I am pleased to be able to secure a debate this evening on the question of socially necessary services in the context of the rail privatisation fiasco.
Transport problems in Wales are heavily influenced by the peculiarities of population distribution, with the vast majority of the 2.8 million inhabitants living in four counties in the south of Wales. The most congested area for traffic is thus the south-east, apart from individual large towns elsewhere, such as Aberystwyth, Bangor and Carmarthen. The difference between the south-east and the rest of Wales can be seen through the relative population densities. For example, in Cardiff there are 23 people per hectare, there are seven per hectare in Swansea and only 0.2 in Meirionnydd in my constituency and in Powys. In fact, 62 per cent. of the population live in only 17 per cent. of the land mass. As such, public transport problems, requirements and policy objectives vary considerably between widely diverse urban and rural areas. Urban areas face road congestion and peak period overcrowding on public transport, while rural Wales has an underlying need for basic mobility. While that degree of diversity requires separate policies superimposed on the public transport and road network—particularly in rural and coastal areas—there is an annual influx of tourists, who arrive primarily by car or coach but who come by public transport in some areas.
The modal split in passenger movements has changed significantly over the past 40 years. There has been a rapid increase in car ownership. In the 1960s, car ownership rates began to rise, due partly to increased consumer spending power and partly to the decline in public transport services in rural areas. Car ownership has doubled since 1968, to a total of just over 1 million. In Wales, that growth has been accompanied by a continuing downward trend in bus and rail passenger loadings, reflecting changes in the British Isles as a whole.
While car travel has increased tenfold, bus travel has halved. The number of rail journeys has also fallen, but passenger kilometres have increased by 5 per cent.—primarily due to British Rail concentrating on inter-urban and cross-country business, with the decline in rural branch lines, as passengers make fewer but longer journeys.
Rail services are needed for basic mobility, especially in rural areas, and as a means of reducing congestion and pollution as part of an integrated transport policy in urban areas. In transport expenditure generally, a number of options may be open—but in the case of train or bus passenger services, there are three. They are to retain the service in its present form, close the service, or rationalise the network by amending or merging routes—or both.
There is good evidence that the first option is realistic. Service improvements such as the introduction of new class 158s on the service west of Llanelli in Dyfed to replace diesel multiple units resulted in a 50 per cent. rise in customers. A further increase has been halted by the inadequate capacity of the one-car class 153s and two-car sets provided.
All other European socially necessary services are subsidised, many to a level far in excess of that in Britain. In Britain, the subsidy is 13 per cent. but it is 28 per cent. in Sweden, 36 per cent. in France, 48 per cent. in Germany, 58 per cent. in Portugal—which we are often told by Ministers is struggling economically—and a staggering 80 per cent. in Italy. Those figures emphasise the trend against socially necessary services and the retention of vital subsidies in Britain. One must inevitably conclude either that British Rail train operating companies are extremely efficient or that the Government are oblivious to the financial needs of socially necessarily railways. It may be that both are true to some degree.
The only railway likely to be profitable is one that is intensely used, with high-load factors. That will never be true of rural railways or of large commuter rail systems. In rural areas, single-track operation often prevents intensive use, and low-population densities do not provide the high-load factor. In urban areas such as Cardiff or south-east England, demand patterns have a high morning and evening peak, with infrastructure and rolling stock capacity far in excess of off-peak demand. Therefore, capital investment may receive an adequate pay-off during only four hours, Monday to Friday. The size of towns in Wales means that inter-city or inter-town operations may not be as financially viable as some of England's primary routes.
Despite that, many initiatives on, for example, the valley lines from Cardiff, the Bridgend-Maesteg line, the north Wales main line and lines in south-west Wales have increased patronage following track and rolling stock investment.
In the evaluation of rail investment, the central London rail study uses techniques to justify construction of, for example, the Jubilee line extension and crossrail, which include the transfer of passengers from cars to rail. That has three consequences. The first is reduced journey time; the second is reduced car usage and road congestion; and the third is increased rail revenue. However, the social benefits of reduced journey time, reduced overcrowding and reduced car flows and not the cash flow increase have justified crossrail.
The Department of Transport has accepted the issue of transfer to rail as a basis for social benefit where the transfer is on a large scale. In rural areas, the numbers are much smaller, with no major impact on road travel, but the Government have failed to consider the demand not at present, but at potential levels if capacity is increased. The former Secretary of State said that even if there were a 10 per cent. increase in rail passengers, it would represent only a 0.4 per cent. reduction in road travel within the British Isles if they had all transferred from cars. However, the comparison related to all road trips including those that were not possible by rail.
In a comment on the Welsh Office report, the Cardiff region public transport study, published in June 1994, the Minister of State admitted that the investment options were of a "one-off' nature and that continuing high levels of investment in public transport had not been considered. The impact on fare pegging and privatisation form the core of the debate. The new railway set-up involves an infrastructure company, Railtrack plc, which has two divisions covering Wales and which the Government intend to privatise at a price of between £1.5 billion and £4 billion. The variation is a result, on the one hand, of the 8 per cent. return that any potential buyer of Railtrack will see as a minimum and, on the other, the amount of rail access charge that the new train operating companies will be able to afford.
Rail services in the British Isles from 28 May have been provided by companies wholly owned by British Rail but which form the basis of the franchises to be offered to private companies. In Wales, they are: Cardiff Railways Company Ltd.; Central Trains Ltd. to Aberystwyth and Pwllheli; Great Western Trains Ltd., that is, InterCity services to south Wales; InterCity West Coast Ltd., again InterCity services to mid and north Wales; and North-West Regional Railways Ltd., for local services north of Wales; and South Wales and West Railways Ltd.
The majority of those services receive up to 40 per cent. of their income from subsidy. Imposed on this unwieldy structure is the Government's newly introduced scheme to peg fare increases over the next four years to below the current rate of inflation. That presents the Government with a set of financial policy objectives which are not fully compatible. The first objective is to restrict fare increases to below the rate of inflation. The second is an 8 per cent. rate of return on the assets owned by Railtrack. The third is the Government's long-term policy to reduce railway subsidy, which has been their stated policy for 15 years. The fourth is to maintain the network and services at the present level after privatisation. That objective has often been repeated in the House.
There has been no Treasury statement providing a guarantee of funding to achieve the increase in subsidy that the fare pegging policy will require and depend upon. In any event, the Treasury would guarantee expenditure only up to, I believe, four years. The Secretary of State recently told me in an answer that Government funding would be available to meet the commitment. That was a blanket reply and contained no further detail. I am a bit wary of that kind of reply.
Even if the Government believe that lower fares will increase patronage, which in itself is a welcome policy that should be supported, new investment in train capacity will be required, and both capital and revenue subsidies will be necessary. If fare increases are pegged, normal cost increases facing the train operating companies may not be met. Without that ability to meet costs, the potential franchisees and their financial backers will not find the proposal to run trains on the new basis sufficiently attractive and, in consequence, will not wish to invest or to bid for the franchise. They will also be concerned about the lack of Treasury guarantees on the operating subsidies over the seven-year franchise period, when, as I have said, 40 per cent. of some companies' income will come from that source.
Companies can therefore be covered in one of two ways. First, the Government can increase their subsidy to private train companies, but that again begs the questions: why did British Rail not receive such funds, does that not conflict with the Government's long-held desire to reduce subsidy, and has the Treasury said yes, or what is the position? Secondly, access charges imposed by Railtrack on train operating companies could be reduced, but that would reduce the company's income and therefore the price that the Government would be likely to achieve for Railtrack.
The increases in subsidy following the fares pegging policy will presumably be in addition to that required to meet present levels of service on socially necessary services. An indication from the Secretary of State for Transport that actual figures currently being paid to each train operating unit or train operating company to meet social and pricing costs will be published, I believe, by the franchising director will be extremely helpful.
One broad conclusion that one can draw is that it is clear that, although the Government have stated policies on continuing to fund socially necessary rail services, those funds are not guaranteed in the medium and longer term. I see the Minister shaking his head. I have asked the question time and again without receiving real detail. If they could not subsidise British Rail, I doubt whether they will do it under the new regime. I hope that he will reply in detail on that point because I have hitherto failed to elicit any details.
In consequence, train operating companies and Railtrack will both have great difficulty in planning and forecasting budgets more than one or two years ahead, which frankly is a hopeless position for any sort of business. The structure of their networks leaves Wales's services on the periphery of all this. When profits are down as a result of reductions in revenue payments by the Treasury, those services are likely to be reduced first. I again ask the Minister for a guarantee on that very point because many people in Wales and beyond believe, as I do, that, "What Beeching started, Mawhinney will finish."
I do not overstate the case when I say that, beyond doubt, two lines in my constituency are socially necessary and the loss of either, or even the depletion of services, would be a bitter below to my constituents. The Conwy Valley line is extremely important to my constituents because it is the means of transport for many people travelling to and from work. It is a real lifeline, but with the closure of Trawsfynydd nuclear power station, the line has lost £900,000 in revenue per annum and will therefore have to be substantially subsidised.
I cannot understand why the Government find subsidising environmentally sound forms of transport such a problem. Common sense dictates that rail transport is much better than large numbers of cars. The Government's stance is regressive and damaging. Will the Minister give an assurance that that line will be termed socially necessary and its service expanded? I trust that he will be able to do so.
The Cambrian line is again an important line. By coincidence, it is similar to the Conwy Valley line in that it is a scenic route—they are probably the two most scenic routes in the British Isles. The Cambrian line is also used daily and takes thousands of vicitorc during the five-month holiday period. I remind the Minister that tourism is, after all, the largest employer in Wales, employing some 95,000 people, and that it is vital to the economy of my constituency of Meirionnydd Nant Conwy. The Cambrian line is vital to the economic well-being of mid and west Wales and must be preserved and expanded at all costs. I seek a similar assurance that the line will be retained and that it will be guaranteed adequate subsidy. It is vital to many thousands of people in Wales.
I continue to oppose most vehemently and for good reason the premise that railways should be privatised. If the Government will not abandon those plans, even at the eleventh hour, they must appreciate the importance of those lines to a large part of Wales. I urge the Minister to put aside dogmatic prejudices, to think again and, for once, to listen to the people of Wales.
I want to make one central point. It is a coincidence that the hon. Member for Meirionnydd Nant Conwy and I both represent far-flung, peripheral parts of the United Kingdom, but there are socially necessary services in other main parts of the United Kingdom and it is important to recognise that.
I want to concentrate on a matter that I know is causing concern to a great many people who are anxious about the future of the railway network following privatisation. I am talking about the position of an intermediary station such as, for example, Castle Cary. That station serves a wide rural hinterland and it is not immediately adjacent to any major centre of population. It is extremely important that we remember that, when we are talking about socially necessary services we are talking not just about a service that runs from A to B, but about a service that is provided at intermediary stations. That is particularly important when such stations provide an excellent railhead for a large, scattered rural area. If we did not have that railhead, there would have to be more road traffic in local towns.
In the case of Castle Cary, it is evident that if one cut out the intermediary stations, one may find it impossible to justify running the Taunton to Reading line and vice versa, which you, Madam Deputy Speaker, and I know well. After a certain time, any franchisee could find that without those services being provided to the intermediary stations as part of the passenger service requirements, it would be economically desirable or more profitable simply to run the Bristol route with, perhaps in the next generation of locomotion, electrification and faster trains.
We would then find that the intermediary areas would have to suffer a poorer service—probably with older rolling stock and older locomotives—and the total journey time for those of us in the far-flung wild west would deteriorate.
A simple point to add to the trenchant criticisms, comments and suggestions of the hon. Member for Meirionnydd Nant Conwy, which I endorse entirely, is that we should also be looking at the socially necessary services on main lines which serve important areas of our country.
I congratulate the hon. Member for Meirionnydd Nant Conwy (Mr. Llwyd) on initiating a debate on this important subject and I welcome the opportunity it provides to reaffirm the Government's commitment to safeguard socially necessary passenger rail services and their quality.
Passenger service requirements will provide for the first time a contractually guaranteed level of train services. A key feature of PSRs is that they will guarantee the future of every line and every station on the existing network. Those are important points in reply to the concerns raised by the hon. Members for Meirionnydd Nant Conwy and for North Cornwall (Mr. Tyler). PSRs will guarantee the future of every line and every station on the network.
In setting the passenger service requirement for each franchise, the franchising director will specify service standards, including the frequency of trains, the stations that they serve, journey times, first and last trains and weekend services. This is not a case of officials in London simply deciding what they think is good for passengers throughout the country. PSRs are subject to an unprecedented level of consultation with the users of services, through both local authorities and rail users' consultative committees. For the first time, passenger representatives have an opportunity to comment on the services that they would like operators to provide.
The outcome of the consultations on the first three PSRs—for Great Western, LTS Rail and South West trains—demonstrates that the franchising director has listened to representations. In all cases, he has added safeguards to the final PSRs as compared with the drafts that he issued for consultation. For example, he has included new commitments on first and last trains, a tightening of maximum journey times and more connections. I believe that those results demonstrate the value of that approach.
Hon. Members will know that consultations are currently under way on four more PSRs—for InterCity east coast, midland main line, Network South Central and ScotRail. Over a period, there will of course be PSRs for each of the 25 train operating companies. I am confident that the outcome of the consultations will be as satisfactory as those on the first three.
Passenger service requirements are based on the timetable being operated by British Rail at the time of franchising, but hon. Members will understand that the PSR is not itself a timetable, but sets the guaranteed level of service. I wish to emphasise that for services that are not commercially attractive—those are the general subject of the debate—the PSR is likely to provide for broadly the existing level of service. We recognise the crucial role that the railway plays in servicing communities throughout the country, and there will be clear and explicit safeguards for socially necessary services that cannot stand alone commercially. The House will know that the total subsidy budget for the current year will be about £1.7 billion. However, where the service, or part of it, is commercially attractive the PSR is likely to be at a lower level than the existing standard of service, in order to provide operators with the opportunity to develop new and varied services within that assured framework.
The security of passenger services is not dependent simply on commercial viability. The franchising process provides for the first time important safeguards for socially necessary services. Perhaps the best example that I can cite is the draft PSR for ScotRail, the first specification to be set in relation to largely rural and regional services.
Apart from the highly commercial Edinburgh to Glasgow route, the ScotRail PSR includes virtually every service in the May 1995 timetable. That is a contractual guarantee of service levels for the next seven years. Such a level of security for social rail services has never been given before, and that gives a firm indication of the comfort that PSRs will offer to those dependent on regional rail services, and underlines the Government's commitment to the national rail network.
When he opened the debate the hon. Member for Meirionnydd Nant Conwy referred to levels of subsidy to railways in other countries. However, such crude comparisons are not necessarily instructive, because the level of debt of various foreign railways is on the whole much greater than that of British Rail. If he examines the funding of French railways, for example, the hon. Gentleman will find that the apparent high level of subsidy is actually needed to fund debt charges on their substantially greater debt.
The hon. Gentleman also referred to my right hon. Friend's predecessor as Secretary of State when he said that even if there were a substantial increase in the use of the railway either for passengers or for freight, its impact would be small in terms of mitigating road traffic growth. That is a fact, but it does not mean that we consider that such transfers from road to rail are not worth while in themselves.
The hon. Gentleman also mentioned fares policy. Simply because fares are to be limited to ensure that passengers enjoy some of the benefits of the greater efficiencies that will result from transferring the railways to the private sector, there is no reason to assume that that will necessarily increase the cost of subsidy. In the franchising arena, as opposed to the subsidising of a monolithic nationalised industry, the difference is that potential operators will bid competitively for subsidy to secure the right to operate the services. That competitive bidding process will help to keep the demand for subsidy down.
Far from providing an uncertain future for rail operators, my experience of talking to the train operating companies leads me to believe that they can see substantial benefits in having a financial regime that is settled for seven years ahead. They know the framework within which to plan their fares because it has been laid down by the franchising director for the next seven years. They tell me that that is a far greater degree of certainty in their budgeting than they have ever had before.
I share the hon. Gentleman's hope that one of the consequences of this beneficial fares regime will be to encourage passengers who are currently using the railway to continue to do so. I also hope that it may encourage other people to start to use the railway.
The hon. Gentleman expressed concern that there is no guarantee from my colleagues in Great George street about future levels of funding. That is, of course, true. However, the hon. Gentleman will also be aware that the Treasury never guarantees future levels of funding for any part of the Government's expenditure. In theory, my right hon. and learned Friend the Chancellor of the Exchequer could decide when he announces the public expenditure plans in November, along with his Budget, to cut in half the funding for the national health service. However, the hon. Gentleman knows that that is not a political reality.
That is the core point of the debate. I am on a wing and prayer on this issue. The Minister says in all sincerity that there will be no cuts and that the subsidy is safe. I know that the Treasury does not normally guarantee a subsidy. I am afraid to say, however, that experience of this Government shows that they say one thing now and a different thing next year. There was, for example, to be no increase or broadening of valued added tax. As soon as the election went by, such a broadening came in. I am rather concerned about empty promises; that is the point.
This is not an empty promise. One of the other realities that the hon. Gentleman must recognise is that the contracts entered into between the franchising director and the train operator impose responsibilities and obligations on both parties. The franchising director, having entered into a contract to supply grant in support of a franchise, is committed to it. That will be one of the realities that has to be faced in any decisions that might be made about funding.
The hon. Gentleman over-emphasises the impact of the capping regime for fares on the revenues of the railways. I do not accept that it is by any means a given fact that the capping regime will reduce the revenues of the rail operators. Indeed, the financial structure that a franchise will face gives it every incentive to increase its revenue by encouraging more people to travel and to operate additional services to give the facility for more people to travel. The major costs of any operator will be covered in the contract for the passenger service requirement and additional services can be operated at marginal cost. There is every reason for franchisees to seek to expand their services and no reason to contract—
The motion having been made after Ten o'clock, and the debate having continued for half an hour, MADAM DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.
Adjourned accordingly at twelve minutes to One o'clock.