§ 3.6 p.m.
§ Baroness STEDMAN
My Lords, I beg to move that this Bill be now read a second time. The purpose of the Bill is twofold; to provide specific statutory authority for the payment of temporary grants to the British Rail freight and parcels business and to the National 1012 Freight Corporation, and to raise the statutory limit on the amount which the British Waterways Board may borrow from £12 million to £20 million.
The White Paper on Transport, which was published yesterday and which I introduced to the House, discusses in some detail the Government's policy towards freight transport, into which I need not go further now. The Bill now before us is a more modest measure; it makes limited and transitional provisions for the three industries concerned without prejudging the future of any of them. Each industry is conveniently the subject of a separate clause of the Bill and I will therefore preface my remarks about the detailed provisions of each clause with some explanation of how the need for it comes about.
I should therefore speak first about the rail freight and parcels business. The House may remember that the Railways Act 1974 introduced new principles of support for the passenger railway which the then Minister for Transport described not as a lasting solution to the railway problem but at least a step forward. One of these principles was that the costs imposed on the railway by the rail freight and passenger businesses were separately identified in a new way. The expectation was that the rail freight business on this basis would be able to break even. Unfortunately, the delayed effects of price restraint, increases in costs and the recession in the economy so combined that in 1975 the rail freight business proved to be incurring a substantial deficit. There was no statutory provision for meeting this deficit, which was threatening to undermine the finances of the British Railways Board.
The Board took short-term measures. But it was clear that, in order to establish the rail freight business on a firm basis and to give it an assured future, careful examination of the whole underlying strategy was needed. The White Paper will give the House some idea of the tenor of this review. Meanwhile, the Government announced in July 1975 support not exceeding £70 million for that year, and, last February, a further grant of up to £60 million for 1976. At the same time, the Board was asked to make substantial progress towards phasing out the deficit during 1976 and 1977.
1013 The rail freight business is heavily dependent for traffic on the heavy industries such as coal and steel, which are the most severely affected by a recession. But, with the co-operation of the unions, the Board has been able significantly to reduce its costs while, by careful marketing, it has also increased its revenue substantially. It has also been able to win much larger carryings of coal and steel than they expected, and in fact the Board eventually succeeded in containing their requirement for grant in 1976 to within £40 million—the precise figure still being subject to audit.
I come thus to Clause 1 of the Bill. As I have said, the grants available under this Bill are intended to provide transitional support while short-term measures are implemented and decisions about longer-term strategy can be taken. All that Clause 1, therefore, provides is specific statutory authority for the grant in 1977. Authority for grant paid to date already exists in the Appropriation Acts. The clause therefore identifies the terms and conditions of the remaining payments and enables my right honourable friend the Secretary of State for Transport, with Treasury agreement, to provide a total amount not exceeding £30 million.
So far as the grant in respect of 1977 is concerned, this ceiling is consistent with the cash limit of £25 million for 1977 fixed in the White Paper on Cash Limits for 1977–78 published on Budget Day. Five million pounds of that sum has already been paid and will not therefore count against the £30 million limit in this Bill. The remaining £10 million authorised by Clause 1 is needed because of differences between the rate at which support accrues and the timing of actual payments to the Board. The precise amount due for 1975 and 1976 will emerge only when the grant audits now in progress have been completed. The sums which the Department has retained against possible adjustments will then be paid over and will fall within the scope of this Bill. So it will be clear that the provisions of Clause 1 do no more than reflect the decisions already taken on transitional support for rail freight.
I turn now to Clause 2, which provides authority for grants to the National Freight Corporation. The NFC have been receiving grant since January 1976, and 1014 Clause 2 fulfils the undertaking made last August by the then Minister for Transport to seek as soon as possible specific statutory authority for these grants. The NFC's financial problems stem largely from difficulties experienced by two of their subsidiaries, National Carriers Limited and Freightliners Limited. Both these companies were part of British Rail before the NFC was set up in 1968, and, like rail freight, both were badly hit by the combined effects of the recession in the economy and the effects of inflation.
The third problem area in 1976 was the Corporation's European subsidiaries. I know that this is a matter on which the Opposition expressed themselves very strongly in another place. I will however repeat the view of my right honourable friend the Secretary of State for Transport that the NFC properly took a risk in this instance. They have the statutory authority to acquire companies, and it is entirely right that they should have the same freedom as their private sector competitors to take commercial opportunities as they arise. The essence of the strategy was to bring together and rationalise existing companies. But the recession in Europe affected the whole operation, and the oil crisis in particular affected the two largest French companies which were in the tank haulage business. Early in 1976 the National Freight Corporation decided that the time, money and effort needed to carry through their European strategy could not be justified and that the right course was to close, or sell, their loss-making subsidiaries.
It is important to recognise that the need to make grants to the NFC arose from the particular problems in these three sectors of the business, which add up to about one-third of the total. The bulk of the business, the United Kingdom road haulage and associated companies, could have weathered the difficulties of 1974 and 1975. The overall position called clearly for vigorous management action to improve the immediate position, and a careful look at the structure and strategy of the Corporation.
The measures which NFC have already taken have brought about a considerable improvement. Here, again, they have been helped by the full co-operation which management have received from the unions. In the recently published 1976 1015 accounts the NFC as a whole record a trading profit of just over £4 million, as compared with a trading loss of £7 million for their United Kingdom companies in 1975. Nevertheless, when overheads and interest charges are taken into account, the NFC ended up with a total loss for 1976 of £15 million. Although this was half the corresponding loss for 1975, further cash flow support was needed, and Clause 2 therefore provides further transitional support within a limit of £30 million.
I must emphasise that this grant is a purely temporary measure. It will enable the Corporation to continue to meet its obligations while its future structure is under review. It is already clear that, because of the problems of National Carriers Limited, and to a lesser extent Freightliners, the Corporation cannot become viable on the basis of its present capital structure. A capital reconstruction will therefore be necessary, and the Government hope to introduce the necessary legislation in the next Session of Parliament. As the White Paper on Transport Policy says, a detailed Statement of the proposed changes will be published before legislation is introduced. Work is also proceeding on a business strategy designed to ensure that the Corporation will remain viable under its new capital structure, and the corporation will then be expected to pay its way without continuing help from the Government.
In the meantime the grant authorised by this Bill should be continued, and with care should be sufficient to meet the NFC's cash requirements until we can see these measures put into effect. My honourable friend has already announced in another place that the NFC have so far received a total of £42 million since January 1976—again under the authority of the Appropriation Acts—and that this further £30 million will, if required in full, bring the total level of support to some £72 million before the proposals for a reconstruction can take effect. But I would add that the payment of grant is monitored most carefully by the Department of Transport, and that not a penny has been, or will be, released without firm evidence of need on the part of the Corporation.
Neither Clause 1 nor Clause 2 offer open-ended subsidies; these are tran- 1016 sitional grants. As stated in the White Paper, the Government see no justification for long-term subsidies for any mode of freight transport. This policy has been constantly reiterated and has, I am sure, the support of the Boards of the two industries concerned, and the Bill is put forward strictly on these terms.
Clause 3 of the Bill deals with waterways. This Bill follows traditional practice in providing for the British Waterways Board within transport legislation, although the Government have now decided that it makes more sense to treat them as part of the water industry. Indeed, in the Green Paper on the review of the water industry, published in March 1976, the Government put forward the proposal that the Board should be merged with the proposed new National Water Authority. Response to that Green Paper is still under consideration, and the Government are expecting to publish a White Paper next month. In the meantime, Clause 3 is a technical provision needed to continue the present arrangements a little longer. Since the Board have a deficit on revenue account which is met by statutory grant, and since they obtain very little by way of depreciation on their heavily written-down assets, they need to borrow from the National Loans Fund for their capital expenditure. The limit on their borrowing was set in 1968 and has almost been reached. As an interim measure, therefore, we propose to raise that limit by £8 million. This should be sufficient to see them through until the review is complete, and any subsequent changes are implemented.
My Lords, this Bill is a modest measure to ensure that three public bodies are able to continue their important work while we reach and implement decisions about the way in which they should develop, particularly in the light of yesterday's White Paper. The Bill comes to us endorsed as a Money Bill, but that need not inhibit our discussion of it now. My Lords, I beg to move.
§ Moved, That the Bill be now read 2a.—(Baroness Stedman.)
§ 3.20 p.m.
§ Lord MOWBRAY and STOURTON
Yes, my Lords, a modest measure indeed—but how seductively introduced by the 1017 noble Baroness! She makes all these things sound so attractive. Anyhow, we thank her for her introduction and explanation of the Bill. I should also like to thank the Government for the way in which her right honourable friend met many of the points we made during the Committee stage in another place; and, because of all that, I shall not be very long today.
Having said that, I go on to slightly rougher waters when I say (I do not think I shall be surprising many people) that the Government's performance in some matters, however, must be criticised as being somewhat dilatory because, as I regretted only yesterday, the rather glaring omission—to which the noble Baroness has referred again today—in the White Paper on the financial reconstruction of the National Freight Corporation and her reply yesterday are hardly reassuring, especially when we bear in mind the many years that this matter has been under discussion. However, today we have her promise that it will be introduced next Session. Who knows?—perhaps we may then be introducing it from her present Bench. Anyhow, if they are by any chance in the same place, we are grateful that it will be done then.
As the noble Baroness said, in this Bill we are asked to make available to the NFC grants of up to £30 million. While appreciating the reason behind this, we wonder whether the Corporation has really turned the corner and got on to that well-known but all too rarely seen road to profitability. The noble Baroness told us of some of the measures taken with regard to their ventures in Europe, and I quite agreed with her right honourable friend when he said in another place that it was right that they should take a business risk if it looked suitable. I think that is correct; and they took what appeared to be a reasonable business risk in Europe which evidently did not come off. The only thought that springs to my mind arises in the light of that rather good letter, I thought, in The Times a few days ago from Sir Christopher Soames, in which he drew attention to whether some of our British organisations are as competitive as are our foreign friends in Europe. I do not know whether or not that is the case, but, man for man, we do not seem to be able to match them at the moment in efficiency and, therefore, 1018 in profitability. It is slightly saddening that a calculated risk did not come off.
Having said that, again I would be unfair if I did not agree with the noble Baroness and welcome the profit shown in the 1976 accounts of £4 million compared with the loss in 1975. I think the noble Baroness said that that loss was £7 million. If I am right—and I have a copy of the accounts here by me—the loss was £9 million in 1975, so it is even slightly better than she said; it is from a loss of £9 million to a profit of £4 million. But, having said that the operating loss of £9 million changed to an operating profit of £4 million, we must admit that the overall loss in 1976 was still over £15 million. Bearing in mind what I have now had a chance to read, paragraph 181 of the White Paper, I should like to ask the noble Baroness this question. Are the Government confident that it will be possible to carry out the assurances given in that paragraph? This is the point with regard to their now having to exist on their own muscle.
With regard to Clause 3, if I can take things in a slightly different order, enabling the British Waterways Board to increase their borrowing powers from £12 million to £20 million, I was also very glad to see in the White Paper this morning, in paragraph 191, that the Government consider that,the waterways have an important part to play in commercial terms since water transport is so economical a user of energy".Can the Government tell us in which direction the British Waterways Board will be utilising these funds? In another place the Minister concerned hedged and said that it was for his honourable friend in the sports Department to deal with that matter. In this House, we cannot fudge like that: all Ministers answer for the Government, and not just for their Department, so perhaps I can pin the noble Baroness down. Will the funds be used mostly for commercial or pleasure purposes? A few weeks ago I was told by Sir Frank Price, the chairman of that Board, and by other members of his Board, how much they would like to do if only the funds were available. I should like to see them in a position to put to the test the truth of their claims as to the viability of some of their schemes; or 1019 whether, as the Government, in refusing them funds, as in the case of the Sheffield and South Yorkshire Navigation Scheme the other day, seemed to indicate, those claims are thought to be false. We must remember that a relatively small investment with the Waterways Board can pay high dividends to the wellbeing of our waterways—an asset which, if I might say so, has in the past been somewhat neglected.
To turn to the railways section of the Bill in Clause 1, let me state straight away that we consider that we are being asked to take so much on trust about the railway needs because of the continuing dearth of information on their actual losses on their freight operations. In the latest accounts of 1976. we see a partial recognition of the need for more comprehensive and detailed accounts in the Railways Board report. Can Her Majesty's Government give us an assurance that they will use their best endeavours to encourage the Railways Board to have a more meaningful breakdown of costs? Because only then shall we be helped to identify more easily where the particular problems lie. Bearing in mind the statements in yesterday's White Paper, am I right in assuming that the Government intend this to be the last of these Bills providing extra finance for freight? Continuing to bear in mind the on-going need to economise in public expenditure, and the White Paper's denial, which I was glad to hear the noble Baroness repeat today, of any case for subsidising freight, let us wish this Bill God speed and hope it will have no future progeny.
§ 3.28 p.m.
§ Lord POPPLEWELL
My Lords, I naturally give wholehearted support to this Bill because it is absolutely necessary that this money should be available. I would make just one or two suggestions to my noble friend for future consideration in the drawing up of the legislation that she has forecast will develop, probably next Session, and also arising from the White Paper that was issued yesterday. Now we accept the principle that transport is a public service, will the Government have a very close look at whether it is necessary to continue the National Freight Corporation and National Carriers Limited? When these bodies were established the objective was that there should 1020 be the utmost co-operation with the railways in the carrying of goods and parcels traffic. What has in fact happened is that there has been intense competition which has developed with the railways, particularly in the case of National Carriers Limited, and instead of there being cooperation we now find that this competition is extending even to long-distance traffic. This is something which I think should be carefully looked at.
We are very pleased indeed that the Freight Corporation has made an operating profit of some £4 million in the last financial year, but, of course, it shows a loss of £15 million overall. Of course, one of the reasons why this loss has taken place is because of the establishment of so many different National Carriers Limited depots and the difficulty of them dealing just with local traffic. Now they are going into competition on long-distance traffic, it is having an effect upon both the Freight Corporation and also the railways. Prior to the passing of the 1968 Act, these were all under the purview of the Railways Board, and this was a big contributory factor, even with the difficulty of that time, in keeping the loss as low as it was. Now is the time to see whether this experiment is on the right lines or whether we should consider the Corporation as a public service for the local authority and the new line of action suggested by the White Paper. One knows that in various parts of the country there is great difficulty in getting parcel traffic collected and delivered. In the past one could be sure that there would be a collection or delivery service within a reasonable time. Now it is often necessary to wait some days, particularly in rural areas and with the cutting down of so many collecting stations. To have the National Freight Corporation collecting loads through National Carriers does not make for the greatest efficiency in dealing with parcel traffic. While I agree with the terms of the Bill and welcome my noble friend's suggestion, I put these points forward for further consideration when the White Paper issued yesterday is clarified, and in the desire to achieve greater efficiency for all concerned.
§ 3.32 p.m.
§ Baroness STEDMAN
My Lords, at least one thing is obvious, that when we come to have a discussion on the White 1021 Paper it will take a long time and range fairly wide, but this afternoon within the confines of this rather narrow Bill it has been a useful debate. I am delighted to know that noble Lords are starting to wade through the White Paper and to understand what it is all about. I appreciate the way in which the noble Lord, Lord Mowbray and Stourton, accepted the difficulties of the freight operations in Europe and accepted that the Corporation had in a sense taken a justifiable risk and had been unlucky. I am confident that we can carry out our scheme that there shall be no subsidies for freight. We have made it plain that after reorganisation this year there will be no subsidy for freight. Freight has to pay its way. I hope the noble Lord will accept my assurance that the Government are going to be firm about that.
So far as the British Waterways Board is concerned, my honourable friend Mr. Horam said in the House of Commons on 31st March that we were talking about borrowing money for warehouses, for land and for all commercial activities which needed vestment and which the Board undertake on a strictly commercial remit; that was why the additional powers of borrowing were being given to the British Waterways Board. It was not money with which they could start doing something for the Sheffield/South Yorkshire navigation however worthy some of us may think that would be.
I am also grateful to the noble Lord, Lord Popplewell, for his suggestion. As I said yesterday, no decision has yet been taken about the reorganisation or restructuring of the National Freight Corporation, Freightliners and National Carriers. Before any legislative procedures are put into being there will be a Statement in this House and I hope that the noble Lord, Lord Popplewell, will be in his normal place when that Statement is made and will be able to make a worthwhile contribution on our proposals on the restructuring of the National Freight Corporation, National Carriers and Freightliners.
This is a narrowly drawn Bill. It focuses on a cross-section of the problems which affect the public sector of the transport industry. It does not of itself solve any of the problems of parts of the 1022 industry, but it gives us the necessary breathing space while solutions are being developed, and as such I believe it is amply warranted. In the light of our discussion and the further explanation, I hope the House will be prepared to give the Bill a Second Reading.
§ On Question, Bill read 2a: Committee negatived.