British Railways (Financial Support) (Hansard, 31 March 1982)

§ Mr. David Howell

I informed the House on 24 November last—[Vol. 13, c.358]—of an exceptional increase of some £110.4 million in the grant paid to the British Railways Board for the operation in 1981 of the passenger railway system as a public service under section 3 of the Railways Act 1974 and EEC Council regulation 1191/69. This increase recognised the serious deterioration in passenger revenue in 1981, and I made it clear that I expected the board in its claim for grant for 1982 to demonstrate that firm action had been taken on unit costs, which had been rising, and on service levels in light of the change in demand.

The board originally submitted to me a claim for grant for 1982 of £885.2 million, which, allowing for inflation, would have been some £60 million above the total grant provided in 1981. Most of this results from increases in cost rather than a fall in revenue. After discussion of its claim with the board, and in compliance with my statutory 140W obligations, I judge that the grant for 1982 should be at a figure, lower than the board's claim, of £810 million. This now falls to be reduced, because of the change announced by the Chancellor in his Budget Statement with regard to the national insurance surcharge, by £6 million. The grant for the passenger railway will accordingly be £804 million for 1982. This amount includes, as in previous years, provision for a special replacement allowance—this year £87.6 million—for the replacement of the assets of the passenger business. It is estimated that a further £80.3 million will be paid to the board by passenger transport executives in respect of services provided in their areas under section 20 of the Transport Act 1968. The separate grant for level crossings will be £18.1 million.

I do not intend—and I am sure the board would not wish—that this decision should result in yet further reductions in expenditure on necessary renewal and maintenance of the equipment and particularly of the infrastructure, and I will therefore this year earmark a part of the grant for this purpose.

Because the grant has been determined in this way, and not on the basis of the board's budget, I am not able to publish a breakdown of the grant between business sectors, as in previous years.

The need to decide on a level of grant in this way reflects a new, and serious development in the administration of this very large grant, and raises questions that require urgent answers. I have therefore asked Mr. P. J. Butler, a senior partner of Messrs Peat Marwick Mitchell and Co. to make a report to me, with the following terms of reference: Following the Board's rising losses on their railway operations and the claim for grant in 1982, to examine the Board's rail budget for 1982 in the light of their performance in earlier years, their plans for improvement and the extent to which they were achieved; and to report what steps are open to the Board to make early improvements in the trading results by increased efficiency, cost reduction and improvements in financial control, whilst complying with the Public Service Obligation. The information produced in this way will provide an important element of the review of railway finances referred to in paragraph 3.71 of Cmnd. 8494—H and to which both the board and I attach the greatest importance.

The board's finances have suffered a serious set back from the recession and the ASLEF strike. Nevertheless, I am satisfied that it is appropriate to continue long-term lending.

The level of grant now settled accords with the decision I announced on 4 March—[Vol. 19, c. 232.]—that the loss caused by the ASLEF dispute should not be met at the taxpayer's expense, and that any excess on the 1981–82 external financing limit will be offset against the limit for 1982–83. The board's commitment to accelerated disposals of assets will make an important contribution to achieving the 1982–83 external financing limit.