Channel Tunnel Rail Link

HC Deb 28 January 1998 vol 305 cc461-74 10.15 pm

The Secretary of State for the Environment, Transport and the Regions (Mr. John Prescott)

Madam Speaker, I beg leave of the House to make a statement about the channel tunnel rail link.

In March 1996, the development agreement to build the channel tunnel rail link was awarded to London and Continental Railways, known as LCR. LCR also took control of the European passenger services railway company, Eurostar UK, operating services from London Waterloo to Paris and Brussels.

The agreement provided for a taxpayer contribution worth £1.8 billion, due to be paid after 68 per cent. of the scheme by value had been built. LCR planned to raise the project finance through a flotation and major debt-raising exercise, towards the end of 1997.

LCR has recently explained that it has reassessed projections for Eurostar passenger traffic, and has concluded that its original forecasts were far too optimistic. As a result, LCR has now informed me that it would not be able to attract project finance from the debt and equity markets, as planned.

LCR said that it needed a further contribution worth £1.2 billion from the taxpayer over the next 10 years. That was in addition to the £1.8 billion already committed, making a total of £3 billion of taxpayers' money. I have told the board tonight that that was not acceptable.

I regret to tell the House that, at 8 o'clock tonight, the board informed me of its decision to issue me with a formal notice under clause 7.7 of the agreement, to confirm that it cannot fulfil its obligations under the agreement.

The agreement now provides for a 30-day period, during which there will be urgent discussions to reassess the situation and explore any revised proposals for completing the current agreement on the agreed route. I have assured the board that my Department stands ready to discuss, at the earliest opportunity, any revised proposals that it may have to complete the agreement. At the same time, preparations will be made for an orderly handover of the business to the public sector. [HoN. MEMBERS: "Hear, hear."]

I should like to assure the House, the public, passengers and employees of Eurostar, that, whatever happens in the next month, the excellent international train services provided by Eurostar will continue to operate as normal, as we are obliged to ensure by various agreements. Whether on the platform, on the trains or in the booking halls, it will be Eurostar business as usual.

I thank the House for allowing me to make this brief statement. I will certainly report back to the House as soon as possible on any further developments.

Sir Norman Fowler (Sutton Coldfield)

This was a project that had all-party support. Therefore, does the Secretary of State agree that the aim in the next 30 days must now be for everyone concerned to explore all the options to allow the project to go ahead? If it were to fail, would it not represent a great blow not only to the rail link as a transport project but to the development plans in Stratford and east London? The aim must be to see what other options can be developed. With that in mind, I ask four short questions of the Secretary of State.

First, the Secretary of State referred to a possible handover of the business to the public sector. Will he confirm that he has absolutely no intention whatever of making it a publicly financed project, and that it will go ahead with the help of only private investment?

Secondly, the Secretary of State referred to the reassessed projections for Eurostar passenger traffic. How much of it was due to the effect of the channel tunnel fire? The effect could be temporary. How much was more permanent?

Thirdly, London and Continental had been seeking to conclude a sale and leaseback arrangement for 11 Eurostar trains. What obstacles stood in the way of that arrangement? Will the Secretary of State confirm that, when looking at the options, he will look at all the alternatives, including, in particular, the contribution that Railtrack could make, and that he will have talks with it?

Lastly, is the Secretary of State aware that, whatever political differences there may be between us on this issue, every hon. Member in the House wants the rail link to succeed, and that that should be the aim of policy over the next month?

Mr. Prescott

It is the view of the House that we want to be connected to Europe by a fast, modern railway system. We will spend an awful lot of time trying to secure an integrated railway system. That view is shared on both sides of the House. I am asked to confirm whether I am prepared to provide £3 billion of taxpayers' money for a project that was estimated to cost the taxpayer £1.8 billion. Whether it is public or private, that is the reality.

Arguments about leasebacks may have had more to do with LCR getting sufficient finances to get to stage one before it began to raise the money on the markets. Since it does not have sufficient resources to complete the deal, I have to accept giving back the company to the public sector.

There are 30 days in which, under the development agreement, discussions can take place. I have told the company tonight that I am quite prepared to consider any further proposals it has, if it can complete the contract that it signed with the previous Administration.

The great problem with the deal, of course, is that, at the time—as the right hon. Member for Sutton Coldfield (Sir N. Fowler) may know, there may well have been an agreement for a channel tunnel rail link; the difference was in the judgment made by the competing companies about passenger traffic—LCR estimated that, at this stage, there would be 9 million passengers. Other bidders said that the figure could be as low as 6 million. It was, in fact, 6 million.

LCR made a wrong judgment about passenger numbers. That is why the deal is in real difficulty. It is not the intention of the Government—I do not know whether it would have been the Opposition's intention—to provide the £3 billion that LCR is asking for. If it can complete the contract, I will, of course, discuss with it public-private contracts, whatever.

What is absolutely clear—[Interruption.] In regard to Railtrack, it is not Railtrack that owns the company at the moment. If LCR wants to make an arrangement with other companies about future changes to the deal, I will be prepared to consider it, but as the guardian of the taxpayers' interest in this matter, I have to say to that company, or, indeed, to any new company, that £3 billion is too much to pay for the link at this time.

Mr. Matthew Taylor (Truro and St. Austell)

Does the Deputy Prime Minister accept that we have some sympathy for him in having to deal with an agreement botched by the previous Government? If the company must go back into—I am sorry, I mean go into—public ownership, does that mean that investment in the high-speed rail link will fall, or will the Government take on that investment and, if so, at what cost?

Have the Government had any contact with Eurotunnel itself, the financial position of which has not been steady, and which may be put at risk by tonight's announcement? Does the Deputy Prime Minister accept that putting the liabilities that result from this into the public sector should be a last resort, not a first resort?

Mr. Prescott

There is a large, complex agreement on the Channel tunnel rail link, involving property and all sorts of matters that made up the grants given to the company by the Government. I was informed of this decision by the directors at 8 o'clock tonight, and my first job was to inform the House as quickly as possible, which is what I have done. Many of the questions they asked I have asked myself, and I have agreed to further talks on the matter.

The hon. Gentleman thought that he was making a mistake by saying that the company would be going back to the public sector. It started off in the public sector, went to the private sector, and is now possibly returning to the public sector.

Mr. Dennis Skinner (Bolsover)

It is almost like going back 20-odd years. In the early 1970s, a similar statement was made when Rolls-Royce had to be rescued by Parliament. We sat through the night and took it back to the public sector because the then Tory Administration had cocked things up good and proper.

Labour Members will do all we possibly can to ensure that this first taste of nationalisation continues. There may be other occasions when we shall have to take similar measures. Some eight months have elapsed since we won a historic victory on 1 May; I did not think that we would be doing this in the first year, but thank God we have started.

Mr. Prescott

rose—

Hon. Members

Answer!

Mr. Prescott

I will try.

I thank my hon. Friend for his helpful contribution. I think that I know his mind on this matter. He is right to point out the history concerning Rolls-Royce. Let me reassure the House that I have been an advocate of public-private partnerships in respect of transport financing. Indeed, I think that the concept of publicly owned, publicly accountable is compatible with public-private financing, and I reassure my hon. Friend that there is a lot of sense in raising private capital, so long as it is in the form of accountability and public ownership. I may have an opportunity, when the underground case arises, to justify my point.

In this case, under the development agreement, if the company comes forward with an alternative during the next 30 days, it can carry out the contract agreed with the Government, in whatever changed form. Provided that it does not cost taxpayers any more money as has been suggested, I am still bound to consider that as part of the contract agreement. That judgment will be made in the next 30 days; I stand ready to talk to anybody involved to see whether the contact can be agreed.

Mr. Peter Brooke (Cities of London and Westminster)

Does the Deputy Prime Minister agree with the observation of Field Marshall Lord Slim in world war 2 that no news is ever as good or as bad as it first appears?

Mr. Prescott

No.

Ms Margaret Hodge (Barking)

Does the Deputy Prime Minister understand the anger and despair that will be felt by thousands of my constituents whose homes have been blighted for many years by the proposed channel tunnel rail link? They now face further blight as a result of the mess that we inherited owing to the previous Government's failure to produce a proper scheme. Does he realise that, when the legislation came before the Standing Committee, my hon. Friend the Member for Hampstead and Highgate (Ms Jackson) and I argued strongly that the financing of this proposal was always unrealistic? The chickens have come home to roost far sooner than I would have dreamed.

Will the Deputy Prime Minister make a statement on the delay that this crisis could cause to the construction of the channel tunnel rail link? Will he please examine again the compensation scheme for those who are affected by the blight, who are locked into home ownership and have lost their freedom to move at different times in their lives?

Mr. Prescott

My hon. Friend makes some sound points. I cannot answer her questions now, but I hope that I shall be able to give the House a further statement when we have had discussions about the success or failure of LCR under this agreement. I hope that I shall be able to satisfy my hon. Friend on the issues that she raised.

Mr. Tom King (Bridgwater)

Is the Deputy Prime Minister aware that his demeanour at the Dispatch Box is much more appropriate to the gravity of his announcement than the jollity of those on the Benches behind him? The announcement is very serious, and is extremely bad news for east London. It holds out the prospect that we will not get a channel tunnel rail link. We will continue with the existing rail communications to the channel tunnel, whereas the French have a high-speed rail link—[Interruption.]

The rail link may have to be nationalised, and the public sector may have to put up £3 billion, but the right hon. Gentleman's objective must surely be to ensure that it is built. I assume from his statement that he wants to minimise the cost to the public Exchequer, and to involve private finance.

Mr. Prescott

The right hon. Gentleman should realise that the £3 billion is the public sector's contribution to a project costing £6 billion or £7 billion. Public and private resources are already involved. A doubling of the taxpayer's contribution is not acceptable. I shall wait to hear from the companies.

I am sure that the right hon. Gentleman did not intend to mislead the House, but we should remind ourselves that there is an existing channel tunnel link. Many people will be thinking about their holidays. I can assure them that, whether they use the shuttle or the existing link, they can still make their travel arrangements, because those services will continue.

I have long advocated public-private partnerships to raise tremendous resources for investment in the transport sector. Since I have been in this job, one of the difficulties has been renegotiating the terms of the channel tunnel and the channel tunnel rail link, largely because Mrs. Thatcher, when she was Prime Minister, decided that they had to be privatised projects.

Mr. Mike Gapes (Ilford, South)

Does the Deputy Prime Minister accept that there will be great concern in east London about the implications of this collapse? We are pleased that the Government intend to act with determination to ensure that the project goes ahead and is completed on time, because it will regenerate the economy of east London. Will the Government guarantee that the project will go ahead for the benefit of east London and the whole country?

Mr. Prescott

I deliberately made a short statement, to give the House the essential information. There were many questions that I thought hon. Members would want to ask—and, indeed, some of those questions have been asked—but I cannot give an adequate answer at this stage. There are many questions that I must ask the company during the discussions that will take place in the next 30 days. After that, I shall be able to give a more appropriate and comprehensive reply.

I am afraid that I cannot answer all the questions that are evidently in all hon. Members' minds, without engaging in a full discussion with the company. As I am sure the House will appreciate, difficult negotiations went on all day—until 8 pm. That was quite traumatic for the company as well. I must wait to hear the result of other reflections before I can give a proper and comprehensive reply to the House.

Mr. Alex Salmond (Banff and Buchan)

Will the Deputy Prime Minister confirm that the public contribution to the project went far beyond the £1.4 billion cash contribution? There is the Waterloo international terminal, the freedom from Eurostar debt, and all the railway land that has been given to the consortium. Can the right hon. Gentleman tell us that all those public assets will be returned if no deal is done, free and unencumbered? He has said that a £3 billion cash contribution is unacceptable; will he assure us that he will not negotiate well beyond £1.4 billion?

Mr. Prescott

1 do not think that the company doubted that I was in no mood for negotiation beyond the contract agreement. The £1.8 billion that is in the present development agreement was made up of land, grants and all manner of things. The company is now asking for £1.2 billion in cash, and it wants that to be advanced earlier than the profile suggested. As the total amount increased, so the risk for the public sector increased. I did not consider that acceptable, which is why I refused to accept the deal.

Dr. Howard Stoate (Dartford)

Does my right hon. Friend share the anxiety that will be felt by my constituents, particularly about the future of the Ebbsfleet station and about the number of jobs and businesses and the future economic prosperity that ride on the project?

Mr. Prescott

That is another of the questions that I want to discuss with the company. If it could find some means by which it could fulfil its contracts, my hon. Friend's constituents' fears would be groundless, because the project would be implemented. At this stage, I cannot see where the money will come from, but I am prepared to discuss that. Until I hear from the company, I do not think that I can say anything more to the House.

Miss Ann Widdecombe (Maidstone and The Weald)

Does the Deputy Prime Minister agree that thousands of people in Kent will have been deeply offended by the manifest glee with which Labour Members greeted his statement? Does he agree that that reaction was wholly inappropriate? Furthermore, does he agree that the cheers at the mere mention of nationalisation and public ownership—almost like the reaction of Pavlov's dogs—brings into disrepute any claims that the Labour party may have to be approaching the issue seriously? [HoN. MEMBERS: "Apologise."] The right hon. Gentleman should indeed apologise, and I hope that he will do so at the Dispatch Box.

Thousands of people in Kent, including some of my constituents and those of my hon. Friends—who I hope will catch your eye, Madam Speaker—have been affected by blight, and have been made anxious. [HoN. MEMBERS: "It was your Government!"] Labour Members regard that as a laughing matter. Let the right hon. Gentleman stand up and apologise for his hon. Friends.

Mr. Prescott

I do not think that the right hon. Lady's contribution will assist proper consideration of this serious matter. Over a long period—much of it during the time when the right hon. Lady's party was in government—the problems and concerns of the people of Kent were met by sheer incompetence. The route of the rail link was changed four or five times, and talk of privatisation added to the uncertainty.

Mr. George Galloway (Glasgow, Kelvin)

Does my right hon. Friend agree that the best course for Opposition Members would be to apologise humbly to the House for the disaster that they have visited on the country? Would that not be the proper demeanour for them to adopt? There are those who brayed "Private sector good, public sector bad"—especially when the public sector was investing billions of the taxpayer's pounds in what was to be a private profit-making venture. Was this not a piece of Thatcherite madness from the beginning? Should not we have followed the French example of public investment and public ownership which has given them a successful rail network on their half of the channel tunnel project?

Mr. Prescott

I understand what my hon. Friend says. The difficulty is that one cannot turn the clock back.

We should treat this matter with all seriousness, because the House is committed to desiring and maintaining a modern, fast railway connection to Europe. The Government intend to seek to achieve that, and at the moment we are discussing the failure, for the reasons that I have given, of a particular project. I look forward to modern, fast communications to Europe. I do not want to be outside Europe without such connections, and, while I have some responsibility for the environment and transport, I shall seek to achieve our aim.

Mr. Andrew Rowe (Faversham and Mid-Kent)

Before Labour Members get too excited about the benefits of public ownership, it might be worth reminding them that this project had its roots in a British Rail proposal on estimates that have proved to be lamentably wrong. British Rail bought at the height of the market a huge number of properties much too early at a cost that decimated the prospects of the property market in my area. It created blight by designating four possible lines.

What is more, not only British Rail but, I have to say, my own Government, flatly refused to contemplate a freight-carrying capacity on which the future of the line depends. We now have a failed passenger project, which is exactly what my constituents forecast. They now want certainty. I congratulate the Secretary of State on coming to the House to give an early statement. Will he promise that my constituents can expect certainty rather than doubt, and freight-carrying capacity rather than mere passenger capacity for which there is no demand?

Mr. Prescott

The hon. Gentleman has a long history of debating all these issues on the channel tunnel rail link, and he has often been right in his judgments over other judgments. British Rail may have made an estimate of the passenger numbers, but when the deal was done and signed, private companies got together and estimated what they thought the passenger flow was likely to be. This company judged that it would be 9 million passengers. It was 6 million, and another bidder estimated 6 million.

There was much controversy at the time about whether those passengers could be gained. The hon. Gentleman may have commented on that. It was not a British Rail but a private sector assessment. I do not relish whether it was private or public. We must not just make the ideological point that it was British Rail and argue public-private. Why cannot they work together to achieve the objectives that we want? I intend to follow that course.

I shall give another fact to the hon. Member for Faversham and Mid-Kent which is not clearly known. When the channel tunnel agreement was signed, it was to be all private capital. The guarantee on which most of the loans were based was that public sector rail, both in France and in Britain, would have to pay for more capacity in the tunnel than it could use. That has contributed to some of the financial difficulties not only of the passenger link but also of the rail freight link. That is why we have had to do a deal on the rail freight side, too. It is nonsense to talk about it purely being private money. As usual, it was underpinned by a great many public guarantees.

Mr. Derek Foster (Bishop Auckland)

Does my right hon. Friend agree that not only Londoners and the people of Kent are angry, but that the whole nation feels let down? Many people in the north of England looked forward to benefiting from the rail link. We have wasted a decade because of the totally ideological view that the link could be accomplished entirely by the private sector. We now face the fact that the French have been benefiting from the link for years. Their investment came almost entirely from the public sector. Our public sector is now being required to pick up the bill and tidy up the pieces.

I am delighted that my right hon. Friend has come to the House to make his statement. The House is totally behind him in finding a solution to the problem. However, will he please ignore the disorganised hypocrisy of Conservative Members? They are the ones who should apologise, not only to the House but to the nation.

Mr. Prescott

I thank my hon. Friend for his question. He has reminded me of the channel tunnel debates, during which many hon. Members were told that the channel tunnel link would have northern route services. As one of the first casualties of the agreement to face the realities, those services—like sleeper services—were cancelled, causing great resentment. Ultimately, we will have to find some way of making the link work—although, as I said, not at any price. I wait to hear the company's proposals in the next 30 days.

Mr. Damian Green (Ashford)

The Deputy Prime Minister will be aware that my constituents in Ashford have probably suffered as much blight over as long a period as anyone, and that—not universally, but by and large—they were prepared to put up with that blight and to welcome the prospect of the benefits that a decent high-speed link through the tunnel, through Ashford to London and beyond, would accrue not only to Ashford but to the nation. One of the matters that my constituents will be most concerned about is how long the uncertainty caused by today's announcement will last.

I ask the Deputy Prime Minister for two specific assurances. The first is that, after the 30-day period in which negotiations will continue with LCR, he will try to move as swiftly as possible to one of two options: that the line goes ahead, with either LCR or another operator; or that it is scrapped as soon as possible and replaced by a scheme to upgrade existing lines through Kent—as, over the years, many rail engineers have argued would be a practical alternative. The second assurance is that, in no circumstances, will he or anyone else attempt to reopen the route by trying to draw new lines across the maps of Kent, as that would cause blight for many thousands of people.

Mr. Prescott

No hon. Member who remembers our debates over the years and the very real blight problems in the south-east would want to reopen discussions on the link; we are discussing the link and the route that are associated with the contract. I cannot give full answers to the hon. Gentleman's questions, except to say that it is sensible to start thinking of how we might relieve rail congestion. In planning the link, about 80 per cent. of services and income were based on improved Network SouthEast trains. In achieving a modern transport system, we have a great desire for those improvements to be made. However, I cannot comment on those judgments until I have had further talks with the company.

As for the suggestion that another operator might take over running the company, an awful lot of public money would be required. For the next few years, until the income stream provides a return, Eurostar's projected losses would require a subsidy of about £1 billion. That is a lot of money, and I have not seen any private-sector interests queueing to provide it.

Mr. Harry Cohen (Leyton and Wanstead)

Does my right hon. Friend agree that the shambles derives from the previous Government's poor decisions, and that it has serious implications for east London, including Stratford and its surrounding areas? Will he give a promise to ameliorate the ill effects that that shambles will have on Stratford and those areas?

Mr. Prescott

It is quite improper to comment until I hear from the company whether it has a further proposal to extend the contract. That is what I have told the House, and I cannot say more than that.

Sir John Stanley

Will the right hon. Gentleman give a clearer assurance than he has just given to my hon. Friend the Member for Ashford (Mr. Green), and an absolutely clear statement to the House, that, if the channel tunnel rail link is built, the Government's policy is that it will be built on the line as agreed in legislation passed by the House, and on no other route?

Mr. Prescott

I have made it clear twice; I shall try a third time. The contract is wedded very much to the route. There is no intention or desire to move away from that route. I thought earlier about whether I could give a later statement, but I took the view that I should make a statement to the House as soon as possible. The financial implications require me to do so. I have not given many answers to the House. I would like to give a fuller statement. That will be made as soon as I know whether the project has failed, and whether the company is no longer able to find an alternative way of building the link as required under the development agreement.

Dr. John Marek (Wrexham)

I congratulate my right hon. Friend, and wish him well in his negotiations. Does he intend to make an integral part of any new arrangements fast trains, using the rail link, going through London to the midlands and the north?

Mr. Prescott

It has always been the desire of my hon. Friend and many of us to see those fast links go further than London. That should be the intention of any modern transport system. Again, I must ask that I am allowed to wait and see what I have got—whether the company can do a further deal. It has asked me to stand by for further negotiation. I intend to do that. It has notified me that, within 30 days, the keys must be passed to me as the person responsible for the railway system. Until the company makes the statement and I have completed those discussions, I cannot add anything further.

Mr. Roger Gale (North Thanet)

I am sure that all Kent Members of Parliament appreciate the fact that the right hon. Gentleman has come to the Dispatch Box as fast as he has to deliver the message—however unpalatable it may be. I am personally grateful to him for that. He will be aware that those of us in east Kent who represent channel ports and constituencies with channel port interests have been very concerned at the full effect of the channel tunnel on channel ports. He is much better placed than most to appreciate the threat faced by the cross-channel ferries from the ludicrous imposition of some new registration schemes for passengers and the loss of duty free trade. I know that he appreciates the value of cross-channel ferries to the prosperity of the nation. Will he assure the House that the ferries are not about to face back-door unfair competition as a result of a huge subsidy to bail out the project?

Mr. Prescott

That is a little wide of the statement. I am pleased that my Government decided to agree with the shipping companies on a regulated arrangement, so that there could be more stability on channel services and the public interest rather than the interests of competition was met. Matters relating to the channel tunnel are much better, because we rejected the previous Administration's view to leave it all to competition, which was causing great uncertainty. With the agreement of the Monopolies and Mergers Commission, we have agreed a better system, which brings stability and requires the public interest to be better met.

Mr. Hugh Bayley (City of York)

Does my right hon. Friend agree that, when the dust has settled, an independent observer would contrast the ability of the French and German Governments to build through public-private partnerships fast rail links, with the inability of the Conservative party—through dogma—to deliver links in this country?

The £1.8 billion already committed by the Government, and any additional monies that may be committed, will be contributed by taxpayers from every part of Great Britain. Those taxpayers, including the majority who live north of London, will be expecting this public investment to show a return for them in the regions north the London. Simply to complete a service to London, although that is necessary, will not be good enough.

Mr. Prescott

Whatever the inadequacies of the present development agreement, under which £1.8 billion is provided, that £1.8 billion will not be increased. We are not considering whether we should increase the subsidy beyond what is in the agreement. We may have to look at that if we find that there has been a total failure, or the company says that it can no longer provide a successful project. That is all I can say, and that is all I am reporting to the House.

Mr. Crispin Blunt (Reigate)

Does the right hon. Gentleman accept that Conservative Members wish him luck over the next 30 days in trying to negotiate a new deal, in the initial circumstances, with London and Continental Railways? Such circumstances—perhaps—occurred because the previous Government defended the taxpayers' interest too rigorously for the consortium.

I suspect that there is a difference of opinion between the Secretary of State and the Treasury, which I suspect is putting pressure on him, on the merits of putting £1.2 billion or some sum between £1.8 billion and £3 billion into the project. Will he assure the House that the Treasury will not play unnecessarily hard ball, and that we will not end up with a poorer project that costs a great deal more than £3 billion?

Mr. Prescott

The agreement, which involves a commitment of £1.8 billion, was agreed by the Treasury of the previous Administration. The hon. Gentleman should not think that I am going to negotiate, or that there is any difference on the issue between the Treasury and me. We have said that we are not prepared to find £1.2 billion on top of the £1.8 billion that the previous Government negotiated, which we honour in the contract. That is not acceptable. I hope that the companies take that into account when they come back with their next deal.

Ms Oona King (Bethnal Green and Bow)

Does my right hon. Friend agree that, if we are to have a fast, reliable and efficient service, it must not be driven purely by ideological dogma? However unpalatable the fact, we must accept that, in this instance, the private sector has not delivered, and, in France, the public sector has. I worked at the European Parliament in Brussels for five years, and I had to put up with howls of derision and laughter from French, German, Spanish and Italian colleagues who travelled through the tunnel. When the train arrived in this country, it invariably broke down. I wish my right hon. Friend the best of luck, and thank him for bringing the issue to the House so quickly.

Mr. Prescott

The House will agree that we would prefer our trains to go at the same speed as they are travelling when they enter the tunnel from the French side. We intend to give the British people as good a transport system as the French have.

Mr. Alan Clark (Kensington and Chelsea)

Does the Deputy Prime Minister agree that LCR got the contract by grossly over-estimating the traffic by 50 per cent.? Will he assure the House that taking the project into the public sector is not a euphemism for finding the £8 billion that he admits will be the total cost? The trains are running perfectly well at the moment. The extra money is needed to build a monstrous and vandalistic stretch of rail and concrete across Kent. Why does he not drop the whole project, and let matters stay as they are?

Mr. Prescott

I cannot drop the whole project, because the Government of which the right hon. Gentleman was a member committed me to a contract, which I am honouring. If the company comes up with a deal and says that it can build the line and operate it for the price in the development agreement, I am bound to accept it. As for taking over Eurostar, it is not making a profit, and is not envisaged to do so for some years. It will still be costly, whether to the private sector or the public sector. LCR made the wrong calculation that the right hon. Gentleman mentioned, putting a huge hole in its finances. That is why the contract is unlikely to be met.

Mr. Jeremy Corbyn (Islington, North)

I thank my right hon. Friend for his statement, preparing us to ensure that the public sector runs the project if all else fails. He will be aware that, in east London and in my borough, there has been enormous concern about the environmental damage that the original plans and route would have done. I understand what he has said about maintaining the existing route. Will he assure the people of the urban areas of London and the rural areas of Kent that there will be no cuts in the environmental improvements agreed during the planning, and that the tunnelling arrangements will not be ended? All the campaigning, deputations and demonstrations must be borne in mind, and there must be no change to the planned route, which is part of the Act.

Mr. Prescott

The route is already contracted for in the agreement, including the arrangements for which parts of the line go in tunnels and which parts go overland, as well as the environmental protection arrangements. We shall have to wait and see what proposals the company comes up with in the next 30 days. Until we hear that, I cannot make any further comment.

Mr. Ian Bruce (South Dorset)

Is not the reality of the announcement this evening that the channel tunnel rail link has never been an economic viability? The last Government wanted it done totally by private sector finance, but were eventually persuaded to part with £1.8 billion of public funds because the customers were not willing to pay to speed up the journey by ten or twenty minutes.

Is not the prospect of spending £3 billion of public money—or even spending £8 billion to take over the whole project, as my right hon. Friend the Member for Kensington and Chelsea (Mr. Clark) mentioned—nonsense? Whatever his gut feel for rail may be, I say to the right hon. Gentleman that we should not be spending this amount of the United Kingdom's resources—private or public—on something that will always be a white elephant.

Mr. Prescott

Before it becomes history that the cost of the project is £8 billion, I should point out that a lot of factors make up that figure, including servicing the debt. Whether the figure is £7 billion or £8 billion does not matter at present—what is relevant is that a contract is before us which I am quite prepared to honour. The company has said that it cannot honour it, and it has 30 days to consider that matter.

The hon. Gentleman may lead the House to believe that the numbers of passengers using the service are not increasing. In the last few years, the passenger figure doubled from 3 million to 6 million. Other companies which bid for the contract thought that that was a proper projected rate for the traffic. The company with the contract thought that the figure should be 9 million, and built its whole financial agreement on that. It made a terrible mistake, and we are debating that tonight.

Dr. Lynne Jones (Birmingham, Selly Oak)

Is it not clear from my right hon. Friend's statement that the whole concept of the transfer of risk to the private sector for essential infrastructure is nothing more than an expensive sham?

Mr. Prescott

Clearly, if we paid the bill that the company is asking us to pay, it would be expensive—costing up to £3 billion. There are good examples of combinations of public and private finance providing for infrastructure. That means that public money can be used to pay for other things in the economy which my hon. Friend and I feel are important but which cannot be met by private means. In transport, private means can be found, and where there is an income flow, one can borrow against it. I have not set my mind against that, and I am quite prepared to consider anything that improves the transport system for the benefit of this country.

Mr. Oliver Letwin (West Dorset)

I appreciate the hesitancy that the Deputy Prime Minister has rightly displayed, as he would not wish to say certain things in the course of what will no doubt be a perplexed negotiation over the next 30 days. However, a simple question has been asked repeatedly in various forms by my right hon. and hon. Friends, and I wonder whether the right hon. Gentleman could reassure us on this point.

If, during that thirty days, the negotiations should, alas, fail, and if the project should thereafter be transferred back to the public sector, will the right hon. Gentleman assure the House that the public sector will not come up with what he has described as £7 billion or £8 billion to carry the project forward in its current form?

Mr. Prescott

I can assure the House that the Government would not feel that paying £7 billion or £8 billion of public money to cut the channel tunnel rail link services by 35 minutes was a priority. That is the argument with which we have been presented, but that is not the bill. Some in the company would say that we were getting a £5 billion facility for £1.8 billion of public money. These are the judgments one must make in these projects.

Let me assure the hon. Gentleman—and others—who said that I am in perplexed negotiations. I do not want to misguide anyone outside this House. I am not in negotiations; I want to hear from a company about whether it can complete its contract.

Mr. Gordon Prentice (Pendle)

Is not the whole saga a terrible scandal? We are not talking about only £1.8 billion from the public sector. As the hon. Member for Banff and Buchan (Mr. Salmond) said, Waterloo international station—which is barely completed—was handed over for £165 million; St Pancras hotel was handed over for £75 million; and the King's Cross railway lands—God knows how much they are worth—were also handed over. The whole thing has been a scandal.

The hon. Member for South Dorset (Mr. Bruce) talks about £1.8 billion. The Conservative party sold the entire British Rail network for £2 billion. We are talking about a 68-mile-stretch of line for £1.8 billion—the Conservatives sold off British Rail for £2 billion. This link should have been built a decade ago, and the person responsible was the noble Lord Parkinson, who decided in 1990–91 that there would be no public money to build the link. The link will never be built without public involvement. It could be entirely and directly in the public sector or in a partnership, as must be possible, between public and private sectors.

Mr. Prescott

There is a history to be written about the plundering of assets during privatisation, but that is for another time. Clearly, the issue before us is the building of the channel tunnel rail link. I am well aware, as my hon. Friend said, that the judgment was that no public money would be involved; but that is simply not true of either the tunnel or the rail link. Public money was involved, despite a clause that said that it would be illegal to subsidise the tunnel.

It is a matter of interpretation of the way in which finance works: if the private sector cannot find the money, the public sector must underpin the loan to some extent. That is precisely what happened with the tunnel. It was a sorry episode, but we have a tunnel and we want the fast links, which are an important part of a modern economy. They must be built, one way or another.

Mr. Rhodri Morgan (Cardiff, West)

I thank the Deputy Prime Minister for coming to the House so promptly with a statement. He has to make the best of a very bad job, bequeathed to him by the dogma-driven divisions in the Conservative party, not only because this is the worst property blight problem in the history of this country, but because, as his statement definitively demonstrated, the only way in which to get infrastructure built is to have a fluid and flexible line between the public and the private sector, without any dogma about private sector always being good and public sector always being bad.

Mr. Prescott

There is an awful lot of common sense in bringing the public and private sectors together, especially in transport investment. I have been an advocate of that for a long time, and I continue to advocate it.

Mr. Jonathan Shaw (Chatham and Aylesford)

Does my right hon. Friend appreciate that this delay will cause great concern to those of us who represent seats in and around the Medway towns, and that it is absolutely vital that the construction of the channel tunnel rail link and the widening of the M2 over the Medway valley happen at the same time? We have been campaigning for that for a long, long time. It is essential, to avoid further chaos in and around the Medway area.

Mr. Prescott

I understand my hon. Friend's point, but we are drifting into the area of motorway policy. The roads are under review, and a White Paper on integrated transport is to due to be published. I will have the opportunity to give proper answers to such questions when that has happened.