Mr. Heseltine
I beg to move Amendment No. 41, in page 8, line 14, at end insert:
‘Provided that in the exercise by the Executive of any powers authorised under section 50(9) of the Act of 1968, any property transferred by the Executive in connection with any of the activities authorised by subsection (1)(d), (g), (h), (i), or (j) of this section shall be transferred at open market value, details of such value shall be published and the consideration shall attract interest at a commercial rate.’
The purpose of this Amendment is to bring us back to a discussion on the valuation of property which is likely to be the subject of transfer between the Executive and any subsidiary or associate organisations which it seeks to form as a result of its new powers. Under this part of the Bill the provisions of Section 15(9) of the Act of 1968 applies to the Executive. That Section governed the conditions under which the authorities could transfer land or property that they owned to other people with whom they had set up an arrangement of some sort for carrying on activities which they had powers to carry on.
The only sanction against the transfer of such property was that the permission of the Minister was necessary, but in this Bill the Minister is substituted by the Council, and the only sanction with which we are now concerned is that the Executive is able to transfer land to anybody with which it enters into an association, subject only to the permission of the Council.
We wish to restrict that provision to the powers covered by Clause 6(1)(d), (g), (h), (i) or (j), because these, basically, are the provisions which extend the powers of the Executive into what I would broadly describe as the commercial field. Paragraph (d) concerns the hire of passenger vehicles, paragraph (g) supply, maintenance and repair, paragraph (h) the supply of spare parts, paragraph (i) manufacturing powers, and paragraph (j) the provision of car parks. [column 221]
The nub of the question is the price at which any land is transferred by the Executive to anybody with whom it enters into association. Land, particularly in the London area, is a crucial part of any major capital investment. Its cost is so high that if a person can get his land at a cheap or subsidised price he puts himself in a highly privileged position if he enters into any form of competition with somebody who had to pay the open market value for his land.
The hon. Member for Nuneaton (Mr. Leslie Huckfield) will remind me, if I do not admit it, that public transport has to have special rules in order to cater for the social concept by which it is largely dominated. This we are not trying to debate. We are simply singling out those areas where no such arguments apply—areas where there is a healthy, thriving, commercial private sector, providing the sort of services that the public wants and is willing to pay for, and which is prepared to expand to cater for any new demands in new areas.
We believe that it would be wholly retrogressive if the London Transport Executive were empowered to enter into associations with outside organisations and to transfer to those associations, whatever form they might take, land at an uneconomic rate, because the immediate effect would be that whatever association had obtained that land would be in a position to compete on the open market without any real prospect of its competition being fair.
The Minister may say that this is a matter for the G.L.C. to decide. This is not a matter for the Minister—although that will be the case if the Bill is passed as it stands—for we argue that this is an issue which should not be for the G.L.C. to determine. Frankly, I have to envisage a situation in which the G.L.C. was controlled by people who did not believe in fair competition. Even if they believed in public competition with the public sector, they were simply not interested in whether the two sorts of competition were based on a fair set of standards. Nothing could be clearer than if they were prepared to allow the London Transport Executive to set up organisations, for example, in the provision of petrol stations where the petrol stations did not have to pay any economic return [column 222]on the land factor involved in the capital creation of those petrol stations.
That is the general argument. I ask the Committee to bear in mind that we have singled out, as I have said, these particular powers, but it is vitally important to remember just how wide these powers are. Virtually no limit is placed upon the extension of the Executive's activities on the market, and if these are to be the subject of unfair competition it will have the most unfortunate results on the private sector which has built up its living in this area.
Mr. Marsh
There are a number of objections to this Amendment. First, it is quite impracticable. It refers to the “open market value” . What is the open market value? There are lots of open market values. It then provides that the consideration shall attract interest at a “commercial rate” . Many, many rates of interest are commercial. The Amendment is impracticable, because for an organisation such as this it is not possible to determine what the open market value is or what the commercial rate is, unless the organisation is to be hampered with some large bureaucratic machine which is going to check its activities.
If the Executive went berserk and starting handing assets away—why it should do so I am not sure—some control over it might be necessary. But there is control. First, there is the obligation for it to operate within the policy laid down by the Greater London Council. The Council will have powers in relation to capital investment, so there is protection there.
There are further powers. Clause 12 gives power for the Minister to intervene where the Executive is operating in an uncommercial way. The Executive has power to operate in a normal commercial way, and protections are provided both in terms of the Greater London Council and, in the ultimate, the Minister himself. 11.15 a.m.
What reason is the Executive likely to have for wanting to hand over assets in an uncommercial way? It is said that it might divest itself of assets to a private company, and hon. Members opposite are worried about placing such a private company in a privileged position. The [column 223]hon. Gentleman really does see an awful lot of bogeys which are not really likely to materialise.
Hon. Gentlemen opposite may have in mind the possibility that the Executive will have written-down assets, which will have an artificial price. This possibility is dealt with in paragraph 142 of Transport in London, which says:
“The Board and the Ministry will obviously have to consider the future valuation of the Board's assets. But we do not think it right to recommend a writing down of asset values to balance the reduction in capital debt.”
We have here a position rather different from that. I can quite understand some doubt existing. It is different from that of British Rail, in that it is not recommended that the Executive assets should be written down to balance the reduction in the capital debt. That means, in effect, that the Board's asset values will be carried through in the new regime.
Mrs. Margaret Thatcher
On what basis?
Mr. Marsh
On their previous valuation.
Mrs. Thatcher
Historical?
Mr. Marsh
Yes. The direct effect is that depreciation will have to be charged on the basis of existing book values without the benefit of the capital write-off. Even if this were not so, safeguards exist in the Bill. It is rather insulting to produce a picture of an Executive which behaves totally irresponsibly, a Greater London Council which is also irresponsible, in that it allows the Executive to behave totally irresponsibly, and a Minister of the Crown—if this were ever suggested—who also behaves irresponsibly. Unless all three behave totally irresponsibly the fears which the hon. Gentlemen opposite raised will be totally unfounded.
Mr. Heseltine
The Minister poured scorn on the Amendment because of two of its phrases—first, “open market value” and, secondly, a “commercial rate of interest” . I am open to suggestions if the Minister has a more precise formula which would be acceptable. But I know before I make the offer that there is no intention whatsoever of trying to reach a sensible formula or agreement on these [column 224]two provisions. The Minister uses the phrases simply as debating points to avoid the logic of what should have followed from what he was saying, namely, an offer to help us draft a better Amendment. Far from that; the Amendment was totally dismissed.
Let us consider what the Minister's objections amounted to. He told us that there is no such thing as an open market value. I agree that within the framework of perhaps 1 per cent., or something like that, there is not, but a very highly qualified body of people called district valuers would strongly disagree with him, in that they are quite capable of reaching agreement on the open market value in respect of a whole range of other State local authority activities. We would not have objected if that sort of procedure had been introduced in this case, but not a word of an offer of that sort came from the Minister.
The right hon. Gentleman then argued against the phrase “commercial rate of interest” —not because there is no such thing as a commercial rate of interest but because there are too many commercial rates of interest. We would have been prepared to accept that, and also that in each case a different rate might have been charged. All the differing rates would, in their own way, have been commercial, and we would not have quarrelled with the fact that they differed from case to case. Our concern is that there will be no relationship between what we would regard as any one of a series of commercial rates and the sort of rate that might be charged if we do not have the wording of the Amendment in the legislation.
The Minister then repeated the sort of assurances which he has given before, and which we shall examine again when we reach Clause 12. He assured us that there are real sanctions and protections here, and that our arguments are not warranted. He said that the main objection which we have advanced several times, about the benefits bestowed upon the Executive as a result of the written-down capital situation, will not be reflected in its trading activities, because as a result of paragraph 142 of Transport in London there has to be a similar and compensating write-down of the actual assets.
My hon. Friend the Member for Finchley (Mrs. Thatcher) was on to that like a flash. These assets have never been written up, so there is no need ever to [column 225]write them down to compensate for the write-off of capital. This is one of the historical situations with which we are dealing. The Executive and the G.L.C. own a large amount of land, acquired over a very long period of time, and in the books of either the L.T.E. or the G.L.C. at this moment it does not bear any relationship to its market value. To say that it will be transferred at its present book value is merely to admit exactly what we are concerned with, namely, that will not reflect the true market value, and is going to be transferred to people who might use it for commercial activities at a very low value.
Mr. Marsh
Why?
Mr. Heseltine
The Minister understands it. The Minister asks why, and I am glad that he does so. I would have thought that he would be able to understand it only too well. Let us take the situation that was referred to only the other day by one of his hon. Friends—the situation in which there is a demand from one of the elected local authority representatives, or whatever it may be, to find more jobs in the area covered by the Executive. A very considerable factory, worth a great deal of money, may be on the open market, largely because of its land value, it having been acquired a long time ago and its value in the books of the relevant G.L.C. or L.T.E. committee being hopelessly low.
It is suggested that if the factory were used for a certain commercial activity for which the L.T.E. has powers there would be a profit. This will obviously be a most telling argument for the people who have votes at stake to try to find jobs in their constituencies. But will it be fair for the private concerns who are indulging in that self-same activity, and who are expected to find the capital and show a return on it, and who know that there is a take-over bid round the corner if they do not keep their asset values up to date? Of course it will not be fair—but it is a perfect example of the reason why assets in the hands of this sort of organisation can be misused.
We believe that in terms of the specific commercial type of activities which we are discussing it is wrong to use assets in this [column 226]way. That is a very simple argument, which I know the Minister understands full well.
The Minister went on to say that people would have to go berserk before there was a danger of these powers being fully used. As we said last Thursday, after the Minister had gone, nothing is going to happen in six days, six weeks or six months, that will cause an outcry of any sort from this side of the Committee. This process could go on for a long time. If we remove the sanction of the market from these areas—which is what is happening here—over a period of time the distortions get larger and larger, and as the powers are extended little by little so the opportunities for the non-reflection of the true capital assets involved become greater and greater.
The Minister must be aware that it is not enough to say that under Clause 12 he has powers of intervention. He knows better than we do, because he has had to exercise these controls every day, that it is quite impossible for a Minister of Transport to keep a sufficiently close watch on the activities of a major industrial concern in order to find out precisely how its trading activities are made up in a profit and loss account, which he may not see for about two-and-a-half years after the trading which he would be concerned about had taken place.
It is simply not possible to exercise that sort of control, and the Minister is deluding himself in believing that the powers which he has built into this Clause, or the powers that the G.L.C. will possess to police this operation, will, in a five-, ten- or fifteen-year projection in the future, be more than nominal and notional.
We believe that this is a very important Amendment which the Minister is quite wrong not to take more seriously. If there is one thing which is necessary in the State sector at this time it is to put to work economically and efficiently the assets which it owns, and this it is signally failing to do in many areas.
Mrs. Thatcher
Michael HeseltineMy hon. Friend has put most of the arguments, but it struck me from what the Richard MarshMinister said that he hoped and expected to happen what we want to happen by virtue of the Amendment, and tackled the Amendment purely on technical grounds. His first technical [column 227]ground was that open market value is not a justifiable issue, and could not be ascertained.
Market value is a well recognised legal concept in almost every Land Act. The only argument that could be put forward on technical grounds is that we do not need the word “open” . It does not add anything to the phrase “market value” . If his only objection is to the word “open” , will he agree to the Amendment at some future time if we cut out that word—happy in the knowledge that “market value” is a concept which district valuers in the Inland Revenue Department are having to deal with every day and which his Government have from time to time written into certain Land Acts?
His other technical reason was that the phrase “commercial rate” was inappropriate because that rate could not be ascertained if it were queried in the courts. I think that it could be, but if the right hon. Gentleman does not like the phrase “commercial rate” , would he be happy if we were at some future time to substitute the words “at a rate not less than ½ per cent. above current Bank Rate” ? Those two alterations should meet his technical objections.
On this third point, about the asset valuation, I wonder whether he realises that most of us thought that the paragraph he read out assisted our case and not his. Supposing, for example, that the Executive has a piece of land which it bought 25 years ago for £500. Having been written down over 25 years it would probably stand in the books at £250, on a depreciated historical cost basis.
All that the paragraph that he read out meant was that the Executive is not going to write-down the £250 to £25 merely because the capital has been written off by nine-tenths. Without the Amendment the Executive could transfer that land at £250 although its present value would be nearer £25,000.
If that is the sort of thing that he wants in the Bill it is entirely contrary to the spirit of his reply, which was that unless things were reasonable and fair he would have powers under another Clause to take action. In view of the Minister's technical reply we might ask to withdraw the Amendment, but we want assurances that its substance is agreed to by him, that the land should be transferred at market value, and that the rate should be at one of the commercial rates which, at [column 228]a minimum, would be ½ per cent. above Bank Rate.
Mr. Marsh
It would be unfair of me to suggest to the hon. Lady that my objections to the Amendment were purely technical. I raised the technical point purely on the ground that it provides an example of the difficulty of exercising this sort of control over the Executive. God and the majority of the Committee willing, the Executive will be given power to undertake these activities. That being so, there is no reason why it should be made more difficult for it to exercise those powers, or why there should be this artificial relationship between the Executive and some of its subsidiaries. 11.30 a.m.
The argument which is raised over and over again is put against the background of the Executive divesting itself of assets at a price far below their market and commercial value. I cannot agree that a body of this type will do this, or that the persons responsible for the protection of the ratepayer would permit it to do so. There seems no reason to assume that the Executive will come into being, under its new situation, and begin by selling off slabs of valuable land at 4½d. a foot. It is intended that the requirement for replacement cost shall be for replacement cost depreciation——
Mrs. Thatcher
Not historical?
Mr. Marsh
For the future, and not just the basic requirement to secure provision for depreciation on a book value basis, in addition——
Mr. Heseltine
Do I understand that there will be a depreciation of freehold land in the accounts?
Mr. Marsh
I am glad the hon. Gentleman asked that question. While I am speaking I hope to be able to establish the answer. I appreciate that, as always, the hon. Gentleman opposite was being awkward.
Hon. Members
Answer.
[column 229-230]Mr. Marsh
I shall answer in due course, if I am enabled to continue the argument step by step.
In addition to this, the Executive has power to carry out these activities and it also has an obligation to establish and maintain a general reserve. We will be coming later to the financial provisions which place pretty solid obligations on the Executive and make it highly unlikely that it is going to be involved in all these philanthropic activities.
The Executive has the power to operate in this way and the Opposition are attempting to place restrictions upon it which would create a totally artificial relationship. Given the safeguards which exist and the financial obligations upon the Executive there seems no reason to embark on a bureaucratic procedure to achieve that which is unlikely to happen anyway.
Question put, That the Amendment be made:—
The Committee divided: Ayes 7, Noes, 9. Division No. 12]
Ayes
Berry , Mr. Anthony
Elliot , Captain Walter
Grant , Mr. Anthony
Gresham Cooke , Mr. R.
Heseltine , Mr. Michael
Rossi , Mr. Hugh
Thatcher, Mrs. Margaret
Noes
Boston , Mr. Terence
Brown , Mr. Bob
Coleman , Mr. Donald
Fletcher , Mr. Raymond
Huckfield , Mr. Leslie
Lewis , Mr. Ron
Marsh , Mr. Richard
McBride , Mr. Neil
Ogden , Mr. Eric
Amendment No. 44 proposed: In page 8, line 33, at end insert:
‘and except that the Executive shall only exercise the powers granted under section 14(2) or (4) of the Act of 1962 where the business or undertaking concerned cannot reasonably be carried on otherwise.’ —&osbMr. Michael Heseltine.]
Question put, That the Amendment be made:—
The Committee divided: Ayes 7, Noes 9. Division No. 13]
Ayes
Berry , Mr. Anthony
Elliot , Captain Walter
Grant , Mr. Anthony
Gresham Cooke , Mr. R.
Heseltine , Mr. Michael
Rossi , Mr. Hugh
Thatcher, Mrs. Margaret
Noes
Boston , Mr. Terence
Brown , Mr. Bob
Coleman , Mr. Donald
Fletcher , Mr. Raymond
Huckfield , Mr. Leslie
Lewis , Mr. Ron
Marsh , Mr. Richard
McBride , Mr. Neil
Ogden , Mr. Eric
The Chairman
I hope all hon. Members will agree we have had a very wide discussion on the Clause. I had intended to use my discretion and simply put it right away, without discussion, but I have allowed my heart to lead my head. Since some hon. Members wish us to have a short discussion, I am agreeable.
Question proposed, That the Clause stand part of the Bill.
Mr. Heseltine
I fully appreciate your Ruling, Sir Beresford, and will observe it in the spirit as well as the letter. The point I wish to raise relates to the general powers provided under subsection (1)(m), which gives the Executive all the powers that were in the possession of the London Transport Board before vesting date in areas where it may not already have those powers under the preceding subsections.
All that we wanted to do was to ask the Minister why we cannot have a list of the contracts into which the London Transport Board has entered under these powers, which they would not be allowed to pass on to the Executive were it not for paragraph (m). It would seem to us that we should have looked again at the activities which it had indulged in which are not covered by the wide powers of the Clause, to see what other powers are now being given without being identified for discussion at this stage.
It would help us if the Parliamentary Secretary would agree, between now and Report, to let us have a list of those contracts, in which case we would not wish to delay the Committee. I am sure [column 231]that he will agree that it is important, before allowing what could be referred to as a dustbin Clause to go through, to know exactly what implications there are in it for the Committee.
Captain Elliot
Much of the thinking from hon. Members opposite, including the Minister, has been on the lines that this enormous authority should be entitled to operate in the same way as an ordinary commercial enterprise. From one point of view that is true, but it is rather unfair—putting it rather mildly—to consider the Executive as a normal commercial enterprise. In many respects it has monopoly powers. It has enormous financial reserves, which are not necessarily drawn from its business activities. Much of its financial resources might come from the ratepayer and, as we heard earlier on, it can make grants to various services. That makes it difficult to decide whether a particular service is running commercially.
Finally, it may be politically motivated. If we are realistic we must recognise that that is a very real danger. It is not right to regard it as a normal commercial organisation. The ordinary rules do not necessarily apply, and that should be borne in mind. The Government are getting into a difficulty which everybody wants to avoid, and which we know so well from past experience of publicly-run concerns and nationalised undertakings. A lot of taxpayers' or ratepayers' money is used for one reason or another to keep them going, and it is impossible to decide precisely where the money is going and to analyse what aspect of the business is being efficiently and commercially run. That is one of the difficulties we shall run into as a result of this unamended Clause. I hope that the Minister and the Government will give it the most serious consideration.
Mr. Brown
The hon. Member for Tavistock (Mr. Michael Heseltine) raised the question of the list of present contracts. I am sure that he will appreciate that I do not have them immediately available, but I am prepared to ask the L.T.E. to look into this matter.
On the question of political motivation, we should accept that this Measure is putting the Government of London in the position of governing London's transport [column 232]on behalf of the ratepayers. If we accept that it is a good thing—and seemingly we have in the case of other major conurbations—that local people should be responsible for their transport services, we must accept the likelihood of changes in political control. The suggestion that decisions might be motivated politically is not a sustainable argument. It all depends on which side of the fence one happens to be standing at the end of a three-year cycle. I would not attribute to any one of the parties in Greater London any undesirable motives.
Captain Elliot
I only put that point to illustrate that these authorities are not on the same basis as the ordinary commercial undertaking. I entirely agree with what the Minister says, but the Minister of Transport has argued already that these organisations will be able to behave exactly as if they are the same. I am merely quoting that one statement to show that they are not.
Mr. Brown
I accept that. I simply say that the L.T.E. is not on the same basis as a commercial undertaking because it does not have the wider freedoms that the completely commercial undertaking has.
Question put and agreed to.
Clause ordered to stand part of the Bill.
Clause 7
Financial Duty of Executive
11.45 a.m.
Mr. Heseltine
I beg to move Amendment No. 46, in page 9, line 33, after ‘Council’, insert:
‘(provided that during any consecutive eighteen months at least one such period shall end)’.
We now come to the financial duties of the Executive. Broadly speaking, the Executive is mandated to trade at a break-even situation; but it is provided that if it should run into deficit for a given period the deficit should be added to its budget for the ensuing period, so that the break-even over the two periods is achieved at the conclusion of the second period. That seems a very laudable financial target on which to embark.
The only difficulty is that there is no definition of what a “period” amounts [column 233]to. It is therefore in the hands of the Executive and the G.L.C. to agree what time this provision shall cover; in other words, how long it should be allowed to trade at a deficit. It seemed to us that that was not the intention of the Minister in drafting this legislation, if only because it makes a nonsense of any targets which might be imposed, not by the Minister but by the G.L.C.
The second point that arises is that line 31 refers to such period
“as may from time to time be agreed” .
This opens up a second line of thought. Having set one's sights on a certain financial objective within an agreed period, it is possible that halfway through the period one realises that one is not going to hit the targets; therefore, the G.L.C. and the L.T.E. could get together and lengthen the period. This would make a nonsense of the stringent financial duties envisaged in this legislation.
We believe that the G.L.C. is right to try to put its public transport services on the basis envisaged in this Clause. It is, however, conceivable that the care of the Parliamentary draftsmen may for a moment have lapsed so as to allow a loophole which was never intended. It would therefore seem important that the Minister should explain whether it was an oversight or was intentional.
Is it intended that there should be a totally flexible attitude to the period within which the financial achievements must be obtained? Secondly, if, halfway through an agreed period, it seems that the financial success envisaged at the beginning is not to be achieved, will it be possible for the G.L.C. and the L.T.E., in conjunction, to change the basis of the financial period and therefore invalidate the financial targets to which they are working?
Mr. Gresham Cooke
It is of great importance that a time limit should be imposed. We all remember that when the railways were nationalised they were under a duty to be financially viable, taking one year with another. But that position slipped year by year, and they have always made a loss of about £140 million a year. They might have got down to near £100 million at one stage. That concern, which has been nationalised for 20 years, has been making these huge losses because Parliament has [column 234]no control over the situation. Each year the Minister of Transport says that it will be all right next year, and it never is.
We do not want to get into the same position with the Executive. The worst thing that could happen would be for the Executive to pile up huge losses on top of those piled up by the railways. The object of the Clause is to prevent that happening, but if the accounting period is laid down in clear terms we could go on year after year extending it, so that there was no definition as to when the Executive was to be viable. We could get into a very serious situation.
If there were a Socialist Administration on the other side of the river, and it wanted to go on extending the period, so as to subsidise London transport, we can imagine the Executive becoming a minor British Railways all over again. That would be a disastrous thing.
We seem to be moving out of an age in which we can encourage nationalised industries to be run at a loss and every two years to come back to the taxpayer to have their piled-up losses written off. The temper of the times is against that sort of thing. Hon. Members on both sides of the House feel that these organisations should run at a profit or, at any rate, above a break-even point. I place great importance on the Amendment and I hope to hear the Minister say that we are right, and that he will accept it.
Mr. Marsh
The hon. Member for Twickenham (Mr. Gresham Cooke) says that what hon. Members opposite are concerned with is that the Executive should be run on a proper financial basis. This is the intention of the Government. There would be no need for the G.L.C. to connive at fixing the target periods and playing around with them as a method of subsidising the Executive, because the G.L.C. has the power to pay grants, if it so wishes. It may well come to the conclusion that on transport grounds it is desirable to subsidise a certain section of service, and this it is entitled to do. But the intention here is to have both a short-term and a long-term financial discipline.
In the short term the obligation is to break even, one year with another. In the long term the intention is to fix target periods for the return on the investment made. If the Government felt it necessary to fix the target period they would fix a period much in excess of 18 months. [column 235]The last precedent in nationalised transport occurred in the Conservative Government of 1963, which fixed a target for the London Transport Board. That was a five-year target, and it seems to me that the very nature of the undertaking—with the very large investments made, with long-term returns—requires the provision of a reasonable length of time for that target period.
We believe that the G.L.C. and the Executive will handle this matter in a responsible way. They are public bodies. The G.L.C. is answerable to the electorate. It has some experience of running large concerns. I do not believe that there will be any conniving between the two bodies to thwart the clear wish of everybody in this room.
We therefore argue that it is for the Greater London Council to consider the position of the Executive and for it to produce a target period which will almost certainly be in excess of 18 months. I would have thought it would be not less than three years, and it might even be longer. The real danger of having a short-term target period is that it would concentrate the Executive on investment in projects which yielded a quick return but might not be the best return.
We do not think it necessary or desirable to prescribe a limit for the target period, since agreement on financial targets is essentially a matter for the Council and the Executive. We are passing the Executive across to the elected representatives of the people who use it. They will have responsibility for it, and it seems reasonable for them, in considering the way in which the organisation conducts itself, to agree with the Executive the length of the target period—which would certainly be longer than that proposed.
Captain Elliot
I am not an expert on this matter, but I believe that under the present company law an ordinary commercial undertaking has to produce its accounts every 12 months. Presumably, the provision that we are discussing has been specifically put in to give this undertaking an altogether different status from that of the ordinary commercial undertaking.
Mr. Marsh
Yes. I do not want to go wide of the terms of the Clause, but Clause 10(1) contains the obligation that— [column 236]
“The Executive shall— (a) cause proper accounts and other records in relation to their business to be kept; and (b) prepare an annual statement of accounts in respect of such accounting period, in such form, and containing such particulars, compiled in such manner, as the Council may from time to time direct.”
The London Transport activity attracts a great amount of public interest. It is not something that happens in a dark corner. Whatever party is in power, the Greater London Council will be required to answer to its electors for the Executive. It therefore seems right that it should have the authority to agree the basis of the target period and also the obligation to produce an annual statement of accounts for general public interest. There will be no question of something going on without anyone knowing what is happening.
Mr. Gresham Cooke
The Minister has referred to Clause 10, which refers to an annual statement of accounts in respect of such accounting period. That visualises the Executive issuing annual accounts in a published book, which we shall all see. The Clause begins with the words
“In respect of each accounting period”
which I take to mean the annual accounts, but subsection (3) provides that—
“The Executive shall so perform their functions as to ensure so far as practicable—
(a) that at the end of each such period as may from time to time be agreed for the purpose of this paragraph …” I take it that that is a different period from the annual accounting period. That is what we are worried about. If that period is going to be five years, we are presented with a very different picture from the annual accounting period which is mentioned at the beginning of the Clause.
Mr. Marsh
There are two separate things here. One is the short-term accounting of the Executive, in respect of which there is clear provision for an annual statement of accounts, which will be written in such a form—there is provision to ensure that it is professionally audited—as the Council shall require. In addition to this provision, which is concerned with the year-to-year position, there is the requirement, which nobody on either side of the Committee would [column 237]question, that the Executive shall have a financial target, the length of which will be decided by the Greater London Council, having had access to the position of, and facts relating to, the Executive.
It will not be possible to report what the target is until the period is fixed. There will therefore be this separate, longer period. I do not know what period will be fixed on, but I would have thought it would be a minimum of about three years and, possibly, a maximum of five.
Mrs. Thatcher
We probably have several different interpretations of the meaning of this subsection. Before we attempt to amend we ought to try to get out interpretations right. If the Richard MarshMinister will follow me as carefully as he can I shall be as clear as I can, and we may be able to agree on what each limb of subsection (3) means.
As I read it, paragraph (a) means that the G.L.C. shall fix a period of, say, five years. It may be decided that at the end of that period the total profits, plus the general reserves, should be £3 million. That is to say, if the Executive starts with a general reserve of £2 million, by the end of five years it must have made £1 million profit, so that its profit and its reserves amount to £3 million net. That is the target period.
We then move on to the other limb, contained in paragraph (b), and find that within that five-years' period there have to be certain accounting periods, and that if, at the end of the annual accounting period, within the five-year period, the Executive has gone into deficit that deficit has to be made up in the next accounting period. This raises the question, what does “deficit” mean? As I read it, in this context it means that the Executive has not merely not made a profit but has used up its total reserves and has gone into the red. 12 noon
That is what I understand the word “deficit” to mean in this context. It therefore means that if at the end of any accounting period within the five-year period the Executive has not only failed to make a profit, or has used up the profit it made in the previous year, but has used up all its reserves and is in deficit, at the end of the next accounting [column 238]period it has to make enough to cover the deficit.
I can see what will happen if the Minister leaves this as it is. He has his target period, and all of a sudden we find that the G.L.C. dips into its reserves and loses the lot. The Executive then uses a kind of balance of payments argument, and says to the G.L.C., “We know we are in deficit now, but it is all right. Give us a couple of years more and we will get back into credit. Please extend the five-year period to seven.” As I see this, unless a limit is placed on the target period that period can be changed in mid-term. The Executive could go on and on and on, and if it had not reached the target after seven years it could trot back again and say, “All right, make the target period ten years” .
The only limitation imposed by paragraph (b) is that the Executive would not have carried on in the red. It could have used up its reserves and never replaced them. That is what I think this means. We are anxious to set some limit to the target period. We may give the G.L.C. a good deal of leeway within that limit but would it not be reasonable for us to say that the target period should not be greater than X years? That is the main point at issue at the moment.
Captain Elliot
We seem to be getting into a state of extraordinary muddle. We have argued in the past about the Executive's behaving in the same way as commercial undertakings. As we know the shareholder of a company has the right, every year, to question his directors on their policy if it appears to be going the wrong way. Surely, all of us agree that that is right. I am sure the hon. Gentlemen opposite would not subscribe to the proposition that the directors should say: “Well, it is all right; our policy is such that in five years everything will be all right” . They do have that right to question policy every year.
The Minister and I now agree that we must consider the position of the ratepayer, but straight away the right hon. Gentleman puts himself in quite a different position from the shareholder, because whereas Clause 10 provides for an annual statement, the Executive can say, “Ah, but our plan is over a five-year period” , or whatever it is, “There is no need for you to worry; it is going to be quite all [column 239]right” . As we know, the ratepayer will be utterly unable to do anything. Surely that is quite wrong. If we are going to argue that the Executive is on the same basis as a commercial undertaking at least a specific period should be stipulated, even if it is not 12 months.
Mr. Marsh
The answer to the hon. Lady's interpretations is, “Yes, we agree with all of them” . The problem which she raises is the question of how far, if the Executive runs into deficit, it will be enabled to remain in deficit by juggling the target period.
Mrs. Thatcher
Not quite. Under paragraph (b) it has to get out of deficit, but it can extend its period so that it never reaches its target. That is the specific point.
Mr. Marsh
Paragraph (b) is absolute. The Executive has to get out of the red in the year following that in which they get into it. This is absolutely clear cut.
The only other problem is whether, having set a financial target, the Greater London Council could change the target period. Of course it could. It would be pointless to argue that it could not. It could. But there would be no purpose in its so doing, because it is the body which is carrying the responsibility of the Executive, and which has to answer to the electorate. The protection is contained in paragraph (b), in that if the Executive gets into the red, it has a clear obligation to get itself out within the following year.
Mr. Heseltine
Where does the distinction lie between the powers taken under paragraph (a) and under (b) respectively? As I understand it, the powers under paragraph (a) prescribe that in a given period it will not be possible for the Executive to get into deficit. Paragraph (b) provides that, if it does run into deficit, in the following period it has to make it up.
I am not sure why we have to talk in terms of such long periods, under paragraph (a) as the Minister is saying, because paragraphs (a) and (b) both provide that there should be a surplus, either at once or within the next period. I would have thought that the longest possible period was a two-year period. Am I wrong about that?
[column 240]Mr. Marsh
Yes.
Mr. Heseltine
In that case perhaps I have misunderstood the Minister.
Mrs. Thatcher
Paragraph (b) provides not that there should be a surplus but that there should not be a loss. It could be back to absolutely nothing in the bank account or in reserve. Paragraph (b) is merely concerned that there should not be an overdraft, with its colossal rate of interest.
Mr. Marsh
That is right.
Mr. Gresham Cooke
I may be pessimistic, but if, at the end of an annual accounting period the Executive runs into a deficit, it could then dip into its general reserve—and could go on doing this for two or three years, because each year it could bring out of its general reserve an amount sufficient to enable it to break even.
If the G.L.C. has set a very long period, such as five years, it will find that at the end of that period the Executive has used up the whole of the general reserve and may have a very large overdraft. That is the danger. I can see it happening so easily. The Minister says that the G.L.C. is responsible to the electorate, but for 20 years the Minister of Transport has been responsible to the electorate, and every year he has said, “Oh, well, British Railways will be all right next year; I am appointing General Robertson; he will put it all right” . Then Lord Beeching was appointed to put it right. But year after year it goes into the red. That is what will happen. It will get into the red. The Executive will then use up the reserve, and at the end of five years we shall find it with a huge overdraft.
Mr. Marsh
We certainly will not, because subsection (2) provides that—
“Without prejudice to the power of the Executive to establish specific reserves, they shall establish and maintain a general reserve …”
I think that the hon. Member for Finchley (Mrs. Thatcher) is now in agreement with the definition, but it might help if I put on the record a definition of paragraph (b), because this will enable hon. Members to consider it. It provides that if the [column 241]aggregate of the net balance of the consolidated revenue account of the Executive and of any subsidiaries, plus the net balance of the general reserve of the Executive, is in deficit at the end of an accounting period—which would normally be one year—the Executive must do all it can to make that aggregate positive again by the end of the next accounting period—that is, within one year.
Subsection (6) requires the Council to take such action as to enable the Executive to meet these requirements. This short-term requirement and the statutory duty set out in subsections (1) and (2) are meant to deal with the short-term financial duties of the Executive. They are clear, and they are strict.
Mrs. Thatcher
The longer one looks at this the more possibilities of interpretation one realises it possesses. At one stage the Minister said that he could not see any point in the G.L.C. extending the period. I could. Elections occur from time to time, and I could quite well see an election coming up, and one side thinking it might lose and therefore extending the period and leaving the problems with the next council.
I am also troubled by the interpretation under paragraph (a). It would be quite possible to set a target which involved dipping into and using up nearly the entire general reserve, so that the whole lot did not go into a loss. I beg the Minister not to be absolute on this. We all ought to have a look at it again. Even reading it it never occurred to me that a target could be set under subsection (3)(a), under which any Executive might deliberately set out to dip into the reserve, but it is possible under this interpretation. Perhaps the right hon. Gentleman could look at this again and not be absolute or resolute in refusing to accept any Amendment.
Mr. Marsh
There is one thing that the Committee has to get quite clear, because the way that the hon. Lady's thinking is going calls into question—and it is a perfectly legitimate argument—whether the Greater London Council is sufficiently responsible to be entrusted with this power. The hon. Lady's fears about maladministration—and they are not confined to any one party—are, I think, [column 242]reasonable. The only answer is to impose restrictions on the Executive as controlled by the Greater London Council. But then we call into question whether we ought to give these powers to the Executive anyway. I think that we have to start from the assumption that the G.L.C. is a responsible public body which will not misuse this power.
Mrs. Thatcher
No local authority has any powers except those devolved upon it by Act of Parliament. I am considering the specific powers which we should devolve upon the G.L.C. The power which we are considering at the moment is whether there should be an overall limit to the target period. This is an extremely important Clause. The use in subsection (3) that—
“The Executive shall so perform their functions as to ensure so far as practicable” ,
may give rise to doubts about the target and accounting period, and we ought to look at that, too.
Mr. Heseltine
I am interested in the argument about the G.L.C. not being a responsible body. If we are giving the G.L.C. total powers, the financial duties under subsection (3)(b) would not be necessary, because one would assume that the Council would not trade at a deficit, or that if it did it had good reasons for doing so. The Minister cannot really use that sort of argument.
As I understand it—and we shall want to come back to this later when we have taken advice about it—there is no possibility of the Executive trading at a loss because paragraph (a) refers to the starting point as being the aggregate of the Executive's consolidated account and its general reserve. That is the aggregate, and that is the starting point. Paragraph (b) says that where the aggregate of the accounting period and the reserve shows a deficit, that deficit has to be made up.
It seems to me that the only flexibility left in paragraphs (a) and (b) is the possibility that the target should show a surplus over and above the starting point because any deficit has to be made up either in the year in which it is running as a result of the budget, or, under paragraph (b), in the following year within the accounting period. In these circumstances the only possible flexibility is that the [column 243]G.L.C. could demand a greater than negative, or greater than balancing, situation to be built into its target. If that is so, I am not sure that we are concerned with that in this discussion, but I want to make sure that for the accounting periods which we are discussing there is a report on the progress of the phased budget within the target so that we know what progress is being made if there is a plan of this sort.
12.15 p.m.
It would seem to me that in that circumstance there is no point in not agreeing that the period within which reports should be made should be within a two-year period, because that is the maximum flexibility available to the G.L.C. Obviously we will want to come back to this point, particularly having heard the views of the G.L.C. on it, which I have not done because I had not realised until the Minister got up to speak precisely the complexity involved in this two-tier system of targets.
We will not want to press our Amendment on this occasion, but I suspect that it will be the subject of further discussions on Report.
I beg to ask leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Mr. Heseltine
I beg to move Amendment No. 47, in page 10, line 16, leave out ‘such’ and insert ‘overall’.
The purpose here is to deal with the Minister's powers on the expenditure of the Executive. Under subsection (5)(a) the Minister from time to time, by notice in writing to the Executive, may impose a limit on such expenditure by the Executive and its subsidiaries, and the Executive should obviously see that it is adhered to. The expenditure under consideration is capital expenditure, and we are concerned not to remove the powers of the Minister to deal with capital expenditure in this way and to be sure that it is not a question of giving the Minister power to decide which of various capital proposals should be allowed to proceed but simply to see that he can deal with the ceiling of expenditure on capital account which is decided and agreed by the Executive with the G.L.C. That is a very simple point, and I hope that the Parliamentary Secretary will agree that all the Ministry wants is [column 244]control over the overall expenditure, and not over singled-out capital projects.
Mr. Brown
I suggest that we may need to control more than overall expenditure. The object of the Government's control is to enable the Minister to ensure that the Executive's capital expenditure has regard to the availability of national resources, and it is because of the regard that he must have for the availability of resources that the Minister may need to do more than impose the overall ceiling suggested. For example, the Minister may think that the overall investment programme which the Executive submits is completely reasonable, but he may be concerned at a sudden expansion of Tube line projects because of the implications for national tunnelling resources and projects elsewhere. He may therefore need to impose a limit on only part of the programme, in the national interest.
If the Amendment were adopted the only course open to him would be to cut the whole programme heavily if he wished to ensure, for example, that there was some cut-back in a new Tube line investment. I suggest that this would not be what the Opposition want to achieve. They would not want to impose this on the Minister. With this explanation, the Opposition might well ask to withdraw the Amendment.
Mr. Heseltine
The Parliamentary Secretary has been totally frank. We have now established the situation beyond any shadow of doubt. This great transfer of power from national to local government, which the Minister has argued for so eloquently, with his “trust the G.L.C.” and “trust the local authorities” approach, is now to be set at naught, because the major area of expenditure of future development is not being handed over to the G.L.C. at all. I hope that the G.L.C. is aware of what has been revealed this morning; certainly it will be in about an hour-and-a-half's time. It will be interesting to hear its reactions to this continuing control from Whitehall.
I do not want to make great play about this point at this stage, but I should be interested to know whether the Parliamentary Secretary would be prepared to accept some sort of Amendment, dealing not merely with overall control but with capital projects in excess of a certain level [column 245]of expenditure. I doubt whether we should find it very difficult to deal with the sort of figures that we have in mind.
The building of a new Tube line is a major capital project, and whether or not it is for the national Government to decide, in the context of London transport, I would take some persuading, but in order to make progress, I agree that the G.L.C. might find it desirable that that sort of power should remain in the other building.
But surely the Parliamentary Secretary does not envisage every capital project being scrutinised by the Ministry. If it is not going to be scrutinised, where do we draw the line? In the Bill as drawn, there is a necessity for the G.L.C. or the Executive to submit all its capital projects, and the moment capital projects are submitted—even if they are of a relatively minor nature—having been carefully checked and vetoed, or passed, as the case may be, by the London Transport Executive, once they go to the Ministry of Transport somebody else will have to go through them all over again.
If it is not the intention of the Ministry of Transport to go through them all over again, I should be interested to hear how the Ministry intends to single out the ones that should go through and leave the ones that should not. If the Ministry is going to have guide lines, why not have guide lines that prevent the submission of the capital projects in the first instance? I had hoped that the Parliamentary Secretary could deal with that point.
Mr. Brown
The Opposition have every right to be concerned that the Minister should not exercise control over individual projects, on the ground that this would be an extension of bureaucratic control and an unjustified extension of Central Government in the responsibility of the G.L.C.
But questions of the national interest must come into the consideration of a major type of project such as a new Tube line. I am prepared to concede that the Clause as drafted allows direct Government control, but I am quite happy to give an assurance that the Government's concern will be essentially strategic, and that control will be exercised in that spirit. There is no question of the exercise of strict control over individual projects, and the control over certain categories of [column 246]expenditure will be used only on very exceptional occasions.
Amendment negatived.
Question proposed, That the Clause stand part of the Bill.
Mrs. Thatcher
We ought not to romp on at too great a rate. There is a very important part of the Clause that we have not talked about. We have talked at considerable length about subsection (3); we ought to consider the remedies provided at the end of the Clause—the remedies under subsection (6), which refer back to Clause 3. The subsection provides that—
“where the requirements of paragraph (b) of the said subsection (3) fall to be complied with by the Executive, the Council shall take such action in the exercise and performance of their functions under this Act as appears to the Council to be necessary and appropriate in order to enable the Executive to comply with those requirements” .
There could be a number of interpretations of those few lines. I wonder what the Richard MarshMinister intended them to mean? It is not always easy to decide the right action to bring a loss back into a balance. Some would say that it means a straight putting up of fares. It may mean that, under certain circumstances, but it could mean other things, such as cutting out services which do not pay. I wonder whether the Bob BrownParliamentary Secretary can give us a better idea of what he has in mind.
This is a very wide power. It strikes me as having been put in because the Government do not know quite what they ought to do, but have decided to give the Council power to do anything which it wants to do in the circumstances. It ties up with the phrase “so far as practicable” .
What does the Parliamentary Secretary have in mind in the interpretation of those few lines? What action could be taken to bring back the deficit into balance? A plain, straight putting up of fares would not necessarily do it. There can sometimes be a great improvement of service. It is sometimes possible to cut out the loss-making sections of an undertaking, which may provide a better chance of coming back into balance. But we are all worried that fares might go up without service improving accordingly.
A number of my hon. Friends are probably in the same position as I am. I am sure that the hon. Member for [column 247]Southgate (Mr. Berry) is. We have many complaints about the Northern Line these days. Let us suppose that we were running at a deficit, and the fares were put up. The deficit might then be even greater. It would require a considerable improvement in service for that direction to be effective. I hope that the Parliamentary Secretary will have time to digest what I have said. I wonder whether he can give us some idea of what he has in mind.
Captain Elliot
I do not want to speak for very long on this Clause, because I am sure that if I did I would get into a complete muddle. I am sure that what has been said has been enough to illustrate that there are a number of interpretations about parts of the Clause. That is not a very good thing.
Speaking as a layman, and also as an economist, I am of opinion that the Clause is clearing the ground so that the Executive can get away with making a loss. Elaborate provisions have been made to ensure that it can do that, and, somehow or other, disguise it until it is too late to do anything about it.
Again, as a Greater London ratepayer I am liable to have to produce money for grants for various activities in this organisation, and I view that possibility with considerable concern. The wording of the Clause is so woolly in the matter of balancing the books, or making a profit or a loss, that it is quite impossible for me to decide precisely what are the financial duties of the Executive.
What exactly are they? Reference has been made to profit, and to dipping into the reserves, and so on. I am sorry that we cannot write in something to stipulate an adequate return on capital employed. I am sure that if we did so the figure produced would be astonishing, especially to the hon. Gentleman the Member for Nuneaton (Mr. Leslie Huckfield) if we are pretending that the Executive is the same as an ordinary commercial undertaking.
12.30 p.m.
Mr. Huckfield
I am still not quite sure of the exact point that the hon. Gentleman is trying to make. He spent a good fifteen minutes earlier on this morning saying that this was not a commercial undertaking. If we are going to ask a [column 248]public transport utility undertaking to make a return on capital we shall never solve any of our transport problems.
Captain Elliot
I entirely disagree with the hon. Gentleman. I would have thought that a good portion of our argument, including my earlier argument, was to try to apply commercial standards to the Executive. The hon. Gentleman shakes his head. My alarm as a ratepayer is even greater as a result. We have already authorised the G.L.C. to make grants to various aspects of the Executive's activities. Where does he think the money is coming from? It is all very well his living in Nuneaton and nodding his head in approval [Laughter]. I am a London ratepayer, along with millions of others.
Mr. Huckfield
So am I.
Captain Elliot
Then the hon. Gentleman ought to be displaying a proper consideration for their views. The Clause is a most complicated one. It seems to permit the Executive and the Council to do practically anything with the books. We shall not be able to distinguish where the money goes, and we shall be tied up in knots over the period for which it is being used. The confusion is confounding, and I really hope that the Minister will look at it again.
Mr. Huckfield
I rise just to make two or three brief points. First, I genuinely agree with the hon. Lady that we could do with much tighter drafting of Clauses like this. It has always been my concern with many public utility undertakings that the obligations as to breaking even one year with another, or over a five-year period, are not very tightly drawn. I am very much in favour of setting down exactly and specifically what the Executive is supposed to do—the powers of the Executive, and its requirements in respect of reserves, and that kind of thing.
By the same token, I honestly wonder whether we can go on to extend that kind of requirement by trying to make this kind of body as near to a commercial undertaking as possible. If we could honestly talk in terms of things like social costs, and could quantify them to that extent, perhaps we could go on to posit a return on capital for an undertaking like this. [column 249]
The obligations laid upon a body like this must be tightly drawn, but we must also remember that we are dealing with many factors and with many costs that simply are not quantifiable. If we have a system which is so tightly drawn that we cannot take account of factors like traffic congestion, like pollution, noise, and wear and tear on people's nerves and tyres, and goodness knows what, we shall fail in this Bill.
I should like to see, in a Clause like this, not only a tightening up of the rules and regulations governing the financial obligations of the Executive but something far more definite about social costs and who is going to pay for them. I am not prepared to see the kind of internal cross-subsidising, with the profit-making services subsidising the loss-making services, which has been inherent in British Railways since 1947, and which has been inherent in many of our nationalised industries.
Captain Elliot
Will the hon. Gentleman define precisely what he means by “social cost” ? Earlier on he and I discussed from what a wide field commuters were coming into London. He quoted Rugby, Reading, and places like that. I presume that if such a service does not pay, but it is considered desirable to run it for commuters, that is a social cost. Is he maintaining that both he and I, as London ratepayers, should pay that social cost?
Mr. Huckfield
I am afraid that the hon. and gallant gentleman has completely misunderstood what I was trying to say. Speaking as a London ratepayer, I can recommend him to read a number of studies about the measurement of social cost. If he will see me when the Committee rises I shall be glad to recommend a reading list.
When I am talking of things like social costs I am talking, for instance, about the fact that every year traffic congestion costs the British economy about £1,000 million, although this will vary according to what kind of value we put on people's private time. These are the things that we ought to be talking about, and that ought to be written far more specifically into the Bill.
If there are social costs to be met and social benefits to be derived, we ought to try to measure these. At the same time, [column 250]if we are going to require the Executive to carry non-commercial burdens the Greater London Council ought to be prepared to pay for those. For far too long the British Railways Board, the London Transport Board, and a whole host of nationalised bodies have been asked to pay for services, and to pay costs which are not strictly going to be incurred in the provision of a straightforward commercial service.
If a service is not a straightforward commercial one, but has to be provided on strategic or technical grounds, or on a whole host of other grounds, or on a whole host of other grounds, let us try to measure it and provide for somebody to pay for it, without this hopeless pattern of criss-cross-subsidisation that we have had in so many undertakings in the past.
Mr. Heseltine
I wonder whether I may come down to earth from the heady concepts of social costs. There is a lot in what the hon. Member for Nuneaton (Mr. Leslie Huckfield) says. I only wish there were a little more of its practice in some of the legislation that we look at.
What would be the position of the Executive if it should show a deficit—costs having risen, or whatever it may be—and be under a statutory compulsion to eliminate the deficit at the end of its second annual accounting year, when the obvious and easiest way to do it, in the opinion of the G.L.C., was a fare increase, and this matter was referred to the Prices and Incomes Board, which rejected the proposal? I should be very grateful to hear from the Minister what he would do about that.
Mr. Brown
I am sure that my right hon. Friend will come to that bridge when he has to cross it. The hon. Member for Finchley (Mrs. Thatcher) asked what had I in mind for reaching financial viability—the straightforward putting up of fares or the cutting out of services that do not pay.
Mrs. Thatcher
Or the betterment of services.
Mr. Brown
This is clearly something that the Executive, working within the confines of the policy laid down by the G.L.C., will have to determine as the circumstances arise. [column 251]
The hon. and gallant Member for Carshalton (Captain W. Elliot) stressed the point about the application of commercial standards. In previous debates he has been at great pains to show how opposed he is to giving complete commercial freedom to the Executive. I suggest that if we want to lay down hard and fast commercial standards the Executive also has the right to commercial freedoms.
The hon. and gallant Gentleman expresses his interest on behalf of the London ratepayers. He quoted a shareholder's having the right to question the board, and so on. The London ratepayers have the right, every third year, to question the conduct of the L.T.E., through the medium of its directors, the G.L.C. I can think of no more stringent control than facing the electorate every third year.
Mrs. Thatcher
That reply is not good enough. The Bob BrownParliamentary Secretary has said that action by the Richard MarshMinister can negative the entire Clause, because if the Greater London Council considers that it has to put up fares in order to enable the Executive to keep out of deficit the Minister refers it to the Prices and Incomes Board which says “No” . The Executive cannot then carry out its duties, the Council is helpless, and the Clause falls to the ground. It is not practicable to carry it out because of Ministerial intervention. What happens then?
Mr. Marsh
The position is that for the Prices and Incomes Board the fare-fixing authority will be the Greater London Council—because the Tribunal will be abolished. The hon. Lady's hypothesis is that a fares increase is referred to the Prices and Incomes Board, which then refuses, and this places the Executive in financial difficulties. But the Prices and Incomes Board's remit will be to examine the whole question whether it is justified or not, and the Executive will put forward its arguments. They will include the financial obligations placed on the Executive by the Act. I do not think that the Prices and Incomes Board will be able to override or rewrite that Act; it will only be able to say that against the background of the Act a certain fares increase is not justified, or should be arrived at in a different way. [column 252]
If the N.B.P.I. produced a report which did not stand up on this point, I feel sure that the First Secretary would not accept it. If it produced arguments, as it has on many occasions, for a complete restructuring of fares, or for making economies, it would enable the Executive to reduce the fares increase against the background of its financial obligations. But the financial obligations are the main evidence which the N.B.P.I. would have to take into account in reaching its conclusions. I think I am right in saying that what the N.B.P.I. could not do would be to say that it did not like the fares increase for some reason or another, for instance, because it was inflationary, and, therefore, despite the financial obligations placed upon the Executive, it would take a decision which would make it impossible to adhere to the financial obligations contained in the Act. I do not think that this problem will arise.
Mr. Heseltine
I thank the Minister for helping us. I wonder whether we could consider the possibility of the Prices and Incomes Board suggesting that the reason why the deficit had been incurred was that the Executive was providing services at an uneconomic price in areas where there was a social but not a commercial need. The attitude of the Board could be that those services should be rate-aided, and that there should be a special grant to the Executive, as opposed to an increase in the general level of fares.
This report might be quite acceptable, on the strict interpretation of the facts, to the Executive and to the G.L.C. It would then go to the First Secretary, who might decide that in order to avoid an increase in fares there should be an acceptance of the report. That would mean that the Executive would receive a grant from the G.L.C. That situation could easily arise, and many people would argue that that would be right—that it would be better to subsidise those uneconomic services from the rates than to put up the fares for all the travellers.
But that would not be giving the G.L.C. control over its own transportation policies—and that is the issue. We have established that it does not have control over its capital policies; it now appears that it does not have control over its fare policies either. A statutory body, backed by the First Secretary, can override the recommendations of the G.L.C. and make it [column 253]rate-support the Executive, when what it wants to do is to put up the fares.
12.45 p.m.
Mr. Marsh
It is always dangerous for Ministers to answer off the cuff about other Bills which are not in front of the Committee, but I take this point. It carries hypothesis a little far, but it is a possibility.
My understanding of the position is a clear one. This Bill will give the Greater London Council certain powers; those powers will devolve upon the Greater London Council by the authority of Parliament. I do not think that it would be within the powers of the National Board for Prices and Incomes to take an action which removes from the Greater London Council those powers which are bestowed on it by Parliament.
As I understand it, the N.B.P.I. would have an obligation to consider the fares application coming before it against the background of two things—first, that the responsibility for the decisions as to what level of grant should be made for what purposes was a matter for the Greater London Council and, secondly, that it had a financial obligation to meet various targets—to meet in the second year any deficits that there were in the first year. The decision which the N.B.P.I. reached would have to be against that background.
The hon. Gentleman is suggesting that the N.B.P.I. might be able to provide a ruling on a certain fares application and be supported in that ruling by the First Secretary, as a result of which the G.L.C. or the Executive would be forced into a policy that did not conform with the one laid down by the Council. My understanding is quite clear on this. The powers of the Greater London Council to determine the policy within which the Executive acts is bestowed on it by Parliament, and I think that nothing that the N.B.P.I. does can take it away.
Question put and agreed to.
Clause ordered to stand part of the Bill.