PARLIAMENTARY DEBATES

HOUSE OF COMMONS

OFFICIAL REPORT

Second Standing Committee on Statutory Instruments, &c.

LOCAL GOVERNMENT FINANCE (SCOTLAND) SPECIAL GRANT REPORT NO. 1

Wednesday 5 July 1995

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1

The Committee consisted of the following Members:

Chairman: Mr. Roger Sims

Adams, Mrs. Irene (Paisley, North)

Atkinson, Mr. David (Bournemouth, East)

Bates, Mr. Michael (Langbaurgh)

Boyson, Sir Rhodes (Brent, North)

Chisholm, Mr. Malcolm (Edinburgh, Leigh)

Davidson, Mr. Ian (Glasgow, Govan)

Douglas-Hamilton, Lord James (Parliamentary Under-Secretary of State for Scotland)

Elletson, Mr. Harold (Blackpool, North)

Galloway, Mr. George (Glasgow, Hillhead)

Liddell, Mrs. Helen (Monklands, East)

McAllion, Mr. John (Dundee, East)

Michie, Mrs. Ray (Argyll and Bute)

Squire, Ms Rachel (Dunfermline, West)

Taylor, Sir Teddy (Southend, East)

Tracey, Mr. Richard (Surbiton)

Twinn, Dr. Ian (Edmonton)

Vaughan, Sir Gerard (Reading, East)

Walden, Mr. George (Buckingham)

P. A. Evans, Committee Clerk

2
3 Second Standing Committee on Statutory Instruments, &c. Wednesday 5 July 1995

[MR. ROGER SIMS in the Chair]

Local Government Finance (Scotland) Special Grant Report No. 1

4.30 pm

The Parliamentary Under-Secretary of State for Scotland (Lord James Douglas-Hamilton): On a point of order, Mr. Sims. Members of the Committee may be aware that we announced today the boundary of the new Strathclyde passenger transport area from 1 April 1996. For the convenience of members of the Committee, I have arranged for copies of the press release to be made available in the Committee Room. I do not believe that detailed discussion of that matter is relevant to the special grant report, which deals with funding for the railway system in Strathclyde.

Mr. John McAllion (Dundee, East): Further to that point of order, Mr. Sims. I am grateful to the Minister for making the press release available to members of the Committee. When was the press release first made public? The hon. Member for Argyll and Bute (Mrs. Michie) and I were able to obtain a copy of the Minister's parliamentary answer on that matter only five minutes before the Committee's sitting began. It is rather unfortunate that the Minister decided to make the announcement in the Committee, because several hon. Members whose constituencies are in Strathclyde were not aware that the announcement would be made and are not in the Committee. They are unable to question the Minister about the effect that the reform will have on their constituents. If the Minister had not made the announcement this afternoon, he might have had to attend another Committee tomorrow, so that he could be questioned on the reform. The way in which the Minister chose to make his announcement is most unfortunate.

The Chairman: That is a matter not for me but for the Minister, who said that his announcement was not strictly relevant to the report. He made the press release available for the convenience of members of the Committee.

Lord James Douglas-Hamilton: Further to that point of order, Mr. Sims. I could circulate the press release to those Members who have constituencies in Strathclyde. I did not seek to suppress the information in any way. I beg to move, That the Committee has considered the Local Government Finance (Scotland) Special Grant Report No. 1 (House of Commons Paper No. 517). The special grant report sets out the measures that we are proposing to take to ensure that Strathclyde passen- 4 ger transport executive obtains financial cover for the additional costs that fall to the Strathclyde passenger transport executive and Strathclyde regional council as passenger transport authority in the financial year 1995–96, as a result of railway restructuring. We want Strathclyde passenger transport executive to continue to be involved in the support of railway passenger services, and the franchising process will enable it, in concert with the franchising director under the terms of the Railways Act 1993, to specify railway passenger services to be provided on their behalf by franchisees. I shall now deal with current funding for rail services that are supported by Strathclyde passenger transport executive. Before April 1994, the Government provided support in respect of railway passenger services that were funded by Strathclyde passenger transport executive solely by the provision of additional sums within the revenue support grant that was paid to Strathclyde regional council. Strathclyde, acting as passenger transport authority, provides support to Strathclyde passenger transport executive to cover its expenditure requirements. Rail restructuring in the privatisation process involved the introduction of a revised charging regime. Passenger transport executives have to pay British Rail for rail services. The new charging regime was unable to provide, at a sufficiently early stage of the calculation of revenue support grant for 1994–95, enough detail about access charges and rolling stock leasing charges to identify fully the extra cost to Strathclyde passenger transport executive of British Rail's services. Therefore, in order to meet the extra costs facing Strathclyde passenger transport executive, the Government made arrangements under the Appropriation Act 1994, as a transitional measure in 1994–95, to provide the necessary funding. The calculation of special grant takes as the starting point the services that are contracted for by Strathclyde passenger transport executive for 1993–94, and the amount of grant. This year, that grant is approximately £81 million gross, which represents the difference between the costs of providing those services under the old and the new charging systems. Additional support of about £79 million was paid in 1994 by the Scottish Office, following a public expenditure survey transfer from the Department of Transport direct to Strathclyde regional council under the terms of the Appropriation Act. In 1995–96, those additional resources are being delivered by making use of new direct grant powers contained in the Local Government etc. (Scotland) Act 1994. As a result of the rail regulator's review of access charges and the further development of the rolling stock leasing companies and Railtrack's charging mechanisms, the new charging regime was unable to supply sufficiently detailed information on those charges early enough to feed into the calculations of revenue support grant for this year so as to identify completely the extra costs to Strathclyde passenger transport executive of British Rail's services. We decided that, subject to parliamentary approval, special grant should be made available to cover this year. The text before hon. Mem- 5 bers has been the subject of consultation with interested bodies, including Strathclyde passenger transport executive and BR. I shall now deal briefly with the document's contents. The report outlines the background to the passenger transport executive and past and current funding arrangements. It sets out how the grant will be calculated and the conditions attached. The report sets out the purpose of the grant, which is essentially to provide grant to the regional council for those additional costs of the executive-supported rail services arising from the restructuring of the railways in accordance with the Railways Act 1993. The report has the consent of the Treasury. Annex A to the report sets out some of the background to the passenger transport executive and rail support, and particularly how revenue support was provided by the Government in the past and why it was necessary to introduce additional support to supplement the revenue support grant allocation, which contributes to the costs of the passenger transport executive's support for rail services. As hon. Members may be aware, we have stated that we intend to meet the net increase in the level of support required to maintain existing services in future years. The additional resources made available last year and this year achieve that. Annex B sets out the manner in which the grant is to be calculated in 1995–96. We begin with Strathclyde passenger transport executive's relevant expenditure—the gross charges of BR for providing railway passenger services to the executive. To reach the special grant figure, we have to deduct three elements from the transport executive's relevant expenditure. The first element is the old costs of rail support, which continue to be met by revenue support grant and ticket receipts. The assessment of costs is made on the basis of the new arrangements. The second element to be deducted relates to the payments made, or to be made, under certain deeds of assumptions. Those are deeds governing payments of money to cover costs of past capital investment by the transport executive. Deeds of assumption came about because, before restructuring, transport executives paid grants to BR as a means of funding infrastructure improvements and the provision of rolling stock. To compensate the transport executive for the lower section 20 costs not being passed on to them, BR entered into deeds of assumption. British Rail, for rolling stock, and Railtrack, for infrastructure, make payments to passenger transport executives under deeds of assumption. The calculation at paragraph 2(b) of annex B takes into account any tax liabilities or tax benefits arising from the deeds. To recap, we deduct from the relevant expenditure both the transport executive's old costs and the deeds of assumption payment. There will also be a minor adjustment to take account of any underpayment of 6 additional support to the Strathclyde passenger transport authority. Annex C sets out the conditions that the regional council as the passenger transport authority is required to comply with in respect of payment of the grant. I have described the matter in some detail, as it is highly technical, and I thought that to do so would be of assistance to the Committee. The report ensures that Strathclyde regional council, as the passenger transport authority, and Strathclyde passenger transport executive receive the additional costs of rail restructuring for this year. I strongly commend the report to the Committee.

4.39 pm

Mr. McAllion: I thank the Minister for that highly technical explanation of the report. His hon. Friends, who do not seem to have an obvious interest in Strathclyde, hung on to his every word and followed with great care his explanation. I have several concerns about the report. The Minister said that the provision was being specially made for Strathclyde regional council and its passenger transport executive. We should remind ourselves why it is necessary to make special provision this year. As the Minister explained, expenditure by the PTE is normally funded through the revenue support grant. However, that method has been disrupted by two factors: first, by the Minister's failure—until this afternoon—to deal with problems that have been caused to the PTE by local government reorganisation. At least a decision has now been made on the future boundaries and structure of the PTE which can at last begin to negotiate the long-term section 20 agreement with British Rail. Secondly, the privatisation of British Rail has also disrupted the normal method of funding. Before privatisation, British Rail charged Strathclyde PTE on a marginal cost basis, which meant that the PTE did not have to meet the full cost of services provided in its area. However, because of privatisation, it will have to meet not only those costs but the additional costs of paying for the access charges to ScotRail of using Railtrack in the first place. The PTE will also have to pay its own stock-leasing charges because ScotRail will have to pay to lease the stock. In addition, the PTE must pay the train-operating cost of ScotRail, including the profit element. From what we have gathered this afternoon, taxpayers nationally and locally will have to pay to boost the profits of a company that, in the future, will be privatised. That is a sad way to carry on. Some £73,271,000 has been paid to the PTE in revenue support grant, but more is needed to meet the additional costs that stem from privatisation. Instead of giving a technical explanation of how the extra amount will be decided, the least the Minister 7 could do would be to give us an idea of how much extra will be paid to the PTE as a result of the report. How much more must the taxpayer pay to meet the cost of British Rail privatisation in Scotland? The Minister has said that the matter has been subject to consultation. There has been ongoing correspondence between the Scottish Office and Strathclyde regional council on several issues. The regional council has told me that it is reasonably satisfied with the arrangements that have been made, which cover 100 per cent. of the additional costs that it will probably have to meet, except the costs of one item: the potential loss of revenue to Strathclyde regional council and the PTE if rail services are disrupted in that area. As all members of the Committee know, that is not an academic but a real question. Yesterday's Glasgow Herald reported that the 12,000 engine drivers who belong to the Associated Society of Locomotive Engineers and Firemen have voted to reject British Rail's final 3 per cent. pay offer. From next Tuesday, there will be a series of one-day strikes, with six in total planned in July, August and September. John Ellis, the director of ScotRail, said that that would be an absolute disaster for Scotland because, given the past track record of ASLEF strikes in Scotland and, indeed, elsewhere in Britain, the strike will be solid and several services will not be provided. A ScotRail spokesman said yesterday that the implication in terms of loss of customers and income did not bear thinking about. John Welsby, chairman of the British Rail board, said that 1994–95 was a "difficult and frustrating year" and that last summer's signal workers' strike had "lost the industry money which has gone for good". There were substantial losses to British Rail in last year's rail strike. However, not only British Rail is likely to lose money as a result of the strikes. The passenger transport executive is also likely to lose money because it pays British Rail for the services that are supposed to run, but which may be affected by disruption. I know that the money that Strathclyde region and the passenger transport executive lost in the strike during 1994–95 is being dealt with separately, but Strathclyde has been trying to obtain a commitment from the Minister that any losses that it incurs as a result of services being disrupted will be recouped in the form of extra grant. A letter was forwarded to me from Mr. John Patterson in the Scottish Office Industry Department, which deals with the special grant. It says: "In respect of possible future strike losses, the position is that the decision to assist the PTEs over the revenue losses incurred in 1994 was made on the individual merits of that case, and should not be regarded as a precedent for any future disruption. In such circumstances, we can offer no undertakings in respect of future disruption." In other words, the Scottish Office refuses to give the passenger transport executive or Strathclyde regional council any assurance that money that they lose as a result of rail disruption will be made up by the Scottish Office. Indeed, the assistant chief executive of Strathclyde wrote back to the same Mr. Patterson in the Scottish Office Industry Department expressing his disappointment that the Government had been unable to offer any comfort on the question of future revenue losses arising from major service disruptions. 8 The assistant chief executive pointed out that, during the previous dispute, Strathclyde regional council incurred losses that caused serious budgetary problems. The Minister may say that the Government will deal with that some time in the future, but Strathclyde regional council will cease to exist in April of next year and, in the meantime, the problem must be sorted out. If the Minister can introduce proposals on the structure of the passenger transport executive this afternoon, surely he can give some positive answer to the query from the PTE about the losses that it is almost certain to incur this summer. The duty on the executive is to provide public passenger transport services in its area. That duty is imposed on the council by the Minister in Parliament and, in carrying out that duty, it enters into section 20 agreements with British Rail. The disruption is not the council's fault; it has no control over the disruption of rail services. If the Government choose to stuff the pockets of British Rail board members with a 20 per cent. increase in their income this year and, at the same time, offer engine drivers and other railway workers a cut in living standards, that is the responsibility of the Government and of British Rail. It is not Strathclyde regional council's fault and it seems very unfair that it should be asked to bear the cost of disruption that emanates from policies pursued by the Government. In that context, I should be grateful if the Minister would tell the Committee what the Government intend to do about any losses incurred by the passenger transport executive as a result of the rail disruption that is almost certain to take place this summer, and perhaps beyond, as a result of the Government's idiotic policies on rail privatisation and the funding of British Rail.

4.48 pm

Mrs. Ray Mitchie (Argyll and Bute): This is an interesting document. It is obvious that the special grant was necessary in the circumstances. I am interested in the fact that I am the only so-called Member of Parliament for the Strathclyde area, albeit that I am a semidetached Member of Parliament for Strathclyde because Argyll and Bute is my constituency. I agree that the grant was necessary as a transitional measure for 1995–96 to supplement the rate support grant. The report is somewhat incomprehensible, but I was never good at algebra. I hope that someone will be able to interpret the formula A-B+C. May I follow the remarks of the hon. Member for Dundee, East (Mr. McAllion) and press the Minister on the breakdown of the grant package. The transitional grant is necessary as a result of privatising the railways, but how much of the grant is for access charges for track and stations, how much is for rolling stock leasing charges and how much is for train operating costs? Furthermore, what provision will be made beyond the grant order for this year? In an answer to a question from the hon. Member for Ayr. (Mr. Gallie)—not all of which is relevant to the Committee—the Minister mentioned railways. Argyll and Bute council will be reasonably pleased that the new passenger transport authority 9 incorporates Helensburgh, East, Helensburgh, Central and the Lomond area, which seems sensible. However, it may be concerned if, as the hon. Member for Dundee, East said may well happen, it has to foot the bill for any failure in the delivery of services by ScotRail. Who will pick up the cost if such services are in any way disrupted? There is a problem in Argyll and Bute. The new council has had no chance to form an opinion on the new PTA boundaries. I hope that it will be allowed to tell the Scottish Office its view of the changes, relatively small though they may be. Will the PTA continue to act as an agent? In Argyll it currently acts as an agent for Strathclyde regional council. I am not sure what will happen when Strathclyde council disappears. The PTA will still be responsible for buses and some ferries. I am also slightly concerned about the fact that Strathclyde council still exists. The Scottish Office went to great trouble to get rid of it so that we could have single-tier authorities and decentralisation of power. I am sure that we all remember the Prime Minister's comments—rather ill-advised, I thought—about Strathclyde being a monstrosity. Where does Argyll and Bute fit in to a Strathclyde passenger transport authority? Argyll and Bute wanted a single-tier authority, but it is still locked into Strathclyde police, the Strathclyde fire authority, the Strathclyde PTA and Strathclyde catering direct. I am puzzled as to what exactly is happening. I wonder why we went through the great exercise of getting rid of Strathclyde when, from the point of view of Argyll and Bute, it is still there. I hope that the Minister will be able to reassure me—as he did in letters to me last year—about continuing concessionary fares, which are very important. Many people appreciate the fact that they can travel from an island with nothing beyond it but America, all the way to Glasgow with concessionary fares. How many people will be on the passenger transport authority and what areas will they represent? When will it come into effect?

4.54 pm

Lord James Douglas-Hamilton: The most difficult question was what is A - B + C. A means deeds of assumption; B means tax liabilities; C means tax repayments. Expenditure has been correctly worked out. I am grateful to the hon. Member for Dundee, East for admitting that the west of Scotland has acknowledged that the grant will cover the full funding. It is £81 million this year—

Mr. McAllion: Will the Minister give way?

Lord James Douglas-Hamilton: I am coming to the hon. Gentleman's point about disruption. In future, the money will be covered by the revenue support grant. There will be plenty of time to work out the necessary arrangements.

Mr. McAllion: The Minister quoted the figure of £81 million. As I understand it, the normal revenue support 10 grant is £73 million. That is a difference of £8 million. What additional costs have been incurred as a result of the change in the way the PTE is charged by the newly privatised section of British Rail?

Lord James Douglas-Hamilton: The gross level of support is estimated at £81 million this year, including deeds of assumption payments. Last year's gross level of support is estimated at £79 million. Obviously, the necessary funding will be forthcoming. The hon. Member for Dundee, East mentioned that there has been a delay. The Department of Transport has led the discussions on funding arrangements for 1995–96. Its arrangements for the railway grant order cover the English PTAs and mirror those with a special grant which will apply to Strathclyde. Consultations about payments were prolonged, and involved the Scottish Office. Those discussions resulted in several months' delay in payment for this year which will make a retrospective payment necessary to cover the period from April in the first tranche of special grant. The hon. Member for Dundee, East mentioned strike losses. All the revenue losses in 1994 suffered by Strathclyde PTE as a result of industrial action on the railways were not covered by special grant in 1995–96 but by adjustments to British Rail's final claim for rail services in March 1995. The hon. Member for Dundee, East mentioned a letter. Representations on losses caused by future disruption will be considered on their individual merits. The special grant has in the past been excluded from capping criteria. The hon. Member for Argyll and Bute raised the representations on boundaries. Our conclusion ensures that the existing Strathclyde zone-card travel area and the present Strathclyde-supported rail network is included in the new boundary from that date, which I hope will be widely welcomed. That will enable the Strathclyde passenger transport authority and executive to carry out effectively their local transport responsibilities in Glasgow and surrounding areas. The PTA-PTE structure is designed to facilitate public transport in urban areas with high population density. It is not appropriate for rural areas. Approximately 30 per cent. of Argyll and Bute is covered by the urban catchment area which is included in the new Strathclyde passenger transport authority area. We do not believe that it would be right to extend the boundary to include other rural areas, but councils will be free to make their own arrangements. There is no reason why they cannot co-operate on a voluntary basis. An announcement will be made on the composition, constitution and membership of the new PTA from 1 April 1996. The powers under the Transport (Scotland) Act 1989 are discretionary and it is for local authorities to determine the type of scheme that is most suited to their local needs and circumstances. From 1 April, the new councils will retain those powers, including the power to create a joint travel scheme. It is right that decisions should continue to be the responsibility of authorities and the PTA has the power, as before, to make concessionary schemes. 11 I was asked about the ability of the PTA to continue to act as agents. The PTE, having regard to its statutory powers, will decide, but there should be maximum continuity on the basis of existing services with minimum disruption. I thank my hon. Friends for so generously coming to listen to these detailed matters, which also affect PTAs and PTEs south of the border.

5 pm

Mr. McAllion: I shall be brief. Paragraph 3 of annex B of the report refers to the sum of £73.271 million and states: "This sum represents the charges, based on the costs incurred during the financial year 1993–94, which, but for the restructuring of the railways in Great Britain, the SPTE would have paid to BR for the provision of railway passenger services." That figure has been updated to 1995–96 cost levels. What is the difference between that and the sum that is being paid following the restructuring of the railways? I 12 want to know what the genuine cost of the restructuring is in terms of the grant that needs to be made available to the Strathclyde passenger transport executive to meet the costs imposed by the newly restructured railways. If the Minister cannot provide that information now, perhaps he will write to me with it.

Lord James Douglas-Hamilton: I shall certainly write to the hon. Gentleman. The gross level of support has risen from £79 million to £81 million and the necessary funding will be provided. I shall write to the hon. Gentleman with the details.

Question put and agreed to.

Resolved, That the Committee has considered the Local Government Finance (Scotland) Special Grant Report No. 1 (House of Commons Paper No. 517.)

Committee rose at two minutes past Five o'clock.

THE FOLLOWING MEMBERS ATTENDED THE COMMITTEE:

Sims, Mr. Roger (Chairman)

Atkinson, Mr. David

Bates, Mr.

Boyson, Sir Rhodes

Douglas-Hamilton, Lord James

Elletson, Mr.

McAllion, Mr.

Michie, Mrs. Ray

Tracey, Mr.

Vaughan, Sir Gerard

Walden, Mr.