propose alternative packages, particularly with regard to the length of lease, and so on, if they wished to do so. They could also have sought undertakings from the franchising director to underwrite the continued use of trains under such leasing arrangements under the provisions of the Railways Act 1993.
The hon. Gentleman pressed me again to direct BR to reopen the option attached to the existing contract. I understand that the extension to June of the follow-up option was offered unilaterally by ABB and accepted by the British Railways Board without any commitment. I can understand why the hon. Gentleman makes that request again but it would not be appropriate for me to direct BR in that way. It must be a matter for BR's commercial judgment as to when and on what terms it procures rolling stock.
The present £150 million leasing deal was a transitional measure which it was recognised at the time did not meet the full requirements of the private finance initiative. In particular, the residual value risk transferred fell well short of private finance initiative requirements. In addition, as the hon. Gentleman knows, BR concluded earlier this year that there was no commercial justification for the immediate placing of an order for replacement of the Kent Coast fleet, at least if the contractual terms on 883 offer were no different from and no better than those under which the earlier £150 million leasing deal had been concluded.
It has been suggested that changes to the vehicle specification in the present tender invitation would have extended the time scale for completing the tenders or constructing the trains, but that is not the case either.
The recent invitation to tender was based firmly on the specification of the existing Networker express trains under construction by ABB, and it attached a premium to proven designs. It was open to bidders, at their own choice, to offer variations to that specification if they believed a better or cheaper train could thereby be produced.
During the debate on rail services last Wednesday I said in reply to the hon. Gentleman that I would discuss with my ministerial colleagues in the relevant Departments the need to address employment problems in York. In addition, I shall consider further the suggestions made today and I shall write to the hon. Gentleman and to my right hon. Friend the Member for Selby and my hon. Friend the Member for Ryedale in due course. The day after the debate I wrote to my colleagues in other Departments. In addition, my Department is liaising with the Government office for Yorkshire and Humberside and with the Employment Service.
For some time the local office of the Employment Service and North Yorkshire training and enterprise council have been in close contact with ABB and other agencies. I understand that the Employment Service and the TEC have since recognised that this is a large-scale redundancy and therefore eligibility can be relaxed for Employment Service programmes and training for work. They stand ready to give the maximum possible assistance to all those who will be affected by the job losses. That assistance will supplement the help that ABB, the TEC and York city council are providing.
884 As regards the single regeneration budget, I understand that the Government office for Yorkshire and Humberside has already shown its willingness to discuss any proposals which the partners in York may have, at the earliest possible stage.
I assure the hon. Gentleman that I shall continue to take a close interest, with my colleagues in other Departments, in the ways in which we can, across Departments, help the city of York to tackle the problems that have arisen from these most unwelcome redundancies. I assure him that he will not see a laissez-faire reaction from the Government on the issue.
§ Mr. Bayley
Will the Minister say whether he would attend an urgent meeting of the York Rail Forum and whether the Government are willing to allow a representative from the Government office for Yorkshire and Humberside to attend?
§ Sitting suspended.2.30 pm
§ On resuming—
§ It being half past Two o'clock, the motion for the Adjournment of the House lapsed, pursuant to Order [19 December].