Transport Infrastructure: Private Provision

HL Deb 12 June 1996 vol 572 cc1775-805

6.58 p.m.

Lord Astor of Hever rose to call attention to the role of the private sector in the provision of transport infrastructure and services; and to move for Papers.

The noble Lord said: My Lords, I am delighted to highlight the success of the Government's privatisation programme in the provision of transport infrastructure and services. We forget too easily how burdensome the nationalised industries were. By the end of the 1970s they were costing the taxpayer £50 million a week. Now privatised, they contribute £55 million a week in taxes to the Treasury. Competition and independence have improved them out of all recognition, forcing them to become more efficient and to treat consumers as customers. I believe the railways will be touched by the same magic, with staff committed and dedicated to the success of their operation to the benefit of passengers and shareholders. The railway network was after all built by private companies. The glories of the Great Western Railway and St. Pancras Station were funded by shareholders. Public ownership, by contrast, has been characterised by closure and dilapidation. Privatisation offers the industry a chance to break out of this spiral of decline.

New owners are pioneering schemes to lure passengers back to rail, including linking bus and train timetables and tickets, better marketing and park and ride schemes. It is clear they want to run more services, not fewer. From 1999, Midland Main Line will carry 42 additional trains a day from London.

The new operator of the Gatwick Express has pledged to put on more early and late trains, and produce the kind of service standards which we are used to seeing on the airlines. South West Trains has an eight-coach stand-by train fully crewed at Waterloo Station during the evening peak, should the unexpected occur.

Operators have assured me that clean trains are a priority, as well as more secure stations and car parks, more Sunday and off peak services, provision of easier access for the disabled, and provision of passenger lounges. Punctuality will be improved and overcrowding and train cancellations reduced.

Prism, which bought Britain's most hated railway, the Southend "Misery" Line, will begin next year to phase out the line's unreliable "slam door" trains, to be replaced by a fleet of new trains. Not surprisingly, its spokesman told me: We quite naturally want people to stop calling it the misery line".

Britain should enter the next century with a dramatically improved and cheaper rail industry. Of course there will be horror tales of failure. But when those erupt, we will do well to remember the system's shabby record under state control; the dirty, crowded, delayed or cancelled trains and Luddite unions.

Wisconsin, the new owners of British Rail's heavy haul freight operations, believes that it can reverse the decline of rail transport—now down to just 6 per cent. of the freight market in the UK—by improving the quality of service. Where BR went wrong, according to many customers who abandoned rail shipments, was in its centralised approach, its lack of flexibility and its inability to provide speed and reliability.

The privatisation of domestic freight services will encourage as many freight operators as possible to come on to the track, and off the roads. Now that freight can be managed as a separate business, it will have managers with a strong commercial motivation to make it work. I am also delighted that the Government have decided that Railfreight Distribution—British Rail's loss-making Channel Tunnel freight business—will be offered for sale.

The privatisation of British Rail should provide the springboard for those operators to acquire railway operations elsewhere in Europe, as countries implement an EU directive intended to force European state railways to break themselves up in a manner similar to rail privatisation in Britain. In trying to introduce that system, Neil Kinnock delivers a slap in the face to his party back home. That may represent a betrayal of his party's values, but should be welcomed by passengers all over Europe, who have had to deal with overstaffing, inefficiency and debt in their railway services for decades.

I was in France last week with a parliamentary delegation, and French MPs to whom I spoke were filled with envy at our rail privatisation. French railways have a 200 billion franc debt, a 50 billion franc annual deficit, and only a 70 billion franc income. How lucky we are! Before privatisation, the bus companies were a shambles. It is 10 years since the start of the bus industry's process of commercialisation following the Transport Act 1985, which required the privatisation of the National Bus Co. and enabled local authority-owned bus undertakings to be privatised voluntarily by their owners. That process has opened up the opportunity to provide public transport more closely tuned to the needs of the market place and has been coupled with substantial cost reductions. In the nine years to 1995, costs per vehicle kilometre have fallen by 57 per cent.

Through privatisation, deregulation, and removal of subsidies and grants, the Government have encouraged the growth of an efficient ports industry, based on sound commercial practice, technological investment and greater commercial freedom: 60 per cent. of the tonnage handled in UK ports is now dealt with by private sector ports, many of which are world leaders in their field.

We are now seeing the first compulsory trust port privatisations under the 1991 Act. I hope that in due course privatisation of the port authorities at Ipswich and Tyne will offer new opportunities for innovation and entrepreneurial development to the benefit of port users and the local communities.

The power and strength of British Airways have created one of the finest examples of privatisation seen anywhere in the world. BA is a national asset; the UK can justly be proud of it. Privatisation gave British Airways the freedom, and the incentive, to become a world beater. It set out to become a global leader and has successfully imprinted its stamp of British quality on markets all over the world. Its investments and alliances with other airlines demonstrate, in marked contrast to some of its government-owned competitors, how a company freed to market forces can bend and adapt to take best advantage of prevailing circumstances.

Even this week, in yet another show of remarkable and exciting enterprise, BA has announced with American Airlines an alliance which will keep it at the forefront of world aviation, spell good news for the thousands of people who all own a part of it, and provide consumers with even greater choice.

I would urge the Government to consider the similar alliances forged elsewhere in Europe with major US carriers and to expedite discussions with their American counterparts to enable that deal to go through quickly. Already we hear the voice of disaffected parties in Europe and the USA who dislike the aura of success that surrounds British Airways; let us not be sidetracked by them.

British Airports Authority has experienced enormous advantages since privatisation. The amount of money invested into high quality airport facilities has increased dramatically, helped by BAA's freedom to tap the capital markets without government restrictions. The financial expectation of the market has to be met, and to that end there is a strong incentive continuously to examine the efficiency of the company in every area. Since 1991, staff productivity has improved by 45 per cent. in terms of passengers handled by each member of staff.

Over 90 per cent. of passengers expect and want shopping facilities at the airport and retailing has been revolutionised since privatisation.

These are exciting times in transport infrastructure, and the private finance initiative is taking root and growing as everyone involved gains experience. PFI offers a prospect of higher levels of investment, even while public spending remains tight. The Channel Tunnel Rail Link, by far the largest yet taken forward under PH, should open in 2003. An exciting international private-sector enterprise, London and Continental Railways, will take on a variety of roles, both as builder and operator. It will raise the bulk of the finance, produced the detailed design and own, operate and maintain the new line, reserving a substantial amount of track capacity for domestic services.

Other major projects announced or under construction include the Jubilee Line extension, the Heathrow Express and Thameslink 2000. London Transport will benefit from the Northern Line PFI and the Central Line upgrade. Roads are vital for the future health of the British economy and PFI has greatly helped that. I beg to move for Papers.

7.11 p.m.

Lord Berkeley

My Lords, I am grateful to have the opportunity to contribute to the debate and I congratulate the noble Lord, Lord Astor, on tabling the Motion. While listening to his review of transport in this country it occurred to me that it would make a wonderful contribution to the Conservative Party's election manifesto. It is a wonderful example of what he hoped has happened, and sometimes it has. However, I wish to return to the real world.

I do not want to get into a debate on public versus private—public sector good, private sector bad—because the private sector has done many excellent things for transport. As an example, the noble Lord, Lord Astor, mentioned French Railways. According to yesterday's Financial Times, it has agreed to split the infrastructure from the operations and—surprise, surprise, as has happened on many occasions—the French Government are picking up the debt from the infrastructure. However, the problem is one of the structure—separating the private finance from the restructure and deregulation—and I wish to cover more than railways.

Perhaps I may look at a few of the pros and cons of private finance, which is what I hope we shall be able to talk about tonight. Some of the pros include the availability of private finance to substitute for or supplement the public sector, as less and less public sector money is available. The private sector can take the risks in expectation of future rewards. The Channel Tunnel is an example, as is bus deregulation, new rolling stock, Railtrack's new investment, ports and airports. Some projects are successful but there is a big question mark over others.

It is said that better management and more flexible labour are involved. I am sure that that is true, but sometimes that results in the demotivation of staff, who occasionally begin to wonder who they are working for. Are they working for the customers and passengers or for the shareholders? That is why I believe that we need stronger regulation to look after the customers' interests in many of those examples.

Against private finance is the loss of the public service ethos. Many may say that it never existed. But it has not always improved. There is a serious loss of what I might call "network benefits". British Rail's break-up is a classic example; for instance, through-ticketing and alternative routes are not available. The attitude of staff in booking offices to inquiries about other franchisees is in many cases still lamentable. Perhaps, quite rightly, they have been told to look after the shareholders' interests, whereas they should be getting passengers on to railways, where the competition is with roads and air and not with colleagues on the next-door line. As regards buses, privatisation may be seen to be a great success but the deregulation outside London has caused chaos. Bus mileage has increased dramatically but passenger numbers and passenger mileage are dramatically down outside London.

There is also the lack of government control—let the market decide—and the loss of public accountability. It is becoming more and more difficult to get questions answered by Ministers rather than chief executives of the various agencies. Many people have a fear of turning a public but accountable monopoly into a private but unaccountable one. I am not sure whether the problems that I have identified come down to whether the business is privately or publicly financed; or to the problems of deregulation; or even more to the lack of policy or direction, changes of government mind; or weak or non-existent regulation; or just plain dogma.

I turn now to private finance and the risks which go with it. The private sector is good at taking risks which it understands. However, in many cases the Government have tried to get the private sector to take inappropriate risks. I refer to risks against changes or decisions which are in the Government's gift, new legislation or even new competition where the private sector expected a controlled monopoly, as in one of the early rail rolling stock sales. If the private sector is to be involved it needs clarity and some certainty that a project is going to go ahead.

Perhaps not all noble Lords realise that the cost of tendering or submitting proposals for such schemes is enormous and it is growing. In 1986 the document of inquiry from the Government for the Channel Tunnel, in which I declare an interest, was three or four inches thick. I believe that the documents for the Channel Tunnel Rail Link inquiry eight years later required a forklift truck to lift them. There may be reasons for that, but a great deal of work is involved.

Another example is motorway tolling. The Government have asked companies to come up with ideas and testing schemes for tolling motorways. The problem is that the contractors will be competing with each other, and there is no indication that any of the projects will go ahead. Indeed, I believe that the Government have subsequently poured cold water on any idea of tolling but appear to be surprised that three of the five contractors pulled out before starting work. It is almost as though the Government are looking for a free consultancy.

Furthermore, there is the interesting question of ongoing Treasury commitments to the organisations which have been privatised. Much privatisation requires the commitment of government funding to continued rental, subsidy or contributions—whatever one likes to call it—lasting longer than the standard Treasury forecasts of one, two or three years. For example, the London Underground Jubilee Line rolling stock has a 10-year pay back period commitment from the Government. As regards Thameslink 2000, the Government have made a commitment to Railtrack for the new capital works required lasting 14 years. Of course, some BR franchises through the Franchising Director last 15 years. It would be interesting to hear from the Minister how firm those commitments are. I suspect that the private sector believes that in practice they are firm, even if there is some small print. But I wonder whether the Treasury goes along with a commitment 15 years hence.

Finally, privatisation, fragmentation and the occasional lack of policy sometimes cause the Government to forget that for large projects there needs to be a mechanism for deciding and debating, first, whether a project is desirable and in the national interest. We debate that subject occasionally. Secondly, it must be decided whether the proposal is the most economic way of providing the service or whether there is a better alternative. Sometimes we do not quite get there. Thirdly, it must be decided what constraints must be put on promoters to ensure that the national interest is safeguarded.

The noble Lord, Lord Astor, mentioned the rail link. That is being considered by a Select Committee of this House. Stratford Station and the connection north of London is there. I believe that that is good but it was not in the original proposal. A public inquiry is taking place into a possible Terminal 5 at Heathrow. But there is little discussion about whether the expansion should be there or at other airports in the south-east and what public transport should be provided to enable the passengers to get to and from there.

We shall shortly be debating Central Railways. That is a new project arising under the Transport and Works Act procedure. I am sure that we shall wish to ask questions about that. Lastly, the west coast main line has been the subject of long-running discussions on its upgrading. The last that we heard from the Franchising Director is that the argument may last for 14 more years. That almost brings it to the time at which it will need its next upgrade but one.

Private finance has a major role to play in providing for the future transport needs of this country. But at present the uncertainties, changes and delays probably caused the promoters to price in additional risk and possibly to enjoy personal corporate rewards subsequently considered to be excessive, as we have seen, while possibly not providing the service which customers expect. The solution is a clarity of policy, roles and responsibilities and commitments to all parties. There should be no changing of the goalposts and, most importantly, there must be consistency of regulation.

I conclude where I started, with buses. London buses are privatised but they are regulated. The passenger numbers are up and if the bus lanes were sorted out—they are not yet but they should be—it would be a great success. But, as I have said, the situation is completely different in relation to provincial buses. I hope that the Minister and his colleagues travel frequently and incognito on some of the different types of transport to see the difference. I welcome privatisation, but it requires proper regulation in order to put the travelling public first.

7.22 p.m.

The Earl of Mar and Kellie

My Lords, I congratulate the noble Lord, Lord Astor of Hever, on his most interesting introduction to this timely debate.

I have had a long interest in railways, mainly nostalgia-based, I now realise, and I hope that my understanding of public transport issues has improved by participation as a parliamentary commissioner in the Strathclyde tram inquiry, which concluded a fortnight ago after 39 days. Noble Lords will have to make up their own minds about that.

I shall focus my comments on public transport provision in Scotland. That allows me to start with the political difficulty that Scotland has with the private provision of a public service. I believe that the broad desire is that government, through taxation, should provide what Scotland needs. It is a consequence of the Act of Union that other political ideas are practised in Scotland from time to time.

A transport debate which did not touch on the Skye Bridge would be inadequate. That symbol of private enterprise, constructed by the Miller Group, raises a number of issues, not to mention a number of uncollected tolls. The principal complaint against the private provision of that bridge must be that it is set in a remote area and, as a bridge with an expensive toll charge—more than £5 for a single journey—will do nothing to open up the economic viability of the Isle of Skye and the Outer Hebrides. A toll-free bridge would have assisted in that economic development.

Secondly, there is an absence of an alternative route to Skye at Kyle of Lochalsh. I believe that that contravenes the spirit of the New Roads and Street Works Act. I acknowledge that Skye can be accessed by ferry at Mallaig, to Armadale and in the summer months, from Glenelg to Kylerhea. However, those two are not practical alternatives at Kyle of Lochalsh.

Thirdly, the refusal of the Scottish Office to allow Caledonian MacBrayne to continue with the vehicle ferry service to Kyleakin constitutes, in my opinion, an inhibition of competition.

Fourthly, the highest toll in the United Kingdom contravenes the Act of Union which lays down that tolls must be equal in England and Scotland. To be fair, I conclude this part of my remarks by accepting that the Skye Bridge keeps better hours than the old ferry and can operate in worse weather. But it is the lost opportunity for economic development which is the most significant argument in relation to the Skye Bridge and its tolls.

I turn now to the proposed use of shadow tolls, of which I approve. Your Lordships will be aware of the proposed conversion of the A.74 Glasgow to Carlisle road to motorway by means of a design-build operator-maintained contract. It is proposed that the successful contractor will be paid a toll by the Scottish Office on the basis of vehicle usage. Vehicles will be counted electronically on the move. That approach achieves the combined aims of funding through taxation and value for money through competitive tendering.

There is an element of risk-taking for the successful contractor because the use of the new M.74 might decline, but I find that unlikely.

I turn now to urban public transport and the more difficult topic of reduction of congestion in urban areas. The current policy is that bus transport is provided privately and that rail and ferry services are subsidised. I acknowledge that Scottish local authorities and the Strathclyde Passenger Transport Executive can subsidise bus services on social grounds—typically, late night bus services and country routes. On the face of it, that does not seem to be a level playing field, but examination of private bus provision shows that although bus operators must be able to pay their way and buy new buses through the fare box, they are not paying the full cost of road provision, bus stops or bus stations, but only a contribution to that through the vehicle road licence fee. In the light of that, the subsidisation of rail services begins to level out the playing field.

Some conflict exists when rail services are promoted by increased subsidy on routes already served by bus and hence, in competition with bus operators. It costs £100,000 per year to operate a bus. Co-ordination of public transport is needed rather than wasteful competition.

I believe that a broad strategy is required to deal with the reduction of congestion. Easing people out of their cars is essential but difficult in a democracy. Car restraint measures must be draconian, verging on coercive. I believe that urban car parking needs to be charged at rates which are reasonable for up to two hours but which are positively unpayable at eight hours.

That alone would stifle economic development unless it were mitigated by the provision of increased bus and train services and park-and-ride facilities. It is essential to have a dedicated transport service with priority to the urban centre from the park-and-ride site. That service must be absolutely reliable and run at considerable frequency.

Security measures are essential at the park-and-ride sites but I suggest that users will not pay that additional cost. Park-and-ride can be given the kiss of death very easily by unreliability, poor frequency and lack of security. For example, I met someone very recently whose car was taken from a park-and-ride site and wrapped around a lamppost.

Also, I recently sampled the park-and-ride operation in Aberdeen, from Bridge of Don. I found that the £1.50 park-and-ride car park ticket also gave me up to five bus tickets for passengers. The bus service is run at a seven-minute headway in peak hours, reducing to 15 minutes offpeak. On Saturdays, the service has a 10-minute headway.

Such schemes have considerable user and non-user benefits and must be set up and marketed with determination. The political will must be found to implement unpopular measures of parking restraint and bus priority. Subsidy will be necessary to provide park-and-ride facilities. The result will provide the non-user the benefits of reduced congestion, reduced accidents and improved air quality.

I conclude with some further thoughts about urban public transport. First, suburban rail services with car parks should be encouraged. Secondly, bus priority lanes should be engineered into urban streets, and junctions redesigned to give greater priority to buses. Thirdly, in extreme cases, "bus only" roads should be arranged. Fourthly, bus stops should provide electronic real time information, and have their kerbs arranged for modern buses. Fifthly, private bus operators should be grant aided to purchase the latest high-tech city buses, which have stepless low floors, suspension lowering or "kneeling" facilities and some seats left out to provide space for wheelchairs, prams and shopping bags.

Sixthly, to improve city centre air quality, by-laws should be introduced, insisting on the use of ultra-low emission natural gas engines in buses. All those features are now available, but at higher cost which will be difficult for a private operator to afford. A bold public transport planner would wish to implement all those measures, and so would grant-aid private operators to enable them to purchase this superior equipment. It would be expedient to do so in the public interest.

7.30 p.m.

Baroness Seccombe

My Lords, I wish to add my thanks to those already expressed to my noble friend Lord Astor of Hever for initiating today's important debate. I see the problem of nationalised industries as being comparatively simple. I believe that the lack of ownership over years causes stagnation and lack of vision.

In the area of transport services we have the stark example to which my noble friend referred. British Airways was privatised in 1987, since when it has been transformed. Prior to that time the company had a chequered career and was viewed with suspicion by the travelling public. Frequent strikes, inefficiency and the lack of customer care were indicative and, I have to say, expected from a nationalised industry. Now, some nine years later, we have an airline to be proud of and one that is recognised as a world leader. Travelling with BA is a pleasure: the well-trained cabin crew are courteous and care for the passengers. The financial turnaround has been remarkable.

The success of British Airways draws attention to the inefficiency and failure of other airlines, such as Air France and Iberia International Airlines which receive huge subsidies from the European Union. We are told that there is always a good reason for yet one more and final subsidy of millions to assist those ailing companies. The sooner those airlines are in the private sector the better. It must be very galling for BA to witness such vast handouts to its competitors.

I am sure that we can all agree that the private sector brings innovation to transport provision as it really is better than the public sector at responding to the needs and wishes of people. The Government understand that and encourage the private sector to be involved whenever possible. Exciting initiatives have developed and individuals have been willing to back their ideas with their own personal investment.

The noble Lord, Lord Berkeley, referred to risk taking. It is a factor in any new business and one which a nationalised industry never has to face. State employees do not have to take home the worries that entrepreneurs often do. But, of course, neither do they have the sweetness of success. However, it is to be hoped that business success will not in future be seen as a dirty word and something to be despised.

It always seems strange to me that footballers, rock stars and other high earners never seem to suffer the same fate if they are successful. We should not forget that it is the risk-taking entrepreneurs who provide the services that we need and the employment of millions of people across the country.

The Railways Act 1993 opened the way to reverse the trend of decline in the numbers of people and the amount of freight travelling by rail. Travelling by train had become frustrating, with trains not running to time. dirty waiting rooms that were a disgrace and shabby carriages, together with a feeling that you as a passenger were just a necessary nuisance. What a challenge! But many of the railway franchises have been awarded and already we learn of new ideas that will come into play in the coming months. One that has not been mentioned so far which I particularly like is the idea of a children's play carriage to assist with the boredom of long journeys.

The mere fact that someone or some people and not the state own a business can change the atmosphere dramatically, improving services and attracting new investment. It can also help to liberate the operating structures, which may be necessary to give private sector initiatives the opportunity to respond to the demands and expectations of the customer. Major transport projects today require huge sums of money. It is therefore very welcome to see the private finance initiative delivering investment into many projects.

There is another way whereby private finance can be injected. At this stage I wish to declare an interest. My younger son is working with the Community Transport Association, which is the UK's representative body for non-profit-making transport operations. It is a registered charity with a trading arm. There are 1200 members, including voluntary and community groups, local authorities, the NHS and other public bodies. It is mainly concerned with transport needs which are not met by other forms of transport, particularly for the elderly, the disabled, children and people in rural areas.

The trading company of the association generates income from organising training courses and publications. There is also a free advice and information service. It receives other funding from the Department of Transport and grants from Help the Aged. A most interesting project was launched yesterday. It is known as the Asti project and involves the use of electric and gas-powered mini-buses. There will be experimentation with satellite tracking to improve vehicle efficiency and other aspects of environmental management. Funding for the project has come from the European Union, the DTI and 12 business partners, including British Gas, Sainsbury's, PowerGen and London Electricity.

The injection of private finance by funds or services is to be welcomed in imaginative innovations of that kind. People with reduced mobility must have their needs met and the creative role of the voluntary sector is recognised as pivotal to the development of services to meet the needs of an ageing population, in addition to the needs of handicapped people. Many of them, without the support and care of groups like the Community Transport Association, would lose a precious part of their independence and quality of life.

It is good to see the public and private sectors working together, pooling their expertise and harnessing enterprise and innovation. Of course it is important for the public to have a choice of transport, but at the same time people should be aware of its effect on the environment. Good services provided by rail, coach or bus will attract people away from their cars, but only if the services are reliable, comfortable and give value for money. We have seen what has happened to the bus and coach services. They are cheap, frequent and have given millions of people an opportunity to travel around the country and further afield—an opportunity that previous generations were not able to enjoy.

Commuting by car on a daily basis can be a frustrating, unhealthy experience, as people sit in their cars, nose to tail, mile after mile, taking hours to travel a comparatively short distance. There must be a better way. For some the answer may be another form of transport or a combination of services but for others the car may be the only option. It is therefore pleasing to see private finance being brought in to the maintenance and extension of major roads. I believe that we are at an exciting stage in transport development. According to the advertisements on TV the future is orange. I say the future is green as the public and private sectors put their minds to creating the best possible infrastructure and services for a green and clean environment.

7.40 p.m.

Lord Selsdon

My Lords, before I came to your Lordships' House today I had the pleasure of driving 150 miles through lovely English country. I remember the days many years ago when in my MG I could get from the Landuggertrow in Bristol to a pub in London, having downed many pints of beer, in under two hours. When I lived in Newbury I could get to London on a steam train two minutes quicker than I could today.

What has changed in transport? I was brought up in that world because my father spent all our family money on motor racing. In those days one ordered a car from Lagonda and drove it around Epsom Downs before one dashed off to Le Mans. If one were racing and a competitor crashed in front, one used to stop, get out and see whether he was all right. The man behind would say, "You were two minutes ahead. We will give you two and a half minutes' start". In those days transportation was perhaps more gentlemanly. What went wrong? Suddenly all the great Victorian iron bridges—the designs of my hero Brunel—disappeared, and we did nothing. We did nothing for years. In fact we closed everything down. There were more and more deaths on the road. The number of deaths soared, but suddenly today one no longer sees those headlines on a Monday, "Black Sunday" or "Keep Death off the Roads".

Over 30 years ago I was an economist. I was supposed to be a rather bad economist, but I became a transportation economist and was appointed by British Rail to advise it how to get traffic off the roads. We considered containers. We talked of the liner train. The Department of Transport asked us to advise on the economics of death on the roads. How much is a life worth? If you straighten a corner and save one life and prevent three hospitalisations a year, what are the economics of that? I became interested in the economics of transportation.

When I served at the Council of Europe I became the rapporteur for a strange body I had never heard of before called the European Council of Ministers of Transport (ECMT) which was responsible for the standardisation of transport. We discussed the heights of bridges and the size of bogey couplings. Then we became interested in bridges. A bridge over the Bosporus was mentioned. In Sicily I met some strange men who thought that a bridge in Sicily should only be constructed with private sector finance. We looked at the Channel Tunnel link. My civil servant friends from the OECD pointed out to me that that was not a good idea for the British as the tunnel would run from one of the poorest parts of France—where everyone wanted it—and would arrive in one of the richest parts of England where no one wanted it. If only it could have arrived in Newcastle!

I began to think more and more about the economics of transport. A few years ago the CBI pointed out that the amount of money lost through people spending longer periods of time on the roads and losing that time at work was enormous. If only the Treasury would cost that out, it would discover that greater investment in transport infrastructure would pay for itself. I wondered why we did not do anything. Then I became involved in railways and roads abroad. I also became involved in bridges including the Bosporus bridge. We managed to obtain a share of the trans-Gabonese railway. We did so with great difficulty and with the help of the Railways Industry Association which could not find a man alive who had built a railway. We had lost much of those skills and technology. At one time 74 per cent. of all steam locomotives were built on the Clyde. We had forgotten about tarmacadam. Basically we had forgotten how infrastructure was funded.

In those ancient days one factor made it impossible to fund infrastructure privately and that was inflation. One could not possibly fund something with a high level of inflation, rising costs and rising interest rates, in a way that one could today. Your Lordships may remember that when the state owned industries wanted to borrow money they had to apply to the Treasury. The banks wanted to lend them money but they had to join the Treasury queue which aimed to control PSBR and to stop money being spent. However, one cannot have good infrastructure without spending money.

My noble friend has said it all today. He mentioned virtually everything apart from trams. When I listened to the speech of the noble Lord, Lord Berkeley, I thought that perhaps there is no division amongst us as regards the requirement to build infrastructure. There is probably no division as regards how that should be financed. It can no longer be financed with government money through a levy on the taxpayer. The world has changed. With the remarkable decline in inflation it is now possible to fund longer-term infrastructure projects in a way that we never could before. There is nothing new about private finance. Many years ago the railways financed containers and wagons through lease mechanisms, and certain things were owned by the private sector. Money is money. We do not need to give it names. However, names started to be used abroad. There was the acronym BOOT, build, own, operate and transfer, or BOT, build, operate and transfer. It is funny that we almost reimported that idea over here. When contractors found life difficult they wondered whether, if the Government would not fund projects, they could fund them themselves.

I must declare an interest in that I am a director of one of the larger quoted contracting companies. We do not do a lot in the PFI sector. Before the debate today I consulted with many contractor friends, consultants, banks and others. I asked them why, if the initiative is to be private funding, this has not been carried out more widely? Where is the logjam? Noble Lords will be aware that there is not an awful lot of construction going on in the construction industry at the moment. Those whom I consulted told me that they were not greatly in favour of the private finance initiative to begin with as they believed it could work only for projects which stood alone such as the Skye bridge, the second Severn crossing or similar bridges. They believed that it could not work with the private sector on its own and that the state and the Government have a big part to play not only as regards planning but also in the ancillary infrastructure that may be necessary to allow a bridge to be built. I shall not go on about the railways. However, I was advised—I tried to pass this advice to the bank where I worked at that time—not to invest any money in the Channel Tunnel unless the rail link was built. I was advised that it would not be competitive until such time as a rail link was built. Yet, if that great tunnel had not been built at the time it was built, it probably never would have been built.

There are a few aspects of PFI which bother me. I believe that at the moment the logjam lies not with Ministers and not with Government strategy but within the Treasury structure itself. There is a need for a change of mentality—perhaps even in the Highways Agency—from an attitude of government procuring to government co-operating. The problems are fairly simple. Decision making processes are quite slow. The PFI unit in the Treasury has had three chairmen in eight months. There appears to be no clearly defined strategy. As has already been pointed out, the initial costs of trying to get something off the ground are enormous. Officials in the Treasury are not necessarily charged out by the hour, but the cost of trying to bid for a major infrastructure project, whether road, rail, port or anything else, is enormous. There is no certainty that those projects will go ahead. It has been suggested that there might be closer consultation, as is taking place at this moment, between those who wish to earn business from contracting, developing and consulting, and those who wish to see things built.

The Government have perhaps a greater role in this process than they realise. But those who take the lead must be those who wish to develop that infrastructure, and not necessarily the people who may wish to build it. Instead of BOOT we now have design, build, finance and operate but not own. The shadow tolls on roads is quite a good idea. Attitudes have changed and there is a willingness to go ahead. We could go ahead so much quicker now as costs are at such a low relative level and interest rates are so low.

In the venture capital field it was always said that an investor needed to get a 25 per cent. return because of the risk. I have many socialist friends who attack the Government's policies. A friend of mine told me that he sold his businesses and placed his funds on deposit with a bank that I worked for at that time. He told me that he had been successful and that after he had reared his children he could just about live on the interest. However, he told me that my party had brought down interest rates, and he found that he could not even live on the interest. He discussed it with his wife and said, "When you can't live on the interest any more there is only one solution. You have to invest".

With interest rates as they are, and possibly coming down, and inflation as it is at present, there is a great chance to attract more private funding into the infrastructure where there is a closer relationship between the people who use it, the people who build it and the Government who have a responsibility to ensure that it is under way.

7.50 p.m.

Viscount Bridgeman

My Lords, I thank my noble friend Lord Astor of Hever for initiating the debate. I live near Winchester where the trains are run by South West Trains, now franchised to Stagecoach plc which also runs the largest bus undertaking in the area. We have already seen the first fruits of this common management. Even in the heyday of the railways, the town of Romsey was never served by a main-line railway. Now it is possible to board a bus in Romsey in order to join the train for London at Winchester and, significantly, to buy on the bus a through ticket from Romsey to Waterloo.

The city of Winchester is now served by a frequent service of small buses, extending to neighbouring villages which have not had a bus service for years, if ever. One of the first acts of Stagecoach on taking over South West Trains was to put up £1 million for the refurbishment of rolling stock only, depressingly, recently introduced by British Rail. It was a decision, I understand, taken in 15 minutes. I was assured by the South West Trains management—they are all of British Rail upbringing—that in previous days it would have taken a year.

Let it never be forgotten that the vast majority of employees and staff in the privatised sector are former employees of state undertakings. It is just that their enterprise and initiative have been released under the new environment. I have difficulty with the reference to lack of motivation in the private sector which has been mentioned. I certainly have not come across it with the bus or railway operators to whom I have spoken. It must involve other sectors.

The noble Lord, Lord Astor, referred to trains waiting at peak hours at Waterloo. South West Trains is now contracted to run two trains an hour to Southampton; it runs three. It is contracted to run two trains an hour to Reading; it runs four. How is this achieved? It is simply with a cost structure to run a train off-peak at marginal cost, which under BR would have been an outright loss and quite impracticable.

It is wholly logical that the bus operators are heavily involved in bids for the rail operator franchises, for they have the confidence that they can bring to railway operation the flexibility and imagination that they have brought to bus operation. Let me give noble Lords one example. Bus operators have adapted the American airline system of hub and spoke; that is, the hub city served by feeder services. Passengers are conveyed to a central point. (The first one was at Bedford.) They then change coaches for a fast service running between major towns, which would not have been viable without the feeder services. Everyone benefits: the large towns gain an enhanced service and the small towns and villages gain a service which they might not have had previously. The noble Earl, Lord Mar and Kellie, will be pleased to know that there is a similar successful operation running from Glenrothes as the hub city serving the outlying districts of Fife to Edinburgh and Glasgow. It is an interesting reflection that it was precisely this operation in reverse carried out by Dr. Beeching with the railways in the 1960s—the dismantling of feeder services—that spelt quite unnecessarily the end of many main-line railway services.

The prophets of doom forecast at the time of deregulation that the bus operators, freed from regulation, would retain only the profitable routes and abandon the under-populated areas. All I can say is that there are many cases up and down the country, which have been referred to already in the debate, where operators work with local authorities on subsidised routes to remoter areas—for instance, night services. And, significantly, there is in many of those cases the option to take over the service fully commercially at some stage in the future, thus relieving the public sector of the cost of the subsidy.

I conclude with one statistic. In 1985 the town of Corby in Northamptonshire had the dubious distinction of having one of the highest taxi usages per head in England. At that time only 7,000 people travelled by bus, and buses had only 35 per cent. of the share of non-private transport. Ten years later, in 1995, 26,000 people per week travelled on buses and the buses' share is estimated to have risen to 55 per cent. That was achieved by a bus operator quite simply delivering to the public a good service at an affordable price. It is surely just what deregulation and privatisation are all about.

7.56 p.m.

Viscount Chelmsford

My Lords, I wish to concentrate tonight on private sector provision of transport services. Government strategy on transport has recently been spelled out in two quite large documents. The first, Transport Strategy for London, makes a clear statement. We are to maximise existing infrastructure based on existing money from all sources: from government revenue, users and PFI.

The second document, Transport, The Way Forward, seems more diffuse. It has a great number of wish lists but, in the summary of Chapter 11, nothing on infrastructure and investment, which seems to me to contradict the position set out for London.

If we have to improve our existing infrastructure using existing funds better, I must publicise a new acronym. ITS stands for Intelligent Transport Systems, also referred to as transport telematics—applications which include interactive communications between moving vehicles and the roadside and/or some central control room.

ITS is now an international acronym. There is ITS America, ITS Japan and, in the UK, ITS Focus, and I am its president. Noble Lords will not be surprised to be told that the USA, Japan and Germany are the UK's major competitors in this specialised field and that they show signs of pulling away.

There is no doubt in my mind that Intelligent Transport Systems should play a key role in the UK in maximising use of existing infrastructure with existing money. Government strategy documents certainly mention ITS but do not identify this as a major solution to the restricted strategy which I have outlined.

Transport, the Way Forward, reviews transport telematics in paragraph 14 of Chapter 10. In paragraph 15 it states that the Government will publish a statement later in the year. I would encourage my noble friend the Minister to consult widely before doing so.

What is ITS really all about? Allow me to offer noble Lords a few simplistic headlines. First, there are urban congestion and incident management systems such as SCOOT, which is the London CCTV and traffic lights control system which has been in operation for some years now and is a world leader. Road tolling comes under this heading—an area where we have not done so well. I believe that all but two of the consortia offering to test motorway tolls have pulled out due to delays while the Government rejected trials in London based on its consultant which could say only that tolls had worked in smaller cities.

Parking guidance systems help to reduce urban congestion as does automatic incidence detection using cameras to monitor known areas of congestion.

Multimodal information and control systems can be found at present in the Southampton area as part of the EU's ROMANSE project. These include kiosks which allow the public to key in the start and end of a required journey and then offer the best route using either a mix of bus, rail and boat, or just car as per the inquirer's wishes. These systems also include variable message signs to drivers—either as road signs to drivers or as radio messages into the car, plus talkback facilities. We could have done with such a system the other day when the police had to close Sloane Square to all traffic and the underground trains did not stop there either.

Automatic highway systems have to do mainly with safety and vehicle density. The M.25 motorway trial of variable speed limits is designed to prevent the concertina effect of too much traffic and thus achieve faster overall journey times. Radar and cameras allow cars to he driven literally on a no-hands, no-feet basis. I know, I have been in one. That could be used as a safety device on motorways when drivers fall asleep or to allow more cars on the road through the use of reduced headroom between vehicles.

Dynamic Route Guidance requires the use of satellites—GPS or the EU's GNSS—which already exists in Germany and Japan. This country is still designing the maps of the UK which will appear on the car dashboard and currently Traffic Master, which monitors traffic speed from road bridges, is our only available application. Fleet Freight Management is a subset of dynamic guidance systems and includes electronic tagging of products and automatic vehicle location to allow operators always to know where the vehicle and/or product is located. I am told that just plain CCTV on suburban roads has reduced accident rates in some places by up to 30 per cent.

London Transport Buses makes a most interesting example of what can be done. It has Countdown, which shows the time to the next bus on an electronic sign at the bus shelter. One day we may also find the sign round the corner in the next feeder street without a bus stop. One day we may even be able to use our home PCs to learn such information before we leave the house.

London Transport Buses is also implementing Prestige—a charged contactless smartcard which, when passed over a reader, deducts the fare automatically and thus speeds up entry into the bus. Use of red routes and beacons that advise traffic lights to give priority to the approaching bus are other ways in which the public could he tempted to forsake the car and use the bus.

I am concerned that all these ways of maximising public bus transport are not sufficiently focused in London. The stick of urban congestion charging on cars, together with the carrot of buses, where all the benefits come together across the whole of London simultaneously, would do much more than leaving each part to progress in isolation. The interesting point is that all those ideas are low to medium in capital intensity and low in running costs, particularly when compared with building more roads—the alternative to making better use of what we have got.

Finally, I must remind the House that I am prejudiced—prejudiced in favour of the industry that I represent, an industry that believes that it has many of the answers to the Government's problems. ITS Focus is in the middle of a feasibility study to raise awareness of the value of transport telematics. I have, of course, been doing my part here this afternoon. I hope that some of the applications that I have mentioned were sufficiently intriguing for noble Lords wish to find out more. I hope that noble Lords accept that their awareness of what is on offer can only be good for advancing UK interests overall.

8.4 p.m.

The Earl of Cromer

My Lords, I am delighted to support my noble kinsman Lord Astor in such an important debate. I approve wholeheartedly of the Government's privatisation programme. The Government have successfully shown that privatisation will change the culture of an industry by bringing in competition and choice, as well as introducing private sector management skills, entrepreneurial ideas and marketing flair.

I shall detain your Lordships for only a short period, to speak on one of the most successful privatisations, British Airways, on which my noble friend Lady Seccombe touched briefly. We all know what the initials BA stood for in the airline industry before privatisation. But a few short years after the sale of the company in 1987, the "B" is still the same, but the "awful" has been replaced by "awesome". British Airways is now truly the world's favourite airline, carrying more international passengers than any other carrier, some 6 million more than its nearest competitor in 1993.

Privatisation created for the UK an airline which is strong enough to take on the world and win. British Airways' pre-tax profits of £585 million, announced three weeks ago, made it the most profitable airline in the world. What is more, it has made profits every year since it was privatised, through the toughest period in the industry's history, when most of its competitors have lost money. Compare its soaraway success with the financial plight of many state-run, state-aided airlines on the Continent.

BA has made the most of its freedom. Its recognised expertise and reputation for excellence have led to increasing third party engineering work which, in turn, has created hundreds of new jobs at new maintenance bases in South Wales, while its ever expanding global operation has led to the airline diversifying from London to set up new business and new jobs in the UK regions, including Newcastle, Belfast, Glasgow and Manchester.

I totally agree with my noble kinsman Lord Astor that the alliance that British Airways is seeking to form with American Airlines is another example of BA's strategic thinking and is, I believe, to be welcomed. I hope that the Government will support this new initiative in every way possible. British Airways, together with its partners, offers consumers top quality and a wide range of services, the best of British, and it is an example of privatisation at its best.

I worry sometimes that in this country success seems to be a dirty word. It is somehow not British to be seen beating the world and certainly not drawing people's attention to it. Yet many of us have a vested interest in the success of privatised companies such as British Airways or British Telecom. If not investors in our own right, we may well be members of pension funds which do invest in them. British Airways shares have gone up three-and-a-half times since privatisation, which is 120 per cent. ahead of the index.

We should be proud that privatisation created a climate in which so many British companies have been able to flourish, to the benefit of such a wide section of the populace as both investors and consumers.

8.7 p.m.

Baroness Thomas of Walliswood

My Lords, some interesting statements have been winging around the Chamber and I ought to begin by saying that I and the Liberal Democrats have no philosophical objection to the introduction of private funding into transport infrastructure or services. We admit that some services may be better provided by the private sector: private infrastructure initiatives like Central Railway, or an Isle of Wight advanced monorail, or the activities of the privatised transport companies, or the PFI initiative, or the DBFO aspect of that initiative. All those may have a part to play in creating a more sustainable transport system which is our objective.

We are indebted to the noble Lord, Lord Astor of Hever, for this interesting debate. Speakers dealt with something which so far I have not experienced. I should love to be the subject of the lures to get me onto the rail system of which the noble Lord, Lord Astor, spoke. All I can say is that in my neck of the south-west trains, there ain't much of it. Maybe it will come in the end. Dorking is not a mainline destination, we tend to be at the far end, as we were under British Rail. Nothing has changed in the distribution of goodies in the way of trains. We would have preferred to keep the rail track in public hands; we have never made a secret of that. However, we were in favour of at any rate some and even all of the services being privatised along that publicly-owned track. We wish to do that and at the same time to relax the Treasury rules so that Railtrack could borrow where necessary, to make investments and at the same time serve our objective of a more sustainable transport policy.

I was also interested in some of the comments of the noble Viscount, Lord Chelmsford. Almost all the new and exciting methods of traffic control to which he referred are manufactured in the private sector but are almost always paid for by the public sector. Even the European Union is providing public funds for ROMANSE, not private sector funds. As a previous speaker said, there should be a partnership between the public and private sectors.

A major problem in depending too much on the private sector is the clash between the private sector's legitimate requirement for profit and the public policy requirement to transfer journeys to public transport, which may require lower user prices and therefore mitigate against profits. Better public transport access for passengers and employees to Heathrow would reduce pressure on the surrounding road network, generate an income stream to repay a private investor and incidentally release land within Heathrow which is currently covered with carparks for a more profitable use.

However, experience so far indicates that the private sector is interested only in the honeypots; it is not interested in providing the more difficult sorts of public transport; for example, in rural or suburban areas which currently do not have access to public transport unless they have been assisted by public subsidy or public assistance to a private bus company to provide those difficult services. Rural services and late or early services are nearly always provided with the assistance of the local authority. Even CrossRail may be delayed because of the Government's insistence on the PFI.

That leads me to another point; namely, some of the difficulties with the PFI are a result of the extreme difficulty in getting the whole thing under way. If we are to get the best out of the PFI, we must look very much more carefully at the regulations which surround it at the present time. The requirement to put every project into a competition, as it were, between public and private sector has made it almost impossible for the private sector to respond to the local government level at which that would be particularly useful. In other words, the private sector wants to handle only the big projects because of the difficulties and expense involved in making an approach to deal with a whole project. In the local sector, we are not dealing on the whole with enormous projects; we are dealing with modest-sized projects. If local transport authorities wish to go down that road, there are many difficult obstacles to be overcome. I am interested to hear the Minister's response on the subject of the regulations surrounding the PFI initiative.

The most important point is the contrast between the wish of public authorities—including the Government, who are moving in this direction—to achieve an overall policy strategy for transport and the private interest in achieving a profit. There is a danger of not knowing who leads the process—the policy makers or the profitmakers. To cite a recent Treasury Committee report, I, too, would, welcome the Treasury's view as to whether the prioritisation of projects should be the responsibility of Government and Parliament or those seeking to provide projects on a commercial basis". Again, I look forward to the Minister's response.

Another major problem is the question of additionality. Giving evidence to the committee, the Chief Secretary to the Treasury said: The Private Finance Initiative is genuinely additional". The Chancellor of the Exchequer said: The growing importance of private finance has helped us to find significant savings for the taxpayer". It appears that cuts in the transport budget are almost exactly matched by a rise in PFI capital, which is not enormous. There must be a very real query as to whether the benefits of the PFI, the benefits from an injection of private capital, can be felt nationwide if it continues to be a substitute for public funding.

There is also a problem in relation to value for money. We are told that just by importing the private sector into projects we automatically guarantee improved value for money. Unfortunately, at the same time it is almost impossible to monitor whether or not that is the case, because the whole question of the involvement of the private sector is covered and surrounded by considerations of commercial confidentiality.

In the end we need to be shown that this new way of funding public investment, in infrastructure in particular, is more economical. It is already the case that all construction work, and much of the maintenance work, on our publicly owned road system is carried out, and has been for many years, by the private sector. It is hard to see from where the benefits of lower cost will come. They will not come from changes in employment practices, which was mainly where they came from in the first CCT rounds, which are already a long way behind us.

I hope that the Minister will respond to some of the queries I have raised. We do not oppose private investment in the infrastructure or the services. We believe that it has to be part of a partnership between the public and the private sector. We also feel that we need to consider relaxing the controls. We welcome the additionality which I believe is creeping into the situation so far as local government is concerned. We need to analyse a little further the proposals recently made by government, but I believe they are moving in that direction, which is very welcome. However, unless we can increase the total amount of investment in our transport system through the use of private finance, to my way of thinking, and in the view of my party, this will not be a useful initiative.

8.17 p.m.

Lord Clinton-Davis

My Lords, I congratulate the noble Lord, Lord Astor of Hever, on introducing this debate. He engaged in some panegyrics about privatised industry which went a little over the top. But I have learnt that, if he sees a top, he can hardly resist going over it. He was ably supported by the ever-charming noble Baroness, Lady Seccombe. Both thought that all public enterprise was bad and all private enterprise was good. That was simplistic in presentation. With respect, I enjoyed their remarks but I thought some balance was introduced by my noble friend Lord Berkeley and by the noble Baroness, Lady Thomas, particularly in her comments on certain elements of privatised industry. I take the view that some privatised industry has been extremely good. There has been a great deal of praise today for British Airways. But I think even the Minister would recognise that there are some warts attached to it. He may have enjoyed those contributions, but they were a little illusory. It is not a situation where there are no clouds on the horizon, a sort of Ode to Joy. That is perhaps an appropriate anthem for them to sing at the present time. I only hope it brings some results in another context.

The fact of the matter is that one serious omission appeared in the noble Lord's introductory speech. There was not a word about the debt write-offs in relation to privatised industry. I wonder whether he knows how much it is. I shall give way to him if he knows the answer. It is in excess of £22 billion. He did not mention a word about it. Be that as it may, I do not want to talk too much about privatised railways and so on. We have had a series of debates on those matters. I want to talk about the PFI (private finance initiative) and the Labour Party's proposals in relation to public/private partnerships.

I believe that the Government's PFI has been rightly criticised by the CBI, the construction industry and the noble Lord, Lord Selsdon, in his contribution tonight. The Government should not be complacent. They should recognise that people with a great deal of experience in this field know what they are talking about. I have had many discussions with the construction industry and indeed with many people involved in the PFI. There are serious criticisms to be made. For example, only the other day, on 23rd May, Bovis (which is one of the United Kingdom's biggest construction companies) decided not to tender for further privately financed motorway or trunk roads because of the high cost of bidding and slow progress in awarding work. That is a serious matter. Bovis cannot have done that without a very clear judgment having been made about the matter. Others go ahead; I recognise that. However, there are very serious defects in the scheme.

I do not propose to spend too much time on that subject. I want to talk about the Labour Party's scheme in that regard rather than talk about the outgoing government, though we can learn from the errors of the schemes that are being undertaken. I want to underline the rich potential for the construction industry, for transport users and providers that a redesigned scheme could offer to national, regional and local levels.

Our intention is for a national transport framework to be put in place at the earliest opportunity. That mirrors the cause of the CBI and Transport 2000 as well as many others who have perceived that the vision, targets and objectives of the new government are critically important after 17 years of transport policy without any strategy. We believe that the private finance initiative has to be given fresh impetus. I do not have time to mention all the ideas that we are putting forward to get the process back on its feet, but I shall mention some of them.

It must not be used—or misused as the case has been—as a way of disguising cuts in capital spending. The original intention, repeated on a number of occasions by the Chancellor himself, was that that would not take place. It was not a substitute. In November 1993, the Chancellor said that: The private finance initiative is now adding to spending in areas for which the public sector in the past has traditionally taken responsibility". More recently, on 3rd February 1994, he said: We seek to increase both the amount and the quality of investment in the infrastructure of our public services by bringing in the private sector".—[Official Report, Commons, 3/2/94; col. 1012.] There was no suggestion that it was to be used as a substitute.

We take the view that the Government have failed to develop a coherent strategy for delivering private capital to projects—which are required, in the light of what the noble Baroness had to say about our transport infrastructure. We take the view that the Government must set strategic priorities so that the private sector can see what it is expected to bid for. Projects which have the greatest potential for social and economic return for the country as a whole need to be brought forward. I do not believe that market forces should be allowed to be the sole arbiter of what is required. One cannot limit the scheme to those projects which are determined solely on what is viable in the narrowest financial terms.

Secondly, there have to be clear guidelines to cover the terms on which the private sector is required to submit tenders for PFI projects. They do not exist at the present time. I hope that the Minister has consulted the construction industry. I am sure that he has done and that those criticisms have been made to him to his face. They are not to be dealt with lightly.

My third point is that the PFI procedure has become extraordinarily bureaucratic and complex. It has resulted in a great deal of delay. We believe that the decision-making process must be streamlined and reformed. We propose the establishment of a task force to broker agreements between the public and the private sectors, to ensure that projects get off the ground as rapidly as possible. It requires the kind of intervention which I thought was implicit in the noble Lord, Lord Selsdon's remarks. The Government have tended to say, "Let's get on with the PH and leave the parties to it." Government have a role. I totally agree with what the noble Lord had to say in that regard.

There is also the question of risk allocation. That has been dealt with in the most unsatisfactory way under the present schemes. There is no clear set of principles to determine how risks and returns are to be divided. I believe that the Government have to establish clear guidelines to determine how risks and returns should be shared between the public and the private sectors. In projects where there is a greater strategic interest, the Government might be expected to take a greater degree of risk. The risk does not have to come in the form of cash; it might be in respect of the Government taking other risks—for example, planning uncertainty or policy changes which are frequently made.

I should like to add something to what the noble Baroness said. It is very germane in terms of improving the present scheme. Like her, I believe that there needs to be greater transparency—that was a point made by my noble friend Lord Berkeley also—and greater accountability than exists at the present time. What we have too often is sheltering behind an alleged confidentiality. That is one of the secrecy elements of our society which we should do well to reform. Sometimes, of course, confidentiality is necessary. But I do not like the concept, underlined in the present PFI, that the man in Whitehall knows best. It is an unpleasant syndrome in relation to this matter.

We also believe—this is my fifth point—that local authorities should be able to invest more of their capital receipts in housing and infrastructure generally. We propose that a proportion of the cash should be used as seedcorn for new public/private partnerships, with local authorities working with private construction companies and businesses in developing inner cities and improving estates. That also has a relationship to transport requirements.

Those are just five of the ideas that we put forward for consideration. We shall listen to the construction industry and the financiers in order to hear whether our ideas are in need of improvement, too. We are in the business of discussing matters and listening to those who know. The Government have not done that. A better balance should be struck between the public interest and the enterprise that private suppliers are able to bring.

Much was said about the bus industry and I do not propose to refer to that. I wanted to mention air traffic control. It has been suggested that it should be subject to privatisation. The CAA do not like that idea and nor do the airlines. They believe that safety must be paramount. The private sector has articulated concerns that the present PFI is wrong for attracting private investment for that purpose. The Scottish Air Traffic Services Centre was delayed for several years by the imposition of PFI and could be developed with different technologies from its English counterparts, which cannot make sense.

We had an interesting debate the other day in relation to the Channel Tunnel Rail Link. I do not propose to go into that. The Minister and I will not see eye to eye, but he knows that the Government have ploughed a great deal of public money into that enterprise, though they were reluctant to admit it.

This country must renew its transport infrastructure—our roads, railways, our bus industry, our ports and our airports. Industrialist after industrialist has condemned the PFI in a number of material respects. Adair Turner, Director General of the CBI, said in October: The pressure to achieve public expenditure cuts is ferocious, the capital expenditure budget looks an attractive target and the PFI is seen as justification for major cuts". Andrew Buxton, Chairman of Barclays Bank, said in November 1995: The requirement of PFI testing has proved to be a recipe for delay. Companies have found tendering for PFI projects … to be a difficult, frustrating, and above all, costly process". Robert Napier, Chief Executive of Redland, the building projects group, said at the CBI conference last November: The PFI certainly won't compensate for the reduction in central government funding". He continued, A budget which cuts transport spending and places too much emphasis, too soon, on the private finance initiative is not acceptable to business". Those words need to be taken to heart. Projects need to fit in with national, regional and local priorities. They must be assessed on their merits and not as a clumsy device to get assets off the public books or to produce income tax cuts today which will be paid for by mortgaging the interests of future taxpayers. That is something which represents the wrong road and which we oppose.

8.32 p.m.

The Parliamentary Under-Secretary of State, Department of Transport (Viscount Goschen)

My Lords, today's debate has given us the opportunity to consider and discuss the major improvements to passenger and freight transport in this country which have come about as a result of the increasing involvement of the private sector in the provision of transport infrastructure and services. We are all in the debt of my noble friend Lord Astor for raising the subject of the role of the private sector and for giving us an illuminating introduction to it.

The noble Lords, Lord Clinton-Davis and Lord Berkeley, suggested that my noble friend was giving a somewhat rosy picture of what had been the effects of the private sector's involvement. I do not believe that to be true. An illustration of that is that we do not see any serious commentators these days who are prepared to stand up and say: "We want to turn the clock back". As my noble friend Lord Cromer said, the world has changed. The very fact that we are having this discussion and that the noble Lord, Lord Clinton-Davis, articulated a Labour Party policy in which it now recognises the role of the private sector in transport services, illustrates that point.

The noble Lord, Lord Clinton-Davis, began with what can only be described as a "Sheffieldesque" optimism to his interventions. We have seen a serious discussion of the private finance initiative and I should like to turn later to a number of points he raised and which were raised by the noble Baroness, Lady Thomas.

It is not an entirely unexpected observation from me that the Government believe passionately in involving the private sector as fully as possible in transport, as in other areas of the economy. The private sector has strengths and skills which the public sector does not. The private sector knows how to act commercially; it understands the marketplace and the need for competitiveness. It knows that, to be successful, it must not only respond to the needs of its customers, it must also strive constantly to improve its services.

We had a lot of discussion about risk. The private sector is also better placed to manage many of the risks traditionally borne by government. It has access to new sources of capital. With privatisation, contracting out and the provision of services and infrastructure still within the public sector, the private sector is truly in partnership with the Government in helping to ensure improved quality, faster results and better value for money for the taxpayer. Our debate today crossed all modes and provoked a discussion on almost every aspect of transport imaginable. I shall try to pick up some of the major points raised.

My noble friends, Lady Seccombe and Lord Cromer, were quick to point out the changes that have occurred in the aviation industry in this country. The airports, Heathrow and Gatwick, are respectively the first and eighth busiest international airports in the world. The UK led the way by privatising the BAA airports in 1987 and six formerly local authority-owned airports have since joined the private sector. With the remaining major airports restructured as companies operated at arm's length from their local authority owners, all are now more driven by the need to be responsive to their airline customers and the passengers. The success of that transformation is demonstrated by BAA's status in the world as an extremely successful airport group.

British airlines are successfully competing. That was a major point picked up throughout the debate. They are winning business throughout Europe and the rest of the world. The business is being won fairly and squarely without any subsidy from the Government. In 1987 British Airways was privatised. Today BA is one of the most successful and profitable airlines in the world. Indeed, the whole sector in the UK is highly successful, with new carriers such as Virgin Atlantic. I do not believe that anybody today would seriously suggest that BA should be taken back into the public sector any more than the 50 or so other airlines operating successfully out of the UK and competing for business.

On the subject of ports, my noble friend Lord Astor described the changes that have occurred since many ports were brought into the private sector and also since the abolition of the dock labour scheme. With those constraints removed, the ports industry in this country is now extremely efficient and doing very good business. The same goes for the shipping industry, which is entirely in the private sector and is lean, efficient and contributing to our national competitiveness.

Lord Clinton-Davis

My Lords, perhaps the Minister will give way. Is he seriously claiming that British shipping is a success? Is he aware that even in the past few weeks British shipping has shown a further decline, whereas French, Dutch and Danish shipping have been re-attracted to their flags?

Viscount Goschen

My Lords, the noble Lord, Lord Clinton-Davis, makes much of good contacts with industry. I can only suggest to him that he talks to some of the extremely successful British companies that are involved in shipping. I suggest that he talks to the Chamber of Shipping, which is the representative of the industry; I suggest that he talks to P&O, which has had some success—as the noble Lord may recognise—in the cruising, ferry and container industries. There are many success stories and we would be wise to say where we are strong in the industry rather than endlessly concentrating on some of the difficulties that the industry has had to go through in the post-war years.

On the subject of buses, we heard a lot about the effects of deregulation and privatisation under the Transport Act 1985. That has been a success. Today 93 per cent. of all bus services in the UK are provided by privately-owned bus companies; 84 per cent. of all bus services in the UK are run commercially without subsidy. Bus operators are free to provide services wherever they wish on a commercial basis and local authorities have powers to subsidise necessary services after competitive tender. That has resulted in more bus mileage—up some 29 per cent. since deregulation—more flexible services, more operators and substantial investment in new vehicles, including minibuses and midibuses. Bus operator costs per vehicle mile have come down by more than a third in real terms and local authority public transport revenue support has more than halved in real terms.

Understandably, a number of noble Lords have concentrated on the issue of railway privatisation. It is a very large undertaking indeed. It is the major structural reform which the railway industry in this country so desperately needed. Most commentators would now recognise that the old railway was a monolithic, monopolistic nationalised industry which never had the opportunity or, I believe, the incentive to focus on the needs of its customers. The railway's basic problem was structural and not financial. We have now addressed these structural difficulties through the passing of the Railways Act and we are beginning to see the benefits of this strategy coming through to passengers. I listened with care to the comments we have heard from many noble Lords that the benefits that have flowed into the airline industry and into many other industries where the private sector has become involved will flow, and are already flowing, into the railway industry.

For the first time, key services are contractually safeguarded in franchise agreements. All seven of the franchises awarded so far will maintain the same levels of service as were previously operated by BR. In a number of cases, franchisees will be adding new services to the timetable.

The noble Lord, Lord Berkeley, commented on networker benefits such as through ticketing. I strongly believe that these benefits are a key to the success of the railway industry in the future. The companies that are operating the services know that it is in their commercial interest to pursue commercial deals with each other, to offer attractive new pricing strategies, to work out innovative fare deals and so forth. Those are what companies do if they want to encourage—it is in their strong interest to do so—as many people on to the railways as possible. Part of that involves working with one's competitors.

Baroness Thomas of Walliswood

My Lords, is the noble Viscount aware of the doubts that some people have about this matter? In Surrey one still cannot buy a ticket which allows one to go one way by one bus company and come back with another bus company—and not for lack of trying. I really do think that quite a lot of passengers have a good deal of scepticism about the Government's ability to introduce sensible networking. What can the noble Viscount say to allay some of that scepticism?

Viscount Goschen

My Lords, I am very sad that for second time this evening the noble Baroness has put Dorking in Surrey into somewhere outside the modern world in terms of the developments we are seeing in transport.

It is clear that companies must do and will do everything they can to encourage people on to their services. That involves innovative park-and-ride schemes and looking at what are the basic elements that attract people on to their services. The key to doing that is to build those into their agreement. One comparison would be with package holidays, which are sold with various elements of transport, accommodation and so on included. People buy those because they can see that they are convenient and an economical way of going about buying holidays. We firmly believe that that will continue to flow in the railway system and within other areas of transport such as the bus network, which the noble Baroness highlighted. Network benefits like through ticketing and discount cards for elderly and disabled people are contractually safeguarded—for the first time, one might add.

The franchising director has already announced that, for the first time ever, key fares will be price capped. They will be held constant in line with inflation for three years, and then progressively reduced in real terms for the next four years.

This better, cheaper railway will benefit the taxpayer as much as the travelling public. In seven years' time, the seven franchises awarded so far will require less than a third of the grant paid to British Rail in 1995–96. I would say that that is an extraordinary statistic and it is one which bears careful consideration.

Rail privatisation is now a reality. More than 65 per cent. of the rail industry—worth more than £6.7 billion by aggregate turnover—has now been transferred to the private sector. Only on 20th May, dealing in Railtrack shares began. The successful flotation of Railtrack marked a major milestone in the transfer of Britain's railways to the private sector.

But that is by no means all. The three rolling stock leasing companies have been sold and more than 90 per cent. of the UK rail freight is now owned by the private sector. Twelve of the 13 infrastructure maintenance units and track renewals companies have also been disposed of, along with a large number of other former BR businesses, including BR telecommunications. I could go on about the other businesses—and a very large number of them there are—that have been transferred into the private sector, but a key development was the successful flotation of Railtrack.

In terms of investment, concerns have sometimes been expressed that investment under the privatised railways would not be given priority. Railtrack has already shown that this concern is misplaced. But the privatised Railtrack will receive income from franchise train operating companies through access charges and will have access to wider sources of private finance to fund infrastructure schemes. Railtrack has said that it intends to spend some £8 billion on the network over the next five years. It also expects to contribute to the project cost of Thameslink 2000 an estimated £600 million—an excellent example of a major investment project which will enhance the rail network, opening up new opportunities for through services north and south of the river. We have also heard about investment in rolling stock.

These are the hard facts of railway privatisation so far. The private sector is introducing tougher passenger's charter standards, with more generous compensation arrangements for its customers. It is improving the quality of waiting accommodation at stations and investing in measures to boost passenger security.

One could go on about the progress that has been made on rail privatisation, the commitments that have been made and the improvements that we are seeing. But I think it might be appropriate to move on to the private finance initiative, a subject on which a number of noble Lords have commented. Indeed, it was the central thrust of a number of contributions.

As I remarked at the outset, outright privatisation is by no means the only way of involving the private sector. The PFI represents a transformation in the way the public sector procures services and assets. In summary, the Government decide what services they need. The private sector is then challenged to come up with a bid which offers imaginative ideas and solutions to designing, building, financing and operating that scheme. Transport is a key within the PFI. Of the £4.8 billion of PFI deals agreed across the Government in the past financial year, the transport sector accounted for some £3.8 billion, which is some 80 per cent. PFI deals have been agreed across almost all areas of the Department of Transport. Only last week, His Royal Highness the Prince of Wales opened the second Severn Bridge. This magnificent project was completed on time and within budget and financed entirely by the private sector at an estimated cost of £300 million. One could go on.

The noble Lord, Lord Berkeley, raised the question of financial commitments under private finance deals and, as a read across, rail franchising as well. I can assure the House that such commitments are a matter of contract and therefore are legally enforceable. The Government stand firmly behind those financial commitments and will ensure that they are honoured.

Another issue that has been raised in connection with PFI is the question of transparency. I believe that it was the noble Lord, Lord Clinton-Davis, who wanted to see more openness. I am sure that the noble Lord recognises that some areas have to be kept commercially confidential. It is the Government's policy to be as open as possible and to release as much information as possible, although we must not prejudice future deals and we must have the interests of the taxpayer very much in mind. However, given those constraints, we want to be as open as possible.

Another issue raised by the noble Lord, Lord Clinton-Davis, was the difficulty perceived by some companies in bidding, the length of time that it takes and the costs involved. I accept that bidding for PFI is inherently different from conventional procurement. The private sector is not bidding simply to carry out the design and construction of the project; it is undertaking to maintain and operate services over a longer period. I suggest that such a sea-change in the thinking behind the bidding procedure must be allowed to settle in. We are still in very early days. We are listening to what potential contractors and partners are saying and are very much taking their comments on board. We are alive to the issues that have been raised and continually bear in mind our approach to PFI in determining how future projects should be taken forward.

Some of the major PFI projects relate to DBFO roads and to the Channel Tunnel rail link. As we have heard, the Bill is currently before a Select Committee of your Lordships' House. As we had a very full discussion of the issue some two weeks or so ago, I shall turn instead to the issue of DBFO roads. The noble Earl, Lord Mar and Kellie, and my noble friend Lord Selsdon were interested in that new type of road provision. The new approach is at the forefront of the Government's PFI. It is a prime example of the Government working in partnership with industry to provide value for money for the taxpayer. The programme's capital construction value is estimated at over £1 billion and is expected to deliver 13 projects covering up to 43 schemes, harnessing private finance to fund both initial construction and long-term maintenance of DBFO roads over 30 years. I was intrigued to hear my noble friend Lord Selsdon recount the history of the various acronyms leading to DBFO and the other approaches that have been taken.

The fundamental PFI requirement, apart from value for money, is that the private sector genuinely assumes risk. It is our objective to allocate risk to whoever is best placed to manage it. The Government firmly believe that design and construction risks, and the balance between the quality of construction and future expenditure on maintenance and upkeep, can usually be best handled by the private sector. We bear that very much in mind.

Other PFI schemes are in the pipeline. For example, the preferred bidder for Croydon Tramlink was recently announced and it is hoped that this contract will be signed in the near future. London Transport has announced potential PFI deals in the field of revenue collection, power supply and communications. The Civil Aviation Authority is continuing to progress PFI deals for the New Scottish Air Traffic Control Centre and the Oceanic Flight Data Processing Centre. All told, we already expect to see at least a further £2 billion of transport deals agreed over the next three years.

In conclusion, we have heard about a variety of transport modes and about how the private sector has been involved. It is clear from all those who have contributed, including the Benches opposite, that it is now widely recognised and irrefutable that the private sector has a major role to play in transport provision in this country. There has been a revolution in the way in which we look at these things. I believe that my noble friend Lord Cromer was right to draw attention to the change not only in financing and not only in designing, building and operating services, but in our culture and in the fact that the passenger must now be at the front of everyone's thoughts. I again thank my noble friend Lord Astor of Hever for tabling the Motion, and all those noble Lords who have contributed to the debate.

8.54 p.m.

Lord Astor of Hever

My Lords, this has been an interesting and wide-ranging debate. Despite what the noble Lord, Lord Clinton-Davis, said, I am delighted that so many noble Lords agree that privatisation has delivered real improvements in a wide range of transport industries. I thank all noble Lords who have contributed many important points at this late hour and my noble friend the Minister for his robust reply. I beg leave to withdraw my Motion for Papers.

Motion for Papers, by leave, withdrawn.