HL Deb 09 February 1982 vol 427 cc97-106

3 p.m.

Lord Bellwin

My Lords, I beg to move that this Bill be now read a second time. The Bill before your Lordships contains a number of somewhat technical financial provisions affecting our transport industries. It is a small Bill, a mere five clauses—and one whose purpose is to maintain the existing statutory structure of financial controls, rather than to introduce new policies. So I do not anticipate that I shall need to detain your Lordships long in introducing it. The first three clauses of the Bill concern the railways, and I should say straightaway that I find it especially sad that I should be introducing them on a day when the system is at a standstill and when the whole future of the railways is under attack.

Clause 1 increases British Rail's borrowing limit. This is the long-standing statutory control over the aggregate amount of borrowing of all kinds and from all sources which the board may have outstanding at any one time. The limit now stands at £900 million. Clause 1 increases this to £1,100 million, and provides, as in the present legislation, power for a further increase, by order, up to a final limit of £1,300 million. The need for this increase arises not from any change in the board's financial policy or structure, nor from any special anticipated needs, but principally from the passage of time in an inflationary economy. It is expected that the new limits will be sufficient for the board's borrowing requirements for the coming five years or so.

Clause 2 concerns the grant paid by the railways board to meet the net costs they incur in running the passenger railway, what is termed the PSO—public service obligation—grant. Under the Railways Act 1974 there is a statutory limit on the total amount of PSO grant which may be paid. This limit applies to all PSO grant payments for the period since the end of 1978. The present limit of £3,000 million is expected to be reached in the course of 1983. Clause 2 provides for a new limit of £6,000 million, with a power for a further increase, by order, up to a final figure of £10,000 million. These may sound exceptionally large increases, but it must be remembered that the sums are cumulative. Again, the provision does not reflect any policy change, nor should it be taken to suggest any forecast of a change in the annual level of grant in real terms.

Clause 3 is a new provision. At various times in recent years the railways board have considered membership of the European company known as Eurofima, which assists national railway companies to acquire modern rolling stock through the provision of finance. For the board to become a member, it would be necessary for the Government to guarantee the discharge of its liabilities to the company. At present there is no power to give such a guarantee. Clause 3 provides that power. I should emphasise that this is only an enabling measure. It will be initially for the board, and subsequently for the Government, to assess whether it believes any particular proposal for membership is beneficial to the board.

Clause 4 increases the borrowing limit of the National Bus Company from the present £220 million to £250 million, with a power for a further increase, by order, to £275 million. As with British Rail, there is no policy issue lying behind the increase. The passage of time has brought the level of the company's borrowings quite close to the existing limit. The company's present plans, and the rigorous financial target they have been set by the Government, do not suggest an extension of current levels of borrowing in the foreseeable future, but it is none the less prudent to provide an adequate margin for contingencies. In real terms, the new limit is significantly lower than the value of the present £200 million, when it was set back in 1975.

Clause 5 increases, by £200 million, the limit on Government financial assistance to the Port of London Authority and the Mersey Docks and Harbour Company. The existing limit of £160 million was set by the Ports (Financial Assistance) Act 1981. That Act was an emergency measure to enable help to be given to the PLA and MDHC, to prevent them having to close down. Since then both ports have, at the Government's request, prepared corporate plans for a return to profitability as soon as possible. In the light of these plans, and of the comments received from the two firms of accountants who are advising the Government— Price, Waterhouse in the case of the PLA, and Peat, Marwick, Mitchell in the case of MDHC— we have decided to make further funds available to the ports.

The increase of £200 million in the statutory ceiling is based on our best estimate of the maximum amount of money that may be needed over the next three or four years for a return to viability. I should emphasise, however, that funds will only be released to the two ports to the extent that the Government are satisfied that they are needed for a return to profitability, and we intend to continue with our monitoring of the ports' financial performance. There is therefore no question of the ports being handed a blank cheque.

The PLA and the MDHC have made striking progress in reducing their surplus manpower, and about 1,000 registered dock workers have left the industry in each port in the last year. But further reductions are still likely to be needed, and one of the purposes for which the Government will be giving assistance is for the necessary severance payments. In addition, there will be loans for essential capital investment. Grants will also be available to meet operating losses, but only during 1982. In the Government's view there must be a clear end in sight to operating subsidies, and PLA and MDHC have been told that they must manage without grants for this purpose after the end of the year. We have asked them to submit action plans showing specifically how they intend to meet this remit; only when the Government have been able to consider these plans will it be possible to say what precise measures will have to be taken in each port, and what their detailed financial implications are.

Despite the massive changes of recent years, London and Liverpool remain ports of national importance, and I believe there is general agreement that it was right to give them assistance so that they could continue in operation. Both management and workforce have already carried through much of the rationalisation and improvement that was necessary, but more remains to be done. However, the way forward to profitability is now a good deal clearer than it was a year ago, and, with the assistance of the funds for which this clause will provide, it will now be up to the PLA and MDHC to meet the tough but attainable objective the Government have set them. I beg to move.

Moved, That the Bill be now read a second time.—(Lord Beliwin.)

3.8 p.m.

Lord Underhill

My Lords, I thank the noble Lord the Minister for so clearly explaining the provisions of the Bill. The Minister said that he would not be detaining the House long, but this Bill involves questions of financing policy and as we have so little opportunity to discuss these matters I may be a little longer in dealing with it.

From these Benches we welcome the Bill in so far as it is an indication that the Government recognise that the problem has been brought about by a recession and inflation on the borrowing limits. But as I think the noble Lord has said, the Bill does not provide any monies: it only gives borrowing powers up to certain limits. Therefore, the Bill begs the real issue: How is British Rail to have sufficient funds to replace or renew track equipment and rolling stock and also make provision for electrification?

It may seem a little ironic that we are discussing these matters in view of the present difficulties in British Rail. I am certain that noble Lords will share with me the view that we wish to make no comments which can make the situation more difficult, or to apportion blame. But I am certain that one thing is essential; the dispute should be clarified and settled at the earliest opportunity in the interests of the travelling public, in the interests of the ASLEF members and members of the other unions involved and, indeed, in the interests of British Rail itself, otherwise some of the matters with which I am going to deal may be of little importance. This country must have a rail system, but the present situation is very dangerous for that future.

The Under-Secretary of State in another place has made it perfectly clear—and his statements are absolutely clear—that: The replacement infrastructure of the whole railway, including track relaying, station refurbishment and so on, is paid for by British Rail out of its revenue."— and that is an important point which we ought to note— Similarly, investment even in rolling stock for the non-commercial railway is paid for out of the public service obligation and is financed by grants". It has been made absolutely clear that the borrowing powers are for rolling stock and for similar items for the commercial railway—that is, the freight and intercity services. There is the important point that, if borrowing powers are increased, there would be little benefit either to British Rail or, as we shall see, to the National Bus Company, if there is inadequate change in the external financing limits.

In the 1980 report of British Rail, which is the last report we have, the chairman said at page 8: Planned limits on railway investment have remained virtually unchanged for nearly 10 years. The reality is that to meet our financial targets we shall deliberately underspend by £50 million below an already inadequate ceiling in 1981. If a rising profile of investment is not agreed, and desperately soon, much improvement in service quality and productivity will be long delayed". Ministers have generally agreed with that observation made by the chairman of British Rail.

The 1980 annual report of British Rail showed that at the end of December 1980 capital debt to the Secretary of State was £429 million and, with other loans, total borrowing was £632 million. I am sure the Minister will agree that there is little hope of repaying that capital debt. The report also pointed out that, although borrowing powers were limited to £900 million, as the Minister has stated in his introductory remarks, it had not been possible to exercise some £268 million of that sum due to the limit on external financing.

The provisions of Clause 1, to raise the figure from £900 million to £1,100 million or even to £1,300 million, if need be, will be of little value if there is still to be a serious constraint on the external financing limit. A reference to the report also shows that British Rail has to pay interest on borrowings, irrespective of whether or not a loss is made in any one year. So we find that in 1979 there was a surplus of £62 million before interest and interest of £58 million was paid. In 1980 there was a loss of £8 million, but interest of nearly £64 million had to be paid. The position is clearly set out in paragraph 5.10 of the document, Rail Policy, which was issued by British Rail last March. It reads: Our only source of medium and long term borrowing is the Government's National Loans Fund. We are constrained by cash limits on the PSO, by our investment ceiling and by our External Financing Limits. All of this is subject to the annual Investment and Financing Review with the Department of Transport—a 5–10 year rolling programme, and the Department have the option of examining all projects of over £3.5 million". That latter point indicates the accountability which, of course, public institutions have to undergo, and which others do not have to experience.

Another important point also arises, again, in the 1980 report at page 19, dealing with the ratio of self-financing investment. The report, in its accounts, says: The Board is not able to achieve the desirable objective of wholly financing the replacement of its assets from internally generated funds even though investment has again been constrained below the agreed investment ceiling, reflecting not the Board's inability to spend, but the strict measures adopted to contain total expenditure within the external financing limits". The Secretary of State has stated that, within the investment ceiling set by the Government, British Rail must organise and operate its business to make available the funds for investment. But British Rail does that as much as it can and a substantial amount of investment is generated from revenue. Time and time again it has been stated by noble Lords in this House that some 70 per cent. of British Rail's costs are met from fares and charges, to a much higher extent than most other European railways. As we know, the subsidies given to British Rail are much lower than those given to other European railways.

Back in 1956 there was the modernisation plan for the railways. This made available some £1,200 million, which, I am told, at 1980 prices, would be £7,200 million. Now, after 20 years of the implementation of that scheme, there are signs of grave deterioration in the rolling stock and other equipment of British Rail. Paragraph 4.4 of Rail Policy, to which I have already referred, states: The watershed year is 1983. If major expenditure on replacement is not started by then the inevitable consequence will be a rapid rundown of the whole railway system". A subsequent paragraph—paragraph 4.6—details the serious consequences, which I shall not take up your Lordships' time in outlining.

The corporate plan for 1981 to 1985, which was submitted to the Secretary of State at the end of 1980, made clear in paragraph 3.3 on page 14 that: Existing investment levels, if continued, will lead to closure of substantial parts of the existing system during the decade, and inability to meet financial targets in later years". It must be mentioned that, following the corporate plan proposals, British Rail has started on drastic demanning. In fact, between 1970 and 1979 some 30,000 staff went. The corporate plan proposes that over the next five years 38,300 further jobs will go, and in the period from mid-1980 to March 1981 no fewer than 5,000 of those jobs had already gone. Other productivity plans are being carried through. Borrowing powers, which are purely enabling powers, alone will not meet the problem. What are the Government's plans? Provisions for increased borrowing with little change in the external financing limits will not be the answer. Some 12 months ago we debated in this House the whole question of transport policy and noble Lord after noble Lord referred to the need to re-equip and invest in British Rail, and to the need for a proper plan for electrification. The Government's proposals for electrification are unsatisfactory; they are piecemeal. There must be early agreement on a national scheme. The 10-year programme is all right, but, if this is to be agreed upon piecemeal instead of a general plan on which suppliers and manufacturers can work, then we shall not reach the position that we should, and it will be the private firms which will supply the materials.

I should like to say a few words on the National Bus Company, which is dealt with in Clause 4 of the Bill. We must remember that the National Bus Company was handling some 1,600 million passenger journeys each year. As with other concerns, it has been seriously hit by the recession. The drop in revenue in 1980, attributable to the recession, was £35 million. The full effects in 1981 are not yet available because we have not the report, but the chairman of the company in the 1980 report envisaged that one mile in every nine available in 1980 would not be available for the travelling public in 1981: that is, some 70 million miles of passenger services would be cut. It is pretty clear that economics will determine that the routes to be cut will be mainly those in the rural areas.

I must draw noble Lords' attention to the Transport Bill which was published only last week and which includes provision for the Secretary of State to instruct the National Bus Company to set up subsidiaries with a view to disposal to the private sector. The Secretary of State has made it absolutely clear in a press statement that one of the aims is to hive off the National Bus Company's successful national express coach services.

I understand that in 1980 the national express services contributed £3.1 million to the revenues of the National Bus Company, and an estimate of £5 million for 1981. Taking this away from the National Bus Company will only make the position more difficult. The target has been set that the National Bus Company shall make a profit of £18.5 million by 1985. It would indeed be tragic if that financial target is only to be met by cutting out further services in rural areas and restricting others. This is one of the things that many noble Lords feared at the introduction of the delicensing provisions of the 1980 Act. I would make the point that a public undertaking has a social responsibility, and should not merely obey the market.

The Select Committee on Nationalised Industries, which looked into the position not only of the National Bus Company but also of British Rail in 1977–78, reported in July 1978 and criticised the capital structure under which the National Bus Company has to work. The 1980 report and accounts of the company sets out that the commencing capital debt of £38 million and its subsequent refinancing at intervals with National Loan Fund loans brought about the position that at the end of 1980 capital debt had risen to £180 million, interest payable had quadrupled, and in 11 years interest of nearly £105 million had been paid on the borrowing.

There have been no capital debts written off since the National Bus Company was set up. As with British Rail, there are the problems of financing set out at pages 18 and 19 of the 1980 report. The external financing limit in 1979–80 was £82 million. This increased in 1980–81 to £85 million, but in 1981–82 was reduced to £75 million. With these figures being at out-turn prices there has obviously been a substantial reduction. As with British Rail, increased borrowing powers will be of little value unless consideration is given to the external financing limit, and merely borrowing and charging up interest to be payable only makes the financial position more difficult.

In conclusion, I refer to Clause 5, which deals with the additional financial assistance to be made available to the Port of London Authority and the Mersey Docks. The noble Lord kindly wrote to me after we discussed the 1981 Bill, which gave some provision to these same authorities, explaining that there had been consultations after the schemes had been discussed with the National Association of Port Employers and the Transport and General Workers Union. I hope that the Minister can tell me if there have been continued discussions with those bodies about the continuation and the increased development of the severance scheme, as there are large numbers of men who are still leaving under special severance arrangements for these two authorities.

The clause makes provision for financial assistance by grant, loan or guarantee, and the Secretary of State, speaking on the Second Reading in another place on 24th November, said at column 768: I have therefore told the chairmen of both port authorities that it is my intention that grants for meeting deficits should not be available after the end of 1982". Can the noble Lord tell us how much is envisaged as grants for severance costs?

The Secretary of State also stated that he intends to make loans available under the provisions of the Bill, but then he added: I must make it clear that there is a risk that these loans might not be repaid if the ports' finances do not improve". What will be the situation if the loans cannot be repaid and he carries out his statement that no grants will be made after 1982?—because the Secretary of State has added—which is quite true—that both these ports are of national importance.

My last point is that the noble Lord the Minister referred to the corporate plan received from each of the dock authorities, and that the Secretary of State was satisfied with the nature of these two corporate plans and therefore has brought forward the proposals under Clause 5 in the Bill. Can the House be told anything of the proposals by both these docks authorities so that your Lordships may also be satisfied with this provision made in the Bill? r am sorry to have spoken at length on this, but one cannot just deal with borrowing powers unless one deals as far as one can with the general financial position of the public authorities to which this Bill refers.

3.27 p.m.

Lord Wynne-Jones

My Lords, I am always interested in listening to the Minister, the noble Lord, Lord Bellwin, because he takes a lot of trouble to explain the case and puts it clearly to your Lordships' House. In this particular case there are certain things about which, as an ignoramus, I feel rather confused. I am not very familiar with the various acronyms that are used. When the noble Lord referred to the PLA I did not know whether it was the Palestine Liberation Authority or the Port of Liverpool Authority he was referring to. He may have been referring to both.

There is a point which worries me and confuses me considerably. That is, are we at the present time in this country concerned merely with closing down everything? Are we simply concerned, whether it is a private concern or a public concern, to make it as difficult as possible for it to continue trading? If so, we ought to say quite frankly that we are closing this country down. It seems to me extraordinary that we should take the line that nothing should be done to ensure that what we are doing, and are doing at least reasonably well, should be continued. Rather, we seem to say that unless it is being done with the same profitability as in Japan, or in Korea, or anywhere else in the world, then we ought to close it down.

Surely we ought to realise that there are lots of things we are doing that we are doing fairly well, and that, if there happens to be an international recession, that is surely not an excuse for saying that we must stop doing everything that we are doing today. If we say that, then surely all we are saying is that this country, in the strange phrase that is used all the time, is not viable. I do not really know what is meant by viable, or not viable. But I find it odd, when we look at things which are continuing to function, and to function in a reasonable way, that we say, "Ah, but they are not making a big enough profit, and therefore we must close them down".

I lived through an earlier recession when there were no fewer than 15 million people unemployed in the United States, with half the population it has today. People there were dying, and I lived in America for two years at the time. They went through the whole of that period, and nothing saved them but Roosevelt and the New Deal. Without that, there would be no Reagan masquerading in the United States today. It was because of what Roosevelt did—because he was able to fire the imagination of the country—that the American people realised that out of despair they could create hope and out of hope they could create new activities. Not only did he do it but he did it so well that he was re-elected three successive times as their President.

Are we to go back to that period of utter despair and say we shall close things down? Are we going to restrict things because of a so-called lack of viability, a word which no one defines? Surely, if we do that, we are saying we prefer to cut our throats rather than survive. Is it not time that we in this country began to realise that we are not in a position of despair? We can survive if we are prepared to put the money and resources into doing so. I urge your Lordships to say, "We are concerned with trying to create the future. We are not concerned with any mistakes we made in the past. We are not concerned with destruction or self-destruction. We are concerned with recreating the whole of our modern life". We can do it, but we cannot do it by refusing to invest in it.

3.33 p.m.

Lord Bellwin

My Lords, I should have thought, with respect to the noble Lord, Lord Wynne-Jones, that the proposals in the Bill were anything but to do with destruction. On the contrary, the size of some of the figures—on which I might have expected some of your Lordships to comment—is huge indeed and hardly indicates the kind of message to which he referred. However, let me hasten to assure him that it was indeed the PLA and not the PLO to which I was referring; had it been the PLO I should have said different things!

I understand the concerns that have been expressed by the noble Lords, Lord Wynne-Jones and Lord Underhill—concern to protect the future of our transport systems and to ensure that the financial structures of our transport institutions reflect the country's needs and priorities—and I am sure we can all agree on the necessity for that. We must remember, however, that more investment and the achievement of higher quality can come only if the resources are earned by improved efficiency within the industry, or if they are given by someone else. There is no way of escaping the reality of that. I know that both British Rail and NBC are well aware of the need for greater efficiency. NBC are being particularly successful at adapting to the effects of recession, and I gladly take this opportunity to congratulate them on their recent performance. The company have made considerable progress in containing costs. I understand that in 1981 they achieved their performance aim of reducing their real operating costs per vehicle mile by no less than 3 per cent., and that is not to do with worsening a service in any way at all; it is to do with doing it better, and for that reason it is good to be able to compliment and congratulate them.

British Rail too have made considerable progress towards meeting their target of reducing manpower requirement by 38,000 posts over the five years from 1980. In 1981 they exceeded their own target by reducing the number of men in post by some 7,500 in that year alone. That surely underlines how important it is that that real gain is not dissipated and frittered away by failure to make progress in improving working practices and in management action to control costs.

The noble Lord, Lord Underhill, spoke about the board's investment. It is not the case that the Government have reduced the investment ceiling. We want to see the board improving their performance to produce the necessary resources and it is worth pausing to reflect on just how much investment is going on. The hoard expect to spend £325 million on investment in 1981–82—hardly closing down—in addition to the annual expenditure, which is currently totalling nearly £500 million on work such as maintenance of the infrastructure, which falls outside the ceiling. I say again, therefore, that the board are by no means in a position where everything has come to a halt; I should not have thought that was coming to a halt by any means. Within current levels, they have been able to carry out a wide-ranging programme of investment, including for example the introduction of the HST.

I know there is considerable interest and concern in the House about the future of the railways, and I will comment briefly on that, but first let me dispel some myths. It is not the case that we lack faith in the railways. On the contrary, the Secretary of State and his predecessor have made quite clear their belief in the importance of rail to the vitality of the country and their commitment to the extensive network we now have. It is very far from the case that we have starved the railways of funds. The level of grants now being paid is higher in real terms than ever before. The board's current external financing limit is as large in real terms as that set for any year by the previous Administration; again, hardly a record of parsimony. It is not the case that we have restricted the board's investment. The investment ceiling remains, in real terms—I repeat, in real terms—what it was under the previous Administration. It is also not the case that we have blocked the board's plans for electrification. Those plans are expected to be with the Secretary of State shortly.

We are eager to see British Rail succeed, but their problems are, none the less, formidable. As my right honourable friend said in another place and as I welcome the opportunity to reiterate today, a prosperous future for the railways, with more investment, can be secured only if Government, management and unions play their part. Management must tackle the long-term problems of cost control and efficiency; unions must appreciate the need to overcome the problems of overmanning and out-of-date restrictive working practices. That is exactly what lies at the heart of the present dispute, and it is particularly sad to see one union destroying the opportunities for change to which their colleagues in other unions have responded so positively. If management and unions can resolve the impasse and produce a business performance to justify further investment, I assure the House that the Government remain ready to play their part. Surely, whatever it is, that is not a policy of despair; I submit it is quite the opposite.

I think it would also be useful for me to add that, just before the present industrial dispute, British Rail suggested to the Government, and the Government have agreed, that there should shortly be a review of railway finances, under an independent chairman, covering a wide range of important questions, some of which the noble Lord, Lord Underhill, raised today. The review will be concerned with British Rail's objectives, the finances available to serve them, the way in which the railways are run, and the railways' business plans for pursuing its objectives.

I do not today want to say a great deal about the National Bus Company. I have made my general observations about the company. As is known, there is a new Bill to come, and I think that we must await it. However, on the point regarding capital debt, which the noble Lord, Lord Underhill, mentioned, I think it would be right to say the Government are well aware of the company's views on its capital debt. We have made it clear that we cannot accept that the debt is disproportionate to the company's assets. Nevertheless, we have commissioned a study from Touche, Ross, and Company of the allocation of the company's debt between its subsidiary companies, and my right honourable friend expects to receive the report shortly.

I do not think there is much more that I can add. So far as the ports are concerned, negotiations are going on. I cannot give details of them. At the moment it is impossible to say how much will be available for grants for severance or in the way of loans for capital and so on, but the point is well made and, I gladly assure the noble Lord, is being discussed. I hope that your Lordships will give the Bill a Second Reading.

On Question, Bill read a second time, and committed to a Committee of the Whole House.