(2) In ascertaining any relevant deficit of the Railways Board's railway undertaking for the purposes of section 1 of the Transport (Financial Provisions) Act 1977 (power of Secretary of State to make grants in respect of such a deficit) there shall be disregarded so much of the revenue and expenditure properly attributable to revenue account as is referable to the provision of international railway services.
It may be helpful if I sketch the background to this new clause. The Select Committee's concern was to embody in the Bill the commitment in article 1(1) of the treaty that the tunnel should be built without recourse to Government funds or Government guarantees of a financial or commercial nature. As a result, the Select Committee inserted what is now clause 2 into the Bill. It was also concerned about the danger that Government funds might percolate through to Eurotunnel via British Rail. In the Select Committee, a number of hon. Members expressed anxiety on that point, in particular that British Rail might make advance toll payments to the concessionaires, with the benefit of funds provided by the Government. In response, the Government undertook to require British Rail to omit any provision for advance toll payments from the final usage contract and to examine further the whole question.
The issue was again raised in Standing Committee when concern was expressed about the possibility of Government funds reaching the concessionaires by the back door. I said then that the Government's firm intention was that British Rail's services through the tunnel should not attract any of the Government grants for railway support and that we were currently considering whether specific provision to that effect should be made in clause 2. The references are to be found in columns 176 and 177 of the Official Report. New Clause I meets that commitment.
Our objective is to ensure that British Rail does not serve as a channel for Government funds to be provided to Eurotunnel. There need be no ban on British Rail investment in Eurotunnel, whether by advance toll payments or otherwise, provided that we can be completely satisfied that such investment does not represent indirect Government funding, and this will be made clear to British Rail. The amendment deals unambiguously with the point by blocking any risk of leakage of Government funds into Eurotunnel. Therefore I am confident that we have now closed the loophole that was rightly worrying members of both the Select Committee and the Standing Committee.
The amendments that we are considering at the same time as new clause I are technical amendments to close loopholes and to provide clear remedies for breach of the provision that there shall be no recourse by the concessionaires to Government funds or Government guarantees of a financial or commercial nature.
I said in Committee that the lawyers were crawling over clause 2. They have now finished crawling, and amendments Nos. 3, 4, 5 and 6 are the result. 1 should be happy to explain them in detail to the House, if it is felt that that would be helpful.
The Opposition do not disagree with the Government about the new clause. The Minister of State will be aware that the Opposition were anxious in Committee that there should be even-handed treatment of the concessionaires and those already providing cross-Channel services.
The Minister said that advance toll payments will not be allowed. I understand that British Rail could receive advantageous terms from the concessionaires, provided that the toll payments were made in advance. Therefore, it will be a little hard on British Rail if it is to be prevented from taking advantage of those terms.
I understand that the other amendments arise directly from the provisions of this new clause, but does the Minister think that it is perfectly fair and reasonable for British Rail not to be able to engage in a little commercial practice that would benefit the taxpayers and show the public sector in a good light?
This Government in general and the Department of Transport in particular want British Rail to be run in a businesslike manner. This is neither the time nor the place for the Opposition to point out the flaws in the Government's detailed approach, but I should be grateful if the Minister could say whether compensation is to be provided for British Rail if it is to be deprived of this commercial advantage. I stress that the Opposition would not like that advantage to be used to the detriment of those who will continue to be competitors of British Rail in the cross-Channel business.
Every hon. Member will welcome the new clause, because it blocks a possible subsidy loophole. It demonstrates the determination of Her Majesty's Government to honour the commitment that no public funding should be provided and that no guarantees should be offered that would be the equivalent of a loan. The basic commitment of clause 2 on funding is clear and precise. We should be grateful that, when a loophole was discovered, the Government took speedy action to deal with it and to write this provision into the Bill.
I doubt, however, whether the new clause will stick. My fear is that the firm resolve of the Government, which I do not doubt in any way, might be overturned by the direct funding of the railways from European Community institutions. European laws and decisions take precedence over the decisions of this Government and over our laws, as the 1972 Act makes clear.
I am wondering whether the clause could be adjusted in another place to prevent the promoters from seeking comparable funding, as described in new clause 1, by the back door from the European Community. That is not silly scaremongering. Only this week we saw an example of the way in which clause 2 has been undermined. It provides absolutely clearly that there should be no loans from public funds. However, only a couple of days ago—I am afraid that it was not widely reported—there was the astonishing revelation that the European Investment Bank is apparently in negotiations with the promoters for a soft loan of £1 billion for the tunnel. Quite frankly, if that agreement is concluded it will drive a coach and horses through the Government's pledge of no public funding.
In no sense is the European Investment Bank a commercial bank. Its directors are the Finance Ministers of member states. They get their cash either from loans guaranteed by member states or from direct payments from member states. It was interesting that when the Chancellor announced the autumn statement on public spending he explained that one of the reasons why our contribution to the EEC this year was being increased by £440 million was due to an extra payment to the European Investment Bank. Therefore, the bank obtains its cash from Government, or by raising loans from Government.
That was not bound by the treaty and was one of the means by which we retained some of the money for payments that have been made. My hon. Friend will accept that this issue is rather different in that, because of the competition with ferries, there is a firm pledge of no Government funding.
Is it not true that, over the years, the European Investment Bank has lent money for projects such as the airbus, which is causing a little controversy at the moment? Does the hon. Gentleman think that it is fair that he can fly off to the vineyards of southern France—I am sure that he might do so occasionally—on an airbus, some of the finance for which has been provided by the European Investment Bank, but deny that bank the right to invest in a project such as this?
I know that people such as the hon. Gentleman would like to have Government funding and subsidies all over the place. They would like to have a lot more public spending and subsidies for everything in the world. We accept that that is the Labour party's view. However, we are considering a Bill in which the Government have made it abundantly clear that they are not allowing any public funding. The point is that this would be public funding. Could it be described as simply a commercial loan?
I draw the Government's attention to their own information document called "Sources of Information on the European Community", which states on page 117 that the loans given by the EIB are medium term, generally from seven to 12 years, and are,
at an attractive fixed rate of Interest.
In other words, the loans have a subsidised fixed rate of interest. Of course, those loans have been concluded not by the Government, but by the European Investment Bank, of which the Chancellor of the Exchequer is a director. That shows that, despite the pledge given in clause 2, public money is already being negotiated to finance the Channel tunnel. The Government may say that they can do nothing about that. However, it is explained quite clearly in the pamphlet that if a loan is given by the European Investment Bank national Governments are obliged to guarantee it against exchange losses. That means that the Government would have to make a direct payment towards any possible financial losses stemming from that.
I am not in any sense accusing the Government of doing that, because the honour and integrity of the Government are absolutely clear—[Interruption.] I am sure that hon. Members will accept that when the Government say that there is to be no public funding they mean that there is to be no public funding. I doubt whether anybody would question that, and the fact that the new clause has been tabled is a sign of the Government's goodwill. However, despite the clear commitment that there should be no public funding, it seems that there is to be public funding from European sources with a subsidised loan of £1 billion, presumably because the promoters will find difficulty in getting that money elsewhere.
I am grateful to my hon. Friend for giving way. Is he aware that to lend money to projects that link one or more European countries is entirely in line with the general policy of the European Investment Bank? I appreciate the other line of my hon. Friend's argument, but does he accept that if such lending was denied to this project, Britain would be put at a continuing disadvantage in relation to our competitors in Europe?
I accept everything that my hon. Friend has said. I was pointing out simply that the tunnel is not a normal project because it will be in direct competition with the commercially operated ferries. Therefore, because of the danger of unfair competition, the Government have said that there should be no public funding, and no secret, direct or indirect subsidies. However, despite the fact that the Government said that in fairness to the ferry operators, whose jobs and futures will be at risk if there is subsidised competition, it appears that the tunnel is getting that subsidised help, not because of the Government's actions., but because of the actions of a European Community institution over which we have no direct control. It will be very unfair to the ferry operators if the tunnel gets cheap, subsidised loans from the European Investment Bank which gets its funds from the British Government. It will be monstrous if the Government are to be obliged, whether they like it or not, to provide direct finance for any exchange rate losses.
My comments have not been directly concerned with new clause 1, which states that we are blocking the loophole of assistance to British Rail for international projects. As we have had one clear and specific example of cheap loans of £1 billion going to the tunnel from public funding, which goes right against the message and commitment of clause 2, is there not a danger that exactly the same thing could happen with the new clause in that assistance could be given to the railway companies, perhaps from the social fund—I doubt whether it would come from the regional fund, but one never knows how such things could be operated— but certainly from another part of European funding?
However, there is one way in which we could avoid that. It could not be done by depriving the European institutions of their rights, because those rights exist, and, of course, are superior to any law of this land. However, surely we can place an obligation on the promoters not to seek any special assistance by way of funding or subsidy from the institutions of the European Community.
I welcome what the Government are trying to do. In this clause they make it clear that when they see a loophole in national funding arrangements they take immediate and effective action to stop it. However, as I regard the tunnel as being not a very viable economic enterprise and as it seems possible, if not likely, that the promoters will run out of money when it has been half built and unlikely that private investors will put sufficient money into it to make it a viable proposition, is there not a great danger in leaving the enormous loophole of European Community funding through guarantees or loans? The one way in which we could avoid that would be for the Government to consider, perhaps in another place, adjusting the new clause to put a statutory obligation on the promoters not to seek special subsidies or funds from the European Community which the Government have rightly said they will not allow the promoters to obtain from Her Majesty's Government or from the Treasury.
I should also like the Government to state whether they will be obliged, under law, whether they like it or not, to make a straight payment to the operators through the funding of possible exchange rate losses on that massive European Investment Bank loan.
The new clause is well intentioned and the amendments accompanying it tighten the loophole that existed in the Bill.
I should like to make two short points. The first is in connection with amendment No. 4, which leaves out the words "guarantees of any description". As a man who is in favour of tightening loopholes, I am a little nervous about why the words "of any description" should be deleted from the Bill and merely the word "guarantees" inserted instead. I see at least the possibility of a clever City financier being able to find a guarantee, other than that contained in the clause as amended.
A point made by my hon. Friend the Member for Southend, East (Mr. Taylor) has taken on a new importance as a result of a press release issued by Eurotunnel about how hard it is working to secure a £1 billion loan from the European Investment Bank. It is surprising to learn that it is trying to secure that new loan. Those of us who have long memories recall that, about nine months ago, Lord Pennock, in a rather ill-judged address on "The World at One" to Mr. Robin Day and his solicitors, advised all Members of Parliament to stop mucking around with the Bill. His justification was that he had banks all over the world to lend him money. Indeed, to give him his due, the Eurotunnel prospectus lists 40 banks from diverse Arabian, Japanese and African sources which are willing to provide £4 billion-worth of loans.
Lo and behold, times are getting difficult at Eurotunnel and we all know that. The various directors are lurching around: Lord Pennock is threatening to quit and Sir Nigel Broakes is up one minute, disenchanted the next and returns two days later. Clearly, there is turmoil and "crisis", to use the adjective on the front page of today's Daily Telegraph. Therefore, we understand that Eurotunnel is not shipshape and ready for action.
To borrow an additional £1 billion is most extraordinary. Above all, I should like the Minister to say from the Dispatch Box that, wherever else Eurotunnel finds £1 billion, it cannot be from a source which is prohibited by the treaty. The treaty makes it clear that no Government or public funds of any sort may be used for the project. The Bill and the concession agreement also make that clear. Therefore, the notion that Eurotunnel has studied the documents so little that it can even try to negotiate a £1 billion loan from a prohibited source strikes me as yet another example of the doubtful competence of its management.
Does my hon. Friend agree that it is shameful for Eurotunnel to put huge advertisements in newspapers, saying:
it won't cost the taxpayer a penny. The whole project will be financed by private investment",
when at the same time it is negotiating a loan of £1 billion from the EIB, which is public money?
Those advertisements prove the truth of the old adage that a fool and his money are soon parted. I understand that the advertisements are to be referred to the Advertising Standards Authority because they are inaccurate in almost every possible way. The only good news is that the albatross which hovers above the stormtossed waves is symbolic of Eurotunnel's general prospects.
The Government are doing their best to honour the clear pledge that there will be no subsidies, yet, simultaneously, Eurotunnel is issuing press releases and finalising negotiations with the EIB, which is a back-door source of public funds. That is a violation of the no-subsidy rule. I hope that my hon. Friend the Minister will take this early chance to knock that manoeuvre on the head. Basically, I welcome the new clause.
I endorse the welcome given to the new clause because, like the majority of people, I welcome any underlining of the basic commitment to the pledge that no taxpayers' money will be invested in the project. That is more than just a Government pledge; it is a fundamental reason why the project has got so far. If it were not for the commitment that there would be no taxpayers' money invested in the project, we would not be debating the project today. The belief of the Government in that basic premise has carried the project thus far. That proposition would not necessarily commend itself to many Opposition Members, or, indeed, to passionate tunnellers on the Conservative Benches, of whom there are some.
The funds in the EIB are taxpayers' money and there can be no doubt about that. I hope that my right hon. and hon. Friends will make it absolutely clear from the Front Bench today that there will be no fudging, no doubts and no ambiguity on this, that in furthering their commitment there will be no application to the EIB, and that such an application would be prohibited by the terms of the treaty.
The hon. Member for West Bromwich, East (Mr. Snape) welcomed the new clause and said that the advance toll payment might have been attractive to British Rail. He was worried, not that Government funds should reach Eurotunnel in that way, but that British Rail would he prevented from making a commercial investment. I can assure him that there is nothing to prevent British Rail from making a commercial investment. It cannot use Government funds for that purpose and it would have to have the approval of the Secretary of State before making such an investment.
My hon. Friend the Member for Southend, East, (Mr. Taylor) welcomed our speedy action to close the loophole. He recognised the Government's clear commitment to no Government funding and asked how we would prevent Euro-funding, particularly funding from the EIB. It is true that the concessionaires are considering raising loan finance through the EIB, but that is not Government investment by another name. EIB loans are not in themselves EEC-financed. The EIB is a secondary financial institution, the sources of its funds being through banks throughout the Community, not through Governments. We have made it clear that the prospect of any loans being guaranteed by member states, as is common with EIB funding, is unacceptable to both the British and French Governments. Any loan finance provided by the EIB will be on a purely commercial basis, supported not by the Government, but by the clearing banks in the member states. They, not the Government, will bear the contingent liability. There is no way that the Government will stand behind any EIB loan.
If the Minister is saying that the EIB gets its money from commercial banks, not Governments, why on earth on page 30 of the autumn statement did the Chancellor of the Exchequer explain that a reason why we were having to increase our net contributions to the EEC this year was a payment of £48 million to the EIB? Surely the Chancellor of the Exchequer is not a joint stock bank.
Is the offer of attractive fixed terms of interest based on the fact that the EIB gets its cash from member states or from loans guaranteed by member states and that this is a commercial operation? Surely the Minister cannot accept that it is all money from banks, when the loans are guaranteed by member states and the Government paid an additional £48 million this year, not last year or next year. What on earth is the Chancellor doing paying £48 million extra this year into the EIB?
I can reassure my hon. Friend on this matter. Some investments by the EIB involve a Government guarantee, but this is not one of them. Therefore, any contribution which the Chancellor may have made may have been in respect of other matters. There is no Government guarantee whatever for this EIB loan. Any risks, contingent or real, which may materialise will fall on the banks that put up the money, not on the Government. 1 hope that my hon. Friend will find that reassuring.
I can give my hon. Friend that assurance; no such guarantees will be given.
My hon. Friend the Member for Thanet, South (Mr. Aitken) expressed concern about Government amendment No. 4. That amendment ensures that it will be clear that the guarantees referred to in subsection (2) are similarly guarantees in respect of the concessionaires' borrowing. My hon. Friend also claims that Eurotunnel is now borrowing an extra £1 billion. He said that formerly Eurotunnel had sufficient funds, but it has now not been able to secure those funds from the initially proposed banking sources and, as a result, Eurotunnel has changed its plans. I am sorry, but my hon. Friend is yet again wrong. The European Investment Bank was always one of the potential sources of borrowing. Indeed, I had the pleasure of attending a reception not long ago given by the European Investment Bank at which this was a matter of considerable discussion.
When a Minister has made a mistake, I believe that he must admit that he has made a mistake. The prospectus is quite clear and it lists the 40 banks. Of course, it is possible that other loans in addition to these are being considered. That was my very point. I was rather surprised that an additional £1 billion-worth of loans was being considered in addition to the £4 billion-worth of loans which are carefully itemised in the prospectus.
I am intrigued at the fact that my hon. Friend the Minister is now so willing to answer on behalf of Eurotunnel when at Question Time yesterday the Secretary of State refused point blank to answer any questions on behalf of Eurotunnel. There is a little confusion here.
It is not that I am answering on behalf of Eurotunnel. I am doing my best to try to help my hon. Friend, who has been misleading himself, and I know that he would not wish to do that.
The European Investment Bank is not referred to in the prospectus. All along, the European Investment Bank has been on the draft loan arrangement document. Moreover, as I have said, that was the subject of a good deal of discussion at a recent reception in the congenial surroundings of the Savoy hotel. We had a great deal of discussion on that subject.