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Rail Freight: Privatisation

Volume 570: debated on Tuesday 5 March 1996

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2.54 p.m.

Why they have decided to sell all three rail freight companies to one bidder and what is the price at which they have agreed to sell.

The Parliamentary Under-Secretary of State, Department of Transport
(Viscount Goschen)

My Lords, the market's strong preference was for a combined sale of the three companies. The terms of the sale, including the price, are commercially confidential.

Was not one of the Government's main reasons for breaking up the rail network into a number of fragmented private companies that it was a way to achieve competition? Has that therefore not proved to be a complete myth? Is it not also a myth that this Government believe in open government, when they will not even tell the House the price at which they have sold one of our important national assets?

No, my Lords, that is not the case. There are, of course, very strong elements of competition that we are trying to bring into the railway market. However, in this case we laid down no pre-conditions; we let the market tell us what it felt were the best circumstances and the best way to ensure the long-term future of the industry. There was a very clear preference for this type of sale.

In many of our other rail privatisation units we are introducing competition. And competition exists between newly-formed companies which can come in and move heavy freight on the railways as well as the existing trainload freight companies.

My Lords, can the Minister assure the House that Section 113 of the Railways Act regarding the disposal of the BR companies states quite clearly that there must be competition; management bids must be promoted; and that the best value for the assets must be achieved? In the end, all three services went to the Wisconsin Central Transportation. The Minister says that the figure is confidential. The figure I have received, from a fairly reliable source, is £225 million. Is that true; and was there a management buy-out offer of £240 million? Is it also true that the assets of the three railway companies together were something like £6 billion? Is there not a case for the Audit Office to have a close look at this whole business?

My Lords, I can neither confirm nor deny the figure that the noble Lord put forward. The price has not been disclosed in order to protect BR's negotiating position in future sales—for example, the BR infrastructure service companies. We shall give figures for individual sales in due course. All figures are made available to the National Audit Office.

As to whether or not this was the highest bid, North and South Railways, the arm of Wisconsin that took the purchase forward, submitted the highest relevant bid that was in compliance with the rules of competition. I can confirm that we have acted within the terms of the Act.

My Lords, quite apart from competition, will my noble friend agree that one of the objectives of privatisation is the creation of greater efficiency in the system?

Absolutely, my Lords. My noble friend is quite right. We believe that privatisation across the various types of company being brought into the private sector will bring exactly those benefits.

Can the Minister assure the House that in the negotiations and sale there have been no secret subsidies, no writing-off of debt, as we have seen in so many other cases? Does he accept that it is only honourable to disclose the figures in detail to the parliamentary Membership?

My Lords, we were scrupulously fair to all the parties concerned. Bids were made on the basis of the objectives for sale. That was the same for all the companies involved. There was no favouritism whatever.

My Lords, in which case, is it not time that the noble Viscount was also fair to Parliament?

My Lords, will he give Parliament the full particulars to which it is entitled? It is a national asset that is being disposed of. It does not belong to the Government, and neither does it belong to any of their minions.

My Lords, I quite agree with the noble Lord. This was a national asset that has been taken forward into the private sector. However, we are in the middle of a bidding process for a number of BR businesses. We feel strongly that to disclose that information at this stage would prejudice BR's bidding position in future.

My Lords, the noble Lord must want, as we do, the best proceeds for the taxpayer from the disposal of businesses in future.

My Lords, by the time we get the figure, it will be too late. The difference between the offer made by Wisconsin and the value of the assets might be quite staggering. It may be that there was not a great deal of difference in the figure for the management buy-out offer—£15 million. They would be entitled to be very disappointed. Will the Minister also tell the House whether, as was rumoured, 6,000 job redundancies are involved? It will be a national disaster if that is also the case.

My Lords, I repeat the assurance that I gave the House that the bid which was accepted was the highest compliant bid. I hope that that reassures the noble Lord. In terms of jobs, rail freight must improve its efficiency and reduce its costs, if it is to win traffic back onto the railways. The new company will look very carefully at its cost base. We all want the railways to become more efficient and more freight to be attracted onto the railways. To do that, rail freight must first improve its efficiency and, secondly, reduce its cost base.

My Lords, does my noble friend agree that there is immense scope for confusion in the question of valuation? If a site is valued on the basis of its disposal for alternative development, one figure may be placed on its value; if it is valued on the basis of its value as a continuing business, it will be given an entirely different figure. Is not that difference sufficient to explain the kind of discrepancy that noble Lords opposite mentioned?

My Lords, theoretical valuation is not a cut and dried matter. There are always different opinions about the value of a particular business. But in the final result, it depends on what the market will pay for it. The market expressed a great deal of interest in rail privatisation and this has been a successful sale.