HL Deb 14 July 1980 vol 411 cc1557-66

3.58 p.m,


My Lords, with the leave of the House, I shall now repeat the Statement made a short while ago in the other place by my right honourable friend the Minister of Transport. The Statement runs as follows:

"With permission Mr. Speaker, I would like to make a statement about the future of British Railways subsidiaries.

"I told the House on 17th March that I intended to find ways to involve private risk capital in the major subsidiary companies of British Railways and that I would make a further statement in the light of a joint examination of the prospects which I have been carrying out with the chairman of the British Railways Board. The Government and the chairman have now completed a preliminary examination of the opportunities for involving private risk capital to a significant extent in financing these subsidiaries. We both believe that it will be to the advantage of British Rail, as a significant element in the economy, its workforce and the public using its services, to take advantage of these opportunities. The businesses invoved are Sealink UK Limited, British Transport Hotels, British Rail Hovercraft Limited and British Rail property holdings.

"The Government and the Board recognise that these subsidiary enterprises will not secure essential commercial freedom unless private capital is attracted in sufficient volume and unless private investors are assured of sufficient control through their shareholdings to ensure that the enterprises will be able to operate on equal terms with competitors in their respective markets.

"We are satisfied that the important existing trading relationships between British Railways and the subsidiary enterprises can be sustained by commercial contracts. These arrangements cannot hut work to the advantage of British Railways and the subsidiary enterprises. We are also convinced that it is only by maximising the opportunities for profitable service to the public that the workforce at every level in these enterprises can look forward confidently to sharing in improving returns.

"I intend therefore to seek the approval of Parliament at the first opportunity for the changes necessary in British Railways' present powers in order to secure the potential advantages to the fullest extent and from the earliest moment.

"The Board will propose the steps which will be necessary to achieve the purpose as quickly as possible and will agree them with the Government. The Government will introduce the necessary legislation to ensure that any foreseeable obstacles are overcome.

"I believe that the policy I have outlined will provide significant new opportunities for the subsidiary companies to develop and expand their businesses."

My Lords, that completes the Statement of my right honourable friend.

4.2 p.m.


My Lords, I thank the noble Lord the Minister for repeating this Statement. I must say that it is an amazing Statement because it gives the House very little information as to the Government's actual proposals. On the surface, it looks as if it is another repetition of a doctrinaire policy on which we have no information as to what is actually proposed, except that it suggests the disposal of what appear to be to us very valuable public assets. Four subsidiaries are involved which, according to the 1979 report of British Rail, made an operating surplus of about £40 million. Further, the BR report states that the property subsidiary contributed no fewer than £41 million to the cashflow of British Rail. A lot is involved: 29 hotels in the hotel subsidiary; in the Sealink subsidiary, 51 ships and 11 harbours. The hovercraft subsidiary operates the Seaspeed service, I believe, jointly with French Rail and Belgian Rail. That is a very important undertaking and doubled the number of passengers and cars in 1979 over and above 1978.

The Statement gives such little information that I must ask the noble Lord a number of questions. Will the finance that will be raised by this proposal be available to British Rail for its own investment for rail purposes: electrification and other ways of further improving the ever-improving British Rail services? The document refers to the introduction of necessary legislation. But there is no information given in the document as to the nature of the legislation. Can the Minister tell the House what is to be the nature of the legislation to be introduced? We are not told, but is there to be one holding company with four subsidiaries, or are four separate new companies to be formed?

The document says that private investors must he assured of sufficient control. Does this mean that in whatever com- panies that are set up British Rail will not have a majority holding? If British Rail is to have a majority holding, will the Government have power to instruct British Rail to see that any of the assets are sold off? This must also be referred to: if any profitable assets are to be sold off, what will be the effect on British Rail should it require further capital at any time? In 1979 British Rail mileage was the highest recorded since 1961, when the British Rail services were 30 per cent. larger. In other words, we are talking about a public enterprise which is making good progress, yet four of its subsidiaries are proposed to be disposed of. If it is not to be BR-owned, not to be a majority holding for BR, how will the sale of any valuable assets be prevented?

The document implies that the workforce itself will be in support of these proposals. I do not know from where the Government have that assurance. We should like to ask what arrangements will be made to ensure the continuance of British Rail staff conditions. Obviously, we shall need detailed answers to many of these matters, because until we know what is in the legislation we have no idea what is being proposed, except that the Government are suggesting disposing of four valuable national assets.

4.6 p.m.

Baroness SEEAR

My Lords, we on these Benches wish also to thank the noble Lord the Minister for repeating this Statement. In principle, we are not averse to the idea of sales of elements of nationalised industries. However, we are bound to say in relation to this Statement, as the noble Lord, Lord Underhill, has said, that it is extremely difficult to see what the Government intend. In these circumstances, we cannot make a response which has any great meaning. We must instead ask the noble Lord to answer certain questions. For instance, it is not plain where the controlling interests will ultimately reside. There is a phrase in the Statement which suggests that it will he with the private enterprise sector to whom the assets are sold. But this is by no means clear. It is also not clear whether this is a once-and-for-all sale or whether there will be continuing instalments of private money into these undertakings. Further, what kind of management is proposed for the assets when they are sold?

Another aspect on which we should like clarification is this. There is very little point in selling parts of a nationalised industry in a free sector if it is sold to become a monopoly in the private sector instead of a monopoly in the public sector. In the case of Sealink, for example, it would be perfectly possible, if Sealink were ultimately acquired by EuroFerries or if Euro-Ferries had a major holding in Sealink, that there would be something very like a monopoly in the Channel crossing business. This is very unlikely to be an improvement on what is already a very expensive crossing for the many customers who wish to take it. There is a vague reference to the interests of the employees in the undertaking. May we ask the Minister whether it is intended, in relation to this disposal of the assets of the nationalised industry, that employees should be given opportunities to acquire shares in the new undertakings which will be formed, or whether this is not to be included in this transaction?

4.8 p.m.


My Lords, I thank the noble Lord and the noble Baroness for in turn thanking me for the introduction of this Statement. This Statement is a declaration of intent about which Parliament has heard for some time. The Minister thought it right that this should be made. There will be, as the Statement said, a holding company formed. This will be organised by the Minister and the British Railways Board. The noble Lord asked whether it would be one or several holding companies. It will be one holding company. As it disposes of assets it will gradually lose control of those assets. The question has been asked about Sealink which, as the noble Baroness said, is one of the most obviously profitable of these companies.

On the general figures, the noble Lord, Lord Underhill, gave the impression that these are very valuable assets. They are valuable assets and are valued, I understand, at about £383 million; but the noble Lord gave a figure of £41 million or £40 million. My understanding is that that applies to all the property, some of which is not in these four companies. As I understand it, in 1979 the actual profit for these four companies was only £21 million. If you take into account the total cash flow, it has been negative for many years, so there is a cash-flow problem. We are in a period of capital constraint at this moment and, given the Government's intention to try to help the reduction of the inflation rate by Government constraints on capital spending, it is essential if these enterprises are to go forward for the benefit of the public and of the staff concerned, that fresh capital should be injected into them. That would benefit all of us.

The noble Lord, Lord Underhill, asked what legislation was envisaged. The Board already have certain powers but they will need others, and the Minister is going to need reserve powers. We hope to introduce legislation fairly early in the next Parliamentary Session. The noble Lord also asked whether the British Railways Board would lose their majority holding. It is possible that would be the case.

The noble Lord, Lord Underhill, and the noble Baroness, Lady Seear, inquired about the staff side of the matter. Up to this moment, they have not been involved in detailed discussions because we have been discussing principles of management. There will be discussions with the unions at the Rail Council. These conversations have begun already and they will continue. The Minister is talking to the unions and we think that private capital is going to give these businesses opportunities for growth which at the moment probably would not be available. I think that the staff, taking the overall picture, will probably he reassured that there is going to be more growth from these sections than there is at the moment. At present the overall profit picture in these four companies is negative, although there is a technical profit, because investmentwise the outflow is too great.

I was asked what sort of management there will be. Sealink lends itself perhaps most easily to a single management, and if unions and staff wish to invest they would be able to put in offers. The board has financial advisers, as has the Minister. The holding company will take advice on the amount to sell, bearing in mind the object of the exercise. There is no limit to the number of shares that have to be sold, or indeed which do not have to he sold. This is a general picture. At the end of the day the financial advisers will be giving advice. It is no use asking me for details because the actual worked-out details are not complete at the moment. I am giving your Lordships the earliest possible notice of our intentions, and we believe they will be to the general advantage of us all.


My Lords, I think it is only fair that those who are invited to subscribe risk capital for these enterprises should he properly warned that if these enterprises are transferred to private ownership, or any share of them, without agreement of the position, if a Labour Government were returned steps would be taken to restore the state interest to what it was before these acts of de-nationalisation took place. I am not saying that this means de-nationalisation without any compensation, but it means that the total private interest will be no larger than it would have been had the de-nationalisation not taken place; so the issue is state shares.


My Lords, I do not know to what extent the noble Lord, Lord Kaldor, is entitled to speak for the official Opposition, but I take note of what he has said. Our primary interest is to take these four sections of the British Railways picture. At the moment there is not sufficient capital to enable them to operate as well as we would wish. I do wish the noble Lord would take the general picture, that there is an outgoing cash flow to these four companies. They are not bringing in glorious "lolly"; they are costing the country money, and we are trying to reduce the inflation rate by cutting down Government expenditure. The staff should gain. We are going to have full discussions with the staff and I would be very surprised if, at the end of the day, the staff are not totally happy with what we are going to do.


My Lords, before the Minister ends this discussion, may I make an appeal to him, since this matter seems to be very much in the embryo stage, to remind his right honourable friend that in particular the hotels provide not merely a profit but also a service? As one who has the misfortune to spend a fair amount of time in the hotels provided by the private monopoly groups, may I say that while they may be profitable they are not often very comfortable or efficient, whereas the British Transport hotels have a remarkable record. I hope that the Minister will bear in mind when he is talking about the "good", that there is something more in life than mere profit.


My Lords, I thank the noble Baroness, for her comments. I, too, enjoy many of the railway hotels. They are splendidly run, the service is good and I think they are admirable in every way. Nevertheless, from the Government's point of view of trying to cut public costs, I should like to give her some figures which I happen to have before me. Their asset value, I am informed, is £27 million; their turnover is £38 million. They employ a staff of 4,500, and I am informed that their actual profit is only £300,000 a year. One cannot pretend that that is a very exciting return for the money that is spent.


My Lords, if you sell off those parts of British Railways that make a profit—and I find it difficult to believe you can sell off those that make a loss—then the loss on the remainder is bound to become larger and not smaller. It is a great mistake to say that you are trying to save loss-making enterprises like the railways by selling off the profitable bits. If the unprofitable bits are sold off, who on earth would buy them, except for asset-stripping purposes?—that is, for the physical assets. I feel that selling capital assets in order to meet revenue losses is the economics of the madhouse.


My Lords, I thought I had explained to the noble Lord, Lord Kaldor, earlier, that this is not a great, exciting, profitable area. I know it is fashionable to talk about the wonderful profits which are coming to the railways from this area, but I have tried to explain that this is not the case. There is a cash outflow from the Government. The noble Lord asked how, if they are not so profitable, people will want to buy them. The simple fact is that in a time of capital investment constraint we are not going to he able to help them. Therefore, if you invite in whatever percentage the holding company recommends, with private capital to invest, they may be able to expand and make greater profits percentagewise than might otherwise be the case.


My Lords, could the noble Lord answer a simple question: are all the hotels to be included? If they are all to be included, are the golf courses to be included as well? I should have thought that this was a week in which we might concentrate a little on those. Could he tell me who is going to make an assessment of the value of a course that is fit to carry the Open Championship? I am talking about Turnberry. And what about Gleneagles? Are these all to be sold off?


My Lords, this will really be for the holding company to decide. The golf courses are, of course, part of the hotels, and I accept what the noble Lord, Lord Ross, says, in that Gleneagles and Turn-berry could not be better. Whether or not they are sold is a matter for the management of the holding company concerned.


My Lords, will the Government inform Mr. Biggs, the train robber who is now in Brazil, that he can return home safely, since the practice of transferring public property to private hands is now regarded as respectable?


My Lords, I think that I may have missed out one of the questions which was asked of me originally by the noble Lord, Lord Underhill. I should have said that all profits accruing from this exercise will go to the British Railways Board. I think that in the last question the noble Lord seemed to indicate that the Government were somehow going to filch them.


My Lords, can the Minister really tell the House what purpose—commercial, economic or industrial—is served by announcing this so-called declaration of intent now? It will produce nothing but uncertainty for months and months on the part of those who are running these enterprises and serving the public—and at a profit. Is the purpose no more than to appease the ideologies and prejudices of a portion of the Tory Cabinet?


My Lords, the noble and learned Lord is far too clever to believe his own words. He knows as well as I do that we believe that these enterprises, with added capital put into them, will do better than they are doing at the moment. I cannot but repeat that, at this moment of capital investment constraint, we want private enterprise to come and invest money in them. If I were an employee in them, given a period of Government investment constraint, I should have thought I would be only too willing to see rich people who were good businessmen putting in money with the intention of making higher profits. That way come higher wages.


My Lords, I think my noble friend has not made it absolutely clear that one of the objects of this exercise is to reduce the public sector borrowing requirements, which are extremely high, and to get down the frightful rate of interest. I have stayed occasionally in British Rail hotels, and it is quite obvious to me that an awful lot of money needs to be spent on them to bring them really up to date. Also, of course, the cross-Channel ferries and so on are an absolute sink for money. The Government would have to put in very many millions of pounds in both those directions to bring all the services up to date, so why not bring in some private capital, whether by shares, debentures or whatever?


My Lords, my noble friend Lord Hawke is, indeed, a gentleman who understands money. He has been in the money market for a long time and his words of advice are very sensible.