HL Deb 13 July 1992 vol 539 cc9-37

3.21 p.m.

The Earl of Caithness

My Lords, I beg to move that this Bill be now read a second time.

The Bill before your Lordships is a short, essentially technical, measure. Its purpose is to give British Rail and British Coal powers to take the steps necessary to prepare for privatisation. I will explain briefly the content of the Bill's two clauses.

Clause 1 of the Bill confers on British Coal and British Rail powers to act in relation to proposals for the transfer of their commercial activities to the private sector or proposals for the establishment of new arrangements for their other activities. In particular, it empowers them to consider and take advice on proposals for privatisation, advise the Government on such proposals and draw up plans for implementing such proposals. They will be able to employ external advisers to assist them in all these tasks.

Clause 2 simply gives the short title of the Bill, sets out the financial provisions and extends the Bill to Northern Ireland. The financial provisions deal with the source of any loans and clarify the destination of any repayments, should either British Coal or British Rail require additional funding to meet costs incurred in preparation for privatisation.

It is also worth taking a few moments to say, for the avoidance of doubt, what the Bill does not do. The Bill itself does not give British Coal or British Rail powers to implement any scheme of privatisation. That will be a matter for the main privatisation legislation which the Government intend to bring forward later in the year. Nevertheless, this Bill represents the first legislative step on the road to privatisation for British Coal and British Rail.

The successful privatisation policies of this Government have already enabled two-thirds of companies once owned by the state to be returned to private enterprise. They have been given commercial freedom to flourish in the market place away from the constraints of nationalisation. The Government believe that the time has come for the coal and rail industries also to benefit from the private sector management skills, entrepreneurial spirit and efficiencies which have transformed companies, businesses and indeed whole industries.

In the transport sector, we have witnessed the revitalising effect that privatisation has brought about. For example, since we privatised British Airways, productivity per employee has increased by more than 20 per cent. Last year BA's profits were up by over 100 per cent. while the major state-owned European airlines were heading for losses totalling I billion dollars. The National Freight Corporation was brought into the private sector through a management buy-out in 1982 and was successfully floated on the Stock Market in 1989. In the past five years, the value of shares in the company increased 42-fold and investment in the business quadrupled. In other areas of industry we have seen similar remarkable results. British Telecom prices are down 27 per cent. in real terms since 1984 and there are 17 per cent. more pay phones—96 per cent. of which work at any one time. British Gas domestic prices are down 13 per cent. since privatisation.

In all of these privatisations, the guiding principle has been the need to secure value for money, and to increase consumer choice and efficiency by promoting greater competition and calling on the initiative of the private sector. My noble friend Lady Denton will have more to say about coal in her concluding remarks. I intend to direct most of my remarks today to how we intend to apply this principle to the privatisation of British Rail.

The Government will be setting out their proposals in a White Paper in the next few days. We have already set out the background and indicated in broad terms the likely shape of these proposals both in the Government's election manifesto and during the debates on this Bill in another place.

However, before saying more about the proposals themselves, I hope your Lordships will find it helpful if I say a little about what lies behind them. BR has made significant progress and the introduction of its Passenger's Charter is a further step in improving its responsiveness to customers. While these have been steps in the right direction, we need to go further. BR is subject to all the constraints of a nationalised industry. These constraints mean that BR cannot ensure the efficient organisation and delivery of services. We need to end BR's monopoly of rail service provision which is outdated and does not provide sufficient incentives for the improvement of its performance. This will enable the railways to respond to the increasing demands of their customers and to provide the quality of service their customers want.

At a time of rising demand for transport services, of increasing road congestion, and when our commitment to protecting the environment is ever more important, it makes sense to make the best use of our railway system.

British Rail cannot be privatised in the conventional way because it makes substantial losses. But that does not prevent us from bringing private sector skills into the delivery of rail services. Indeed, we believe that greater involvement of the private sector is the only way to bring about the improvements in rail services that passengers and freight customers alike want and expect. The private sector has the capacity and incentive to respond in a flexible and adaptable way to the demands of rail customers. By involving the private sector we can provide the stimulus of competition that the railways need and provide the consumer choice that will attract passengers and freight customers.

The objective of our proposals is clear. We want to provide better services for all rail users. For passengers, we propose to involve the private sector through the franchising of existing services. We envisage franchises being let in a rolling programme over a number of years with each franchise agreement specifying standards of punctuality and reliability that must be met by the operators of these services. BR will continue to run those services not franchised to start with. We want to see network benefits maintained and we have said already that through ticketing will be required. BR will continue to be responsible for track and infrastructure.

A further element of our proposals is the liberalisation of access to the rail network giving the private sector the opportunity to run new services. BR has already been asked to co-operate on a voluntary basis to provide access for new operators. As a result, the first of these new services is already in existence. The Stagecoach Group recently started to operate an overnight service from Aberdeen to London. The legislation that we intend to introduce later this year will provide rights of access to the rail network for all types of domestic rail services. Already there are signs of interest in operating new passenger and freight services when the opportunities are there. The Government have also decided that BR's freight and parcels businesses should be sold.

The greater involvement of the private sector in rail operations does not mean that the Government are seeking to abandon their responsibilities. The taxpayer's support to the railways has been underlined in recent years by record levels of investment. Investment stands at around £1 billion in 1991–92 and a further £1.5 billion is expected for 1992–93. Over the past two years, Network SouthEast has invested over £700 million, and since 1986 over 1,000 new vehicles have been delivered. On InterCity, the electrification of the east coast main line was completed last year at a cost of some £475 million.

That commitment to the railways will continue. In particular, we recognise that there are many rail services that meet an essential social need but which rely on subsidy. But there is no reason why only profitable services should benefit from private sector involvement. We have made it clear that we shall continue to provide subsidy for those services where necessary to whoever is operating them. There have been claims—unfounded claims—that privatisation will lead to immediate or wholesale closures or cuts in the network. So let me make it clear that the statutory closure procedures will be maintained.

There have also been suggestions that greater private sector involvement will lead to a weakening of safety standards. I cannot emphasise strongly enough the importance that has been attached to safety considerations in the development of the Government's proposals. The high safety standards will be maintained, as in other privatisations.

Private sector involvement promises better use of resources and a better standard of performance. It is the way to ensure a sound and long-term future for the railways.

In the Government's election manifesto, we said that we would bring forward proposals for privatising the British Coal Corporation.

Lord Cledwyn of Penrhos

My Lords, the noble Earl has referred to a number of important inter-city lines in this country. As he and the House will agree, one of the most important is the line from Euston to Holyhead, one of the oldest lines in the country. The "Irish Mail" is the oldest named train in the world. Is he aware that in The Times this morning there is a disturbing report that the inter-city line from Euston to Holyhead is to be curtailed and is to end at Chester? If there is any truth in it, that would be a most deplorable step. Can the noble Earl give me an assurance that it is not true?

The Earl of Caithness

My Lords, I cannot give the noble Lord an answer to his question at the moment. I cannot give an assurance or dispel any doubts that he might have received from reading a press report. But I can assure him that, as usual, I shall take very careful note of what he said and let him know as soon as I can. I was fully expecting a question from the noble Lord about the Holyhead line and other Welsh connections too that he did not mention.

British Coal has a long tradition and fine record to be proud of in technical and professional excellence in mining, in improving productivity and in safety. However, British Coal's future development is hampered by remaining in the public sector, while its main customers, the electricity generators, now operate successfully in the private sector.

We want to create an efficient, competitive and profitable coal industry with a secure future. Privatisation will put the industry in a better position to compete on the basis of business strength.

The Government plan to privatise British Coal as soon as possible and will be introducing main legislation later in this Session. There is much work still to be carried out within government and British Coal. Decisions on the future structure of the industry and the timing of privatisation have yet to be made. My honourable friend the Minister for Energy invited the views of interested parties on the form and timing of the privatisation of British Coal by the 22nd June. The Government are now considering the responses carefully before announcing their policy intentions.

These are all matters that your Lordships will have a full opportunity to discuss in due course. The Bill before us today will enable British Coal and British Rail to make their input into these proposals so that the Government can introduce main legislation that has had the benefit of the expertise in these two industries and to ensure that the proposals that the legislation seeks to implement will be workable. We therefore look forward to the active and constructive participation of British Coal and British Rail in working up the detail of our proposals once the Bill has completed its passage through the House. I commend it to your Lordships.

Moved, That the Bill be now read a second time.—(The Earl of Caithness.)

3.34 p.m.

Lord Underhill

My Lords, I thank the noble Earl for introducing the Bill. There is one point on which we would all agree: we all want to see rail give the maximum benefit to its customers. Bearing that in mind, I must follow up the question raised by my noble friend the Leader of the Opposition. If the noble Earl finds that there is a decision somewhere to abolish the Holyhead line, what action will be taken? Will the Government go ahead with that or will they insist that it should not be proceeded with? If the Government intend to proceed with it and approve the British Rail policy, will justification be given as to why that line should be cut out?

This is only a two clause Bill but it has far reaching effects on the coal and railway industries. During the Second Reading debate in another place, the Secretary of State said: The Bill is an important first legislative step to bringing the benefits of the private sector and privatisation to the coal and rail industries".—[Official Report, Commons,18/5/92; col.22.] The noble Earl quoted somewhat similar statements in his opening address. Where is the justification for the Secretary of State's statement? The Government have not yet issued the White Paper. We hear reports about what the White Paper may contain. In his speech the noble Earl referred to certain matters which the Government are to follow, yet we have not had the White Paper. We do not know what is in the White Paper. We do not know what justification there will be for points contained in the White Paper.

We know that the Government intend to press ahead with privatisation as soon as possible and that Bills will come forward in the autumn. Presumably, once the White Paper is issued, the coal and rail industries will go ahead with their proposals. From reading the Bill and the comments—not official decisions—that have been made by Ministers and repeated by the noble Earl today, we know that this small Bill has all the hallmarks of the Government's ideological obsession with privatisation. Has the noble Earl seen the article in today's Guardian by Will Hutton? I do not necessarily agree with everything in the article, but it is a balanced and reasoned article.

During the Second Reading debate in another place a number of honourable Members attacked the principle of nationalisation and referred to the coal and rail industries being returned to the private sector. At this point I should like to look at one or two points of history. Prior to the nationalisation of the four regional companies, which were built up in 1923 from some 120 smaller companies, those companies were hardly thriving organisations. On many occasions no dividends at all were paid to the shareholders of those companies. Perhaps I should mention that I shall not be dealing with the coal industry. My noble friend Lord Donoughue will deal with it in his speech. However, I have my noble friend's permission to make just one observation.

Such was the state of the coal industry with its 1,500 separate companies that there was general agreement that only nationalisation could solve the industry's problems. The Sankey Commission, which reported in 1919, recommended nationalisation of the coal industry. The conditions of the workers in the industry were appalling. Their lives in general were miserable. It has to be said that a number of coal owners built up their wealth and so-called social standing on the sufferings of the people in the mining industry. Nationalisation had to happen. It may be that with the passage of some 60 years there is the possibility of co-operation with the private sector in certain industries and in certain ways. But in the case of the coal industry the workers had to wait until the Coal Industry Nationalisation Act 1946 before there was an improvement in their general conditions.

We are told that private sector management is essential to achieve improvements in rail. In the Second Reading debate in another place the Secretary of State said: British Rail itself has made significant progress and compares well in terms of efficiency in Europe".—[Official Report, Commons,18/5/92; col.28.] He went on to pay tribute to the many dedicated people in the management and workforce of British Rail.

It should not be overlooked that, overwhelmingly, the management of British Rail comprises railmen. That is a most important factor to keep in consideration. There is also the claim that rail needs the stimulus of competition. I hope that we receive an explanation as to exactly how competition is to be provided. I believe that the noble Earl mentioned that in his opening speech. Right at the outset, it must be remembered that British Rail already has to compete with other forms of transport in the country. As regards the few examples given by the noble Earl, I must say that a few carriages attached to a BR night service cannot be said to be vigorous competition. A private entrepreneur who seeks a franchise will look for a franchise on what he thinks will be the most profitable service at the most profitable time.

There has been talk of hiving off parts of British Rail. Needless to say, there are bound to be those that are profitable. But no one will hive off parts of British Rail which are unprofitable and in which people cannot see much opportunity for profit. Therefore, BR will be left with any necessary services which are at present receiving public service obligation grants. Such services will not be taken over by entrepreneurs who seek a franchise. There must be an authority to ensure that those services continue to carry out the effective running of the nationwide rail network and that they are accountable.

The noble Earl referred to certain decisions which, I gather, have been taken as to how the railway will be run in future with a track authority and an operating authority. Those decisions have apparently been made but we have not as yet had the White Paper. We do not know that they are in the White Paper or whether they are decisions that British Rail support. It seems that they are just observations by government Ministers. Where will there be real competition to which reference has been made? As one MP declared, any talk of effective choice for customers is ludicrous. He said that trains cannot leave the same station at the same time.

British Rail has stated that the question of ownership is a matter for the Government as the shareholder to decide. But British Rail has said that if that course is to be proceeded with, there ought to be some criteria to be followed. Those include: benefits of a nationwide rail service network must continue to be available; there must be effective arrangements to protect the safety of rail operations; and there must be provision for adequate and uninterrupted investment—a point strongly made by Sir Bob Reid, BR's chairman.

In the same debate the Secretary of State (at col.27 of Commons Hansard) stated: British Rail cannot be privatised in the conventional way as it exists now, because it is making substantial losses". I believe that the noble Earl repeated that in his speech. We know that the loss encountered by BR last year was £144 million. The Secretary of State then added: As it stands, there would be no buyers for BR en bloc". That means that people would take the best of BR and leave the rest of British Rail to try to stagger along. The Secretary of State went on to say that the Government were proposing a mixture of outright sale and the greater involvement of the private sector. I repeat what I have already said: we have not as yet seen the White Paper. We do not know what is proposed and exactly what is the justification for it.

When considering the financial aspect, we should bear in mind the fact that 80 per cent. of British Rail freight is dependent upon the movement of coal. No doubt my noble friend Lord Donoughue will make reference to that. One can clearly see the dependences between the coal and rail industries. I learnt today from a newspaper report that there is a possibility of the amount of coal being supplied by PowerGen and National Power being less than it has been in recent years. If that is so, it will have a tremendous effect on the finances of British Rail. When she replies, perhaps the noble Baroness will make reference to that point.

There are two matters to which I should like to refer which relate to Clause 1 of the Bill. The clause refers to the transfer of, any functions, property, rights or liabilities". I hope that the noble Baroness will be able to explain the limits of the "liabilities". Alternatively, perhaps she will be able to give an undertaking that that aspect will be dealt with in the White Paper. Further, who will meet the cost of safety provisions? Who will meet the cost of the British Transport Police? Those questions were raised in the debate in another place, but the position is still very far from clear.

My other point also refers to Clause 1. In carrying out any transfer, British Rail and British Coal are given power to take "appropriate steps" to prepare for privatisation. What does the phrase "appropriate steps" mean? That is a very sweeping term to be included in any item of legislation. However, I doubt that any steps will be taken which are not in accord with government wishes and government policy.

Before I conclude, there is just one important point that I should like to raise. It has been raised by the Association of Metropolitan Authorities, of which, as noble Lords will know, I am the current president. The AMA has a particular interest in metropolitan authorities outside London. The passenger transport authorities, with their public transport executives, provide finance in those areas for urban rail services under what are known as "Section 20" grants; that is, Section 20 of the Transport Act 1968. Those services play an important part in public transport in the respective areas. In the current year, they provided no fewer than £225 million-worth of rail services and made about a 150 million passenger journeys. They also achieve co-ordination with other local transport. Therefore, they are most important bodies which carry out important work.

Will the White Paper include details of how those PTA/PTE services, and their supporting finance from the local authorities in the area, will feature in the Government's proposals? If those services are to be included in any intended franchising proposals, what part is it proposed that the PTAs and the PTEs will play in the award of franchises and in the accountability of those franchises? Local authorities are making grants, as I said, under Section 20 of the Transport Act 1968. They will expect—and rightly so—that not only will they be considered but that they will also play a part in the actual accountability of those very important services.

Generally speaking, the Opposition dislikes the Bill and its purpose. We look forward to the Minister's reply on the points that have been made. We shall consider very carefully in Committee what we can do to avoid this two-clause Bill causing damage, especially so far as I am concerned, to the rail industry.

3.48 p.m.

Lord Ezra

My Lords, in speaking on the Second Reading of the Bill I wish first to declare an interest. Apart from a long past involvement in the coal industry, I am at present connected with companies dealing with the distribution and usage of energy, including coal. Although it is a short Bill, as the noble Lord, Lord Underhill, just said, it raises major issues affecting the structure and ownership of two basic industries.

I believe that the first question to be asked is whether this is the right time to be contemplating the privatisation of the two industries. Of course, I realise that the Government are committed to that course, but not necessarily to its timing. It could be argued that neither industry is ready for the major changes involved in privatisation. In the case of coal, the crucial issue is the form of contracts now being negotiated with the electricity generators, and affecting 84 per cent. of coal production. It is rumoured that that is proving a difficult negotiation. Until those contracts are concluded, there is no knowing what the future size of the coal industry will be and, therefore what there will be to privatise.

In the case of the railways, they have suffered seriously as a result of the recession. They have incurred major losses in the past year—the noble Lord, Lord Underhill, reminded us that they were £144 million—and even though their investment levels have increased, as the Minister pointed out, that falls short of what many of us consider is needed to establish an efficient and satisfactory railway system. Therefore, it might be held to be more prudent to spend a little more time sorting out those fundamental issues in both industries rather than proceeding at this stage to privatisation.

If, nonetheless, it is decided to go ahead at this time, then it is to be hoped that in both cases there would be published a White Paper before legislation is brought before Parliament. While it seems fairly clear that the Government intend to issue a White Paper dealing with the railways—its contents have been fairly well leaked in the newspapers today—there is uncertainty about coal. It is just as important that there should be a White Paper dealing with the coal industry's proposed privatisation, indicating the various options and the reasons why the Government are moving in one direction or another, as it is in the case of the railways. I hope that the Minister will be able to reassure us on that score.

Coal privatisation raises a host of issues. The first, as I have said, is the future size of the industry. At present,65 million tonnes a year are being supplied to the electricity industry. It is rumoured that in the new contracts being negotiated with the two major generating companies the quantity involved might be reduced in total to 45 million tonnes a year, and that that might decrease still further during the currency of the contracts—an ultimate figure of 25 million tonnes after five years has been mentioned. That would involve substantial further pit closures. Who will be responsible for carrying out those closures, and under what terms and conditions?

Next, there is the issue of the form that privatisation will take. Will the industry be kept in its present form and be dealt with similarly to the gas industry which was transferred, as it stood, from the public to the private sector; will it be split in two and take the form of a duopoly, similar to what has happened to electricity generation in England and Wales; or will it be broken into a larger number of parts? Depending upon the form that privatisation takes, a number of subsidiary issues will arise. Among those issues, and of especial importance, is the possible encouragement of management buy-outs and the involvement of the mine workers in such new enterprises.

There is then the question of who will own the coal reserves. On the nationalisation of the coal industry in 1946 those were vested in the National Coal Board, having previously been held by the Crown through a body known as the Coal Commission. Is it intended to re-establish such a body and, if so, under what conditions will it issue licences to exploit coal? Will that body be the regulatory body also, or will there be a separate regulatory body?

Another issue involves research and development, which is a vital ingredient in the future of the coal industry. There is much to be done to achieve still further improvements in underground mining technology; but, above all, there is the need to develop clean coal technologies to make the usage of coal consistent with current environmental requirements. If effective progress is to be made in research and development it will need to be continued on an adequately funded basis. Will that be provided for under the privatisation measures?

The coal industry has a remarkable safety record. It is the safest large-scale mining industry in the world. It is vital that that record he maintained. Under what conditions will that be achieved under privatisation? Finally, there is the issue of pensions. The Coal Board pension schemes—one for mineworkers and one for staff—are among the largest and most successful in the country. On a possible break up of the industry under privatisation, what will happen to those schemes? What assurances will be given to existing and future pensioners? Here I must declare another interest: I am an existing pensioner. British Coal is at present enjoying a pension holiday. Will that be continued for the benefit of potential purchasers of either the whole or parts of the industry? If so, will it be taken into account in the purchase price? All those are issues which need to be clarified before the legislation is formulated. It is therefore to be hoped, as I said earlier, That there will be a White Paper on coal privatisation.

In the case of the railways not only have the Government committed themselves to the publication of a White Paper setting out their intentions but they have already indicated, as the Minister did today and his right honourable friend did in another place recently, the broad direction in which they are thinking. British Rail, according to those indications, will continue to operate the track and signalling. Railway services will be franchised to the private sector, but, insofar as services are not franchised they will continue to be operated by British Rail. It is intended to sell off the freight and parcel services and probably the stations too. There will be a regulator to ensure that the various provisions affecting competition, access to the network and prices are properly observed. Those are the matters that the Government have indicated.

The key question to be asked about those proposals is where the railways users will stand at the end of it all. Will there be a more efficient service? Will it cost less? What about investment, especially on track and signalling upon which much more is required? Will British Rail, as the track operator, have adequate resources for that purpose? The Central Transport Consultative Committee has raised important questions about consumer safeguards under privatisation of the railways. It has asked that there should be a preservation of the network effect, providing through fares and ticketing between all stations, irrespective of the operator. It has asked for integrated national train tables providing connections between each operator's services. No doubt they will be provided. It has also pressed for a national information and reservation system. Furthermore—this is most important—it would like to see separate, independent statutory consumer councils to deal with complaints. Those bodies would be separate from the regulator and the operators. I hope that we can obtain an assurance on that point.

In the hope that the Government will be issuing separate White Papers on the privatisation of both coal and the railways, will the Minister confirm that there will be debates on those White Papers before legislation is presented?

3.59 p.m.

Lord Marsh

My Lords, this is undoubtedly a small but significant Bill. These are the first privatisation measures that have required the prior enactment of such a Bill. Despite that, I am afraid that I do not go along with the noble Lord, Lord Underhill, in dismissing the value of the Bill, because it is an important Bill although it is small. It is especially important to him, because he will not be able to get the questions he has raised answered by the Government until they have the Bill to enable other people to carry out further investigations as to what the answers to those questions might be. That is one of the problems all the way through this saga—the way in which the Government have stumbled into privatisation in this case as a matter of principle. They then found that in this instance it is much more complex than in any other area.

Nonetheless, it would be foolish to suggest that all is well within the railway industry. It is also fatuous—and the noble Earl, Lord Caithness, did not suggest it, but many other people did—to say that it is simply a problem of inadequate railway management. Nor is there any evidence that the problems can be solved within the present structure. Some people have had the honour to serve, as I did, both as Minister responsible for the industry and then—presumably because they thought I knew more about the problems of the railway than anyone else because I had created more—they decided to promote me to manage the industry. People with knowledge of the industry know that there is no difference in the difficulties facing the railway industry, whether the government be Conservative or Labour. The problems are inherent in the present structure.

For the past 45 years British Rail has been a wholly-owned subsidiary of Great Britain Limited, with all that that entails. Throughout that period the government of the day have exercised total control over the investment policy and the strategy pursued by the board. They have intervened in pricing policy, in wage negotiations and in the closure of uneconomic units whenever or wherever they felt it right and regardless of their political complexion.

The most important power is the Government's absolute control of board appointments, and not just the much publicised appointment of the chairman and the seven eminent non-executive directors. The Government and not the board appoint not only the non-executive directors but also the chief executive and the executive directors responsible for finance and planning, group services, engineering, operations and safety. I make this point because throughout those 45 years the ultimate management of the railway has been in the hands of the government of the day. They have been in a position to appoint whomever they wished and to change operational decisions on pricing policy or even wages policy.

All Ministers say that they never intervene in wage negotiations, but if one is sitting listening to a Minister from either party on the radio in the morning when the Southern Region is in difficulties with a railway dispute, the Minister may say: "I have no responsibility for the management of the railway and the conduct of the negotiations. That is a matter for the railway board. All the Government ask is that they get together and talk". What he thinks a trade union talks to an employer about in the middle of an industrial dispute, other than a settlement of the wage negotiation, I know not.

I make these points because it is important to establish that the organisational structure of the industry has totally failed to provide the country with a stable system anything like that which the public want. Anything that the Government disliked they could have changed at any time over the past 45 years. They have not made changes because the problems involved are real and complex. We must understand those problems.

The fact is that British Rail has never made a commercial return on investment. The noble Lord, Lord Underhill, said that it did not do so when it was privately owned; it has not done so since it has been publicly owned and no railway system in any other country in the world has done so. No passenger rail system anywhere in the world of which I am aware produces a commercial return on the money invested. Nor do I know of one where the Government—and all governments in all countries have faced the same problem—have found a way of getting a cheap railway.

The railway is probably one of the few businesses which responds to having money thrown at it. We can have any kind of railway we wish; there are no great scientific frontiers to be broken. There are things called wheels about which we know an enormous amount, We put boxes on them and the technology is well known. It is a matter of large sums of money and no government have been prepared to raise the amounts needed.

There are many reasons why the railway cannot be commercially successful. Much of the infrastructure is well over 100 years old; it was designed for a pattern of industry and population very different from that of today. There is an extraordinary level of fixed costs and many of what would laughingly be described as "assets" if the Government had the barefaced nerve to go ahead with a public prospectus—literally thousands of tunnels, bridges and sea walls which have a negative value. Further, unlike the airlines or bus companies, there is virtually no secondary market for ageing coaches and locomotives.

Finally and probably most important, if any system of franchising passenger services is to stand a chance of success it has to be understood that far from British Rail being a monopoly it is a small player in the highly competitive freight and passenger market compared with road and air.

For a road haulier, access to the road system represents about 4 per cent. of total operating costs. For the airlines, airport and navigation charges represent only 10 per cent. of the overheads. But for British Rail, track costs constitute 48 per cent. of the total costs. The argument about the need for a level playing field with road and rail cannot be dodged, because it is impossible for the railway to compete with that difference between them.

Richard Branson is a man who exudes limitless charm and endless enthusiasm. But I warn the Government, if they are not aware of it, that he is also a tough and experienced businessman. His views are more important than mine in this context. He has announced that he is interested in playing an active role, so I inject one of his views into the debate with enthusiasm. As one of the two people expressing serious interest in the exercise, he said: If privatisation is to work—it has to make the rail lines available to private operators at roughly the same cost as road is made available to lorries". That is a simple proposition and, one way or another no doubt with the help of creative accounting, it is the issue which the Government will have to face. But important though it is, the cost of the rail track is not the only problem. No matter who owns British Rail, trains will continue to break down for many different reasons. Frequently they will be delayed. Unlike buses and aircraft, competing trains cannot go over, under or round the obstruction. The disruption caused by one train failure can extend over a wide area and affect literally dozens of other services.

With a multitude of competing commercial services, the task of determining the cost and the allocation of compensation to those affected is likely to be as expensive to administer as it will be complex. Once again, the Government will have to carry the responsibility and the cost of those arrangements.

The Government are embarked upon a unique experiment. So far as I know, it has not been tried anywhere else in the world. Whatever view one forms on the final proposals, the Bill can only be beneficial in shedding light on the complex and difficult problems involved.

It is possible that in four years' time Ministers may find that they have created a monster compared with which the poll tax will pale into insignificance—a veritable Frankenstein. It is much more likely that it will be a massive anti-climax: a few glamour services with increasing costs for a declining service. However, it could just work. Investing companies will require from the Government long-term legally-enforceable contracts which will set out the responsibilities of both the Government and the private companies. In that event, while it might not be quite what Ministers had in mind at the beginning of this exercise it would provide the railway system with a degree of stability which only a true partnership between the state and the private sector is ever likely to achieve. If that happens, it will not please the ideologues but I promise the voters will love it.

4.10 p.m.

Lord Mountevans

My Lords, I begin, as I always do in this context, by declaring an interest as indeed I did some eight years ago when I tabled an Unstarred Question that looked forward to the privatisation of British Rail. It follows that I welcome this Bill and the initiatives which it precedes. As has been said several times, it is a short and important Bill which, as I understand it, enables BR to incur expenditure on preparing to dispose of some of its prime assets contrary to its statutory duties under the 1962 Act which were to operate with due regard to economy, efficiency and safety.

In incurring such expenditure I hope that BR and indeed the Government will bear in mind a number of factors. First, there must not be creative accounting. That factor was in effect mentioned by the noble Lord, Lord Ezra. We must stick to financial disciplines and to the principle of value for money. In the circumstances I believe that we obtain surprisingly good value for money from the railways in their current state. I believe that the customer obtains value for money from the non-subsidised businesses and that both the customer and the taxpayer obtain good value for money from the subsidised businesses of British Rail.

British Rail is an innovative business. Anyone who has studied the railways for any length of time will realise that. British Rail is particularly innovative by the standards of other more feather-bedded operators abroad. That fact is most simply demonstrated by the considerable number of foreign secretaries of state, foreign civil servants and indeed foreign railway operators who come to Britain year after year to find out how we are achieving that innovation. We must continue along those lines. We must ensure that any future reorganisation continues that work regardless of whether the onus of continuity is on the remains of the railway as we know it—there will be the remains of the railway as we know it—or on those private sector elements which become involved.

I would hope that both BR and the Government will ensure that privatisation proposals lead to improved services to customers and that we, the customers, retain the benefits—the noble Lord, Lord Underhill, referred to that matter and the noble Lord, Lord Ezra, extended the argument, particularly with reference to the Transport Users Consultative Committee—of an integrated system, irrespective of the provider of services or blocks of services. Learning from the experience of urban bus deregulation, we must seek to protect universally-available through ticketing and information provision.

In introducing the Bill my noble friend Lord Caithness and the noble Lord, Lord Underhill, also mentioned Stagecoach. It is worth mentioning that Stagecoach only entered the long haul railway business because it could not cope with road congestion. However, that is a subject for another day. I greatly admire Stagecoach. It is an extremely enterprising organisation, but one of the difficulties that that operation faces at the moment is that information and through ticketing are not readily available. I admire the rapidity with which Stagecoach and British Rail got their act together in a period of just four-and-a-half to five months. However, that operation teaches us that in developing privatisation proposals we must walk before we start to run. We only have one chance to get it right. We must avoid the many chances where we might go wrong, some of which, as I have said, have been demonstrated by Stagecoach.

Further, the railways and the Government must ensure that whatever is proposed in privatisation terms carries the staff with it. I firmly believe that the successful privatisations of BA and NFC—I could also have added BAA, and, to a certain extent, Associated British Ports—were largely due to staff enthusiasm and to the financial participation of both management and staff. It is just as important that BR's present staff are persuaded that there is a future, and ideally that they are given the opportunity to invest in that future. Looking purely at the present, discussions have taught me recently—in one instance my honourable friend the Member for Kettering, the Minister of State for Public Transport was present—that staff are concerned about their immediate future, their long-term future and about their pensions at the end of their working lives. They are also concerned about job security. I echo the words of the noble Lord, Lord Ezra, when I say that I would appreciate it if my noble friend could comment on that issue when she replies to the debate.

While on the subject of staff, I must express my concern about British Rail's drivers who constitute a small but important part of the operation. As some noble Lords will know, some 70 per cent. of them will retire by the end of the decade. It takes a minimum of two years to train a driver up to the point where he can take charge even of a shunting locomotive or carry out the most modest driving duties. It takes longer to train him to use new equipment and even longer for him to learn wider routes. To attract recruits to replace the drivers who will retire we must ensure that the prospects are attractive. We must also try to ensure that all drivers work to common safety standards and, ideally, that they are not head-hunted by prospective private operators. Given the imminent shortage of drivers and the difficulties of replacement such

head-hunting might be good for those who hire drivers but it would be damaging to what one might call the rump or remains of the system, that is, the ongoing subsidised railway.

Safety is paramount. We should do all we can to preserve it. We should ensure that whoever provides the railway service in the future must maintain national safety standards that are as high, or higher, than those currently prevailing. The pursuit of additional funds, the introduction of private sector involvement, the growth of better services to customers—I hope that applies to all customers and not just a lucky few—the growth of the part which rail plays in our transport system are all factors that must not be allowed to compromise safety.

To make sure that safety is preserved we must make sure that the present level of safety investment remains intact. We must also ensure that the railways inspectorate is sufficiently resourced for the task it faces. One cannot but be concerned at the length of time it takes nowadays to produce an inspectorate's report after an accident has occurred. Some noble Lords will be old enough to remember the Taunton disaster of 1940. That was a substantial disaster, but the report was produced by the then railways inspectorate in less than four months. However, that is not the case nowadays.

Safety investment leads me on to the matter of investment in general. It is essential that however our railways develop, we preserve or even enhance present levels of investment. I have in mind the cyclical nature of railway investment as illustrated by the modernisation plan days of the 1950s, the subsequent long, deep trough and the present high—one is almost tempted to say all time high—levels of investment.

We shall still need, and must find the funding, to enhance and rebuild the west coast main line. We have to build Crossrail and Thameslink. We will need substantial funding for those projects in the near future. It is essential that the Government continue to support planned infrastructure investment levels and that those who eventually operate services pay costs that not only reflect the investments that by then have been made—what one might call wear and tear investment and replacement investment—but also make a fair contribution to renewals.

The private sector should also be encouraged to invest in rolling stock by means of long-term contracts. We should not simply permit the cherry picking of prime services leading eventually to the operators pulling out when assets have reached the expiry of their lives and are due for renewal. We must ensure that as we evolve what my noble friend Lord Caithness called the rolling programme of privatisation, we do not suffer any form of hiatus in investment.

As I have said, I welcome this Bill. However, until the White Paper is published the present situation is rather like being on a mystery tour. We know we are going somewhere but we do not know when, where or how. I started by declaring an interest and I shall finish by doing the same. As I do not drive I am concerned to see that effective transitional arrangements for the railways are in place. The railways need to run continuously. There can be no gap in service while private operators take over. We must take time to ensure that everything is in place—recruitment, training, investment, safety and other facilities'—to allow new operators to take over a live railway and to maintain standards of safety and reliability without any hiccup.

4.19 p.m.

Lord Cocks of Hartcliffe

My Lords, this is a paving Bill for the privatisation of the coal and railway industries. I have been spurred into speaking by the abysmal ignorance of some young Conservative MPs speaking in another place of the reasons which led the Attlee Government to nationalise the industries in the first place. Those young Conservative MPs seem to have developed an intellectual constipation, probably due to an unrestricted diet of Conservative Central Office hand-outs from an early age.

Like my noble friend Lord Underhill I believe that we should sometimes refer back to history. I should not like this Bill to pass through both Houses without some record of the difficulties which faced the post-war Labour Government. In the euphoria of victory in Europe few bothered to take stock of the problems facing the incoming Labour Government. During the war 4.5 million houses out of a pre-war stock of 13 million had been damaged by enemy action. Nearly half of them were totally destroyed. The repair task in itself was enormous. Much of our Merchant Navy had been sunk by enemy action. Our major industries had been exhausted producing war materials. Major utilities such as gas, electricity and railways had been run on a care and maintenance basis only. There was a huge backlog of essential work to be undertaken.

Millions of servicemen and women were anxious to be demobilised. It is a tribute to the Labour Government that by the end of 1947, within 18 months of coming to power,5 million servicemen and women had been returned to civilian life without creating the kind of massive unemployment which followed the First World War. A large proportion of our overseas assets had been sold to buy food and raw materials.

I was particularly interested in the railways because my grandfather started as a porter on the old Southern Railways, eventually becoming chief inspector at Brighton station. Indeed, in a modest little book which I wrote I described how I joined the Labour Party at the age of 25 having heard an intemporate attack on railwaymen by a middle-aged Conservative lady. I could not equate her remarks with what I knew of my grandfather and felt something had to be done about it. I clearly recall the holidays which we spent with him before the war and the substantial losses which were then being made by the four major railway companies.

During the war my brother and I were sent to a school for Congregational ministers' sons near Wakefield. When I played rugby for the school against teams of boys from mining community schools the difference in our respective sizes and physical condition was clear. Even at that age, as boys, we understood that those differences were due to the appalling conditions in the mining communities before the war.

Those two industries were always in difficulties. There was confirmation as to the state of the railways in an article in the Sunday Express yesterday by Bruce Anderson who wrote: Throughout their history, Britain's railways had flirted with state ownership. As early as the 1840s, Gladstone had contemplated nationalising them. After the First World War, the Government intervened to save them from bankruptcy by encouraging a reorganisation into four regional companies … After the Second World War, with bankruptcy once again imminent, full nationalisation seemed the only answer … This was one of the Attlee Government's least controversial excursions into public ownership. It is probable that even if Churchill had won the 1945 elections, the railways would still have been nationalised". The coal industry was also in an appalling state as a result of years of pre-war neglect. The noble Lord, Lord Mountevans, who has spoken in the debate, may recall that his grandfather, speaking in this House during the Second Reading of the Coal Industry Nationalisation Bill on 29th May 1946 described how he was commissioned by the Prime Minister, Winston Churchill, during the war to travel all round England, Wales and Scotland calling for a "pit and shovel blitzkrieg" by the miners to produce the coal essential for the war effort.

A succession of industries have been privatised by this Government. In another place during the Second Reading of this Bill the Secretary of State for Transport promised the appointment of a regulator for the railways. That reminds me of the story current at the end of the war of the Russian woman with three sons who conceived the idea of christening them with names which would help them get on in life. One she called "Captain", another she called "Doctor", but the one who really made a success of life was the son who was christened "Inspector". I feel that if that story was being retold today the name which would really guarantee success for a son would be "Regulator".

Let me make it clear that in talking about the regulators I am not impugning the integrity of any individual. Nevertheless, we have to consider the situation which is developing. At present we have regulators for the electricity, gas, telecommunications and water industries. One cannot imagine that they do not meet as a group from time to time to discuss regulatory matters of common interest.

The study of group behaviour is now an accepted part of business culture and it is inconceivable that members of that group do not react to what other members of the group do. The key, if not the only, source of information about the regulators and their offices available to the general public is their annual reports. If we examine these what do we find? The first report was produced by Oftel for 1984, albeit not for a full year, and ran to 51 pages with no photographs. Your Lordships may be interested to know that I had the report weighed at the post office before I came into the Chamber: it weighs 80 grammes. The latest report by Oftel weighs 560 grammes. No further comment is required.

The second Oftel report was also in a small format without a photograph. The first Ofgas report, for 1987, contained one photograph of the director general. After that a new disease manifests itself—polyphotitis. The most severe outbreak occurred in 1988 when the Ofgas report contained no fewer than 13 separate photographs of the director general. Ofgas's attack of polyphotitis gradually subsided with 10 photographs in 1989, six in 1990 and three in 1991. We await the 1992 report with great interest to see whether the patient has made a complete recovery or whether there has been a relapse.

This plethora of photographs in the Ofgas report tells us something about the director general's personality. Is it a coincidence that he has the reputation for being the most stroppy with his industry? Mind you, we cannot rule out the possibility that he has been advised to do that. I was recently told of an ad man's jingle: If your client's hopping mad Put his picture in your ad". Is the disease contagious? Apparently so, because the annual reports of both OFFER and Ofwat which first appeared in 1989 contained six and seven photographs of the director general respectively. Indeed the OFFER report started off with a bang since it contained studio portraits of the director general and his key staff which would not be out of place on top of the piano in a Victorian drawing room.

Is there immunity to this disease? I think that we may say yes, because the director general of Oftel has featured in one small passport-type photograph in the year 1989. It must be said that that photograph resembles nothing more than a Kuwait oil rig fire and the only clue to the director general's presence is the caption underneath the photograph.

In any high profile group of regulators such as these there is bound to be a great deal of awareness of what the others are doing. They would be very strong-minded people indeed if there was not a competitive element. Moreover, is this going to become a structured career, with regulators moving from one industry to another? Retirement has only just become an issue, and if a regulator retires is not his successor bound to feel that he must lean over backwards not to appear softer on his industry than his predecessor?

Given this growing group of regulators, we have to ask the question: who regulates the regulators? Anxieties have been expressed about this before. For example, the noble Baroness, Lady Platt, speaking during the Second Reading of the Competition and Service (Utilities) Bill on the 14th February 1992 at col.953 said: While some of the respective Secretaries of State have certain powers over the regulators they are fairly limited. But this Bill gives a whole new set of powers to the regulators with few supervisory powers residing with the Secretaries of State. The Bill increases the powers of the regulators without a corresponding increase in accountability". The lack of public accountability is very serious. If a director general is not doing his job properly or acceptably, there is no form of public accountability to force him to improve. To some extent, the director generals are accountable to the Secretary of State, but the Secretary of State only has the power to fire a director general during his term (generally five years) on grounds of incapacity or misbehaviour. This five years, of course, is a far longer term to spend in a particular office than an individual Secretary of State is likely to have.

This is a matter which will come before the House repeatedly until it is resolved and a fair balance is struck between the needs of the consumers and the needs of the industries. This matter becomes more pressing as the group of regulators grows in size. If the industries raise questions about how the regulators are behaving such questions can too easily be dismissed as special pleading, but in fact very often serious issues are involved. So I ask the Government once more to think very seriously, in the context of this Bill, about who will regulate the regulators.

4.32 p.m

The Earl of Shrewsbury

My Lords, in warmly welcoming this Bill, I crave your Lordships' indulgence while I say a few words about the United Kingdom coal industry. I have to declare an interest as I have an involvement in the private sector of that industry.

I must state at the outset that I am firmly in favour in general of the privatisation of nationalised industries. Privatisation has been one of the outstanding successes of this Conservative Government. Since 1979 some 46 major businesses, employing 920,000 people, have been transferred successfully to the private sector. In 1978– 79 those industries which have since been privatised received government subsidies of £2.6 billion—more than one-third of that year's NHS spend. In 1990– 91 those same companies paid the Exchequer approximately £2 billion in corporation tax.

Privatisation has brought benefits to every other industry: lower prices and better service for the consumer and the chance for employees to exercise their entrepreneurial skills. In addition, there is more job satisfaction and freedom from Government interference and diktat. I believe that the opportunities for the coal industry should be just as good, particularly as Her Majesty's Government are committed to giving employees a stake in the industry.

It is important, with the United Kingdom's substantial reserves of indigenous coal, that this fuel is produced efficiently, economically and with as little long-term disruption to the environment as possible. Of course the extractive industries all in varying degrees involve disruption to the environment as well as to local communities, but the national interest has to be brought into the equation and a balanced situation must be achieved and tolerated. The opencast industries have improved their act dramatically over recent years and, although these sites are unattractive in many ways while in operation. the production life of the majority of sites is limited. Moreover, refurbishment is carried out to a high standard with care and responsibility, often with the effect of producing a better end-product than that which existed at the start of extraction. I strongly suggest to your Lordships that a visit to an opencast colliery would be well worth while. It is a fascinating experience, and one can see at first hand just exactly what a good job these people make at the end of the life of these operations.

To the benefit of the national interest, more economically and efficiently produced coal means cheaper and more competitive fuel and fewer foreign imports. That represents a major economic gain to the country. There can also be some planning gain for local communities in the form, for instance, of sports fields, golf courses, light industrial facilities and thoughtful landscaping of amenity areas for the general public.

It is my view that it would be most worth while if better formal arrangements under which more benefits would be obtainable by local communities affected by opencasting were allowed. After all, no one in his or her right mind enjoys living next door to such an operation, even though the disruption is relatively short-lived. That is often the case in other industrial areas as well. Often, the very thought of opencasting on their doorstep has the effect of creating an almost panic situation among local residents—an example of this is currently to he seen in the Potteries—and on occasion no amount of reassurance as to the final refurbishment of the area is enough to quieten concern.

Public hostility to the extractive industries generally, and to coal in particular, is one of two key challenges faced by the modern coal industry. The second major challenge is that the generators must be persuaded to accept that a thriving domestic coal industry is absolutely essential to them: indeed they would surely be foolish virgins to allow their lamps to be dependent upon foreign coal, with the ever-present danger to security of supply posed by disruption from war, among many other factors.

Finally, perhaps I may mention briefly a few thoughts on the form privatisation might take. There is a view—with which I entirely agree—in the private sector that atomisation of the industry would be detrimental. Far preferable, in my view, would be a multiple-unit reconstruction in which, in view of the problems of coal transportation and strong regional traditions, the units comprised two to four geographical regions. The result of such a framework would be real competition, with no undue risk of weakness against the generators. In particular, Scotland would offer an excellent example of a regional company with real potential, which I believe would be well received by the people of Scotland. Multiple-unit privatisation along these lines would, I believe, ensure new and highly commercial management and would realise far greater levels of efficiency and productivity. I believe that such a framework would achieve the medium-to long-term aim of achieving a truly competitive industry in the world marketplace.

There are many experts here: I do not pretend to be one. Suffice it to say that I welcome this Bill and look forward to an interesting and thoroughly informative series of debates ahead.

4.37 p.m.

Lord Donoughue

My Lords, as other noble Lords have stated, this is in fact not just a technical Bill; it is a very important Bill which opens doors to further major changes to two great industries. However, it gives little indication of the nature or details of the intended changes. Indeed, we are being asked to buy tickets for the mystery tour mentioned by the noble Lord, Lord Mountevans, but no maps are provided in advance.

My noble friend Lord Underhill has dealt primarily with British Rail. For myself, I shall concentrate on issues relating to coal, although I should add that there is definitely a connection. There is a connection between their fortunes. Some 80 per cent. of freight income of British Rail is dependent on the movement of coal. Therefore, the declining use of British coal through imports and the switch to gas has serous implications for the future of British Rail. They are, and have been for some time, locked together in a downward spiral based, I suggest, on the false assumption that at some ultimate, lower, ever-diminishing level of activity they become viable. In fact, as they become smaller they lose the capacity for national servicing and low pricing; and any decline in either industry inevitably damages the other.

I should like to ask a question about the efficiency and profitability of the coal industry. Will the Minister confirm, as I am sure she will, that the coal industry made a profit of £78 million in 1990–91 and is forecast to make a further profit in 1991–92, and that British Coal is in fact the most efficient and most productive coal industry in Europe? Will she also acknowledge that there is no practical reason for privatisation either on grounds of present efficiency or profitability, or on ground of competitiveness? Does she accept that it is unfair to judge British Coal's competitiveness on the basis of whether or not it can compete with imports from, say, Colombia or South Africa where labour conditions and pay are intolerable? Privatisation is mainly ideological, as my noble friend Lord Underhill said, and as the noble Lord, Lord Marsh, indicated. It puts at risk the nation's capacity to maintain security of supply of energy which in our case depends on maintaining some coal industry. Security of indigenous energy depends upon maintaining coal or relying wholly upon nuclear power.

I wish also to refer to the crucial question of electricity generators. Some of the problems of British Coal lie in the nature and activities of its main market purchasers. The electricity generators buy over 80 per cent. of our coal. The noble Lord, Lord Ezra, referred to that. The contracts being negotiated now will determine the future of our coal industry. Does the Minister have anything to report, not only on the important questions of price and future volume, but also on the duration of contracts? Without long-term contracts investment finance will not be available to the coal industry and without investment it cannot continue the recent commendable record of improving efficiency and lowering unit costs.

Can the Minister give some idea of the Government's thinking on the form of privatisation in the coal industry? The noble Earl said that it was too early to do so. As we know, consultation finished in June. It would be quite unfair to ask for, and I would not expect, the detail, but any indication of the broad thrust of policy among known choices would be helpful. Will the industry be privatised intact as a single entity? Or will it be broken up piecemeal? That is very important. Small sections of the coal industry would be in a weak position to negotiate prices faced by the massive power of near monopoly customers in electricity generation.

I was interested in what the noble Earl, Lord Shrewsbury, said in a very good speech with regard to a regional basis for coal. Indeed, as the noble Lord, Lord Ezra, asked, what will be sold? Will the whole mineral rights and reserves be handed over to whoever buys the industry privately or buys at the second stage—perhaps, international conglomerates or international mining companies? Alternatively, will the ownership of rights and reserves be retained with simply a licence to operate, as occurred fairly successfully with North Sea oil and gas. If so, what happens to licensing responsibility? Does it refer back to the Crown?

The Government have generously stated their pride in the safety of our mining industry, the safest in the world. However, will the Minister now guarantee the safety of our privately owned coal industry if it were to be taken over again by international conglomerate mining companies, some of whom we know have historically bad safety records? How will the Government guarantee that the safety records of such companies suddenly improve to the marvellous level of British Coal?

About 20 million tonnes of foreign coal enter this country. That is part of the massive trade deficit from which we suffer. I did not support the transfer, but now that the Department of Trade and Industry sponsors energy as well as having a direct responsibility for our trade performance, does it propose in any way to discourage those massive imports of foreign coal?

Clean coal technology is the key to the issue. If one wishes to put one's finger on a factor which is vital for ensuring a viable coal industry in this country, it is that aspect, with its massive potential for exports. If we could develop clean coal technology, we could export to the great coal consuming countries such as China and India where the scale of consumption of dirty coal is enormous, with its consequent impact on pollution of the atmosphere. The scope for selling clean coal technology is huge. What are the Government doing to invest in, and promote, it? Of more direct significance, what will happen to British Coal research into clean coal technology after privatisation? There is enormous public interest in that aspect. How will the public interest be protected after privatisation?

On a smaller scale—although it matters much to many people—will the Minister confirm that the existing concessionary benefits and entitlements of former employees and eligible dependants will continue? The matter relates back to the Coal Industry Bill with which we dealt in the last Session. In that Bill the Government proposed to repeal the 1908 Coal Mines Regulation Act which limited the maximum number of hours a coal miner could work underground. One of the main arguments for that repeal was that the legislation was to be replaced by the new working times directive of the European Community. I now read—it was while I was abroad and I did not see all the details—that the Government have negotiated some exemptions for the UK under that directive. If that is so, will the Government now revise their views on repealing the 1908 Act?

Finally, I have a general but fundamental question. What do the Government envisage as the viable size for the coal industry? How many more pit closures are required to reduce the industry to that viability level? Is the coal industry on a slippery slope that ends at zero?

I wish to ask those questions of the Minister. In conclusion I wish more generally to suggest that the Government may be deceived and in pursuit of an illusion if they believe that privatisation will solve the deep difficulties involved in running, first, an adequate national rail service including mass commuter services operating only a few hours a day and, secondly, in maintaining the security of supply of our domestic coal industry when it is forced to compete with cut price imports and gas. In my view privatisation will accelerate the decline of both industries while conveniently shifting responsibility for that decline away from the Government. Not a single advanced country in the world has a successful railway industry based on private ownership. I believe that that was confirmed and powerfully explained in the speech of the noble Lord, Lord Marsh. No country has a deep mined coal industry such as ours which is run successfully without public support.

I agree that it is right to explore new ways of private financing for public industries and new ways of co-operation between public and private sectors. Again, the comments made by the noble Lord, Lord Marsh, in what was an excellent and authoritative speech were most interesting. Total dependence on private finance for public services often means no public services. One has only to look at the Jubilee Line extension, the Paddington-Heathrow link, the Channel Tunnel rail link and at our European neighbours who run excellent railway services on a basis of public financial support. Look, too, at our coal industry, which is fading away even before privatisation. It is in danger of falling below that critical mass of size which is necessary to produce and to sell at competitive low prices.

During my political life I have never had much sympathy for widespread nationalisation or for massive state monopolies. Their failures are part of our recent life history. Furthermore, I believe in the benefits of market competition. However, there should be no absolute ideological view on the matter. We should never lose sight of the national interest with coal or the public interest with rail.

If free market competition promises only to destroy many of our rail services and most of our remaining coal industry, as I believe it does, it is surely right to pause and to question. We must ask: what are the right structures to provide the best services for the rail travellers and at the least cost to the taxpayer? We must also ask: which structures will maintain a viable coal industry that will guarantee security of energy supply? Surely, as the noble Lord, Lord Ezra, argued so convincingly, this crucial matter should not be hurried. We need to give it more thought. We need White Papers and debates on those White Papers. We on this side of the House will look most carefully at what follows from this Bill in order to see whether those criteria and those requirements are met.

4.51 p.m.

Baroness Denton of Wakefield

My Lords, we have had a most interesting and constructive debate. Not only did it cover the specific purpose of the Bill before us but also the issues that we shall be able to discuss at greater length when the main legislation to privatise British Coal and British Rail comes before this House. Therefore, I thank noble Lords for their contributions to the debate. They amply demonstrated their continuing interest in the future of the coal and rail industries and the regulators and also the depth of experience which exists within your Lordships' House.

My noble friend the Minister of State for Transport properly concentrated his speech on British Rail. Therefore, I shall confine the majority of my speech to British Coal. In doing so I shall seek to answer some of the points raised by your Lordships on the privatisation of British Coal. As the noble Lord, Lord Marsh, pointed out, the intention of the Bill is simply to confer on British Coal and British Rail powers to take those actions which are required to prepare for privatisation. It is perhaps worth dwelling on that point for a moment or two since it is fundamental.

The Bill does not give British Coal or British Rail any powers to implement the Government's proposals for privatisation. It gives them only the powers to consider those proposals and to make any necessary advance preparation for their implementation at a later date. I wish to make it quite clear that there are no powers given in the Bill which will enable British Coal and British Rail to make any transfers whatever of any of their functions, property, rights, and liabilities to any other body in response to a proposal by the Government.

It may help your Lordships if I explain that there is no need for the Bill to spell out any restriction on actual transfers. British Coal and British Rail, as creatures of statute, can take only those actions which they are permitted to take under the current legislation which affects them. Those actions would not include activities which', in the light of consideration of the Secretary of State's proposals, might have to be included in the main Bills for privatisation. In other words, there is nothing in the Bill which will enable the corporations to make any transfers beyond those currently permitted. The Bill merely provides for a necessary enlargement of the corporations' powers so as to permit them to do what currently they legally may not do; that is, to take any action which in their opinion is appropriate for the purpose of facilitating the implementation of proposals made by the Secretary of State.

I draw attention to the word "facilitate" in Clause 1(1). It relates to the preparatory work which may be needed. It does not cover the actual implementation of any proposal since that further power will not be available until provided by the main privatisation Bills. If the Government had intended that the Bill should enable transfers to take place the word "facilitate" would not appear in Clause 1.

It is most important that in drawing up their proposals for privatisation the Government can draw on the valuable advice and expertise within British Coal and British Rail. If the Government are to achieve their aims of securing the largest economic coal industry that the market can support and to provide better services for rail customers I am sure noble Lords will agree that it will make no sense for British Coal and British Rail to be unable to provide the Government with their advice when they are formulating detailed proposals. Indeed, I regard that advice as an integral part of the privatisation process.

Today we have ranged over many issues which although outside the Bill are of great relevance to it. In answering as many questions as I can I ask your Lordships to understand that I cannot go ahead of the White Paper nor comment on the consultation which has been only recently concluded. Those matters will come forward in due course.

I can assure the noble Lord, Lord Underhill, that the statutory closure procedures in British Rail will be maintained. The rumours of wholesale closures after privatisation are just that—rumours. My noble friend Lord Caithness also emphasised a complete commitment to safety on British Rail. The noble Lord, Lord Marsh, showed his direct and great knowledge of the industry and I am sure that we shall be able to share that on future occasions. I have no doubt that my right honourable friend the Minister of State will read his words carefully. I remind my noble friend Lord Mountevans that the Government have already given the assurance that existing pension rights accrued by British Rail staff will be safeguarded on privatisation.

The noble Lord, Lord Ezra, by the nature of his questions, showed his great depth of knowledge and experience in the energy industry. I wish to point out to him that the Government's objective is to achieve the largest economic coal industry in the longer term. The future size of the coal industry will depend on its ability to continue to reduce its costs and to secure its share of the energy market in this country. That is in the industry's own hands. Since sales to the electricity generators represent 80 per cent. of British Coal's market the contracts to be negotiated with the generators will, to a large extent, determine the UK's demand for coal. It is too early to speculate how the next contracts will affect the likely future size of the industry; indeed, the contracts are commercial matters for the companies involved.

The Government's aim for restructuring the industry is to achieve a structure which allows the industry to be economically viable in a competitive market in the longer term. No decisions have been taken on the future structure of the privatised industry. As has already been mentioned, interested parties were asked for their views by 22nd June and their responses are now being considered.

The list of the organisations which my noble friend approached are in the Libraries of both Houses. The replies are available from the organisations and individuals concerned if they wish that correspondence to be made public. However, we shall make public the details of all communications which we receive from the chairman of the Health and Safety Commission on the safety consequences of coal privatisation.

I am also pleased to say that privatisation of coal will not affect the benefits payable to British Coal pensioners. As with previous privatisations, the Government will ensure that the pension entitlements of existing contributors and past employees of the industry are properly safeguarded.

I am pleased also to repeat what my noble friend said: that privatisation will require through-ticketing to continue. A question of a debate on the White Paper is a matter for the usual channels.

Like all noble Lords, the Government recognise fully the hazardous nature of coal mining. We are determined that the current high standards and improvements to health and safety in the industry will be maintained after privatisation.

In reply to a question asked by the noble Lord, Lord Ezra, I should tell him that no decisions have yet been taken on the precise timing of coal privatisation. As several noble Lords said, such considerations must proceed with the greatest care and the Government fully recognise that.

I knew that the noble Lord, Lord Cocks, and I have in common a knowledge of Wakefield. I suspect that the people of Wakefield may be prouder of the noble Lord's speeches than they are of mine. I discovered that we also have in common the fact that our grandfathers were employees of British Rail. Perhaps my superiority is that my grandfather was a driver. I regret that there is no book to commemorate his services to the industry, but I have his watch. The noble Lord's analysis of the regulators will not go unread and will be well noted. More seriously, I am sure that my honourable friend the Minister for Energy will note the other matters raised by the noble Lord.

The noble Lord, Lord Donoughue, said that coal should be profitable and efficient. I can confirm that British Coal made its first bottom-line profit for 13 years in 1990– 91 and it expects to make a bottom-line profit in 1991– 92. However, further improvements in productivity are needed for the industry to take its rightful place as a competitive fuel supplier in the market place. I can confirm also that British Coal is the most efficient coal-producing company in Europe but to secure its future it must be able to compete with the most productive producers in the world.

The noble Lord, Lord Donoughue, asked for guidance on the form and structure of privatisation. Those are vitally important areas and I shall ensure that the noble Lord's anxieties in that sphere are noted. However, the time to discuss those must be when we introduce our main legislative proposals. The noble Lord asked also about coal imports. Decisions by coal purchasers as to whether to purchase local or imported coal must be for the commercial judgment of those concerned. As we all know, the best prospects for the British coal industry lie in producing reliable supplies which are competitive both with imports and with alternative fuels.

The Government are confident that the industry has the technology, investment and skilled workforce to successfully meet that challenge. I remind your Lordships that imports can contribute to a diverse and secure supply of low-cost fuel. The Government agree also with the noble Lord, Lord Donoughue, about the importance of the development of clean coal technology. We shall give careful consideration to the future of British Coal's research in that area in the context of privatisation.

I am pleased to be able to tell the noble Lord, Lord Donoughue, that the Government will ensure that existing concessionary fuel entitlements earned as a result of service with British Coal will be safeguarded. Therefore, privatisation of the industry will not affect concessionary fuel benefits to former employees of the industry and their eligible dependents.

The Coal Mines Regulation Act 1908 will not be repealed until either the proposed Community directive on working time is adopted or, if agreement on that is not reached, until an alternative UK measure is introduced. We are aware of the need to keep that in mind.

The matter of future licensing arrangements was also raised. The arrangements for granting rights to coal after privatisation are obviously of great importance. That is an area which we intend to get right. We recognise the need to ensure that we avoid the inherent conflicts of interest associated with the present regime. Again, that matter will obviously concern your Lordships when the main legislation comes forward.

The Government's privatisation policy stems from the belief that enterprise flourishes best and provides a better service to customers in a commercial environment where management is free to manage without interference from government while being subject to the demands of the market. The future development of British Coal is hampered by remaining in the public sector while its main customers—the electricity generators—now operate successfully in the private sector. Recent years have seen major change.

As I said earlier, this short Bill is a preliminary but important step towards the privatisation of British Coal and British Rail. There will be many opportunities to discuss again the important issues raised today on the details of privatisation when the main Bills are brought forward. I am sure that the matters raised will be taken into account by my honourable friend the Minister for Energy.

Lord Ezra

My Lords, before the noble Baroness sits down will she indicate whether in addition to the White Paper on railways there will be a White Paper on coal?

Baroness Denton of Wakefield

My Lords, there will be no White Paper on coal. Consultation has been comprehensive and, as I say, the replies will be available from those parties consulted. We do not propose to bring forward a White Paper.

There is no doubt that the changes that we propose for British Coal and British Rail will be of great benefit to the nation and the consumer. They will result in greater efficiency, better use of resources and will encourage and motivate those who work in the industries.

Lord Underhill

My Lords, before the noble Baroness sits down, I understand that her ministerial responsibilities do not extend to rail but I asked an extremely important question about Section 20 grants affecting the passenger transport authorities. Will she say anything about that?

Baroness Denton of Wakefield

My Lords, as I said earlier, I hope noble Lords will understand that I cannot go ahead of the White Paper, which I am sure the noble Lord will read with great interest. I commend the Bill to the House.

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