Channel Tunnel Rail Link

HC Deb 03 June 1998 vol 313 cc367-84 3.31 pm

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

With permission, Madam Speaker, I wish to make a statement on the channel tunnel rail link. Mindful of your recent request, I shall keep my remarks as short as is possible for such a complicated subject of such importance to the House. To assist hon. Members, I will make arrangements for a memorandum to be placed in the Library.

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 Eurostar service. Its plan was to commence construction in late 1997. The agreement provided for a taxpayer contribution worth £1.8 billion.

When I had the chance to examine the details of the deal put in place by the previous Government, I was appalled. They took the cheapest bid based on over-optimistic forecasts of Eurostar revenue, without even commissioning their own independent forecasts—a failing we have now put right.

The Government were seriously exposed because of the small financial commitment made by the private sector. Furthermore, as a consequence of the previous Government's intention to conceal public subsidy of the channel tunnel financing, Eurostar was hampered by the requirement to pay Eurotunnel for train paths that it was not using. Even this week I was asked to find £100 million to pay for specially designed sleeper trains which do not work, have never been used, and are now lying idle in a field.

The kindest thing that I can say about this whole agreement is that it was flawed from the start. In January of this year, it almost collapsed; the company could not fulfil its contract. At that point, I was faced with a clear choice. I could have abandoned the present contract with LCR and invited new tenders—but that would have meant two years or more of delay, with all the blight and uncertainty that that would have caused. The equivalent of two thirds of the grant would have been spent on Eurostar's debts and continuing losses, with nothing to show for it. Eurostar is losing £150 million a year. If we multiply that by four or five years compensation, it is clear that I would have had to pay an amount almost equivalent to the grant for the project, but would have got nothing in return. Alternatively, I could ask the company to reconsider the financing of the project and come forward with proposals to meet all its original obligations. That was the path I chose.

I explained that LCR had requested an additional £1.2 billion of taxpayers' money, on top of the £1.8 billion already committed. That was unacceptable. I gave LCR one month to come up with new proposals, and subsequently extended that period ultimately to this week. At the end of March, LCR made an improved proposal, but still failed to meet the Government's requirements.

I am aware of the importance that hon. Members on both sides of the House attach to this project, which was approved by the House. I have always believed that Britain should have a high-speed passenger and freight link to Europe that is the equal of those on the other side of the channel. This an important project, comparable to any that the Government are promoting. It is a key part of our integrated transport policy, and a national asset that will bring benefits not just to the south-east, but to all parts of Britain.

All parties supported the Channel Tunnel Rail Link Act 1996, which was unopposed on its Second and Third Readings. The project offers immense economic, transport, and environmental benefits, and improved speed, reliability and capacity for international and domestic services for passengers and freight. It will also play a major part in regenerating north Kent and the east Thames corridor, including Stratford and King's Cross. The Government want to see this project proceed, but, as I have made clear, not at any price.

My firm view was that LCR could carry on only if it were able to deliver the whole project from the tunnel to St. Pancras according to the contract. I made it clear that the Government also required a further reduction in the proposed additional cost to the taxpayer; a robust financing plan based on realistic forecasts for Eurostar; a balance of incentives that would ensure construction of the whole rail link; and increased risk transfer to the private sector.

For the past four months we have been involved in intensive negotiations, and I can inform the House of their outcome. The call on public finances represents good value for the taxpayer. There is a robust financing plan, which is based on a proper assessment of future Eurostar revenue. Incentives to complete the whole link are in place, and the private sector will take a greater share of risk. In short, there will be a high-speed channel tunnel rail link.

Today, I signed with LCR and Railtrack a statement of principles which meets all our requirements and which fulfils the contract agreed by the previous Secretary of State, the right hon. Member for North-West Hampshire (Sir G. Young), who I see is in his place. Under this public-private partnership, LCR has been strengthened. A new management team is in place, and LCR has agreed to raise more equity to support the project. Railtrack has agreed to take a key role in building the link. It will manage construction for the railway to north Kent, and will commit to purchase it upon completion. Railtrack will have an option to build and buy the remainder of the link.

LCR has secured a strong partner to operate Eurostar. Two very strong bids were considered—one from Virgin, the other from a consortium comprising British Airways, National Express and the national railways of France and Belgium. LCR today agreed to award the contract to the consortium. LCR has an obligation to build the entire 68 miles of railway from the channel tunnel to St. Pancras in London, via Ebbsfleet and Stratford, in accordance with the 1996 Act endorsed by the House.

The link will be built to the same route, the same specification and the same high standards as before. There will be the same environmental and heritage safeguards, and the undertakings and assurances given during the passage of the 1996 Act remain.

Construction will begin towards the end of this year. The stretch from the channel tunnel to the turn-off in Kent to Waterloo is due to be completed by 2003, and services from Waterloo will then benefit from the new high-speed line. Construction beyond that point is expected to commence in 2001, with the line through Ebbsfleet and Stratford to St. Pancras finished by 2007. That will include the proposed new Thameslink station at St. Pancras. The Eurostar consortium will operate trains from Waterloo to Paris and Brussels, and, in due course, services from St. Pancras. There will be no change of route under this agreement; it will be exactly as in the Channel Tunnel Rail Link Act.

I realise that many hon. Members want an early start to regional services. I can assure the House that LCR remains under an obligation to provide the infrastructure for regional Eurostar services. The trains for those services are currently lying idle. I have therefore asked the consortium to review urgently the feasibility of such services, and to put proposals to me before the end of the year. I shall inform the House of the outcome of that review in due course.

I know that the consortium has a vision of Heathrow as a gateway to Europe for services from across the country. The consortium proposes to establish, from as early as 2001, a service from Heathrow airport to Paris. Heathrow is the world's busiest international airport. It is already one of Britain's biggest bus stations; it is connected to the largest underground network in the world; and the Heathrow Express provides the fastest connection from any airport to a central urban area. That new service should, in time, establish Heathrow airport as an integrated transport interchange of international importance, connecting long-haul air services directly to the European high-speed rail network. It will be beneficial to the growth in passengers using the high-speed train.

I have always made it clear that the Government required a significant degree of risk transfer to the private sector, and this deal achieves that. If construction costs overrun, Railtrack will carry the full cost. If Eurostar revenues are less than forecast, Railtrack and the consortium will share the burden along with the Government. I have made it clear that there must be a strong incentive to complete the whole link from the tunnel to St. Pancras, and this deal achieves that. The Act requires the whole link to be built; the contract obliges LCR to build the entire link.

I have always made it clear that the Government required a fair deal for the taxpayer, consistent with the Government's existing obligations under the contract, and this deal most certainly achieves that. The basic grant remains at £1.8 billion. There will be no requirement for additional Government support before 2010. Moreover, following intensive negotiations, the extent of the Government's additional contribution will not be the £1.2 billion requested in January, nor the £700 million about which hon. Members may have read in the press this week. It will be £140 million. After 2020, our share in the benefits will probably more than compensate for the extra money that we are asked to provide in 2010.

All the parties have contributed to that improvement: LCR, Railtrack, the consortium and the Government. Recognising the unique features of the project and our commitment to strengthen international rail transport links, we have agreed that the Government's credit will stand behind £3.7 billion of bonds issued by LCR privately in the City to fund the project. [HON. MEMBERS: "Who will pay?"] Hang on. That debt will be repaid out of the proceeds of the sale of the completed link. The risk of the Government incurring liability under the guarantees is therefore remote. The Government will support the financing package, which will allow this project to proceed now and at the minimum financing cost. It is a unique financing deal, and I should like to express my appreciation to the Chancellor and the Treasury for having arrived at that agreement. The alternative would have been considerable delay and increased costs.

The Government do not intend to offer taxpayers' support without asking for something in return—unlike the previous Administration.

Mr. Alan Clark (Kensington and Chelsea)

Free tickets?

Mr. Prescott

If the right hon. Member would listen to what was being said, he would not be so contemptuous of the rewards that we have gained for the taxpayer.

The Government believe that, in a real public-private partnership, not only costs but benefits are shared. The Government are sharing the risk, so it is only right that the taxpayer should share the benefits. I have therefore agreed with the parties that the Government will take a public stakeholder share in LCR, yielding a 35 per cent. share of the company's pre-tax surplus after 2020. The Government will also have a 5 per cent. stake in the Eurostar management company. That will be a public-private partnership with strong public accountability. Moreover, if LCR decides to sell the business—it cannot do so without the Government's agreement, as we shall hold a golden share in the company—the taxpayer will share at least 35 per cent. of the proceeds.

As I said earlier, those extra benefits should not simply balance the additional £140 million of public subsidy. This deal should provide that, taken over the long term, LCR pays a premium to the Government. Under the original plan, the concession for that agreement was 999 years. Eurostar was privatised for ever. The parties have now agreed to reduce the concession to 90 years. In 2086, the railway and the Eurostar service will revert to public ownership, along with the channel tunnel. I look forward to appearing before the House on that occasion to announce the event—my zimmer frame will be outside.

There is one more point. I have negotiated a share for the Government in any savings in the construction cost. I have also negotiated a mechanism to prevent any of the parties involved from enjoying excessive windfall gains at the taxpayer's expense. In that way we aim to avoid any repeat of the fiascos that have marked railway privatisation, not least the sale of the rolling stock companies.

There is still much work to be done. Regulatory bodies must be satisfied, and there will be many more months of detailed negotiation.

This is an agreement snatched from the ashes of the LCR's collapse. The channel tunnel rail link will be built all the way to St. Pancras. Construction will begin this year and we shall join the fast track to Europe. This deal is good for integrated transport, good for the environment and good for the taxpayer, and it is good enough for me to commend to the House.

Mrs. Gillian Shephard (South-West Norfolk)

I thank the right hon. Gentleman for his statement and for making it, and additional information, available to me in advance. The copy of the statement which I received bears only a limited resemblance to the one he made, but one should be grateful for small mercies.

I must begin with this complaint: the right hon. Gentleman has mentioned advance press coverage of this statement and, even for his Government, the amount of detailed press briefing has been disgraceful. Last night, some 14 hours before the House was even told that there would be a statement, the BBC was in possession of detailed facts, as were today's newspapers and sound media. I have written to you, Madam Speaker, on the matter, and it is a cause for sadness that the Deputy Prime Minister should treat the House with such contempt.

The right hon. Gentleman began his statement with fighting words. One can only assume from the late arrival of the text that he was engaged in last-ditch battles with the Treasury and spin doctors at No. 10. Indeed, he has almost admitted as much. Eventually he got round to admitting that the project is important for the country, that there is all-party support for the Channel Tunnel Rail Link Act 1996, and that the link offers immense benefits to the whole nation.

The right hon. Gentleman has described the scheme as a public-private sector partnership. Last January, when the Secretary of State made his previous statement to the House on this matter, the hon. Member for Bolsover (Mr. Skinner)—who is, as always, in his place—claimed that this was the first taste of nationalisation. Leaving that aside, will the Secretary of State tell the House whether the Government guarantee should and will be classified by the Treasury as public expenditure, and if not, why not?

Will the right hon. Gentleman confirm that the Government are supporting the scheme to the tune not of £140 million, £700 million or £1.2 billion, but £5.64 billion? Would he call that nationalisation by the back door? If it is, will it be a comfort for the hon. Member for Bolsover? Does the £140 million which the Secretary of State mentioned refer to phase 1 or phase 2?

What will be the contractual obligation for London and Continental Railways if Railtrack does not wish to go ahead, and under what circumstances might that occur? What will happen if the costs overrun the estimates that the right hon. Gentleman has given the House today? On what basis have the passenger projections been calculated? As this matter will interest the taxpayer, will the right hon. Gentleman undertake to make public the outcome of the independent review that his Department has commissioned?

The right hon. Gentleman has described the two phases of the scheme. When is the Ebbsfleet station to be built, and what will be the arrangements for passengers and trains before it is built? Phase 2 of the project will not only regenerate east London but make the huge benefits of the channel tunnel rail link available to the rest of the country. What guarantees can the right hon. Gentleman give the House that phase 2 will be completed, and can he give us a timetable?

How much of Eurostar UK's new management company will be controlled by the state-owned French and Belgian railways, and what control do they already have in the Eurostar trilateral partnership?

It is welcome news that the Thameslink 2000 proposals for the St. Pancras station will go ahead as planned. Can the right hon. Gentleman tell the House when?

The right hon. Gentleman began his statement with fighting words. Conservative Members note with interest that, in order to make progress, the right hon. Gentleman is calling on the expertise and success of private industries such as Railtrack, National Express and British Airways. Does he agree that life sometimes has its ironies?

Mr. Prescott

I welcome the right hon. Member for South-West Norfolk (Mrs. Shephard) to her new job. I tried to assist her by providing technical advice, which I hoped would be helpful. Her tone was extremely churlish, to say the least. Many of the questions that she asked showed that she had not read the statement: it contains a number of the answers.

There were some last-minute negotiations about the final details of the percentage. I pushed right up to the last minute to ensure that the taxpayer had the best deal. If the previous Government had had that attitude, we would not have had to raise this kind of money to achieve a deal. Does the right hon. Lady not realise that the private enterprise company that was talked of by the Secretary of State for Transport in the Conservative Administration collapsed and asked for a further £1.2 billion on top of the £1.8 billion given by the previous Government, without any guarantees and with no comeback for the taxpayer? She should have begun her contribution with an apology to the House before she spoke such drivel about the statement.

I was not involved in any leaks to newspapers. I am always concerned to ensure that information is provided to the House first. It gave me great pleasure to note that the leaks to the press and to the radio this morning were wrong. The figure of £700 million additional public contribution was incorrect: it is £140 million. That information was in the statement, and if the right hon. Lady had read it she would have known that. The leaks certainly did not come from us. The House should be delighted that, wherever they came from, they were wrong. People were wrong to follow the Financial Times. It is always difficult, because various parties are involved in such negotiations and it is inevitable that they will talk to the press.

I assure the House that I said absolutely nothing to the press about this matter. I strongly believe that I should always report to the House first. After the collapse of the agreement, I even made a statement to the House at 10 o'clock at night to ensure that hon. Members did not read about it in the morning papers first. If I look offended, it is because I am a little offended. I played the issue absolutely right. I hope that the right hon. Lady and I can have a better relationship on these matters in future.

The right hon. Lady asked about guarantees. Any moneys that are guaranteed under Government-guaranteed bonds—although they are in the name of LCR—must be assessed by the independent Office for National Statistics. It has agreed with the Treasury that, because the risk is very low, the bonds do not count as a public expenditure liability. That practice is followed by all Governments. I am surprised that there is some doubt about that. The only qualification that has changed over the years is that now the European Statistical Office must endorse that judgment. Governments have always used that practice to judge whether such moneys are part of the public sector borrowing requirement.

In respect of incentives and whether we should complete the link, major incentives have been given for the part between Ebbsfleet and Stratford. Most of the grant has been retained for that, and hon. Members should look at the memorandum to see precisely what proportion is involved. The previous Administration made the requirement that Government money would come in only after two thirds had been expended by the private sector. The trouble with that was that they could not even raise 10 per cent. of the money, never mind two thirds of it.

In this case, we have reserved the same principle: at each stage, the Government will still require that two thirds has been spent before the additional third comes in from our side. It is a guarantee that construction will take place. We have made sure that the second part, through Stratford into King's Cross, is heavily loaded in the grants with a huge incentive to complete the deal. We have every reason to believe that we have geared and balanced the risks and the rewards, and have made sure of the completion of the deal as the House agreed.

Mr. Andrew Mackinlay (Thurrock)

I thank the Deputy Prime Minister for the reassurance about the second link, although, not unreasonably, I want to study his complicated statement. What hope can he hold out to people with blighted properties, and especially to people in the second stage who are losing their small and medium-sized businesses through the inaction of the old company in response to their reasonable request to purchase their properties and facilitate transfer to new locations?

Mr. Prescott

This is a matter of great concern. My hon. Friend has expressed it from time to time, both in the House and to me. We have inherited the obligations that were entered into in the original agreement. What is most helpful to those people is the certainty of the date—we will start this year. If we had re-advertised and gone out to competitive tender, a wait of two or three years would have added to all the concerns of blight. We have an agreement that means that we can start immediately, which is reassuring, and we have confirmed the completion of the route from Folkestone and Dover up to St. Pancras. That is the commitment we have entered into, and we have arranged the finances to achieve it.

Mr. Matthew Taylor (Truro and St. Austell)

There is no doubt that the Deputy Prime Minister has had an extremely difficult job in sorting out an appalling mess left by the previous Government. I congratulate him on many aspects of this complex and clever agreement, albeit that it could leave larger liabilities on the public sector. I hope, with him, that that will not occur.

However, the agreement has not secured a guarantee of the completion of phase 2. It is hard to understand why—perhaps the Deputy Prime Minister will explain—given the incentives to which he referred and the assurance he felt able to give the House that phase 2 would be built. Did any of the consortiums at any stage offer such a guarantee and did he seek to obtain one? Given the long gap between the completion of phases 1 and 2, what will happen on the commuter lines into Waterloo, which already operate at capacity, and into other London stations? Will Eurostar not operate during rush-hour periods, or will commuter services have to be cut to accommodate the Eurostar service?

Mr. Prescott

I am grateful to the hon. Gentleman for his remarks. The negotiations have, indeed, been complex, and I offer my congratulations to all those on the private side, in the public sector and in the Government who have been involved: difficult situations have arisen, and they have done well. All of us can be satisfied with the result, and I am therefore pleased to accept the hon. Gentleman's congratulations on behalf of everyone involved in the detailed negotiations.

Train services will be no different from those under the original agreement.

Mr. Taylor

And that collapsed.

Mr. Prescott

There is a problem, but it is not changed by this agreement. Inevitably, we must start at one end and proceed to the conclusion, St. Pancras in this case. As different sections are built, we shall begin to use the track, which will relieve some of the pressure. For example, going for the route near Ebbsfleet will mean that we provide more space, but that is not the most congested area—as the hon. Gentleman said, that is the Waterloo area.

The only concern over any differences must be that construction may not be completed. That was the hon. Gentleman's first point.

We have a contract with LCR, under which it will complete the work. Railtrack is building the section up to near Ebbsfleet. One of the problems is that, as a private company, Railtrack has certain obligations. The fact that its access charges will probably have to be reassessed twice by the regulator, if matters remain as they are now, causes great uncertainty. If Railtrack were publicly owned, we would not have those difficulties, but I have to live with companies as they are. Certain commercial problems have been created, especially for companies with share prices and equity, which must take such obligations into account.

What we have done is ensure that two thirds of the amount necessary to complete the work is available in Government funds and grants. That is a considerable incentive for any company, and I believe that, under the contractual obligation agreed with LCR, it will complete the work.

Mr. Chris Pond (Gravesham)

I welcome the Deputy Prime Minister's statement, and congratulate him and his team on their difficult negotiations.

The Ebbsfleet development, which is in my constituency, is essential to the economic regeneration of north Kent. The statement has lifted the uncertainty, and that means that we can get on with not just the development of Ebbsfleet, but the economic regeneration that is so important in other areas.

The uncertainty that the collapse of the original LCR proposal caused so many people has now been removed. Many of our constituents were very anxious about the likely outcome, and there was also much anger about the fact that the last Government had provided the consortium with such a generous wodge of public money—some £6 billion in cash and other resources. As someone said at the time, it was a case of, "Buy the train set and we will throw in the toyshop as well." However, everything collapsed because of unrealistic assumptions about Eurostar traffic. My constituents, and many others—

Madam Speaker

Order. I am sorry to interrupt the hon. Gentleman, but a great many Members want to ask questions. We must have direct questions to the Deputy Prime Minister, rather than long statements. I understand how welcome the news is in some parts of the country, but the hon. Gentleman must now ask a direct question. I want to call as many hon. Members as possible.

Mr. Pond

I apologise, Madam Speaker. I will now ask a direct question.

Will the Deputy Prime Minister give us a clear assurance that the second stage will also proceed as quickly as possible? That, too, is important, not only for the regeneration of east London, but to ensure that the whole project in north Kent is effective in terms of economic regeneration.

Mr. Prescott

Yes, I can give that assurance. As I said in my statement, the second stage will start in 2001.

Sir Brian Mawhinney (North-West Cambridgeshire)

We shall want to read the right hon. Gentleman's statement, but I compliment him on finding a solution to a complex and difficult problem. I am one of the few Members who know how difficult were the issues that he had to address.

As the Secretary of State who insisted that Stratford should be part of the line because of the regenerative benefit that would be experienced by the east end of London, may I also compliment the right hon. Gentleman on ensuring that the whole line will be completed? I hope that he will forgive me, however, if I take with a pinch of salt his comment that he was appalled that the last Government had accepted the lowest tender at the time. I can imagine what he would have said if we had not done so.

Can the right hon. Gentleman give us some estimate of when the policy that he has again confirmed this afternoon will come into effect? There are to be non-stop services from Peterborough down the east coast to Paris and Brussels, and from Milton Keynes down the west coast to the same destinations. Can the right hon. Gentleman give us any idea when those services are likely to start?

Mr. Prescott

I thank the right hon. Gentleman for his kind remarks. I understand why he should say that he took what I said about the lowest tender with a pinch of salt, but my point was that the last Government's acceptance of the lowest tender had been based on a very optimistic estimate of the likely flow of passengers—some 11 million. So far, the figure has reached only 6 million. The previous Government should have carried out an independent assessment, which is what we did, to determine proper traffic flow. If they had done that before the negotiations, perhaps they would not have accepted the lowest bid, because they would have realised that it was unrealistic, as other bidders for the contract said at the time. I think that it was also said in the House.

I thank the right hon. Gentleman for his remarks. I have asked for an urgent report on regional services, and I should like shortly to report to the House on the matter. The right hon. Gentleman was right in what he said about regions and regeneration. When we continue and complete the phases of the contract, there will be the equivalent of about £1 billion of regeneration. There is a connection to Stratford, and we want to get benefits from the investment.

Mr. Stephen Timms (East Ham)

I warmly welcome my right hon. Friend's determination throughout the process to secure the whole link, to ensure that Britain is properly connected to the European high-speed rail network early in the new millennium. He spoke about services to Heathrow airport. That is a new element, and presumably those services will run through south London. Can he confirm that the developments and the processes that will be required to put those services in place will not be at the expense of services along the new line that are envisaged in the Channel Tunnel Rail Link Act 1996?

Mr. Prescott

I think that I can confirm that they will not be at the expense of those services. The Heathrow proposal provides not only an opportunity for more people to engage in intercontinental travel, perhaps flying here from America and going by train to Paris, but will ease congestion on, for example, European slots at Heathrow. It is a true example of integration, and it will be useful not only to the south-east but to the United Kingdom economy. As my hon. Friend will know, increased services have been announced for the northern regions as well. Transport is growing at a considerable rate, and our White Paper is about how to integrate these developments, which have a great future.

Mr. Andrew Rowe (Faversham and Mid-Kent)

Does the Deputy Prime Minister accept that nothing in the history of Eurostar or the former British Rail's estimation of traffic flows gives me any confidence whatever that the generation of traffic will enable the company to raise the additional equity that it is expected to raise? What happens to the project if it does not raise that equity?

Secondly, will the right hon. Gentleman define freight? Hitherto the only freight that has been considered for that line was the kind that could travel in passenger-type trains. Does he mean that the kind of freight that will now be carried will be much more diverse?

Mr. Prescott

There has always been great difficulty about the projection of those figures. I can remember the hon. Gentleman being critical of statements by British Rail or by the private company that took over. I think that we have made a more realistic assessment, and there is a memorandum in the Library for those who wish to make judgments. A proper assessment is critical, and there is much agreement between us and the consortium, even on our independent assessment, on the judgment of how many people will travel and at what time. I refer the hon. Gentleman to the memorandum from which he can judge that.

The hon. Gentleman asked about raising equity. That was one of the essential points in the previous Government's deal. We are involved not in raising equity but in a guarantee in the way that I have explained. Of course we have asked the original shareholders to pay more. They were committed to only about £60 million, and we are asking them to pay more towards the LCR equity. It is right for us to do that.

The hon. Gentleman also asked about freight. English, Welsh and Scottish Railways and Freightliner are already taking considerable traffic growth through the tunnel.

We want to encourage that, and our White Paper is about how we might encourage more rail freight. One of my first discoveries on coming to office was that the transfer of the three rail companies to EWS was not a sale. It was given £250 million to take them off our hands. That was another example of a sale of public assets at the direct expense of the taxpayer.

Mr. Paul Clark (Gillingham)

I congratulate my right hon. Friend on saving an essential national asset, and on drawing something from the jaws of disaster. I should like to ask about north Kent. Obviously, I have not had an opportunity to read the memorandum, and the answer may be there.

My right hon. Friend made it clear that work on the second part would start in 2001, and that it would be completed by 2007 or 2008. What I am particularly concerned about—it was alluded to earlier—is the in-between period and the effect on commuters and on traffic trying to get into London; we should try to minimise that as far as possible. Will the Deputy Prime Minister say whether 2007–08 is the latest or the earliest date that that second phase will be completed?

Mr. Prescott

They are the dates that we have come to an agreement about, and, as soon as we have gone through all the details, I shall give a further statement to the House and place it in the Library at the appropriate time, so that the final details and contracts can be seen; but I believe that date to be a realistic one.

As my hon. Friend will notice, that phase will start before the completion of the one that goes through Ebbsfleet, so I believe that it is a realistic date. We have an agreement completed. The line is going through to St. Pancras. There will be problems, particularly with available services. One can see that those problems were obviously going to arise. I shall give my attention to those now that we know that we do have a proper financial arrangement to provide us with the channel tunnel rail link.

Mr. Damian Green (Ashford)

I thank the Deputy Prime Minister on behalf all of those businesses and households in Ashford that have suffered the uncertainty caused by blight, which will be relieved to know that at least that end of the line will be going ahead relatively quickly, but may I ask him for two assurances?

First, the right hon. Gentleman said that the environmental protection measures would be exactly the same as those agreed in the original Bill. Given that the Government will now take a direct financial and managerial interest in this project, will he accept from now on responsibility for ensuring that those environmental conditions are met? Many of my constituents are concerned that Rail Link Engineering and London and Continental Railways have been trying to bend the rules, if you like, to try to avoid some of the environmental considerations.

Secondly, my biggest regret about the statement was that it was made as though there were simply one station on the line this side of the channel tunnel—at Waterloo. Part of the problem of London and Continental's management is that it has consistently undervalued Ashford station's potential. I hope that, with the new management in place, London and Continental will recognise the importance of Ashford station not just for my constituency, but for environmental reasons. Having people travelling into central London via a relatively under-used station, rather than travelling on the M25 and M20, would be extremely helpful for the whole of south-east England.

Mr. Prescott

I understand the importance of Ashford station. Indeed, in order to emphasise that it is an important stopping point, I invited Environment Ministers at the recent G8 summit, who had their conference at Leeds castle, to get off the train at Ashford.

We have to sell more of Eurostar's services. The restructured management is an important step in that direction. Having new people on the board who have had other transport experience will play an important part in increasing the amount of traffic and exploiting the full potential of Eurostar services.

I made the point that the obligations that we entered into with the previous contracts still remain. Government will have a responsibility with regard to environmental matters, but we do that as Government rather than as a 5 per cent. shareholder on some board. The proper way is for Government to address Government responsibilities, and private companies to address their responsibilities.

Ms Margaret Hodge (Barking)

I congratulate the Deputy Prime Minister on what appears to be an imaginative deal, and congratulate him in particular on his success in ensuring that the guarantee will not be counted against public spending for future years, which is particularly welcome.

My constituents have been the innocent victims of the previous Government's botched plans. They now require real certainty. In part of his statement, the Deputy Prime Minister said that Railtrack would have an option to build the remainder of the track. He later said that the second phase would start in 2001. My constituents need certainty. Will that phase start in 2001, or could Railtrack talk itself out of that option?

Mr. Prescott

No.

Mr. Matthew Taylor

Yes.

Mr. Prescott

Well, the hon. Gentleman was on the programme, without having seen this, giving us all the judgments, and then congratulates me on delivering something different.

With regard to the Railtrack application, it is attractive for Railtrack to go into that second phase. Railtrack's income is based on access charges, which are being reviewed by the regulator. Two reviews may be involved, and it is very difficult to take a long-term view—that is one of the difficulties of the private sector. That is why Governments get involved in such long-term infrastructure programmes. If the company chooses not to complete the work—although it certainly wants to do so—it would be easy to find another contractor to complete it. LCR has a contractual obligation to complete the link, and I intend to see that it does.

Mr. John Wilkinson (Ruislip-Northwood)

I welcome the commitment of the Government to seek an extension to St. Pancras, which I am sure my constituents in north-west London and people in the north of England welcome. Regarding Heathrow, the high-speed rail link is especially imaginative—for all the reasons the Deputy Prime Minister described—but will its commercial viability be contingent upon the construction of the fifth terminal at the airport?

Mr. Prescott

No, it is in no way contingent on that at all.

Mr. John Heppell (Nottingham, East)

I congratulate the Deputy Prime Minister on rescuing the project. I spent a year of my life on the Channel Tunnel Select Committee, and I would hate to have wasted all that time with nothing at the end of it.

One of the things we realised in the Committee was that for real benefits to go to the regions—especially my region of the east midlands and my city of Nottingham—it was essential that we had the full link right through to St. Pancras station. Can my right hon. Friend guarantee that that will happen? I want to go back to the city and tell people not to worry, and that we have promised that the link will be built as far as St. Pancras station.

Mr. Prescott

Yes, the contractual arrangements are to complete the link to St. Pancras. As to whether the link will run any further to other cities in the north, I have that under review, and I hope to have a report by December. Following an experiment which found that only 10 people were travelling on the regional services, the services were discontinued. Whether that was an excuse because the company did not want to continue the regional services, I do not know. Given this House's interest in regional services and the completion to King's Cross and St. Pancras, I am sure that the matter will be constantly debated. I will be constantly accountable to the House—that is the commitment I give, and that is the contract I have with LCR.

Mr. David Curry (Skipton and Ripon)

Following the Deputy Prime Minister's reply to the hon. Member for Barking (Ms Hodge), am I right in concluding that he can give no absolute guarantee that the second phase of the project will be built, but that he is building incentives into the financing in the hope that the company wishes to build it, and that if it does not, he hopes that somebody else will replace it to do so?

Mr. Prescott

The contract is not with the constructors. It is with the company that entered into the contract with me—the same company that the previous Government were prepared to accept—LCR. We have strengthened the contract and the company has given a commitment. The company will complete what it is contracted to do, to St. Pancras. The company was acceptable for the previous Government to negotiate with. We have strengthened the deal and changed the financial arrangements. We have every reason to believe that, with a proper balance of incentives, we can complete that work. I believe that the company has entered into the contract in good faith, and that it will be able to complete it.

Mr. John Gunnell (Morley and Rothwell)

Bearing in mind the news two months ago that Eurostar was cancelling its orders for trains which would have enabled the company to have direct links to the north of England, will my right hon. Friend—when he reports back to the House on regional services—ensure that he has raised with those responsible the question of the direct link to the north of England, so that we can be assured that such a link will be in place in due course, using the completed route to St. Pancras?

Mr. Prescott

I have made it clear that I want to see a feasibility report from the company on regional services. I can do no more than that. As soon as I have that report—I have said that it should be ready by the end of the year—I shall report back to the House.

Mr. Eric Pickles (Brentwood and Ongar)

Further to the point raised by the hon. Member for Barking (Ms Hodge), I am very surprised that the right hon. Gentleman is suggesting that we will be able to find other contractors to build phase 2 if Railtrack cannot do it, as phase 2 is the most difficult part of the project. Moreover, for the economy, it is the crucial part. Although I understand the need for incentives, does the £140 million relate specifically to phase 1 or to phase 2? Furthermore, did the right hon. Gentleman say that building the Heathrow link was an option for Railtrack and not part of the contract?

Mr. Prescott

Railtrack is not under an obligation to build a link to Heathrow. The consortium would like services to be increased, but current links allow connection from Heathrow to the railway system. Although there will be subsequent reports on the link, it is not part of Railtrack's agreement with LCR.

The £140 million is for the whole contract and is not payable until 2010—assuming that there is not an even greater surplus, in which case the consortium will be paying us, rather than the other way round.

On Eurostar services—I am sorry; I have lost the point of the other question.

Madam Speaker

It would be good if hon. Members asked only one question.

Mr. Eric Martlew (Carlisle)

I congratulate the Deputy Prime Minister on today's statement to the House—after the shambles that we were left with in January—and find hon. Members' carping on it very objectionable. After many years, the west coast main line will be upgraded. I am also pleased to hear that we will have a link to St. Pancras. We are talking about regeneration not only of parts of Kent and London but of the west coast of Britain—which includes England, Wales, Scotland and, to some extent, Northern Ireland.

Mr. Prescott

I very much agree with my hon. Friend's comments, which have re-emphasised the fact that regeneration comes from moving not only passengers but freight. Moving freight and moving passengers is equally important. We are doing all we can—we have renegotiated a number of contracts—to improve passage of freight through the tunnel. Although the rail link has a special regeneration value for the east London area, it will bring regeneration also to the rest of the United Kingdom. Transport infrastructure brings regeneration, which is why the Government think that it is so important.

Mrs. Jacqui Lait (Beckenham)

Will the right hon. Gentleman tell us what are the other elements in Railtrack's options, as well as access charges? On the related issue of the Thameslink project, will he say when he expects the work at Blackfriars station to commence?

Mr. Prescott

I am not sure of the answer to the hon. Lady's second question, but I will write to her on it.

The difficulty is that, although Railtrack is a private company, it is bound by laws passed by the House, and the regulator will review its track access charges in the next two years. The review is an essential part of the agreement, which makes it difficult to obtain from Railtrack a longer-term commitment on phase 2. However, there are so many incentives in the project—about three quarters of the cost is available—that I do not accept for a moment that LCR cannot find another contractor to complete phase 2. Nevertheless, I believe that Railtrack not only wants to build it, but can build it. However, at this stage, properly, it must take account of the regulator's judgments, which will not be made for some time yet.

Mr. Tam Dalyell (Linlithgow)

In response to my hon. Friend the Member for Nottingham, East (Mr. Heppell) and the right hon. Member for North-West Cambridgeshire (Sir B. Mawhinney), the Deputy Prime Minister referred to a report on the regions. Forgive us a little impatience, but are we really going to say to people in Glasgow or Nottingham, "We will tell you next year when you may expect a rail link"? Why do we have to wait until December, after all that has gone under the bridges? What can we sensibly say to people who are becoming pretty impatient about business decisions?

Mr. Prescott

I thank my hon. Friend for that helpful remark. Like him, I want regional railway services to be connected to international railway services. However, I have had to turn my attention to saving the one currently available deal that is essential for regional services—essentially to complete the link to St. Pancras. I have now completed the deal, which is good news for Scotland, Wales and every other part of the United Kingdom that will use the new international route into the Community.

However, I should say that advertised experimental services from Glasgow took about 10 or 11 hours. There is some doubt whether one can fill trains of whatever length at whatever time if people want to fly to Paris or Brussels instead of taking a 10-hour train journey. Those are legitimate concerns, which must be given proper consideration without committing a great deal of money.

I have asked—I think that it is the best way—whether, if there are spare sets there now, we can do something about starting some useful services right away. It is possible to get on to the network coming from the north—we do not have to wait for the completion of St. Pancras—and that is why I have asked them to look the possibility of getting a quicker start without waiting for the completion of St. Pancras. That is what I hope to report to the House in December.

Mr. Alan Clark

The Deputy Prime Minister did not give an intelligible answer to the question asked by my hon. Friend the Member for Faversham and Mid-Kent (Mr. Rowe). One of the provisions in his statement was that LCR should seek to raise additional equity in the financial markets; but what happens if it cannot do so?

Mr. Prescott

We have made a judgment about the guarantees involved in raising money, and that is what the market will look at in the circumstances. Those guarantees, we have been assured, are sufficient to guarantee the borrowing requirements and the stability and credibility of this company. It is a unique financial deal, and when the right hon. Gentleman looks at the memorandum, he will see that using bonds and having them supported by Government is probably the strongest credibility possible in these matters.

I am bound to say that it is a lot cheaper than the way in which it was done under the previous Administration. What the company was telling us when I reported back to the House was that, in order to be able to raise the equity on the market to which it was committed—about £1 billion—it wanted another £1.2 billion sweetener as to attract the market to put in equity. I am not doing that, because it is too expensive. I have found a better way, which is better for the taxpayer.

Mr. Hugh Bayley (City of York)

I congratulate my right hon. Friend on looking at the regional dimension of the link. Is it not important that that committee looks at regional services before the new line is completed? On Friday last week, I received a letter from the managing director of Eurostar, which told me that, although the track infrastructure safety case for the east coast main line has now been completed, they have not even started to do the safety case for the rolling stock, and the problems with electrical interference are being studied only on the west coast main line. Will my right hon. Friend make sure that equal weight and urgency is given to developing the case for the east coast main line?

Mr. Prescott

My hon. Friend is absolutely right about that. Perhaps I should have told the House that one of the difficulties with the rolling stock is that it has not yet got its safety case, which is important to operation, because the electronics cause difficulties with the existing signalling system, which clearly creates problems from a safety point of view. I have asked them to look urgently at that matter.

I have been looking at the sort of stock provided for the channel tunnel service, and at the sleeper stock, for which the taxpayers now have to fork out £100 million because it cannot be used. The way in which the engineers designed it meant that the power demands were greater than could be provided for the train, and that has now cost us £100 million in compensation. It is important to try to get the rolling stock working. I am doing all I can, and perhaps I shall be able by the end of the year to give a more appropriate and informed answer than I can give today.

Mr. Tom Brake (Carshalton and Wallington)

Can the Deputy Prime Minister say whether any of the original consortiums provided a guarantee that they would build the complete link?

Mr. Prescott

It not the consortiums that are giving the guarantee—they run the Eurostar; it is LCR that has entered into the contract and signed up, and, yes, the contract is for the completion of the link.

Mr. Jim Fitzpatrick (Poplar and Canning Town)

I start by apologising to my right hon. Friend the Deputy Prime Minister for being one of those fooled by yesterday's Financial Timesarticle, which said that he had secured £700 million from the Chancellor. Perhaps we should have known better, given the Chancellor's recent pronouncements. Having said that, the obvious negotiating skills of the Deputy Prime Minister and his team ensured that they did not need that amount of money.

The fact that the whole link is to be built, given the disastrous deal struck by the Conservatives, is welcome. However, given the length of time needed for the construction of the whole link, does my right hon. Friend believe that the regeneration of east London will begin before commencement of construction of the second half of the link, in 2001; and will the blight that has affected so many homes and businesses in east London also be dealt with by his statement today?

Mr. Prescott

Yes, today's statement will add to the certainty of these matters. Regeneration effects can begin now. We have given a commitment on the matter. Following the blight and uncertainty that people have suffered over the past few years—certainly before the previous contract—we now have a much more robust financial position. I suggest that my hon. Friend looks at the statement in the Library. At last we can begin to reap the regeneration effects from the investment and provide fast connections to Europe, so that we can meet the standards that have been enjoyed in Europe for a while, and enjoy them here in the United Kingdom, too.

Sir Robert Smith (West Aberdeenshire and Kincardine)

Although we will have to study the details of the memorandum, will the Deputy Prime Minister say what penalty will be imposed on LCR in 2001 if construction has not started? Given that LCR will not have much of an asset base or an income stream, what penalties can he impose on it if it fails to honour its side of the contract?

Mr. Prescott

I think that I have shown that I am quite prepared to act robustly if anyone is in breach of contract. The hon. Gentleman can expect me to ensure that LCR fulfils its obligations.

Mr. Mike Gapes (Ilford, South)

May I also congratulate the Deputy Prime Minister? I am not clear on one point from his statement. When Railtrack exercises its option of whether to go ahead with buying the second phase of the link, will sufficient notice be given at the time so that, if it chooses not to do so, the project will not be delayed further, which could cause further uncertainty in east London?

Mr. Prescott

As I said to the hon. Member for West Aberdeenshire and Kincardine (Sir R. Smith), there is an issue of contract obligations. If a company goes bust, as has happened in this case, it is fair for it to say, "We are not going to do it." That is one of the difficulties with a private company. We have international agreements and obligations to complete services in these matters. I am trying to do that by working through an obligation with a company. Some of the details are yet to be worked out. We have the general framework, which I have communicated to the House. I will want to ensure that we do not have to wait until the specified date for the full benefits. There is the completion to St. Pancras; there are things that we can get on with now.

Several hon. Members

rose—

Madam Speaker

Order. Thank you, Mr. Prescott. We must move on.