Growth and Infrastructure Bill

House of Commons, 25 April 2013.

Michael Fallon (Conservative, Sevenoaks)

I beg to move,

That this House does not insist on its amendment 25E, to which the Lords have disagreed, and agrees with the Lords in their amendments 25H rev and 25J in lieu.

On Tuesday when we considered this issue the House agreed to two amendments to the employee shareholder clause. First, we ensured that individuals would receive written particulars to explain the employment rights that are not associated with an employee shareholder job. Those particulars will also explain the rights attached to shares that are given as part of that role. Secondly, we amended the clause to ensure that individuals had the space and time to consider whether or not to accept the job.

Yesterday, the other place agreed further amendments to help ensure that individuals fully understand what those employee shareholder jobs will mean for them—both the risks and the rewards. Individuals who are offered employee shareholder roles must now receive independent advice before they can accept the job. That advice can be given only by a solicitor, a barrister, a fellow of the Institute of Legal Executives employed in a solicitor’s practice, a certified adviser in an advice centre or—I am sure Opposition Members will welcome this—a certified trade union official. A person employed by the company, such as an in-house lawyer, cannot give that advice; it must be independent. In addition, the company must pay any reasonable costs incurred in obtaining that advice, even if the individual does not take up the offer of the employee shareholder job.

The amendments also clarify the process of becoming an employee shareholder. When offered an employee shareholder role, an individual must be given the written particulars in advance of receiving independent advice. We have also made it clear that the seven calendar day consideration period starts only once the individual has received the advice.

Those amendments confirm our intention that the new employment status is wholly voluntary. I have made it clear throughout the debates on the clause in the House and in Committee, and my hon. and noble Friend Viscount Younger has made it clear in another place, that we do not want people to be coerced into the new roles. It is important that they should agree to accept an employee shareholder job only when they understand what it means for them.

To that end, we have published guidance in draft. In response to the concerns expressed by some of my noble Friends, we have strengthened the measures by saying that there should be special protection for those on jobseeker’s allowance—they cannot be mandated to take that type of employment status. We have provided a written statement of the particulars and a cooling-off period, and we have now provided access to independent legal advice.

The shadow Secretary of State for Business, Innovation and Skills, the hon. Member for Streatham (Mr Umunna), kept pressing me on Tuesday on what I meant what I said that we would reflect on the concerns expressed in

the other place. The new measures are the results of such reflection. We have reflected on and met those concerns.

I pay tribute to Lord Pannick and to my noble Friends Lord King of Bridgwater and Lord Forsyth. Lord Pannick has said:

“It is impossible to see what further protections this House could usefully add.”—[Official Report, House of Lords, 24 April 2013; Vol. 744, c. 1464.]

The House should support the further amendments to clause 27, so that it can form part of this important pro-growth Bill and provide companies and individuals with a new employment option.

Chuka Umunna (Labour, Streatham)

Where on earth does one start with this poor excuse of a Bill? It is worth reflecting on where it all started. The Bill was a ridiculous and badly thought-out idea cooked up for insertion in the Chancellor of the Exchequer’s conference speech. It has been so badly handled and so badly thought through that people from all political parties, employers and employees have united in almost universal opposition to it.

Lord Bilimoria, one the country’s best-known business men, who voted against the plan in the other place yesterday, described the policy not just as a dog’s breakfast, but as a mad dog’s breakfast. The noble Lord is a man to whom all hon. Members should sit up and listen. I do not know whether hon. Members have partaken of Cobra beer while treating themselves to a curry, but Lord Bilimoria is the man behind Cobra. He is certainly worth listening to. He said that:

“from a businessman’s point of view, this does not make sense. It is absolutely unnecessary to do this”.—[Official Report, House of Lords, 24 April 2013; Vol. 744, c. 1450.]

The Minister referred to the concessions—that concessions have been forced out of the Government serves only to reinforce how badly thought-out the proposal was. Whether or not JSA claimants could lose their benefit if they refuse to accept job offers carrying the employee shareholder status was an obvious question. I first asked it in November, when the Government ignored it. I repeated it, and the Government said that they could not lose their benefit. When they were mauled on the point in the other place, they effectively admitted that they could. In order to get the proposal through in the face of opposition from several former Conservative Cabinet Ministers, the Government had to come to the House last week and agree to amend the guidance for Department for Work and Pensions Jobcentre Plus advisers to state explicitly that a jobseeker cannot be mandated to apply for an employee shareholder job. They should have done that in the first instance. What a total shambles.

Another issue is the advice and guidance to potential employees, and the need to ensure that they understand what they are getting into. Of course people were going to be concerned—that was obvious. If, as is the case at the moment, the law requires that people who sign away their fundamental rights on leaving employment receive proper legal advice and guidance, then of course people were going to insist on getting similar advice on entering into employment. I doubt the thought even passed through the Chancellor’s mind as he pursued his ideological fixation with watering down people’s rights at work.

Now there is a requirement for employers to pay for that advice in advance of a potential employee shareholder entering into an agreement. The point is this: these concessions are not enough and they were never going to be enough, because this entire proposal is wrong in principle. I think that most Government Members know that: it has been notable how few Government Members have stood in support of this measure.

During the passage of the Bill, no coherent explanation has been offered for why it is necessary to link employee ownership to people losing the fundamental rights at work that we all enjoy. No evidence has been put forward to suggest that this is what people want. The expert in this matter is the Employee Ownership Association, which has been a major influence behind the growth of employee ownership in the UK. Its chief executive could not have been clearer on this point yesterday, when he said that its membership have been absolutely clear that

“There is no need to dilute the rights of workers in order to grow employee ownership and no data to suggest that doing so would significantly boost employee ownership. Indeed all of the evidence is that employee ownership in the UK is growing and the businesses concerned thriving, because they enhance”—

enhance—

“not dilute the working conditions and entitlements”—

of the work force.

Never mind the principles, all the way through the passage of the Bill, in the other place and in this House, Ministers have simply failed to convince on how it would work in practice.

I mentioned industrial relations on a previous occasion and explained that, from a practitioner’s point of view, I do not understand how it would help employee relations if, in the middle of one’s employment, an employer suddenly says, “You know what? I think I’m going to give you some shares, but in return I want you to give up your fundamental rights at work.” No explanation has been given as to why, practically, that would work. I have said that taking away people’s employment rights, such as unfair dismissal, will simply encourage people, when they fall out with their employers, to bring spurious discrimination claims. This measure will inevitably lead to that, and there has been no explanation of how that will be addressed.

On the valuation of shares, I have asked how on earth shares given to employees will be valued. Again, very little information has been given. In fact, the Minister in the other place, Viscount Younger, last night acknowledged that for private companies there is no traded market that enables easy valuation of shares.

There is then the issue of tax avoidance. This is the Government who say that they want to clamp down on tax avoidance. The independent Institute for Fiscal Studies says that to the extent that this proposal will be used, it will foster tax avoidance on a grand scale. Viscount Younger said that the Government would not allow the scheme to be used in that way yet, as we have seen all along, he gave no specific detail whatsoever on what the Government would do to prevent it.

I want to finish by dwelling on what the Bill is all about. As the Minister said, it is called the Growth and Infrastructure Bill. We have learned that the economy has gone back to where it was six months ago and that we are undergoing the slowest economic recovery in 100 years, and the Government have come forward with this. There is no evidence whatsoever to show that the Bill promotes growth.

What of my opposite number, the Secretary of State for Business, Innovation and Skills? He has been nowhere to be seen at the scene of this crime. Where has he been? He is the man who said that he fundamentally objected to the Beecroft proposals put forward by the Conservative donor, yet he is not here and the Bill will strip away people’s rights at work in a way, some would argue, that even Beecroft did not contemplate. [Interruption.] I am told he is in Brazil. He said last February, in his famous letter to the Prime Minister and Deputy Prime Minister, that the Government had no compelling vision for growth and were coming forward with fairly piecemeal measures.

David Anderson (Labour, Blaydon)

My hon. Friend is making a very good case. It is notable not only that the Business Secretary is not here, but that no one from his party is here. It will be interesting to see, in a few minutes when we go through the Lobby, whether the rest of the invisible men and women turn up to vote, or whether they abstain and renege again on workers’ rights.

Chuka Umunna (Labour, Streatham)

My hon. Friend is absolutely right. In fairness to Conservative Government Members, at least they are upfront and frank about their purpose in taking away people’s rights at work and do not, while voting for measures that do that, claim to be doing otherwise. We will watch carefully to see which Liberal Democrat Members join us in the Division Lobby.

I return to my previous point: there is no compelling vision for growth in the Bill. On all the evidence, the comments that the Business Secretary made in his letter to the Deputy Prime Minister and Prime Minister last year are just as valid now as they were then, which is why we will not support this ludicrous measure and have resisted it every step of the way.

Kelvin Hopkins (Labour, Luton North)

I rise briefly to support my hon. Friend the Member for Streatham (Mr Umunna) on the Front Bench. There is a parallel here with the privatisations and de-mutualisations of the 1980s and early 1990s, when consumers and partners—shareholders, if one likes—in mutual organisations were persuaded to give up their rights for shares, which were then sold. A classic example is Northern Rock, which had to be funded by the taxpayer to prevent it from being destroyed, and just recently came the disaster affecting the old Trustee Savings Bank, which was a mutual bank serving the country and its customers very well. It was forced to privatise and has now turned out to be an expensive disaster, a basket case that even the Co-op bank cannot afford to take on. This will cost the Government money. Again, a Conservative Government are persuading people to give up rights for shares that will last a few weeks, and then they will have lost their rights for good.

David Anderson (Labour, Blaydon)

This section of the Bill should be called, “The shoot from the lip” section, because that is exactly where it came from—a throwaway line in a conference speech by a Chancellor whose arrogance is matched only by his ignorance. It was an anti-trade union, anti-worker comment to score cheap political points by the seaside during the Tory party conference. This is a man who has decided to run a Government along dividing lines, a man whose Prime Minister’s background is summed up entirely by the fact that he was a public relations expert—and that is how he continues to run this country.

This proposal has shown yet again that the Conservative party still believes in the cost of everything and the value of nothing. It is banana-republic stuff. We are asking people to sell their rights. It is abysmal. If we asked people to sell their rights in any other part of what has become a civilised society in the 21st century, we would be laughed out of court, but the Government are serious about doing this, despite the huge opposition from everyone who really knows about it—the people in the workplace, in businesses and in the other House, who have said very clearly that this is a nonsense.

The Minister said it was impossible to see what more reassurance we could want, but it is impossible for me to see why on earth we are bothering with this. This has been a complete and utter waste of parliamentary time. We have got lots of parliamentary time, by the way. We are going to be on holiday for another two weeks when we could have been discussing really serious things. The next motion is being pushed through in an hour and a half. This is just about a Tory party struggling to find a dividing line. Amendments 25F and 25G talk about “drag-along rights” and “tag-along rights”. As I read them, I was reminded of children’s hour on the television in the 1950s—you are probably too young to remember, Mr Speaker. There used to be programmes called, “Rag, Tag and Bobtail”, “Andy Pandy” and “Bill and Ben”, but we have been treated this week and over the past nine months to the “Woodentops”

John McDonnell (Labour, Hayes and Harlington)

I cannot match that. Reminiscences are a strong point of my hon. Friend the Member for Blaydon (Mr Anderson).

I want to make four brief points. First, I agree with my hon. Friend that this is a disastrous way to make legislation. It started with a stunt, and then we got to what the Minister called “ministerial reflection”. This is not an example of ministerial reflection; it is an example of ministerial retreat.

Secondly, the Minister has said again today that this will be voluntary and that protections will be in place. There are more than 2.5 million unemployed, and it is rising. People are desperate for work and will do anything they possibly can to find a job. The pressure to take the shares or perhaps lose the job—that informal pressure—will ensure that this is not voluntary. It is like putting food on a plate in front of a hungry person and saying that it is voluntary to eat it. We will monitor this and I would welcome a six-monthly report from Ministers on how many people take up the option. It will not be a long report, as this proposal is almost dead in the water already; in fact one could probably come along with a list of the few names of those who have taken it up.

On JSA, I repeat that I do not accept any assurances from the Minister. None of the assurances that we have heard about the activities of the DWP to protect people—particularly regarding the sanctions and targets that the DWP and jobcentre officials are forced to make—have held water and are not worth the Hansard record they are written on. We will monitor the activities of the DWP in this matter to see whether the Minister’s assurances stand up.

Finally, there is a lesson for the Government in these debates, and it is this; neither this House nor the other place will tolerate again proposals in which people are asked to sell, effectively, their basic human rights. I give this assurance on behalf of, I am sure, all Opposition Members, and if there are any further such proposals, we will resist them tooth and nail because they undermine a basic principle of human rights development in this country. We feel as strongly as others will feel as the Government seek to roll this out.

Michael Fallon (Conservative, Sevenoaks)

With the leave of the House, let me reply to some of the points that have been made. First, there was a suggestion that the measure is not supported. It has been supported, repeatedly, by this House, and the Opposition’s attempt to derail it yesterday in the other place was defeated by a majority of 107, including by Liberal Democrats and Cross-Bench peers. We are now in a position where both Houses of Parliament support the clause and the principles behind it.

Ian Murray (Labour, Edinburgh South)

Will the Minister give way?

Michael Fallon (Conservative, Sevenoaks)

No.

The shadow Business Secretary, the hon. Member for Streatham (Mr Umunna) is quite wrong to say that we moved only very late in the day to consider the position of jobseekers allowance claimants. That issue was raised in this place and in Committee, where I gave assurances in response to questions and concerns from my right hon. Friend the Member for Hazel Grove (Andrew Stunell) in December. This is not something new; we have done everything we can throughout the passage of the Bill to ensure that the status is entirely voluntary. Members in both Houses were fully entitled to raise these concerns, and were right to do so. We have responded to them.

Secondly, we have introduced legal advice. Independent legal advice is not available at the moment for those considering other forms of employment status. A person is not offered independent legal advice if they are asked to make a judgment between being a worker and being an employee. I remind the House that the status of being a worker gives someone fewer rights than the status of being an employee-shareholder. People are not given independent legal advice on that, but we have introduced it in this respect because it is a new form of employment status and we want people to be absolutely sure of the risks and rewards involved.

Thirdly, the hon. Member for Streatham said that my noble Friend Viscount Younger had somehow suggested that it would be impossible to value shares. What he actually said, at column 1444, House of Lords Hansard, was that the valuation of private company shares was not particularly easy, but that it was done the whole time by expert advisers in various circumstances who have to make a valuation. That is quite standard procedure.

Ian Murray (Labour, Edinburgh South)

Will the Minister give way?

Michael Fallon (Conservative, Sevenoaks)

No.

The hon. Member for Streatham suggested that the tax provisions would be open to some kind of abuse. If he looks at the Finance Bill, which clearly he has not, he will see that schedule 22 includes provisions, which we published in draft, that deal specifically with the possibility of abuse of those tax provisions. I remind him that the Finance Bill is an annual event. Where abuses occur at any point under the law, we have the ability to improve our defences against them.

It is wrong of the Opposition to be completely negative about this proposal. It is wrong indeed to focus on just one aspect. We are talking about a package of employment rights, a package of mandatory shares and a package of tax incentives. It is the interaction of all three aspects that we think will motivate staff and better involve them in the future prospects of the company.

Ian Murray (Labour, Edinburgh South)

rose—

Lindsay Hoyle (Labour, Chorley)

Order. I cannot hear the Minister speak. If he does not wish to give way, that is his choice, but I must be able to hear what he has to say.

John McDonnell (Labour, Hayes and Harlington)

On a point of order, Mr Deputy Speaker. Would it not be right to get it on the record that it is etiquette for one Front Bencher to give way to another Front Bencher in a debate of this sort?

Lindsay Hoyle (Labour, Chorley)

It might be normal practice to give way, but it is still the Minister’s choice whether he wishes to or not. Obviously on this occasion he does not wish to give way.

Michael Fallon (Conservative, Sevenoaks)

Thank you, Mr Deputy Speaker. I am trying to wind up this debate in a few minutes. The House will recall that I have given way repeatedly in debates on this matter.

Nobody has claimed that this Bill on its own or any individual measure in it will by itself trigger the growth that our economy needs, but in this Bill six different Departments have come together with a package of measures that will speed up the planning process, make it easier for families who want to adjust their housing, speed up the roll-out of broadband, increase investment in our gas and electricity networks and, finally and importantly, provide a new form of shareholder-employee status for those companies that wish to bind their employees more closely into the success of their performance.

Railways

Simon Burns (Conservative, Chelmsford)

I beg to move,

That this House takes note of European Union Documents No. 5855/13, a Commission Communication: The Fourth Railway Package-completing the single European railway area to foster European competitiveness and growth, No. 6012/13 and Addenda 1 and 2, a Draft Regulation on the European Union Agency for Railways and repealing Regulation (EC) No. 881/2004, No. 6013/13 and Addenda 1 and 2, a Draft Directive on the interoperability of the rail system within the European Union (Recast), No. 6014/13 and Addenda 1 and 2, a Draft Directive on railway safety (Recast), No. 6017/13, a Commission Report on the progress made towards achieving interoperability of the rail system, No 6019/13, a Commission Report on the profile and tasks of other train crew members, No. 5960/13 and Addenda 1 to 5, a Draft Regulation amending Regulation (EC) No. 1370/2007 concerning the opening of the market for domestic passenger transport services by rail, No. 5985/13 and Addenda 1 to 7, a Draft Directive amending Directive 2012/34/EU establishing a single European railway area, as regards the opening of the market for domestic passenger transport services by rail and the governance of the railway infrastructure, and No. 6020/13, a Commission report on the implementation of the provisions of Directive 2007/58/EC on the opening of the market of international rail passenger transport accompanying the Communication on the fourth railway package; supports the Government’s aim of ensuring any resulting measures are appropriate, encourage competition and help to deliver a level playing field across the EU; and further supports the Government’s view that any such measures should be evidence-based, proportionate and reduce or at least minimise the regulatory, administrative and cost burden for industry.

I welcome the fact that the European Scrutiny Committee has referred this subject to the House for debate. I also thank and pay tribute to the Transport Committee for its report on the fourth railway package, a number of whose conclusions and recommendations the Government support.

The fourth railway package is a major European Union legislative proposal involving three directives and three regulations. As Members will appreciate, we are still considering the implications of the proposals in consultation with other Departments, so all I can give the House this afternoon is our initial position.

The United Kingdom has one of the most liberalised rail networks in the EU, which is why the Government support further opening of the domestic EU public passenger transport markets. However, we want to ensure that the proposals that are implemented as part of the package are flexible enough to work within the UK’s public passenger transport structure, and are compatible with our plans for rail reform. The Transport Committee made that point in its report.

Evidence garnered by the European Commission indicates that about 40% of passenger routes in the EU are accessible to new operators. That implies that significant market opportunities could arise both for UK rail firms and for those in the rest of the EU if the proposals pass into European law. There would also be potential for expansion of the rolling stock leasing sector. The new infrastructure manager separation provisions could give freight operators benefits as well if they further open up

access in practice, reducing the chances of discriminatory behaviour in some member states. In any event, I can assure the House that the proposals will be the subject of consultation with stakeholders and considerable negotiation within the European Union. We will continue to engage with the Commission, the European Parliament and other member states to ensure that any concerns are addressed in the final texts.

Jeremy Corbyn (Labour, Islington North)

I am listening to the Minister’s comments with interest. Would these proposals force the publicly owned railway systems that exist in some parts of Europe to be handed over to the private sector, or would they allow the public sector to participate on a level playing field?

Simon Burns (Conservative, Chelmsford)

I hope I can give the hon. Gentleman reassurance on that, if that is what he is seeking. It is not a question of forcing any railways in any country in the EU to move from one position to another, although the main thrust of the package is to create a greater liberalisation of the market for the benefit of both taxpayers in the EU and passengers.

Ian Murray (Labour, Edinburgh South)

Does the Minister agree that any operator, whether private or public, that returns £640 million to the taxpayers of any country is a good operation to have?

Simon Burns (Conservative, Chelmsford)

I think the hon. Gentleman is trying to take us back to the House’s earlier Transport questions, as he is trying to highlight the east coast main line case. I am more than happy to take as long it takes to explain why it is the right thing to return the east coast main line to a franchise situation, as the last Labour Government wanted to do, but if I were to do so, I think, Mr Deputy Speaker, that you would step in quickly to tell me that that is beyond the scope of this debate.

Simon Burns (Conservative, Chelmsford)

I am spoiled for choice, so I will give way to my hon. Friend the Member for Bournemouth East.

Tobias Ellwood (Conservative, Bournemouth East)

The important issue of whether ownership should be private or public has been raised, and I hope my right hon. Friend will assure me that he agrees that railways in private ownership are better run than those in public ownership. Certain countries in Europe, however, still have a tight grasp of public ownership of their railways, and I therefore hope he will encourage liberalisation of the market so that private companies can invest into markets throughout Europe.

Simon Burns (Conservative, Chelmsford)

My hon. Friend is absolutely right, and he can certainly have that assurance. We lead the way in Europe on liberalisation of the rail market, followed closely by the Dutch, the Swedish and the Germans, seeking to—

Ian Murray (Labour, Edinburgh South)

rose—

Sheila Gilmore (Labour, Edinburgh East)

rose—

Simon Burns (Conservative, Chelmsford)

I am trying to answer my hon. Friend’s question. His second point is also absolutely right. As he knows—and as Labour desperately tries to forget—since privatisation the number of passengers using our rail network has doubled, the number of journeys on our

rail network has doubled, the standards have improved noticeably—but there is still some way to go to get even better quality and standards for passengers—and the investment in the infrastructure to improve the quality of the journeys has increased. It is incredible that, although the Labour party pays lip service to a good, efficient rail system, in 13 years of the last Labour Government there were just 10 extra miles of electrification on the network, yet in the first three years of this coalition Government there have been 850 extra miles of electrification.

Sheila Gilmore (Labour, Edinburgh East)

rose—

Ian Murray (Labour, Edinburgh South)

rose—

Simon Burns (Conservative, Chelmsford)

The hon. Gentleman has had his turn, so I suggest he sits down. I will now give way to the hon. Lady, and then I will make progress.

Sheila Gilmore (Labour, Edinburgh East)

If our system is so much better than the European systems that have more state control, why is it that Members, including on the Government Benches, have been saying that the costs here are too great? Is there, perhaps, some relationship between the costs under a privatised system as opposed to the costs under a state-run system?

Simon Burns (Conservative, Chelmsford)

I think I am in a better position than the hon. Lady to know what my hon. Friends say, as I probably mix with them more frequently than she does. They are impressed that since privatisation the number of passengers using the rail network has doubled, the number of rail journeys has doubled and the amount of freight on rail, and off our congested roads, has increased by 60%. They want continued investment in infrastructure to improve the quality of journeys and to improve rolling stock and track electrification so that people can travel around this country by rail far better than under British Rail. As someone who, sadly, is old enough to remember British Rail, I find it incredible that so many—almost dinosaurs—on the Opposition Benches seem to have a rose-tinted view of how fabulous it was. It was not.

I turn to the safety aspects of the package, which are important and are of major interest to the various sectors in the UK rail transport chain. In consultation with stakeholders, we are giving full consideration to their implications. The proposal to move from a two-part safety certificate to a single-part certificate is welcome as a simplification of the existing process. We expect it to lead to a significant reduction in the costs and regulatory burdens for railway undertakings. It will especially benefit those who operate cross-border services.

However, we need to look carefully at the justification for the extension of powers for the European rail agency to issue the single safety certificate, and we need to understand how it supports market opening objectives. Enhancement of the agency’s powers for audit and inspection of national safety authorities will change its current role. It is a fundamental shift away from a partnership role to a policing function. We are not convinced that those powers are necessary given the high level of co-operation already achieved between the majority of national safety authorities. We will ask the European Commission for further clarity about how any issues exposed will be resolved.

The communication includes proposals for a recast of the interoperability directive for railways. The Commission believes that there are problems with the authorisation process for rail vehicles, especially when the vehicle is intended for use in more than one member state. It refers to delays and costs reported by operators to the Commission due to vehicles sitting idle in sidings awaiting authorisation from national safety authorities. To solve the problem, the Commission proposes a recast of the directive and changes to the authorisation process. A key change would be that the applicant applied to the European rail agency instead of the national safety authorities for authorisation of their vehicle.

Removal of powers from national safety authorities to the agency will change their role. The three safety authorities in the UK—the Office of Rail Regulation, the Channel Tunnel Intergovernmental Commission and the Department for Regional Development in Northern Ireland—will no longer be able to issue those authorisations.

Jacob Rees-Mogg (Conservative, North East Somerset)

Does that not indicate the heart of the problem? The European Union is once again seeking to extend its powers in an area where it already has competence. In the review of competences, will my right hon. Friend consider returning the whole area to the authority of the United Kingdom and our democratic control, as we are an island and our connection with the continent by rail is limited to the channel tunnel?

Simon Burns (Conservative, Chelmsford)

I am very grateful to my hon. Friend for that intervention, to which I will respond in two parts. His second point is, I am afraid, above my pay grade. I hear what he says, and I understand what he is getting at, but I cannot give him an assurance. The transport field is a bit more complicated because so much is done on a Europe-wide basis, but I can give him the somewhat glib assurance that no doubt his concerns and his point will be heard and considered in other places. On the narrower issue, I beg his patience because he may be more reassured when I reach our proposals.

Bill Cash (Conservative, Stone)

I endorse the views expressed by my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg). When my right hon. Friend reaches that narrower issue, will he make clear whether High Speed 2 is directly connected? It is being put around by the UK Independence party, and others in the county council elections, that HS2 is directly related to the issue.

Simon Burns (Conservative, Chelmsford)

I will deal with it now. HS2 is not directly related. It is a project drawn up by the coalition Government—to be fair, building on the work of Lord Adonis when Labour was in power. We support the project because we believe it is in the national interest, which is why it is going ahead. UKIP has sought to muddy the water on a number of issues with regard to HS2 and the European Union. As I was saying at Transport questions, before I was politely interrupted, that is fascinating, because if one were to travel around Buckinghamshire, and possibly Warwickshire, Staffordshire and a few other points north, one would see opposition to that magnificent project from the party my hon. Friend mentioned. He might then be confused if he

read UKIP’s 2010 general election manifesto, which calls for three—not one, but three—high-speed railway systems in this country. But I now return—

Lindsay Hoyle (Labour, Chorley)

Order. May I help the Minister a little more? He is right to suggest to the Chair that he does not want a rerun of Transport questions. I totally agree and we are not going to do that, are we?

Simon Burns (Conservative, Chelmsford)

Of course not, Mr Deputy Speaker.

David Anderson (Labour, Blaydon)

The Minister wants to rerun the answers.

Simon Burns (Conservative, Chelmsford)

Cruel.

Before I was so cruelly interrupted by the hon. Gentleman, I was talking about the important issue of safety.

Henry Smith (Conservative, Crawley)

Will my right hon. Friend give way?

Simon Burns (Conservative, Chelmsford)

If my hon. Friend will forgive me, I want to make some progress.

The Commission’s explanation is that removing authorisation powers to the agency will help to address the delays that some operators have reported when seeking authorisations from national safety authorities. That is especially the case for cross-border operations where a train may run through more than one member state. We are not currently aware of significant costs or delays for railway undertakings in obtaining those authorisations in the UK, so we are not convinced that there is a problem in the UK. That is why we need to safeguard practices that already work here.

Overall, the Commission needs to be clearer about how the changes to the directive will contribute to market opening. Another Commission proposal is to change the authorisation process for trackside signalling, which would have a significant impact in the UK. There is not yet much experience in the UK of the authorisation of trackside signalling by the national safety authorities. However, UK projects are more likely to prefer to seek authorisation from the national safety authority rather than the agency, because they have not encountered difficulties so far.

The Commission has explained that to deal effectively with authorisation delays and cross-border problems it requires action at the EU level. It argues that individual member states acting independently cannot address such problems. However, at the Transport Council on 11 March, my right hon. Friend the Secretary of State proposed that there might be an alternative to moving powers away from national safety authorities to the agency. We have suggested giving the market a choice about where the authorisation is obtained from, so we propose exploring with member states and the Commission an approach that would enable rail undertakings to choose whether to obtain an authorisation from the relevant national safety authority or the agency. The same principle could be extended to give the industry a choice about where it needs to apply for trackside signalling authorisations. The UK is continuing to push

for our choice of approach so that the national safety authorities and the agency could have the power to authorise vehicles.

The details of the recast of the interoperability directive are being negotiated in Council working groups. However, there are indications that our views about choice are being listened to and that other member states support our idea, which gives us grounds for encouragement. We will keep a close eye on how the proposals develop to try to ensure that we get the best outcome for Britain and the rail system in Europe. We will try to preserve as much flexibility as possible for member states to determine what work needs to be authorised and the applicable standards.

Let me turn to the impact of the proposals to require a railway infrastructure manager to be separate from a railway undertaking. The Government will need to understand the possible effects on several areas, including alliances between Network Rail and railway undertakings, and joint working arrangements. Within the package are requirements to ensure the effective independence of the infrastructure manager within a vertically integrated undertaking. The Government are looking further at how they will influence the holding company model, as used by Eurotunnel in respect of the channel tunnel and the cross-border rail services that run through it. There will also be points to consider for the railway structure in Northern Ireland, which remains vertically integrated.

Sir Roy McNulty concluded in his report—we accept this—that the key to delivering long-term efficiencies in the rail industry is the alignment of incentives between track and train. Alliances or partnerships between Network Rail and the passenger train operators are central to our approach. Alliances are expected to maximise efficiencies and to ensure that minority freight and open-access operators are protected, not discriminated against. They do so by ensuring that capacity allocation and charging decisions are undertaken outside the alliance to avoid discrimination against smaller train operators, including freight operators. Safety is protected by ensuring that ultimate accountability rests with the statutory duty holder. We believe that that is compatible with the open competition in rail markets that the Commission wants, but we are worried that the way in which the Commission’s proposals are formulated might prohibit certain types of alliances, such as between Network Rail and rail undertakings, and joint working arrangements, such as integrated control centres and performance improvement projects. The proposals therefore might prevent us from achieving the benefits that we anticipate. I know that the Transport Committee’s report stated that joint working between Network Rail and train operators should not be prohibited or unduly restricted. We will continue to engage closely with the European Commission and Parliament, and other member states, to ensure that our concerns are addressed in the final proposals.

On the impact of the proposals on franchising, we welcome the commitment to market opening.

Gavin Shuker (Labour, Luton South)

Will the Minister give way on that point?

Simon Burns (Conservative, Chelmsford)

I actually have not said anything yet, so I am not quite sure what the hon. Gentleman is going to ask. Perhaps he will allow me to say a little more.

We believe that the liberalised domestic market has delivered significant benefits for passengers. We have shown our commitment to franchising through the recent announcement to restart the franchising programme and return the east coast main line to the private sector.

Gavin Shuker (Labour, Luton South)

I am extremely grateful to the Minister for giving way on that point. Will he confirm that it would not be possible for him to continue to operate the east coast line through Directly Operated Railways if this package of measures goes through? I understand his commitment to returning the line to the private sector, but given that it is thriving in the public sector, why does he want to go along with these proposals?

Simon Burns (Conservative, Chelmsford)

I am not sure what it is about the hon. Gentleman that he cannot comprehend the position, but I suspect that he just has not read the facts. Lord Adonis and the right hon. Member for Tooting (Sadiq Khan), when he was in my post, also believed that it was best to operate trains through franchises in the private sector. Even when Lord Adonis had to introduce the emergency measure of taking the east coast main line into public ownership, as a result of the problems that blew up at that time, he was clear that that would be a short-term measure and that the service would be returned to a franchise when it was possible to do so.

Gavin Shuker (Labour, Luton South)

indicated dissent.

Simon Burns (Conservative, Chelmsford)

The hon. Gentleman is displaying a degree of incredulity and suggesting that that was not the case. I know that he was not a Member at that time, but if goes to the Library to find the relevant copies of Hansard, he will read that Lord Adonis and the right hon. Member for Tooting were emphatic in their announcements to Parliament that the decision on the east coast main line was a short-term measure. I am rather grateful that Lord Adonis went a step further by saying that it was better for the railways to be run by franchises in the private sector.

Kelvin Hopkins (Labour, Luton North)

But he’s a Tory.

Simon Burns (Conservative, Chelmsford)

It is fascinating to hear that from one of Lord Adonis’s colleagues. I suspect that the hon. Gentleman—there seems to be a problem with Luton today—meant that in a derogatory way, but I thought that Lord Adonis was not a Tory, but the last Labour Secretary of State for Transport. I also thought that he was working with the present leader of the Labour party on formulating Labour’s policies.

David Anderson (Labour, Blaydon)

Will the Minister give way?

Simon Burns (Conservative, Chelmsford)

No, I am going to make progress—[Interruption.] I do not want to be disrespectful to the hon. Gentleman, but I have listened to many of his interventions and it is not often that they can be put in the category of making progress—they usually hark back to an era that most of us do not remember.

David Anderson (Labour, Blaydon)

rose—

Simon Burns (Conservative, Chelmsford)

I will make progress in my way, not the hon. Gentleman’s.

The subject of franchising has aroused considerable interest among Labour Members, so let me briefly set out something that I have said before. Since privatisation, rail numbers have doubled and passenger satisfaction is at an all-time high. Recent European research has shown that the countries with the greatest growth in rail travel are those with the most liberalised markets.

As with the proposals I have already discussed, we will need to ensure that we continue to engage on the detail, including by ensuring that any changes to public passenger transport services regulation are compatible with the specific needs of our network and give us the flexibility to deliver a sustainable franchise programme. I know that the Transport Committee’s report is concerned that our arrangements for letting train franchises should not be challenged, and I assure hon. Members that the Government share that view and are looking closely at the issue.

On transport plans, we are concerned that the requirements are over-prescriptive and will therefore impose a significant regulatory burden.

In relation to the channel tunnel, the focus of the Commission’s proposal is on achieving effective competition and further market opening for domestic passenger services, thereby increasing the quantity and improving the quality of passenger services. It is still too early to assess whether this will lead to more cross-border rail services through the channel tunnel.

I will summarise our initial findings on the impacts of the package on the UK. The package may present significant market opportunities for UK firms wishing to expand their operations into the EU. However, the benefits for domestic rail transport are less obvious. We cannot see how a substantial proportion of the additional demand and cost savings identified by the European Commission in its impact assessment will translate to the domestic rail sector in the UK. This is because significant parts of the Commission proposal, including the competitive tendering aspects of the package, are already in place, and because in the UK we already have the benefits of vertical separation which avoids discrimination.

I remain concerned about the Commission moving powers from national safety authorities to the European Railway Agency. The Government will need to be convinced that these powers are necessary, given the high level of co-operation already achieved between national safety authorities. We also do not want anything that interferes with the current UK rail structure or adds bureaucracy and costs, or any proposals that are not compatible with our plans for rail reform.

Andrew Percy (Conservative, Brigg and Goole)

rose—

Simon Burns (Conservative, Chelmsford)

I give way for the last time, before I allow other hon. Members to contribute.

Andrew Percy (Conservative, Brigg and Goole)

I am pleased the Minister is talking about UK passengers. My constituents would be happy just to be able to get on the train to Doncaster. They are not necessarily bothered about being able to get a train to Berlin, so I am reassured by what he is saying. However, having listened to the debate, my knee has started to jerk a little. We seem to be hearing the usual European argument about how all this will be in the interests of the passenger, but is not the risk that this is

just another area that we will cede to the European Union? We will be told that it is all about improvements for domestic passengers, and down the line we will find out in short time that we have given away yet another power over another area of domestic policy, which will not be in the interests of passengers.

Simon Burns (Conservative, Chelmsford)

I think I can give some reassurance to my hon. Friend. As he will know, because he has been listening avidly to my remarks, I have identified a number of areas where we are concerned or where we are seeking to forge a partnership with other members of the European Union to make changes for the better. But the assurance is that we are so far ahead of most of the European Union with our liberalised market that we are seeking to bring others up to our standards and offer the same opportunities as we have of a more liberalised rail service in other EU countries. I do not think it is a case of our being dragged to do something that we do not want to do, because in many areas we are already doing it. We want other people to follow our good example and get the benefit that we have had from a liberalised market with a good franchising process, where more people are using our railways, standards are improving and we are investing in enhancing it.

On that happy note, I conclude by saying that I warmly welcome the opportunity that we have today to debate the document. I will listen with great care to the comments from the Opposition Front-Bench spokesman, and I will fascinated to see whether she and her hon. Friends will join me in the Lobby to take note of this important document.

Lilian Greenwood (Labour, Nottingham South)

This is an important package of proposals and we must consider their consequences carefully. As the Minister acknowledged when he appeared before the Transport Committee and today, the Government are still considering their position on several matters of detail.

A number of issues need to be looked at in the context of the UK rail industry. Given the recent success of the east coast main line and the collapse of the franchising system, we do not believe that it is necessary to move towards compulsory tendering of all passenger contracts. Within the wider package there are several proposals that we can support in principle, but reassurances are needed on a number of points.

We broadly welcome moves towards standardisation which have the potential to deliver savings to UK companies. Part of that process is the move towards uniform European safety standards, and we need to look closely at how those changes would impact on the UK. We need to look at how the proposals would affect our cross-border links with France. The channel tunnel has not yet fulfilled its potential in either passenger or freight traffic, and the proposals in the package for greater co-operation between infrastructure managers, combined with a single certification authority, may improve services between Britain and the continent. It is therefore right to pursue standardisation which could reduce costs, and it is also important that where countries

have chosen to put contracts out to tender, British companies should be able to compete on a level playing field.

Previous packages have done much to remove the cross-border restrictions which hold rail back compared with other modes of transport, although as the Select Committee noted this week, some outstanding issues remain. There is still much to be done and the possibility of single certificates across the EU will be a boon to purchasers and manufacturers, who currently have to obtain approval from individual national regulators. However, there are also concerns, and we must make sure that any final agreement is in the national as well as the European interest.

Crucially, the UK’s recent exemplary safety record must not be put at risk in a rush to achieve uniformity. Since Labour ended the failed Railtrack experiment and tackled the decades of under-investment in our infrastructure, the UK has established one of the best safety records in Europe. Much of the credit must go to the work of the Office of Rail Regulation, which since 2004 has helped to deliver a significant improvement in safety standards. Fatalities on the railways are now at an historic low, but under the fourth railway package the ORR’s safety and certification responsibilities will be transferred to the European Railway Agency. Can the Minister give the House a categorical assurance that safety standards in the UK will not be weakened if the ORR’s responsibilities are transferred to the ERA? What discussions has he held with the Commission on this point? Will he give the House a full report on them today?

Ian Lavery (Labour, Wansbeck)

Is it not fair to say that the British railways system is one of the safest in the world? We are on the right track with health and safety. If the package goes ahead, that could be in doubt.

Lilian Greenwood (Labour, Nottingham South)

My hon. Friend is exactly right. Since Network Rail took over, overseen by the Office of Rail Regulation, safety has improved enormously. That is precisely why I am asking the Government to give us the assurances that we seek.

As the Transport Committee noted, there is a

“lack of clarity about how they”—

the new standards—

“would work in practice.”

Will the Minister reassure the House that there will be a clear and simple division of responsibilities between the ORR and the ERA? What assessment has he made of whether there will have to be an increase in bureaucracy in order to enforce common standards across very different networks? The UK is currently leading Europe on safety, and our high standards must not be levelled down in order to reach a quick agreement.

There is also a difficult balance to strike on competition. Of course, where countries have decided to put routes out to tender, British companies should be able to bid without fear or favour, but the fourth railway package would force competitive tendering on all passenger services. This has already provoked opposition in Europe, and we believe that there are good reasons for opposing it in the UK too. If approved, it could deny the UK the right to maintain a public sector comparator or intervene in cases of market failure, as happened on the east

coast. Since 2009, the award-winning not-for-dividend operator has returned £640 million to the taxpayer, so it is worrying to see the Commission base its proposals explicitly on the UK experience.

Ian Murray (Labour, Edinburgh South)

My hon. Friend is making an exceptional case. The Minister talked about competition on the railways. Does my hon. Friend surmise that if a private operator returned £640 million to the Exchequer, the Minister would come to the Dispatch Box to say that it was an exemplary operator that should be encouraged?

Lilian Greenwood (Labour, Nottingham South)

My hon. Friend makes a telling point. The Government’s claims—

Simon Burns (Conservative, Chelmsford)

Will the hon. Lady give way?

Lilian Greenwood (Labour, Nottingham South)

I will respond to the previous intervention first.

The Government’s claims about the east coast main line’s performance have been blown out of the water by the Office of Rail Regulation’s recent financial report. East Coast has seen rising passenger satisfaction and been given a national award. It receives virtually no subsidy and makes the second highest contribution to the Treasury. The Government’s case for re-privatisation just does not stack up.

Simon Burns (Conservative, Chelmsford)

The hon. Lady might want to reassure her hon. Friend the Member for Edinburgh South (Ian Murray) that the west coast main line has paid back even more money to the Treasury. In the light of what she has just said, perhaps she would like to explain her view of the comments of her right hon. and noble Friend Lord Adonis and her right hon. Friend the Member for Tooting (Sadiq Khan) on the east coast main line going back to franchising and out of public ownership.

Lilian Greenwood (Labour, Nottingham South)

The west coast main line, of course, enjoys the advantage of having had a major infrastructure and rolling stock upgrade, all funded by the taxpayer, and the east coast main line is due to have a large investment in infrastructure and rolling stock, also paid for by the taxpayer. Perhaps the Minister would like to reflect on the comments Lord Adonis made in last year’s “Rebuilding Rail” report. Some years after taking the east coast main line back into a not-for-dividend operator, he acknowledged that the current arrangements hold back our state operator.

Tom Harris (Labour, Glasgow South)

Can my hon. Friend reassure the House that when the Government seek to put the east coast main line out for a new franchise, as they inevitably will, she will hold the Minister to account to ensure that whatever premium is paid by the new private operator will be at least the same as that which we are now receiving from the state-owned company, because anything less will surely be absolutely unacceptable to the taxpayer?

Lilian Greenwood (Labour, Nottingham South)

My hon. Friend makes an important point. Of course, it is not just about the premium payments. At the moment, because the east coast main line is run by a not-for-dividend operator, not only is it making the premium payments to the Treasury, but the £40 million surplus has not been shared with private

shareholders; every single penny has been reinvested in improving services. I think that is what UK taxpayers and passengers want.

Fabian Hamilton (Labour, Leeds North East)

Following what my hon. Friend the Member for Glasgow South (Mr Harris) has just said, will my hon. Friend hold the Minister to account so that the Government ensure not only that the franchise delivers more to the Treasury than the directly operated railways are currently delivering, but that the franchise can afford to do so, because we remember the National Express fiasco?

Lilian Greenwood (Labour, Nottingham South)

My hon. Friend has said exactly what needs to be said on the matter.

The European Commission’s case for extending competition in that way can be found in a recently published non-paper, or document for discussion, on the UK railways. Actually, the term “non-paper” covers it rather well. It implies that privatisation was responsible for improving safety, but in fact the infrastructure sell-off had the opposite effect and subsequent investment in safety was taxpayer-funded. It also claims that privatisation itself was responsible for increasing passenger numbers, but other countries that did not fragment their systems also experienced comparable levels of passenger growth, as the Transport Committee acknowledged this week.

Most remarkably, the non-paper suggests that privatisation has reduced subsidy. At the time, we were promised a more efficient railway, but subsidy rocketed. As the Office of Rail Regulation’s financial report last week confirmed, in 2011-12 train operating companies received more public funding than they paid back. They were paid £51 million more than they gave back in premium payments, while the Government paid almost £4 billion towards the cost of infrastructure.

David Anderson (Labour, Blaydon)

Does my hon. Friend agree that the figures show that the subsidy has gone up by 300% since privatisation and, on top of that, fares have gone up by 22% in real terms, so the public are paying for the costs of privatisation? The really perverse thing is that a lot of the subsidy from British taxpayers and fare payers is actually going to the German, Dutch and French national Governments, because they own more than half the railways in this country.

Lilian Greenwood (Labour, Nottingham South)

My hon. Friend is right. That is precisely why the Opposition have been prepared to look at reforming the railways.

In total, the train operating companies were left with £305 million before tax at a time when, as my hon. Friend has just said, some fares and season tickets have been allowed to rise by well above the rate of inflation. Those are the headline figures but, as the McNulty report, the Transport Committee and many others have pointed out, there is a basic lack of transparency in railway finances, as commercial confidentiality serves to obscure waste in the system.

The waste is huge. The McNulty report identified an efficiency gap of 40%, compared with the railways of four other European countries. The fragmentation of the industry has led to massive interface costs between Network Rail, the operating companies and the supply chain. Taxpayers and fare payers are supporting replica bureaucracies and unnecessary legal challenges. That

money could be better invested in the industry. The great railway sell-off was a botched, rushed job. Labour took action to reverse some of the most damaging legacies of privatisation, including the disaster that was Railtrack, but the Railways Act 1993 was hurried through Parliament for political reasons, creating inefficiencies that are still with us today.

Bill Cash (Conservative, Stone)

With regard to the interesting dialogue between the question of Europeanisation, nationalisation and privatisation, does the hon. Lady agree that the consequences of adopting a positive policy towards the underlying desire to Europeanise the system of railways are alien to what I assume to be the interests of the trade unions, whether in this country or elsewhere, because Europeanisation and the bureaucracy she has just referred to will ensure that it is inefficient?

Lilian Greenwood (Labour, Nottingham South)

The hon. Gentleman makes an interesting point, but my concern is to protect the interests of passengers and taxpayers. That prompts the reasons for our response to the Government’s proposals today.

Rather than reading the Commission’s non-paper, Members could watch the accompanying video—I wonder how much taxpayers’ money was spent producing it—which is very amusing. They could be forgiven for thinking that there is no real dispute at all, but buried in the impact assessment for compulsory tendering is the giveaway sentence:

“There is a certain degree of uncertainty in the assessment of impacts of some options, as evidence is sometimes fairly recent (e.g. competition in the market) or ambiguous (evidence provided only by specific stakeholders). The choice to move forward with the aforementioned combination remains thus a political choice.”

There we have it. The decision to impose one particular model on European states is a political choice, just as the Government’s decision to re-privatise the east coast main line was ideologically driven.

Jacob Rees-Mogg (Conservative, North East Somerset)

Will the hon. Lady give way?

Lilian Greenwood (Labour, Nottingham South)

I will make a little progress.

Countries should be free to choose the models that best suit national and local needs. We had just such a need in 2009, after two franchisees walked away from the east coast main line. As a not-for-dividend operator, East Coast has gone from strength to strength. Overall passenger satisfaction has risen and the operator has won a national award for how it manages disruptions to services, with a 12% improvement in satisfaction ratings in the past year. It has provided a public sector comparator at a time when the Government’s franchising policy has collapsed, at a cost to the taxpayer of more than £55 million. By the end of this year, it will have returned £800 million to the taxpayer and invested profits in the service.

The not-for-dividend east coast main line is working, and with a five-year business plan in place the operator could deliver more, if it had the Government’s backing. However, by prioritising the privatisation of the east coast main line, the Government seem to be saying that the service works in practice, but not in theory. We need to proceed on the basis of the best evidence available and build on success stories such as the east coast main line, Merseyrail and London Overground.

I am sure that the Minister will have listened closely to Transport for London’s concerns about the fourth railway package, particularly the definition of a competent authority. Interpreted literally, the definition of an authority that serves

“the transport needs of an urban agglomeration or a rural district”

could force TfL to divest itself of some services at a time when it is looking to take on additional responsibilities. Perhaps the Minister could offer reassurances on this issue, which may impact on other bodies, including the proposed rail in the north executive. The devolution agenda must not be put at risk by these proposals.

Jeremy Corbyn (Labour, Islington North)

My hon. Friend will be aware of the current consultation on changing the rail network in London by extending the London Overground network to take in some of the suburban services run by other agencies. I am unclear about the effect that this European proposal will have on that. London Overground, after all, is one of the most popular and successful rail networks in the country and its expansion would certainly be welcomed by many people in London.

Lilian Greenwood (Labour, Nottingham South)

I thank my hon. Friend, and that is the precise concern that I am raising on behalf of TfL. As he says, London Overground is a successful operation and we would not want to see this package stand in the way of TfL continuing to develop services for the benefit of passengers and taxpayers.

There are a number of concerns, therefore, about a number of points in the fourth railway package. We need to reach a deal that works for the British railway industry—a deal that removes the uncertainty over safety and devolution, while allowing us the option of replicating the success of the east coast main line, which should not be re-privatised, as the Government plan. The fourth railway package is not there yet, and that is why we cannot support this motion.

Lindsay Hoyle (Labour, Chorley)

Order. My word, there are more speakers than expected. I am going to have to introduce a limit of five minutes and it may even have to go down. The opening speech lasted 33 minutes, so that has affected the debate a little. I call Iain Stewart.

Iain Stewart (Conservative, Milton Keynes South)

Thank you, Mr Deputy Speaker. I am grateful for the opportunity to contribute to this debate.

I will first pick up on the fascinating comments made by the hon. Member for Nottingham South (Lilian Greenwood). I wonder whether we are witnessing the embryonic development of a Labour policy of whole-scale renationalisation of train operators. I have only five minutes, so I cannot pursue that much further. I imagine that the proposal finds a lot of favour with the hon. Lady’s Back-Bench colleagues and, indeed, trade union sponsors, but that is a matter for another day.

Frank Dobson (Labour, Holborn and St Pancras)

Does the hon. Gentleman agree that the Government’s position is ideologically bizarre, in that they seem to oppose

public ownership of the railways by British people or the British Government, but have no objection at all to public ownership of British railways by foreign Governments?

Iain Stewart (Conservative, Milton Keynes South)

If the right hon. Gentleman will bear with me, I will come on to some of the proposals in the EU package that I think will help British operators to expand into Europe, if they so wish.

I broadly welcome the package of measures. It takes Europe in a direction that we have already taken, so its broad thrust will not have a dramatic effect on rail operators in this country.

I want to pick up on a few specific concerns. There is an issue about how the rest of Europe will respond and I am concerned about how effective the European Union will be in implementing the package in other countries. The Transport Committee’s evidence sessions made it clear that it will be very difficult to apply the package to all EU member states, because of the different sizes and structures of their respective railway systems. Past experience shows that the proposals are so opaque in practice that national Governments can implement them as they wish so as to protect their own national operators. I asked Brian Simpson, the Labour MEP who chairs the European Parliament’s Transport and Tourism Committee, whether there was lobbying from France and Germany to protect their national interests. He replied: “You bet there was.” I am, therefore, concerned about how the proposals will be implemented in Europe.

The Committee has recommended—I think this would help—that the maximum limit for the bundling together of rail network services should be one fifth instead of one third. On the evolution of services in Germany, while urban and regional services are diversifying, allowing different operators to enter the market, the entire intercity network, with only two exceptions, is operated by Deutsche Bahn. Therefore, a contract covering one third of the national network would allow Deutsche Bahn a near monopoly of the intercity services, which goes against the principle of the directive. I hope that in his discussions with colleagues in Europe, the Minister will pursue an upper limit of one fifth of the market, rather than one third.

The Minister has already referred to one of my domestic concerns, namely that the package should not prohibit the alliance between Network Rail and some of the train operating companies, particularly South West Trains. I believe that that is an effective way forward for the railways and I hope that the Minister will be able to get some clarification on it and protection for those British interests.

I am also concerned about international services. For obvious reasons, the impact on British railways has not been significant thus far, but High Speed 2 and its connection to High Speed 1 and the tunnel will lead to many more international services from this country. I do not want our interests to be inhibited by problems relating to track access or safety, which is what happened when Eurostar tried to buy Siemens trains for the tunnel. The existing regulations are not as effective as they could be. I hope we can get much greater clarity and certainty on both those areas, in order to allow the development of effective cross-border services from this country. The Minister has said that he is looking at

whether the issue can be dealt with through a European-wide arrangement or through greater collaboration between national agencies. I do not have a particular preference, but the overall objective should be to give operators greater certainty so that they can plan services.

I am running out of time, so I will conclude by saying that I broadly support the thrust of the package, but hope that the Government will be successful in getting the assurances and clarifications needed to protect our interests.

Louise Ellman (Labour, Liverpool, Riverside)

I begin by apologising that I will not be able to stay for the whole debate, because I have to lead a transport debate in Westminster Hall that starts at 1.30 pm. I am pleased to have the opportunity to discuss some of the findings of the Transport Committee’s inquiry into the European fourth railway package.

The Commission justifies its proposals by talking about “stagnation or decline” in European railways. Of course, there is no such thing in this country. Our railways are enjoying an unprecedented period of growth. It is highly debatable whether that growth is due to privatisation or the growth in our GDP over the same period. It is worth recognising that there has also been major expansion in Germany and France, where major national rail operators run the rail services. It is therefore not justified to say automatically that our success in increasing passenger numbers is due to privatisation.

The Select Committee raises a number of concerns about the package, one of which relates to the proposal to separate infrastructure management and service operation. That thread runs through the whole package. It is ironic that against the background of our success, the Government are trying to bring the operators and the infrastructure holders closer together. That is being done in a number of ways, including through the development of partnerships between the national rail network and the transport operators and through what is prescribed in the new rail franchises. It is important that the European package does not prevent the working together that this country is trying to develop.

It is also important that that division does not apply to light rail services, where management of the services and ownership of the network are combined, as in the case of the docklands light railway. Those services are extremely successful and they must not be jeopardised.

Before the package was published, it was thought that it would require the complete separation of infrastructure ownership and service operation, but that is not the case. The package says that there can still be a holding company, as there is in some other European countries, that owns both the network and the train operation. However, it says that there must be strict Chinese walls to separate the two.

A major concern of the Committee is that the regulations on how much of the rail service of any one country an organisation can hold will restrict the opportunities for UK companies to bid for overseas business in the way that the European companies that run large sectors of our rail industry have done here.

In the short amount of time left, I would like to mention the omissions that the Committee is concerned about. There is a need to encourage cross-border services

for both freight and passengers. Track access charges are an extremely important issue. We were told repeatedly that high access charges are impeding the development of cross-border services. There seems to be no recognition of that in the Commission’s package. Border control is another area that requires attention, but to which no attention was paid in the Commission’s rail package.

Those are the Committee’s key concerns with regard to the expansion of our rail services. We made other points too, but I have only had a limited time in which to speak. We are also concerned about the omissions. I listened to the Minister’s comments at the beginning of the debate. I am confident that he will take our points forward and I hope he will ensure that they are considered fully in the discussions in Europe before the package is finalised.

Bill Cash (Conservative, Stone)

First, I am glad that the Minister ruled out the connection between HS2 and this Europeanisation of the railway packages.

The European Scrutiny Committee asked for a three-hour debate on this matter. The Minister and the Opposition spokesman took up the best part of an hour, so we are down to five-minute speeches, but I will do my best.

What we need in our railway system is interaction, not integration. Obviously, we have to have compatible gauges because there has to be interaction between our country and the continent. I am very much in favour of trading and political co-operation in Europe, but I object to the Europeanisation of the railways on the one hand and their nationalisation on the other. That analogy, which was given by the right hon. Member for Holborn and St Pancras (Frank Dobson), is very apt because there is no difference between the two.

The intention of the package is to create a single railway market and to reduce the barriers that are hindering the development of a single EU railway area. That has all the elements of centralisation and the creation of a monopoly in legislative terms. The effect will be to centralise power and reduce the extraordinary necessity for competition, on which the Minister put so much emphasis. Of course, we all want competition. We need the kind of competition that was created, albeit some time ago, in the mid 19th century. My family founded the London to Brighton railway and the Leeds to Thirsk railway, among others. In fact, my ancestor, William Cash, was chairman of the committee of inquiry into George Hudson, the crooked MP who created the monopoly of the railway system. There was a special inquiry into his behaviour and he was eventually driven out. I believe that Europe is probably moving towards the kind of monopoly that had to be unravelled in the United Kingdom.

I am deeply concerned about competition in relation to contracts. We remember the Bombardier fiasco, which affected British jobs. The French and Germans are very good at getting into our systems, but we are not allowed into theirs. We saw what happened with Siemens and Alstom. I have some knowledge of how that worked in practice, being a former Member for Stafford, but we do not have time to go into the details. The reality is that these matters affect British jobs. I remember discussing

all this with Arnold Weinstock, who was so much in favour of the great venture of Europeanising GEC. I said, “Get the message: you will find that it doesn’t work in the way that you are hoping.” At the end of his life, he had a word with me and said, “You were right after all.” He had found that the system was very unfair and that other countries exploited it. We must have regard to our own national interests.

I am extremely worried about the direction of the railway package. I will go further and say that the Labour party should be worried as well. I would be interested to know what Mr Bob Crow thinks about it. Perhaps we will hear about that in a minute. Although I do not favour trade union control or nationalisation, I do believe in our national interest. Despite the fact that this is only a communication as yet, we know the direction in which it is going and I am not happy about it. The Labour party is doing the wrong thing because it is allowing this to happen. Although it is voting against it today, it will not really resist it for practical purposes. I am afraid that the Government are going to allow a system that will create a centralised monopoly in Europe.

Kelvin Hopkins (Labour, Luton North)

I am a member of the RMT parliamentary group and the chair of the ASLEF group, so in a sense I have an interest in the railways.

The core intention of the fourth railway package is simply to visit the mistakes made in Britain on the rest of the EU. Railway privatisation in the UK is a laboratory experiment that was designed in the EU. It has been an expensive failure which continental Governments would be foolish to imitate. Separating trains from track and privatising train companies to set up liberalised and allegedly competitive rail operations has been massively expensive to taxpayers and passengers. We have the highest fares in Europe and we know all about the taxpayer subsidies. Sir Roy McNulty’s report clearly demonstrated that in concluding that UK railways were up to 40% more expensive to operate than state-owned and integrated railways on the continent.

Some five years ago I had the pleasure of visiting Germany with the Rail Freight Group, and we met Dr Mehdorn, chairman of the German state railways, Deutsche Bahn. He was visibly angry and banged the table with his fist at the prospect of DB being privatised, especially on the “British model,” as he called it, of separating track from trains. The fourth railway package brings that outcome closer. Separating track from train operators has been a serious mistake, and significantly in the UK we have been making moves in the opposite direction towards vertical integration. The fourth railway package will force continental railways to go in the opposite direction and disintegrate—a big mistake.

On the same visit to Germany I met a British transport economist who had been a supporter of the UK privatisation model—a computer model—which apparently told him that such a system would reduce costs and produce efficiency. It had the opposite effect, as McNulty clearly demonstrated. My economist chum confessed to me—rather feebly—that his computer model had failed. I suggested that the logical answer was to renationalise and reintegrate Britain’s railways, to which he had no answer.

Why on earth is the EU pressing ahead with this package? It must simply be ideology, dogma, and serving the interests of those who make money out of privatisation. Incredibly, as we have heard, more than 50% of UK franchises are now operated, or part operated, by European state railways. When English, Welsh and Scottish Railway was taken over by DB Schenker I said, “You’ve been nationalised.” It said, “No we haven’t,” and I said, “Yes. You’ve been nationalised and taken over by the German Government.” It had been a private company in this country.

Are UK railways simply being exploited for profit to the advantage of continental Governments and their taxpayers? The same is happening in the energy sector with companies such as EDF. What nonsense is that? What happens if the fourth package proceeds? It is time to junk this model of railway operations, stop the fourth package, and return to sensible, integrated, publicly owned railways, especially in the UK.

There are, of course, good reasons for international co-operation to promote cross-border travel, but that can be done most easily by nationalised railways negotiating at international and national level. We do not need fragmented private companies trying to do that. As we know, rail travel is growing—I have been a commuter on Thameslink and its predecessors for 40 or 45 years—but it is growing in spite of privatisation, not because of it, and essentially because travelling to work on the roads is becoming more and more difficult. With the growth of the economy, particularly in London, more and more people are commuting.

Railways are wonderful things and the mode of the future, but they need state involvement and state running to make them work properly on behalf of us all, and to make them more efficient. We want to cut railway costs, and the way to do that is to bring them back into public ownership.

Alan Reid (Liberal Democrat, Argyll and Bute)

The fourth railway package is the latest effort by the European Commission to reform a European rail sector still dominated by state-owned railway businesses that control both tracks and trains. Most national domestic markets in Europe are largely closed—other than the UK, only Sweden has opened its rail markets. Because the UK already has an open market, it is unlikely that infrastructure separation proposals will have a significant impact in this country. However, the package offers new opportunities for UK operators to enter other European markets with the same ease that European operators have found when trying to enter the UK market. I understand that the package would not affect metro and light rail operations. That makes sense, and I hope the Minister will confirm that today.

I would like to raise a couple of concerns. First, the Commission is proposing to remove the existing exemption that allows the direct award of contracts that do not exceed 10 years. I believe that the 10-year period could be reduced, but there must still be a shorter exemption period to allow for the occasional need to extend rail public service contracts or combine them in a different manner. Even with our competitive tendering arrangements, the Government used that exemption following the cancellation of the competition for the inter-city west coast franchises. Furthermore, temporary arrangements

for the east coast main line service, which has operated in the public sector since 2009, would no longer be allowed. We need an exemption that allows for temporary operation backed by the public sector.

My second concern is the proposal to centralise powers that currently rest with national safety authorities with the European Railway Agency, as that seems to conflict with the subsidiarity principle. The move from a two-certificate system to the issuing of one safety certificate makes sense, as do proposals to standardise administrative measures across all European Union agencies. I do not, however, see the need to shift responsibility for issuing those safety certificates from national safety agencies to the European Railway Agency—NSAs will be far better able to appreciate circumstances in their own countries than the ERA. I hope that those issues can be satisfactorily resolved, and I support the Government’s aims as laid down in the motion.

Fabian Hamilton (Labour, Leeds North East)

Before I begin my brief comments—I will keep them brief as we are running out of time—may I say I find it astonishing that over the past three years when the Government have sought to blame somebody for their appallingly failed financial and economic policy, they have blamed the previous Labour Government and not their own policies, yet when they want to take credit for investment in the railways that must have been made at least three years ago under the previous Government, they take credit for that? Such things cannot be done that quickly.

I have a couple of brief points that relate, believe it or not, to the east coast. I have used the east coast main line for the past 16 years to come to London and return to my Leeds North East constituency, and we have seen many changes during that period. Great North Eastern Railway operated that line as a private company extremely well, and led the field. Unfortunately, however, its parent company went into liquidation and the franchise was taken over by the disastrous National Express experiment. When that failed, it had to hand the franchise back to the Government because it could not keep up with the payments it had promised—that is why I made my earlier intervention. I hope the Minister will ensure that if the line is franchised, the franchisee can afford to pay the money it promised.

Since Directly Operated Railways has been running the east coast, it has been a superb service and I thank its staff and management for running that service so efficiently, excellently and profitably. We have heard time and again this afternoon that £640 million has been returned to the Treasury over three years, and it is estimated there will be at least another £160 million in the current financial year. Contrary to what the Minister said, my understanding is that Virgin Rail has returned just £200 million net to the Treasury in 15 years. How does it make sense to say that it will be more profitable and better for the public sector and the Treasury to return the east coast line to private hands for private profit to be paid out to shareholders? Will that improve the service? I would say no. It seems ideological and defies common sense.

Last year I believe that the Government, through Network Rail, gave £172 million to rail operators to compensate passengers for delayed or cancelled trains.

East Coast trains paid £6.6 million of that, not because it was the worst performer but because it was the most honest. The average paid by the other companies was just £400,000. What have they done with that money? Why has that money not been paid back, and why have people not been encouraged to claim in the honest and decent way practised by East Coast? My final question to the Minister—I do not suppose he will have much time to respond—is will he please think again about refranchising the east coast line? If it is not broken, do not try and repair it.

Sheila Gilmore (Labour, Edinburgh East)

There is actually something slightly surreal about this debate. So often in this Chamber we hear diatribes from Government Members about how Europe is trying to tell us what to do and interfering in how we do things. We now seem to have a situation in which the Government and many—although not quite all—Back Benchers who have spoken, seem to be happy for us to impose on countries in Europe our view of how railways should be run.

I raised this issue earlier today and perhaps the Minister will answer this time. It seems slightly odd that the McNulty report—which has been mentioned particularly by Conservative Back-Benchers—said that the cost of running the railways seems to be much higher in Britain than in European countries that have a higher degree of state rail operations. If that is the case, why do we suggest that our system is so much better?

In any event, why does Europe have to impose a one-size-fits-all proposal? Why not allow national Governments to have the choice? We are not necessarily arguing that countries must choose to run all their railways publicly. Apart from anything else, a comparator is extremely useful. In politics, we do not often get a chance to see different ways of doing things at the same time, in similar economic circumstances. A comparator allows us to say that one thing works and that another does not.

The five years since East Coast was set up by Directly Operated Railways to run the service have been helpful in that regard. We have learned a considerable amount. The Minister is fond of telling us, as he has today, what Lord Adonis and my right hon. Friend the Member for Tooting (Sadiq Khan) said five years ago, but we must learn from what happens. The Secretary of State said earlier today that we must base our decisions on evidence. We now have evidence. In the light of the evidence, it is right to say that we perhaps want to do things in a different way. That is not unreasonable, especially for a Government who have turned semi-circles and circles and done U-turns in a shorter time than five years—they turned on the pasty tax and the caravan tax within months. It is reasonable, after five years, to say that any EU country should be able to choose to have directly operated services. They might want both directly operated services as well as franchises. Why not have both?

East Coast is making an important contribution to our environmental ambitions by making the service more attractive, particularly to people in Scotland, who have the alternative of flying—they are not a captive market. East Coast has made the service more attractive

by extending services. It has an early morning service—a fast runner—and an evening service that enables people to get back after a late meeting. It offers a service to business customers and those who are able to take advantage of the first class service. Because of that, they might say, “I’m going to take the train rather than fly.” That is very important environmentally.

John McDonnell (Labour, Hayes and Harlington)

When we have such debates, it is important that we consult the people who run the railway system. I therefore refer hon. Members to the evidence provided to the Select Committee on Transport by the National Union of Rail, Maritime and Transport Workers. When privatisation came about, RMT submitted evidence to the House and made it clear publicly that privatisation would result in a risk to safety. Eventually, Southall, Paddington and Potters Bar happened. I attended the funeral of the driver who died at Southall—he was an ASLEF member and my constituent. I remember the warnings that were given. As a result of privatisation, people such as that driver sacrificed their lives.

This time, RMT is saying clearly that the proposals, if they go ahead, will compromise safety. RMT is saying that the system is fragmented and complicated with numerous interfaces, and that the measure will simply introduce another tier of bureaucracy for it to deal with. Its view is that safety should be dealt with at national level and local level, where there is local knowledge. Yes, interfaces in Europe should be dealt with internationally by agreements within Europe, but safety should rest as a national competence. In that way, we can achieve safety on the basis of the knowledge of those who operate the system.

The second point made by RMT is on infrastructure. It clearly says that there is a move—the measure is a further step—towards a single European infrastructure manager. The House has debated High Speed 2. Many hon. Members on both sides of the House believe that key decisions on infrastructure should be retained at national level. Of course, we need integrated decision making when we go across national boundaries, but basic infrastructure decisions should be based on local knowledge and the representation of local interests, and particularly local constituency interests. The measure will take us beyond that.

RMT’s third point is that rail is effectively a money laundering exercise. This is not petty nationalism, but we see an incremental nationalisation of our railway system by Deutsche Bahn and others. The taxpayer subsidy poured into the system is laundered into investment in those companies’ own countries. Why do I say that? Let me quote the German Transport Ministry. It said:

“We’re skimming profit from the entire Deutsche Bahn and ensuring that it is anchored in our budget—that way we can make sure it is invested in the rail network here”.

The laundering of the British pound into German euros is a deep irony, and it is happening as a result of the UK Government’s proposals to support elements in the package.

Frank Dobson (Labour, Holborn and St Pancras)

Perhaps we should have a referendum.

John McDonnell (Labour, Hayes and Harlington)

My hon. Friend says that we should have a referendum, but we will come back to that in due course.

The objection is about democracy. The measure will fetter the hands of a future Labour Government, who will be unable to renationalise the railway network or keep some element of it in public ownership. That is what the measure is about, and why Government Members support it. They want to ensure that no Labour Government can at any time in future bring rail back into public ownership.

A number of us prefer public ownership and have made the arguments time and again. Public ownership is more efficient, more effective and more cost-effective. If hon. Members disagree with that, I suggest they read a succession of Transport Committee reports from the past few years. I appeal to Members on both sides of the House. Whatever they think about rail nationalisation, they should not allow Europe to fetter the hands of a British Government on such a major issue. This is about democracy, and about ensuring that, when we go into the next election, we have the right to implement what is in our party manifestos. If the measure progresses, it will fetter the hands of future Governments, and therefore undermine British democracy when it comes to deciding the future of our transport system.

Jeremy Corbyn (Labour, Islington North)

I should like to make a few points in the very few moments left to me. As a member of the RMT group, I commend its important evidence to the Transport Committee.

The Minister can never miss an opportunity to have a go at British Rail—[Interruption.] There is no need for him to intervene yet. He should recall a couple of things. British Rail ran the system from 1948 until privatisation in the 1990s. During that time, there was a great deal of electrification, innovative engineering and scientific research. At the same time, the system was grossly underfunded. British Rail was always denied the funds it needed for infrastructure investment—it was always short of what it needed.

We privatised the railway system, and now spend more on subsidising train operating companies, which make considerable profits out of the system. We are spending more on the system so that we do not control it. Fares are among the highest in Europe, and we have the most expensive and diverse railway system.

I agree with the Minister that, for example, Virgin Trains runs a very good service on the west coast main line. I have travelled on Virgin trains and all the services at various times. The service is very good. I pay tribute to those who work on the trains and run the system—they do it very well with great difficulty. However, the Minister should not run away with the idea that Virgin Trains or any other company has done well because of its investment in the system. Who paid for the west coast electrification? We did. Who is paying for the electrification of the western region? We are.

The system is that we pump public money in for private companies to cream off very large profits. I am a strong supporter of the principle of the railway system and what it can achieve. Railways are the thing of the future. They are efficient and more environmentally sustainable than road traffic. The construction of railways

has much less environmental impact. I understand the complaints about the route HS2 will take and the impact it will have in various places. I urge those who are concerned, next time they go on the west coast main line, to look at the section of the line that runs parallel to the M1 just south of Rugby. They should look at the land space taken up by the railways, and the number of people and freight travelling on that section of track, and compare it to the environmental impact of the M1, and of the widening of the M1 or any other motorway. The argument for railways is overwhelming.

The document is not a short, easy read, and these are just some of the papers associated with this subject. What it is, is a proposal for the privatisation of the whole railway system across Europe. We do not need that. As many colleagues have said, integration can work within the existing framework. Yes, we need common safety standards. Yes, we need trains running directly from Spain bringing agricultural produce to this country, just as we need trains running directly from Russia and many other countries. That can all be achieved. Switzerland, which is not a member of the EU, has no problems integrating its services with Germany, France and Italy, and I do not think that any other country should have any problems either.

What we have is the worst of all worlds. The public are expected to pay for infrastructure and Network Rail has massive debts because of its investment in the system. I do not complain—

One and a half hours having elapsed since the commencement of proceedings on the motion, the Deputy Speaker put the Question (Standing Order No. 16(1)).

The House divided:

Banks and Banking

Sajid Javid (Conservative, Bromsgrove)

I beg to move,

That the draft Cash Ratio Deposits (Value Bands and Ratios) Order 2013, which was laid before this House on 26 March, be approved.

The draft order makes changes to the cash ratio deposits scheme, which is how the Bank of England funds its monetary policy and financial stability functions, which in turn benefit sterling deposit takers. Under the Bank of England Act 1998, banks and building societies of a certain size are required to place a proportion of their eligible deposits in a non-interest-bearing account in the Bank of England, which then invests these deposits in interest-bearing assets—specifically gilts—and the return it makes funds its monetary policy and financial stability functions, which benefit the whole of the banking sector, as well as the wider public.

The Government continue to believe that the cash ratio deposit scheme is the right way to fund the Bank’s important policy work. The operation of the scheme means that the Bank’s income is subject to two drivers: first, the gilt rate, and secondly the size of deposits eligible for the scheme, which is largely driven by the performance of the banking sector as a whole. Over the last five-year period, both these drivers have been lower than expected, which has caused a shortfall in the Bank’s funding. The Government are seeking to address this shortfall by recalibrating the parameters of the cash ratio deposit scheme to current economic conditions.More specifically, the order increases the proportion of deposits that eligible financial institutions are required to deposit at the Bank from 0.11% to 0.18% and increases the total amount of deposits that they have to hold to be eligible for the scheme from £500 million to £600 million. Alongside the Bank’s efficiency savings, these changes aim to ensure that its income covers the costs of its policy functions over the next five-year period.

The Bank is also playing its own part. It is committed to bearing down on costs. In particular, it will seek efficiency savings by establishing a shared corporate services model with the Prudential Regulation Authority. The Bank’s budget for the next five-year period takes these savings into account. The Bank also has opportunities to make further efficiency savings. These potential savings have not yet been incorporated into the Bank’s budget, so are likely to reduce the Bank’s running costs even further over the next five-year period. The Treasury will review the Bank’s progress in achieving these savings once the shared corporate services model with the PRA has been established. As part of the review, the Treasury will consider whether there are implications for the Bank’s funding requirements, and in turn for the cash ratio scheme.

Alongside that, and to ensure that the Bank’s important monetary policy and financial stability work continue to be fully funded, the Government have consulted on the changes to the parameters of the cash ratio scheme. It is these changes that are before us today. They are expected to increase the Bank’s income over the next

five years to ensure that it is more closely aligned to the Bank’s costs. The amount that most institutions are required to deposit at the Bank under the scheme is small. In December 2012, 86% of deposits were made by just 20 institutions, with eight each contributing more than £50 million. The large majority of contributions are clearly from larger banks and building societies. Under the new parameters, some financial institutions will need to hold higher deposits with the Bank, but again it will be the larger banks and building societies that are most affected. In fact, 14 smaller institutions—mostly building societies—will be removed from the scheme altogether.

The Bank of England Act 1998 sets out that the cash ratio deposit rate can only be changed once every six months. The deadline for changing the rate for the next six months is 3 June 2013. If the agreement is not implemented by this date, the shortfall in the Bank of England’s funding will continue, which will be a further detriment to the dividend that the Bank pays to the Exchequer. The change is a sensible one that ensures that the Bank’s important monetary and financial stability functions are fully funded. The Bank of England is playing its part by making efficiencies in its operating costs, and this change ensures that banks and building societies that benefit from the Bank’s policy functions play their part. For that reason, I commend the measure to the House.

Chris Leslie (Labour, Nottingham East)

I am glad to have the opportunity to debate this issue on the Floor of the House. The last review—I believe they take place roughly every five years—was in 2008, as part of the changes introduced by the 1998 reforms. We feel that this is a reasonable way of funding the Bank’s policy work, and requiring clearing banks to deposit a proportion of their sterling deposits with the Bank of England to then allow the reinvestment of those, yielding returns of—I am told—roughly around £130 million to pay for administrative and research overheads, seems sensible. As those investment returns have underperformed, what was a Bank of England surplus in 2008 became a deficit recently, and we understand the need to revisit this. We understand the need for the Bank of England to cover its costs; after all, it is not as if it can manufacture money out of thin air. Oh no—actually it can manufacture money out of thin air, but that is another story.

There are two principal issues on which I would like to focus, the first of which is that the order begs the question about the Bank of England’s running costs generally and whether its budget is necessary and justified. The Minister helpfully talked about some of its plans in terms of efficiency savings. It is regrettable that the Bank’s forecasts for economic growth have gone somewhat awry, and they have not necessarily improved in recent years. No doubt the Bank will account for itself on quite why things have gone wrong. Before the financial crisis, the Monetary Policy Committee on average underestimated growth by 0.5%; since the crisis, the Committee has started to overestimate growth by 2%. Obviously, this difficult situation has led to criticisms from David Blanchflower and others, most specifically about the calibre of the forecasting arrangements.

We have also seen problems with the Bank’s development of new approaches to encourage lending to small businesses by the mainstream banks. That has required several iterations, which have not necessarily been successful. There is also the difficulties that the Bank has had in meeting its inflation target, with the Governor having to write to the Chancellor on nine occasions since 2010 because of the missed targets. We know that the Bank of England will have significantly higher costs and that the new Governor of the Bank will have a much larger remuneration package than is currently the case.

The order begs a second question about the impact on the economy if the banks are required to deposit extra sums with the Bank of England, which is why I have a couple of specific questions that I hope the Minister will address. What is the total of sequestered deposits at present, and what it would be under the new 0.18 ratio? Is it roughly £3 billion at present, going up to about £4.5 billion? If an extra billion is sequestered by the Bank of England, what will be the impact on bank balance sheets? I think he said that building societies were likely to be exempt from this measure, but I would be grateful if he clarified that. He will understand that we are concerned about the impact that this might have on the bank levy, which is calculated on bank balance sheet liabilities. If there are changes to balance sheet arrangements as a result of this measure, will that have an impact on Exchequer revenue?

Lastly, is there any anxiety about removing flexibility from mainstream banks that might otherwise have chosen to support lending to businesses, which these sequestered deposits might inhibit? We understand the need for the change, and this has been a useful opportunity to take stock, but we also seek assurances about any impact that these changes might have on banks and building societies and the wider economy.

Sajid Javid (Conservative, Bromsgrove)

I thank the hon. Gentleman for his support for the order. He asked some good questions, which I will attempt to answer.

First, he referred to the use of the increased revenue by the Bank of England and to increasing costs of the Bank. There are three main points. First, the Bank is playing its part in making efficiencies by sharing corporate services with the Prudential Regulation Authority, which is a demonstration that the Government expect the Bank not just to ask for more revenue to cover its costs but to try to find better ways to generate value for money.

Secondly, in real terms—even after this change—the budget of the Bank of England will be around the same as what it was in 2000-01, so it has not seen a large increase in spending when compared with many Government Departments. The Bank is taking on new responsibilities and its functions have changed over the last decade or so. It is trying to accomplish all of that with a budget, through the cash deposit ratio scheme, similar in real terms to what it was in 2000-01.

Thirdly, as the hon. Gentleman recognised, the Bank of England’s responsibilities have changed, especially since the financial crisis. The Bank has had to run numerous schemes and to do a lot more work in terms of financial stability, including new schemes such as the

funding for lending scheme and others. I hope that he recognises—I think he does—that the Bank of England needs to cover the costs of these additional schemes.

In terms of the deposits that are affected, we estimate—this is an estimate from December 2012; the estimates will be updated, and I hope the hon. Gentleman appreciates that it is not easy to have the exact number—that about 86% of all sterling deposits in the UK are eligible. That is made up of about 20 institutions, eight of which contribute more than £50 million; the largest banks, naturally, make the biggest contribution.

The hon. Gentleman talked about some institutions being exempt; it was not quite that. As we have raised the bar—the eligibility requirement in the order—from £500 million to £600 million, some smaller deposit-making institutions will now be excluded from the scheme. Rather than being exempt, they are, technically, excluded from the scheme if their deposits are less than £600 million. My understanding is that almost all of those 14 smaller institutions are smaller local building societies, which I think is welcome, as it reduces a cost—albeit a small one —for smaller institutions that support local communities.

The hon. Gentleman asked whether we had done any assessment of the economic impact. The Treasury has not done so specifically, because even once the change is taken into account, our view is that there would be a negligible impact as the Bank will not receive a significant increase in revenue from these operations. As he will know, many of the banks concerned would in any case have deposits with the Bank of England beyond the scheme, as part of their capital reserves, so there is no reason to think that the change would make a big difference to their reserve management programmes or would therefore necessarily have an impact on their lending programmes.

With that, I hope I have satisfactorily responded to the hon. Gentleman’s questions, and I again welcome his support for the order.

Question put and agreed to.

Notices of Questions

Tom Brake (Liberal Democrat, Carshalton and Wallington)

I beg to move,

That, in respect of Questions to the Secretary of State for Wales for oral answer on Wednesday 15 May in the next Session of Parliament, paragraph (5)(a) of Standing Order No. 22 (Notices of Questions, Motions and Amendments) shall apply with the substitution of three days for four days.

Regular participants in oral questions to the Secretary of State for Wales will be aware that the deadline for submitting questions and for their printing and circulation is normally Tuesday for questions on Wednesday of the following week. This recognises Standing Order No. 22 (5)(a), which specifies at least four days, excluding Friday, Saturday and Sunday, between circulation of questions and their subsequent answering where they relate to the territorial Departments and the Attorney-General. The motion before the House is necessary, given the imminent Prorogation, and replaces the normal Standing Order requirement of four days with three days, thereby providing for questions to be circulated on the first day that Parliament returns, Wednesday 8 May, for answering the following Wednesday, 15 May. I commend the motion to the House.

Thomas Docherty (Labour, Dunfermline and West Fife)

I will not detain the House for very long—obviously we are approaching the Prorogation. We very much welcome the spirit in which the Government have sensibly approached this issue, but as we are proroguing this afternoon, I hope that the Deputy Leader of the House can confirm that, given the breaking news on Leveson, the Government will set out their response at the first opportunity when we come back after the Gracious Speech.

Tom Brake (Liberal Democrat, Carshalton and Wallington)

The House will of course have opportunities in the new Session to debate those issues.

Question put and agreed to.