PROPOSALS FOR THE RAILWAYS

HL Deb 27 November 1956 vol 200 cc559-68

3.2 p.m.

LORD LUCAS OF CHILWORTH rose to call attention to The British Transport Commission Proposals for the Railways (Cmd. 9880); and to move for Papers. The noble Lord said: My Lords, before I address myself to the subject matter of the Motion which stands in my name and formally move it, I should like to explain why I have placed it on the Order Paper for discussion in your Lordships' House. The proposals for the future stability of the railways of this country, set out in the White Paper to which my Motion refers, will, of course, eventually have to be the subject of legislation, and I have a suspicion—it may be something more than a suspicion—that as the White Paper contains almost wholly financial provisions your Lordships' House will be somewhat circumscribed in what it is able to do when the legislation comes before this House. In other words, I believe that it would be extremely difficult for your Lordships to pass any worthwhile Amendment to any legislation that may come forward. I thought, therefore, that as your Lordships' House contains many who are so knowledgeable upon this subject we could not deny Her Majesty's Government the benefit of an expression of views from your Lordships, so long as it was just faintly possible that those views would be listened to with material effect. That is why we were anxious that this Motion should be debated.

The White Paper to which the Motion refers sets out the history of events leading up to the grand inquest, if I may so term it, of both Her Majesty's Government and the British Transport Commission into what were their proposals to avoid the sort of situation that has unfortunately, arisen so often during this last two or three years, when the finances of the British Transport Commission have been placed in such a precarious position. The introduction sets out that problem very clearly, and I need not repeat it. The Commission's Memorandum to Her Majesty's Government, also clearly set out in this White Paper after reviewing the events to which I have just referred, sets out the Commission's present economic position and also the economic position as the Commission see it in the light of the development plan and the modernisation plan of which your Lordships have full knowledge and which has been debated in your Lordships' House. The Commission have made to Her Majesty's Government certain financial proposals which in the Commission's opinion would, with time bring them out of the desperate position of yearly losses safely across the bar of balance and, eventually, into the haven of surplus. Those proposals and the assumptions on which they were based, have received the very careful consideration of Her Majesty's Government.

Unfortunately, the Memorandum of the Transport Commission foresees a continuance of their very heavy deficits—or what I, as an industrialist, prefer to call "losses"—right up to 1961 or 1962: and foresees that it will reach what I have called "the haven of surplus" of approximately £50 million a year, instead of a recurring yearly deficit of £40 million, somewhere in the region of 1970. Perhaps it would help your Lordships if I were briefly to outline the simple arithmetic involved. The deficit of the British Transport Commission at the end of 1955 was £70 million. It is estimated that the deficit at the end of 1956 will be at least another £50 million, bringing the total deficit at the end of the current year to £120 million. The Commission estimate that for the next five years there will be a recurring deficit of £40 million a year which will bring the total deficit at 1961 to about £320 million. In any language that is a sizeable figure. I would impress upon your Lordships that, if the anticipations are realised, that is what the deficit will be. It may be worse—perhaps some pessimists will say it can hardly be better.

Now what the Government propose to do is to take the deficit up to 1955—£70 million—and have it placed in the accounts of the British Transport Commission to a special account, and written down or, I suppose, written off, at the direction of the Minister. So perhaps we may say that that is going to be written off. For the current year, in which the deficit is estimated to be £50 million and for the next five years in which the deficit is estimated to be £40 million a year—a total of £250 million—the Government propose loans to the Commission out of the Consolidated Fund to a limit of £250 million, also to grant loans that will cover the interest on that amount. So the Government propose to grant loans out of the Consolidated Fund to a limit of £250 million. The interest will be covered also by advances, but that will be for only five years. That will mean in rough arithmetic—one cannot say precisely—that in 1951–62 there will be a deficit standing to be repaid of somewhere in the region, taking principal and interest, of £330 million, and repayments must start at 1963.

Now we cone to the Government's proposals regarding the interest on the borrowings on the development plan—borrowings which will amount, at least on the estimate of some two years ago to £800 million; and it may well be more. These are monies, part of the total expenditure of £1,200 million, which the Commission have requested powers to borrow. Interest will have to be paid out of the Commission's, if I may so put it, profit and loss account. It will be capitalised for the first three years—quite a respectable procedure, of course, but it will, naturally, add to the deficit. That is the simple arithmetic of what the British Transport Commission have proposed and what the Government, as set out in this White Paper, have agreed to do.

I think that a transaction of that description deserves, even on its face, very careful consideration, not only by Parliament but by the country, because the British Transport Commission, in their Memorandum to the Minister, taking into account all their calculations as to deficit and the fructification of all the benefits of their modernisation scheme. estimate that they will be in balance on their profit and loss account—or Revenue and Charges Account, whichever they like to call it—by 1961 or 1952 and that they will be in surplus to the extent of approximately £50 million per annum (with the exception of the interest on the deficit) by 1970.

They base their calculations on some very serious assumptions, and they set this out most clearly in paragraph 3 of their Memorandum, which appears, as your Lordships, if you are armed with the White Paper, will see, on page 11. They state that the major assumptions are:

1. "(a) That the Commission wilt not be prevented from adjusting their charges without delay at any time to cover increases in costs, should they consider it expedient to do so.
2. (b) That the Commission will be free to operate on flexible systems of charging and to determine on a reasonable basis the scale and scope of the services to be provided."

There are three other major assumptions relating to the financial part of the Memorandum which the Commission say are fundamentally essential. Indeed, they place on record, in I think four or five places in this Memorandum, the prime necessity for the freedom which they set out in the two assumptions which I have just read. May I now trouble your Lordships to look at paragraph 8 in which the Commission say that: In the event"— they are talking about where they were prevented from increasing their charges— it was decided … that it was expedient to limit the amount and nature of the proposed increases in transport charges far six months and to use this period for making a review of the whole position. Allowing for the increases in charges which were authorised, the Commission were left with a gap in their budget of the order of £35 million a year. Later, we find this, in paragraph 9: The accumulated deficit at the end of 1955 was already £70 million. This was due mainly to time lags in putting up fares and charges, largely on traffics such as the movement of London passengers, rather than to any inherent weakness in the competitive fields.

If your Lordships will pass on to paragraph 23, you will see that the Commission there say that: Relaxation of statutory and other obligations, particularly the introduction of greater freedom in fixing fares and charging policy. is again fundamental to all the assumptions which they make. In paragraph 74, they return to this matter and state: It follows, therefore, that the extent of the commercial freedom for which the Commission had asked has been appreciably restricted by the Tribunals Interim Decision. They say, in effect, that the right to exercise a far wider measure of commercial freedom is an indispensable element in the realisation of their estimates.

In paragraph 87, the Commission say: Looking beyond the immediate situation, it is a basic assumption of this paper that the Commission should have reasonable charging freedom. If their costs should rise, they must be free to adjust their charges. That is the tenor of what the Commission are saying right the way through this Paper. They underline it by stating that interference by the Government has been one of the major factors contributing to the deficits which the Commission have incurred. If your Lordships will turn to paragraph 7 of the Memorandum, you will see that they say there: The financial shortfall of the year 1955 was attributable to special causes rather than to any inherent weakness in the economics of the Commission's affairs … there was a lapse of several months in putting up charges which cost £10 million, … In paragraph 9, they say: The accumulated deficit at the end of 1955 was already £70 million. This was due mainly to time lags in putting up fares and charges, largely on traffics such as the movement of London passengers, rather than to any inherent weakness in the competitive fields.

In the survey of their financial prospects, the Commission put so much emphasis on their desire to obtain this freedom in future that, of the whole surplus which they anticipate will be theirs, they put £20 million a year on this freedom—this is the very word they use in the Memorandum. Upon this vital aspect, which I think is fundamental to everything the Commission do, the Government maintain, right the way through their contribution to this Paper, what I hope I shall not be exaggerating in calling a deathly silence. They pay lip service to the assumptions of the Commission. In paragraph 3 of their introduction, for instance, the Government say that: The assumptions on which the Commission's estimates are based and which are carefully explained in the statement are important for a proper appreciation of the position and a full understanding of the forecasts. In paragraph 12, they say: The Government are satisfied that this kind of structure is the right one for a concern which must be competitive in the services that it gives to the nation and in the charges that it makes for them. It is a structure on which, as the Commission's own plan shows, their profitable future can be assured once the legacy of the past has been overcome. The only note of criticism of all the assumptions which the Commission make is in paragraph 19, where these words appear: The Government accept the Commission's plans as practical and necessary … although they must not be taken as subscribing to all the views expressed by the Commission … My Lords, I think that not only Parliament but the whole country should know what the Government intend to do, and I would ask the noble Earl, Lord Selkirk: do the Government intend to give the British Transport Commission the freedom which they ask for, and which they state, without any qualification, is absolutely fundamental to their hope for the future?

Let me put it in plain language. Do the Government intend to retain the structure of the Transport Tribunal, which sits above the Commission like the Sword of Damocles hanging over their heads every time the Commission want to operate as a commercial concern? If the Government are going to give the Commission this freedom, the Transport Tribunal is redundant. If the Transport Tribunal is not made redundant, the Commission will not have this freedom. It is all very well for the Government to say that the railways are free now to compete in a competitive world: they are not, because no other nationalised industry, be it electricity, gas, coal or any other, and certainly no commercial concern, has to have its charges vetoed and vetted by an overall Tribunal. It appears to me that upon the Government's decision in this matter rests the entire success or failure of the scheme, at least so far as the Commission are concerned. I have some comments to make on some of the Commission's assumptions, but I am now taking the Government's position. Surely the Government's acceptance of this plan means that they accept the assumption that the Commission will be allowed to operate like any other commercial concern in a competitive field.

I would ask the noble Earl further—because this is vital and they have not said anything about it in the White Paper—do the Government propose to abandon their policy of selling off the Commission's most valuable and profit-earning assets? On the Statute Book to-day is an Act which authorises the sale of the parcels services and the meat traffic of British Road Services, an ancillary of the Commission. Under Section 18 of the 1953 Act, the Minister has power to compel the Commission to dispose of all majority shareholdings in all the passenger services in the country, in which they hold a predominant amount, the holding of which would be of the greatest value in directing the policy of the Commission when they have to close down, as they propose to do through time, miles and miles of redundant services. What is the Government's policy in regard to this matter? Is it, to put it at its lowest, to subsidise one section of the Commission's activities—the railways—out of the public pocket and, on the other hand, to sell the Commission's profit-earning assets, which belong to the same public? What we should know—and I hope that the noble Earl will be able to tell us—is, first of all, do the Government accept the assumptions upon which this plan is based? Are they going to jettison their existing policy of selling off the most profitable and profit-earning assets of the British Transport Commission—what remains of British Road Services?

Having dealt with that, I should now like to turn to the assumptions upon which the Commission base their (in my view) unduly optimistic prospects of the future. I will not bore your Lordships by going through them all, but will take one or two examples. This is a desperately serious position. The British Transport Commission estimate that, when their modernisation plans are complete, they will be able to increase their revenue on their passenger railway traffic by £33 million per annum, and on their freight by £55 million per annum. That is said in the face of fact and history, which show that many traffics on the railways, through modern conditions have got to overtop dead centre (that is the engineering phrase), or, in the economist's phrase, to the stage of diminishing returns. I think that this estimate is an impossibility. I would say definitely that the railways can never get back that traffic which they have lost to the roads through the development of the modern technique of fabrication in industry in this country. I would say that the freight revenues of the railway for journeys within a fourteen-mile limit of the point of consignment are diminishing almost to vanishing point. I think that fact is not realised.

The other example is that of productivity, on which there is a most interesting paragraph in this White Paper. In my view, this is the crux of the whole matter. The British Transport Commission (I hope the noble Earl, Lord Selkirk, will correct me if I am wrong; I can only use my intelligence from whet I read) see a net increase in revenue from their increased productivity—that is, from better management, all time studies and increased output per man-hour—only of somewhere in the region of £5 million a year. That is if everything goes right. But it is not a realistic figure. For instance, it will be impossible to keep wage and salary rates in the railway service at their present level. I do not want to enter into a dissertation upon wages and inflation, but any noble Lord in your Lordships' House who is knowledgeable upon this subject will admit that among the 800,000 employees in British Railways to-day are some of the lowest paid workers in this country. If the Commission are going to get the best out of spending £1,200 million, it does not so much rest upon the machines bought as upon the men who have to work them.

What incentives are to be given to these men to make this a possibility? I do not want to repeat what I said when we had the debate on the Motion of the noble Lord, Lord Forbes, but one of the greatest things lacking in the British Railway Service is a dynamic commercial instinct. I think the Economist said that what it wants is a "fighting commercial economy." One thing that industry in this country to-day is one of the things that fetches the highest price—that is, selling brains. If the British Railways want selling brains to sell the railway service of this country, they will have to get into salary brackets the like of which is at the present time outside their ken. That applies from the top to the bottom.

In this concern we are talking about this afternoon, with £700 million a year turnover, and employing 800,000 people, the top executive, the brains and inspiration of the whole organisation, is paid a miserable £7,000 a year. Work right the way through, and you will see that you must reorientate your ideas if you are to get brains, particularly when those brains must be attracted out of the best positions in industry. Does anybody think that our great industrial concerns, such as I.C.I. and Unilever, could get the dynamic forces they have in their organisations at the "chicken feed" salaries paid by British Railways? If you pay third-class salaries, you are bound to get third-class brains. Nobody in industry has ever found a way of getting first-class brains at third-class salaries or of running gigantic organisations like this on charity. So that some of these figures come out of cloud-cuckoo land. When it comes to the dynamic force that is going to drive right through British industry, the prizes—what was once called by an ornament to the Benches opposite the "glittering prizes"—are going to be gained by brains.

There is one more point upon which I should like to comment. It is anticipated that by 1961–62 a deficit of £40 million a year will be turned into a balance, with a surplus of £50 million a year a few years afterwards. But that cannot possibly come about until the bulk of the £1,200 million has been spent. Writing plans on paper does not produce results; you have to spend money. Appendix A of this White Paper, on page 32, says: Orders have been placed for 174 main line diesel locomotives at a cost of £11.4 million. Delivery will commence towards the end of 1957. Then at the end of the same paragraph it goes on to say: Until these trials have been completed, the Commission intend to restrict further orders to comparatively small numbers. By 1961, however it is expected that annual orders will reach a level of about 200 locomotives… But in 1961 we are to be in balance. So we must have the benefits of all these diesel engines, if we are to overtake a loss of £14 million a year.

The only other example I will give your Lordships is one on page 36, where the White Paper is dealing with the automatic brake on freight trains, the most important thing in speeding up the railways. It says: the programme for fitting continuous brakes to all freight stock has been designed initially to cover a period of ten years… Ten years, my Lords, and we have got to be in balance in five! Therefore, I come to this conclusion: that the Government must have what they have never had yet—a transport policy that will take care not only of the immediate position, but also of the future. That transport policy has to take care of the time when we arc faced with the problem of what we are going to do with a £330,000 deficit without any chance of it ever being paid off. That is what I foresee. I wish, on what I have read, that I could see something different.

I cannot put forward a proposal, because I do not know the answers which the Government will give to some of the questions I have asked. But there is one thing which the noble Earl, Lord Selkirk, may be able to tell me, although I have not much hope that he is going to answer many of my questions. If it is the Government's proposal to write off £70 million—that is, the accumulated deficit up to 1955—why do they not write off the accumulated deficit for 1956, which is £120 million, because the extra £50 million deficit has been caused by precisely the same thing—interference by the Government in the operation of transport as a commercial concern—what I think one newspaper called, "for the purpose of currying political favour"? If we could make a clean sweep of the past and write off £120 million (because it has gone; we can put it in accounts, but that does not make it come to life again), then perhaps we could see what is going to happen in the future, if the Government are going to answer favourably some of the questions I have asked. I apologise for addressing your Lordships at such length, but I think this is the most important problem that this country has had to face. It determines the future of a great national necessity, and I beg the Government to think out a sensible and constructive transport policy. I beg to move for Papers.