Transfer or extinguishment of London Board's debts to Minister and power to make deficit grants to Board
I beg to move Amendment No. 112, in page 22, line 1, leave out ‘one-tenth’ and insert ‘one-fifth’.
If agreeable to the hon. Lady, we shall take at the same time Amendment No. 113, in page 22, line 5, leave out ‘one-tenth’ and insert ‘one-fifth’.
Mrs. Margaret Thatcher
May I make quite plain that this is a probing Amendment by which we seek to find out from the Minister the exact reason for the amount of the write-off.
I hesitate to interrupt the hon. Gentleman so early, but I am sure that he is not putting down Amendments just for the sake of chatting about them. It seemed to us that this was a serious Amendment genuinely raised as an issue.
I do not see why a probing Amendment should not be a serious one. After all, a very large sum of money is involved in this write-off, and we thought it right to probe the Minister's mind. In a minute, I shall do just that. We might have moved to increase the figure, but, of course, that would not be allowed under the rules of order.
We shall be as helpful as we can.
I am much obliged to the Minister.
As I was saying, this is a probing Amendment. We seek to find out why [column 317]the Minister decided on the figure of one-tenth in connection with the capital write-off. A very large sum of money is involved. On Second Reading, referring to the 90 per cent. capital write-off, the right hon. Gentleman said:
“Putting this in terms of a capital sum, the proposed write-off should amount, on present estimates, to about £244 million, depending on the time of transfer. In terms of annual interest payments, this should amount to a Government contribution of about £11 million per year.” —[Official Report, 17th December, 1968; Vol. 775, c. 1251.]
A sum as large as £244 million is certainly worthy of a probing Amendment, even if the Minister does not consider it serious. Last year, under the Transport Act, we had the railway write-off. That was a much larger figure, admittedly, but, nevertheless, this is a considerable figure, too. We should like to know how it was arrived at. We appreciate that there were long negotiations with the Greater London Council before the figure was agreed, and we accept also that this is the figure which it accepts, and it is happy to accept the Bill on those terms. However, having given the Minister time to know why we have put down this probing Amendment, I invite him now to tell us how the figure was arrived at.
Mr. Raymond Fletcher
I wonder whether I may indulge in a counter-probe to this probing Amendment. I want to know why there is an incipient conflict between hon. Members opposite and their political friends over the water. The effect of this Amendment, if it were pressed and ceased to be a probe, would be that certain responsibilities were laid on the G.L.C., and the financial responsibilities could be resolved only by putting them on the rates or by increasing fares. I should like to indulge in a little counter-probing to find out from hon. Members opposite what it is their intention to recommend to their friends over the water——
Order. I am sorry to interfere, but it is not the business of Opposition Members to explain these matters. It is, if I may respectfully say so, in due course the function of the Minister.
I stand corrected, Sir Beresford. But I am in some confusion. [column 318]I do not know whether I am here addressing a committee of the G.L.C. or a Committee of the House.
Order. The hon. Member is addressing the Chair, if I may respectfully say so.
Then I had better shut up, Sir Beresford.
If one were to accept the thesis that this Committee should accept everything which has been agreed between the Greater London Council and the Minister, there would be no point in having a Bill or a Committee stage at all. We are not here quietly to rubber-stamp any Measure, even though it may have been agreed behind locked doors between the Greater London Council and the Ministry of Transport, and I am distressed to find even one member of the Committee who thinks that we ought to adopt that view.
Moreover, any Minister who is blandly writing off a capital sum of £244 million—in fact, £270 million under the Bill—ought to know why he has taken that particular sum, and there ought to be some principle beneath the calculation to which he can turn. This is an enormous capital sum, which belongs to the taxpayer, which is being written off. Most of us on this side of the Committee happen to be London Members, with the exception of my hon. Friend the Member for Tavistock (Mr. Michael Heseltine). If one is writing off capital, one usually does it on certain well-established principles, and the sum eventually arrived at is normally that sum which would have a reasonable earning capacity in the hands of the new authority; but it is not necessarily that sum which the new authority wishes to have. One looks at the capital as it is and one says, “In the transfer to another authority, supposing that organisation is well and efficiently run, what would its earning capacity be?” . By that method, one arrives at a reasonable figure for the calculation of the new capital sum. It does not seem to me, however, that the Richard MarshMinister has used that method. Even in his own document he admits that the assets are far greater in value than the new commencement capital debt. Why has he arrived at this figure? [column 319]10.45 a.m.
I turn to another section of the argument. I understand that the purpose is, in part, to make the activities of the organisation viable before transfer to the Greater London Council. That, at any rate, has been the reason, and I think that the Greater London Council was absolutely right to insist on the viability of the undertaking before it took it over. After all, in taking over an organisation, one is perfectly entitled to use the argument, “We would never have done what has been done with it in the past. Therefore, you must make some recognition of the fact that we are taking over without any power to say what capital expenditure ought to have been made in the past, and we have to accept it as it is” . Therefore, it would expect, perhaps, some further capital write-off.
However, if the Minister is looking at it, from the standpoint of viability, then, on the latest financial results of London Transport, the write-off should have been complete because, according to the latest accounts, there was a deficit before any provision for capital whatsoever. This introduces another complicating factor into the write-off of capital. We should assume—I compliment the Minister in this assumption—that he knows what he is doing. We should assume that cross-examination would reveal that he knows what he is doing in writing off the capital. We shall know in a few minutes.
This is an important Amendment, and it raises an important issue—the linchpin of the whole handover of London Transport to the Greater London Council. The Opposition, with that clarity of purpose which characterises their activities, have told us that either the capital write-off should be bigger or it should be smaller, and of that they are convinced.
One can understand the difficulties here. This follows a great deal of negotiation with the Greater London Council. The hon. Lady is perfectly right when she says that it is the job of Parliament to look at the various issues and make up its mind. The fact that the Greater London Council agreed on a 90 per cent. write-off is no reason why the Opposition here should be expected necessarily to support [column 320]it. The purpose of this Committee is to hear the various arguments and to make up its mind.
I must say that I had a certain sympathy with the case which the Opposition put up on this Amendment. A 90 per cent. write-off is a very large write-off. There are alternatives to a 90 per cent. write-off: one could have a larger increase in fares, or one could have a subvention from the rates. There are, however, only those three possibilities if the organisation is to be viable on transfer. I have noted what has been said on this and will certainly think a great deal about it. I have no doubt that members in County Hall will be thinking about it at the same time.
On the actual arithmetic, the position is, as the hon. Lady rightly says, that the finances of London Transport are not particularly healthy. This is no secret between any of us. It is a problem which faces most urban transport undertakings throughout the world, a problem of commuters, and the rest. Therefore, when my right hon. predecessor first began to negotiate with the Greater London Council on this, the Greater London Council said firmly that this undertaking had to be viable on the date of transfer, and by viable it meant that the Executive would be enabled to make an allocation, quite a small allocation, to the general reserve. What, then, is the position? London Transport is expected to be in revenue deficit of about £15 million in 1970 if no changes are made in the existing financial obligations of the London Board. This is, clearly, a very unhealthy situation.
Does that take into account the latest reduction in the number of passengers travelling, which has been revealed in the first three months of this year?
It takes into account merely the amount of money which has been coming in. The forecast is not expected to be particularly different because this decline in the numbers of passengers has been a problem for some time. It does not, however, include any allocation to the general reserve or provision for replacement cost depreciation which, say, another £4 million in all. [column 321]
As I have said, there is only a limited number of ways in which this situation can be remedied. The undertaking could attempt to increase its revenue by, say, increases in charges, and an initial step in this direction has already been taken. The N.B.P.I. and the Transport Tribunal approved fare increases which, it is estimated, will bring in about another £6 million a year to the Board. On top of this, as hon. Members know, the London Board currently has a further application before the Prices and Incomes Board designed to raise a further £8 million in net revenue as a contribution towards achieving viability. But even if the whole of the further £8 million increase was approved, that would still leave a gap to be filled of about £11 million in 1970 in the Board's revenue results. We have looked at other ways of trying to meet this, by cost reductions through changes in the operating structure and the pattern of services, but the contribution from these sources would be marginal, certainly in the short term.
That means that we have something like an £11 million gap which has to be filled. This is the calculation which results in the 90 per cent. write-off. As I say, it is a large sum. I appreciate that the Amendment is not being pressed in all seriousness, but if it were pressed the only alternative to the 90 per cent. write-off would be either swingeing increases in fares or very large contributions by the Council from the rates. These are the only three possibilities open to us. I do not know what may emerge subsequently from any private discussions between hon. Gentlemen opposite and their friends—but at present the Greater London Council's preference is for the 90 per cent. write-off, which will enable it to start off with a viable concern and to provide the service which it wants to provide.
Mr. R. Gresham Cooke
I dare say the 90 per cent. is probably a very fair figure. The Minister said, quite rightly, that the only choice was either contributions from the rates or swingeing increases in fares. But if the write-off is made, the only viable thing to do to make the undertaking run economically is to put up the fares as and when the costs increase, as they do from time to time. The great fault of the London Transport Board in the past has been that when the costs have [column 322]gone up it has had to delay increasing fares by about six months.
A halfpenny difference on fares in London Transport makes an enormous difference, and I hope that, when it is necessary to put up the fares, the G.L.C. will be permitted to put them up at the right moment and will not have to wait another six months, as London Transport has had to do in the past. That has been the real trouble with London Transport.
It is important to make clear what the Opposition are saying. We are not saying what the Minister said we are saying. I appreciate the Minister's difficulty. He had prepared his speech, and it was very difficult to deliver it in the light of what has been said from this side of the Committee. Despite the fact that it was totally irrelevant, the Minister insisted on making it. For him, there is immense joy in trying to detect a difference of opinion between hon. Members on this side of the Committee and the people who now control the Greater London Council. Most of us, being human, would not be able to resist that temptation, but let us see it for what it is and not be carried away by the Minister's fun and games. It is always interesting to listen to the Minister's fun and games, because one feels that this is something that he believes in. When we deal with serious transport matters, the situation becomes a little more confused.
The Minister does not seem to have read the article by Michael Baily in The Times of 24th April, which reveals that since his brief was written there have been changes in the fortunes of the London Transport Board. If he wants some light background reading to the problems, he might read the recently published Report of the Board, which explains something of the dilemma. The calculations to which the Minister rightly referred revealed, understandably, that there has been a horse deal done by the Ministry of Transport and the Greater London Council. This is probably the only way in which a solution could have been reached, but it is, for all that, a horse deal. What we wish to know is what the calculations behind the horse deal reveal in terms of an asset valuation at the time of the takeover. As my hon. Friend the Member for Finchley (Mrs. Thatcher) has rightly pointed out, the Minister has [column 323]admitted that the asset valuation would be greatly in excess of the capital now to be transferred to the London Transport Executive.
The second point, which must be of great concern to the Minister and particularly to our friends across the water, is that the basis on which the calculations were done no longer seems to be valid. This, therefore, raises many questions about the timing of the takeover which will be of great concern to everybody involved in this matter. There were two main areas where the anxiety of the London Transport Board was revealed in the article to which I referred. First, the London Transport Board is finding it difficult to recruit staff. It is not its fault. It is simply that wages in London, for a variety of reasons, are going up, and there is therefore a staff shortage in London Transport. There is probably only one way in which staff shortages can be made good, and that is to increase the general level of wages paid to the people employed in providing the services. The cost of increased wages has not been taken into account in the figures given by the Minister. So there is one respect in which the calculations which he outlined may be proved invalid.
The second factor, which was revealed again in the Report, is that, although there has been a continuing decline in the number of passengers carried by London Transport, there has been an even greater decline in the number of passengers carried within the last three or four months. This again invalidates the original calculation which was made. Therefore, we have these two trends, which add up to a worsening of the London Transport Board's situation. Its costs are likely to rise and its passenger revenue is likely to fall because the number of passengers is declining faster than before. This is very serious. It is on matters like this that we want to hear more from the Minister.
The other question about which we must ask concerns the Prices and Incomes Board. The Minister said that even if the application presently before the Prices and Incomes Board is approved in full there will still be a deficit. I listened to the Minister very carefully in the earlier discussions in this Committee, and I understood that there was no doubt in anybody's mind about the Prices and [column 324]Incomes Board approving or otherwise submissions to it in the context of London Transport. If the Minister has given assurances that the present application for £8 million will be agreed, there is not a great deal of purpose in the Prices and Incomes Board devoting its valuable time to investigating what is already a foregone conclusion. If it is not a foregone conclusion, we must ask the Minister what will take the place of any reduction in the £8 million application currently before the Prices and Incomes Board. What would happen then? 11.0 a.m.
I am sure the Minister is worried about that matter. If he is not, he ought to be, because this is a third contingency which, if it arose, would further embarrass the attempt to make London Transport a viable entity before it handed over to the G.L.C.
There is one final point, which I touched on earlier on. When a major write-off of capital is proposed—and it may be necessary for the various general purposes of transportation in the city—some attempt should be made to put a value on the assets so that the taxpayer knows precisely what is happening. The Minister will appreciate that the moment it is proposed to write off capital there is a feeling among the people who are responsible for that capital that they have been removed from responsibility for the management of that capital simply because the interest burden is not on their back. Because this is not reflected any longer in the annual report and accounts of that organisation, the public at large get the feeling that all has been dramatically improved. Regrettably, that is far from the case. All that is happening here is that the interest is being removed from the specific allocation to London Transport to the general allocation of the British taxpayer. The same amount of money every year must be found. It will continue to be found, not directly by grants to London Transport but by the general pooling of the Government subsidy.
If the Minister wanted another method by which he could have altered the finance of this operation, which would have continued to reveal how much the write-off of capital is costing over the years, it would have been possible to have produced [column 325]a system of the sort which exists in the Railways Board whereby grants are given for unremunerative services or to cover interest on capital which could not be met from revenue. This would at least have had the merit of revealing every year the true situation. It will not be revealed in the scheme for which the Minister has opted. But I do not want to commit him to one sort of scheme or another. It is entirely up to him to devise the scheme.
My only concern relates to the question of the asset valuation, which does not have great relevance to the provision of the main transport services. However, it is very relevant to the fringe activities which we discussed under Clause 6, and because in these areas large numbers of people are likely to be affected—adversely, in my view—by the under-utilisation of capital assets, it is wrong to allow this question of capital write-off to be swept under the carpet without there being a permanent obligation on the Executive to reveal what the asset value they are employing amounts to in every year.
Let me make clear to the Minister that we are not suggesting that the figure should be higher or lower. We did not say that it should be bigger, but we have not said that it should be smaller. The rules are such that we are not allowed to put down Amendments increasing the capital write-off, and the Minister knows that as well as we do. Therefore, in order to ask him a few humble questions, it is necessary to put down a reverse Amendment, which might not in any way reflect what we would wish to do if it came to a Division. It may be immensely amusing to try to depict a situation which the right hon. Gentleman knows to be misleading to anybody who is following what is a very serious financial rearrangement.
I shall certainly do what I can to convey the apology of the hon. Member for Tavistock (Mr. Michael Heseltine) to those across the river in County Hall. I am sure that the mis-understanding will be cleared up between them at some stage.
There would be no point in making a reference to the N.B.P.I. if one could say in advance what the result would be. The position at the moment is totally different from the position which will follow after the Bill is enacted. An agreement having been made between the Government and the Greater London [column 326]Council, one of the implications of which is a fares increase, we have asked the National Board for Prices and Incomes to look at the matter to see whether it agrees with the calculation which has been made. If it does not, it will presumably give reasons and a new situation will arise. The hon. Gentleman has raised something of a red herring, because what we are talking about is not asset valuation but a computation of the net maintainable revenue for the undertaking. What we are concerned with here, and what the Greater London Council understandably is concerned with, is what the undertaking can earn, and the calculation which we make with the aim of enabling it to stand on its own feet results in these figures. The London Transport Board fully agrees with the figures which I gave earlier. The Ministry and the Greater London Council agreed the basis of the assumptions under which the calculations were made, and the recent trends have been taken into account by the London Transport Board which throughout has been involved in the discussions with the Greater London Council.
Surely the Minister must be aware that the trends could not conceivably have been taken into account because they were not publicly known. I do not believe the Board could have known them when the original calculations were made.
All the calculations in the beginning were on a tripartite basis between the London Transport Board, the Greater London Council and the Ministry. The Board, therefore, was aware of its own forward projections. It does not believe that they upset the calculations and neither, as far as I know, does the Greater London Council. There is, therefore, agreement between us on that point.
This has been an interesting debate and hon. Gentlemen opposite have fought with passion and enthusiasm. There has, to some extent, been a negotiation between the two sides. The Greater London Council is satisfied with how matters have worked out. The Government are satisfied with the way in which they have worked out. The London Transport Board is satisfied. My hon. Friends are happy. Hon. Gentlemen opposite are apparently not violently [column 327]opposed. With that degree of almost totalitarian unanimity, it would be a pity to upset things by raising red herrings.
I take it that what the Richard MarshMinister is saying is that the combination of the amount of the said capital write-off plus the fare increases he has asked for will be enough to make the project viable. I have doubts about that, because on the present level of service being offered by London Transport, which is not good, a further increase in fares will reduce the number of passengers carried far below the basis upon which the calculations were made. It seems that the Minister and the G.L.C. are satisfied that it will be viable. I am not as satisfied as the right hon. Gentleman. I am probably much more of a financial sceptic. Nothing which has happened in the last five years has decreased my financial scepticism. However, if the right hon. Gentleman and the G.L.C. are happy, it is only a question of waiting to see what happens. I hope that, in view of the short debate we have had, my Anthony Berryhon. Friend will feel able to withdraw the Amendment.
I am rather sorry for the Minister. I feel sure that from the day that this Amendment appeared on the Amendment Paper he thought, “There will be a great split between the Conservative Opposition here and the Conservative leaders in County Hall” . What a difference he has found this morning. The Minister has been shown to be out of date, not for the first time, with his figures, and we have rightly drawn attention to that.
As the right hon. Gentleman said, this is an important issue. It was right to have this debate. The only course open to us was to put down this Amendment. Having done that, I beg to ask leave to withdraw it.
Amendment, by leave, withdrawn.
I beg to move Amendment No. 114, in page 22, line 5, leave out ‘having regard to the manner’ and insert ‘being equal to the proportion’.
If it is agreeable, we shall take at the same time Amendment No. 116, in page 23, line 38, at end add: [column 328]
‘(9) Notwithstanding the provisions of Schedule 2 to this Act, any property transferred under section 16 of this Act to a subsidiary of the National Bus Company, shall be transferred at its market value and any difference between such market value and the written down value as determined under this section, shall be added to or subtracted from the commencing capital debt of the National Bus Company.’
Now that we have decided, subject to the Clause being approved, the amount of the write-off, we come to this more detailed Amendment. We are not happy about the phrase “having regard to the manner” . If the G.L.C. and the N.B.C. are to share one-tenth of the extinguished capital debt, it is logical and just that the proportion should be the same as that in which “the property, rights and liabilities” are to be divided between them. I am not happy about the Minister's prescription. Subsection (2) provides that
“the property, rights and liabilities of the London Board to which section 16 of this Act applies are divided under that section between the Executive and the designated company” .
The insertion of Amendment No. 114 would satisfy our belief that a similar proportion should apply both in the division of the assets and in the division of one-tenth of the extinguished capital debt.
The word “property” in our Amendment No. 116, which would add a new subsection (9), refers not just to buildings and land but to the buses themselves. Our Amendment would make the National Bus Company financially responsible for the full value of the assets which it is to receive from the London Board. Basically, we are thinking of the Green Line coaches in this context. Under Clause 19, the Bus Company would have the benefit of the London Board's capital write-off, and the assets to be transferred to it will turn out to be rather less than 10 per cent. of the value, in effect. We seek by Amendment No. 116 to make the National Bus Company show on its books and reflect in the figure of its commencing capital debt the true value, that is to say, the market value of the assets which it is receiving.
Another reason why we think that this should be done is that the area in which the Green Line buses will be running is also open to operation by private operators, subject to the Traffic Commissioners [column 329]giving their approval for such operation. It is only right in that case that the National Bus Company should show the true value in the accounts if private operators can hope to compete. Since they are encouraged to act in this way, and to compete, such competition must be fair. It would be so only if this Amendment were accepted.
The Joint Parliamentary Secretary to the Ministry of Transport (Mr. Bob Brown)
The effect of the Amendment would be to require the Minister to prescribe that the relative proportions of the debts of the new bodies to him shall be equal to the proportions in which the property, rights and liabilities of the London Board are divided between them. Both sides of the Committee, I think, are striving for the same result, an equitable division of the quantum of debt to the Minister as between the Council and the Company. The Government, naturally, prefer the present form of wording in the Clause. I may say that this form of words is hallowed by the precedent of Section 39 of the Tory Transport Act, 1962, under which the much bigger task of reconstructing the British Transport Commission was accomplished. That Act laid it down that the new debts to the Minister of the various bodies set up under the Act, such as the B.R.B. and London Transport, should be such part of the total debt as the Minister might prescribe having regard to the manner in which the Commission's property, rights and liabilities were divided out by the Act.
In that case, the then Government acted responsibly in interpreting the phrase which is now in question, that is, having regard to the manner in which property, rights and liabilities are divided. In the same way, the present Government, being even more responsible, will act fairly in their prescription of the new debts so as to reflect impartially and accurately the division of the assets and the liabilities of the two new bodies. There is no question at all of giving any unfair advantage either to the G.L.C. or to the National Bus Company. I give a complete assurance to that effect.
I should have thought that the objective of the proposed Amendment is certain to be achieved with the words as they stand in the Clause. [column 330]11.15 a.m.
I shall be very brief on Amendment No. 116. In successive reorganisations of public sector transport, it has been the custom to make transfers without recourse to a market valuation. There is nothing which differentiates the transfer in question from other transfers of publicly-owned assets. I emphasise that we are not dealing with a commercial takeover or a sale, where a commercial valuation would be appropriate. All that is being done is to transfer assets within the public sector, and the analogy of a sale is quite in-appropriate.
Thus, it is impossible to argue, as the hon. Member for Southgate (Mr. Berry) tried, that the N.B.C. will be able to drive any private competitors to the wall. That possibility simply does not exist outside the minds of hon. Members opposite. The fact is that the nature of bus operations, as is widely known, and the control over routes and fares exercised by the Traffic Commissioners, is such that competition between bus companies is not a significant factor.
I was hoping that the Minister would accept Amendment No. 114, but I have had greater disappointments in the past. I am grateful for what he did say. He said that the objective which we had in mind will be achieved, and I think the words he used, recorded in Hansard, will be helpful in the future.
With regard to Amendment No. 116, I did not use the phrase, “driving to the wall” , though perhaps that is what the hon. Gentleman thought I ought to have said in making my case. But still, I am fairly glad to have his guarantee, although I had felt more strongly about this one.
I beg to ask leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Captain Walter Elliot
I beg to move Amendment No. 115, in page 22, line 14, after ‘direct’, insert:
‘provided that the level of any interest payable shall be at current commercial rates’.
We have debated already the enormous capital write-off taking place under the Bill—£240 million, and my hon. Friend the Member for Finchley (Mrs. Thatcher) mentioned £270 million. It is an extremely [column 331]gloomy story: this great transport organisation has a monopoly of hundreds of millions of travellers, yet we have to write-off this capital sum. It is all the more gloomy because it is taxpayers' money. This sort of thing is always happening with nationalised organisations.
In addition, as we have heard in past debates, the London Transport Executive will be in competition with private enterprise. The writing down of assets will be a great advantage to it. Surely, it is reasonable to expect the London Transport Executive to pay commercial rates of interest on the remaining capital, which is 10 per cent. of the original sum. The hon. Member for Ilkeston (Mr. Raymond Fletcher) went so far as to suggest in an earlier debate that we ought to favour our friends. I think that that is, at least, what he was about to suggest. But we think, whoever is in power in County Hall, that they should at least pay a commercial rate on the remaining debt.
I appreciate that the Greater London Council wants a viable concern when it takes it over and runs it. But we must be reasonable about this. As I say, it is a monopoly, with hundreds of millions of people travelling. There must at least be some slight stimulus to be an efficient, economically run and profitable concern. The Minister, in the last decade, suggested that the only way to make the organisation viable was either to put up fares or make a grant from the rates. With respect, that is a typical nationaliser's approach—Put up fares, give a subsidy, and so forth.
My hon. Friend the Member for Tavistock (Mr. Michael Heseltine) referred to staff shortage as one of the causes of the recent losses by London Transport in 1968. That is true. So there is another reason why losses are made, which could be rectified without putting up fares or making a grant. If one looks a little further into the 1968 Report from London Transport, other interesting points emerge. I shall quote only one, as I do not want to waste time. It is paragraph 32, page 7:
“Some reduction in working expenses resulted from the shortage of staff, but real economies were effected by the modernisation of Lots Road generating station and the closure of Neasden generating station” .
I confess that I did not realise that London Transport controlled Lots Road power station. There is an economy which I never expected. I am sure that, if there [column 332]were some pressure on the London Transport Executive to run efficiently, that would be a good thing. There should be at least the small pressure of the stimulus of paying commercial rates on the remaining capital. That is only reasonable.
Under the Clause as drafted, the Minister may direct what the rate of interest is; it can be any rate he chooses. Perhaps he will choose a lower rate than the commercial rate. My Amendment would remedy that so that the rate of interest charged to the Council should be a commercial one in accordance with the current price.
Mr. Gresham Cooke
I reinforce what my hon. and gallant Friend the Member for Carshalton (Captain Walter Elliot) has said. It must be realised that the country is terribly short of capital. The seed corn has been almost completely eaten up in the last four years. The only way to conserve capital is to let it find its true value, to let people pay the proper price for it; that will prevent its being squandered as it has been. In the last four or five years, the nationalised corporations have squandered it because they have got capital too cheap. I heard on the news this morning that the Agricultural Mortgage Corporation, which was set up to help farmers and has been working for 40 years, has had to raise its rates to over 10 per cent. That shows what the real value of capital is in a basic industry.
There must be no suggestion that London Transport or any other nationalised corporation should get its money on the cheap; it will only squander our capital further. It must be paid for at commercial rates. Whatever that may mean to the consumer or to the Executive itself, we must cut our coat according to our cloth. So I support what my hon. and gallant Friend said. This is a sensible Amendment. If we do not want to be plunged into further shortage of capital, with rates going even higher than the 10 per cent. already quoted this morning, every bit of capital borrowed by nationalised corporations must be paid for at commercial rates.
There is something of a misunderstanding here. It is always easy to look at a large undertaking like this and say that there are some unidentified, unknown economies which would save [column 333]millions of pounds—those are the figures we are talking about—and could get the organisation out of its difficulties. The fact is that, throughout the entire world, urban transportation systems are very seldom in surplus. There is a variety of reasons for this—the long-standing problem of the commuter, the cost of carrying commuters at the peak hours, and so on. This is a problem faced in many parts of the world.
People have looked at the London Transport Board on more than one occasion. Each time economies have been suggested; it would be surprising if they had not been in an organisation of that size. But the hon. and gallant Gentleman the Member for Carshalton (Captain W. Elliot) must disabuse his mind of any idea that there are millions of pounds to be saved in some way by doing something slightly differently. Of course, savings could be made. They could be made rapidly by cutting down the service to such an extent that it created more social and economic costs in terms of congestion than were saved within the undertaking itself. The fact is that these organisations are very expensive to run.
Furthermore, we have the question of the rate of interest on the amount of the undertaking's liability to the Minister. However, we change the interest figure to arrive at the same ultimate figure which we are seeking here, we can achieve this only by adjusting the capital write-off. So to the extent to which one increased the interest rate, one would also have to increase the capital write-off at the same time. Given that we are talking here about an absolute figure, agreed between the organisations, the suggestion contained in the Amendment would not be helpful.
Further, one is entitled to ask whether it would be justified. This is not new capital or new borrowing. Under the new set-up, interest will be paid on the borrowed money at the rate applying at the original time of borrowing. It would be an extraordinary suggestion to say to a company in the private sector that it had to pay more on fixed-interest liabilities like debenture stock merely because there had been a reorganisation.
Therefore, on the first point, regarding the need for money raised outside, there is no easy solution. On the second point, if the Amendment were accepted, it would achieve absolutely nothing, because [column 334]one would then have to adjust the capital write-off to meet the increase in the interest, whether justified or not. It is totally illogical and groundless to say that for existing capital, on a fixed-interest basis, and with a reorganisation with no new capital involved, particularly bearing in mind the example of a company in the private sector, that an increase in the interest rate would be justified.
That is a thoroughly unsatisfactory answer, again, a typical nationaliser's answer. In effect, the right hon. Gentleman is saying that, if the organisation has to pay more interest, he will reduce the capital sum so that the net figure is the same as when it started. He would vary the write-off. That may be nice and tidy, but where is the stimulus to work efficiently? The right hon. Gentleman said at the beginning that I was thinking of millions of pounds of economies to get out of the “red” . With the amount of capital employed, it is not all that great. For example, last year, counting the replacement costs, depreciation was £11.6 millions, or something like that. That, considering the amount of money employed, is not a vast sum. The right hon. Gentleman says that, with these large public concerns, it is easy enough to say that sort of thing. In fact, private concerns, however big, make economies which may seem trifling; but it is these small economies over the whole field—and the bigger the concern the greater the economies made in total—which gradually bring one out of the “red” . This is probably one of the main differences between private enterprise and nationalised concerns. The latter do not, apparently, if the Minister's words are to be taken at their face value; they do not worry about these small economies. That is what I want them to do. I want the stimulus to be there and I regard the Minister's reply as very unsatisfactory.
I do not like to let that go without answer. What I am saying is that, given that we set off with a particular figure which we have to meet, then, in terms of simple arithmetic, if we increase the interest rates, we must increase the capital write-off to meet the amount to be covered. [column 335]
On the other point, the procedure being adopted here is exactly the same as has been adopted in every transport undertaking reorganisation. But the main point which has been raised is on the question of economies. It is just not true that there are vast areas where £10 million or £11 million can be saved by economies. This is not a nationalisation Measure; it is a denationalisation Measure. We are doing what the hon. Gentleman wants. We are placing this undertaking in the hands of the “vox populi” across the river.
I am well aware of that. On Second Reading, I said that I had taken capital write-off as a precedent for future denationalisation Measures.
We ought not to get involved in a discussion about future denationalisation Measures, but if ever the black day comes when the hon. Lady is faced with these problems, I am open to laying bets about what happens with some of the industries which are to be denationalised so rapidly. But that is a different story.
The London Transport Board has a very big problem, and I do not think there would be a dispute between the hon. Lady and myself, whatever views she may have about the capital write-off, that the financial obligations placed upon it, given the complexities of its operations, make it virtually impossible that it will have surplus funds.