§ 3.1 p.m.
§ THE PARLIAMENTARY UNDERSECRETARY OF STATE, DEPARTMENT OF THE ENVIRONMENT (BARONESS YOUNG)
My Lords, I beg to move that this Bill be now read a second time. I should inform your Lordships that the Speaker has certified that this Bill is a Money Bill within the meaning of the Parliament Act 1911. My Lords, much has happened since your Lordships discussed the Green Paper on the Channel Tunnel last May. The result of the various studies outlined in the Green Paper have now been published. These are all summarised in the recent White Paper, but the main ones—the economic and financial studies and the full 20-volume version, the transport cost benefits study and the study of the social and economic implications for Kent—as well as the railway brochure, have been published separately. They have been available to Members of your Lordships' House. But this Second Reading debate will provide another opportunity for your Lordships to debate this very important matter and I will try to answer as fully as I can the points that your Lordships may raise during the debate. In the light of all the studies to which I have referred the Government have reached a firm conclusion that the construction of a bored rail Channel Tunnel and the associated rail link would be in our national interest, and its planned completion would be in 1980. The basis of that conclusion is set out in the White Paper.
I will now refer briefly to some of the main points. We have not just been taking another look at an old project, 568 but seeking for the best answer to a very pressing modern problem. Various ideas for providing a fixed link have been looked at over the last 10 or 15 years, but the international group which was formed in the late 1960s in accordance with the policy of the then Government, while not overlooking possible alternatives, has concentrated its attention upon a bored rail tunnel providing through trains and ferry carriers for carrying vehicle traffic as being cheaper and relatively free from navigational, technical and international complications. If they wish for further reasons for this choice, noble Lords may refer to the speech of the noble Earl, Lord Lloyd-George of Dwyfor, in May; and I would refer them to his speech if they wish to see the arguments for the particular choice spelled out in full.
The background to the Government's decision is the immense growth in traffic between the United Kingdom and the Continent. It doubled between 1962 and 1970, and the central forecast of traffic growth emerging from the studies indicated that it will double again by 1980, and yet again by 1990, when the total number of passengers will be about 95 million. The surface traffic is concentrated on the shortest sea routes from South-East Kent which carry 55 per cent. of all vehicles and trailers. That traffic, too, is growing rapidly. For example, the number of freight lorries using Dover in 1972 was up by 43 per cent. on 1971, and it is steeply up again this year. We have to accept therefore that traffic will increase whether or not a tunnel is built, because of economic growth, closer integration within the E.E.C. and rising living standards bringing increased opportunities for leisure travel. There are, therefore, only two practical ways for meeting the needs of the 1980s. We can continue to rely solely on the development of cross-Channel shipping and air services or we can supplement them with a bored rail tunnel.
In the studies we have tried to establish whether such a tunnel would in itself be technically and financially viable, and whether it would be a better way overall of providing for the continuing increase in cross-Channel traffic. In the light of all the studies, not only of the last two years, we have decided that it is right to go ahead. A tunnel can be built 569 with known techniques. For that reason, and the extent of the geological studies and the project development undertaken, it can be costed within fairly close limits. It is therefore not subject to the problems of projects near the limits of current knowledge, and the project managers are confident enough of their costings to have agreed to forfeit much of their remuneration if there is an over-run of the order of 10 per cent.
On all reasonable assumptions this will be a profitable venture from the start; although, of course, one must accept that any long-term forecasts involve a margin of uncertainty. But the Government are confident that the 17 per cent. return forecast in real terms is as realistic a central estimate as possible and the sort of returns that this might provide in out-turn cash terms are shown in Annex 8 of the White Paper. They look very attractive. But even on pessimistic assumptions the project is viable in the short term, and extremely attractive over time.
More importantly, however, the Tunnel will provide better services more cheaply and be a more sensible use of our limited resources than an extension of the existing means of transport. The immediate capital cost is higher, but the improved frequency and reliability of service, together with the low operating and maintenance costs and the facility to provide for increasing traffic with little further investment, give it a major advantage. The cost benefit study indicated an economic rate of return of about 17 per cent. on the United Kingdom investment, including a conservative costing of the rail link. Even if all the benefits of time savings to the users are ignored the Tunnel is, in all but the very short run, quite simply cheaper.
I turn now to the problem of the environment. Here on balance, too, the Government feel that it would be of environmental benefit both to the country as a whole and also to Kent. Of course these are not simple matters and there are bound to be real problems for people directly affected by the Tunnel installations and the rail link. We must, and we will, do everything in close association with the local authorities to reduce these difficulties to a minimum and to ensure that those affected are treated generously. On the other hand, it must be recognized 570 that people who would have been affected by the alternative port and road developments, especially in and around Dover and Folkestone, wilt not have their lives disrupted. One real environmental gain should be to those seriously affected by the heavy traffic on the roads to the East and South coast ports. It will be possible to divert from these roads and on to the railways the equivalent of 250,000 lorry loads of traffic in 1980 and half a million in 1990. Furthermore, it will also mean that there will be a concentration of traffic on to the M.20 in Kent, which will provide relief for the other roads, particularly the A.2 to Dover.
With the Tunnel there would by 1990 be about 20 per cent. more traffic on the M.20 than without it. If there were no tunnel, between 35 per cent. and 100 per cent. more traffic would arrive on sections of the A.2 between Canterbury and Dover which, even when the current improvements are completed, will be far less suitable roads. But the major environmental benefits can be obtained only if full advantage is taken of the new opportunities which a direct link with the Continent will provide for British Railways. I do not need to emphasise to noble Lords how important such an opportunity is to Britaish Railways, and how anxious they are to exploit it to the full. It is one from which the entire country will gain. Not only will the South-Eastern railways be, for the first time, directly linked to Europe, but long hauls will be possible for the first time by rail freight, and major new inter-city routes will be available for passengers. Full advantage of this opportunity can be taken only if there is a tunnel and a new rail link to London, by-passing the congested Southern Region. The proposed rail link is necessary not only for the project as a whole, but as part of any sensible strategy for the future of British Railways.
The initial possibilities have already been set out by British Railways in their booklet, Express Links to Europe and in the White Paper. With the main decision taken, British Railways, Freightliners and their continental partners, will be able to sell this new facility and develop plans to take full advantage of Market opportunities. It is important to emphasise again that the new through services will 571 benefit the country as a whole; and that all regions in the country will benefit.
Furthermore, we are talking of an electric system, not one depending only on one fuel, such as oil. There have been suggestions that it might be advantageous to have a tunnel providing for rail traffic only without provisions for the carriage of cars or lorries. This would certainly reduce the impact on the valley immediately to the North of Folkestone where the lorry terminus is to be built, but at a very high cost in money resources and environmental damage. There is, I believe, a major fallacy at the heart of the arguments I have seen for this. It is assumed that traffic, which under current proposals would use the Tunnel, would use the long-distance rail service instead; but it would not.
In the absence of a tunnel ferry service, the traffic which would have used it will continue to travel by sea, mostly through Dover and Folkestone. The amount of traffic carried by the through rail services would be unaffected, unless people were forbidden to take their cars on holiday. In those circumstances, the damage to Dover and Folkestone caused by heavy traffic would continue unabated. There would be no relief for traffic on routes such as the A.2. Above all, it would not make economic sense. The additional capital cost of the ship, port facilities and roads required elsewhere would far outweigh the costs saved on the Tunnel and its terminal. The benefits of the lower operating costs of the Tunnel would be lost. Overall, the rail-only tunnel would have little or no economic advantage over continued reliance on developing sea and air services, and might prove rather more expensive. It would be much more expensive than the Tunnel as proposed. That is the background to the decision.
I should now like to turn more specifically to the financial arrangements, both in general and in relation specifically to those for Phase 2 or the "initial period" which is dealt with in this limited but important Bill. The arrangements have been developed over the years by successive Administrations to provide a unique partnership of public and private enterprise on an international basis. Private interests will 572 raise all the money required for the Tunnel, and will build it. They will then hand it over to a joint Anglo-French authority which will operate it, remunerate the private interests out of the profits, and pay the balance to the two Governments in equal shares. The private interests will have only a minority representation on the operating body.
The basis of the financial arrangements is set out fully in Chapter 11 of the White Paper. Ten per cent. of the forecast cost of the Tunnel will be financed by risk money carrying no Government guarantees. The balance will attract Government guarantees, but, even on the most pessimistic assumptions, it is extremely unlikely that those guarantees would ever be called. On the contrary, some profits are to be expected as a result of the hard negotiations over recent months. We have ensured a method by which there is a fair distribution of those profits between the private the public interests taking account of the risks which each is undertaking, the need to provide terms which will enable the money to be raised, and of the possibility that profits might, in the longer term, be higher than forecast.
In the event we have reached a provisional basis for sharing, provisional because the bulk of the money will not be raised until 1975, and the terms required to raise the money will have to be reviewed then. The Government will, under those terms, get a share of the profits from the start, increasing rapidly until they get the lion's share. Under those circumstances, the Government guarantee does not seem an unreasonable basis for the deal. Moreover, the formula work in such a way that if there should be an unexpected degree of profit, this is one of the cases where the lion's share would fall to the Governments. Since the only direct Government investment will be the rail link, which is expected to be profitable in itself and is certainly desired by British Railways—I can assure the House of that—a half share in Government profits of between £100 million and £200 million a year by 1990 seems to be a fair return for the guarantees and the concession.
Within the broad context of the arrangements as a whole, special provision has been made for Phase 2. This phase will start by the signature, at the 573 end of this week, of an Anglo-French Treaty and a main agreement, Agreement No. 2. This will govern the projects as a whole, and will cover preliminary works including the construction of accesses to the tunnelling site and part of the service tunnel and final design. This will enable us to consider at leisure the major proposals which will be set out in a hybrid Bill to be presented to Parliament shortly. During this phase, also, the traffic and revenue forecasts will be kept under review. Towards the end of this period it will be necessary to review the terms on which the main capital has to be raised, as explained in Chapter 11 of the White Paper, and Phase 2 will conclude with the signature of a supplementary Agreement No. 3, after which the bulk of the money will be raised and the main construction strated.
This Bill will provide the financial powers needed to enable British Ministers to carry out the obligations they would incur in respect of Phase 2 on signature of Agreement No. 2, within the general framework of the arrangements for the dual partnerships between Britain and France, and between the Governments and private interests. They are, however, limited in scale and time, and differ in certain respects from the arrangements proposed in respect of the main works.
The key features of the arrangements for financing during Phase 2 are reflected in Clause 1 of the Bill. First, the work to be undertaken during the initial period is expected to cost some £30 million. The private interests expect to raise £8 million of this as risk capital, and the rest with Government guarantees. Bearing in mind that £2.6 million out of the £5.4 million forecast cost of Phase 1 was raised as risk capital, by the end of Phase 2, 30 per cent, of the total expenditure on the project to that point will have been met by risk capital. It will also be necessary during this period to re-finance the guaranteed funds raised during Phase 1. Secondly, there may be some expense to be incurred by the Secretary of State himself for any further studies. It may prove desirable for certain further studies to be carried out about aspects of the project, or from points of view, which—while of direct concern to the British Government—could not legitimately be considered the responsibility of the project 574 as a whole. Examples of such studies carried out during Phase 1 are the United Kingdom transport cost/benefit study, the study of the economic and social implications for Kent, and the current assessments of the noise which might be generated by the Tunnel installations and M.20 motorway; these latter will no doubt require review as the design of protective works and the installations as a whole progress.
Thirdly, there could be obligations arising if the project were abandoned during Phase 2; and I should emphasise that, not only is a further Agreement needed in 1975 before the main works start, but that any party can abandon the project at any time. The extent of any costs falling on us would depend on the time and circumstances of the abandonment. If this was by mutual agreement or following notice by the private interests the only obligations resting on the Governments would be to meet their guarantees, coupled with certain "buy back" provisions should they wish to proceed with the project separately. If, however, the Governments wish to (or like to) opt out while the companies are willing to proceed with the project, then the Governments would have to purchase the companies' interests at a price taking account of the length of time their money had been at risk, and their loss of the expectation of profit. In addition, certain provisions have been agreed which would have the effect of partially compensating the private investors if it proved impossible to agree in 1975 on the terms for raising the main capital because the Governments and companies could not agree on the forecasts of future revenues.
These, then, are the obligations which may be incurred during the initial period. I turn to Clause 1. Subsection (1) provides the power to provide the guarantees and make the payments whch are necessary to meet them. Subsection (2) sets a limit of £30 million on the guarantees which may be given, with a power to raise the limit to £35 million to order which, under subsection (7), would be subject to Affirmative Resolution of another place. This limit is high enough to cover the obligations of both the Governments, as it may well be most appropriate for some or all of the money to be guaranteed by both jointly. However, all obligations 575 will be shared jointly by the two Governments. If Her Majesty's Government paid out less than half the total sum due, we should have to reimburse the French Government, and provision for this is made in subsection (3); while conversely, if we had paid out more than half we should be reimbursed by the French, and the sums received would, under subsection (4), be paid into the Consolidated Fund.
There is one other provision to which I should like to draw your Lordships' attention. Under Clause 2(1) "the initial period"—and these powers relate only to that period—is defined as running to July 1, 1975. It is expected that well before that date the hybrid Bill, providing the full powers required for the project, will have been passed and that by that date Agreement No. 3 will have been signed and the project have passed into Phase 3. In case all our expectations are falsified, however, provision is being made for the period to be extended. Your Lordships will have further opportunities to debate the project in detail on the hybrid Bill. I hope the House will now agree that it is right in principle that the Tunnel should go forward on the lines indicated in the White Paper (subject always to the possibility of abandoning it if anything unexpected arises to cast doubt on its future), and to provide, by passing this Bill, the limited financial powers to enable it to do so while the detailed proposals are being examined. My Lords, I beg to move.
§ Moved, That the Bill be now read 2a.— (Baroness Young.)
§ 3.18 p.m.
§ LORD GREENWOOD OF ROSSENDALE
My Lords, it is always difficult to know what to say about a Money Bill, and it is particularly difficult when the Bill has been moved by the noble Baroness opposite with her characteristic courtesy and lucidity. On this occasion it is even more difficult than usual, because at a late hour last night Amendments to this Bill were before another place. They do not appear in the OFFICIAL REPORT; they are not within the knowledge of the House officially and formally, and the arguments which were addressed to the Bill in another place are therefore unknown to us. I shall certainly not this afternoon rehearse all the arguments 576 against a tunnel of the kind proposed. I shall not, if the noble Baroness will allow me, seek to counter many of the arguments which she advanced. Indeed, I appreciate, at a time when the E.E.C. is not standing up very well to the first real test that it has had to face since we joined it, that anything which provides a more substantial link with the Common Market must be welcomed by those who with some degree of hyperbole style themselves Europeans; and if clutching at the straw of the Channel Tunnel gives them a feeling of security and belonging, who am I to deprive them of it?
For many years, my Lords, I was a strong supporter of a Channel Tunnel, and even to-day I am not an implacable opponent in all circumstances. I believe, however, that new methods of transportation have weakened the case for a fixed link. I am still hopeful that if a fixed link is shown to be needed, it will ultimately be provided by the building of a bridge rather than the digging of a tunnel. Indeed, a bridge would have many attractions. To continue, if I may, my affirmation of a belief for a moment longer, I see grave environmental dangers in a tunnel of the kind proposed. With a Jumbo Jet jungle planned for Essex and Kent, we are now planning a juggernaut jungle for Kent and Surrey. I see it as bad physical planning of highly dubious economic advantage. Above all, I believe that we are now standing shivering on the brink of building the Tunnel when we are less able to afford it than at any time in the last 150 years, and when vistas of stagnation lie ahead.
Your Lordships will have seen that this morning Her Majesty's Government have announced the biggest trade deficit that we have ever had—£298 million in one month. Exports are down, imports are up to a record figure. The Bank of England minimum lending rate is up from 11¼ per cent. to a record 13 per cent. People's savings are being eroded daily as the Government print more and more money. When Mr. Walker said this morning that the underlying trend is upwards, I can only assume that he was referring to interest rates, prices and rents. My Lords, in this perilous economic situation which has been revealed to us today, we must put the Tunnel into proper perspective. Questionable in isolation, it is even more questionable in the context of other prestige schemes. 577 In an excess of folie de grandeur we have committed ourselves—and I frankly accept my own share of the responsibility—to Concorde: her name, if I may say so, Gallicised by my right honourable friend Mr. Benn. In Sunday's Observer we read the headline:Unsaleable Concorde needs still more cash.We were told that the final version cannot be available for another six years, and that if it goes ahead it will be a very expensive package: and even to achieve that, further Government help will be needed.
Not having learned our lesson from Concorde, the Government have also committed themselves to Maplin. The only good thing I know about that project is that the Government have appointed Sir Frank Marshall as Chairman of the Maplin Development Authority. Sir Frank is a great public servant for whom I have a deep respect and personal affection. But the fact remains that this almost certainly unnecessary airport, which nobody with knowledge of the disciplines and skills involved seems to want, is to be built in the wrong place, at the wrong time, at a fabulous cost that we are quite unable to afford. Not content with this prodigal disbursal of our all-too-scarce finances, resources and manpower, the Government are now launching us down the slippery slope of the Channel Tunnel.
My Lords, the Bill, as the noble Baroness explained, is limited and is simply to provide what one might almost call a token £35 million to complete the research stage before, in Mr. Speed's words, "final commitment to the main works." I accept, of course, that the passing of this Bill is not an irrevocable step, but we all know the passionate arguments which will be deployed from the Front Bench opposite if at a later stage any of your Lordships urge the Government to bail out. Two of the noble Baroness's honourable friends in another place were right, in my view, in saying that the Bill will pre-empt the rest of the programme and that from this moment the rolling motorway will begin to roll.
For many of us—and I am still in this difficulty, even after listening carefully to the noble Baroness—it is difficult 578 to see why, if the programme is likely to be so fantastically profitable, any guarantee from the taxpayer is needed at all. It is hard to see why the private investors and big corporations which are joining in this venture are not literally falling over each other to raise the money themselves so that they can reap the full rewards, without benefit of help from already heavily burdened taxpayers. The noble Baroness mentioned Annex 8. If my reading of Annex 8 is right, it surely means that we are going to reach a stage in 1990 at which the gross receipts will be £286 million, with a pre-tax profit, after interest charges, of £162 million. It is interesting, when one looks at the statement issued by the British Channel Tunnel Company Limited, to see that they make certain assumptions about rates of interest which, in view of today's news, have a slightly whimsical air. The rates of interest assumed are as follows: British loans, 10 per cent.; French loans, 84½ per cent.; risk capital (fixed dividends during construction), 7 per cent.
The basic question which all of us have to answer, and one which certainly the Government have to answer, is quite simple. Why, in our straitened circumstances, are we being asked to guarantee a project which can be justified only by its profitability? After all, the Government themselves will be in a position largely to determine the degree of that profitability. The Government, of course, must have their Bill, but I ask your Lordships to realise that we are committing ourselves almost inevitably to the expenditure of a virtually unpredictable sum of money and to the diversion of materials and manpower away from urgent social purposes, in a way that will add further stresses to an already over-strained construction industry.
The Minister for Transport Industries in another place has told us that we must look ahead. Frankly, I see nothing but darkness at the end of the tunnel. Even as a Francophile and as one who is never happier than when in France, I have come to the conclusion, after proper consideration, that the public is unlikely to accept without demur the fact that we shall have to deny them houses, schools, hospitals, factories and roads because we are building them a tunnel instead.
§ LORD GREENWOOD OF ROSSENDALE
Perhaps the French public will react in the same way; but in the meantime this is what Her Majesty's Government want, and if they reject our restrained, prudent and indeed friendly counsel, the responsibility will be theirs alone.