TRANSPORT HOLDING COMPANY BILL

HL Deb 22 February 1968 vol 289 cc567-82

3.30 p.m.

LORD HILTON OF UPTON

My Lords, I beg to move that this Bill be now read a second time. It is the intention that I should make the opening speech and that my noble friend Lord Shepherd should wind up and reply to points made during the debate. The Transport Holding Company were set up by the Transport Act of 1962 with defined objects including the management of securities in various transport undertakings, both in the passenger and goods fields, which were vested in them by virtue of the Act. In common with the nationalised transport Boards, the Holding Company were given powers to borrow from the Minister, but a statutory limit was set on their borrowing powers. The Act provided that the amount owed by the Company should not be greater than £30 million. Since then the Holding Company have used these powers in pursuit of their business interests. The House will remember that the Company were given a duty to behave as if they were a commercial enterprise, and various acquisitions of securities have been negotiated, notably, perhaps, the acquisition of a 75 per cent. interest in the Tayforth Group of road haulage companies in 1965.

As a result, the limit of these borrowing powers has been approached. Already, £20 million has been lent to the Company and the balance will be needed for normal investment purposes this year. I should remind the House, however, that the Company have carried out their duty to behave as a commercial enterprise to such good effect that they have consistently made profits, and have paid surpluses into the Exchequer annually over and above the interest on their capital.

In the course of the last year the Holding Company have planned a substantial extension of their interests in the field of road passenger transport. A very large independent operator in Yorkshire, the West Riding Automobile Company Limited, was acquired last September, and in November the T.H.C. reached agreement with the British Electric Traction Company Limited for the purchase of the B.E.T.'s shares in bus companies. The price agreed between the two in respect of the ordinary shares was about £35 million, and part of the agreement was an undertaking by the T.H.C. to make similar offers for the minority shareholdings in these companies. It is largely in order to finance the completion of this deal that the increased borrowing powers sought in this Bill are needed.

It might assist the House if I were to set out the background to the agreement which has been reached with the British Electric Traction Company Limited. To do this it is necessary to go back to prewar days when, as a direct result of the Railway Road Transport Acts of 1928, the four main-line railway companies acquired substantial shareholdings in most of the large bus companies operating stage and express services in Great Britain. Then, after the war, came the Transport Act of 1947 which established the British Transport Commission. The Commission took over not only the railway companies but also the substantial investments which the railways had in bus companies which by then had formed themselves into three major groups; in England and Wales the Tilling and British Electric Traction Groups and, North of the Border, the Scottish Bus Group.

The British Transport Commission during the first two years of their existence negotiated the purchase of the shares they did not already own in both the Tilling and the Scottish Bus Groups, making the companies wholly-owned subsidiaries of the Commission. Discussions were also held about the possibility of buying the remaining shares in the B.E.T. Group, but at the time these were not brought to a successful conclusion. But the British Transport Commission did hold a substantial number of shares in bus companies in the British Electric Traction Group. Indeed, in the majority of cases their shareholding equalled that of the British Electric Traction Company. These shareholdings passed to the Transport Holding Company when they were set up under the 1962 Act.

The Transport Holding Company therefore had considerable shareholdings in each of the individual companies in the British Electric Traction Group, in some cases as much as 50 per cent. But although the Holding Company invariably nominated directors to the Boards of these companies, effective control of company policy remained with the British Electric Traction nominees. This remains the situation up to the present time. However, your Lordships are aware of the far-reaching changes in the pattern of public transport which the Minister of Transport has proposed. The main points were set out in the White Paper Public Transport and Traffic which was published last December. While details of these changes were being worked out, the Board of the Transport Holding Company came to the view that there would be commercial advantages in acquiring the remaining share in the British Electric Traction Group of companies. They felt that the already large public stake in the bus industry, something over £100 million, could best be safeguarded in the changed circumstances after the reorganisation if they had sole effective control of the bus interests of the Group and were thus able to make the savings from rationalisation which would not otherwise be possible.

The Board of the T.H.C. therefore asked the Minister of Transport whether she would agree to ask Parliament for the increased borrowing powers which they would need to undertake for an acquisition of this size. The Minister authorised the T.H.C. to enter into negotiations with the British Electric Traction Board. In doing so she had in mind both the desirability of completing the process of bringing the main network of bus services into public ownership and also the operational savings which the Transport Holding Company believed to be possible.

I think it is important that the House should be clear on just how these savings will arise. The Transport Holding Company control some 14,000 buses, the British Electric Traction Group another 11,000 buses. It is nowhere contended that it is more economical to control 25,000 rather than 14,000 or 11,000 buses in one operational unit. Indeed, many noble Lords will be aware that it is the opinion of some experts in the field that the optimum size of any bus undertaking is probably not more than 800 to 1,000 vehicles and in some areas perhaps even less. It is alleged that advantages of scale diminish rapidly above this figure. But there is an important difference between the number of buses controlled by a company and the size of the operating units which it chooses to run. Both the Transport Holding Company and the British Electric Traction Group operate through locally based subsidiary bus companies, and it is not intended that this practice should generally be changed. But there are savings to be made where the routes of some companies meet, or even overlap, particularly where it is practicable and operationally sensible to transfer buses and routes from one company to another. The Transport Holding Company, when they control all the main bus companies in England and Wales, will be able to make these adjustments so that anomalies which occur on the borders between bus undertakings' operating areas can be minimised. They will also be able to make other organisational improvements which they consider to be possible as a result of almost doubling the size of the fleet they own.

When the deal is completed over 90 per cent. of the British bus industry, at least in so far as it is concerned with the provision of ordinary stage services, will be in public hands. But it would be wrong to regard this as a major issue of principle. For many years now by far the greater part of the network of bus services in this country has been in public ownership of one sort or another—either municipally owned, or owned by the Transport Holding Company or by the London Transport Board. And in recent years the viable provision of stage bus services has become a more and more difficult proposition. Over the years costs have steadily increased, not least because of increases in wages in what is a highly labour intensive industry, and coupled with this there has been the rapid growth in car ownership and car use. So as costs have mounted year by year the number of potential bus passengers has fallen. It has therefore become increasingly difficult to maintain services and to make profits. Indeed the recent White Paper Public Transport and Traffic said quite clearly that our major bus network could no longer be regarded as a suitable field for private enterprise activity, where the operator's first responsibility is to his shareholders.

Of course, we have not yet reached a position where it is impossible to run bus services which pay. Far from it; most municipal undertakings break even, taking one year with another, and the Transport Holding Company have also aimed successfully at making a small return on capital employed, as have the bus companies in the British Electric Traction Group. But the bus industry is no longer an area in which large profits can be made. I hope, too, that your Lordships will not claim that the Government, in agreeing to this extension of public ownership, will be eliminating competition from the bus industry. There has been no meaningful competition in the bus industry since 1930. In the main, companies have operating rights over particular routes. These rights are given to them by the grant of road service licences by the Traffic Commissioners, and other operators are then not permitted to run buses along those routes in direct competition. But the various routes and services over which companies have virtual monopoly rights were settled many years ago, and in many areas no longer correspond to the most sensible or rational approach to transport problems.

The Traffic Commissioners also control bus fares. This simple fact seems to have escaped some speakers on this subject in another place, where it was suggested that there was an element of trickery, bordering on sharp practice, in that the price to be paid for the British Electric Traction shares was agreed before the Government's plans for various forms of future financial assistance for the bus industry, as set out in the Transport Bill, were published. I am sure that your Lordships are well aware that the object of this Government help is to keep fares down and so help to make public transport more attractive, not to put profits up. So it is unlikely that the bus interests of the British Electric Traction Group would have become more profitable.

In any event, the agreed price of £35 million was a negotiated figure, expressed as £34 million for net assets and £1 million as compensation in respect of special factors arising out of the separation of the bus interests from the remainder of the British Electric Traction undertaking. In the Holding Company's view, this figure represented the underlying value of the B.E.T. interest in the assets taken over. An assessment of current values could not, in the circumstances, have been done by individually valuing the assets concerned. The method adopted was to uplift the book values of the fixed assets in the balance sheets of the various companies concerned in order to reflect the differences between historic cost and current values. Nothing has been included for goodwill. A purchase on assets value was regarded by the Holding Company as being commercially sound, because they considered that, provided the control of fares continued to be exercised in a reasonable way, profits sufficient to remunerate the capital outlay could be earned.

Your Lordships will have noticed that the Holding Company announced last week the prices to be offered to outside shareholders in the bus companies concerned as soon as this Bill is enacted. The amount payable, assuming that all shareholders accept, will be of the order of £10 million, with another £1 million in respect of preference shareholdings, so that in sum total the take-over of the bus interests in the B.E.T. Group will cost the Holding Company about £46 million.

When added to the £30 million borrowings which, as I have explained, will be required to be taken up in full by the Holding Company before the end of 1968, we find the total borrowing comes to £76 million. Why then does this Bill seek to extend the borrowing powers of the T.H.C. to £100 million? The reason is that the Government do not want to put the Holding Company in a financial straitjacket. We consider it prudent to provide in this legislation a sufficient margin to cover all possible borrowing commitments up to the end of 1969, by which date we expect the Holding Company to have been dissolved, as is provided for in the Transport Bill now before another place, consequential upon the formation of the National Freight Corporation, the National Bus Company and the Scottish Transport Group. We have accordingly provided powers to enable the Holding Company to borrow a further £24 million. It does not follow that this money will be used, but it is right that it should be there to enable the Holding Company to take any commercially desirable opportunities for further expansion of public ownership in the transport field over the next two years and also to provide a margin for unforeseen contingencies.

I now turn to the other purpose of the Bill, which is to remove any doubt about the powers of acquisition of securities given to the Holding Company under the 1962 Act. This is thought to be necessary because, although the Transport Holding Company have been making purchases of shares ever since they were established under the 1962 Act—and the Board of the Company have been in no doubt about their power to do so—it has been suggested that there is an ambiguity in the wording of subsection (6) of Section 29 of the 1962 Act. This gives the Company power to subscribe for, exchange and acquire the securities of companies. But the power is limited, in that it may do these things only with the object of holding and managing the securities vested in the Company. The Minister has been advised that there is some element of doubt about the precise construction to be placed on this provision. It is right that any such doubt should be removed.

It is quite clear that there was no doubt in the minds of either the Government or the Opposition of the day when the 1962 Act was passed. Neither this Government, nor the previous Conservative Administration, have ever seen fit to question the Holding Company's interpretation of their powers—and these powers have been exercised under both Governments. But because of the size of the present transactions, and because it is always right that the slightest doubt about the powers of a nationalised board to acquire privately-owned assets should be resolved, the Government have decided to clarify the position. And if it is right to remove the doubt now, it is equally right that we should make it clear that previous transactions of this nature have also been perfectly valid.

Your Lordships may wonder why this Bill has been brought forward ahead of the Transport Bill itself. It is important that the acquisition of the British Electric Traction bus interests should be completed as soon as possible so as to remove the uncertainty which exists at present and so that management can get down to the detailed job of improving the organisation and the services. The acquisition cannot take place until statutory authority for the necessary extra borrowing by the Transport Holding Company has been obtained. If the appropriate provisions had been included in the Transport Bill they would not become law before the late summer at the earliest, and the prolonged period of uncertainty would be damaging to the future prospects of the bus companies concerned. It would also have left the private shareholders in these companies in a prolonged state of suspense. I hope, therefore, that your Lordships will agree that this Bill should pass quickly through this House, so that the freely negotiated commercial contracts which have been entered into subject to its passage can be completed. I beg to move.

Moved, That the Bill be now read 2^a.—(Lord Hilton of Upton.)

3.51 p.m.

LORD NUGENT OF GUILDFORD

My Lords, may I thank the noble Lord, Lord Hilton of Upton, for his lucid and interesting account of this Bill, and congratulate him on making it sound both simple and innocuous. Indeed, if anything could make this Bill respectable it would be his own agreeable personality, but I am afraid that in fact nothing could make it respectable. It really is a wretched partisan little measure, and noble Lords opposite well know this. The Government are asking us to agree to provide an extra £70 million which will go to the Transport Holding Company, the primary purpose of which is to buy out the holdings of the privately-owned B.E.T. at £35 million and to pay off the minority shareholders at £11 million and I thank the noble Lord, Lord Hilton, for giving us that figure. In other words, it is to provide £46 million in order to buy out the privately-owned and privately-controlled section of the bus industry, consisting of some 25 privately-operated companies with 11,000 buses.

As the noble Lord has told us, the Government's objective is to form a national bus company, and this—let us make no bones about it, whatever anybody may call it—is to be a new nationalised industry and is to meet the Minister of Transport's ruling that "public transport is not a suitable field for private profit-making". Well, that is her opinion. I am bound to say that it is not mine. The noble Lord has explained the history and has given us some of the Government's reasoning, and, in particular, has explained how he believes the formation of this national bus company will make for rationalisation of operation and economies in practice. He has not dealt with the question of how the £52 million will be spent, and what effect it will have on national resources, to which I want to refer. Despite the very pleasant manner in which the noble Lord advanced his arguments, they really do not hold water for one minute when they are critically examined, as I intend to examine them.

Before I turn to a critical examination of the arguments, I should like to remind your Lordships of the circumstances in which the Second Reading of the Bill was taken in another place. It will, I think, emphasise the objections which my noble friends and I feel to the Bill. This Bill was taken on January 16 in another place. That was the day on which the Prime Minister announced the drastic cuts which the Government had decided upon to support devaluation—cuts of £325 million in 1968–69 and £441 million in 1969–70. Those are cuts which cut deeply into national policies cherished on both sides; cherished, indeed, with regard to defence and foreign policies abroad and social policies at home. Incidentally, they include cuts of some £94 million in Government spending on motorways and other roads over the next two years.

It is against that sombre background of heavy sacrifice all round that the Government now ask the taxpayer to find an extra £70 million, in order to realise a Socialist dream of creating a national bus company. That is the perspective in which we are being asked to look at this Bill. Let us look again at the Government's claim that the formation of this national bus company will make for rationalisation and economies. The present system of regulating passenger transport services has lasted well; it has lasted over thirty years and, in my opinion, it is an extremely sound, practical system. It has stood the test of time. It consists of a system of traffic engineers appointed by the Minister of Transport, who license bus operators to work on routes applied for. They also approve fare levels, time-tables et cetera. Most valuable, the Traffic Commissioners are the independent tribunal to which private individuals, local authorities, anybody, can make their objections and complaints about the services or the lack of them, and their independent status is a most valuable safeguard to the whole travelling public.

I suggest that their very great powers are both comprehensive and adequate. In practice, this means that they are able to preserve the difficult, loss-making rural bus services by allowing the urban bus operator protection on his profit-making urban routes, on condition that he continues to maintain his loss-making rural routes. In practice, this system, which of course covers both the privately-owned and the publicly-owned bus services, has been very successful in keeping the rural bus services working extremely well on the whole, and has integrated those services to give the travelling public a good service.

I have a great deal of personal experience of this matter, because when I was a Member of another place I had in my constituency the outer part of the London Transport Executive service and that of one of the subsidiaries of the B.E.T. Both of them were good services, but believe me, my Lords, when it came to asking for minor adjustments there was no doubt at all which was the most responsive—the private Southdown service every time. But neither in the noble Lord's speech to-day, nor in the arguments advanced in another place, has there really been an effective critique to show in what respect this system is falling down. It really is working remarkably well, and the obligation is on noble Lords opposite—on the noble Lord, Lord Shepherd, in winding-up, if he can—to show what is wrong with the existing service that this innovation will improve.

The noble Lord, Lord Hilton, was very frank, and I thought wisely so, in admitting the weight of the arguments that a very large fleet does not necessarily reduce operating costs. I daresay that noble Lords opposite will have read the interesting paper by Mr. Glasborows, the technical research chief of the Transport Holding Company, which he gave to the Public Transport Association last year, in which he analysed the operation and management of bus companies in very great detail. He showed from his research on a number of municipal undertakings that the larger the undertaking became the more expensive was the operation per car mile. I am glad to hear that the noble Lord opposite accepts this.

But I should like to go one stage further than that. Experience has clearly shown with the London Transport Executive that with a gigantic single operation of that kind, publicly-owned, there are massive management difficulties. I would be the first to recognise that, in the London Transport Executive, the structure of transport, the bus services and the Underground rail services are probably the best in the world. But the quality of the management is depressingly weak, and the labour relations are depressingly poor.

There is no doubt at all that, as the years have gone by, the leadership in that Executive has become weaker and weaker. The comment of the Select Committee on Nationalised Industries, of which the noble Lord, Lord Popplewell, was Chairman at the time, was, "Too little and too late". The general impression was that the Executive had got progressively more and more out of touch with the vast kingdom it was supposed to control; and gradually, of course, the services deteriorated with it. I really fear that this National Bus Company, although it will try to keep the structure of the individual operating companies, will gradually deteriorate into the same condition; that inevitably the authority of the managers of the individual companies will be overridden, and the decisions will be pushed back up to the top, or indeed to the Minister of Transport herself, or himself, in the future, and that it will gradually reach the same state of rigidity as the London Transport Executive has reached.

Inevitably wage costs will rise as the staff demand that all be paid the, level of the highest wage structure. Indeed, this was the attraction implied by the Minister at the last Labour Party Conference, and which went down so well with the trade union delegates in her audience. There is no doubt that the expectation is there, and will materialise just as soon as this happens; and it follows that operating costs and fares will rise. I would say that initiative will wither and waste will grow, just as it has in the case of the London Transport Executive. The elimination of the private sector will mean that no one wilt any longer be dependent on results for a living; and losses will in future be borne by the taxpayer or ratepayer, or both. We have seen all this happen. The stimulating influence of the management will perish—and that is the position of private management; they perish if they fail to show energy and initiative to meet the travelling public's need in rapidly changing circumstances—and will be lost for ever.

Certainly I agree with the noble Lord, Lord Hilton of Upton, that there is no direct competition between private bus services and public bus services, but there is indeed a very strong competition between the private sector bus services and the public bus sector services; and the fact that the private sector is there provides an invaluable competitive spirit running right through the whole bus industry. Now this is to go.

THE MINISTER OF STATE FOR COMMONWEALTH AFFAIRS (LORD SHEPHERD)

My Lords, could the noble Lord help me? Where is this element of competition between the private and the public bus sectors?

LORD NUGENT OF GUILDFORD

My Lords, the competition is in the quality of management. If the noble Lord is familiar with the bus industry, he will know very well indeed how keen the competition is between the private sector and the municipal sector in order to give equally good service and get equally good results. It is very strong indeed.

LORD SHEPHERD

My Lords, the noble Lord would also agree, would he not, that these companies are operating in different places and in quite different circumstances in terms of traffic congestion and the like? Therefore, there is not this strict comparison or competition which the noble Lord is suggesting.

LORD NUGENT OF GUILDFORD

I am afraid the noble Lord, Lord Shepherd, was not listening to my speech. I acknowledged to start with Lord Hilton's point that there is no direct competition, and I was explaining the competitive spirit that there was. If the noble Lord is not able to recognise the value of that, I must just sympathise with him. I am sure my noble friends on this side recognise it.

LORD POPPLEWELL

My Lords, the noble Lord has referred very much to the difficulties of London Transport in its labour relations, into which both he and I conducted an Inquiry. Will he not also make some references to the difficult labour relations that there are with the Midland Red and Northern General, which come under B.E.T., which is now to be dealt with by this Bill? The difficulties in labour relationships are not just one-sided. I know the noble Lord wants to be fair, and I sincerely hope he will be, so I suppose he will be referring to the difficult labour relations in the case of these particular companies, too.

LORD NUGENT OF GUILDFORD

My Lords, this is an industry, as all of us who are familiar with it know, where the labour relations are difficult, but I think I should be safe in saying that the labour relations in the case of the London Transport Executive are the worst.

LORD POPPLEWELL

Oh, no!

LORD NUGENT OF GUILDFORD

If I may continue with my speech, I should like to make the point that in our recent debate on the problems of running nationalised industries noble Lords on all sides discussed—and I think a large measure of agreement was shown—the massive and the largely unsolved problems of management in the nationalised industries, and we all had various suggestions to make as to how they might be overcome. It really seems to me to be lunacy to-day to create another of these massive problems in a particularly difficult and fast-changing industry, in which, as noble Lords have rightly said, labour relations are particularly difficult. I would hazard this opinion to noble Lords. There is probably no advanced country to-day which has the problems of the universal motor car and modern traffic conditions which would not welcome a private operator, with private capital and 70 years' of experience of running bus services, coming in to operate a wide range of public bus services for them. Yet here is this Government extinguishing the last major private operator in this country. To my mind, this is a most regrettable step.

I should now like to deal with an argument which was expanded at length in another place, but which I think deserves to be dealt with here. That is the effect of this extra £70 million, which we are being asked to approve, on our finances as a whole. This is going to make an immediate demand for £46 million to be spent. This £70 million—let us have no doubt about this—will be provided from the Consolidated Fund, and therefore either the taxpayer will pay it direct (it will presumably appear as an additional "below the line" item in the Budget) or the Government will have to resort to the printing press, with a deficit. One way or the other, the public are going to pay.

The point I want to deal with is this. How is this immediate expenditure of £46 million to be reconciled with the Government's pronounced policy of drastic economy of public expenditure? When this £46 million is paid out to the E.E.T. and the minority shareholders, they are not going to put it into the bank and forget it; nor are they going to lend it to the Government. That is very unlikely. They will either reinvest it directly by developing new businesses themselves, in which case they will spend large sums of money on new plant and equipment and labour—and much of the new equipment, of course, will be imported—or they will make takeover bids for existing businesses or industries in order to reinvest and rebuild their structure. If they make takeover bids and buy other businesses, in each case the vendor will receive the cash, which he will either reinvest or spend on capital goods, or some of it will come out in cash, and so on. However this finally works out, an extra £46 million will have gone into circulation, and will sooner or later be exerting its demand on national resources, capital goods, consumer goods and labour. There can be no doubt, my Lords, that this Bill is in direct and outright conflict with the Government's declared policy of drastically cutting back public expenditure, and I hope that the noble Lord, Lord Shepherd, who I see making some notes, will deal with this very important point.

I would remind noble Lords that in another place the Government were given a chance to redeem the financial horror of this Bill. A Conservative Amendment was moved in another place to instruct the Transport Holding Company to sell off the Thomas Cook Travel Agency, with a capital value of probably £20 million to £30 million. That would have paid the greater part of the purchase money required for B.E.T., and would have done so without making any further demands on the national economy at this time. That would have been genuine. So far as I know—and the noble Lord, Lord Shepherd, will tell me if I am wrong—there is no doctrinaire Socialist commitment to nationalise travel agencies. Everybody knows that Thomas Cook came into Government hands entirely fortuitously, as a war-time accident. The shareholding fell into the hands of the enemy, and, after the war, this naturally fell into the hands of the Government. So the ownership of Thomas Cook is really quite unrelated to any broad nationalisation plan that the Government can claim to have. This reasonable proposition of raising the money was put to the Government, but they turned it down on the ground that what they have they hold.

I must say to my noble friends on the Conservative Benches that I very much regret that I must advise them that we should not divide against this Bill. As the noble Lord, Lord Hilton of Upton, indicated, it must be regarded as part of the Government's transport policy for which they can claim an electoral mandate. But I must also say this to the Government. Nobody outside Parliament or inside Parliament who takes an intelligent interest in this Bill is persuaded for a minute either that it is not in flagrant conflict with the declared policy of stringent economy or that it will not weaken the general tone of management in the passenger transport business. It clearly has no other motive than the nationalisation of the bus industry. On its merits it certainly should not go on the Statute Book; certainly not now, when the need is for a broad rational policy that will unite all sections of the nation. I say this to noble Lords opposite in all sincerity; the short-term gain of Party satisfaction will be heavily paid for at the price of long-term Party reputation if they proceed with it. I strongly urge the noble Lord, Lord Shepherd, to advise his Ministerial colleagues to withdraw this Bill.