§ 5.54 p.m.
§ Order of the Day for the Second Reading read.
My Lords, the purpose of this Bill is to increase the borrowing powers of the British Transport Commission from £275 million to a total of £600 million. They were fixed at £275 million by the Act of 1947, and of this limit all but £22 million has been used. The first question that will no doubt be asked is: where has the money gone in the seven years that have elapsed since the setting up of the Commission? They have spent on capital expenditure £506 million; on increase in stores £45 million; on repayment of a loan £27 million. That expenditure has been financed as follows: from depreciation funds, £210 million; from pension funds et cetera, £38 million; by borrowing, £253 million; and by drawing upon liquid resources, £77 million. Both of those balance at £578 million. The Commission started with liquid resources of about £300 million, of which £175 million was specifically earmarked in respect of abnormal war-time depreciation and damage. Their liquid resources at the end of 1954 were of the order of £100 million, and with borrowing powers left of only £22 million their position would, without this Bill, soon become impossible.
Now for the future. One must remember that we are dealing with the whole of the British Transport Commission, and the position is complicated by the railway modernisation plan. It is impossible to draw a hard and fast line, and to say that up to a certain date all railway expenditure is normal replacement and that after that date it becomes part of the modernisation plan. The plan and normality will exist side by side. I must further make it clear that all the new capital will not be for the plan. The explanation of this lies in the inadequacy of depreciation allowances to provide for replacement, even of like by like, at modern prices. I am not going into explanations, for that is a well-known phenomenon affecting all businesses which are not able to make a large enough profit. The result is that, broadly speaking, whenever we replace anything on the railways we have to charge some 64 portion of the cost to capital. It follows then that, plan or no plan, we should still need this fresh capital.
In the next few years there will be three main types of expenditure on the railways. First of all, there will be the normal replacement programme of assets not intended for drastic modernisation, such as buildings, some track and bridges and a few steam locomotives; secondly, there will be the replacement of assets by something more modern envisaged in the plan, such as diesels, signalling and track improvements; and thirdly, there will be the provision of entirely new work, such as new goods yards and big electrification schemes. Categories 2 and 3 will gradually use a greater proportion of the money as the years go by. In the years 1955 to 1959 the British Transport Commission expect to spend £350 million on railways and £100 million on the London Passenger Transport Board and their other activities. That is a total of £450 million. Of this sum, £200 million will be drawn from internal resources. Of the railway share of £350 million, a sum of £250 million will go on rolling stock and £100 million on civil engineering and the like. At the end of that period there would remain £75 million of borrowing powers available for further projects out of the modernisation plan. If this Bill is passed, we expect the Commission to go to the market from time to time to borrow, and they will have the Treasury guarantee in doing so. The Bill itself is self-explanatory. I will do my best to answer any questions that noble Lords may desire to ask. I beg to move that the Bill be now read a second time.
§ Moved, That the Bill be now read 2a.—(Lord Hawke.)
§ 6.0 p.m.
§ LORD LUCAS OF CHILWORTH
My Lords, the noble Lord, Lord Hawke, has caught the spirit of your Lordships' House in that we do not want to re-hash this debate all over again, as we had an extensive debate upon the railway modernisation scheme two or three weeks ago, when we were favoured with a full speech and explanation by the noble Marquess who leads your Lordships' House, for which we are very grateful. I will confine my remarks to a brief point. I read today with great interest the publication of the new railway charges scheme. Already there is a flutter in the 65 dovecotes; the cats are among the pigeons, and some of the folk who were clamouring for more and more competition are now not quite so pleased because the railways have put themselves into a position to meet competition. I applaud them for so doing. I think we are going to have a revolution in railway finance during the next five years, and it is one which I think any sensible business man will applaud. But I am afraid that the murmurings, as opposed to the applause, will come from that section of the community, the trade associations, who thought that once they could get the Government to break up the British Transport Commission's road haulage assets, everything was going to be lovely. But what they will find is that the railways will be able to compete in some traffics far more than they ever anticipated.
There is one question which worries me about this plan to spend all this money. I am going to make a suggestion to the noble Lord and ask whether he will pass it on to his right honourable friend the Minister of Transport. I wonder whether the British Transport Commission, on its highest level, is manned sufficiently to enable this modernisation scheme and the spending of £1,200 million to progress as well as it might. In saying that, I am not in any way detracting from the personal virtues or merits of any member of the Commission. What I want to put to the noble Lord, and to the Government, is that I think the time has arrived to think again as to whether it is useful, on these big nationalised boards, to have these part-time members. I was interested in this regard to read the Fleck Committee Report upon the Coal Board. I thought the situation had a somewhat paradoxical humour about it—that the chairman of I.C.I. had to be brought in to investigate what was wrong with the Board upon which sat the chairman of Unilever. The Fleck Committee decided (I do not think that was anything against anybody who sat on the Coal Board) that nobody on these national boards to-day could give adequate service unless he spent practically the whole of his time on them.
There are admirable men sitting on the British Transport Commission as part-time members who spend practically the whole of their time upon them. Their remuneration is £500 a year gross and, 66 net, somewhere in the region of about 100s. I do not think that is a fair way of getting the best out of men. What the Government are doing is running this gigantic concern—perhaps the biggest industrial concern in this country—on a part-time charitable basis. That is not right. I agree with the scheme which has been initiated, by which the Area Boards can be composed, to a large extent, of part-time individuals, but I think that in the proper management of a gigantic scheme, involving the expenditure of the money about which the noble Lord has just told us, there arises the question whether the top-level policy makers are strong enough and can devote sufficient time to this task.
I hope I have not said anything which in any way detracts from the ability or the merit of anybody who is serving upon the British Transport Commission at the present time. But there is a great job of work to do, and with an industrial concern that is coming right into the cockpit of fierce competitive business to-day. I believe, as the noble Lord has said, that this £1,200 million is guaranteed, both in principal and interest, by the taxpayer of this country.
May I correct the noble Lord? There is some misapprehension about that the railways are going to borrow £1,200 million to spend. That is not the case. A great deal of the money comes from internal sources.
§ LORD LUCAS OF CHILWORTH
I know. I believe I am right in saying that about £600 million or £800 million is to be borrowed. But the whole of the assets of the British Transport Commission are guaranteed, in principal and interest, by the taxpayer. It is no good the noble Lord shrugging his shoulders and laughing, because that is a fact.
§ LORD LUCAS OF CHILWORTH
But the depreciation fund has to be found. Every halfpenny borrowed and every halfpenny used is guaranteed, both in principal and interest, by the taxpayer; and that is why it is a gilt-edged security. That was the point I tried to make in the debate to which I have just referred—that when the British Transport Commission go on the money market with the Treasury 67 behind them, they are in a more favourable position than the ordinary venturer on to the money market who has not a gilt-edged guarantee to reinforce his prospectus. But so far as I am concerned, and all who sit on this side of the House—in fact, I think every noble Lord in this House—I wish the British Transport Commission the best of good fortune. We hope they will utilise every halfpenny they find it necessary to borrow under the powers given by this Bill to the best advantage of the State and of the individual citizen of this country.
§ 6.8 p.m.
§ LORD HURCOMB
My Lords, I shall not detain your Lordships many minutes. I shall not follow the noble Lord, Lord Lucas of Chilworth, into a discussion of the future of the organisation of the Transport Commission, though I was extremely interested to note what the chairman of I.C.I. had to say and the emphasis which he laid upon the importance of allowing the headquarters chief technical people a right of control right the way down the line, and not to have to filter their instructions and their supervision through local area managers—precisely the feature of organisation which the Transport Commission thought it essential to institute in 1947, and the very thing which was attacked and which has now, to some extent, been weakened. However, I do not think this is the right opportunity for pursuing that question, still less for reopening the arguments about integration and the inadvisability of attempting to deal with railways and not with transport.
I was also surprised to see how lightly the spokesman for the Government treated the contribution which the road haulage organisation have been able to make in the last two or three years to the finances of the Transport Commission. When they failed to make profits, they were roundly abused. Now that they make them, they are told that those profits are of small account. The figure of some £6 million clear profit a year is a small figure in relation to the total gross receipts of the consolidated business of the Transport Commission, but it is not a small figure in relation to its net receipts and the amount required for meeting its capital and other central charges.
68 However, I do not want to dilate upon that; nor do I want to go at length into the other question of finance which arose, that the new basis of charging will make the financial prospects of the Commission quite satisfactory. I find it difficult to see any consistency in the argument that the railways will get back a great deal of long-distance traffic from the roads, in view of the inducement that is offered to the road haulier to come back into that very business. I still think that the transport problem will not be solved by large expenditures simultaneously undertaken upon both the railways and the roads, leaving the two methods of transport to compete with one another on the principle of "the devil take the hindmost. "In this particular matter, the hindmost, I fear, is likely to be the coastwise shipowners, with whom, from my past positions, I have very great sympathy. Therefore, it is necessary, in considering this very large capital expenditure making large but by no means disproportionate demands on public finance, to look rather more closely at the financial prospects of the Commission.
I still think that it is not enough to assume that fifteen or more years hence, when all the people at present responsible will, by effluxion of time, have ceased to be responsible, things will be found to be in a completely satisfactory position. I think one ought to look much more closely at the facts than that. That is why I ventured on a recent occasion to put some questions to the noble Lord in charge of this Bill. I apologise to him for not having been in my place when he dealt with what I had said; I had the pleasure of hearing the rest of his speech but, unfortunately, I missed that. The questions which I then put to him, and which he said it was not practicable to answer, were four. Let me say at once that I appreciate as much as anyone can all the difficulties of estimating, whether they are the estimates of a Department or the estimates of one of these vast national undertakings. In the case of the Departments, the accounting officer has to appear before a committee in another place and explain just why his estimates have gone wrong. I do not want to see my successor and my old colleagues in the Transport Commission put through that particular form of machinery. It is useless and vain to hope for absolute precision in estimates of this kind, but I 69 cannot but think that it is possible to come to approximations, allowing for variations one way or the other of perhaps a few millions on a business of this size.
The first question I asked was: What is going to be the financial position at the end of this current year? That, at any rate, the Commission itself must know. I find it difficult to think that it has not informed or warned Her Majesty's Government of what the position is likely to be, on the assumption that there is no alteration in fares and charges. From what has already been said and what is known, the deficiency accrued at the end of last year is £40 million and by now £50 million. A quarter of the present year has gone and the deficiency, week by week, must be considerable. I will not ask the noble Lord to say what is in the minds either of the Commission or of Her Majesty's Government about increasing fares and charges, but if they are not increased quickly and substantially, from what has already been said the deficiency at the end of this year will amount to something in the neighbourhood of £80 million. If there is an increase in charges or some big recovery of traffic, then of course that figure will be correspondingly reduced. But, with figures of that order in prospect, I thought it was not unreasonable to ask to what maximum figure the accumulated deficiency was likely to rise, because, though it is sensible, and indeed necessary, to take one year with another, I never thought that that could be stretched into meaning taking one decade, with another.
There must, therefore, I submit, as a test of policy, be some idea of the maximum figure to which the deficiency should be allowed to mount; and, still more important, by what year the financial equilibrium, which has been so unfortunately lost, is likely to be recovered. Those seem to me to be reasonable questions. Still more reasonable, because perhaps less precise, is the question about where the finances of the Commission are likely to stand, not in 1970 but in 1960. I put that question in that form because I am convinced that it is unrealistic and unwise to cast one's mind so far ahead as 1970, and also because I entirely agree with the noble Lord that it would be unreasonable and hardly possible to say just where the 70 Commission would be likely to stand at the end of each year, taking it year by year. That would not be easy and in any case ought not at this stage, I think, to be divulged.
Those were the questions which I felt it necessary to raise and which perhaps were more appropriate to this Bill than to the debate at that time. The reason, as I then said, why I think they are important is that upon the answers to them might depend the success of those aspects of Her Majesty's Government's policy with which I have expressed myself in full agreement—namely, the possibility of continuing to avoid subsidy and also the possibility of making an unstinted provision of new capital where it can be profitably employed. It is in relation to that wider question of Government policy that I have ventured to ask my questions. I have no desire to press the noble Lord to answer them if he finds them too difficult or too inconvenient. I can well imagine that there may be reasons for not attempting even approximations in too many directions at this particular moment.
As regards the Bill itself, I was grateful to the noble Lord, Lord Hawke, for the information which he gave. He stated most clearly that a great deal of the money to be raised will have to go in meeting the enhanced cost of ordinary renewals. That is a position in which, unfortunately every great business finds itself—there is nothing special to nationalised undertakings about that. One cannot make profits high enough or put charges high enough to meet these huge increases in cost out of current revenue. I also noted with great interest that the noble Lord said something with regard to the phasing of the capital expenditure, and indicated how much will be spent during the period 1955–59. Taking everything together, when we realise how much of the new money must go to meet these enhanced costs of normal depreciation and how much is required to finance (temporarily, I hope) the deficiency and other things of that kind, the amount which is left for new capital developments and improvements, in the strict sense, is modest enough. I think Her Majesty's Government are to be thanked by all those interested in transport for having agreed, after all these years of austerity, to make the necessary money available. I think the Commission is fortunate in finding its path cleared in this direction after some weary 71 years of waiting. I wish it every success. I suspect that it will not be very long before further borrowing powers will have to be authorised. Meanwhile, this is a substantial but by no means excessive allocation of the nation's capital resources to this vital public service.
§ 6.22 p.m.
§ LORD WOLVERTON
My Lords, I had put my name down to speak on the Motion moved by the noble Lord, Lord Lucas of Chilworth, on the future of road and rail transport, but as that was a wide Motion and I knew that this Bill dealing with the financial side was coming along, I removed my name because I wanted to say a few words on this Bill. While I naturally support the Bill because I feel that the railways and the Transport Commission as a whole have been starved of new capital since the war, I should like to say a few words on the latter part of the very interesting speech of the noble Lord, Lord Hurcomb, where he dealt with depreciation. Perhaps I have a bee in my bonnet about depreciation, but I was brought up in the hard school of banking where one has to try to see that sufficient appreciation is shown of these problems.
I know that everything that is bought to-day costs about three times as much as it would have cost before the war. I know, too, that it is difficult to allow sufficient depreciation to cover replacements of assets at to-day's prices—I think that is what accountants call historical assets and actual assets. At the same time, I ventured to criticise slightly the increased borrowing powers granted to the British Electricity Authority and to the Gas Council when my noble friend, Lord Hawke, introduced in your Lordships' House at the end of last summer Bills relating to those authorities. Those were fairly large amounts. Both these great authorities were making profits, although they were modest profits; but in my humble opinion those bodies were not putting sufficient to depreciation. Therefore they will have to charge a proportion of their new capital charges to their capital account. The noble Lord, Lord Hawke, has to-day said that a substantial amount will have to be charged to the capital account of the Commission. In the last published accounts, in 1953, the Transport Commission show a loss of £27 million, and in 1952, the year before, they lost £31 million, We are hoping 72 that by this modernisation programme they will be able to earn and save a good deal of money.
§ LORD HURCOMB
I do not want to interrupt the noble Lord, but did he say that those were figures of loss?
§ LORD WOLVERTON
Well, I thought so. The figures are contained on page 5 of the Report—"Net Revenue Account—Balance (deficit) at 31st December, 1953, £27,294,798."
§ LORD HURCOMB
I am very sorry, I misheard the noble Lord. I did not hear his figure of £27 million.
§ LORD WOLVERTON
If that is agreed, all right. To go on, I think we were told in the earlier debate that the Transport Commission would probably be able to finance about £400 million out of internal reserves and they may have to borrow anything from £600 million to £800 million for new works in the next fifteen years. If one takes the sum of £600 million and one is lucky enough to borrow that money over the next twenty-five years at 4 per cent., a 2 per cent. cumulative sinking fund would wipe off that money in twenty-five years. That would cost the Transport Commission about £24 million in interest and £14,400,000 for the sinking fund, making a total of £38,400,000. On top of that there is this question of depreciation. Like the noble Lord, Lord Hurcomb, I feel that in the next few years we shall have to face up to the position of the balance sheet as it is today. Unfortunately we do not know what it is going to be at the end of this year, but it may be necessary to raise fares slightly. That is an unpleasant thing to do, but until the modernisation scheme comes into operation—it is a long-term scheme—one must try and keep the Commission on an even keel to pay its way. That is what is worrying me. What is going to happen in the next eight or ten years? I know they can go on borrowing. We are being asked to give them permission to-day to borrow another £325 million. But I think one should not try to use too much of the capital for renewals.
73 In regard to the main scheme, we were told that £600 million would be for renewals and £600 million for new capital works. If they can provide only £400 million out of their internal reserves it is obvious that £200 million must come out of new money. That is what is worrying me. I hope that we shall move steadily on this programme and not go too fast. I hope that first we shall do the things which the noble Viscount, Lord Falmouth, and others have said are essential in the way of signalling and marshalling yards, and so on. If we do that, then we shall be able to speed up the trains and get a better service. I hope we shall not rush too much at electrification. I have tried to take out a few figures in regard to the cost of electrification of the main lines and the South Eastern Region of the Southern Railway and also the suburban lines. It is proposed to spend £185 million on that. If one takes those figures in the same way on a 4 per cent. borrowing basis, with a 2 per cent. sinking fund repayable over twenty-five years (which noble Lords may not consider unreasonable), the cost would be about £7,400,000 in interest and £4,400,000 in sinking fund—£11,800,000 in all. I hope that steady progress will be achieved, dealing with the most essential things first to increase the revenue of the Commission.
I cannot agree with the noble Lord, Lord Hurcomb, about centralisation and decentralisation. I feel that the setting up of these Area Boards was one of the most important things done by Her Majesty's Government. The Boards can be of great help to the Commission in seeing that this vast expenditure is wisely spent. Very able men have been picked, and if, as we hope, the Commission is swift in delegating authority to ensure wise spending, we shall in the years to come have a railway system as good as in the past. I am still worried about depreciation and should like to see more of the depreciation earned. With those remarks, I support this Bill.
§ 6.32 p.m.
My Lords, may I first reply to my noble friend Lord Wolverton? Anybody who has been connected with railways over the last ten or twenty years will know that his remarks about depreciation are only too true. I can only reply, in the vernacular, "You're telling me!" 74 But one cannot conjure depreciation allowances out of an industry which is not earning them. The problem is that of revenue. But the noble Lord is perfectly right to say that the speeding-up of marshalling yards and signalling is probably more important than the more spectacular part of the plan.
We are glad that the noble Lord, Lord Lucas of Chilworth (who apologised for having to leave), welcomed the Bill and the charges scheme. He raised the very important point of the technical manning of the plan. The Transport Commission would be the first people to admit that throughout the railways of the country they are short of technical executives, particularly on electrification. I very much doubt whether one can ameliorate that position by altering the system of control at the top and by having the part-time members of the board changed to fulltime members. After all, by the time the, matter comes to that level for decision the technical details have already been severely threshed out. In my own experience, the vast majority of questions that come to the top in a railway are questions to be decided by common sense rather than by technical knowledge. The noble Lord may have an important point in the fact that the unfortunate part-time directors are being worked too hard. My right honourable friend will certainly be interested to hear that.
The noble Lord, Lord Hurcomb, never disguises his point of view. He has been a centraliser for many years, and feels a good deal of scepticism towards this whole modernisation plan. He feels that possibly the same, or even better, results could be achieved without a particular modernisation scheme by merely carrying out a number of replacements and at the same time integrating the railways with roads to form a national transport monopoly. I admit that that might possibly do the trick; but the one thing we have determined to prevent is a national transport monopoly.
§ LORD HURCOMB
I do not in the least criticise the features of the technical plan—I think they are all admirable or necessary in principle and should have gone on simultaneously. I can only say that they are not an alternative to the other policy. Had you followed both you would then have had a really satisfactory result.
I apologise if I misunderstood the noble Lord. He certainly gave me the impression that he thought this was an alternative and that he rather believed in the monopoly line in preference to spending all this new capital. The noble Lord has asked me to put forward a certain number of figures. After looking at the existing information and surmises for the future, I came to the conclusion that it would be most unwise for me to attempt any such prognostications of the future. I might land myself in the position of the witness who starts by having not the faintest idea how fast the defendant was travelling but who ultimately is led to admit that he was going at exactly 42½ miles an hour. I think the noble Lord has arrived at a certain philsophy of his own. I believe that he has added together a lot of pessimistic deductions. He may be right, but he has not taken much into account on the possibly favourable side. Undoubtedly during this current year the Commission are making very strenuous efforts to reduce their costs. They are closing branch lines. They have had new assurances of co-operation from the trade unions on the setting up of a productivity council.
Finally, as we all know, they have submitted to the Transport Tribunal a railway merchandise charges scheme. I would have the noble Lord note here, as a corroboration of my case that we are moving into unknown territory, along paths which have never been trod, the fact that the charges scheme, as put before the Tribunal, does not, I believe, make any estimate of benefit to be derived from it. The proposal is considered too revolutionary to enable detailed estimates to be made of its precise effects; but, naturally, 76 the scheme must be administered with the flexibility provided to see that revenue is not down but, as we hope, up. I hope the noble Lord will be satisfied with that. I am not prepared to make estimates for 1955, and five years ahead, when the accounts for 1954 are not yet closed, and when several important subjects are still not settled, as the noble Lord knows.
§ On Question, Bill read 2a; Committee negatived.