HL Deb 26 May 1966 vol 274 cc1483-90

3.28 p.m.

Order of the Day for the Second Reading read.


My Lords, I beg to move that this Bill be now read a second time. This is a simple little Bill which deals in a straightforward fashion with the finances of the British Railways Board, the finances of the British Waterways Board and the finances of London Transport. I shall explain how the Bill affects each of these three Boards in turn, but before I do so I should like to fill in some of the policy background and explain why it is necessary for the Government to present the measure at this stage, with some inconvenience to your Lordships.

The powers which were given by Section 22 of the Transport Act 1962 to make grants to the Railways Board to meet their deficits on revenue account are now almost exhausted. In fact, it is at present forecast that the sum of £450 million which was provided under that Act for that purpose will be used up by July 1. It is thus essential to have new powers by the beginning of July so as to ensure that British Railways are able to carry on and fulfil their essential role in the national economy. I am sure that your Lordships would agree that it is unthinkable that one of the largest single employers of labour in the country should not have funds available to meet their obligations to their staff and to their customers.

The Bill is being put forward as a stop-gap measure to put the Railways Board in funds while satisfactory policies are worked out which will enable long-term legislation to be enacted which will replace the Transport Act 1962. The Government are working urgently to this end, but there is a long road ahead before all the necessary steps have been taken. As at present foreseen, the first step will be the publication of a White Paper on transport policy this summer. This will lay the foundation of a successful and flourishing transport system. Then there will be thorough consultations with the interests affected, which will no doubt take a considerable time as these matters always do. But the Government hope to be ready with a Bill which will give statutory effect to the policies to be outlined in the White Paper, which I have just referred to, in the 1967–68 Session.

Meanwhile it is necessary to carry on under the framework of the Transport Act 1962, and the present Bill is closely related to the provisions of that Act. I have already mentioned that Section 22 of the 1962 Act provided for up to £450 million to be issued to the Railways Board in the five years up to December 31, 1967, to meet their revenue deficits. Unfortunately, the record shows that the Railways Board incurred a deficit of £134 million in 1963, its first year of operation, £121 million in 1964, and £132 million in 1965. Thus, by the end of 1965, a total of £387 million had been spent, and the total to date is already £413 million. It is estimated that the whole sum of £450 million will have been spent in three and a half years, instead of lasting the five years contemplated by the 1962 Act.

The Government are confident that the Railways Board will do better than this in the long run. Nevertheless, if the railways are to go on providing all the services which the country needs, on the present policies there is bound to be a sizeable deficit for the next year or two; indeed, it is only prudent to allow in the legislation for a possible worsening in the Board's finances for reasons beyond their control. This means that a substantial allowance should be included for contingencies in estimating the Board's requirements for Government assistance up to the end of 1968, which is the period dealt with by the Bill. The Government have therefore decided that the approval of Parliament should be sought to extend present powers to enable the revenue deficits of British Railways to be met up to a total of £800 million; that is, up to £350 million more than at present provided for in the period ending December 31, 1968. This is, of course, a round figure. There is no question of precise estimation in dealing with the financial results of one of the largest businesses in the country, which is subject to many factors outside its control.

The new limit allows for a considerable safety margin. But the experience of the 1962 Act shows that it is necessary to do this. There is no risk that the provision of a large sum will induce the Board to relax their strenuous efforts to contain their deficit. The Board are fully seized of the need for economy and efficiency and are doing their best within the limits imposed by unrealistic terms of reference. Of course, the provision in the enabling powers to pay up to £800 million does not mean that this amount of money will in fact be spent. On the contrary, the Government hope that the Board will be able to do with much less. The long-term proposals which will be elaborated in the forthcoming White Paper will ease the Board's load, for example as regards the costs of social services which they run purely for the benefit of the community. It is quite unfair that losses on such services should be reflected in the Board's revenue account as part of their general deficit and that they should bear stigma for essential work done in national interest.

Perhaps I could say a brief word here about the substantial progress being made by the Board in modernising the railway system. There have been large achievements. I need only mention the completion of the first stage of the London-Midland electrification, the Glasgow Suburban in Scotland, the introduction of freight liner trains and the commencement of the Bournemouth electrification. Modernisation investment is in general paying off in saving cost and releasing manpower and, at the same time, attracting new traffic. More and more is needed. All these developments mean that the railways are going through a period of rapid change—and there is more to come. It is a testing time for both management and men, and the Government pay tribute to both in the way that they have faced the problems of the last few years.

I now turn to London Transport, where the problems are newer, but none the less difficult for all that. The London Board told the Government last year that they were finding it increasingly difficult to reconcile the statutory duty both to pay their way and to provide an adequate service, which had been laid on them by the Transport Act 1962. Moreover, the Board said that they had formed a view that the maximum revenue which could be obtained from fares increases would be insufficient to put their finances on a satisfactory basis. This led the Government to request the Board to defer a fares increase in 1965 until an examination could be made of the Board's operating conditions. It would clearly have been pointless to drive further passengers away by sizeable fares increases before the Government had been able to appraise the basic elements of the problem. The Government accepted the corollary that the Board should not be expected to bear the burden of the consequential short-term deterioration in their finances, and in fact made grants by way of compensation which totalled in all £3.85 million. This was the amount of revenue which the Board estimated they would lose by the end of the year because of the deferment of the fares increase in 1965.

The arrangements I have described were strictly temporary. But they were clearly a pointer to the need for some further continuing support in the medium term and the Bill lays down how this further support is to be given. But before I explain the detailed provisions of the Bill, I will briefly outline the difficulties which have led to the Board's deficit. The basic problem is that the growth of car ownership is changing the role which public transport has to play, with accompanying repercussions on the financial viability of the Board. In London, the loss of traffic to private cars over the last few years has been very serious. In the past, London Transport buses earned sufficient surplus to offset losses on the Tubes, but the fall in bus traffic of about one-third over the last ten years has resulted in a reversal of the situation. The trend away from bus traffic is common to all large towns and cities. But the intensity and scale of the peak hour commuter traffic in London, and the extent of traffic congestion, have made the problem more severe there. On top of this, there has been the utmost difficulty in recruiting and keeping adequate bus staffs. This is particularly serious for London Transport, which is such a highly intensive labour industry; indeed, staff costs amount to about 76 per cent. of total costs. As the bus service worsens and becomes more unpredictable, so the relative attractiveness of the private car increases.

The Government do not consider that financial measures alone can solve the London transport problem. Fares increases help to the extent that they bring in net revenue, but they tend to divert more and more traffic to the private car. In this sitution, it has proved impossible to reach the financial target which was settled in 1963 for the Board, under which they agreed to aim at earning an average balance of revenue of £4 million a year over the five-year period 1963 to 1967, after provisions for depreciation at historic cost and after meeting interest charges. This was the amount of surplus which it was considered was the minimum necessary to place the London Board on a financially sound footing and to maintain their existing capital intact. In fact, the London Board earned a surplus of only £2.1 million in the first year (1963) and less in the second, only £1.3 million. Their third year showed an actual deficit of £ 1 million even after receipt of a grant of £3.85 million from the Exchequer as compensation for deferring the fares increases at the Government's request.

It is clear that we must look to operating policies for improvement, rather than to financial devices. Various expedients are being considered—for example, fiat-rate systems which would enable working expenses to be significantly reduced. The Board are already reviewing their commercial policies, and the Government are discussing with them what further studies could be made which could make a significant contribution to the improvement of their finances. Your Lordships will of course be aware of the considerable improvements which have already been achieved through traffic management measures and parking restrictions. There is also the possibility of discrimination in favour of public transport vehicles in the use of available road space. That is only a possibility, and, of course, must be studied.

The possible field of action is clearly very wide, and the right path through this is not very clear. The Transport Coordinating Council for London has therefore been set up to provide a forum in which all the bodies concerned—the Ministry, the Greater London Council, transport operators and Regional Council—can consider together problems which can be solved only by co-operative action. All concerned with London transport are being assisted by the results which are being obtained from the London Transportation Survey, which will make it possible for the first time to plan transport development in London with the backing of comprehensive data so that decisions made will take the fullest account of land use and the best use of physical and financial resources. In the meantime, financial assistance to the Board is urgently necessary. The present position is that they are expected to incur a deficit of about £5½, million in 1966, after allowing for revenue from fares increases which came into force last January. Further deficits of much the same order may arise in 1967 and 1968.

The Bill therefore gives powers to make grants to the London Board of up to £16 million in respect of their deficits on revenue account up to the end of 1968. This is achieved by subsection (3) of Clause 1, which also applies to London Transport the range of deficit grant provisions which have applied to British Railways since 1962. One effect is that the financial duty of the London Board to break even, taking one year with another, will be mitigated in the same way as the Railways Board's financial duty was mitigated by the 1962 Act. In future it will be recognised that it is unrealistic for the London Board to aim at paying their way without qualification. Instead, they will be required to aim at breaking even at the earliest possible date.

Finally, there are the provisions of the Bill dealing with British Waterways finances. The Waterways Board have been reviewing their waterways with particular reference to the future uses of those which are no longer needed for transport purposes. The Board have published their findings in a Report entitled The Facts about the Waterways, which draws the main conclusion that only a relatively small part of their undertaking can be run on a commercial basis, and then only if a substantial capital reconstruction is made. They are suggesting that their capital debt to the Exchequer of over £19 million should be substantially written down to reflect a more realistic value for the assets which they consider they can still employ profitably, and that their other assets, including all the waterways which may be required for amenity purposes but which no longer have any significant transport use in modern conditions of an intensive road and rail network, should have no capital value attributed to them at all. The Board's Report is being urgently considered by the Government. It is, of course, clear that some substantial capital reconstruction must be undertaken, but the exact shape of this still needs definition. In the meantime, assistance must continue to be provided on revenue account.

I must here pay tribute to the Board for their achievement in effecting significant economies since they were set up. The Transport Act 1962 envisaged that the revenue deficits of the Board might average up to £2 million a year over a five-year period. In fact, the Board's annual deficits have been considerably less, and great credit is due to them on this account. On average their deficit each year has been about £1½million, and of this almost a half has been interest on the unrealistic capital debt of £19 million which they inherited under the 1962 Act. Owing to the Board's success in keeping down their deficit, it is not necessary to legislate in the Bill for further cash to be provided to meet deficits. All the Bill does is to extend the period in respect of which revenue deficit grants may be made up to the end of 1968, in line with the extended period provided for in the Bill for both British Railways and London Transport. Thus, again the legislation is in the nature of a stop-gap, interim measure, to be replaced in due course by the major Bill which will be required to give effect to the Government's decisions about capital reconstruction and other matters dealt with in the Waterways Board's Report on the state of their undertaking.

Clause 2 of the Bill is also concerned with British Waterways finances, but in a more technical and limited way. The background is that Section 64 of the Transport Act 1962 gave the British Waterways Board certain protection against legal proceedings for the enforcement of obligations to restore unnavigable waterways to a navigable state. This protection was to cover the first five years of the Board's existence; that is, the same period as that in which they could receive deficit grant from the Minister. The protection was necessary because the Board inherited from their predecessors, the British Transport Commission, a liability to keep most of their canals in a navigable condition. A number of canals for which the Commission were responsible were not in fact, however, in such a condition when the Waterways Board took them over on January 1, 1963. This meant that the Board were at risk of having legal proceedings brought against them. Section 64 of the Transport Act 1962 accordingly safeguarded the Board's position in this respect for an interim five-year period. Clause 2 of the Bill simply extends this interim period for a further year, in line with the extension of the deficit financing period which is effected by Clause 1.

The essence of the Bill is that it effects the minimum changes in existing legislation which are consistent with the need to ensure that the necessary finance will be available for the three Boards in question in the period up to the end of 1968 when they will inevitably be in deficit. This has meant that the Government have had to accept for the time being a continuation of the framework provided by the Transport Act 1962. But the firm intention is to replace this with other legislation which will give the nationalised transport undertakings the fair wind and the square deal which they have so sadly lacked in the past. I beg to move.

Moved, That the Bill be now read 2a.—(Lord Champion.)