I beg to move, That the clause be read a Second time.

I think that it is a good new clause, and I hope that the Government will accept it. I also hope that you will allow me to move the new clause formally at this stage, although I may seek to catch your eye later, Madam Speaker.

With this new clause, it will be convenient also to discuss the following: New clause 29—Joint industry pension scheme—

'.—(1) Subject to subsection (2) below, the Secretary of State shall not exercise any of his functions under this Act relating to pensions until he has consulted the trustees of any existing scheme (within the meaning of Schedule 10) and such other persons as may have an interest, or appear to the Secretary of State to represent persons having an interest in any existing scheme, as to the feasibility of establishing a joint industry scheme, the form such a scheme might take, and the implications for participants in existing schemes.

(2) Subsection (1) above shall not apply in any case where the trustees of a scheme have received actuarial advice that the fund may not he able to meet any of its actual or projected liabilities at any time from its actual or projected assets.'.

Government amendments Nos. 106 and 107.

Recently, Madam Speaker, you informed the House of the tragic death of Robert Adley, the former Member of Parliament for Christchurch. On a day featuring both Transport questions and the beginning of a transport debate, it is appropriate for us to place on record our respect for his memory and his contribution to transport debates—and, in particular, his views on the railways. Although those views were controversial, it is to his credit that they were always well informed and added to hon. Members' knowledge of such matters.

Robert Adley was an independent-minded Member of Parliament and a distinguished Chairman of the Select Committee on Transport. His judgments were reflected in the recent Select Committee report on rail privatisation. Those views, too, were controversial, and will lie at the heart of our debate over the next two days. Undoubtedly, the controversies will continue; I think that he would want them to, and would listen with a smile—as I did yesterday, when I heard the Secretary of State quote Mr. Adley on the Frost programme yesterday. I am sure that many of us will quote him in future. The Secretary of State said:

"as far as Robert Adley is concerned, whose loss we all deeply regret, I think it's interesting that the report which he had actually drawn up concluded … 'the government is right to give a high priority to seeking ways of improving the quality of rail services offered to both passengers and freight customers and the government is justified in examining as one possible method the scope for expanding the role of the private sector.'"

That is right, and it was mentioned in the report of the Select Committee. The late Robert Adley would have asked the Secretary of State to complete the quote, and it is important for me to put it on record for him. It continued:

"provided that this can be done without jeopardising the cohesiveness of the national network and the benefits it provides."

That interpretation lies at the heart of today's debate.

There are differences of opinion on the issue. The House must be grateful for the contributions made by the late Robert Adley.

The controversy continues with today's debate, particularly in respect of pensions. Recently the newspapers have contained many pieces about how important the Bill is and what it will do for the railway industry. Clear differences of opinion have been expressed, not just between the Opposition and the Government, but between Conservative Members. Much attention has been given to whether concessionary passes should be granted and whether British Rail should have the right to bid for the franchises.

We should give attention to the question of how to treat the pensioners. It is a controversial issue, which is why we have chosen to start the debate with it. It is particularly important to do so as the Secretary of State formally moved the money resolution which will affect the Transport Act 1980 as it relates to pensions. Therefore, it seemed logical to begin the debate with a discussion on pensions. I am grateful to my hon. Friend the Member for Wrexham (Dr. Marek) for moving new clause 3. The resolution that affects the 1980 Act will implement one of the Government's changes of heart on pensions that occurred during their discussions.

I am prepared to concede that the Government have made considerable changes after listening to representations, but I do not think that they have made the fundamental change that the new clause is designed to achieve. Some of the changes relating to pensions that have been made have been welcomed by Members—both Opposition and Government—who pressed for them in Committee. Today we can judge whether the promises given by the Minister of State in Committee will be realised, particularly those relating to pensioners who belong to the closed fund—200,000 British Rail pensioners currently receive pensions from the British Rail pension fund. They are worried that the changes will make them worse off. We must make a judgment on that issue in today's debate.

Pensioners have been worried by what happened in the Maxwell and other cases. Companies have begun to realise that surpluses have accrued and have, apparently, claimed the right to use them as they think fit. Sometimes, they have done so with the agreement of the trustees. That has often meant that the chairman—whether an independent chairman or someone appointed by the company management—has used the surplus funds for other reasons. Sometimes they have used them to fund redundancies in the industry or to relieve the financial difficulties of a company during a recession. Such cases have caused a climate of fear about what is happening to pension funds. The Goode committee has been established, and the Select Committee on Social Security is considering pensions. Our present debates are made difficult because we do not yet have the conclusions of those committees. Therefore, we must press ahead with debating the Government's proposals.

The British Rail pension fund is massive, being worth about £8 billion. The Post Office and Coal Board funds are also of the same magnitude. Large amounts of assets have been deposited in the funds which are available to pensioners or to contributors. The Government have contributed to British Rail, a publicly owned industry. The resolution means that the Government will continue to contribute to the fund, which is important.

I remember when British Rail was largely funded under an unfunded system, which was common to the public sector and applied under Labour and Tory Governments. The police forces and hospitals still operate under the same system as, I think, do firemen. The Treasury has an obligation to make payments to the pension schemes, but they are not funded schemes. In 1980 it was agreed to apply the funded scheme system to British Rail. The then Minister, who is now Home Secretary, believed that the fund should no longer be the responsibility of the Government. The Government will make their contributions to the funded schemes—a yearly payment which was agreed at that time and which we now agree should continue. The schemes are of considerable size and are of interest to the Treasury.

When the Government privatised the gas, electricity and telecommunications industries, they were faced with the question of what they should do with the pension funds. There has not been a consistent approach to that. In the main, those industries did not involve multi-operators —they have usually had only one or two operators so the pension liabilities have been split between them. In the announcement today, we are presented with the possibility that the rail industry will have multi-operators who will have obligations under the Government's reorganisation scheme for apportioning the fund's assets.

Much of our complaint about the difficulty of meeting the assurance for pensioners comes from the Government's chosen way of reorganising the industry. The tax authorities have decided that the assets must be apportioned to each of the operators. Because of that difficulty and decisions that have been made, I do not think that we will be able to meet the Government's essential commitment—that pensioners in the present British Rail pension scheme will be no worse off than they are at present. It is not possible to meet that promise and that is why we have tabled this amendment.

Does my hon. Friend accept the representations that I have received from many pensioners in my constituency who belong to the railway pension fund expressing the same concern as that of my colleagues about the future security of pensions and the bonuses that the pensioners used to receive? Does he accept that that is the real concern? I hope that he will press that on the Government.

That is the heart of the argument and I shall come to it in a moment. We must bear in mind that public pension schemes were good and, as the Secretary of State said, well managed. Because of the scale of the fund, the management of the assets—an important point is the distribution between equity and gilts—was able to put more faith in equities than gilts because gilts were not paying a great deal under this Government. Certainly, management was able to get a better rate of return under the equity arrangements. That has meant that they have had a better pay-out system.

It has been argued by employees in the privatised industries that they accepted a lower rate of pay in return for better pension provisions. They made a decision in the long term to accept a better pension provision, yet live with a lower rate of pay compared to what they may have received in the private sector. We must bear that judgment in mind when we ask whether the Government's proposals, which were announced as late as Thursday, meet the requirement that the present pensioners will be as well off in the future as they were in the past.

The concerns and failures in the past have caught up, as we have seen in the transport industry. If we look at British Rail or deregulation of the buses, evidence abounds that the break-up of the pension funds—the redistribution of the surpluses often to the management of the companies and not the employees—left the remaining employees in that industry with much inferior pension schemes. The whole purpose appears to be not to treat such schemes as a level playing field for the payment of pensions but to encourage competition for the provision of pensions, which inevitably drives down the benefits and they take the cheapest option available.

There is much evidence of that in the parts of British Rail that were privatized—catering, Travelfare, hotels and engineering. Originally, employees were told that they would be no worse off with regard to their pensions. I will not weary the House with quotes from the industry—I did that in Committee—but the evidence is absolutely clear. That evidence persuaded the Government to keep at least some semblance of an industry-wide scheme, instead of breaking it into bits and parts. The retention of an industry-wide scheme is generally agreed and accepted, although it does not provide all the assurances that we want. I shall come to that in a moment.

Many charges have been made that the scale of the resources available is such that it will make it an attractive proposition to the Treasury. The Government have responded and said that that is not true. Their original proposition, which rapidly changed in Committee, was to have a pension fund for the existing pensioners. There are about 200,000 pensioners, and 130,000 people are still in active employment. If those assets were sequestrated and payment made by the Government instead of under a funded scheme, assets of about £4 billion would be eyed by the Treasury. It could take the money to ease its £50 billion debt on the public sector borrowing requirement and simply meet the pensioners' requirements year by year. It would not be cheap for the Treasury to do that but it would certainly ease the PSBR difficulties which will continue to increase. The money in the British Rail pension fund must look attractive, as do the billions in the pension funds of British Coal and the Post Office.

4.30 pm

Although it cannot be shown that the Government would make money from selling British Rail, perhaps they have their eye on the gold pots in the pension funds. But those funds do not belong to the Government, and that was the Government view in 1980. To take that money from pensioners and contributors, even by changing the law to do so, amounts to robbery. The proposed legislation appears to make it easy to take that money. It is an Italian solution and that is not acceptable. The funds have been built up by the enforced savings of workers and they belong to them and to no one else. That is a straightforward proposition and it is our approach to the matter.

The resources of £8·5 billion have been used to pay inflation-proof pensions and have provided real value. The Minister and the Secretary of State have agreed that the pension funds have other attractive features. The Bill has seen many changes. In Committee, we tabled many amendments to clause 116, which deals with pensions, and on the morning that the Committee met the clause was removed. It was agreed to wait for a new schedule but, during debate on the Bill, three different schedules, reflecting Government thinking on the hoof, were introduced. They wanted to pinch back their contributions under the 1980 Act, which amounted to about £70 million a year.

The money resolution shows that the Government have changed their mind about ratting on their £70 million a year contribution to the pension fund. Under the 1980 Act, the Government were obliged to pay that amount each year. The Secretary of State looks surprised. I shall give way to him if he wishes to intervene. He does not. Perhaps the little look of surprise was just for the telly.

There has been no change at all as I shall explain later. We clearly set out a variety of options in a consultation document in January, and said that we would recognise our commitment in the money resolution. We have recognised that commitment from the beginning.

The Government had intended that there would be no future commitment under the 1980 Act. The money resolution must be to change something and, if it does anything, it must restore the position that we thought existed under the 1980 Act—an obligation to pay. My hon. Friend the Member for Bradford, South (Mr. Cryer) debated the money resolution on Second Reading, and presumably it suggested that the obligation under the 1980 Act would end. That is the only reason for a money resolution at this stage. I am thinking on my feet, but what else would it he for?

In Committee we discussed the Government's obligation to pay and, for whatever reason, the Government have decided to continue to pay the £70 million a year. The only reason for the debate is that the Government were thinking of discontinuing their payments, otherwise what the hell are we talking about?

Under the 1980 Act, the Government offered the pensioners two options. They said, "If you take option 2, we shall consider that we have an obligation to pay your pension." The fund could then be closed and, presumably, the assets could go to the Government. The Government have now announced that they will not continue with option 2 because they believe that the pensioners have decided, after consultation, that that is not the option that they wish to pursue.

Option 1 would allow the fund to remain in the scheme and take its chance on future payments. The hon. Member for Eastleigh (Mr. Milligan) tabled an amendment to option 1 because he wanted a guarantee that the pensioners would not be any worse off and that whatever assets were apportioned would be sufficient at least to guarantee the same payments and benefits as those given under the British Rail scheme in its new form. The hon. Member for Eastleigh has been fighting on a fair point, but I do not believe that he has secured that guarantee. He has to buy a pig in a poke and believe a Government promise —a tricky thing to do in this day and age. I do not think that that promise offers sufficient protection for his constituents, who made it clear that that is the guarantee they want from the Government.

Last week, the Government said in a parliamentary reply that they wished to honour that agreement. They have not gone out of their way to do that. Whether it will be honoured, I do not know—perhaps the Secretary of State could give an assurance about that. The difficulties that we are having over the pension fund have come about solely because the tax authorities have decided that, if one wishes to keep the railways and Railtrack as independent bodies and set up private companies, they believe that there is nothing in common between those companies and that, therefore, there cannot be an industry-wide scheme unless the assets of the pension fund are apportioned. The difficulties and uncertainties are arising out of that decision. That is what we must address.

The Minister has said that option 2 is not acceptable. Last Thursday we received a parliamentary reply in which he made it clear that option 2 was not acceptable and that he would concentrate his mind on option 1. This would mean that, instead of allowing pensioners' money to be kept in a separate fund, and protected from any other influence, that money could now remain in the British Rail industry scheme. Because of that promise, option 1 now turns out to be worse than option 2 because at least under that option the Government guaranteed that the pension would be inflation free. The Government said that, whatever the inflation rate, they would see that the pension was paid. Now, there is no such continuing obligation.

What pension fund can guarantee that it will be able to pay out pensions inflation free? It has to look at the circumstances of and the return on its investments and the balance between equities and gilts. It cannot know for sure what will happen. For example, consider the actuaries' assessment of the British Telecom fund. Everyone thought that it had a massive surplus. Now we are told that, for a number of reasons, it is not judged to be in surplus by the actuaries. The judgment of the last assessment in 1990 showed earnings of between 1·5 and 2 per cent. less on equities than they received. So, to that extent, the fund is in real difficulties in maintaining a surplus. The growth in the economy has not been as great as predicted. The actuaries made a judgment—based on what the Government had told them—believing that the recession was over and the green shoots were coming up. Well, they got it wrong, and clearly many others have as well.

The number of redundancies that have occurred in the country mean that liabilities have increased considerably, especially where pension funds are being used to fund redundancies. British Coal has made a controversial application to use the pension fund to fund redundancies. Consideration is also being given to using the British Rail pension fund to fund redundancies or to finance management buy-outs. That is unacceptable and I hope that the Secretary of State will make it clear that the fund will not be used to fund management buy-outs or to fund any redundancies that might be associated with the reorganisation. If that were to happen, funds would be taken away from pensions and used for industrial reorganisation. I think that the House would find that totally unacceptable. The Goode committee is addressing that issue and I hope that the Select Committee on Social Security will also want to make it clear that that is not a realistic proposition.

I am having a little difficulty following the hon. Gentleman's argument. A moment ago he said that option 2 amounted to robbery by the Government. Now he is saying that it is a rather more attractive option than the Government's option. Will he explain that? Is he aware that the trustees have said that they are extremely pleased with the announcement that the Government made on Thursday?

As the hon. Gentleman knows, I am talking to the trustees, just as he is. What I am saying is quite consistent with what the trustees have said to me. Perhaps the hon. Gentleman will allow me to progress with the argument about the difference between option 1 and option 2. That argument is important for the pensioners and for those who wish to vote tonight.

We all thought that the guarantee on inflation sounded attractive, but the pensioners rejected that for a number of reasons. They have always received benefits which are greater than inflation, so they do not want anything less. Now, there is no guarantee on inflation and the scheme will pay only on a promise of what is given in the total fund. That will be possible only if the assets in the fund can meet the commitment. If the industrial fund cannot pay, I am sure that the Government will not step in and meet the difference between what the closed fund's obligations are and what it has to meet those obligations. There are real difficulties.

The hon. Member for Eastleigh is right to point out the dilemma, but the problem is that we shall not know whether the Government are pinching the assets until we see the regulations that will arise from the Bill. The Government have made it clear that the industry-wide single fund will not remain. People will stay in that for a while, but the Government have argued that, because the number of pensioners is greater than the number of full-time employees, instability may occur in the fund. One may wish to separate it completely from the fund—its management, its liabilities or its commitment. That is a fair point, but we shall not know for sure until the order comes before the House.

We have to buy a pig in a poke. In Committee, the hon. Member for Eastleigh voted against the opportunity to put into statutory form the promise that he has made to his constituents. We were told to wait until Report. We are here, and now we are told—as I told the hon. Gentleman in Committee that we would be told—that we should wait until some other time. We cannot judge the Government's intention until we see the order, but the House will not be able to amend that order. All that we can do is vote for or against it after a one and a half hour debate. We had to fight to get that.

Originally, the Government intended that the regulations should be set out in orders that would be drawn up in what we call the negative form, which meant no guarantee of a vote. We has to get the Government to change that. I have no doubt that the Treasury, whose hand is behind all this—it has little to do with the Department of Transport—does not want a debate that will allow justice and fairness to come into our judgment about the distribution of money.

The hon. Member for Eastleigh has to decide whether he will rely on the promise from the Secretary of State and accept the regulations or whether he will vote tonight to ensure that the rights for which his pensioners are asking are to be guaranteed and controlled by the trustees. At the moment, the only obligation on the Secretary of State is to discuss those matters with the trustees.

My hon. Friend the Member for Wrexham tabled a new clause to deal with that matter. All the signs are that the Government may wish to accept it. I hope that they do, because it will ensure that the trustees are consulted. I want to go much further than that. I want to give the trustees who are appointed by the contributors the right to make decisions themselves and to be able to say that if they believe there are sufficient funds to meet the obligations to pensioners, they will continue to meet those obligations. They should not have to accept an order from the Government telling them to separate, and should do that only if there is an instability in the fund and the actuarial authorities say that a position cannot be maintained. That is fair enough. If the actuarial authorities have come to that judgment—we cannot know what will happen in the next 10 years—we shall have given them that authority in pension legislation. However, if they do not do that, what right have the Government to make a judgment about defaulting on those agreements?

The Minister said in Committee that people could pay into the pension fund in the same way as firemen, nurses and the police pay into theirs. In the language of pensions, that means an unfunded scheme. That means that the assets that will be transferred with the pensioners will be available to somebody. They may stay in the pension book as part of the public sector financing and, even if the money is not directly transferred to the Treasury, it will become part of the assets against the public sector borowing requirement liabilities. Even if it is kept in a separate fund, the liability over the long term for pensioners will be a yearly payment.

The £4 billion worth of assets will be discounted in public funancing under assets and liabilities. It would achieve for the Treasury what it wants. I think that that is the whole purpose of the exercise. The Government did not do that when they sold off the electricity, gas and water industries because they were making quite a lot of money selling those industries. The Treasury was the main beneficiary of that. In this sell-off, they will get no money for the industry. We know from the consultants' report and what the Minister has admitted that it will cost the country more to run a railway industry under privatisation, for many reasons, including bureaucracy, profits, and paying people. Where will the money come from? It will come from the pensioners, from the pots of gold that do not belong to the Government. We disagree with that.

4.45 pm

The Minister told us in Committee that the Bill will ensure no less favourable future pensions benefits. If he looks at how the pension fund is managed and at what he promised in his reply, he will find that the very nature of the funds is such that, under the options, he will have to agree that they will not be in a position to meet some of their obligations. For example, there may be instability in the fund. We have made it clear that if there is instability, the actuarial authorities and the trustees should tell us.

Our difficulty is that we do not trust the Government. We believe that, by breaking up the pension fund industrial scheme, they will weaken its ability to earn the right kind of income with the right kind of balance between equity and gilts—more loaded towards the former than the latter. The breaking up of assets, proposed solely to meet the privatisation of rail, will weaken the structure of the pension fund. The nature of gilts is that one gets less of a return, although it is more certain. The problem with equity is that, while one may get a bigger return, one will take a bigger gamble. If the fund is large enough to take the risk, as has been the case with the pension fund, it can get a greater benefit with that balance than from buying only gilts, on which many pension funds rely. If that is the case, the fund will not be able to meet the extra values that are over the rate of inflation. That is the nature of the fund.

Another important factor about the fund is that its contributions meet its commitments. Therefore, it has never had to sell off assets. It has been able to live from its returns. It one changes the balance—it is about 80 per cent. equity and 20 per cent. Gilts—and splits the assets in the way suggested, the balance will be switched to 80 per cent. gilts and 20 per cent. equity. The consequences for the pension fund and its" earnings will be considerable.

The fund will not be able to meet the extra benefits that people have got used to. Therefore, the promise that they will be no worse off will not be met and those in the closed pension funds—the ones with whom we are more materially concerned—will suffer most. Unless the Government say that they will apportion the assets to the closed pension funds—that is, to existing pensioners—and that if the existing railway fund pays better benefits, greater than the earnings can justify under the closed pension fund, they will make up the difference and meet that commitment, they will have made a blue chip promise. We would accept that. I do not think that they will say that. They will say that it is nothing to do with them, and the splitting up of the assets and the breaking up of the security of the fund will mean that the commitment cannot be met.

The hon. Gentleman is right to say that a proper allocation of the pension fund assets is absolutely crucial. However, his argument about the balance between gilts and equities was the same argument that he used in Committee against the previous proposal for a closed fund. The whole point of the Government's new proposal is that combining existing pensioners with those who continue to work for the rump British Rail—and therefore continue to pay contributions—will enable the trustees to continue to invest in a mixture of equities and gilts, as they have done previously.

An essential point is involved in this argument, which I hope the Secretary of State will clarify. The pension scheme will still be a closed fund; it will simply be managed by the industry fund. Assets will be allocated to existing pensioners, but they will not continue in the broad strength of the industry fund—[Interruption.] I want the Secretary of State to clarify the issue. My understanding is that the assets will be apportioned, probably under an order laid in the House, but eventually it will be a closed fund. In fact, I understand that that will happen before 1 April 1994, when most of the changes will occur. That closed fund, with its own assets, will be managed by the industry fund, so it will have the limitations that I have described. I agree that I have difficulty making my remarks today consistent with what I said in Committee, but that is because the Government have changed their position again. They constantly change position and we have to live with that. The hon. Member for Eastleigh knows that there have been changes virtually from day to day, so we do not have sufficient time properly to consider them.

Will the Secretary of State confirm that the assets will be broken up and given to the closed fund under an order laid in the House—which we assume he will lay before April 1994—so the possibility of the fund meeting its commitments will be determined by how much money the trustees can earn from the balance of assets and equities in the fund. That is a powerful judgment. Bigger funds have a better chance of achieving that. As a fund becomes smaller, the judgment becomes more difficult.

We must bear in mind what happens with closed and open funds. With an open fund, contributions come in and contributions go out. With a closed fund, no contributions come in other than the fund's earnings. There is no revenue from employee contributions. If the earnings of the fund are less than the amount paid out in benefits in the industrywide scheme, the fund cannot meet them. Indeed, no actuarial authority would allow it to be so unless the Government guarantee to meet the shortfall. They will not give that guarantee.

The hon. Member for Eastleigh may be satisfied with the Secretary of State's promise, but the assets may not live up to that promise. We will not know until the order is laid. I ask the hon. Gentleman to join with us tonight and support us in trying to ensure that if there is a difficulty, the judgment will be that of the actuarial authorities, not of the Secretary of State. I would prefer the judgment to be in the hands of those who have to justify their action rather than in the hands of a Secretary of State who will simply bring a one-and-a-half-hour order before the House and bulldoze it through. There would be no justice for the pensioners in that.

I say to the hon. Member for Eastleigh, beware of what the Treasury is doing. It is after the assets in the pension fund, but they do not belong to the Treasury. The hon. Gentleman has a choice tonight: he can either join us in trying to effect an insurance policy to protect the pensioners or he can accept the rhetoric of his Secretary of State, who gives him promises but nothing to back them up.

I join the hon. Member for Kingston upon Hull, East (Mr. Prescott) in his opening remarks about our late colleague, Robert Adley. As we embark on this Report state, we are all conscious of his very sad death. He took a great interest in all transport matters. I and, I am sure, all hon. Members pay tribute to him for all that he achieved. He had a deep knowledge of and passionate commitment to transport, but his greatest enthusiasm was for railways.

The hon. Gentleman said that Robert Adley and I had differences of view on some aspects of our proposals for the reform of British Rail. I quoted the key passages on television yesterday—

Why not all of them?

Because it was a short programme. I should have been quite happy to quote all the passages, on many of which Robert Adley and I agreed. Indeed, about four fifths of the Select Committee's recommendations have been accepted either in whole or in part. There is no doubt that Robert Adley made a very constructive contribution and we agreed on many matters. We disagreed about vertical integration and one or two other issues, but it is possible to have two different but genuinely held views about vertical integration.

The most important point is that Robert Adley brought his great knowledge to the House with great enthusiasm. He was a bubbly character. I had the pleasure of sharing an office with him when I first came to the House. He did not just serve the House well on transport matters; he served the House with distinction in many other ways and he will be greatly missed. I am sure that we all wish to convey our heartfelt sympathies to his widow Jane and his family.

Those of us who served with Robert Adley on the Select Committee learned to appreciate his total commitment to transport and his clear view about privatisation. I want to put on record the fact that we believe that the enormous work that he did on the Select Committee report and the pressures that were brought to bear on him unfortunately and undoubtedly had some effect.

I certainly hope that that was not the case, but that underlines the detailed work that he put into the Select Committee—and, indeed, into every other cause in which he believed.

The Government are prepared to accept, in principle, the intentions behind new clause 3 and amendment No. 2, tabled by the hon. Member for Wrexham (Dr. Marek). They require a report to be published and laid before the House before an order can be made to amend the trust deed for the rules of any existing board pension scheme, contrary to the advice of the trustees.

It will not surprise the hon. Gentleman to know that I cannot recommend acceptance of new clause 3 as drafted, for three technical reasons. First, it would sit better as a paragraph in schedule 10 rather than as a complete new clause. Secondly, the phrase "existing board pension scheme" is not defined in the Bill, whereas "existing scheme" is defined in paragraph 1(1) of schedule 10. Thirdly, I am advised that it would be unwise to use the word "precisely" in primary legislation. Who can judge what "precisely" means? In any case, it would be better to publish the trustees' advice, whether or not it is accepted.

I assure the hon. Gentleman that it is my intention to accept the clear spirit of the new clause and the amendment. I assure the House that the Government will be in close touch with the trustees on such matters and will wish to bring their views to the attention of the House when laying any relevant draft statutory instruments. We would also wish to explain the reasons for not wholly accepting their advice. Of course, that position may never arise; it is hypothetical.

I want to give further thought to the best method of achieving the intentions of the new clause, both in publication and announcement, and to bring forward a suitably drafted amendment at a later stage in the other place. I give a firm undertaking to do so. I hope that, with that assurance, the hon. Gentleman will not wish to press his new clause.

I cannot be quite so charitable to the hon. Member for Kingston upon Hull, East. I welcomed his opening remarks, which acknowledged the Government's position on so many of the issues in our final pension proposal, agreed and announced last week. However, that greatly contrasted with his quite outrageous remarks on "Newsnight" on Friday night and on "Breakfast with Frost" yesterday. He repeated some of those comments in his later remarks today. He said on "Newsnight"—I shall leave out a tiny bit of the quote—[Interruption.] All right, I shall read the whole quote. He said:

"So the only money that's available—and there is money available in the railways, Post Office and the Coal Board—is in the pension funds, something like £4 billion in each one of them, and what the Government is about to do is to raid the pension funds of £4 billion each."

The hon. Gentleman said on "Breakfast with Frost" yesterday:

"Something like £8 billion belongs to British Rail pensioners and they are carving up the pension funds to get £4 billion off the pensions and into the Treasury."

Those remarks were outrageous on two counts. First, his remarks were not true; it was scaremongering of the sort to which we have become accustomed in recent months, especially with pensions. Secondly, he raised quite unnecessary fears and concern among vulnerable sections of the community—British Rail pensioners who are dependent on their British Rail and state pensions.

From the beginning, I have gone out of my way to make it quite clear that the Government have no intention of doing what the hon. Gentleman has suggested, yet even after he saw the published proposals on Thursday he continued to repeat his allegations. I can only assume that he had not read our conclusions on Thursday. I should like to take him through the facts because they are terribly important.

If the right hon. Gentleman's statement on Friday was so important and comprehensive and would have stilled pensioners' fears, why did he not come to the House to make it? Why did we have to discover it in a written answer at the back of Hansard?

We were informing the House of our conclusions so that we could hold this debate today. I want to make the position absolutely clear. I gave a pledge at the outset, and I have repeated it in the House more than once, that British Rail's pension funds would not be used for any purpose besides paying pensions. In January, we produced our pensions document. It was clearly a consultation document in which we raised a number of issues and outlined two main options. It cannot be argued that we have done a U-turn or effected any changes since then. What is the point of offering options and going out to consultation unless, ultimately, we make a decision on one or other of those options?

The two main options were the closed fund in due course and a Government offer of a guarantee of index-linked pensions to all British Rail pensioners. We offered pensioners a fair and open choice. The hon. Member for Kingston upon Hull, East put his finger today on the difference between British Rail's privatisation in respect of pension funds and the privatisation of electricity. As he rightly said, the area board structure of electricity meant that the employees involved in that industry were not to be split up into all sorts of different organisations, so there was no need for a variety of pension funds. The hon. Gentleman rightly identified the fact that the Inland Revenue would not allow employers to cross-subsidise or deploy cross-arrangements as between one pension fund and another. That Inland Revenue rule is designed to avoid the risk of unfair treatment in the use of taxation.

Clearly, then, with British Rail we were faced with a situation that was not paralleled by electricity. We therefore had to find another solution. That is why, genuinely, fairly and openly, we offered these two alternatives to existing pensioners. It was not possible to say that they could for all time participate in open funds in which employees also participate because, with a large number of pension funds, and the large number of British Rail pensioners whom the hon. Gentleman correctly identified, that could overwhelm some of the new pension fund arrangements for employees. That is why, under the first option, in due course the fund has to become a closed fund.

In order to assure pensioners that there was an alternative of a guaranteed index-linked pension—all this is spelt out in the document—we offered the same sort of arrangements to British Rail's existing pensioners as obtain for the civil service. Clearly, the Government cannot undertake the liabilities that would arise in this respect without the transfer of the assets that were available in the pension fund to meet the pensions in the first place. I have had discussions with the pension trustees and with a great many others since the document was produced in January. They have recognised straight away that assets have to flow if liabilities are being incurred. If the Government, therefore, were to offer guaranteed index-linked pensions, they clearly had to have the right assets to pay for them. The process would be carried out independently, based on actuarial advice on all sides. That is why it was outrageous to say that the Government were going to purloin pension funds and use them for other purposes.

But the issue went further than that. Having consulted widely, I came to the conclusion that, as the second option, which had been fairly offered, was not favoured by most of those who responded to the document—a few did favour it—and as most preferred the first option, it was right to accept the option that most people wanted. That is what we announced on Thursday and it meant that there was no possibility, on Friday, Sunday or today, of the hon. Member for Kingston upon Hull, East correctly arguing that the Government were taking over pension fund money to use it for other purposes.

Even so, the hon. Gentleman went on putting out his scare story, and at one point this afternoon he did it again. I want to ask him an important question—important from the point of view of pensioners. Given the background that I have outlined and the fact that the first option is the one that we have chosen, there can be no case for saying that the Government are taking 4 billion away from the pensions and putting it into the Treasury. I ask the hon. Gentleman to withdraw that allegation because it is not in the interests of pensioners or of anyone else to believe it. I invite him to withdraw it, now or at the end of the debate—

I shall deal with it at the end of the debate.

I hope that the hon. Gentleman will then be able to reach agreement with me on various other aspects of pensions, too.

I want to talk about our conclusions based on the consultations that we held with trustees, the British Railways Board, large numbers of pension organisations and the rail unions. The Minister of State and I met the unions at least twice, and we have certainly consulted widely. That those consultations were genuine is shown by the fact that our conclusions met at least 90 per cent.—probably more—of the requests put to us. We could not accede to one or two of them, but the reasons for that were understood. I was grateful to my hon. Friend the Member for Eastleigh (Mr. Milligan) for what he said about the pension trustees' approach to what we have done. They understand how far we have gone to meet all their concerns.

It would never be—it never was—any part of my purpose to take away from pensioners any of their pension funds. I understand only too well how important pensions are to them and to existing employees. That is why I was anxious to reach the best possible arrangements within the terms of the new reforms.

The right hon. Gentleman has said that people who are existing employees of British Rail and who go to another employer in the reorganisation will still belong, if they want to, to the British Rail fund—that is described as an indefeasible right. The industry welcomes that. Can the right hon. Gentleman, however, assure us that that right is not time limited? A document sent to his Department suggests that it might be.

If people choose to stay in the joint industry scheme, they can do so—that is the indefeasible right. I am happy to make that clear.

As requested by almost all the interested parties, we will set up a joint industry scheme for the railways to succeed the British Rail scheme. I know that that has been widely welcomed. We have made it clear that staff serving when the Bill gains Royal Assent will have a right to remain in the scheme while they are still in the railway industry. That is what is meant by an indefeasible right—the right of existing employees to remain in the joint industry scheme. Both it and any scheme subsequently set up by employers must offer benefits no less favourable than those in the existing scheme to people who are members of the scheme when the Bill gains Royal Assent. There will be no penalties for involuntary breaks in employment. The matching of additional voluntary contributions—known as the British Rail additional superannuation scheme—will continue, and there will be safeguards for pension funds when franchises change hands. That is a clear set of commitments to employees.

As for new employees entering the railway industry, it will be for employers to negotiate their own arrangements with them. The hon. Member for Kingston upon Hull, East has tabled an amendment on that aspect, but as he did not refer to it, I shall not do so either now—but I make that point clear.

On pensioners, I have already said that we are going for option 1, so there is no question of any funds being transferred to the Government in return for a Government commitment on a guaranteed, inflation-proof pension. It is correct to say that pensioners will eventually enter the closed scheme—I will explain why later—but they will remain with British Rail employees in the short term and the closed scheme will be managed as part of the joint industry scheme.

The funds will continue to be managed by representative trustees, as now. The division of the funds to reflect the trustees' liabilities and decisions will occur in due course, after a new revaluation. A revaluation is currently under way, and clearly we must wait for it to be completed. I make it absolutely clear that the fund splits will he based on independent actuarial advice, as one would expect. As the hon. Member for Kingston upon Hull, East said, Government contributions under the Transport Act 1980 will continue. I shall explain shortly the purpose of the Ways and Means resolution and the new clause that has been tabled.

We have met fairly well, with one exception, the main requests made of us. The orders for putting those schemes into effect will be subject to statutory consultation with the trustees—I will refer again to that point in relation to the hon. Gentleman's amendment—and to affirmative resolution of both Houses.

I cannot accept new clause 29 and the consequential amendment No. 253, because there is no need for them —the purpose has been covered already. The concept of the joint industry scheme is wanted by everyone whom we consulted. In particular, the British Railways Board and the railway trade unions were keen for such a joint scheme, which they felt could best continue to provide the benefits that staff already enjoy. I made clear in my written answer last week, as earlier, that the scheme will be established.

Consultation with the board and with the trustees has already begun and will continue until the joint industry scheme is formally established. We make it clear in the Bill that Parliament will have an opportunity to debate the statutory order establishing the scheme, because all such orders will be subject to the affirmative resolution procedure. If the trustees disagree with any part, then, in the spirit of the hon. Gentleman's amendment, we will report to Parliament and that will be reflected in an amendment in another place.

The hon. Member for Kingston upon Hull, East referred to the aftermath of the Maxwell affair and to the Goode committee. He made a fair point, and I understand the concern among pensioners as a result of that affair. My constituents have been affected and I have had many surgery and other discussions with them. That is why I was particularly cross that Opposition Members tried to stir up unnecessary fears among pensioners.

When the Goode committee reports, the timing will be such that we should be able to take into account those recommendations that are accepted in any of the arrangements when we come to deal with the orders. In other words, I hope that we will be able to reflect that committee's recommendations.

New clause 29 is therefore redundant. We have already given our commitment to consult and that consultation has already begun. This afternoon, the hon. Member for Kingston upon Hull, East made different points—and they are not relevant to the new clause. I do not see how it would achieve the objective that he set himself this afternoon. It is therefore redundant in more than one way.

The Secretary of State will know the difficulty of devising acceptable new clauses. If he will take that new clause together with many amendments, he will see that we chose to make one principal point—that nothing can move on the right hon. Gentleman's order unless the actuarial authorities say that there is instability. All the other points are embodied in later amendments. Given the limited time available for debate, we cannot discuss them all because there is much to cover in two days —as the Secretary of State knows from our negotiations.

I know also that pensions are very complicated. As to actuarial instability, the actuaries must address that key issue when they come to the eventual split of the funds. They would not want to establish a closed fund that was inherently unstable. Clearly, the trustees will be watchful on that issue.

As to the "no less favourable" question, I will be completely fair with the hon. Gentleman.

This will be the first time.

I am always fair with the hon. Gentleman. I hope that he will be fair and withdraw his accusations later.

There would be no reason.

The hon. Gentleman knows that his accusations were wrong—but I suppose that it would be a precedent for him to withdraw them, knowing that he is wrong.

I want to be fair about the hon. Gentleman's specific point. He rightly explained why we could not distribute the pension liabilities of existing pensioners around a whole series of funds. We had to find another solution, and we offered two options. The solution adopted is to move eventually to a closed fund.

The hon. Gentleman tried to argue that that would not give pensioners a "no less favourable" commitment—but by that, we mean retail prices indexed. Also, if there is a surplus in the fund at any time, the trustees can decide what can be distributed from that surplus. There is never any guarantee about a pension fund's future performance, but there are 60 closed funds in British Rail at present. Their history is good and they have been able to find surpluses, despite the issues that the hon. Gentleman raised as to the balance between equities and gilts—I well understand that point, which is why we are allowing time for moving to a closed fund.

We have found the right solution and the one that pensioners, pension fund trustees and others want. We have gone for the closed fund because that is the only way under the new arrangements. The hon. Gentleman's new clauses would not make any difference.

As the hon. Gentleman did not raise amendment No. 190, I will not refer to it, but I revealed that we could not accept it.

As to Government amendments Nos. 106 and 107, we have already said that we intend to continue payments in support of the historic underfunding of British Rail pension schemes. The purpose of the amendments—this touches on the hon. Gentleman's point about the Ways and Means resolution—is to take account of changes in future pension arrangements that will occur on privatisation.

It is a matter not of changing our mind and deciding to continue the Government's commitment to payments to support that historic underfunding but of recognising that we had to make changes to the Bill to enable that commitment to continue under the new arrangements. Having realised that, we needed a Ways and Means resolution to put the amendments forward. That is the reason and no other. It is actually quite technical.

As the hon. Gentleman said, those support payments date back to the 1974 capital reconstruction of British Rail, when the Government decided that British Rail would be unable to meet all the pension liabilities inherited under the Transport Act 1962 and therefore assumed responsibility for funding the unfunded portion of the pre-1975 pension obligations. I am sure that the hon. Gentleman is with me so far; this can get a little complicated.

Those obligations included pensions, the cost of some early retirement schemes and the provision of cost-of-living increases for pensioners from some early BR schemes that had no provision for index linking. The method of payment of Government support was changed by the Transport Act 1980 because the Public Accounts Committee criticised the previous system, particularly on the ground that it involved payments being made in advance of need.

Payments are therefore currently made on an emerging cost basis—[Interruption] I am talking about the PAC, not the public sector borrowing requirement, and about the propriety of Government funding. Payments were made on that emerging cost basis so that the Government's contribution is made only as and when payments are made to pensioners. Those arrangements can be changed again only by further primary legislation. Payments made since 1981 total £1·3 billion at present-day prices. I hope that the hon. Member for Kingston upon Hull, East acknowledges that that is a substantial contribution.

But it is an obligation.

I grant that, but it is a very large contribution.

Under the 1980 Act, a determination was made of the unfunded proportion of pre-1975 liabilities of each of the funds. The determinations were on a once-and-for-all basis. There is no provision for further determinations under the 1980 Act, regardless of whether the state of the funds' assets has changed. That was deliberate, so that British Rail would have an incentive to manage the funds effectively.

Why do we need to make these changes? As the 1980 Act stands, we have no powers to make periodic payments to other than a British Rail pension scheme, as defined under the Act, nor to make once-and-for-all payments to pay off the remaining liability to any scheme. We might want to do that, for example, where that liability to a scheme with a few and a diminishing number of members is very small. It makes sense to do that.

Another problem is that at present when a transfer value is paid to another scheme on an employee leaving British Rail, any unfunded proportion of the transfer payment is reimbursed immediately to the transferral scheme. I have a detailed brief, which I could read out, but it may be simpler if I tried to explain it in my own words. This is to meet the Public Accounts Committee's point.

If the existing scheme changed to the new arrangements under the joint industry scheme, technically speaking that would be a change. Therefore, the overall lump sum payment would have to be made at the moment, although underlying it there would be no change at all in the liabilities. That would certainly be criticised by the Public Accounts Committee. That is why we have made the changes.

It is to overcome these difficulties in the new arrangements that our proposed amendments will allow for varying the method and timing of payment to individual schemes, or in respect of different classes of member within a scheme. I do not need to weary the House, unless any hon. Member wishes to ask me questions, with precisely how that will be done. However, the fact is that that is all that the amendments seek to do.

The amendments would reverse the action that was taken by the Government in 1980 to respond to criticisms by the Public Accounts Committee about how the support payments were being made at the time, particularly in relation to the very small payments point. I can, however, reassure the House that the primary reason for amending the 1980 Act is to ensure that the bulk of the payments can continue to be made, whenever practicable, on the present pay-as-you-go basis.

I hope that the House will accept our amendments. I have already said why I am unable to accept the amendments and the new clause that the hon. Member for Kingston upon Hull, East wants. The most important point about the debate, and why I am glad that it is taking place so early on Report, is that it enables me to give the reassurances that pensioners and employees were seeking about their pensions and to emphasise that in the decisions that we have now announced we have met the vast majority of the representations made to us.

The pension trustees have acknowledged that we have approached this issue extremely fairly. I fully understand and completely sympathise with the concerns of pensioners about their pensions. I hope, therefore, that the hon. Member for Kingston upon Hull, East will withdraw and not repeat the shameful allegations that he has made.

I have to declare an interest, as I did in Committee. I am an ex-British Rail employee. I am also a deferred member of the British Rail pension scheme. I am grateful to the Secretary of State for telling me that I should now be reassured by what he has told me, but I must say to him early in the debate that he has not reassured me.

I was told that I could speak on my interest in the pension scheme, because it is not significant enough to prevent me from speaking and voting. However, my pension is significant to me. It will decide what happens to me in the future. It will be my security for the future. It is significant to me and to hundreds of thousands of others like me. It may be the deciding factor in whether I live in relative comfort in my old age or in poverty.

I do not take kindly to having to discuss my personal finances in front of the House of Commons and the country and I consider it to be in very bad taste that the Secretary of State has made me do so. I disagree even more with the fact that the Secretary of State and the Minister for Public Transport should feel that they can tinker with my pension without my express permission.

It is important to recognise to whom this pension belongs. It does not belong to the Government; it does not belong to my hon. Friend the Member for Kingston upon Hull, East (Mr. Prescott); it does not belong to the hon. Member for Eastleigh (Mr. Milligan). It belongs to me and to the other pensioners. If that fact is recognised, all these matters are put into their proper context.

Over a year ago I thought—naively when I look back on it now—that my pension was safe. We had seen the tragedy of Maxwell and what could happen to pensions, but I knew that the trustees of the British Rail pension scheme had done a good job in the past. I had faith in them and had no worries about the future. I was even more reassured in July last year when the Government said in their White Paper:

"Privatisation will not affect pensions already being paid from or preserved in British Rail schemes."

I regard that as a guarantee and as a promise. It proved not to be a guarantee and, if it was a promise, that promise has not been kept.

I was not reassured for long. Before long I saw that the Government had two options. The Secretary of State still tries to portray those two options as a choice for pensioners and for deferred pensioners, like me. If they provide a choice, it is Hobson's choice. For me the choice is between whether I should be burgled or mugged. It means, in effect, that my pension is going to be tampered with and reduced by the Government, without my say-so under either option.

Under the second option, it is clear that the Government will take my money. However, under the first option

"an appropriate portion of each fund"

will

"be set aside as a closed scheme."

If an appropriate portion is to be set aside for a closed scheme, what will happen to the other portion? I hope that the Secretary of State will tell me what is to happen under the second option.

The first option means that the funds will be stripped and that there will be a change to a closed scheme. That scheme will die as the pensioners die. The scheme is terminal. It gives the Government the opportunity to evade and escape from the responsibilities that they had in the past. It provides no opportunity for shortfalls to be met by employee contributions.

The first option is unacceptable. The second option effectively allows the Government to take over all the assets of the pension fund. They promised me that my pension would rise in line with the retail prices index. But I already had that, and something else: I knew what my scheme was all about. I read the annual reports every year. It is no use Conservative Members shaking their heads. I know more about the British Rail pension scheme than any of them. I am a member of it.

The Government say that they will take all my assets and that in return my pension will rise in line with the RPI, but I already have over and above that in my present scheme. The trustees have looked after that scheme. Neither of the Government's options offers the same security or the same benefits as that scheme does.

Under the British Rail pension fund, pensions have increased by a third since 1984—not because of RPI increases, but through the use of surpluses. Widows' pensions have increased by even more—they now receive a half-payment rather than a third of a payment because of the surpluses created by good investment. The employer enjoyed a five-year contribution holiday thanks to surpluses in the fund. Other employees, but not me, had been enjoying a thirteen-and-a-half year half-payment contribution holiday which would not have ended until 2004, all because of the fund's surpluses. I was going to lose all those benefits under either of the Government's options.

5.30 pm

The fund is a living fund, and I use that word deliberately. It regenerates itself and keeps going because, as people die, new employees join, balance the fund and keep it balanced. For example, as at 31 March 1992, there were 295,478 people in the British Rail pension fund; 131,478 were contributing members; 40,000 were, like me, former members with preserved benefits; and 123,984 were beneficiaries. A balance was achieved between the new employees and people who were receiving benefits. The fund was stable not only in terms of numbers but financially. The accounts showed that the money coming in from employees was similar to that being paid to beneficiaries. The scheme worked and it was going to carry on working.

The figures for the same year show that 10,346 new members joined the scheme whereas 3,631 left. There were unfortunately 400 deaths in service and 4,022 retirements. The balance was set to continue and could have existed for ever if the Secretary of State had not interfered. He gives the impression that he is trying to be helpful to me and the pensioners, but I can only say, "Thanks but no thanks. I don't need it". I like the scheme as it is. I am happy and satisfied with it and I want to continue with the scheme that has given me such benefits.

The scheme provided me with as many guarantees as anyone can expect from any pension scheme or from anything else in life. There is no doubt that it worked well. Everyone agreed about that—the trustees, the Government, the unions, the pensioners arid the contributors. If it ain't broke, why has the Secretary of State got to fix it?

I have heard people say that the Secretary of State and the Minister for Public Transport have made changes and granted concessions as they went along. They have, and sometimes very rapidly. I am sure that the hon. Member for Eastleigh has sometimes been as confused as I am by the rapidity with which the Government have changed their mind. They began by saying that the new scheme would he "comparable". I am not sure what tht means, but the phrase was changed and it was said that any new scheme would be "no less favourable". Whether it is comparable or no less favourable will be a decision not for me as a deferred pensioner, for other pensioners or for the trustees, but for the Secretary of State. He is the same Secretary of State who has already told me that options 1 and 2 are comparable with the scheme that I already have. It ain't true. This is the same Secretary of State who offered me options 1 and 2 after telling me initially that privatisation

"will not affect pensions already being paid from or preserved in British Rail schemes."

With respect, would I not be a little more naive than the hon. Member for Eastleigh if I were now to accept that my future and that of the other 200,000 people involved was to be left to the Secretary of State's interpretation of the phrases "comparable" and "no less favourable" when, only a few minutes ago, he was telling us that it was very difficult to describe what "precisely" meant? If he cannot tell us what "precisely" means in law, it will be very difficult for him to tell us what "comparable" and "no less favourable" mean in law. People have been caught by such phrases before.

My hon. Friend the Member for Kingston upon Hull, East referred to previous BR privatisations when employees were told that their pensions would be mirror images of British Rail pensions. Were they mirror images? There was not a single scheme in which the contributors or pensioners did not lose out as a result of the change to the "mirror image" pension schemes. If I am wrong—I do not think that I am because it is a matter of record—or if the Secretary of State can tell me of one BR privatisation scheme which worked out better for pensioners and contributors, or one which worked out just as well, I should be very happy to hear about it. However, I have investigated them all and I could not find one.

I ask the Secretary of State what is wrong with continuing with a truly open scheme, not one that is open only at present? I noted that in Committee the Minister referred to the proposals as an open fund for the present, but the Secretary of State now refers to them as a closed fund in due course. It may be a question of semantics, but the delay is leading to a closed fund which, in the end, will be worse for me and for the present pensioners. The closed fund will be introduced not at my request or that of the trustees, but at that of the Secretary of State.

What is wrong with asking new employees to make a choice? What is wrong with asking them whether they want to contribute to a joint industry fund which is open to all, to take out a private pension or to join the pension scheme offered by the new operators? What is wrong with offering people that choice? Anyone with any sense will want to stay with the joint industry scheme which is open and is—I use the word again—a living scheme that will not disappear.

If the Secretary of State thinks that the delay is a sop or that it will persuade me that he is doing something for me, he is wrong. Pensions work on a long-term basis. I disagree with my hon. Friend the Member for Kingston upon Hull, East because I do not think that the new scheme will be introduced in 1994. I believe that it will be introduced later, but does it matter if it is introduced in one, two or three years? Does it help me if it is introduced in five or 10 years? The answer is no. I shall not be drawing my pension for 20 years, but 20 years matter because by then the Secretary of State will have made his changes and will have made my pension a closed scheme. By virtue of its being a closed scheme, the trustees will not have the leeway to invest wisely to ensure that I receive proper benefits.

I refuse to be grateful for the Secretary of State's concessions because none of them is a proposal that in any way matches or even comes close to what I have now. At the moment, I have a pension scheme with which I feel safe and secure—a pension scheme which means that I can sleep at night without worrying that it will disappear. The Secretary of State seems to be proposing something that will not allow me to sleep at night and, more importantly, will not allow hundreds of thousands of other people to sleep at night. I have an edge on all those people because I have a House of Commons pension. What an outcry and what a Back-Bench revolt there would be if the proposals for the railway pension scheme applied to the House of Commons pension scheme. How would Conservative Members react then? If they feel passionately—as I hope they do—that people should be protected, they should put themselves in the position of those hundreds of thousands of railway employees.

Does my hon. Friend share my concern about what will happen to the surplus in the pension fund? Little has been said about the surplus. As I understand it, in law the surplus in any pension fund is the property of the employer. In this case the surpluses—

indicated dissent.

Conservative Members shake their heads. I have had the point clarified in Committee on another matter. The surplus in the railway pension fund is owned by the Government. Does my hon. Friend agree that we need assurances from the Secretary of State that the Government do not intend to do anything with the surplus in the fund, other than to disburse it for employees and pensioners?

I agree with my hon. Friend. There is a need for further reassurances. We get reassurances about the present, but not about the future. I do not wish deliberately to draw comparisons between Maxwell and what is happening now. However, although it may be legal for the Government to take my pension, I do not think that it is moral. In the Maxwell case, it was neither legal nor moral.

The problem is that, although I accept the assurances of the Secretary of State that I should not worry because the Government are not taking my pension now, I still have grave concerns and doubts about whether the Secretary of State plans to take my pension in the future. I am not willing to accept guarantees that are given to me in the form of words such as "comparable" or "no less favourable". I want something written into legislation that protects me now.

My hon. Friend the Member for Kingston upon Hull, East was quite right. We were told in Committee not to worry because something would be provided on Report to reassure us. We are now being told that there will be an order in the future to reassure us. It has already been stated that we shall be able to debate the order, but that we shall not be able to amend it. The Whips will be on. When that happens, there will be an hour and a half's debate and, although the hon. Member for Eastleigh may be outraged by the Government's betrayal, the vote will go through. We all know how things work in Parliament. I am not prepared to be grateful for any concession. Why should I be grateful for someone throwing me crumbs when they have stolen my loaf'? Someone is stealing something that belongs to me; it may be legal, but it is not moral.

How will the two-tier system created by the Secretary of State affect the work force? All new employees will be expected to take a new and, I suspect, substandard, second-rate pension scheme instead of the one currently on offer. In future, people will be worse off and I want to fight that. I want not only to look after myself and the present pensioners, but to ensure that the people who come after us will have a decent pension scheme. People have the right to expect a decent pension scheme. Why should we have legislation that worsens the scheme?

What about the existing employees? We shall create two types of employees: the employees who have low pension costs and those who have high pension costs. The House should mark my words. It will not be long before the private operators and the unscrupulous realise that it is cheaper to employ people on the new pension schemes. People who presently work for the railways will be shed because they will be more expensive. That will happen, just as full-time jobs are being lost across the country to make way for part-time jobs in which the beneifts are not so good for the employees, but in which the costs to the employers are less. By fair means or foul, new employers will recognise the savings and will make the changes.

5.45 pm

We asked for guarantees on a number of issues in Committee. The Minister said many times that he could not give guarantees that would apply for ever and that nothing was certain in life. I accept that on many issues; I accept that there will be change, whether we like it or not. Changes are often for the good, so we should not resist just for the sake of resisting change. However, there is one matter about which people—I am certainly one of them —expect to have some certainty: their pensions. They expect to have guarantees about their pensions and they expect to have some guarantees about their future. They are not prepared to leave their pension to chance and they are not prepared to gamble with it. Yet that is what the Secretary of State wants me to do now. He wants me to gamble with my pension, but I am not prepared to see my pension go without protest. I know that there are hundreds of thousands of people who feel the same and they will continue to protest if the Government push the proposal through.

indicated assent.

The hon. Member for Eastleigh nods; he knows some of the pensioners and he knows how strongly they feel on the issue.

This debate is not just about my pension, nor is it just about railwaymen's pensions. It is about everyone's pension. It is about miners' pensions, about the Post Office pensions and about all the public sector pensions. It is also about the state pension. Let us not—

Order. The debate cannot be about state pensions. It must be about the new clause.

Thank you, Mr. Deputy Speaker. I realise that I was straying from the point.

The new clause makes it clear that there is a need for consultation with the trustees. I wish that the Government would consult people more widely on every issue. The Government are in economic crisis. Part of the reason for the changes in pension plans is that the Government would like to take some money out of the pension fund. Members of the other place have told us that state pensions are under threat. That is not something to be laughed at or scoffed at. As a result of the pressures on the Government, there are all sorts of strange decisions. There is the threat of prescription charges for the old and the young. There is the threat of the closure of post offices and pharmacies.

That is not true. Post offices are not under threat—not that we are discussing them at the moment.

Order. The hon. Gentleman's speech has been entirely in order, but he is now straying. Would he please return to the new clause and to the new clauses and amendments associated with it?

Thank you, Mr. Deputy Speaker. I will return to the new clause. I was trying to point out that everything was up for grabs and that people accepted that fact. Pensions are one of the things that are up for grabs. I believe that there is a threat to state pensions as well as to occupational pensions.

I realise that I am trying your patience, Mr. Deputy Speaker. However, I cannot accept the Secretary of State's promises. We have heard those promises before and we have seen them broken. I believe that the promises on pensions in respect of the new clauses will be the new broken promises of this Government. I hope that hon. Members will support new clauses 3 and 29 and I hope that they will do all that they can to ensure that the pensions belong to the pensioners and not to the Government.

I spent no longer than 30 seconds moving new clause 3 and that produced a most surprising result from the Secretary of State. After 10 years in Parliament, I did not expect him to say that he accepted the spirit of my new clause and that he would table amendments in another place. I thank the Secretary of State for that. That is a small but welcome step and I believe that it will be appreciated by every railway pensioner.

I speak as a sponsored member of the National Union of Rail, Maritime and Transport Workers. However, unlike my hon. Friend the Member for Nottingham, East (Mr. Heppell), I do not have a railway pension. I appreciate my hon. Friend's feelings when he said that he felt happy with his pension at the moment, but he was worried about the future. He is worried about the Government getting their sticky fingers on his pension fund. That is the root of the problem. If the Government are able to get their sticky fingers on the railway industry's pension fund, they may be encouraged by their success and try to get their sticky fingers on pension funds elsewhere.

Having gained success by being brief earlier, I suppose that I must not be other than brief now. I agree with the Secretary of State that the provisions in new clause 3 would have been better in schedule 10. However, in line with the procedures of this place, I thought that it was right to table the new clause in the first instance.

I obviously failed in my drafting when I included the words "Board pension scheme." Perhaps I should have spotted that, but all is not lost. I included "precisely" in the new clause intentionally. It is perhaps a comment on our law, and the way in which lawyers earn their money, that we cannot include "precisely." Life being as it is, it is likely that "precisely" will have to be dropped from the eventual wording. However, I hope that the Secretary of State can find a form of words that will be as close to "precisely" without encouraging lawyers to make a lot of extra money by challenging a particular decision in the courts.

I want to refer to the representations and responses of the British Railways Board. A BRB response to "Railway Pensions After Privatisation," under a paragraph entitled "Safeguards in the Railways Bill," states:

"The Board considers that, for the further protection of the security of members' interests, the Railways Bill should include the following provisions:

1. Any regulations under the Act must not enable any decision about the use of funds to be made other than with the agreement of the Trustees."

Hon. Members who served on the Standing Committee will recall that I tabled an amendment to that effect which did not find favour with the Committee. However, it is a central issue in this debate. The Secretary of State should be able to make changes with regard to the use of funds only with the consent of the trustees.

In the response to which I have referred, BRB makes two other points:

"2. Any Joint Industry scheme should offer benefits no less favourable than the present schemes.

3. Transfer payments should reflect a fair division, as agreed by independent actuaries, of the existing funds between beneficiaries."

I recently received a briefing note from British Rail that amplified those points. It stated that BR staff should be able

"to remain permanently in the proposed joint industry scheme, if they wish".

It stated that existing BR schemes should

"remain open for BR staff and pensioners as long as feasible."

It also stated that

"the agreement of their trustees"—

must—

"be required to changes to those schemes."

The Government have gone some way down that road in relation to the Secretary of State's written answer which gives commitments. I hope that those commitments are genuine, in the spirit that there should be a guarantee for BR staff to remain permanently in a proposed joint industry scheme and that any future benefits should not be less favourable. If that is the case, we have moved a little. However, it is a great pity that we have not been able to get the Government to accept that no changes should be made without the agreement of the trustees. Unless the Government can accept that, I am extremely worried about what the Government will do.

The Secretary of State for Transport is being honest and I believe him. However, he is not master in his own house with regard to the sum total of Government finances. The Treasury may well have different priorities and it may wish to change the uses to which some of the money can be put in years to come.

We have moved some way in that option 2 has been withdrawn and we have moved to option 1, although that is imperfect. As my hon. Friend the Member for Nottingham, East put it very well, if it is a good scheme, why change it? There is no obvious reason why we are changing it, save, perhaps, for the position of new entrants.

I am sure that new entrants will not be able to join such a scheme. They will not be able to benefit from improvements to such a scheme or have the lifestyle that existing pensioners will have as a result of their participation in the present scheme. This debate is about the impoverishment of the people of this country. People will be poorer as a result of the changes that the Government have announced.

I believe that new clause 3 is valuable because it will clarify what the Government are doing. I hope that the Government will accept my new clause because if Transport Ministers want to do the best for the pensioners, they should be happy to demonstrate publicly and to the House that any changes will not adversely affect pensioners. I doubt whether that will be the case when the Treasury gets going on this matter in years to come. However, I will be charitable to the Secretary of State for Transport and say that I believe that that is what he hopes to do.

As to new entrants, we need simply consider what happened in earlier privatisations. Without exception, all the pension schemes in the National Freight Corporation. Sealink, British Rail Engineering Ltd. and Travellers Fare Ltd. now offer inferior benefits. Despite reductions in the membership contributing to large scheme surpluses, the National Freight Corporation, Sealink and BREL have all enjoyed, and continue to enjoy, a pensions contribution holiday. Unfortunately, the schemes' members have not been treated as generously. In addition, the National Freight Corporation and Travellers Fare Ltd. have established new schemes offering inferior benefits which, at the same time, provide the companies with greater control of scheme assets than did the initial schemes established on privatisation. We will have to examine the results of the Goode report, but if the history of privatisation is anything to go by, the more security we can establish, and the more we can tie the Government down in the operation of the new scheme in respect of any changes that will be introduced, the better. I am convinced that as a result of the measure that we are debating today, new entrants will be impoverished in their pensionable years.

I thank the Government for accepting the spirit of new clause 3. I look forward to the amendments being tabled in another place. Every British Rail pensioner will be happy that the Government have accepted the change suggested in new clause 3. They will know what changes will be made. Most important, they will know when the Government propose to do something other than what the trustees would wish. I only wish that the Government were prepared not to make any changes except with the agreement of the trustees. This is the next best thing. In view of what the Secretary of State for Transport said earlier, I certainly shall not press the new clause to a Division.

I should like to reply to some of the points that the hon. Member for Nottingham, East (Mr. Heppell) raised in a passionate, sincere and deeply felt speech which I am sure that the House respected. I hope that I can say a few things that will enable him and 200,000 other pensioners to sleep well at night. Before I do so, I wish to add a few words to the tributes paid by both Front-Bench spokesmen to the late Robert Adley.

As a new Member, I particularly appreciated Robert Adley's generosity and kindness. He showed it to me in a particular way when I had an Adjournment debate on the future of the rail maintenance works in my constituency in which he had hoped to speak. Shortly before the debate, he came to me and said that he would withdraw his name because he realised that as a critic of the Government his support might be counterproductive.

It was typical of Robert Adley's generosity that he put other people and, indeed, the railways before his self-interest. I remember him as not only a critic of the Government on rail privatisation but a strong supporter of the Government on the Maastricht treaty. He was a positive European and a strong European. He argued convincingly in the House for the European cause. We shall miss him greatly.

As hon. Members who served on the Standing Committee will know, the pensions issue is of great concern in my constituency, where there are almost 2,000 railway pensioners. As other hon. Members have said, the issues give rise to wider concern. People on railway pensions receive a modest pension—typically, £40 a week. That is not a large sum. As the hon. Member for Nottingham, East made clear, such people usually have not earned a great deal of money in their lifetime, but they have done extremely well out of a pension scheme which has been well run and well managed. In the past six or seven years, for a typical person, the amount has risen by a third above inflation.

The hon. Member for Nottingham, East asked how Members of Parliament would feel if we were discussing changes to the House of Commons pension scheme. The British Rail pension scheme has probably done rather better than the House of Commons pension scheme. We would all be rather well off if our pensions were run by the British Rail pension board.

The average pension of a pensioner in the British Rail pension scheme is about £30, so there is a difference between the schemes in the amounts that individuals receive.

I am grateful to the hon. Gentleman for making that point. But he will agree that the percentage increase has been impressive.

The issue that we are discussing this afternoon is not whether but how pensioners should be protected from any adverse effects of privatisation. From the outset, the Government have made it clear that railway pensioners will receive no less favourable treatment than they would have done if the scheme had continued in the same way.

Opposition Members have asked why the existing scheme cannot continue. In Committee, my hon. Friend the Minister for Public Transport explained at great length why, for tax reasons and because of Inland Revenue rules, that was not possible. He also made it clear that he was determined to ensure that pensioners were protected. The Government have been criticised for changing their policy. The hon. Member for Kingston upon Hull, East (Mr. Prescott) has made some capital out of such criticism. It is characteristic of the discussions on the Bill that the Government have listened. They have consulted. They listened to the trade unions and accepted the unions' view that a joint industry scheme would be good.

The Government listened to the trustees. They listened to British Rail. Only today they listened to the hon. Member for Wrexham (Dr. Marek). My right hon. Friend the Secretary of State accepted the spirit of the hon. Gentleman's new clause. Even more remarkably, the Government have listened to Conservative Back Benchers. The Government should not be criticised for taking account of the objections that have been made. They should be congratulated on having widely consulted, listened and taken account of what people have said.

The Government have taken account in particular of what the pensioners have said. As the House knows, the Government originally provided two options. Under one option, which was much criticised, the money would have been transferred to the Treasury. Pensioners would have had an inflation guarantee. There were some attractions to that option because, contrary to what is widely said, the present scheme is not index linked.

However, the pensioners, certainly in my constituency, made it clear that they did not want that option. They preferred to have a scheme as close as possible to the existing scheme. That is why I suggested in Committee what I knew was the view of the trustees. I asked whether it would not be better to put pensioners, existing employees and those who remain with British Rail in the same scheme. That would get around one of the problems of the Government's original plan.

As the hon. Member for Kingston upon Hull, East made clear, a closed scheme including pensioners only would have to invest more in gilt-edged stock because the scheme would not have a continuing flow of contributions from people who were still working in the industry. The suggestion was that the two should be combined in a transitional scheme. That is exactly what the Government have announced. Having talked to pension trustees last week and this week, I know that they are delighted with that announcement. It goes a long way towards meeting the concerns that have been expressed.

The hon. Member for Nottingham, East asked how "no less favourable treatment" could be defined precisely. That is difficult to do. We are not asking for a guarantee that railway pensioners will receive the same increases that they have received in the past seven or eight years. That is not possible. We do not know what the performance of the underlying investments will be. However, we want a guarantee that they will have the same prospects and opportunity of benefiting from efficient management of the pension fund. The scheme that has been announced today gives them that guarantee, and it is encouraging that the trustees have welcomed it.

On behalf of the trustees, I should like to ask my right hon. Friend the Secretary of State to emphasise that the guarantee of "no less favourable treatment" will continue to apply even when the scheme becomes a closed scheme, if that is the case. That is important.

I congratulate the Government on accepting the changes. The changes have satisfied the trustees and pensioners will recognise that the Government have met their concerns. I understand why the Opposition have attacked and criticised the Government. That is their job. They do not always do it effectively, but sometimes they do. However, they must accept yes for an answer. The Government have accepted the points that they have made. To continue to make capital from the now rejected scheme of transfer to the Treasury by using words such as robbery, theft, burglary and mugging goes beyond the bounds of decent argument. The Opposition are trying to exploit the concerns of people who are vulnerable. They have failed to recognise the Government's announcement. That is disgusting, and I hope that the hon. Member for Kingston upon Hull, East will have the grace and decency to withdraw his allegations at the end of the debate. The Government have my full support.

In common with my hon. Friend the Member for Nottingham, East (Mr. Heppell), I wish to declare an interest, in that I am sponsored by a rail union, the Associated Society of Locomotive Engineers and Firemen.

The concerns expressed by the hon. Member for Eastleigh (Mr. Milligan) were also expressed in the petition that my hon. Friend the Member for Nottingham, East presented to the House on Friday morning. The thousands upon thousands of signatures of British Rail pensioners were not created by the Opposition. They were the genuine and still real concerns of BR pensioners. The accusation that the Government were attempting to steal from the BR pension fund began, if memory serves me correctly, in economic newspapers. People may not have gone all the way and called it theft, but there were reports that the Government were attempting to get their hands on the BR pension fund. The newspapers raised the issue that if the Government got away with the BR pension fund, they would then attack the coal fund and the Post Office fund. The Opposition are always accused of scaremonger-ing—[Interruption]. "Hear, hear," say Conservative Members. Nine times out of 10, those scares come well and truly home to roost.

How can any pensioner have real trust in a Government who have suggested, in the European Year of the Elderly, that pensioners may have to pay prescription charges? The Government promise to impose VAT on fuel, which, as we all know, affects pensioners deleteriously.

Order. The hon. Lady must have heard what I said to the hon. Member for Nottingham, East (Mr. Heppell). She must address her remarks to the new clause and the amendments grouped with it, and not be tempted to range more widely.

Thank you, Mr. Deputy Speaker. I was taught always to give in to temptation, but I shall restrain myself on this occasion.

Changes have already been made to the Government's proposals for a pension scheme. To my certain knowledge, they have taken three bites at the cherry, and have cracked their molars every time. They have had to come back with an alternative scheme; but that scheme has not stemmed the fears of British Rail pensioners—or, indeed, those of current employees. The idea that all employees will be allowed to enter the joint industry scheme is welcome, but why is there not the concomitant that all new employers must also participate in the scheme? As was pointed out in Committee, it is entirely possible that a new franchisee, or an open-access employer, will find it economically unviable. We will be creating a two-tier system.

The hon. Lady seems to misunderstand the joint industry scheme. Employers will be obliged to take part in it.

I am not surprised to learn that I lack understanding in that regard. I understood very clearly when my hon. Friend the Member for Nottingham, East described the pension scheme as it now exists; I am sure that the Secretary of State will take that as a valuable lesson when he wishes to define the Government's scheme in more detail.

My understanding is that new employers will not be forced, or obliged, to enter the scheme if they can offer their employees what they call a better scheme. But, as we have heard, the current employees do not want any change in the existing pension scheme. If such a change is to be made, they want a fail-safe guarantee that no alterations may be introduced without the full and tacit agreement of the trustees. Surely every hon. Member should want to guarantee that safeguard for BR pensioners.

As my hon. Friend the Member for Nottingham, East pointed out, the actual pensions are extremely small. Employees of British Rail, as it still is, have given more than financial contributions to the scheme. As was said in Committee—I must emphasise this—this is a high-risk industry, not for the travelling public, but certainly for those employed on the railways. There has been a marked increase in the number of injuries and, in some instances, deaths. We are being asked, in a sense, to penalise people who have not only given their work and their money to the pension scheme, but—in a number of cases—given their lives to the industry.

The complexities and difficulties that the Government are experiencing are entirely their own fault. It was the Government who decided to privatise British Rail, not the BR board or the employees. The Government's problems are entirely of their own making. Surely it is up to the Government to listen to those who know best the realities of the industry, and the realities of having to live on small pensions.

In a letter dated 19 May, Mr. R. S. Green, chairman of the Southend and district branch of the British Transport Pensioners Federation, wrote:

"Mr. MacGregor offers us nothing we do not already have —but he is taking something away … Mr. Freeman repeats that BR's pension fund will only be used to provide for pensions. I believe him. But this is not the same as saying that we will get our full and fair share. By limiting payment under Option 2 to the already existing 'pension plus RPI' level he is simply providing more for others (which could include Franchisees). By removing the chance for us to share in any possible future surplus he robs us of the hope of a better future and alienates pensioners."

Earlier in his letter, Mr. Green wrote:

"Just this past week you will have read that the BT pension fund has been revalued and shows a large downturn in income. Their entire surplus has been wiped out and the employer's 'contributions holiday' has been terminated. They are now resuming payments into their fund … If a huge fund with a surplus can be reduced to deficit in a year what hope would there be for a fund deprived of both employer and employee contributions? But this"—

so a BR pensioner believes—

"is the essence of the Government's proposal."

We have all made our points to the Government, both today and in Committee. The Minister has said that the Government are willing to listen. I urge him to continue to listen and to give pensioners the necessary safeguard—certainly in regard to the trustees' decision—if any change in pension schemes is considered. We owe it not only to BR pensioners and employees, but to the millions of citizens who—as my hon. Friend the Member for Nottingham, East said earlier—are concerned about their pensions, whether or not they are connected with BR. I believe that that should be part and parcel of decisions made in the House. Not only should the fine detail of Government proposals be examined, but an attempt should be made, as far as is humanly possible, to give a wider perspective to issues about which the public are genuinely concerned— issues that relate to their future.

Let me take up what the hon. Member for Hampstead and Highgate (Ms. Jackson) has just said. It is clear that the Government have indeed been listening.

I welcome this afternoon's statement by my right hon. Friend the Secretary of State. It is evident that consultation has been wide and effective, taking on board points as wide-ranging as those raised by the Cicero of Eastleigh and the McGonagall of Wrexham. I am particularly grateful to my right hon. Friend for taking up the points that I have raised on behalf of the Chester branch of the British Transport Pensioners Federation. Its concern was, first and foremost, to ensure the preservation of the security of rights enjoyed by pensioners.

The federation will welcome the joint industry pension scheme, the fact that existing employees' rights will be protected by statutory orders and the fact that the benefits offered to employees will be no less favourable than those in the existing scheme. They will welcome the fact that there will be no penalties for involuntary breaks in employment—that the present scheme, under which the employer matches additional voluntary contributions made by employees, will continue; in short, that there will be no mucking about with BRASS.

The federation will particularly welcome the written reply in which, on Thursday, the Secretary of State went further, and gave staff serving at the time of Royal Assent the individual right to remain in the joint industry scheme for as long as they were employed in the railway industry. As has been explained, the amendment to the Bill that will secure what I believe is termed an indefeasible right will be presented in another place. In particular, the federation will welcome the specific safeguards in franchise contracts to cover the transfer of pension funds when a franchise changes hands.

Mr. Bill Newman and his colleagues in the Chester branch of the federation—to whom I have spoken again today—are reasonable people. They are looking for helpful reason, rather alarmist rhetoric; yet they have been alarmed by unnecessary scaremongering, which has gone on for weeks and has been perpetuated today by a positive Niagara of words from the hon. Member for Kingston upon Hull, East (Mr. Prescott)—a Niagara thick with the flotsam and jetsam of scare, smear and half-truth. What they wanted, and what they received, was the cool stream of reason and the solid, tangible reassurance provided by the Secretary of State.

It is significant that we have had clarification of the Government's intentions for pensions so late in the day. It reflects an underlying attitude that has been clear ever since the privatisation proposals were first introduced—that the least of the Government's concerns has been the welfare of those who ensure that the railway system operates. I know that it is sometimes unfashionable—even, for Conservative Members, an insult—to talk about producer interests. I believe that those who provide our railway services, and those who have done so in the past, deserve to be given as high a priority as any other group. The lack of that consideration explains why the pension proposals have been introduced so late. It also explains why we are still being asked to rely on promises rather than written guarantees.

Throughout the debate of recent months pensioners have been treated as a problem, not as people to be respected for their contribution. It has not been said often enough by Conservative Members that the reason for the problem with past and future pensioners is privatisation itself. Everything that we hear from the Government starts with the assumption that the railways will be privatised, then the problems caused for pensioners will be considered. There would be no problem about the future of the pensions of those who work in the railway system and have given their lives to it were it not for the Government's intention to privatise it. That is the gulf that divides the two sides of the House on so many occasions. The Government ask us to assume that privatisation is a good thing, so the House should concentrate on dealing with the problems for pensioners that will follow from it. The Opposition are inclined to say that there would be no problem if the Government had not started on the madcap policy.

Privatisation brings two problems for pensioners. The first is the interpretation of the Inland Revenue rules, and how the contributions of non-associated employees should be handled. I am not convinced that the Government could not have found a way round that problem had they the political will to do so. It has been convenient for the Government to hide behind the Inland Revenue rules to push forward with their wider objectives.

The second problem caused by the proposed privatisation is the unwillingness to require employers in the private sector railway system to bring their new employees into a pension scheme on the same basis as existing employees have been brought into the Government scheme. It is, above all, the determination to lower employer costs for new employees of the railway system that lies behind the rest of the problems, threats and uncertainties that hang over existing British Rail pensioners and those who will become pensioners in the next few years. That is wrong—it is wrong to try to provide this country's railway system on the basis of driving down the conditions of those who will provide railway services in future.

In Committee I described the Government's preoccupations as ideological dogma. The Minister for Public Transport said that it was not ideological dogma, but a statement of principle. We can choose the words that we want to use to describe that attitude, but it comes clown to one of political belief rather than a rational approach to running the railway system.

Without privatisation there would be no such problems. Have the Government done what they are now trying to say that they have done for pensioners? Have they found a way of securely cutting through the problems caused by privatisation to guarantee the pension rights of current and future pensioners? I have to say to the hon. Member for Eastleigh (Mr. Milligan)—who has taken much time and trouble over the matter—that I do not believe that the answer to that question is yes.

If we compare the rights currently available to British Rail pensioners and employees with those that will exist in future we see a number of critical weaknesses that the Government's proposals do not overcome. The pensioners have clearly had a number of concerns. Their bottom line concern involves the security of their assets—the fear of somebody "doing a Maxwell". The Government fuelled that fear themselves by their infamous option 2 proposal to nick the money and stick it in the Treasury. There is nobody but the Government to blame for the fears that pensioners expressed about that option. We are told that that option has now been rejected, although I have not heard the absolute assurance that it has been rejected for the future which many of us would like to have heard. The idea of taking money in the short term appears to have come off the agenda.

Pensioners have expressed a second worry. They want to be able to compare what they will receive under the Government's proposals with what they currently receive under an industry-wide scheme, in which all those who provide rail services share and in which the costs and future risks are shared between the current pensioners, current employees and future pensioners. When one compares what pensioners receive at present with what the Government propose for the future, one highlights the reason why the Government have not managed to tackle the problem properly.

Once a fund becomes closed, it has to adopt a more conservative investment strategy. It will not be possible for pensioners in a closed fund to enjoy the sort of returns on assets that the British Rail pension fund has previously produced. The original proposal was to close the fund immediately; the current proosal is to close the fund in a few years' time. The fundamental proposal to close the fund has not varied.

We hope that all current British Rail pensioners and those who become pensioners in the next year or so will wish to draw their pensions for much longer than t he five or six years that the fund may remain open. I hope that many of them will draw their pensions for 20, 30 years or more. For most of the period that those pensioners draw their pensions they will be drawing on the assets of a closed, not open, fund. The fund will not benefit from an inflow of money from new contributors.

As I understand it, it is likely that all the funds will be managed as one pool by the British Rail pension fund, but the different claims on that fund will buy into or be allocated certain parts of it. A central pool of funds will purchase equities, gilts or property. However, assets will be apportioned differently depending on whether someone belongs to the closed fund of pensioners or to the relatively active fund of a new employer. The pensioners in the closed fund will receive the most conservative portion of the assets.

In practice, that means that someone who is now retired will find that, within a few years, he or she will he in a closed fund that pursues a conservative investment strategy and gives a conservative rate of return. A member of British Rail staff who transfers to a franchise organisation in the next year or so will be in a different part of the fund which has very few pensioners. Someone of 63 or 64 who transfers to a new franchise will be one of the first pensioners in that part of the fund, whereas a person who is now 66 and retired will be one of the last pensioners to join the closed fund.

On the advice that I have been given, my understanding is that the performance of those two funds will be different. An employee who is two years older than another employee in another part of the railway system will receive a different return on his or her pension. A British Rail pensioner will receive a lower rate of return in future than someone in a more advantageous part of the system.

Therefore, the Government's scheme fails for two clear reasons. The first reason is that the scheme that is now being proposed is less favourable than the current scheme because it forces the closure of the fund in the foreseeable future. The second reason is that that fund is likely to prove less favourable than the fund used by other people working within the railway system. In both cases pensioners will say that they are worse off than they would have been had the system remained unchanged. They are even likely to say that they will be worse off than someone who retired only a couple of years before them because of the way that the scheme is structured.

6.30 pm

The third reason relates to security. It is possible that the closed fund could be worse even than index linking, which was in option 2. Everyone accepts that there is no guarantee even of index linking in the current pension system. Pensioners rejected the index-linking option because they perceived it as likely to be worse than what they get under the current British Rail system. It is still a fear of the pension fund trustees that it is possible that, once the fund is closed, it may not only work less favourably than other parts of the railway system; it might not be able to meet the demand of index linking. As far as I can tell, the Government have given no guarantee that even that basic index linking would be met under this option. They will say that they have given pensioners the choice by going out and consulting. However, the pensioners did not like option 2.

The Government have increased the risks to pensioners of staying in an investment fund by the way in which they have chosen to do it. They have told pensioners that they can have a fund that may give them a return on their assets but the risk is much higher. It is unacceptable to give pensioners the choice of maintaining the rate of return that they have seen recently, perhaps losing it altogether, or accepting the index linked Treasury option.

The hon. Member for Eastleigh said that he wanted the Minister to give a guarantee that, if the fund is unable to meet at least index linking, it will in some way be topped up by the Government. The Government should also give a guarantee that, if the closed fund performs less satisfactorily than other parts of the British Rail pension fund, they will bring its performance up to that of the more favourable parts of the fund. After all, it is the Government's action of pursuing privatisation that has created the risk of either of those two things not happening.

The only way in which they can give a guarantee to pensioners is to make it clear that they will top up the closed fund if its performance does not come up to that of the more favourable parts of the fund. I hope that the Minister will give that assurance. If not, I hope that not only Labour Members but the hon. Member for Eastleigh, who has made great play of protecting the interests of pensioners, will not vote with the Government on this crucial clause.

At the outset, I remind the House that I am sponsored by the National Union of Rail, Maritime and Transport Workers. In my brief time as a Member of Parliament, I have had a larger postbag on rail privatisation than on any other issue. Since the Bill was published, I have received more than 400 letters from my constituents.

Not one of those letters supported the Government's proposals for privatisation, despite the fact that a number of those who wrote described themselves as lifelong Tory voters. The vast majority of the 400 letters came from rail pensioners living in my constituency, expressing their disbelief and outrage at the Government's proposals for the pension fund.

The Secretary of State accused my hon. Friend the Member for Kingston upon Hull, East (Mr. Prescott) of scaremongering. But that statement of the Secretary of State will simply be met by stunned disbelief by the rail pensioners in my constituency and elsewhere. He is looking for a scapegoat—he is prepared to blame anyone but himself. I remind him of what he said in the House in January during the debate on rail privatisation. About the pension fund, he said:

"we propose one of two options. The first is that an appropriate part of the existing fund should be set aside and administered separately for the pensioners … Alternatively, part of a fund could be taken over by the Government who would undertake to pay index-linked pensions."—[Official Report, 12 January 1993; Vol. 216, c. 795.]

As I made clear earlier, if we had gone for that option, if that was what the people had wanted, it was accepted by the pension trustees that, if the Government were making commitments to liabilities of that sort, it was reasonable that a part of the total assets should be handed to the Government in response to giving those liabilities.

All the liabilities related to pensions, and would have been independently and actuarily calculated. We could not give an absolutely clear actuarial commitment, given that there was an open-ended Government guarantee, but it would have been as near as one could get. It would have been absolutely fair, and done entirely for pension reasons.

It was in the plans, but the Government were blown off course—they had to drop the idea.

Is the hon. Gentleman saying that, if that option had been chosen, the Government should then be responsible for paying all pensions and giving a guaranteed index-linked pension, but should not have any assets to pay those pensions, so the assets in the pension fund should have remained in toto for the benefit of existing employees? If that is what he is saying, the Public Accounts Committee would have made a devastating comment on that proposal.

The Secretary of State knows perfectly well that that is not what I am saying. Labour Members have never argued for that option, but the Government have. If pensioners were scared—indeed, they have been scared by the Government's proposals—it was the words of the Secretary of State that scared them, not the words of Labour Members.

To make it absolutely clear to my constituents what the Government were proposing, I lodged in every public library in my constituency a copy of the White Paper, and a copy of each of the Department of Transport consultation documents, including the one on pensions, and a copy of the Bill. My constituents were able to read what the Government proposed and draw their own conclusions. I wish that all Conservative Members in railway constituencies had been as open and free with information to their constituents as I was with mine. Perhaps they would have received 400 letters if they had done the same.

Pensioners were scared by what they heard from the Government. It was not Labour Members who were—as the Secretary of State looks at it—whipping up fear among pensioners. An article in the Financial Times on 15 March said:

"The result"

of the Government's proposals for rail pensioners

"is that a chastened government is preparing to beat a rapid retreat in the face of pensioner power."

The Government's proposals created the reaction from pensioners.

The article goes on:

"The second option would, in effect, involve the nationalisation of the pensioners' money … the government would be taking on a commitment to pay pensions in exchange for acquiring the scheme's assets, the Treasury would then have to dispose of £8·5 billion of mainly equity-type investments. This would be helpful in funding a soaring public-sector borrowing requirement since it would take pressure off the gilt market."

Those are not the words of Labour Members—they are the independent words of a journalist writing in the Financial Times.

It is a cheek for the Government to accuse the Labour party of scaremongering when they have only themselves to blame. Because of the pensioners' protests, they were forced to withdraw option 2—the "nationalisation of pensioners' money" option, to use the words of the Financial Times.

What about option 1? Mr. Robertson, the chairman of the British Rail pension scheme, wrote in a letter to the Standing Committee examining the Bill that option 1 "undermines the pensioners' security". I recognise that the Government have been forced to not only withdraw option 2 but make a number of significant amendments to option I. For example, in their consultation paper, the Government considered tearing up the agreements that they had made under the terms of the 1980 Act, but those have been reinstated.

The BRASS obligations have been confirmed, and the Government have been forced part of the way down the road to a single, industrywide pension fund. They have agreed to what they call an industrywide fund that will consist of existing pensioners, former employees of BR who remain within the rail industry and continuing BR employees.

I suspect that there will be much dispute over the definition of a former employee who remains in the rail industry. Some employees will transfer from BR to a private company operating a rail franchise. There will be no doubt that such people still work in the rail industry, and, under the Government's proposal, if they were former BR employees, they will take with them their pension rights.

Many people in my constituency work as professional engineers designing signalling systems and permanent way installations and designing and repairing bridges. Under the Government's privatisation proposals, many of those people could transfer to firms of consulting, civil, electrical, or mechanical engineers.

Those firms would certainly be working on some railway projects: that is why they raided British Rail for the required skills. However, they would also work on other civil, mechanical, and electrical engineering projects. Would those people still be regarded as working in the rail industry, and would the guarantee that they would retain their pensions under the BR fund still apply? I hope that the Secretary of State or the Minister will answer those questions.

The scheme offered in the modified option 1 is still a long way from the "comparable scheme" that the Secretary of State promised in the White Paper. In due course, it will become a closed scheme, with all that that implies for a more cautious investment strategy that is less likely to generate the surpluses from which pensioners have benefited in the past. It will deny future rail employees who are not currently BR employees the choice to join the main railway industry pension scheme. That will be brought about by a Government who say that they believe in choice and want to extend it. If the Government's proposal is accepted an Act of Parliament will deny choice.

When the scheme becomes a closed one, it will wither and die. What the Minister for Public Transport described to the Committee as the best-managed pension scheme in the country will be snuffed out over time. Perhaps that will be because the Government do not like to see a public pension scheme offering the sort of competition that private schemes cannot match. The Government are determined to peck away at the public sector pension scheme until private schemes can get a look in.

The Government's proposal will drive a wedge between former BR employees working for private railway companies and people taken on by the private companies who did not formerly work for BR. The private sector employee will be able to play one employee off against another. He will say, "I will offer you promotion only if you drop your pension rights, because your rights in the British Rail scheme are more costly than those of other employees." Former BR employees could price themselves out of promotion and, ultimately, out of a job. That is no way to bring in a new age of railways, which is what the Government pretend privatisation will do.

An industrywide scheme that encompassed everybody in the industry now and in the future would bring benefits. Privatisation means that railway men and women, instead of working for BR throughout their working lives, will work for a number of employers, as franchisees come and go and as the management of routes, lines, functions or support services moves from one company to another.

It is a great boon not just to employees but to employers to be able to spend one's working life of service to the railways under a single scheme by which one can accrue benefits in the sure knowledge that on retirement the full 40 years of service would be reflected in a decent and secure pension. That would create the sort of stability that privatisation intends to disrupt. Only a little foresight, imagination and common sense by the Government would enable them to introduce such a scheme, but the Bill shows that foresight, imagination and common sense are qualities that the Government do not have.

The debate has shown that considerable uncertainty exists about the Government's proposals. Hon. Members have tried to find the basis for that and to determine whether we can now trust the Secretary of State. All hon. Members are agreed that the debate is about the concern of pensioners.

The Government have made changes to the proposed legislation, some of which are considerable advances on the proposals contained in the document about changes to the pension funds. In that document, the Government said that they intended to listen. Pressure has contributed to the changes, but I doubt whether we can accept further Government promises.

I shall correct one or two points made by the Secretary of State about the options. He spoke about the 1980 Act and criticism by the Public Accounts Committee. The report by that Committee showed the public sector borrowing requirement liabilities that would accrue to the Treasury from an unfunded scheme. In its management of public funds, the Treasury is rightly concerned about the public sector borrowing requirement. Such liabilities may arise in future, and that leads one to conclude that the assets in the pension funds would be of short-term assistance to the Treasury in reducing the PSBR. In that context, option 2 would have been useful for the Government.

In Committee, there were eight or nine changes to the legislation and one or two more were announced on Thursday by the Secretary of State … Those changes are the result of discussions and pressures. The Secretary of State conceded to my hon. Friend the Member for York (Mr. Bayley) that one of the intentions of option 2 was to take the fund assets. The Secretary of State is right to say that, if the Treasury had done that, it would have been criticised by the Public Accounts Committee.

The point made by my hon. Friend the Member for York is certainly a sound one. The particular attraction of option 2 is that the Treasury would get a considerable amount of money—e estimate about £4 billion—and it is that proportion that would have been allocated, under such circumstances, to the current 220,000 pensioners. It was clearly the Government's intention to consider that option as one of the possibilities, and it was right for us to draw attention to that.

At the first public meeting on this issue, in Chester, I pointed out that that was an option that the Government had in mind. That led to a tremendous reaction and brought into the political debate what I have identified as option 3—which we tabled as an amendment in Committee. Many thousands of pensioners agreed with that option. We made it clear that any consultation process should include option 3 rather than be limited to options 1 and 2.

We called on railway pensioners to sign in favour of option 3—including my father, who lives in Chester, and is one of the fund's pensioners. [HON. MEMBERS: "Oh!"] If that is a declared interest, I am proud to say that I have a father who was a railwayman and is a recipient under the pension fund. That is not a declared personal interest—but it has made me aware of the concern felt by pensioners.

A number of hon. Members—including my hon. Friend the Member for Nottingham, East (Mr. Heppell)—made it clear on Friday that they wanted an industrywide scheme—and that is what has eventually been achieved. They wanted it to be available to all employees, and that, too, has been established. They wanted that scheme to be available to the British Transport police fund, under a continuation of the closed fund, and that, too, has been established.

They also wanted it to be available to all the British Railways Board employees who might be transferred to other employers. That was the final change that the Secretary of State was to make—it was described as the "indefeasible right" of people. I received information that that right might be limited, but I assume from what the Secretary of State has said that that is not so.

But that is not guaranteed. Look at what has happened to some other pension funds, where an employer has a choice between keeping an employee with a more expensive pension fund and a new employee with a cheaper arrangement, because such rights will not apply to him. The Secretary of State is clear about that. He will not accept the amendment that we have tabled to ensure that the pension rights are available to anybody who becomes an employee of the rail industry. We will have two categories of employees—working for the same company, doing the same work—because the pension costs of one will be cheaper than those of the other.

The evidence for that can be found in some of the other privatised British Rail facilities, where, eventually, most of the employees were driven on to the cheaper scheme. They were then told that the scheme was no longer acceptable, because it could not fund itself, the scheme was closed down and then—surprise, surprise—the surplus assets were redistributed to the company, not to the pensioners. There is no guarantee under the Bill that this will not happen. All it says is that one set of employees will be more expensive in social cost than another.

Bearing in mind the Government's attitude towards Europe and social costs—apparently we pride ourselves on having the cheapest labour and cheapest costs—all the Secretary of State is doing is introducing a similar kind of discrimination because the "European" labour will be those employees identified with the indefeasible right and those coming to the industry as new employees will get nothing.

Under those circumstances, I do not think that that right will last very long, because an employer who wants to compete for a particular line—let us say the east coast line—will be able to take on new employees on those new rates. He will also gain a competitive advantage from doing so, because he will be able to bring in new employees without the same pension rights. That is feeding the process of competition and undermining the social rights of employees who come directly under this process.

The Secretary of State said that he had no choice in this because, in the reorganisation, the definition for the suggested break-up of the pension funds comes from the tax authorities.

The Minister of State was good enough to provide me with a report in Committee which made it absolutely clear that there are two ways in which the Inland Revenue rules on membership of centralisation schemes apply. It is possible to have, under the Inland Revenue, an industrywide scheme without having to apportion the resources and assets to individual employees. It is possible to have that under the tax rules.

Committee paper No. 15, provided by the Government, makes it absolutely clear:

"The Inland Revenue permit two types of schemes to be set up where more than one employer participates:

(a) A scheme established to provide benefits solely for the employees of associated employers and/or employees of employers who are associated through a permanent community of interest; and

(b) Schemes established to provide benefits for non-associated employers."

The Inland Revenue definition for the membership of the associated employees provides the crucial fact:

"a centralised scheme for associated employers allows associated employers to provide benefits for all their employees. The associated employers can then adopt any method of funding as if it were a scheme for a single employer, and there need be no "separation" of ownership of assets between participating employers."

So the Government could privatise the railways and keep the pension fund as one fund, as we have called for today, without having to apportion the assets as they have suggested. The Government state that, according to the tax authorities' definition, there is no associated means or common ownership identity between the track authority and British Rail. It is the Government who have chosen to differentiate between the track authority, which will maintain the track, and the operators, in this case known as British Rail.

They have chosen to do that under their reorganisation of the railway system. They have created those separate identities. All the uncertainty arises from the route that the Government have chosen for the reorganisation and privatisation of the railways. The consequences for the pension fund flow from that.

All the uncertainty is of the Government's own making. Even if they had opted for privatisation, they could have retained a single, industrywide pension fund. That is what the employers, the trustees, the trade unions and the pensioners asked for, but the Government have not chosen to meet that request. That choice causes us to have even greater fears about the Government's possible intentions.

We have suggested that the Government's decision is based on the fact that they have their eyes on the assets of the pension fund. The Government have now made it clear that they have opted for the closed fund, which will still operate within the British Rail pension fund. They must therefore satisfy the House and the pensioners that the terms of the new fund will be no less favourable than those of the old one.

Although the Government are establishing a closed fund of assets within the industry fund, that is no guarantee that that fund will operate on equally favourable conditions to those applying to the original fund. What is likely to happen is that that new fund will be paid what the assets can afford to give it.

There is some dispute about whether the regulations governing the new fund will be brought in on 1 April 1994; perhaps the Government can confirm that one way or another. Whenever that happens, a fund will be established for the pensioners out of the assets of their own original fund. The regulations will be approved by the House and the assets will be managed by the common fund management, but only after a given point in time.

Our new clause is designed to ensure that the judgment about that given time is that of the actuarial authorities and not of the Secretary of State. The new clause would not prevent the Secretary of State from doing what he wants to do, but we do not believe that he can meet his commitment to the effect that the new fund will exist on conditions no less favourable than those operating the original fund. The availability of assets may not allow for that, but we must wait for the decision of the actuarial authorities. We cannot learn of their decision, however, until the regulations and changes proposed by the Secretary of State are made.

At one time, it was the intention of the Secretary of State that the Treasury should have access to the fund. Let me outline a scenario that is not impossible under his terms. He may identify, in the division of the assets, those that will apply to the present pensioners. For the sake of debate, let us value those assets at £4 billion. Once he has identified them, they will be self-managed by the fund managers, with the proviso that, if possible, the same benefits as before will be paid. The Government may then decide, however, that it would be better for the pensioners if they reverted to option 1

He may say to them that the Government will guarantee that their pensions will be inflation-proof. That may look a lot more attractive when the pension fund, broken into its parts, begins not to perform as well as the present BR fund. The pensioners in the closed fund may then find such a guarantee rather attractive. They may then say that they would like to take the Government's original promise, now withdrawn, to inflation-proof the pensions.

7 pm

If pensioners went along that line—the Treasury may want to ask them whether that is the case—the Secretary of State could then go back to the option that he gave us before, whereby the Treasury get the £4 billion and then the Government continue to pay the yearly option. We think that that is wrong, but it is still a possibility. Even under this fund, the Secretary of State must admit that that is a possibility. He does not have to come to a judgment about that until some time after the passing of the Bill.

If the Secretary of State is asking me to accept his assurance that he has no intention of doing that, having already proposed it at one stage, I do not believe him. I do not know what the implications of that are, but I did not believe the Tories who told us that they would not increase VAT. I did not accept the words of the Secretaries of State who told me that they would not increase prescription charges. That is a matter of political judgment. I do not accept the promise of the Secretary of State for Transport, any more than I did the other promises.

However, I am prepared to accept—we shall wait for history to decide who is right on that political judgment —that the new clause at least allows the judgment to be made. Whatever the Secretary of State does with the funds must be done with the agreement of the trustees on the basis of the actuarial authority's report, not his judgment after consulting the trustees. That is not good enough. We press the new clause because we want to give pensioners some assurance and protection.

I shall endeavour to be brief and, wherever possible, not repeat points that I made earlier. The hon. Member for Southampton, Itchen (Mr. Denham) complained that the announcement made last week came too late. It seems that one cannot win. If one decides to go out and consult on what are readily agreed by all to be extremely complex matters, and takes a reasonable proportion of time to enable all who have been consulted to consider them and respond, one is then accused of coming forward late with the proposals.

My hon. Friends the Members for Eastleigh (Mr. Milligan) and for City of Chester (Mr. Brandreth) were right. We looked carefully at all the issues before we drew up the original document in January. The document then listed eight issues about which views would be welcomed. As these are complex matters, it took time for everyone to respond, but that is what we did.

In the light of those responses, we took firm decisions. I had originally told everyone that I had hoped to make the decisions, knowing that it would he quite an effort, by the end of this month. I brought it forward to enable our decisions to inform this debate. I do not make any apologies for the time in which we announced the decisions, because I think that it was right to do the full consultation.

Does the Secretary of State accept that my point was not so much that we got the final version last Thursday as that the Government's outline plans, which have caused so much fuss, came forward only in January, while the rest of the privatisation proposals were published last July?

These are complex issues, as is shown by the way in which the responses have come through, and we took some time so as to offer fair choices.

The hon. Member for Nottingham, East (Mr. Heppell) has to accept that one can give no guarantees about the performance of funds. There are some 60 British Rail closed funds. Some are small, but one is very large. They have performed well throughout the 1980s, but there is no guarantee that any of them will continue to perform that well. When it eventually gets to the point of being a closed fund, the new fund will be very large.

My hon. Friend the Member for Eastleigh (Mr. Milligan) was right to say that performance can be variable, and that there can be no guarantee of indexation even within an open fund. It will depend on the performance of the economy and of the trustees. I find it ironic that we were offering option 2 as a safe guarantee to existing pensioners when I know that many employees and pensioners in occupational funds in other sectors of the economy look with envious eyes at the civil service guaranteed index-linked pension fund. I thought that we were making a pretty fair offer.

Did I hear the hon. Member for Kingston upon Hull, East (Mr. Prescott) correctly? Did he say that I should keep open the possibility of the option that he has so derided up to now and that has been the basis of his accusation that the Treasury wishes to purloin funds? If that is what he meant, he has performed an interesting somersault.

If the reorganisation of the pension fund that the Government intend to make makes it less of a contributor to the inflation payments and real value increases that have been made under the old scheme, pensioners might feel that any promise of a link to inflation was better than what would result from the performance of the new pension fund. In those circumstances, the Secretary of State might want to consult them again, to offer them option 1 or option 2, because the Treasury would then have a chance to get at the £4 billion.

I have already made it clear that the Treasury getting its hands on the funds is not the purpose of option 2, and never was. The purpose is entirely to give a reasonable alternative choice to pensioners. By and large, they have rejected that, which is why we have come to the conclusion on the two options that we have offered.

It is an interesting suggestion that if, in 10 years' time, they realise that they have made the wrong choice—I am talking entirely hypothetically—they should be able to change their minds. That underlines the point that I was making. There can be no guarantee of performance on either an open or closed fund that does not have the benefit of a full Government guarantee. The choice has been made, and I have responded favourably to the choice that most people wanted.

Millions of individuals have personal pensions and, on their retirement, will be dependent entirely on the performance of funds. That will be individual to them, as with life policies, and it will vary between individuals. That is in the nature of the performance of investment funds. The hon. Member for Nottingham, East again made the accusation that the Government will purloin the funds, but there is no question of that. The pensions belong to the pensioners, and I have made that clear.

The hon. Member for Bristol, East (Ms Corston), who is no longer here, asked what would happen to the fund, once it had closed, when there was no employer. There was a slight implication that the Government should step in and secure some of the funds in such a case. There is no question of that. When the fund is closed, no one other than the pensioners will be the beneficiaries of the fund, and it will be for the pensioner trustees to decide how to do that.

The hon. Members for Wrexham (Dr. Marek) and for Kingston upon Hull, East spoke of the necessity of having the approval of the trustees for every step that would be taken. There is a difficulty about that, because in effect it amounts to a veto. Opposition Members have said that, while I might be reasonable in all the decisions that I take, some future Secretary of State might not, so one has to look at all possible situations.

The pensioner trustees might refuse to agree to any solution other than an enormous skewing of the division of funds, against actuarial advice, in favour of the existing pensioners. I do not think that that would happen, but we must allow the House to make the final decision rather than leaving it totally to the pensioner trustees. If they had a total veto, they would have a power that could be exercised against the interests of future taxpayers who would have to top up any existing pension funds.

That is one reason why we cannot accept the veto. I have made it clear that we shall consult the pensioner trustees, and that the division of the funds when that point comes will be based on independent actuarial advice. There will be no question of political interference. The matter will be discussed fully in the House, with an independent report if the pensioner trustees disagree on anything, and decided by affirmative resolution.

I want to make one thing clear to the hon. Member for Hampstead and Highgate (Ms Jackson) about the joint industry scheme. Where any employer, including any future employer, has some employees who have stayed within the scheme because they have exercised what is known as their indefeasible right to do so, that employer will have to be in the joint industry scheme for those employees.

However, new employees—this is the difference between us—will not have the right, by right, to join that scheme. We believe that the pension rights for new employees of franchisees, recruited in the future, must be a matter for negotiation between the new employee and the employer. It is not for the Government to dictate the terms and conditions of employment for new recruits.

My hon. Friend the Member for Eastleigh (Mr. Milligan) asked me about the position under a closed scheme. When the fund is closed, it will have sufficient funds to secure the actuarially calculated liabilities. That is a crucial point for all pensioners, and it underlines the points that I have made about independent actuarial valuation. The benefits will be as stated in the rules, including index-linking, but if the fund does better than expected, further enchancements to benefits may be made. That will be a decision for the pension trustees.

The hon. Member for York (Mr. Bayley) prayed in aid the Financial Times in suggesting that others had also said that the Government wanted to purloin the pension funds. He quoted the figure of £8·5 billion, which actually shows the inaccuracy of that report. By no stretch of the imagination could it ever he said that the sum involved was £8·5 billion.

The article was also wrong to suggest that I was beating a retreat. In no way could I have been doing so, when I was still consulting and had not made a decision. In any case, I had two options available, so there could not have been any retreat. I made it clear that, at those early stages, we were not stating any preference for either of the options.

If the hon. Gentleman thinks that, when the Financial Times speaks, it is always right, as he suggested, I hope that he will read its leader today on our reforms as a whole, and support us in the Lobby on Third Reading. The leader comments favourably on the proposals as a whole.

We have had a full debate on this important matter. I warmly welcome that, because the pensions issue is extremely important. I commend the Government's amendments but, for the reasons that I have given, I must reject the new clause.

In view of the right hon. Gentleman's acceptance of the spirit of new clause 3 and amendment No. 2, and his undertaking that he will rephrase them and put them in a more appropriate place in the Bill when it reaches another place, I beg to ask leave to withdraw the motion.

I beg to move, That the clause be read a Second time.

With this it will be convenient to discuss also new clause 27—Powers of Franchising Director to enter into agreement with the Board, etc.—

'() (1)The Franchising Director may enter into agreements with the Board or any wholly owned subsidiary of the Board for the provision by the Board or subsidiary of any railway passenger services which are not provided under a franchise agreement.

(2) Any sums required by the Board by virtue of this section shall be paid by the Secretary of State to the Board out of money provided by Parliament.'.

The purpose of the new clause is to put beyond doubt the ability of the franchising director to enter into agreements with the BR board or its wholly owned subsidiaries. As the House will recognise, this covers the period while franchising is being introduced, where the franchising director is to assume responsibility for payment of all subsidy in respect of passenger services to the board and to franchisees. The measure covers the BR board and its wholly owned subsidiaries because the franchising director's contracts may be directly with the shadow franchise operating units as they are formed rather than globally with the board. The new clause is designed to clarify that.

The new clause also enables me to say a word or two about the shadow franchise operating units. Earlier this afternoon I answered a question about the way in which we suggest that the rest of BR's passenger services should be set up as franchising units for ultimate franchising. Copies of the answer and of the document giving the breakdown of the different franchise units are now in the Vote Office.

I hope that the right hon. Gentleman will accept that we are continually being fed information just minutes before debates take place. It is impossible to debate these matters properly when we are handed five or six pages just before a debate—and this comes on top of today's other statement about franchising. There is another document relating to the exemptions, to which the Secretary of State may refer today.

Tomorrow.

Even so, the right hon. Gentleman is creating real difficulties, and I hope that he will bear that in mind when he explains those documents. I was given some indication of the document to which the Secretary of State is now referring at 11 o'clock, and received it a little later than it would have been available to most right hon. and hon. Members, in the Library. We should be grateful for some explanation now.

That document does not affect decisions relating to new clause 16, so therefore it was not essential to produce it today. In fact, we could have delayed it for a considerable time. The exemptions document will be relevant to debates tomorrow.

The franchise proposals are to allow BR to start thinking about the restructuring of the remaining franchise units and to enable people more widely to see how we propose the breakdown. The document was not required for tonight's debate, but I thought that it would be convenient to mention it—since we are discussing shadow franchise operating units.

On Second Reading, I announced the first seven franchise units and British Rail is currently restructuring their management, operation and financial accounting. Those seven will be among the first to be franchised—one or two of them, we hope, later next year. It is important for BR to move ahead with those so that operational experience may be gained and the units can be set up with a track record under the new arrangements well before the franchising director puts those franchises out to tender. In that way, applicants will have some financial and other basis on which to make their bids.

The designation of the groupings that I published today is not a complete blueprint. There are proposals for 25 franchise units and we think that it will probably work out like that. However, the designation is incomplete for two reasons. For some parts of the network—InterCity cross-country services, Regional Railways long-distance inter-urban services, and the central region of Regional Railways—I have not yet taken decisions as to how they should best be packaged for franchising. They will be reviewed over the next few months.

Also, the final form of franchises will be determined by the franchising director, who will want—as we have emphasised throughout—to take a view of the market at the time and to respond to market indications. In some cases, the director may want the franchises to be handled differently. So the designation is not a blueprint, but an indication of how things are likely to end up—and the basis on which British Rail will restructure. It is substantially the plan for transferring the whole passenger network to franchises.

As I said, the network will be divided into 25 businesses, but the crucial point is that, by and large, we are basing them on existing British Rail profit centres. That has a number of advantages for BR in restructuring and for management-employee buy-outs—which we are keen to encourage and for which we are providing financial assistance—which will more readily recognise most of the franchise units. That arrangement is also much in line with the recommendations in the Transport Select Committee's final report. We took note of that Committee's views and that is another example of identity of thinking. We were working on the same lines, leading to the announcement.

Some units, however, do not follow the profit centres exactly. As 25 are announced and there are only 19 profit centres, it is clear that there are some splits. I have already announced that one is the Isle of Wight. That split is sensible, because the local community has long wanted to run its own railway, and it is a discrete unit. Others are based partly on responses to the original consultation document and partly on our belief that one can produce smaller but viable units that make perfectly good franchising sense.

That designation is now available to the House and to the wider public and I hope that it will prove helpful as a further development of our proposals in the gradual evolution of the reforms for British Rail.

As to new clause 16, it is our policy that the franchising director should be responsible for paying all subsidy in respect of passenger rail services, excluding payments made by the PTEs. While franchising is being introduced, that will mean the director making payments both to franchisees where franchises have been granted and to the BR board where they have not. As the new clauses indicates, he may also enter into agreements directly with the operating subsidiaries that BR will form to run the services in preparation for franchising—the shadow franchises.

We think that there is a clear case for making the franchising director responsible for paying all support in respect of passenger railway services, excluding that paid by PTEs from April 1994, but including payments to franchisees and to BR while it is still running passenger services. I therefore invite the House to reject new clause 27.

New clause 16 will make for clear financial management. Franchises will commence throughout the year—they will not all start at the beginning of the financial year and therefore they will not all be granted to commence on 1 April. It therefore makes sense for one person—the franchising director—to be responsible for making the necessary accounting arrangements, to switch subsidy between BR and franchisees in-year. If that were not done, there would have to be some shift of subsidy between whoever, under any alternative arrangements, makes the subsidy payments to BR and the franchising director, who would pay subsidies to franchisees.

There would be further transitional difficulties. If there were two separate pools of subsidies to passenger services, as new clause 27 indicates, their size would have to be settled in the annual public expenditure round—which would be announced in the autumn statement in November but almost certainly settled before then. If new franchises were to operate in the next financial year in question—from 1 April, say—they would not actually be settled until well after the autumn statement. There would then need to be further transfers. In terms of clear financial management, it makes sense to have subsidies allocated by one person.

Presumably the moneys paid to the franchise director—however they may be apportioned between British Rail operations, shadow operations, and existing franchise operations—will still be seen as moneys paid from the public purse. So they will still be affected by anything that happens in the public expenditure round.

The hon. Gentleman is absolutely right. Those moneys would not only be affected by the public expenditure round but directly settled and decided in the annual public expenditure round in the normal way —because it would be subsidy direct from the taxpayer. Moreover; it is important to maintain public accountability.

Another advantage of adopting our approach is that it would establish a system under which, from the outset, the roles and responsibilities of the various players will be clear. The Secretary of State will he responsible for the total size of the budget for supporting passenger railway services, while the franchising director would be responsible for spending that budget in a way that will achieve his objectives and obtain good value for money.

The third reason for adopting our proposal and not new clause 27 is that it will assist the process of shadow running. Before a service is franchised, it will be run as a shadow franchise by British Rail, which will form a discrete subsidiary for each proposed franchise to run the services in question. Shadow running will generate information on both the operation and its costs. That information will enable the franchising director to take final decisions on the franchise to be offered to bidders, as defined in the invitation to tender, and on the value for money offered by bids, judged against the cost of British Rail continuing to run the service.

To channel the subsidy through the franchising director will, I believe, allow him to enter into agreements not just with the British Railways Board but directly with the British Rail subsidiaries. That has some advantages, which I think are important.

That brings me almost to the end of what I want to say in what I hope will be a short debate. The hon. Member for Kingston upon Hull, East wants, in new clause 27, grants to continue to be provided to British Rail by the Secretary of State. That means that the cost of supporting rail services would remain hidden within a vast block grant. For some reason, the Opposition do not trust the franchising director's ability to make payments to British Rail, or perhaps they are unhappy about the transparency that the new arrangements will bring. I can think of no other reason why they should want to delay the point at which the franchising director becomes responsible for the total budget for supporting passenger railway services. As I have already said, I see clear advantages in going down the route that we recommend. Therefore, I commend new clause 16 to the House and invite it to reject new clause 27.

The Secretary of State stuck closely to his notes, but these matters are still under discussion and late decisions could be made. As he explained, new clause 16 gives all the resources to the franchising director, who will receive them, presumably, from the Secretary of State for Transport who will negotiate them with the Treasury. The difference between the two new clauses is that we have chosen to identify that section that he has already said is a candidate for franchising. It covers seven areas. Today, the Secretary of State identified another 18. Those 25 areas account for practically the whole of the railway system. The exception that he is still considering is the Isle of Wight, and perhaps another area.

The Secretary of State said today that he has now identified all the areas that are likely to make up the character of future franchises. Managements can now look at the railway system and identify those areas. They account for the greater part of the railway system that the Secretary of State—presumably after discussion with the franchising director—thinks will provide a commercial railway, or one that will be available for bids under the franchise arrangments.

The first seven are probably more attractive than the other 18 that have been announced today. Perhaps one should compare the InterCity east coast main line with the strategic route along the west coast main line. Those two main lines face completly different problems. A common feature of both lines is that both run from London to Scotland, with one going up the east coast and the other up the west coast, but that is where the similarity ends. There has been considerable investment in the track and rolling stock and in the electification of the east coat main line. However, investment is desperately needed on the west coast main line. About £1 billion of investment is needed to modernise the line from London up the west coast to Scotland. It is at this point that the differences begin to emerge.

The Secretary of State says that he considers that these lines are likely to be candidates for franchising. If somebody said to him, '"I'm interested in the west coast main line, but I want to go only as far as Manchester and I don't want to operate up to Scotland," I wonder what his reaction would be? People fear that that is where the west coast main line will end and that the route to Scotland will be by means of the east coast main line.

Can the Secretary of State guarantee that the InterCity network route to Glasgow will continue and that a through service will be retained from London up the north-west coast to Glasgow? That question arises from the implication of his announcement. InterCity is, effectively, finished. There will no longer be a corporate body, InterCity. All the argument about who will get the InterCity logo is finished. None of these lines could claim it. I suppose they could claim it to a certain extent, but a corporate identity, with one body providing a connection between all our main cities, will be removed. Those services will be provided by individual operators bidding for the franchises for about 25 services.

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I presume that the Secretary of State believes that those are the possibilities, but the services provided will be determined by the people who make the bids and by whether they receive sufficient subsidies from the Government to maintain them. Not all those services can be described as cherry-picked lines that will provide profits. The east coast main line makes a profit, which is estimated to be about £70 million. We should prefer the Secretary of State to have a global amount with which to provide a network service, because of the issue and principle of cross-subsidy.

I have listened to transport debates ever since I became a Member of Parliament 20 or so years ago. What characterises the difference between the two sides is the cross-subsidy factor. Many Conservative Members say that cross-subsidy undermines competition. Anybody who knows anything about transport, whether it be public or private transport, recognises that peak-time services are subsidised in one form or another. Under the InterCity network concept, it is recognised that some areas are less profitable than others and that a network service must be provided. A network service means that communities throughout the country can be assured of the maintenance of a railway network.

Let me give an example. My Hull constituency is tagged on to the InterCity network. There are only two services, one each way. I have no doubt that some people who run InterCity would like to lop off the InterCity service to Hull, because the part of the network that runs between Doncaster and Hull is probably not as profitable to them as it would be if they were able to run it directly from York to London. If it takes an hour for a complete set to be diverted from Doncaster to Hull and an hour for it to return to Doncaster, that amounts to one leg of the journey up to York. If it is thought that more money can be earned by providing a frequent service, the commercial ethos, the desire to maximise profit, will undermine the network requirement for a connection to Hull.

The Secretary of State will probably tell me that it will still be possible to maintain a service, that the franchising director will look at the old pacer train, or one of the new regional trains, and say, "Look, you can still get to Hull in the same time as the InterCity takes." But that will not be a through service. When travelling from one city to another, most people like to do the journey in one haul. They do not like having to change trains.

If we want to encourage people to get out of their cars and travel on public transport—to take the Hull example again—people will stay on the motorway to get to London instead of going by public transport, if there is no through service. The lack of a through service will lead to people being discouraged from using public transport. That is true of many other areas besides Hull. InterCity has cut off Cleveland, Shrewsbury and Blackpool. Substantial communities such as those are entitled to some form of network service to London, although perhaps not so frequent a service as the services to York or to our other main cities. At least one through service should be provided.

The provision of through services will not, however, be provided by the market. The market will determine what is the maximum revenue and the maximum profit. I cite as examples the east coast and the west coast main lines.

If the franchising operator gets the profits from our £500 million investment in the east coast main line, the £70 million will not be used to reinvest in the west coast line but will go to those operating the franchise. It will be profit for shareholders or those who have invested, and we shall presumably have to pay a considerable sum to whoever takes over the west coast main line.

The concept of cross-subsidisation is at the heart of a good transport policy. If we want to maintain that principle, it is critical that we get people out of their cars and on to the trains. I understand that the Secretary of State has found another solution—charge people to use the roads. On Wednesday, we shall perhaps hear more about road pricing and tolls and making it so damned expensive for cars that people will have to use the trains. That is one way of forcing people into the hands of those who will make money out of the syatem, but it is not the best or most rational way of dealing with the environmental and congestion problems.

Our approach to the Bill characterises our approach to transport in general. It is not surprising that we find the franchising process outlined in the Bill unacceptable for transport and environmental reasons and the reduction of congestion. We hear what the Secretary of State says, but we dispute and reject it. I should have thought that the process runs counter to the public service obligation which was originally introduced by a Labour Government.

The aim of the PSO is to recognise the need for a social railway system and to tell the management that we know it cannot make a profit but we shall pay because the community desires to maintain a network of 11,000 miles. That was the idea behind the PSO. It was called a PSO when we entered into the European agreement for the payment of subsidies. We entered into a social contract and agreed to pay a contribution to the running of a social railway.

However, we always specified that InterCity was different. We said that it was not entitled to a subsidy, but the Government are now going to pay to InterCity subsidies that they have not paid for a number of years. They always took the view that InterCity was not to be regarded as part of the social railway. The Secretary of State now proposes to bring InterCity into that category and, along with it, the freight system which we shall debate later. We are now to have a social freight service. I presume that another factor to be taken into account is that it is the Secretary of State who will govern the finances for the social railway. We shall not be absolved from responsibility but will presumably have to get the money and judge where it should be used to make up the difference in the track costs under the social freight concept which he has just announced.

The Secretary of State is introducing even greater subsidies without a guarantee for the network. I mentioned InterCity lines such as the west cost line which, because of the need for capital and massive maintenance costs, are not profitable. Would it not be better for the Secretary of State to cross-subsidise the whole system, issue the money in one payment and tell InterCity that he wants it to run a network service? He cannot do that if it is divided among different operators. That is the craziness of the system on which he has embarked.

Another criticism is that not only is the Secretary of State moving away from the PSO concept identified in the European agreement but he is doing something else that is causing considerable concern, as highlighted in our safety inquiries. Managers are obsessed with the organisation of the railway, not with how to produce a new, good or even a safe railway. They spend all their time jockeying to see what board they can get on and what they can do about their wages and conditions. Very little time is spent trying to produce the best possible railway with inadequate finances.

The Clapham inquiry warned us that so much time is being taken up by management concerns that the commercial ethos and the pursuit of profit are beginning to undermine the very safety of the railway. We were warned not to allow that to continue, but the Secretary of State's announcement is a signal to all British Rail managers to stand by to make a few bob because British Rail is finished and there will be no social railway system and no subsidised or non-subsidised railway. He is making it clear that the whole system is up for grabs, but he knows that, even if he wished it, that will not happen this century.

Some of the system may be gone. The Secretary of State may wave a few flags—like the Minister for Public Transport, who raised the flag on private organisations such as Stagecoach, which did not last six months—and say, "I launch this new privatised service." However, as the track will belong to someone else and, under the leasing arrangements, the assets will belong to another authority, we shall merely have caught people to manage the system. As Sir Peter Parker pointed out in his article today, they will not control anything because we shall merely be buying management skills, which will not make it difficult for us to bring the system back into public accountability, to which we are committed.

The process will not improve the railway system one jot, but will take the managers' minds off reality. The only way to maintain the network and the safety of the system is to make it clear, as we do in new clause 27, that, in the areas not passed to franchise operation, in the maintenance of a social network and in compliance with the European arrangements, the money should be paid for network provision to the remaining non-franchised parts of the service. That should he the Secretary of State's responsibility. If the right hon. Gentleman passes it wholly to the franchising director who is obliged to encourage as many private operators as possible, will there not be a danger that so much money will be given to private operators—as the Government are pressing him to do—that he will have no money left for the less profitable parts of the system?

It is true that the Secretary of State has now made it clear that the announcements that are made in the public expenditure round for the PSO payment—let us say that it is £1 billion, as it has doubled in the past few years—will no longer be governed by that particular year. When the legislation was first introduced, it was agreed that the figure could not rise above that announced in the public expenditure round. By removing that provision, the Secretary of State has made it clear that it is open ended. Open ended can mean many things but, in the Treasury's present frame of mind, it does not mean more money. It means that money will be squeezed. Does anyone believe that the railways will receive more subsidy against the background of a £50 billion public borrowing deficit? If it is left to the franchising director to decide, will it not mean that the least profitable and most socially necessary railways will suffer—the rural stations and the very areas for which we want to maintain 11,000 miles of track?

The essential point is that, according to the PSC), which we accepted under the European arrangement, we agreed not to reduce services but to provide sufficient money to maintain the system at its existing level, which was always measured to be 10,000 or 11,000 miles. How will that be maintained? How are we to observe the quality of service that we are obliged to provide under the European agreement? Will it be the franchising director's responsibility or the Secretary of State's?

The Secretary of State is the only one who signs the agreement and is responsible for the Government's policy. The franchising director is not independent—as we know from the legislation, at end of the day he is accountable to the Secretary of State. Will the money be provided to meet the obligation? We want the Secretary of State to be answerable. We do not want him telling the House that the franchising director had told him that he had enough money but that people were not efficient or that too many people were employed and paid too much overtime.

The Secretary of State has avoided giving answers about British Rail many times. He has caused more parliamentary questions to be asked than anyone else and does not come to the Dispatch Box very often to explain what he is doing. It is rare for us to get him into television studios, never mind the House of Commons. However, in spite of that and in spite of the nature of the present Secretary of State, we want him to be answerable.

We must rely on the fact that the PSO payment is largely about maintaining a social railway. Privatisation is about making profit for the private sector. We want the money to be retained by the Secretary of State for the maintenance of a public network. He should be answerable to the House, which is the purpose of new clause 27.

Listening to the Secretary of State is an enormously depressing experience. Anyone who has sat through railway debates over the years, as many of us have, must be struck by the sense that there is little new under the sun. There is nothing at all new about successive Secretaries of State, except the personality of the person at the Dispatch Box. Secretaries of State come and go. I read in the newspapers that this one is not long for us, and that he has other fish to fry and other jobs in mind. No doubt his successor will trot out the same fallacies that the right hon. Gentleman has given us this afternoon.

The Railways Act 1974, to which my hon. Friend the Member for Kingston upon Hull, East (Mr. Prescott) referred, came about in part because of the inexact nature of planning subsidies to the railways on a line-by-line basis. Before the 1974 Act, the subsidy paid to a particular line was based on an annual and occasionally twice-yearly passenger count on that line. It was, as I have said, a fairly inexact science, and one that most people connected with the railway industry were glad to see disappear following the passage of the 1974 Act. Therefore, to talk about returning to that method, in the way that the Secretary of State has done today, is enormously depressing.

My hon. Friend the Member for Kingston upon Hull, East asked the Secretary of State about the provisions of the 1974 Act and whether they would still apply if and when the Bill became law. Will there be some guarantee from the Secretary of State—not from someone whom he has appointed as franchising director—about the size of the network? Is it still the Government's intention that the 11,000 miles, to which my hon. Friend referred, should remain in situ, to be the railway of the future, as it has been over the past 20 years or so?

Given the view expressed by the Secretary of State and the Conservative party's general ideological view that the private sector is inherently good and the public sector inherently bad, what guarantee can the Secretary of State give us that any moneys allocated through the person whom he appoints will be fairly divided and will not go largely to the new private franchises at the expense of the rump railway operating in the public sector, at least until the unlikely day when the right hon. Gentleman can find someone to take it off our hands? What guarantee can he give us that the railways still operated by British Rail, albeit in the short term as the Government intend, will be properly treated in the allocation of funds?

Ministers trot out the phrase "value for money" all the time. All of us, even Conservative Members who support the Bill, know full well that franchises will be awarded to the lowest bidder. In those circumstances, there is no real guarantee of value for money. If the franchisee runs half a dozen trains during a day at a time that suits him or her, he or she will be able to put in a far lower bid than someone who wants to run a comprehensive day and evening service. Without some guarantee—[Interruption.] The hon. Member for Worcester (Mr. Luff) says something incoherent. If he has a point to make, I shall be delighted to give way.

The hon. Gentleman is obviously unaware that potential franchisees will be invited to bid for specified timetables. They will not be able to pick and choose which services they deliver.

Although the hon. Gentleman has not been here long, his naivety does him no credit. Does he seriously think that there is any long-term guarantee of railway services on that basis?

Yes.

The hon. Gentleman says, "Yes." He and I will debate these matters in a television studio at the weekend. I am looking forward to that immensely. As my hon. Friend the Member for Kingston upon Hull, East says, it is no wonder that the Secretary of State will not appear in a television studio. None of us is surprised if he sends along people such as the hon. Member for Worcester.

No real value-for-money judgment can be made about the proposals. The Secretary of State and his more emollient colleague, the Minister for Public Transport, have given us no guarantees. I hope that before the House comes to a conclusion on the new clause, guarantees are not only sought, but given.

I do not subscribe to the view that the railway is badly managed. I am the holder of an Industry and Parliament Trust fellowship and in the short time in which I have held that fellowship I have met many senior and middle-level managers of British Rail. I have been impressed by the people whom I have met; they are excellent, dedicated people. However, no one in the country, even in the railway industry itself, believes that there is no scope for improvement. I have no difficulty, therefore, with the principle of introducing private sector management techniques into the railway industry. The people who work in the industry have no difficulty with that principle either.

I also have no difficulty with the desire to introduce private sector capital into the railway industry. The trouble with publicly funded industries, as we saw with water and electricity, is that there is only one source of money—the Treasury. The Treasury usually has only one word in its vocabulary, which is no. Especially in the case of industries such as the railways, one is always told by the Treasury that hospitals, schools and other areas have a far greater priority.

I have difficulty, however, with the implementation of the process. The privatisation of the railway industry proposed in the Bill is a very ambitious project and there is no doubt that there will be teething troubles. I ask my right hon. Friend, therefore, for an assurance that the privatisation process will be conducted on a step-by-step basis and that we shall learn from the errors that will inevitably be shown up when implementation begins. I ask my right hon. Friend for an assurance that we shall not rush headlong into anything.

By leave of the House, Mr. Deputy Speaker, I shall respond quickly to the points raised. The reason why the hon. Member for Kingston upon Hull, East and I were yesterday in the same studio, but discussing the matter separately, is that in the short time allotted to us we should have been talking very fast at each other. It was probably more productive for the distinguished interviewer to bring out separately different aspects of our policy. The hon. Gentleman knows very well that we have had many debates on these matters and I am sure that we shall have many more on transport matters for a long time to come.

My hon. Friend the Member for Shoreham (Mr. Stephen) made two good points, with which I entirely agree, about the present BR management. I know that many BR managers see great opportunities to produce better passenger services through the proposed systems. My hon. Friend also made a good point about private capital.

I have always emphasised that this is an evolutionary reform of the railways in a private sector direction; it is not revolutionary reform and will not happen all at once. I pray in aid a leader in the Financial Times today which my hon. Friend may have seen. It suggests that we should go faster than we are. It says:

"All the private sector is being asked to do is to bid for franchises to operate passenger services on British Rail's behalf. But even this small step brings the prospect of significant benefits—worthwhile improvements in productivity, a management motivated by financial rewards, and, it is to be hoped, the beginning of private sector investment in rolling stock. And because the chosen structure sensibly avoids a 'big bang' approach in favour of a piecemeal allocation of franchises over a period of years, there will be every opportunity to learn from experience as privatisation progresses."

At the expense of passengers.

Certainly not at the expense of passengers. I hope that that meets my hon. Friend's point. We shall benefit all the way through from better and better handling of the whole system.

This is the second time that the Secretary of State has referred to this morning's Financial Times editorial. In the interest of balance, every time that he quotes from today's Financial Times editorial, will he also quote from last week's editorial in The Daily Telegraph, or is The Daily Telegraph no longer an acceptable journal of opinion for the Conservative party?

The reason why I am quoting from the Financial Times is that an Opposition Member raised its editorial. I simply thought that the Financial Times put the point that my hon. Friend the Member for Shoreham made extremely well.

The hon. Member for Kingston upon Hull, East referred to Glasgow and I can give him a clear affirmative on that point for two reasons. First, British Rail has no plans to discontinue any services beyond Preston on the west coast main line. Secondly, as the hon. Gentleman will know, the invitation to tender will be based on the network as it exists immediately before that invitation.

That is very clear. The hon. Member for Kingston upon Hull, East will see that that is the case from the chart that has been produced today for that franchise unit. I can see that there are real merits in having competition under our franchising system between individual operators and between the west coast and east coast main lines.

The hon. Member for Kingston upon Hull, East referred to cross-subsidies. Under the system that we are proposing, where a line like the east coast main line has received substantial investment and where bidders are therefore likely to pay a premium in return from the profits which, as the hon. Gentleman indicated, are available on that line, that premium will be able to be offset—in effect, it will be taken into the calculation—against the total amount of subsidy that will be paid out in the bids for other franchises such as for the west coast main line where, I readily acknowledge, further investment on a significant scale will be required over the years.

That brings me to the next and very important point about PSO grants. We are continuing the subsidies. We believe that we have found a more effective way, in operational terms in respect of getting value for money, and in transparency, by allocating the subsidies in the way that we propose. However, the subsidies will continue.

The hon. Member for Kingston upon Hull, East also referred to inadequate finances, although he conceded that the current level of PSO is twice the level of recent years. He will be aware that the currrent level is much higher than for a very long time—[Interruption.] That was the hon. Gentleman's phrase. That is also why investment is at such a high level, including £500 million which has been spent on safety in the past three years.

Will the Secretary of State give way?

No, I must make progress.

The hon. Member for Kingston upon Hull, East will also be aware that we have given clear commitments in relation to safety on the basis of the Health and Safety Executive report. This debate comes down to whether the subsidies are allocated through two different routes or through one. I have already said why I believe that it is right to proceed via the franchising director. I do not want to repeat the arguments, but that is why I commend new clause 16 and urge the House to reject the other new clause.

If the Secretary of State had given way a moment ago, I would not have needed to intervene now as I wish to contribute literally three sentences. The PSO grant has been cut by 23 per cent. over last year's figure. Even according to the somewhat short-term thinking of the Conservative party these days, I do not believe that that counts as a very long time.

I beg to move, That the clause be read a Second time.

With this it will be convenient to discuss the following: Government new clause 13—

I will speak to new clause 4 and the other Government new clauses of which there are a great number. I will explain relatively simply what they are intended to do. They all relate to the powers of the franchising director.

Government new clauses 4 and 13 replace clause 68. They improve the drafting of the Bill. They extend the powers of the franchising director in obtaining information to a much wider range of bodies. At the moment, clause 68 specifically gives the franchising director power to obtain information from BR to prepare information for a bid for a franchise.

New clauses 4 and 13 extend the powers of the franchising director to obtain information from Railtrack and from station licensees to prepare the necessary information to advertise to the private sector what is on offer in terms of a franchise. That will enable the franchising director to prepare proper information. There will certainly be sufficient time for the private sector to bid for the franchise.

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Clause 24 is replaced by Government new clauses 13 and 23. The purpose of those new clauses is to give the franchising director powers of designation, protection and transfer of what are called designated franchise assets. The new clauses provide, in the Government's judgment, a clearer regime. In particular, for the first time, the franchising director will be able to designate leases of rolling stock. As those are clearly rights of the operating companies and assets which do not belong to the franchisee or potential franchisee, the franchising director will have the power to control the continued use of leased rolling stock on a particular line.

An amendment to which we shall come later should be read in conjunction with that new power. It gives the franchising director the right to roll forward leased rolling stock from one franchise to another. The purpose of that amendment is to enable the leasing industry to have sufficient security in writing long-term leases, even though a particular franchise might be for a more limited period.

Under those Government new clauses, the franchising director will be able to designate assets, rights and liabilities. The new clauses also provide for designation of those franchise assets by agreement with the franchisee. We believe that that is important. They will be protected under the franchise and there are provisions in relation to assets, removed at the end of a franchise period from one franchisee and passed to the next, for appropriate values to be paid to the franchisee at the conclusion of his franchise. There is also a provision which places on a statutory footing the obligation of the franchisee not to encumber certain assets.

I hope that that is a concise introduction to the amendments.

Before the Minister concludes, will he describe the circumstances in which the franchising director is given powers in new clause 4 to impose criminal penalties, albeit through the courts? The power will apply if a person fails to provide adequate notice or if he or she alters documents. Does not that suggest that the proposed system is fraught with legal difficulties, arguments and deceit? New clause 4 provides for the standard of production in civil proceedings and it adds on criminal offences. Does not that envisage serious difficulties in the work of the franchising director?

I do not think so. The hon. Gentleman will realise that the franchising director is established as a non-ministerial Government Department, answerable to the House through my right hon. Friend the Secretary of State for Transport. Therefore, he constitutes a public body. It his duty to let by franchise the responsibility for running passenger rail services. Therefore, there should be some compulsion available to him to obtain information. We are not simply talking about BR or Railtrack—and it is intended that Railtrack shall be a Government-owned company. There may also be private providers of infrastructure and, for example, private sector station licensees.

If the franchising director needs to obtain information to enable him to relet a franchise—or to let one initially —it should be within his powers to obtain that information. That is the reason for the sanctions in Government new clause 4, to which the hon. Member for Bradford, South (Mr. Cryer) has drawn the attention of the House. He was right to do so. That does not imply that there is any web of deceit or malevolence among those who seek to provide station services, network services or franchised passenger rolling stock services. It gives the franchising director the essential power that he needs.

I note that the group of amendments includes amendment (a) to new clause 23. I am sure we shall hear a speech on it shortly from the Liberal Democrat Benches. It is important that the House should recognise that it is not intended that British Rail should have any determinate length of responsibility for running franchise services once an initial franchise is let.

As I understand it—I look forward to responding in due course—amendment (a) to new clause 23 provides the power to transfer assets from the franchising director to British Rail for a period to run services if the franchising director decides that that is the best solution. I look forward to hearing the arguments. I shall argue that the franchising director will look to British Rail in certain circumstances. But the franchising director can and will make management arrangements with British Rail to provide the services. There is no need to give British Rail either a formal franchise or for there to be a formal arrangement between the franchising director and British Rail.

We have here a preliminary skirmish on some of the issues that we will return to in more detail during tomorrow's debate. As the Minister said, these new clauses and amendments are to some extent technical. Some piquancy has been introduced to the group of amendments by the amendment tabled by the right hon. Member for Tonbridge and Mailing (Sir J. Stanley) on fares and the franchising director's role in that, and also of course by the hon. Member for, North Devon (Mr. Harvey) who has raised the subject of British Rail's right to do anything after the legislation is passed, if it is passed in its present form.

The amendments also give rise to some discussion of the powers of the franchising director. I see the director as a figure who will be of great convenience to the Government, in that responsibility for everything that happens on the railways will then be transferred to him. The Government are looking for a figure of whom they can say, "It is nothing to do with us. This is the franchising director's job. It is he who has made the decisions and the idea of holding Ministers responsible really is quite ridiculous."

I can tell the Minister that the Government will not get away with that. The creation of the structure is the responsibility of the Government. When things start to go wrong—as they certainly will for the reasons that my hon. Friend the Member for Kingston upon Hull, East (Mr. Prescott) outlined in the previous debate and for the reasons that we can see in this debate—I assure him that it will be political responsibility that is carried. It will not be the franchising director who does not have the money to sustain the system. It will not be the franchising director's fault when franchises fail and such measures have to be brought into play.

There are things that we can welcome. If the legislation goes ahead, clearly it would create additional difficulties if every time that a franchisee changed, it was all change for rolling stock and everything else. As the principle of leasing, which is a far more rational and intelligent form of private sector involvement than anything that we have heard from the Government, was first suggested by the Opposition, it would be illogical of us to oppose the idea that leasing should be made possible by a recognition that the leased rolling stock would carry over from one franchise period to the other. However, that does not acknowledge the sense of franchise periods. That is a separate story.

We support leasing. It is a sensible way of creating investment in the railways. It is a sensible way of giving work to the railway manufacturing industries. Of course, leasing could have been introduced years ago. It is not in the least dependent on anything else in the Bill. It is remarkable that the Government took so long to come round to our way of thinking.

The rest of the new clauses and amendments are not controversial. We support the amendment tabled by the right hon. Member for Tonbridge and Mailing. We also support the Liberal Democrat amendment, on which we shall vote later. The right hon. Member for Tonbridge and Mailing and his colleagues suggest that the franchise director should have a responsibility

"to ensure that the levels of fares charged or to be charged under a franchise agreement are reasonable to passengers".

I have no wish to pre-empt what the hon. Gentleman intends to say, but if the Government do not accept the amendment as a signpost that many Conservative Members are extremely discontent with the Bill, they will not accept much else.

It is surely reasonable to expect the franchise director to have responsibility and take an interest in the level of fares charged by the operators. All the pressures in the Bill will be to force fares upwards. The financial regime which will be put in place will force fares upwards. The main pressure will come from the profit element, but the structure will depend largely on the level of subsidy. There is no guarantee that in future the subsidy will be maintained at its present rate. Indeed, we believe that a large part of the Government's operation is intended to reduce that level of subsidy, and hence the cost of the railways to the Government.

The Liberal Democrat amendment, which will also have our support, is straightforward. It raises the principle of involvement of British Rail in what happens after the legislation is passed, if indeed it is. The franchise director can apparently transfer assets to virtually anyone in Christendom except the people who at present run the railways. Here we see the Government's prejudice against British Rail. It is further confirmation that the purpose of the Bill is to squeeze British Rail out of existence. The Government intend to erode it steadily. Prejudice is the only word that I can use because it is difficult to see any rationale behind the Government's position.

The Minister's attitude to the Liberal Democrat amendment seems to confirm that anything which sustains or extends British Rail's role is anathema to Ministers. We shall deal with that approach in much more detail tomorrow. The tone of the Minister's remarks must be offensive to some Conservative Members. It will certainly be offensive to people in British Rail who work to make the system function as well as it does. The blinkered focus of so much of the legislation is that British Rail must be squeezed out of existence by whatever means possible.

Like the Minister, I hope that I can catch your eye later, Mr. Deputy Speaker. I give notice that we shall support the amendments. I look forward to much more discussion of the principles which underlie them as we proceed.

I wish to put four questions to the Minister. I think that they are relevant to the new clauses. I appreciate that many hon. Members wish to speak. New clause 4 says that any person shall furnish information. Does that information relate to nationality? I was astonished, as I know that you will be, Mr. Deputy Speaker, to hear that while foreign railway companies such as the French or Belgian railway network will be permitted to put in a bid for the Fenchurch Street line, British Rail will not.

I find it unthinkable that British Rail might be able to tender for the Fenchurch Street line only by securing a French subsidiary company. I hope that the Minister will bear in mind our obligations under European Community law, and will ensure that no one is treated unfairly. I hope that he can assure us either that national railway companies will be able to put in a hid, or that they will not. I think he will accept that it would be rather unfair to the people of Southend, and rather alarming for them, if they were subject to control by a French company rather than by British Rail—for which they have a high regard, despite the dreadful service with which they are provided.

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My second point is fundamental. Can the Government assure us that, when the franchises and information are sought, the people—including hon. Members—will be able to see what is being asked for? I think that, if the franchising director decides that he wants the Fenchurch Street line to have two trains—perhaps on Wednesday, every second week—the people of Southend are entitled to have that information. I hope that the Minister will make it abundantly clear that, if the franchising director is looking for bids, the people will know what is being paid for. As he probably knows, there is a certain amount of suspicion about the whole business in some parts of the country.

Thirdly, can the Minister give an assurance that the franchising director will consult the respected rail passenger organisations in Southend and elsewhere? The Government now seem to be setting up quangos constantly. I remember a time when Conservatives used to complain about quangos, describing them as nasty, costly nonsenses created by socialist Governments. In fact, we have set up far more quangos than any socialist Government, and they are becoming more expensive and more bureaucratic. When I look around my own country —including a place called Chelmsford, which some hon. Members may have observed— I find that many people are employed by quangos, and that it costs a fortune. It is all very sad.

I have a high regard for the Minister, and I know that there is no way of preventing the Government from rushing to create a mass of new quangos. I hope, however, that he will at least assure us that the exciting new quango known as the franchising director will have an obligation to consult rail users' associations.

Finally, let me convey a simple request from Southend-on-Sea. Our rail system is wildly out of date. Let me pay a personal tribute to the Minister, along with my right hon. Friend the Member for Southend, West (Mr. Channon): he agreed to new signalling equipment for the line. It is only fair to point out that the signalling at Fenchurch Street station is older than I am: that shows that it is rather out of date. However, we have now been assured that something will be done—and we hope that it will, despite the problems facing the Treasury. My right hon. Friend and I—along with all the travellers of Southend—also hope that this exciting new arrangement will ensure the provision of new rolling stock on the Fenchurch Street line.

We respect the Minister. He has said things that we have found to be correct, which is rather unusual in Ministers nowadays; he has forecast developments that have actually come about—which, again, is commendable and unusual. Given our trust in the Minister, based on what he has done for us in the past, we hope that he can answer the four points that I have made. If he can, it will greatly reassure the people of Southend, who have suffered a great deal and who hope that the Government's exciting new plan will limit their sufferings in the future.

The Minister anticipated that I would want to speak to amendment (a), and I intend to do so. The new clause strays further into the realm of BR's future involvement in the railways, which will clearly be a substantial matter for debate tomorrow.

Only a few minutes ago, we were considering Government new clause 16 and the principle of BR running services that are not franchised—that is, operating services before the creation of a franchise. I wonder why it should be so out of the question for us to discuss BR's involvement after the ending of a franchise. It strikes me as the height of absurdity that, under Government new clause 23(1)(b), the franchising director will apparently have to go to the lengths of setting up his own subsidiary company to run services where there will be no other franchise. As the hon. Member for Cunninghame, North (Mr. Wilson) pointed out, that rules out the obvious party to which the franchising director should turn in such circumstances—the only experienced operator in the land, British Rail.

The amendment would not set up a formal BR bidding process at the end of a private franchise. There would be no obligation to hand everything over to British Rail; that would simply be retained as an option, at the franchising director's discretion. The experience of London Buses is vaguely comparable to what we are discussing. In some cases, at the end of a private franchise, the service has reverted to London Buses.

I agree with the hon. Member for Cunninghame, North: the Government's proposals are based on ideology —on a dogmatic determination to squeeze BR out of existence. If, at the end of a franchise, it is decided that there will not be another franchise for some reason, and the franchising director contemplates handing over the service to BR—the Minister has conceded that that could be done on the basis of, for instance, a management agreement—it must be because something is wrong.

The fact that the existing franchisee is not coming back for more, or there is no queue of potential franchisees waiting to take over, suggests that the franchise is failing. In such circumstances, the option—the right—to hand the service to British Rail would be a valuable tool in the franchising director's armoury.

If, as has been suggested, that could be done simply through management agreements, why not write it into the new clause and enable the assets to be handed over? How, through a management agreement, can BR run a service without being given the franchise assets—the trains and everthing else on the line? How can any management agreement cover BR's ability to operate such a service if it is not given the tools with which to do so?

I admire the conviction with which the Government are planning ahead—burning the bridges behind them; doing without any safety mechanism to catch the pieces if the whole thing falls apart—but I am forced to doubt their judgment. They are impressively buoyant in their approach to a scheme that is almost universally derided by those outside their ranks.

The Government believe that the introduction of the private sector through the franchising set-up that they anticipate will result in a reduction in the cost to the Exchequer; but many of us do not. They believe that a queue of interested parties is champing at the bit to take on these services; but many of us do not. They believe that the private sector whizz kids will come in, improving services and increasing revenue; again, many of us do not. The Minister himself has agreed that, if the private sector is unable to come in and increase the revenue, there will be a disaster. How right he is.

At present, none of us knows who is right. No one can say for certain whether the Government, in their buoyancy, conviction and optimism, are right, or whether the many others who have considered these matters and retain some scepticism are right. Let us just suppose that it is we who are right—we who are sceptical about the potential success of the scheme—and that franchises start to fail. If one private franchise fails, why should another on the same line and service succeed? What would happen if nobody came forward to take it over?

If the amount that the franchise director has to offer to try to tempt people in to save the day in those sorry circumstances is more than it would cost British Rail to run the service, the National Audit Office will probably take an interest in the matter, as it would amount to the squandering of public funds. It would be in the best interests of the Minister and the scheme if that fallback option and safety net could be continued. I sincerely believe that the Government are displaying pig-headed obstinacy and that the British Rail option should remain available to the franchise director.

I wish to speak to amendment No. 237. Through you, Mr. Deputy Speaker, I should like to express my appreciation to Madam Speaker for selecting the amendment at a late stage. I believe that it is extremely important for the House to discuss the amendment, and Madam Speaker has done the House a service by enabling hon. Members to debate fares policy.

As the House may know, I expressed strong reservations on Second Reading about the effects on fares of my right hon. Friend the Secretary of State's British Rail privatisation proposals. My fears were based on a combination of three factors, which all appeared to me to show that a strong upward pressure on fares would be created. The first was that the private sector franchisees would certainly look for a significantly higher rate of return than is currently being obtained by British Rail and is being sought by the Treasury as a rate of return on capital by British Rail.

Secondly, there is no certainty about the level at which present subsidies will be continued for British Rail, particularly in relation to Network SouthEast. The Government have made a commitment that subsidies will continue, but have declined to say at what financial level. The subsidies might be cut by half, two thirds or three quarters, which would result in further upward pressure on fares. Thirdly, the Bill does not contain a specific provision to moderate the level of fares that can be set under the franchise proposals.

Since I expressed those concerns on Second Reading —concerns that were also expressed in other parts of the House and by a number of hon. Members—there has been remarkable agreement in the comments on the fare implications of the proposals. The House has had the benefit of the Select Committee report, which expressed a similar view.

Outside the House, there has been a host of reports by independent firms, consultancies, independent commentators, transport user groups, consumer interests, including the National Consumer Council, and major local authority associations such as the Association of District Councils, the Association of County Councils and the Association of Metropolitan Authorities. They have all come to the same conclusion: that the pressure on fares will tend to be upwards. Against that background, I urge my right hon. Friends on the Treasury Bench to give the most serious consideration to that substantial weight of opinion from all quarters on the proposals' likely fare implications.

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I tabled amendment No. 237 because, although the Bill has now reached its Report stage, there is still no sign of material moves by Ministers to allay my fears on the fares issue. I had hoped that, in Committee, the concerns that I had expressed on Second Reading would be at least partly met, but unhappily that is not so.

Since I spoke on Second Reading, there have been two policy announcements. At virtually the eleventh hour and 59th minute of the Second Reading debate, my hon. Friend the Minister for Public Transport popped into his wind-up speech a significant statement of policy. I believe that it appeared there for the first time, unless it had previously escaped me. He said:

"We propose a cap on fares for those services which are a monopoly, and I can confirm that the commuting lines into London constitute a monopoly."—[Official Report, 2 February 1993; Vol. 218, c. 243.]

That constituted acceptance of the principle of a cap.

Tucked away in the voluminous documentation submitted to the Standing Committee was a paper entitled, "Draft Objectives of the Secretary of State for the Franchising Director". It contained two paragraphs with the arresting title of "Fare Levels", setting out the draft objectives. But, unfortunately, they contained nothing of great substance, other than stating that only on franchise services which enjoy significant market power—monopolies—could the franchise agreements limit price increases on fares. No such limits would apply on other lines.

To determine whether my right hon. Friend the Secretary of State could say anything more substantial about what he intended to do in relation to fares, I asked key questions about capping: at what level could the cap on fares be set and what would be the criteria for triggering the cap on fares where the franchisee had a monopoly? I also asked whether my right hon. Friend had any further information to supplement the thin information set out in the two paragraphs of the draft objectives to which I have referred. My hon. Friend the Minister replied:

"Further work remains to be done in developing the draft guidance that I provided to the Standing Committee in relation to fares regulation and other matters."—[official Report, 5 May 1993; Vol. 224, c. 158.]

We are none the wiser about what is intended in the way of fare control.