HL Deb 05 July 1993 vol 547 cc1068-105

3.6 p.m.

The Earl of Caithness

My Lords., I beg to move that the House do now again resolve itself into Committee on this Bill.

Moved, That the House do now again resolve itself into Committee.—(The Earl of Caithness.)

On Question, Motion agreed to.

House in Committee accordingly.

[The CHAIRMAN OF COMMITTEES in the Chair.]

Clause 21 [Exemption of passenger services from section 20(1)]:

[Amendment No. 45 not moved.]

Clause 21 agreed to.

Clause 22 [Public sector operators not to be franchisees]:

[Amendment No. 45A not moved.]

Lord Peyton of Yeovil moved Amendment No. 46: Page 24, line 37, at end insert: ("(1A) Nothing in subsection (I) above shall prevent—

  1. (a) the British Railways Board (in this Act referred to as "the Board"); or
  2. (b) a wholly owned subsidiary of the Board, from being a franchisee.").

The noble Lord said: In moving this amendment I should first like to make an observation. It has been quite frequently my experience that governments do not listen very carefully to what is said by those who differ from them. On this occasion I should like to make it very clear that I have much appreciated the courtesy of both my right honourable friend the Secretary of State and my noble friend who is handling the Bill from the Front Bench in this Chamber. From both of them I could not have received greater courtesy and I am very grateful for the care with which they have considered what I had to say.

Opinions will undoubtedly vary as to the merits of this measure. But there can be no doubt in anyone's mind—I am sure not in that of the Government—as to the need for a degree of public understanding of and support for the measure. In this instance I must tell my noble friend that, apart from those within the Government, I have yet to hear anyone speak with any degree of enthusiasm or liking for the measure. It seems to me that importing a whole range of new problems is not necessarily the best means of solving those problems with which one is or ought to be familiar.

Clause 22 shuts out all who have any taint (if that is the right word) of association with the Government or the public sector. This amendment would let British Rail in. In effect, it would be a step back from the clear intention of the Bill to kill off British Rail and to bury the corpse at an early date.

In the early stage of my remarks I want to make the point that this privatisation differs in important respects from others that have gone before. First, there is to be no immediate transfer of any significant property to the private sector. Secondly, a radical change of structure within British Rail will come first. That prompts one to ask the question: how much change can such an organisation digest in a fairly short period of time, bearing in mind that the reorganisation which took 10 years to develop was only finally put in place in April of last year?

There then arises the important question of the continuing and unquantified contribution from public funds. That again was not a feature of any of the previous important measures of privatisation. Further, the whole question of who is likely to bid for the franchises, of what services, when and on what terms, is still shrouded in mystery. We know that management buy-outs are being encouraged—those who are putting them together are receiving help in each case to the extent of £100,000. That sounds a lot of money. However, I wonder whether it will be enough to meet the fees of those who generally handle such business; they are not known for modesty in the fees that they expect.

I shall be grateful if my noble friend can shed any light on another matter. Can he say what the Government's reaction will be to a bid from a foreign-owned railway with support from its government? I have always understood that one of the major reasons for shutting out British Rail from the bidding is the need not to discourage those sensitive souls in the City. I do not visit the City all that frequently. Even so, I have not as yet seen any signs of burgeoning enthusiasm from that quarter to bid for franchises at an early date. Perhaps my noble friend can tell us more about that. However, I emphasise that in this particular measure of privatisation there are a large number of differences which carry with them the lesson that one ought not to expect to learn too much from previous essays into privatisation.

The Bill offers an almost idyllic vision of the destination of our railways. It is as encouraging as a travel agent's brochure. However, it is less clear as to when we can expect to arrive at our destination, what will be the cost of getting there, and what discomforts we are likely to meet on the journey.

In April 1994 there will be major changes. They will not wait for the entry of the private sector. As I said earlier, British Rail will be subjected to yet another far-reaching reorganisation. The scenery will be new, and so will the roles, even though many of the actors will remain the same. Perhaps I can take a moment of the Committee's time to consider the number of people who will be participating in that new chapter: the Secretary of State, the regulator, the franchising director, the passenger transport authorities, the passenger transport executives, British Rail itself, the new creature of Railtrack, the train operating companies, the supplying industry and the staff, to mention but a few.

There will be a degree of audience participation where the members of staff are concerned. Many of them will be doing much the same thing in the same place. They will give and receive instructions much as before; but they will be aware of changes, not all of them sensible or easy to understand, and some will seem plain stupid. I cannot help thinking that under those circumstances the errors—we all make them—of British Rail will quickly be forgotten or at least forgiven, while those who deny British Rail the right to bid will incur a considerable measure of censure.

The organisation to which I have made brief reference, and its component parts, will produce an immense complexity of relationships; a cobweb of regulations, rules, licences, agreements and memoranda are bound to come into existence. Inevitably there will be conflicts, disputes and misunderstandings. Those who fail—particularly future franchisees—will not have far to look for excuses, alibis and scapegoats.

I do not wish to prolong my remarks but I should like to ask my noble friend three questions in particular. First, are the Government satisfied that an organisation such as that proposed can possibly succeed, even taking for granted the dedication and wholehearted co-operation of all concerned? One must not go too far along the road of taking such matters for granted.

Secondly, what is the likely cost in terms of public funds? I recognise of course that it is impossible at this stage to be anything approaching precise, but it is not unreasonable to ask the Government to tell us the bracket within which the cost is likely to be placed. The Financial Memorandum is noticeably reticent, even coy, on the subject. I think particularly of the immortal words of which I should like to remind the Committee: The proposals in this Bill are not expected to lead to major reductions in public expenditure in the short term". It strikes me that there is at least a possibility that that lame, coy and cautious phrase may in the end appear to be an extremely sanguine and optimistic view of the prospects.

Thirdly, how can we be sure that there will be the necessary investment to sustain the railway industry, which has always been and is always in every country in the world, with the possible exception of Switzerland, dependent on public support? How can we be sure that the resources will be available, that they will be properly focused on where they are needed and that value for money will be ensured? Everyone must agree that a measure of continuity in human affairs is very desirable. This amendment at least opens up the prospect of a better measure of continuity than there would be under the Bill. No one will deny that understanding by both staff and public is absolutely essential if legislation is to have a chance of succeeding when it emerges from the pages of the statute book into the realm of practical affairs.

The British Rail reorganisation of which I have already spoken was a 10-year process completed only last year. Results, as I have already said, do not come quickly in the world of the railways. Would it not, even at this late stage, be wise for the Government to pause and to give to British Rail a role something other than that of the ghost at the feast? I can imagine fewer roles less glamorous and less attractive than being a shadow franchisee and providing at the end of the day a bench mark, a standard, which others will be expected to meet after you yourself are dead and buried.

I should like to mention one further point briefly. I refer to the present chairman. Sir Bob Reid seems to me to be a quite outstanding manager. We do not have all that many in this country. I am sure—and I hope that many of your Lordships will agree with me—that he is a man who deserves better of the Government than to be made the undertaker of the organisation which he was appointed to lead and to which he has made such a signal and distinguished contribution. Amendments of this kind are not exactly what the Government are looking for, but I hope that it will be regarded not as a piece of fractious opposition but emerging from a real desire to see, first of all, that a chance is given to the railways without taking huge risks and venturing on to quite unknown and untested paths. I hope that the Government may see that it is in their own interests not to take risks which may seem not only wholly unjustifiable but which will be likely to meet with the most appalling penalties.

Lord Clinton-Davis

I hope that the Government will listen to the very prudent advice that has just been given by the noble Lord, Lord Peyton. As a former Minister of Transport he has obviously given the most careful consideration to the proposition that he has now advanced to the Committee. It is a proposition which I have argued from these Benches over some considerable time, going back to the paving Bill, but the Government have asserted that they cannot give way. Coming from the noble Lord, Lord Peyton, I think that the Government would be very wise indeed to give the matter further consideration.

The noble Lord referred to the unhappy role of British Rail as a shadow franchisee. I am bound to say that, having been adopting a shadow responsibility now for a considerable time, it is not always advantageous. While the Government can say that this debate is clearly well rehearsed, because we have discussed it at considerable length both here and in another place, some of us still hope that even at this hour the Government will see reason and indeed be consistent in applying their previous practices with regard to compulsory competitive tendering.

It is not too much to ask in this Chamber that the Government have regard to their own legislation and to their own practices. The root of these practices with regard to compulsory competitive tendering is that the public sector should be able to bid against the private sector and that the Government are confident in their belief that the private sector is more efficient and that it will be able better to benefit the consumer. Indeed, the Minister has constantly talked about the benefits that the consumer will derive from the provisions that he is placing before us in this Bill. They applied this doctrine—testing in-house services against the private: sector—in a wide area of activities; in local government, in the National Health Service, in London Underground and in the deregulated bus services. With respect to bus services, all publicly owned bus operators are free to submit tenders to provide bus services. The Secretary of State himself admitted that. In all those areas of activity the Government have said that it is wholly appropriate that the public service should be able to bid. So why in this Bill do the Government reject their own precepts in relation to CCT?

Perhaps the trouble is that dogma has collided with reality. In 75 per cent. of the cases of compulsory competitive tenders, in-house tendering has won. In all those areas—in 75 per cent. of the cases—what would have been the result if the public sector had not been permitted to tender? Well, 75 per cent. of the contracts would then have led to the consumer, or in the case of local government the charge payers, paying more. Is that not a fatuous result? Can it possibly be argued that that would have been desirable or just? It comes to this. In this Bill the Government want to have private investment regardless of whether it will improve the railway system and benefit consumers. That is an absurd situation.

Obstinacy flies in the face of probability. The probability is that unless publicly owned European railways decide to tender and are successful—a point alluded to by the noble Lord—the exclusion of British Rail from the ability to tender could easily result in a panoply of companies—and perhaps quite small companies—which are successful in the franchises—perhaps management buy-outs—running our railways with no, or at best, save in the case of management buy-outs, very limited experience. That cannot be a desirable situation.

The Government say that they are against British Rail on the grounds that it operates a monopoly. If I may say so, I thought that the noble Lord, Lord Marsh, dealt decisively with that argument in our Second Reading debate. British Rail enjoys around 7 per cent. of the passenger market and around 10 per cent. of the freight market. In no way can British Rail reasonably be considered to be a monopoly provider of transport. It has to compete with other modes of transport such as road, sea, air and so on. So that argument goes out of the window.

Then we come to the question of efficiency. Will the Government's proposals to exclude British Rail from the franchising operation improve our railway system? I know that ministerial speeches abound with assertions which are unproven and speculative. Bare assertions do not necessarily make the naked truth. Even if everything which they claim for privatisation elsewhere were true—though I noted a certain measure of reticence on the part of the Minister and his colleagues in lauding the benefits of bus privatisation—I thought that throughout the Minister was claiming that this scheme was sui generis and that it was quite different from any other form of privatisation. Indeed, at one stage, they called it "commercialisation" but that word seems to have been dropped. They said that the scheme was not like privatisation at all. The Minister has forgotten that term and reverts always to "privatisation" so I am not quite sure what it is now.

Then the Government say that British Rail does not function very well. It is the subject of a great deal of adverse comment. But within the limitations of a lack of sufficient investment I believe that British Rail has belied that assertion. Members of the Committee may examine paragraph 3 of the Government's own proposals New Opportunities for the Railways. There they will find the Government saying: British Rail has made significant improvements in recent years. Its efficiency compares well with that of other European railways. The productivity of the BR workforce is among the highest of any European railway. InterCity services and BR freight operate without direct subsidy". So on the one hand the Government are saying marvellous things about British Rail but on the other hardly any debate takes place on this issue without major criticisms about the failure of British Rail to provide the services that it should provide. In comparison with our competitors from the Continent in particular, the main problem has always been that British Rail has not been well funded.

There is the argument which was dealt with by my noble friend Lord Eatwell during the Second Reading debate—that is to say, that somehow or other if one allowed British Rail to enter the franchising stakes a grossly unfair advantage would accrue to it. The Secretary of State said: If BR were to bid … it would always tend to make the most optimistic assumptions, believing that, if its forecasts proved unrealistic, somehow or other the taxpayer would be there in the background to bail it out"—[Official Report, Commons, 25/5/93; col. 786.] That flies in the face of what the Minister is arguing. As my noble friend put it the other day, if a franchisee makes a bid on assumptions that prove to be unduly optimistic, though perhaps made initially in good faith, but then finds that it cannot operate the franchise properly, the situation is completely unsatisfactory at that stage. We shall come to debate this issue later on. It is no good then saying that the railway administration order will deal with that situation. There is bound to be a lacuna and a gap in the provision of services unless British Rail is forced to come in. Therefore, the Minister is standing his own argument on its head.

The Government then say that management buy-outs are to be supported and that it would be unfair for British Rail to be in competition with its own former managers. That is a simplistic view of a management buy-out situation. The noble Lord, Lord Peyton, referred earlier to that. The truth of the matter is that the management team usually has a very small minority interest. The strings are pulled by the main backers—usually merchant banks—which do not have a great working knowledge of the railway system. I do not believe that they can acquire it. Usually they have a very superficial knowledge. Their concern will be to protect their own investment regardless of the consequences elsewhere.

Another point was raised by the Transport Committee of another place in its now famous report, The Future of the Railways in the Light of the Government's White Paper Proposals. It was in no doubt whatsoever that British Rail ought to be given the opportunity to enter the franchising stakes. The Committee raised another argument. Paragraph 418 of the report says: Unless BR is allowed to bid, it is difficult to see how the Franchising Director can be sure that the final outcome represents the best possible deal for passengers". That is the argument: what is the best possible deal for passengers? The report continues: Furthermore, debarring BR from bidding could produce an anomaly whereby a foreign railway company, such as SNCF, might gain the contract to run a service for which Britain's national operator had been prevented from competing". Whether or not the Government are right as regards the law —on further reflection, I believe that they are right in saying that there is no conflict with the treaty obligations in their preventing British Rail from becoming a franchisee —in practice, the actual result is palpably absurd. As the noble Lord, Lord Peyton, has said, there is nothing to stop major foreign competitors. The German or French railways have been permitted for a very long time to finance their operations on a wholly different basis (which we should have done well to emulate) by being able to introduce private finance in their investment programmes. While British Rail is excluded, these other railway companies would not be.

Can there be anything more absurd than that situation? The Government concede this argument: to deny the French, Belgian or German railways the possibility of entering these franchising stakes would be a repudiation of the articles of the Treaty of Rome. That is a thoroughly absurd situation. It is wrong that British Rail, in these intervening years before full privatisation takes place—if ever it does, because I very much doubt whether anyone will be interested in acquiring the rump which remains of British Rail—should be in a situation which redounds to the enormous disadvantage of the staff employed by British Rail. What have they to look forward to running a rump service that nobody else wants to run; coming in when there is an emergency; not knowing whether they are going to get assistance from the Government to meet those emergencies? It will be a situation of total uncertainty. That is not good for the relationship between management and staff, nor is it good for the country. It is likely to be grotesquely expensive as well, because BR staff will be coming in to mount a rescue operation, which is always more costly than the situation which pertains at the present time.

For all those reasons, I hope that the Government will in fact seek to bring some measure of common sense to this situation. A degree of common sense is sadly lacking. If they are concerned about passengers' interests and those of the people working on our railways—which is vitally important in terms of all those things which have to be done as regards safety, running stations, making sure that one has secure operations and, as best one can, that the railways run to time; and also making sure that the important functions that will continue to reside in British Rail will be undertaken efficiently and well—then all these arguments necessitate a rethink on the part of the Government.

If the Government feel that that would be a U-turn or climb-down, which would not look well so far as their standing in the country is concerned, perhaps I may advise them that I happen to believe that the reverse would be the case. I believe that that would not be the case in relation to a Bill that is not received with wild enthusiasm by many people in the country, according to all the opinion polls. Indeed, one's own discussions with people suggest something rather more important. I think that the Government would be said to be listening to people instead of simply saying that they listen but then doing nothing about it. I am not in favour of the Government's stock with the public rising, but putting that aside and in the interests of the railway system, I believe that the Government would be doing themselves and the country a great service if they actually listened.

3.45 p.m.

Lord Marsh

Like many other Members of the Committee, I have been around the building for something like 30 years and I find great difficulty in remembering any other measure which has been so unpopular right across the board. The chances of the noble Lord, Lord Peyton, crossing the Floor of the House and achieving eminence in the Labour Party are narrow; I do not think that he would ever be nominated for the National Executive of the Labour Party. I do not make a great point of that because I would not stand much chance either. However, it is typical of this Bill that there is no support for it of any size in any group of people who are interested in this subject.

The Bill's unpopularity is almost unique. It is not quite unique because the Government's last exercise in franchising (when they sought to franchise the British commercial television industry) was magnificent in its disastrous failure. The Government had not thought through what they were doing and achieved the disaster that everyone outside government thought that they would achieve. Indeed, at the very end they managed to lose the most popular television company —the favourite of the then Prime Minister.

The other Bill that was also universally unpopular was the one which introduced the community charge. People of all parties and on both sides of this House and another place begged the Government to rethink the situation; but no, it was a principle. They said that once it was in place, everyone would be happy. We all know what happened. The cost was colossal, and the shambles of trying to retrieve the situation even worse. Yet against this Bill (when one sees its results) I think that that Bill may, with hindsight, be regarded as a relative success.

Therefore, one does not have to make the argument that this Bill is a mess. Few people outside ministerial circles believe otherwise and Amendment No. 46 deals with what is probably the worst part of a bad Bill. The problem with the Bill is primarily that it is motivated overwhelmingly by pure, blind, unthinking dogma—all the more surprising because it is supported by Ministers of whom such a stance is uncharacteristic. Indeed, it is uncharacteristic of most people in politics these days. Most people in this country and elsewhere do not really see the future of mankind depending on who owns which part of which industries. Elements of industry are subject to government intervention at some stages and to private intervention at others, and there is plenty of experience around the world of mixtures of the two.

But the driving force behind the Bill is that British Rail has to be privatised. I do not quarrel with that because, personally, I would pay a very high price to get the Government off the back of that organisation to some extent. Many of the problems of the railways, including the union problems which concern the Government so much in relation to British Rail, are problems which, for the most part, are 15 years out of date. Old Spanish customs still exist in that organisation. They are not defensible—by anybody—but British Rail's industrial relations problems nowadays are nowhere near worthy of the obsessive domination that they exercise in relation to this Bill.

If one looks at the industry, it is clear that many of British Rail's problems are directly related to public ownership, and they are problems of public ownership because all governments find it impossible to plan ahead. They find it very unattractive to be unpopular in that area, so they do sneaky little things. All governments do that—and I have played my share in it, as have many other Members of the Committee. Governments find it easy to cut investment because the man in the street does no know that that is what they have done. He does not realise that the trumpeting about cutbacks in investment in the public sector mean that costs go up much higher than would otherwise be the case. He does not realise that there will be a very high price to pay for that in the future. I agree with the noble Lord, Lord Clinton-Davis, that from every commentator's point of view the key problem with British Rail is the insecurity of investment and the relatively appallingly low level of investment compared with every other international railway operator.

So, why do the Government proceed with the Bill? It cannot make sense that British Rail is the main organisation which has been specifically excluded from making a bid. Companies which have never operated a railway can bid. Bus companies, shipping companies, pop record makers and almost any other company can bid. Foreign railway operators can bid. I concede that that might be sensible because if one is looking for the most sensible alternative to British Rail, one could turn to the other railway companies and invite one of those to bid. That is what anybody else would do. But the Government say "No" and that British Rail cannot do that.

However, British Rail is still crucial to the operation and will continue to manage the bulk of the railway operation for many years to come. First, it will set up the shadow companies. It will operate as shadow franchisee in an effort to provide the Government with the basis upon which to negotiate the franchises in terms of cost and operation. I think that most shareholders would complain bitterly if their company, which was about to make major investments, said, "After we have worked out exactly what investments to make and what new people to bring in, we'll work out what the costs are. We shall work it all out ourselves but before we go ahead—when we have found that we can do it very well—we will ask somebody else to take it away from us". That is an extraordinary way of trying to run a railway.

British Rail has to run the shadow franchises because it is the only body with that information in the United Kingdom. After it has done that, BR must then withdraw from any bid. Why? It is said that it will use the information that it has gathered to give itself an unfair advantage. But it has got that information. That is why the Government set it up to perform the operation and to get the numbers. It is a grotesque argument. The Government say, "We might get a better deal from a bus company, a shipping company or a record manufacturer than from British Rail. British Rail would probably bid very low". But British Rail might well bid at a much higher level than others because it has the only people who know what operational changes can be made and what their effects will be. So we come to the issue of privatisation (private ownership). I understand the Government being committed to that principle. Why not therefore say to British Rail, "Yes, you may bid, but, if you do, the bid that you make (whatever it is) must have a proportion of private capital as part of that bid"? There is nothing unusual about that. It has been done in this and other countries. The Government could have moved towards a degree of privatisation which would bring in private capital that would enable the railways' investment programmes to be protected and, in a different way, would achieve the Government's objectives.

Of course, the Government have made much of their encouragement of management buy-outs as an alternative to direct bids by British Rail. There is no doubt that to many people that sounds superficially attractive. It is certainly attractive to some senior BR executives who would be keen to take up that opportunity. I do not blame them. The history of most governments selling things is that they usually do so at a loss, and so anyone getting in on the ground floor can become very rich very quickly.

That is one of the most irresponsible elements of the Bill. I ask the Committee to consider the matter. British Rail will be a major element on the transport scene for a considerable time to come. Whatever happens, it will be in receipt of large sums of taxpayers' money for some time to come. During the period of change, some of its brightest executives will be headhunted by the new consortia bidding. British Rail will be facing fundamental changes across the board for several years.

Against that background, any commercial company, any responsible manager, would be doing everything possible to lock key executives into the company for the security of the company. But we are not doing that; we are offering them £100,000 apiece to leave the company. I find it difficult to understand. There will be a combination of headhunting taking some executives out of the company—BR will for some years continue to be the biggest operator in the country—while at the same time we offer some of those executives a chance to leave the main company in order to run a small part of it. I agree, in passing, with the noble Lord, Lord Peyton: when the Government have their list of financial advisers who will undertake management buy-outs for a bottom line of £100,000, I should be grateful for that list. One could not achieve that with financial advisers in the City for much less than double that figure as an absolute minimum. And those are people whose capital resources amount to a four-bedroomed house in the suburbs against which they will take a second mortgage. It is merely a device to pacify people who say, "Why not allow British Rail itself to bid?"

I hope that the Government are prepared to listen to the arguments which have been advanced to see whether they can move in that direction to some extent. It in no way makes any sense. It will result in British Rail having increased difficulties in operating the existing system in the future, and the cost to the Government will be colossal. Present Ministers will not be around when the worst results are seen. I suspect that some of those results will begin to show themselves at the next election. There will then be Members in parts of this place who will be saying loudly, I am sure, "We told you so".

Lord Boyd-Carpenter

Like my noble friend Lord Peyton, I take part in the debate as a former Minister of Transport, hut, unlike him, as someone who was a Member of another place when the railways were nationalised in 1948. That may be a relevant aspect of the matter the Committee is now discussing. We are discussing a Bill which is one of the series of denationalisation, or privatisation—whichever clumsy word the Committee prefers—measures designed to reverse the nationalisation process. As long ago as 1948—I believe it was physically in this Chamber because the other place was sitting here at that time—I made a speech critical of the Government's proposals, and indicating that sooner or later it would be necessary to reverse the nationalisation programme.

The debate on the amendment so far has been virtually a Second Reading debate. All three speakers who have taken part have not concealed their view that they do not wish to see privatisation; that they wish to see, broadly, a continuation of the present position, and, in particular, a continuation of nationalisation.

Lord Marsh

I am grateful to the noble Lord for giving way. I obviously did not express myself very well. When I said that I would pay a high price indeed to bring private capital into the railways to obtain a more stable system of support, I intended to say that I was not wedded to nationalisation. Quite the reverse. I believe that if we have to privatise, it would be difficult to find a more asinine way of doing so.

Lord Boyd-Carpenter

I am obliged to the noble Lord for his intervention. The feeling I had from listening to his, as always, very powerful speech was that he disliked the Bill as such. As the Bill's purpose is to privatise the railways, if one takes the view that the Bill should be thrown out, or, as the amendment proposes, wrecked by an amendment, then it would seem that one is opposing privatisation. Although I accept, of course, what the noble Lord said as to his interesting attitude towards the matter, he must accept that if the amendment were accepted the privatisation process would be halted substantially.

Lord Clinton-Davis

I am grateful to the noble Lord for giving way. What he is saying is belied by the Swedish experience. They said that they wanted to embark upon privatisation. They did so. But they allowed the Swedish railways to enter the franchising stakes. They have done so with great success. What the noble Lord is saying is not consistent with what has been practised in relation to privatisation elsewhere.

Lord Boyd-Carpenter

I am not at the moment discussing the practice elsewhere. I am discussing this amendment to this Bill.

Lord Clinton-Davis

The noble Lord—

Lord Boyd-Carpenter

If the noble Lord will preserve his patience for a moment, I oppose an amendment which would cut out a large element of the privatisation effected by the Bill. Now, does the noble Lord want to say something?

Lord Clinton-Davis

Again, I am obliged to the noble Lord. He cannot have it both ways. If, in fact, the Swedes have practised privatisation, and have allowed the situation to develop as I have described it, privatisation, or whatever one wishes to call it, has continued there. It is not a wrecking amendment that has been proposed, it is an amendment designed to follow a course which has been practised elsewhere. It can in no sense be said to be a wrecking amendment. It is an amendment designed to improve the Government's own proposals.

Lord Boyd-Carpenter

Of course, I hear what the noble Lord says; but he must realise that were the amendment to be accepted, it would have a wrecking effect on the Bill.

Noble Lords

No, no!

Lord Boyd-Carpenter

The noble Lord will know also that those who support the amendment wish to see the Bill substantially put out of action, because that must be its effect. I note with interest what the noble Lord said about Sweden, but we are riot discussing the peculiar circumstances of Sweden. We are discussing the nationalisation of British Rail carried out in 1948 and now subject to reversal if the Bill is carried in its present form. That its one of the reasons why certain Members of the Committee—and one accepts that they are fully entitled to hold those views—wish to see the process of denationalisation frustrated by the adoption of an amendment on these lines.

Perhaps Members of the Committee will put themselves in the position of someone who is concerned with becoming a franchisee, assuming that the Bill is carried in its present form. If such a person realises that he will be opposed by or in competition with the present railways board, he must realise that that will make his application for a franchise extremely difficult. There will be all the natural resistance of such an organisation. The present employees do not wish to see their present employers removed. The whole loyalty of the railway set-up will be directed towards British Rail being a franchisee rather than the other applicants. I am certain that all Members of the Committee who have spoken so far in the debate know perfectly well that the effect of adopting the amendment would be, very largely, to render nugatory the proposal to privatise British Rail. That is the issue.

There is no getting away from the fact that Members of the Committee opposite, perfectly understandably in view of their doctrinal views, believe in nationalisation and wish to see it retained. They disregard the fact that in recent years there have been a series of privatisation measures which on the whole have been a great success. This is yet another in that series. It is much more difficult. I am very far from underrating the considerable practical difficulties which will confront those who wish to take up a franchise. They will face very real problems. But those problems would be increased enormously if the proposed amendment were accepted. Members of the Committee who support the amendment know that perfectly well; and that is where the difference lies between us.

I wish to see effective, privatisation. I wish to see British Rail go into private ownership once again. I wish the nationalisation era of British Rail to come to an end. If one wishes that, one must feel that an amendment of this kind, however well intentioned, makes that infinitely more difficult. Therefore, I very much hope that the Minister, with his considerable expertise in these matters, will ask the Committee to reject the amendment. I hope that he will say that he fully understands, as we all fully understand, the emphasis which has been put on many of the practical difficulties which must be faced under the Bill. No one ignores those difficulties for a moment: they are real and will constitute great problems for the government of the day. But those problems will he made infinitely worse if the present railways board is included as a competitor for the franchise. Therefore, I hope very much that the Committee will reject the amendment.

4 p.m.

Baroness Castle of Blackburn

The noble Lord, Lord Boyd-Carpenter, makes an astonishing admission when he tells us that to amend Clause 22 in the way proposed would wreck the Bill. The amendment does not propose to reverse the franchising process nor does it propose that no private operator should be allowed to bid. It merely seeks to add another franchisee. What frightens the noble Lord, Lord Boyd-Carpenter, is that that franchisee is British Rail. He is so afraid of that nationalised industry that he is not prepared to allow it to compete for a single franchise anywhere in the network.

Lord Boyd-Carpenter

I thank the noble Baroness for giving way. The point that I was trying to make —and from the noble Baroness's speech I am not sure that I made it with the clarity which it demands —is simply that if British Rail could be an applicant for the franchise, that would constitute a great discouragement to other applicants for the franchise because they know that they would be up against the whole of the British Rail establishment. That is the point; perhaps the noble Baroness will deal with it.

Baroness Castle of Blackburn

Perhaps I may suggest that the noble Lord, Lord Boyd-Carpenter, does not intervene again because he continues to give away his real fears. Again he has admitted that competition from British Rail would frighten the private operators. Why is that? It is because it would be more efficient and potent and it would win. That is the truth. It was admitted in the debates in another place by one of the Ministers who argued that to allow British Rail to bid would prevent the break-up of British Rail's monopoly. However, that would be the case only if British Rail won. I assume that there will be an independent adjudicator who will decide which operator is entitled to the franchise. It will not be a state figure which will rig the market in British Rail's direction. The matter will be in fairly tough hands, run by people who will no doubt wish the privatisation to succeed.

We are told that the privatisation will succeed only if British Rail is kept out of the picture. That is astonishing. I know that the noble Lord, Lord Boyd-Carpenter, has spent his long political life conducting a vendetta against nationalisation for nationalisation's sake. There is nothing on the merits or the demerits of the argument. He merely has a hatred of anything which is publicly owned. He wishes such things to be destroyed at whatever cost to the national interest.

I was talking to some of my friends in British Rail management the other day because I was puzzled. I could not believe that that specific and laboured exclusion exists. As my noble friend Lord Clinton-Davis pointed out, competition for contracts has been going on for a long time in many publicly run fields. Until now, nobody has suggested that the public sector should be excluded from showing whether it can compete on merit. It is a total tyranny to brand British Rail as a failure, as the noble Lord, Lord Boyd-Carpenter, has done. He does not wish it to be allowed to prove whether it can compete. That is a level playing field for you in true Tory terms. The odds are always tilted against the public sector and in favour of private enterprise.

I asked my British Rail management friends why British Rail should not to be allowed to compete. They told me it is because it would win. That is what the Minister meant in another place when he said that if British Rail were to bid, it would lead to a perpetuation of the British Rail monopoly. That is because it would be a better bet for the passengers and travellers of this country and for our economy. I asked, "Well, now, how is it you would win?" He replied, "We're more efficient. I am sorry, but we are more efficient". I said, "Send me some proof".

As Members of the Committee may know, I have always liked to have the facts rather than have the prejudices which so typify Members of the Committee opposite. Two figures were sent to me which reflected a comparison between British Rail's operating efficiency and that of its European counterpart. The first figure is of train kilometres per member of staff employed. The figure for British Rail is 3,289 kilometres, whereas the European average is 2,320 kilometres. That is not a bad comparison. Might not such comparisons embarrass the private visitors—the franchise seekers—who were bidding against British Rail?

My information also shows that that figure was achieved at a time when support from public funds as a proportion of gross domestic product was, in the case of British Rail, 0.14 per cent., with the European average being 0.68 per cent. Therefore, we have hardly feather-bedded our publicly-owned railway system. Yet it has, by common consent, achieved great strides forward in productivity. I do not have the slightest doubt that it would have achieved a great deal more if it had ever been allowed to invest with the freedom that will be given to the private operators—indeed, as was given in the water industry. We have seen it all in the history of public ownership in this country. I blame my own governments for not having done something about it in the past.

When water was privatised I remember talking to the chairman of the North-Western water company. I asked him, "What is the advantage in privatisation?" He replied, "We can raise private capital." But British Rail has never been allowed to do so. It has been kept within a narrow straitjacket. Despite that, I think that it has done absolute wonders. Before anyone makes any changes in our rail system, freedom ought to be given first to British Rail to raise capital on the private market just as privately owned industries are allowed to do. That is the real solution.

I have seen the effects of investment on my own commuter line; namely, the Chiltern line upon which I regularly commute to this place. During the worst period a few years ago when British Rail was totally starved of money there was talk about closing down Marylebone station and its line. It was a terrible line. It was always long-winded, taking 55 minutes to get to High Wycombe. The trains were dirty and dark and the facilities on the station were lamentable. However, suddenly, the policy changed and some money was put into the line. I can tell Members of the Committee that the transformation has been magical. We now have new rolling stock which is clean and attractive. The train takes 35 minutes to reach High Wycombe instead of 55. Moreover, the trains are punctual and full of passengers.

British Rail tells me that already, in the short period during which that change in investment policy has taken place, the usage of the line has risen by 33 per cent. Of course, as one travels speedily in that clean, nice and comfortable train towards Marylebone, one realises the folly of struggling to compete on the M.25 and the M.40 to reach London by car. If this Tory Government had cared to put as much money and interest into railways as they put into more and more roads (which will only become more congested as traffic increases) we would not even have a sniff of a suggestion that nationalisation had failed.

The amendment is a test of the Government's credibility. It is a test to see whether they are afraid of the competition of the publicly-owned sector and whether they will be true to their own principles that there should be a free-for-all in competition with everyone being given a chance. The clause is the most revealing in the Bill. It shows the Government's uncertainty about their plans. If they could get away with it without loss of face, I believe that the Government would drop the Bill which they know will be a dog's breakfast and a bureaucratic nightmare: it will increase fares and costs to the country; it will infuriate passengers; and it will do nothing whatever for an integrated transport policy. For their sake, I beg the Government to reconsider, even at this eleventh hour, at least the present amendment.

4.15 p.m.

Lord Cochrane of Cults

I seem to be one of the very few Members of this place who actually said on Second Reading that he welcomed the Bill. However, having said that, I feel that I rather disappointed my noble friend on the Front Bench because I went on to say that the only reason I welcomed it was that it recognised that there was a problem with the railways. I fully support the amendment moved by my noble friend Lord Peyton of Yeovil.

Unlike my noble friend and the noble Lord, Lord Marsh, I have not frequented these corridors for anything like the time that they have. However, I have from time to time spoken on railways. In speaking to the amendment, I must say that I believe that it encapsulates and brings to light a completenon sequitur in the Government's thinking on the management of the railways. I understand that my right honourable friend the Member for Huntingdon gave an interview to the Financial Times not so long ago in which he said that British Railways was "deeply inefficient". It is rather hard to use such terms. If it is "deeply inefficient", the contradiction is that, at the same time, the people who are actually working the system are being asked to do a great deal of work on the shadow franchises which are to be the yardsticks.

Well, if one is "deeply inefficient", surely one would be like a computer—for example, garbage in, garbage out. As I have said, at the same time, the staff are expected to run a railway (which we are told is in dire trouble) and not let the situation become worse. However, if one's attention is distracted away from the job that one is supposed to be doing, it is like that very painful situation, of which I have a modicum of experience, of a fearful row among the directors of a private company. No work can be done. Everyone protects his own back and wonders what to do next. Endless hours are spent telephoning one another, and so on, and the result is enormous lawyers' bills and probably accountants' bills too. My noble friend on the Front Bench wrote to me after Second Reading when I suggested that legal fees could be £160 million. He said that the figure seemed to get bigger all the time, that he could not think why, and that he was quite sure that I was wrong. However, he did not suggest what it would be. I suggest that it may well be a good deal more.

The management buy-outs which are now to be encouraged will cost, as the noble Lord, Lord Marsh, said, very much more than £100,000. They are being promoted, as I said earlier, by supposedly deeply inefficient people. Have we really taken leave of our senses? Of course the railways are not inefficient. British Rail runs—as the noble Baroness., Lady Castle, has just said—a good railway in many parts. But, alas, due to lack of investment and historic mistakes and so on, the railway system is like the curate's egg—some bits are better than others.

I might remark that I travelled this morning from well beyond Edinburgh and arrived at King's Cross some 10 minutes early. The train from Edinburgh was held for us there due to a hitch on the Forth Bridge. That was done without any problem at all. I spoke to the senior conductor and said, "Jolly good. You held it and I got it with a gasp and a pant". He replied, "We were told not to leave until the last hurrying figure was aboard". I say full marks to British Rail for its organisation. Had the system been franchised, I would have had to change from regional railways in Scotland onto InterCity, and I wonder whether the same thing would have happened.

I support the strictures of my noble friend Lord Peyton about the Treasury. I have remarked before that the staff in the Treasury are in many ways a malign influence on much of our national life because they have their own culture which is devoted to things which, while they may have been worthy in Gladstone's day—counting candle ends and suchlike is the traditional expression—are now in many senses irrelevant to the speed and complexity of this country. It is said—I am sure it is true—that the staff in the Treasury get less than half their forecasts right. If you stick a pin in, you get half your forecasts right over a period of time. This Bill comes from the firm that invented green shoots. I fear that that is not an original remark but it is true nonetheless.

As things stand, any foreign railway can operate here. I do not know whether my next remark is politically correct or not, but would not one feel one had a little egg on one's face if one was on the Front Bench and announced that Irish Railways had secured the franchise for Cornwall or, more embarrassing still, Scotland? There we have it. Those companies can secure franchises under the Treaty of Rome but our chaps, who are efficient although denounced as inefficient, are not allowed to do so. Yet at the same time they are encouraged to try under another hat.

In practice it is looking as though there will be few offers for franchises except through management buy-outs. As the noble Lord, Lord Marsh, said, management buy-outs tend to be frightfully highly geared. But even so these employees of the railway, the management, will be asked to put in the next best thing to their shirts. On the whole, in the present climate—I am not talking about the past but rather about today's climate—I would rather continue to be a member at Lloyd's than take part in any significant share of a management buy-out of any part of British Rail.

I think it is fair to those involved that this anomaly should be removed, as proposed by my noble friend. If it is not removed, there will be severe effects on the morale of those who are at the sharp end of the railways and who day in, day out, have to make decisions such as the one I averted to earlier. They will perhaps lose the sharpness of their initiative and just keep their heads down. Things will deteriorate and we will have obtained no advantage whatever of any sort from these changes. With that continuing uncertainty, things are bound to get worse. Much of the system is good already but it is precariously good because it relies on individuals who require to be motivated. I believe that we should wholeheartedly support my noble friend's amendment, as I do.

Lord Tordoff

I shall make a brief intervention because time is pressing. However, I felt someone should speak from our Benches to state our position on these matters. I was interested to hear what the noble Lord, Lord Peyton, said about his right honourable friend the Secretary of State. I know the noble Lord has had consultations with the Secretary of State. I presume they have not borne fruit because otherwise he would not have pressed his amendment today in the excellent way in which he did.

However, I have no doubt that the noble Earl, Lord Caithness, will commend the Bill to this Chamber with the fervour that he commended the poll tax some years ago. But today we are addressing not the Government Front Bench but the Members of the Committee sitting behind the Government Front Bench, those on the Cross-Benches and those on our own Benches. I for one am glad to see that the Chamber is much better attended than is normal for a transport debate because this is an important matter. It seems to me that down the years there have been two positions on nationalisation and privatisation which have been as rigid as one another. This Bill to a certain extent gives us the opportunity to move away from that situation, but it is being supported in ways that are as dogmatic as the pro-nationalisers were all those years ago. That is a great pity as I believe that the railways deserve better than that.

The idea that ways should be sought to bring new capital and new investment into the railways is one that I applaud. There are many things wrong with this Bill which we have discussed on Second Reading and already in Committee, but there is one aspect that we need to test and that is whether the private system or the nationalised system is better able to run a railway service. There is only one way of testing that and that is by allowing the two systems to compete against one another. The only way to allow them to compete against one another is to allow British Rail to tender for the franchises. That is what this amendment seeks to do and that is why we are prepared to support it from these Benches.

Lord Taylor of Gryfe

I wish to intervene briefly as I was a member of the British Railways Board for 11 years. I believe I was appointed by the noble Baroness, Lady Castle. I sat under the distinguished chairmanship of the noble Lord, Lord Marsh, and was duly reappointed to the board by the noble Lord, Lord Peyton. When I sat on the board I always felt a sense of responsibility for a major industry that employed thousands of people not only in the industry itself but also in the supply industries. It was an industry which affected the total economy of the United Kingdom as it was a major carrier of freight and passengers. It was in that sense of trying to create the most efficient enterprise that I sat on the board. I can say from my personal experience that there was considerable dedication not only on the part of the board but also throughout the system. The employees felt committed to the railways. In many cases there was a long family tradition of service to the railways.

It is somewhat insulting to say at this stage that, because the railways are in the public sector, they are therefore inefficient and that the private sector can contribute some kind of magic which will transform the efficiency level of British Rail. That is simply not true. I have had experience of sitting on the British Railways Board and on the boards of a number of publicly owned companies. I found there was no less dedication to securing efficiency in the case of British Rail than in the case of some private companies in which I served.

The argument that one suddenly makes organisations efficient by privatising them is not borne out in fact. I remember sitting in this Chamber while we held long debates on the privatisation of a responsible and well founded institution known as the Trustee Savings Bank. The same kind of arguments were trotted out in those debates; namely, that somehow or other if the TSB was taken out of the inefficient public sector and made a private sector company it would undergo a transformation. I have the figures here for the TSB. It was a healthy bank and at one time it had no debt whatsoever. However, the figures for last year show that the TSB incurred £181 million of losses. The enterprise and imagination of the private sector have resulted in that bank accumulating £597 million of bad and doubtful debts. Therefore, one cannot prove that by suddenly changing the name on the door one magically makes the company efficient.

That is doubly true in the case of railways, which is a complex and specialised business. The people who run the railways know about railways. As has already been said in the debate, the people in the City who will advise on these matters have little or no experience of running this specialised industry.

Today we address ourselves to the question of franchising and whether the state enterprise should be prohibited from putting down a benchmark on efficiency. How will such things be judged? The clever boys in the City cannot advise on railway efficiency, although they will collect fees for doing so. One must have a standard of comparison; one must have competition. I always assumed that this Government were in favour of competition, and they have not been too clever about franchising. The noble Lord, Lord Marsh, made reference to the previous experience of franchising: that is the television franchises. I was interested in a company which bid £2,000 for a franchise which was worth between £8 million and £10 million. Scottish Television was the only bidder. It was very clever. My shares multiplied by 10 overnight; £1,000 became £10,000. The taxpayer lost the value because there was no competitor and no other bidder. Therefore, the franchise went to STV.

Is that the kind of result the Committee wants in franchising the services of British Rail? If not, it should introduce the element of competition. Far be it from me to preach the gospel of competition because all the advice on its virtues should be coming from the other side of the Committee. But unless British Rail is permitted to bid in competition with private enterprise how can we be satisfied that the taxpayer is obtaining a good deal?

I make a plea to the Government. This is a difficult and complex piece of legislation and many parties are involved in making the arrangements, as mentioned by the noble Lord, Lord Peyton of Yeovil. It will emerge only on the eve of the next election when we shall realise the mistake that has been made. I do not especially wish the Government well, but I say in all seriousness that unless the privatisation of British Rail is carried out efficiently and unless there is an element of competition in franchising, they have no right to muck it about because it is an important British industry.

4.30 p.m.

Lord Marlesford

Perhaps we can all agree that this is the most important amendment that we have dealt with and that it will probably transpire to be the most important amendment tabled in Committee. It was moved in a most persuasive way by my noble friend Lord Peyton. My noble friend Lord Caithness knows that I have had some difficulties with the Bill and have been unhappy about it. However, the reason for my unhappiness is different from the reason for the unhappiness of Members of the Committee opposite.

I believe in privatisation, in particular the privatisation of British Rail, for three reasons. They are not dogmatic reasons but are practical and apply also to other industries. First, privatisation will attract private capital into British Rail, which is impossible while the industry remains nationalised. Endless attempts have been made to find a formula whereby it is possible to bring private capital into a publicly-owned industry. However, the liability of the Government to the minority shareholders, or to the suppliers of that private capital, means that the Treasury, inevitably and rightly, must say that that private capital is part of the PSBR. That means that. that supply of private capital will constantly he measured against hospitals, defence and all the other desirable items for which there is never enough money. The point about private capital, however, is most important.

The noble Baroness, Lady Castle, asked what good will come from privatisation. I realise that my point is a Second Reading point but it is relevant to what she said. Let us remember that when the telephone service was publicly owned we had to wait until it was graciously prepared to give us a telephone.

The second argument, which applies a great deal in the case of British Rail. is the need to introduce tougher and more entrepreneurial management. The third argument, which some Members may regard as the most important, is that it is easier and better to regulate what you do not own because there is no conflict of interest. My goodness, there is a need to regulate on behalf of the users of British Rail.

I cannot compete in experience in this matter with Members of the Committee who have spoken. We have heard from four former Ministers of Transport and a former chief executive of British Rail. My experience is more of a worm's eye view than a bird's eye view but it is at least more recent. For four years until last summer (when all the regions were scrapped) I was a member of the board of the Anglian region of British Rail. I can only tell the Committee of my conclusion from my observations on the inside. It is that the management is not good; indeed, it is remarkably poor. I have been involved with a number of industries, including Eastern Electricity, a former nationalised industry. There is no comparison in the management. The problem with British Rail is one of management; it is not the people on the stations or those who drive the trains. They are splendid people and can perform wonderfully. However, during those four years the standard of management that I observed was abysmal. I am afraid that I should be unable to sign or to underwrite the laudatory chips which my noble friend Lord Peyton offered to Sir Bob Reid.

Lord Marsh

I thank the noble Lord for allowing me to intervene. I followed his comments closely. How does he reconcile those comments with the policy in the Bill to make public money available to specific railway management buy-outs? How can the Government subsidise those self-same managers to take over total responsibility for running sections of the railways without government involvement?

Lord Marlesford

I have already said that I do not think that this is a particularly good Bill—

Noble Lords

Oh!

Lord Marlesford

No, I made that point most clearly on Second Reading. I am now speaking to the amendment. With great respect to the noble Lord, Lord Marsh, I do not believe that the point he makes is directly relevant to the amendment. At any rate, I believe that throughout the years British Rail has not provided a good service to travellers or to its other users.

Perhaps I may turn straight to the point about franchising. It requires detailed estimates of future costs and the necessity of keeping to those costs. There is no other area in which British Rail is less successful. It is hopeless when it comes to knowing the cost of certain items, which costs are important, and which are not. If the Committee wants a trivial example—perhaps no more trivial than that given by the noble Baroness, Lady Castle, of her journey today—I shall offer one. Recently I received a letter from no less a person than Sir Bob Reid stating that the decision not to print the names of the stations on the timetables of provincial services will save money. Is that the kind of approach which gives one confidence in the figures which British Rail will produce in applying for a franchise?

Lord Peyton of Yeovil

What my noble friend states about British Rail is a matter of opinion. However, holding the opinions that he does, would he not think it slightly eccentric on the part of the Government to use British Rail and its personnel as shadow franchisees? It seems very odd indeed.

Lord Marlesford

My noble friend states that it is a matter of opinion. One could also say that it is a matter of experience. I do not claim grand experience. I merely give the Committee my experience of the quality of management of British Rail which makes me believe that it is better for the rail services not to continue to be run by the management of British Rail. That is the point that I seek to make.

Lord Peyton of Yeovil

Then why choose just those people as shadow franchisees to give a benchmark and a standard for everyone else?

Lord Marlesford

I hope, eventually, that a number of people will attempt to obtain franchises and that the lowest franchise bid from a reputable tenderer will receive it. To ask British Rail to indicate what it would bid is not realistic. I do not believe that the bid it puts forward would be one in which I would have confidence as a taxpayer or as someone who will use British Rail. I believe that it is a wrecking amendment.

Lord Tordoff

The noble Lord states that he would not have confidence in that franchise bid. That may be so. But is there no mechanism by which the franchise director can determine whether or not he has confidence in the bids? Why should he have more confidence in a private bid than in a bid from a publicly owned company? The amendment states the bid should be tested in the market place.

Lord Marlesford

The noble Lord puts his finger on the point. The difference is this. The public bid is not real money; it is not the bidders' own money. The bid from the franchisees involves money that they are putting up and which they can lose. They can also lose their jobs. Not many people lose their jobs in the publicly-owned industries, however bad the performance.

Noble Lords

Oh!

Lord Marlesford

I hear the roars of rage, indignation or disbelief. I am not talking about the running down of industries. I refer to people who make management mistakes. Remarkably few managers in publicly-owned industries lose their jobs as a result of bad management. I suggest that many of the unfortunate foot soldiers lose their jobs because the managers have not lost their jobs. The main point is this. I believe that it is better to have outside capital and outside management to run the services of British Rail. The amendment would wreck the chances of that. That is why I shall not vote for it.

Lord Eatwell

I wish to address the economic case which has been made for excluding BR from bidding and, so to speak, rigging the market. It is a case which has been reiterated by the noble Lord, Lord Marlesford; it was made by the noble Earl, Lord Caithness, at Second Reading. The case is based on the idea and the proposition which is quite correct that the commercial risk associated with British Rail as a publicly-owned company is less than the commercial risk associated with a privately owned company. At Second Reading, at col. 1526 of the Official Report of 15th June, the noble Earl stated: Allowing BR to bid would be the surest way to undermine potential City interests, because BR would be bidding … on the basis of using risk-free public money". I am sorry to tell the noble Earl that that is economic nonsense. The case for excluding BR on those grounds is simply not sufficient, as any reasonably well educated transport economist would have told him. I am sure that there must he such persons in his department. I wish to sketch out why it is economic nonsense.

First, the noble Earl seems to have failed to realise that the advantage of lesser commercial risk not only accrues to the monetary bid which a public sector company might make; it also is an advantage which accrues to the passenger. If a public company wins the franchise, the passenger acquires an operator whose risk of failure is significantly less. Therefore the chance of that passenger's train not being present next morning because the company has failed is significantly less. In those terms, the product provided by a public sector company is significantly superior because it has a lower risk of failure for the passenger.

Secondly, let us pretend that the product provided is exactly the same and take up the point made by the noble Earl at Second Reading. He is quite right. The public sector can borrow money at a lower rate of interest than the private sector. The differential in that borrowing rate is a precise estimate of the market's evaluation of the risk associated with the private sector company, be it ever so blue chip, rather than the public sector. Therefore one has a market determination of the risk. One has a market determination of the advantage which BR would have from using public sector money. Thus all one has to do is to take that differential—one can look it up in the Financial Times every day—apply it to BR's bid, uprate the bid, and so have a perfectly level playing field. There is no difference whatever, whether it is public money or private money that is being used. One can use the differential in the interest rates to correct the difference in the bidding and thus exactly measure the difference in risk.

On the basis of those two points, the Government's economic case falls. There is no economic case for excluding BR from bidding. Indeed, there is an incredibly strong economic case for having the bid simply to increase the level of competition, as many Members of the Committee have said. Since there is no economic case for excluding BR from bidding, we must assume that the noble Earl has other, perhaps political, motives in mind.

4.45 p.m.

The Earl of Lindsay

I cannot compete with the noble Lord, Lord Eatwell, on economic theory. However, I stress that one of the great practical assets of the Bill is the encouragement that it will give to management buy-outs winning franchises. Such franchises, run by successful management buy-out teams, will slowly begin to take our rail system out of the strictures of the public sector and the constraints of the Treasury, neither of which a British Railways Board franchise will be able to do. There is, too, the longer term saving to the taxpayer from a management buy-out team which, again, a British Railways Board franchise will not achieve.

The amendment should not be supported on the ground that it completely undermines management buy-outs. I am surprised that the prospect of management buy-outs has had such a cynical reception in some parts of the Chamber. Criticisms have been levelled at that procedure and the Bill in general, but specifically on the issue of whether the British Railways Board is allowed to compete. One of the criticisms is that the railways will be robbed of skilled staff and that crucial personnel will be moved sideways or disrupted. We have already dealt with the deliberate encouragement that management buy-out teams are receiving. However, even if it is a third party bidder, his only realistic opportunity of impressing the franchise director is if he has recruited on his team a selection of experienced railway operators. The noble Lord, Lord Clinton-Davis, suggested that we shall have railway companies run by inexperienced operators. I cannot conceive that that will be allowed by any of the regulatory authorities which the Bill sets up.

With a management buy-out team rather than the BR Board, there will be a greater drive towards productivity. I know that it is already good, but no doubt there is room for improvement. A recent assessment carried out in Scotland on behalf of one of the possible ScotRail management buy-out teams shows that its headquarters administrative staff could total about 20 people. At the moment, Regional Railways has its headquarters in Birmingham where it has an office of 1,000 people. There is an extraordinarily disproportionate saving for a new administration for ScotRail which drops its staffing and payroll to 20 people. Once again, that is the kind of improvement that a former BR management, in partnership with private sector skills and fundings, would be able to bring about. It would be much easier for them to bring it about than if they simply continued their old jobs on the old BR payroll.

The noble Lord, Lord Peyton, among others. suggested that management buy-outs might be hampered through an inability to raise funds. I believe that the noble Lord, Lord Clinton-Davis, said that there would be a fairly small management input from the railway team and that most of the input would come from merchant bankers and so on. The capital requirement for winning a franchise is not so substantial. One is not purchasing capital assets; one is simply seeking working capital, leasing the track, the rolling stock and the infrastructure access. The requirement to arrange for massive sums is not there. In addition, many of the franchises will be involved negatively on the PSA. So once again one is bidding for an allowance rather than a positive sum of money.

I would also point out that a management buy-out team may not be the highest or the top bidder. It is entirely within the rights of the franchising director to choose the under-bidder, who perhaps has experience of rail management or whose financial backing is more certain, and thus ignore the top bidder.

I return to Scotland once more. I believe it was the noble Lord, Lord Marsh, or my noble friend Lord Peyton, who said that there would be little interest in the City. I am sorry to bang on about Scotland, but it is a part of the network I know best. The two or more groups of managers who are considering participation in a buy-out have interests within the City to support them. The operation is seen as viable, not a hopeless lame duck. Therefore, we shall possibly, north of the Border, see one of the great promises offered by the Bill fulfilled.

The spectre of foreign involvement in British Rail franchises is somewhat misleading. It is a suitably emotional one, perhaps, introduced for the purpose of this amendment. For one thing, most foreign state-owned railway companies face exactly the same problems as we in this country face. Monolithic, single entity, single managed companies rely heavily on state funding. With one eye on what we are doing in this country, they seek to unwind the great institutions which are so expensive, in the same way as British Rail has been so successful in the past few years in unwinding its single vision operation, trying to set up separately managed, self-contained profit centres which have to be separately accountable.

As regards foreign intervention, the franchising director is looking for private sector funds and skills, not for still further state funds and skills. I imagine that he is also not allowed to accept any subsidised foreign bid. Perhaps my noble friend will confirm that.

At the moment, there are unlikely to be any foreign bids for our own franchises. It may emerge in time that we become minority partners with some of our own management teams. If a foreign institution or company wants to invest in this country's infrastructure, rail system and management, I believe that we would welcome it, as we would welcome the Japanese wishing to build factories for the manufacture of cars or televisions sets.

British Rail has a comprehensive and well established record of foreign investment, foreign advice, foreign vehicles and foreign expertise. Austria is one country which springs to mind. A considerable amount of Austrian expertise has been brought to this country because we cannot provide that expertise ourselves. We cannot afford to "home-grow" it.

For a long time, I have been a completely committed railway man. I admire everything that British Rail has done and is doing and all the plans it has on the table. I also firmly believe that our rail system must be fully integrated. It must be efficient. The treatment that it receives in infrastructure investment decisions and so on must be fair. However, I cannot bring myself to support the amendment. I believe that the Bill offers a unique opportunity to bring private sector skills and money into rail management and better teams within the railways. If we allow this opportunity to be undermined by the amendment, it will be a great loss.

Lord Mountevans

I support the amendment, not with any view towards wrecking the Bill—the Bill covers not only franchises, but a whole number of other mechanisms—but in an attempt to make franchises work.

I believe that the ability of BR to bid should be a milestone on the road to total privatisation. To be successful, a BR bid would, after all, have to take account of all the changed circumstances flowing from the Bill. There is the ability to lease stock and the status of Railtrack, which will have a commercial remit, which is planned to have a 10-year investment plan and which will, I gather, have at least three years of financial certainty ahead of it. That is something which the British Rail civil engineering side has never enjoyed.

A BR franchisee, an MBO (management buy-out) or a private sector franchisee will deal with Railtrack on the basis of a commercial and enforceable contract, rather than, as is now the case with British Rail, having simply an operational branch within the existing profit centre.

Even with the BR bid, there will be the freedom to operate commercially from one year to another rather than having to draw an immovable profit and loss line on 31st March each year. So far as I can see, franchises seem likely to be for seven or more years, meaning that the short-term perils of the PSBR and the public expenditure round would give way to longer term views. If that does not hold true, then no one will sign a franchise.

A BR bid would have to satisfy the franchising director's criteria and deliver on its promises. In other words, it would be halfway to operating as a private company. Given the length of the franchise, it could use the time available to develop those business skills, expertise and track record which would enable it, in the fullness of time, to become a fully fledged private operation.

A BR bid will already be on the table, as existing profit centre performance will be the touchstone against which the franchising director will assess the incoming bids. I find it surprising that no BR attempt is to be permitted to establish whether existing performance can be further enhanced as a result of the change in circumstances which I have mentioned.

Despite what my noble friend Lord Marlesford said, BR seems to me the best qualified operator at the moment. Others will no doubt demonstrate equal or greater skills and we must hope that that will come to pass. However, the experience, for example, of Stagecoach Holdings—a highly competent operator in another transport field—when it took over a small element of the Aberdeen-London service operated by InterCity demonstrates how difficult it can be to run a railway service.

The skills of running a section of a railway are not those of running a small business, nor are they those of the large groups in the transport sector which have been privatised in recent years, very successfully. Those people who care for their customers, manage staff and handle incidents—I simply take railway incidents like points failures and suicides—do not necessarily have the skills in managing cash flow, book-keeping or maintaining their position with City analysts.

The converse is also true. Time is needed to develop those skills within the new train operating companies. Whatever may be going on in Scotland, I believe that they are not universally available among all the other franchises designate. I can think of no better way of achieving that than by allowing BR to bid, using the range of skills that it already has nationally in terms of operation and allowing it the time to develop the ability of the divisions to operate as companies in the private sector. The parallel has already been mentioned, of how we went through a tendering process on London Transport as a prelude to full privatisation. Sweden has already been mentioned. There are many other opportunities or factors that one could mention, but debate has gone on for a long time, so I shall simply rest my case, not on an eternal right for BR to bid but as a halfway house in the process of managing change from where we are now to where we would hope to be in 10 years' time.

5 p.m.

The Earl of Caithness

Let there be no doubt in the minds of Members of the Committee that this set of amendments goes right to the heart of our policy. That was made very clear by the excellent speeches that we have had from four ex-Ministers of Transport and two ex-members of British Rail boards, some of whom were against and some of whom were for the Government. I hope that I shall be able to persuade the Committee that the amendments are at the same time profoundly undesirable and unnecessary. They are undesirable because they would undermine the whole franchising process. Here my noble friend Lord Peyton of Yeovil was undeniably honest when he said that it is a step back from the intention of the Bill. They are unnecessary because BR does not need to bid for the franchise director to be able to assess the relative merits of accepting a private sector bid and allowing BR to continue running the services in question.

First, let us consider our objectives. We all want to improve services in a way which represents value for money for both the passenger and the taxpayer, who will indirectly continue to support socially necessary services. Securing value for money is not just about finding the cheapest operator to provide services. It is also about the quality of service on offer to the passenger and it is about transferring risk from the taxpayer. I am sure that all noble Lords can agree with these objectives.

Let me remind the Committee of our manifesto pledge. We believe that the best way to produce profound and lasting improvements on the railways is to end BR's state monopoly. The Government believe that private sector operators will focus more clearly on passengers and their requirements, recognising that, as in any business, you have to respond to your customers if you want to sell your product. Experience shows that the private sector is generally more responsive, more flexible, more innovative and more efficient. It will bring to the railways a fresh approach, building on the work done by British Rail. It will not be constrained in the way that a nationalised industry is constrained, for example, by public expenditure rules and statutory constraints on diversification.

I have described the attributes which we think the private sector can bring to the railways. These will complement what is already there. Franchisees will need the experience and skills of the existing BR workforcet—the drivers, guards and station staff. The railways could not run without them and we have always recognised that fact.

We also want to see BR staff bidding for franchises on the basis of management-employee buy-outs. Clause 128 specifically provides for the board to give its employees financial assistance when bidding for franchises, or indeed for outright sales of other parts of BR's undertaking. BR has already announced the details of the financial assistance that will be available. Broadly, BR will reimburse costs on the scale of 85 per cent. of the first £10,000 (not including the initial feasibility study) and 75 per cent. of the remainder, subject to an overall maximum of £100,000 for each bid learn. Assistance will be repayable only in the event of a bid succeeding. We would not be offering such support if we did not have a great deal of confidence in the skill and initiative of British Rail's managers and workers.

Let me now explain how these amendments, if passed, would underline our franchising policy. Allowing BR to bid would undermine private sector interest because I3R would be bidding on the basis of access to capital at preferential rates due to the implicit government guarantee that it would have. Private sector bidders would feel, with some justification, that a public sector bidder was very likely to be unduly optimistic in preparing his bid. Many in the private sector would probably think that they were wasting their money in even preparing a bid against British Rail.

British Rail is not accountable for its budgets in the same way as a private sector operator would be. If a franchise is awarded to a private sector operator whose bid was for £1 million of subsidy, then that is how much he would receive. He will not be able to come back for more. He will need to be properly capitalised to bear that risk. Here—

Lord Eatwell

The noble Earl is reiterating the point that he made at Second Reading and which I addressed in my remarks. I outlined in those remarks a way in which he could use market calculations to correct precisely for the differential risk associated with public money, which is cheaper, and privately raised money. Why does he not accept this market based scheme and then allow competition to take place?

The Earl of Caithness

I fully admit to the noble Lord that I am no transport economist. I am looking at the real and practical world in which businesses have to operate. I say to him without qualification that when one looks at a situation where one side is backed by the Government against a side that is not, it is fairly clear what the result will be. My noble friend Lord Boyd-Carpenter was absolutely right on this point. If a franchise were awarded to the public sector there would not be the same incentives on the part of the management and workers to make a success of their franchise. The reason is not greater efficiency, as the noble Baroness, Lady Castle, suggested. If that were the case, BR would continue to operate the service. I shall come to that point in a moment. The answer, as my noble friend Lord Marlesford pointed out, is that as a nationalised industry the taxpayer would always be there to bail BR out. With the best will in the world, this must affect the attitude of managers and workers in a franchise.

Lord Stoddart of Swindon

I am trying to follow the noble Earl and I am trying to understand what he says. As I understand it, he is saying that, because British Rail will be backed by the Government and will have access to finance, that would be wrong; it would be uncompetitive. On the other hand, the noble Earl told me the other day and has said so on other occasions that SNCF will be able to bid. Is not SNCF under the same circumstance as British Rail? Is it not backed by the Government, and will riot other potential franchisees take the same view; and therefore if SNCF is allowed to bid, and does bid, will it not meet the same situation?

The Earl of Caithness

I am very grateful to the noble Lord for reminding me that I have to deal with this point. I shall come to it later in my remarks.

What I have said so far brings me to a fundamental point; namely, the effect of these amendments on a management-employee buy-out. I have already explained that encouraging such buy-outs is an important aspect of our policy. There has already been an encouraging level of interest shown by BR management in putting forward bids for franchises. The noble Lord, Lord Clinton-Davis, compared what we were doing to competitive tendering. The situation is very different. The interest of management-employee buy-outs would evaporate if BR were allowed to bid for franchises. Indeed, my noble friend Lord Lindsay was absolutely right in what he said. We have received similar evidence that if BR were allowed to bid for franchises, management-employee buy-outs would not be in any way interested in pursuing the interest.

Also in the majority of the 25 profit centres into which BR will be divided, there is or potentially will be a management-employee buy-out ready to come in. That interest would evaporate for the very reasons that I mentioned. The managers would be placed in an impossible position, with a clear conflict of interest between developing their own bid and the preparation of BR's bid. We could not and cannot accept that situation. The Committee should be under no illusion that management and employee buy-outs will not be allowed to come off second best and that the corporate interests of BR will not prevail.

Another point which needs to be dealt with is the question of investment. All noble Lords are keen that there should be more investment in the railway sector. I am proud to be able to say that investment is now at record levels in British Rail services. That has been reflected, as the noble Baroness, Lady Castle, said, in a better service on her line.

But having listened to what Members opposite have had to say, I have no doubt in my mind that those Benches would still want British Airways to be funded by the taxpayer so that every plane bought would have to have taxpayers' support, and similarly every bus bought with taxpayers' money. The reason why British Airways is one of the few airlines in the world which now makes a profit is that it is not state subsidised. It has been let go into the private sector and has increased its investment as a result.

Lord Tordoff

Would the noble Earl please explain to the Committee what on earth that has to do with the amendment?

The Earl of Caithness

A great deal. I stressed it at Second Reading, and I am surprised that the noble Lord, Lord Tordoff, has not realised it. One way is that by bringing the private sector into the railways one can bring in a whole opportunity of new finance and new investment. As the noble Lord was one of the few to admit, because of Treasury rules you cannot bring private sector investment into British Rail. That is well known. Unless that private sector investment is over 51 per cent., the industry concerned—it was the case in the days of the Labour Party and it is still the case today —will be treated as a nationalised industry and, as the noble Lord, Lord Marsh, said, will still be related to public expenditure. It will be taken into account.

Lord Clinton-Davis

If this is all the fault of the Treasury rules, is there not a strong case for altering the Treasury rules? Is that not exactly what the French railways have done? They have been able to invest as a result of the private sector being able to assist their investment programmes?

The Earl of Caithness

I am sorry that the noble Lord takes such a lax view of public expenditure. It is important to have very good control over public expenditure. I feel it is absolutely right that, when one looks at the whole issue, one must consider the private sector. That, I say to the noble Lord, Lord Tordoff, is why we need to allow management-employee buy-outs in particular, which this amendment would absolutely stop. We need to resist these amendments so that the private sector will be allowed to provide the necessary investment and offer different ways of bringing money into this very important industry.

Lord Marsh

I am grateful to the noble Earl for giving way. I agree with the noble Lord, Lord Clinton-Davis, but I do not see why the Treasury rules should stop us if the objective is worth pursuing. Would the Treasury rules prevent British Rail from bidding as part of a private consortium?

The Earl of Caithness

If British Rail were part of a private consortium of which it had a majority shareholding, any private sector money that was included in the bid or was involved at a later stage in investment would be classed as public expenditure. The noble Lord knows that. That was the case when he was a Minister. I remember sitting in the Gallery and listening to him defending that situation in the other place.

5.15 p.m.

Lord Marsh

But suppose it were a minority partner. That has existed in this country and many other countries.

The Earl of Caithness

If it were a minority partner and therefore the private sector had a greater control over that company, it would not be BR bidding but a private sector company that was bidding—a company of which BR would be part. There would be az totally different situation because you do not have a nationalised industry as majority shareholder. The noble Lord, Lord Marsh, was scathing on the point, but what we hope is that the expertise of the management and workforce of BR will come forward as part of a private sector initiative as a management-employee buy-out, bringing in that private sector money.

Lord Marsh

No, I am sorry. I was persuaded by the noble and learned Lord, Lord Hailsham, to speak. I am trying to get to a point wherein it would be possible (if the Government are bound on this line) for British Rail to become part of the privatisation exercise. It seems to me that there is no reason at all why it could not do so as a minority bidder with—as part of—a consortium. Is the Minister saying that it would be entitled as British Rail to join a consortium for a part of the system? Itis a very simple question.

The Earl of Caithness

I need to reflect for a little on that question. The Committee would dislike it if I gave an immediate off-the-cuff answer which might be wrong. I am sure that the Committee would much rather I tried to give a correct answer. Perhaps we shall come back to that point.

I turn now to why I believe that allowing British Rail to bid for franchises is unnecessary. I know that many Members of the Committee, like the noble Lord, Lord Taylor of Gryfe, in particular, are concerned about value-for-money. Let me assure the Committee that we are also. That is why we have made it clear that the franchising director will take the cost of British Rail continuing to provide a service fully into account when considering prospective franchisees' bids.

BR will he running each of the groups of services to be franchised in a "shadow franchise" before each competition. The purpose of having a shadow franchise is to check that the grouping can function properly and make good operational sense and to provide a financial track record. The information generated by shadow running will help the franchising director to assess how much it would cost if BR continued to run the services, in addition to taking BR's operational performance record in terms of punctuality and reliability into account when judging bids for the franchise.

If there is no interest—this is a point of great importance—in bidding for a particular franchise, then BR will continue to run the service. Similarly, if the Franchising director does not believe that any of the bids he has received represents good value for money—that is a point of concern to the noble Lord▀×having had regard to the transfer of risk implied by the bids and the extent of competition, he will not grant a franchise and BR will continue to run the services. So, far from being a ghost at the feast, as my noble friend Lord Peyton said, BR will still be very much in there. So while we are very keen to see the private sector provide franchised services, it is not a question of "franchise at any price", as the noble Lord, Lord Clinton-Davis, intimated.

The noble Lord, Lord Tordoff, asked for BR to be allowed to compete with the private sector. Although our approach would not allow BR to become a franchisee, let me make it absolutely clear that it would allow it to continue to operate services for as long as that represents better value for money than franchising the services.

We shall he discussing in more detail the position of the board in the event that the franchising director fails to award a franchise when we discuss Amendment No. 46C. We shall also be considering, when we come to Amendment No. 48D, the extent to which the franchising director must take into account, when awarding a franchise, the amount of grant required if BR continue to run the services being franchised.

Let me now deal with a point that the noble Lord, Lord Stoddart of Swindon, kindly reminded me that I had to deal with. It was a point also raised by my noble friend Lord Peyton. It is in regard to foreign, state-owned railway bidders. It will be for the franchising director to decide who to invite to bid. He will be subject to the objectives given by my right honourable friend the Secretary of State. The draft objectives which have been placed in the Library make it clear that his principal objective is to secure that passenger services are provided by the private sector. He will need to assess any bid involving a foreign public sector operator against that objective. Of course, a franchising director will take careful note of what state aids or subsidy a particular organisation is receiving. I am sure that the franchising director, given the objectives, will be particularly vigilant on that point.

Lord Stoddart of Swindon

Perhaps the noble Ear1 will give way. He has not answered my point. The question is, if the franchising director decides to invite SNCF or any other foreign nationalised railway to bid, will not the private operators be put off in exactly the same way as the noble Earl said that they would be if British Rail, as a publicly-owned organisation, was allowed to bid for a franchise? That is the question and the noble Earl has not answered i t. I do not believe that he will be able to.

The Earl of Caithness

The franchising director will be able to reassure the private sector, which would not be the case with BR, that he will be looking carefully at what state aids and subsidies any potential foreign operator is receiving. That is a different situation to that appertaining to BR.

Lord Stoddart of Swindon

Why will the franchising director not be able to give the bidders the same assurances in regard to British Rail?

Lord Tordoff

And why should the great British public be denied foreign subsidisation?

The Earl of Caithness

Obviously the franchising director will take into account what the potential operator receives in the way of subsidies and state aid. Therefore, if one is a private sector company in this country one knows that that will be borne in mind by the franchising director. I put it to the noble Lord, Lord Stoddart of Swinclon, that that is a different situation to that appertaining to British Rail, which will be operating the service prior to a franchising operation. As I said, the franchising director will look carefully to see whether the private sector potential operators can produce a better service and better value for money for the taxpayers of this country. If they cannot, BR will continue to operate the service.

Turning to the point raised by the noble Lord, Lord Marsh, to which I promised to give the Committee an answer, I can assure him that there is nothing in the Bill to prevent BR participating in a bid as a minority partner. I hope that that satisfies the noble Lord. That is a different point to those arising from the amendments. Let us be under no illusion as to the effects the amendments would have. However superficially reasonable the idea is of an amendment to allow BR to bid, it would effectively be—I choose my words with great care—a wrecking amendment. It would undermine our proposals to bring the private sector into the operation of passenger rail services, as set out in our manifesto. The private sector would see a powerful, incumbent figure backed by the taxpayer as an overwhelming deterrent to bidding. As I explained, management and employee buy-out teams would be placed in an impossible and intolerable position.

At the same time, I hope that I have been able to reassure the Committee that the cost of BR running the services will be properly taken into account. It will provide a yardstick against which the franchising director will be able to measure value for money and protect the public purse. If there are no satisfactory bids BR will continue to operate the services. I hope that the Committee will agree that BR does not need to bid and should not be allowed to do so. In conclusion, I put it to my noble friend Lord Peyton of Yeovil that we are confident that our proposals will work.

Lord Peyton of Yeovil

I have some sympathy with my noble friend. He did not seem to me to be wholly at ease in defending the Bill or in answering the case that has been made for the amendments. In particular, he did not refer to what the likely cost of the Government's proposals will be.

At the risk of boring everyone, perhaps I can repeat the sentence contained in the Financial Memorandum: The proposals in this Bill are not expected to lead to major reductions in public expenditure in the short term". That deserves applause for coyness, though perhaps not for anything else. The value of the information that it communicates is minimal. I asked my noble friend to tell the Committee within what brackets a likely estimate of the impact on public funds would be. Does my noble friend wish to answer?

The Earl of Caithness

I apologise to my noble friend for not answering that specific point. It is too early to say what costs will be determined by the bids which are received. But we are satisfied that in the long run the greater efficiency of the private sector will lead to some savings in public expenditure and that is why it is worded in the way that it is.

Lord Peyton of Yeovil

I apologise for embarrassing my noble friend by extracting that answer. It means that we are embarking on quite unchartered seas with little knowledge of the liability on public funds that we shall be incurring.

In view of what has been said in regard to the amendment being a wrecking amendment, I should like to make my position clear. I favour privatisation. When I was a Minister I learnt what an appalling handicap publicly-owned industries suffer from in terms of interference, particularly interference based on short-term considerations.

The noble Lord, Lord Marsh, and I were together in this. Perhaps I can repeat what I said the other day. When he took over the chairmanship of British Rail I said to him that I knew that I had an impossible job; I thought that he had an impossible job, and I would support him in public and private as long as he or I remained there. However, I hoped that he would never allow me to be surprised. On that basis we got on quite well together. I do not believe the noble Lord will disagree with that.

My position is that I favour denationalisation, as it used to be called; privatisation as it has become. What I fear is that if the proposals put forward by the Government have the consequences that I anticipate, then the cause of privatisation will be set back and considerable damage will ensue to the railways as well.

I do not understand the confidence with which my noble friend said that the franchisee will not be able to come back for more. It is one thing for governments to take a tough line with British Rail, but this Administration will have at least a degree of responsibility for the new franchisees and will be in a weak position should one of them turn up on the doorstep one day and say, "I am sorry, everybody has let me down. I do not have the resources. You must help me out, otherwise both you and I will be in a nasty situation".

In the course of his speech my noble friend appeared to take a glossy view of management buy-outs and did not anticipate the real difficulties which are likely to attend them. I do not wish to repeat what I said earlier or to go over the ground again. I would only conclude by saying that I have no desire to wreck or to interfere with the process of putting industry back into the private sector but I believe that the particular proposals here are open to question. I believe that they would be improved, not wrecked, by the amendments which I have proposed and therefore I see no alternative but to take the opinion of the Committee.

5.30 p.m.

On Question, Whether the said amendment (No. 46) shall be agreed to?

Their Lordships divided: Contents, 150; Not-Contents, 112.

Division No. 1
CONTENTS
Addington, L. Graham of Edmonton, L. [Teller.]
Airedale, L.
Allen of Abbeydale, L. Greene of Harrow Weald, L.
Archer of Sandwell, L. Greenhill of Harrow, L.
Ardwick, L. Greenway, L.
Attlee, E. Grimond, L.
Auckland, L. Hampton, L.
Aylestone, L. Hamwee, B.
Banks, L. Hanworth, V.
Barnett, L. Harris of Greenwich, L.
Beaumont of Whitley, L. Hayter, L.
Belhaven and Stenton, L. Healey, L.
Bonham-Carter, L. Henderson of Brompton, L.
Boston of Faversham, L. Hilton of Eggardon, B.
Bottomley, L. Hollick, L.
Brimelow, L. Hollis of Heigham, B.
Bruce of Donington, L. Holme of Cheltenham, L.
Callaghan of Cardiff, L. Hothfield, L.
Carmichael of Kelvingrove, L. Houghton of Sowerby, L.
Castle of Blackburn, B. Howell, L.
Cledwyn of Penrhos, L. Hughes, L.
Clinton-Davis, L. Hunt, L.
Cobbold, L. Hutchinson of Lullington, L.
Cochrane of Cults, L. Hylton-Foster, B.
Cocks of Hartcliffe, L. Irvine of Lairg, L.
Crook, L. Jay, L.
David, B. Jay of Paddington, B.
Dean of Beswick, L. Jeger, B.
Desai, L. Jenkins of Putney, L.
Donaldson of Kingsbridge, L. John-Mackie, L.
Dormand of Easington, L. Judd, L.
Eatwell, L. Kagan, L.
Ewing of Kirkford, L. Kilbracken, L.
Ezra, L. Kinloss, Ly.
Falkender, B. Lawrence, L.
Falkland, V. Listowel, E.
Foot, L. Llewelyn-Davies of Hastoe, B.
Gallacher, L. Longford, E.
Galpern, L. Lucas of Chilworth, L.
Gardner of Parkes, B. Lyell, L.
Gladwyn, L. McCarthy, L.
Glasgow, E. McGregor of Durris, L.
Mackie of Benshie, L. Rochester, L.
McNair, L. Russell, E.
Mallalieu, B. Saltoun of Abernethy, Ly.
Mar, C. Seear, B.
Marsh, L. Sefton of Garston, L.
Mason of Barnsley, L. Serota, B.
Mayhew, L. Shackleton, L.
Merlyn-Rees, L. Shannon, E.
Merrivale, L. Shaughnessy, L.
Milner of Leeds, L. Shepherd, L.
Mishcon, L. Soper, L.
Molloy, L. Stedman, B.
Monson, L. Stoddart of Swindon, L.
Morris of Castle Morris, L. Strabolgi, L.
Mountevans, L. Swinfen, L.
Mulley, L. Taylor of Gryfe, L.
Munster. E. Terrington, L.
Murray of Epping Forest, L. Thurlow, L.
Nelson, E. Tonypandy, V.
Nicol, B. Tordoff, L.
Ogmore, L. Turner of Camden, B.
Palmer, L. Wallace of Coslany, L.
Pender, L. Warnock, B.
Peston, L. Waverley, V.
Peyton of Yeovil, L. [Teller.] Weatherill, L.
Pitt of Hampstead, L. Wedderburn of Charlton. L.
Plant of Highfield, L. White, B.
Ponsonby of Shulbrede, L. Wigoder, L.
Prys-Davies. L. Williams of Crosby, B.
Quinton, L. Williams of Elvel, L.
Redesdale, L. Williams of Mostyn, L.
Richard, L. Wilson of Rievaulx, L.
Rix, L. Winchilsea and Nottingham, E.
Robson of Kiddington, B.
NOT-CONTENTS
Aberdare, L. Glenarthur, L.
Arran, E. Goschen, V.
Astor, V. Gridley, L.
Astor of Hever, L. Hailsham of Saint Marylebone, L.
Barber, L.
Bessborough, E. Harding of Petherton, L.
Blatch, B. Harmar-Nicholls, L.
Blyth, L. Harrowby, E.
Boardman, L. Harvington, L.
Borthwick, L. Hayhoe, L.
Boyd-Carpenter, L. Henley, L.
Brabazon of Tara, L. Hesketh, L. [Teller.]
Braine of Wheatley, L. Hives, L.
Brigstocke, B. HolmPatrick, L.
Butterworth, L. Hood, V.
Caithness, E. Hooper, B.
Campbell of Alloway, L. Howe, E.
Campbell of Croy, L. Huntly, M.
Carlisle of Bucklow, L. Johnston of Rockport, L.
Carnock, L. King of Wartnaby, L.
Chalker of Wallasey. B. Lane of Horsell, L.
Chelmsford. V. Lindsay, E.
Clanwilliam, E. Lindsey and Abingdon, E.
Clark of Kempston, L. Long, V.
Constantine of Stanmore, L. Mackay of Ardbrecknish, L.
Craigavon, V. Mackay of Clashfern, L. [Lord Chancellor.]
Cranborne, V.
Crickhowell, L. Macleod of Borve, B.
Cumberlege, B. Mancroft, L.
Davidson, V. Marlesford, L.
Denton of Wakefield, B. Mersey, V.
Eccles of Moulton, B. Milverton, L.
Ellenborough, L. Montgomery of Alamein, V.
Elks, B. Morris, L.
Elliot of Harwood, B. Mowbray and Stourton, L.
Elliott of Morpeth, L. Norrie, L.
Elton, L. O'Cathain, B.
Ferrers, E. Oppenheim-Barnes, B.
Finsberg, L. Orr-Ewing, L.
Flather, B. Oxfuird, V.
Foley, L. Perth, E.
Fraser of Carmyllie, L. Plummer of St. Marylebone, L.
Fraser of Kilmorack, L. Reay, L.
Geddes, L. Rees, L.
Renton, L. Sudeley, L.
Renwick, L. Swansea, L
Rippon of Hexham, L. Teviot, L.
Rodger of Earlsferry, L. Thomas of Gwydir, L.
St. Davids, V. Torrington. V.
Seccombe, B. Trumpington, B.
Sharples, B. Ullswater, V.
Skelmersdale, L. Vaux of Harrowden, L.
Skidelsky, L. Vivian, L.
Stewartby, L. Wade of Chorlton, L.
Strange, B. Wakeham. L. [Lord Privy Seal.]
Strathclyde, L.
Strathmore and Kinghorne, E. [Teller] Westbury, L.
Wynford, L.

Resolved in the affirmative, and amendment agreed to accordingly.

5.40 p.m.

Lord Clinton-Davis

In the light of this very convincing situation, as the Committee has just adjudicated and in view of the fact that it was the Minister who asserted categorically not once but several times that the amendment is a wrecking amendment, what is the Government's current view of the position? Will the Minister now reflect on whether it is appropriate to continue with the Committee stage at all?

The Earl of Caithness

What a ridiculous comment! Of course we shall reflect on what has just happened and of course we shall continue the Committee stage.

Lord Clinton-Davis

That is not satisfactory. I am not crowing about the victory. I am; Asking for a very simple explanation of the Government's position. At the very least the view of the Chamber has major effects and implications for consideration of this Committee stage. It is no use the Chief Whip attempting to intervene, he was not even here so he has no authority to do so.

Lord Hesketh

Order, order!

Noble Lords

Withdraw!

Lord Clinton-Davis

The fact of the matter is that on any showing this development must have major implications for the rest of the Committee stage. If I have done any injury inadvertently to the Chief Whip I of course unreservedly withdraw it. But the Minister must not deal with the matter in this very flippant way.

Lord Henderson of Brompton

There is no Motion before the House and these proceedings are entirely out of order.

Viscount Goschen

I beg to move that the House do now resume.

Moved, That the House do now resume,—(Viscount Goschen.)

Lord Tordoff

There is now a Motion before the House that the House do now resume. Therefore, I support what the noble Lord, Lord Clinton-Davis. said, not in the sense of it being a wrecking amendment but in the sense that it is a major change to the Bill. The Government would be wise to consider the implications for the rest of the Committee stage. There are a number of amendments to the Bill which may be seen in a significantly different light as a result of the amendment that we have just passed. Perhaps the time to consider the position is when the House resumes and the Statement is being made. Perhaps the Minister would return afterwards and suggest what changes now need to be made.

The Earl of Caithness

It is quite clear what has happened. The amendment was agreed to. We must now proceed with the remainder of the Committee stage on the basis of the Bill, as amended. The Government will obviously take careful note and will decide what they wish to do. The House has fulfilled its function and given the other place another opportunity to consider this matter. What Members of the other place do with it is entirely up to them.

Lord Harmar-Nicholls

Is my noble friend aware that we always enter a Committee stage with the knowledge that it is only a stage in the progress of the Bill to the statute book? It is not without precedent that decisions which are made at Committee stage are often amended in another way before the Bill reaches Third Reading.

The Earl of Caithness

It would be wise for us to get on with I he full Committee stage. I take note of what my noble friend said.

On Question, Motion agreed to.

House resumed.

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