I am sure that the hon. Gentleman will make his contribution on that point and the question of services. I shall be glad to respond when he does so. The general point that I make to him is basically that we say to British Rail that this is the cash limit within which it has to live, and clearly it must be right for us to give to British Rail the discretion and the decisions on how it comes within that. I should not have thought that any Government—whether I or the right hon. Member for Barrow-in-Furness was Secretary of State—would contemplate a system which was totally unchanging, year in and year out. Therefore, it is fair to say that this must be a decision that the chairman and the board of British Rail must make. I am quite prepared to deal with that argument in more detail if the hon. Gentleman wishes me to do so.
By the actions that the Government have taken to help British Rail through its current and, I hope, short-term difficulties, they have shown that they believe in the future of the railway industry, but that future must be earned. Current trends must be reversed. The board's costs have been increasing in real terms, and there has been no satisfactory explanation of why that has been so.
Underlying all the efforts of the British Railways Board must be the issue of increased productivity. The chairman of British Rail, Sir Peter Parker, has said—and I agree with him—that productivity is the rock upon which we must build the future of the railways. The board has recognised that in its corporate plan, which provides for substantial productivity improvements in the next few years. The experience of the past 10 years has not been as encouraging as that of the previous decade. During the 1960s, output per man rose by about 97 per cent. In the 1970s the net productivity gain, according to the Monopolies and Mergers Commission, was about 5 per cent. The commission noted in its report on the London commuter services the relatively low rate of productivity improvements over the last 10 years and said that had been a significant factor inhibiting improvements in pay levels.
I believe that improvements are necessary and possible on both sides of the industry. I know that British Rail's management is tackling the criticisms made by the Monopolies and Mergers Commission. For example, one area was that of maintenance costs, where the commission found that, with the present system of controls, British Rail had not immediately been able to explain with any certainty the reason for varying rates of increase in rolling stock maintenance costs, nor give any reliable figures for the effect on maintenance costs of ageing rolling stock. The Monopolies and Mergers Commission also commented on a lack of direct material cost control.
I am concerned also about overall cost control. The commission commented that the board's planning system had probably not been effective in building cost reduction targets into its plans. The commission's general view was that the board had made major efforts to reduce costs only at times of financial crisis. It is fair to say that the commission also found evidence that British Rail was taking steps to correct those failings. We must all hope that those succeed. I think that action lies with the board. The setting of cost targets and progress towards them is something that I shall pursue vigorously with the board.
The House will expect to hear how I see the future of the obligation and of the different parts of the passenger business. There is no question but that the obligation will have to be revised. We cannot for ever expect the general service levels that were appropriate in 1974. The board must have better objectives. I do not propose to amend the extent of the obligation. As long ago as 1979 I ruled out any substantial reduction of the passenger network. I am glad that the board is actively investigating more cost-effective ways of keeping the rural services going. I trust that it will give proper priority to maintaining the track.
The London commuter services represent one of the most important areas. We certainly need clearer accountability and clearer objectives. I shall make a fuller statement later on action to follow up the report of Monopolies and Mergers Commission. Meanwhile, I have asked the board to let me have a clear statement about its plans for commuter services and about the options for improving the quality of service to the customer.
I am bound to tell the House of my concern over the business performance of the inter-city services. Last March I announced an interim financial target—which had been agreed with the board—as a step towards a full commercial objective. The board's corporate plan says that this interim target will not be reached, even on a very rosy traffic forecast and even with all the expected productivity improvements. It is clear that this situation, at the heart of the railway, presents serious problems of investment and business planning that will have to be tackled.
Finally, the Government recognise the importance of the railways. We accept the need to support passenger services. We have given British Rail a fair deal this year. Indeed, we have given as much support as the Labour Government thought adequate. But we must continue to look for cost savings, increased productivity and better performance in the commercial business. The future of British Rail will be secured in this way, through a constructive partnership between the board and its staff. The order provides for a continuation of this policy and of the realistic arrangements for Goverment revenue support. I urge the House to endorse that view.