With permission, Madam Speaker, I shall make a statement on the meeting of the European Council at Madrid, which I attended with my right hon. and learned Friends the Foreign Secretary and the Chancellor of the Exchequer. I have placed the conclusions of the Council in the Library.

I shall deal first with economic and monetary union and then with enlargementhouses—the two most important matters discussed over the weekend.

The decisions that the European Union must take on those two issues over the next few years could be the most crucial steps for Europe since the European Community was founded. They will have a profound effect on the political and economic stability of our continent over the next generation.

On economic and monetary union, the Madrid Council decided on a name for the single European currency. "Euro" was not a name that attracted universal enthusiasm around the Council table; it will not ease the task of those seeking to market the idea of a single currency, but one or more of the member states had rooted objections to each of the other names suggested.

A more fundamental decision was to study the implications of seeking to introduce a single currency in 1999. As the House knows, I have for a long time argued that the introduction of a single currency by a small minority of states would raise very serious questions about its economic consequences and about the way in which Europe functions. At the informal meeting in Majorca in September, there was general agreement that those questions needed to be examined carefully. At Madrid, a study was formally commissioned.

The Maastricht treaty lays down strict criteria for entry to a single currency. It is now certain that, on a proper interpretation of the criteria, only a small number of member states will meet them if a single currency is introduced in January 1999. Before taking such a step, the European Union needs to consider what it would mean in practice. It must consider its effect on the states outside the single currency area, as well as those inside it. It must consider how decisions would be taken. It must ask whether the result would be divergence rather than convergence of European economies. It must consider the potential effects on employment and the demand for resource transfers. The risk of monetary instability is one of the questions to be examined.

Some have argued for rigid linkages between those inside and those outside a single currency, by reverting to an old-style exchange rate mechanism. That is a course that has been tried and has failed. I have made it clear to our partners that I would not recommend that sterling should return to such a system.

Europe needs coherent answers to those and other questions, and I am glad that the Madrid Council decided to examine them. The opt-out that I negotiated at Maastricht protects the United Kingdom from being forced into an unworkable system, but it is vital to our interests and to the interests of Europe as a whole that a single currency does not begin and then fail, thus causing economic turmoil right across the European continent.

I now refer to enlargement. Ahead even of prosperity, the European Union exists to provide security and stability for the peoples of Europe. For that reason, I believe that enlargement is the most important task facing the European Union. Having demolished the iron curtain, we must never again have a dividing line running through the middle of Europe.

Ten or more countries are hoping to negotiate entry to the European Union in the coming years. This is an historic opportunity to entrench stability through a union of democracies right across the continent, and one that I passionately believe we must take. The Madrid Council gave further impetus to enlargement. The European Commission has been asked to produce opinions on all eastern and central European applicants as soon as possible after the end of the intergovernmental conference. That is a necessary step towards full accession negotiations, which are likely to begin with at least the most advanced of the new applicants, as well as with Malta and Cyprus, in about two years' time.

The Madrid Council considered reports from the Commission on the implications of enlargement for the European Union's policies, and those are profound. To be affordable and to be consistent with the EU's obligations under the general agreement on tariffs and trade, the common agricultural policy will have to be reformed when the Union enlarges, and so will the structural and the cohesion funds. At my insistence, it was agreed that future meetings of the Council would examine the implications. The Madrid Council has therefore taken an important step towards combining policy reform with enlargement, both of which are essential to the European Union's future.

I shall deal briefly with some of the other subjects that were discussed at Madrid. It was agreed that the intergovernmental conference would start at Turin on 29 March. The conference will be conducted by meetings of Foreign Ministers supported by a working party made up of a representative of each Minister and of the President of the European Commission. No decisions were taken at Madrid on the substance of the intergovernmental conference. Work on the agenda will be carried out under the Italian presidency by Foreign Ministers.

The drive to promote subsidiarity was again strongly in evidence at Madrid and was vigorously supported in informal discussion. The Commission has been instructed to examine the continued need for existing Community legislation and for proposals that are now on the table. It is now widely recognised that the United Kingdom was right to reverse the trend towards greater intrusiveness by the Commission. There was also support for our approach to job creation, flexible pay relating to performance, the curtailing of non-wage labour costs and the reform of social protection systems. Increasing emphasis is being given to small and medium-sized enterprises and to the need to cut the burden of red tape and over-regulation.

The campaign against fraud and for better financial management, which I launched at the Essen Council a year ago, gained further weight at Madrid. The House will welcome the higher priority that is being given to intergovernmental co-operation against drug trafficking. At Madrid I presented, with President Chirac, an initiative to help Caribbean states to crack down on the trans-shipment to Europe and elsewhere of huge quantities of drugs that are produced in Latin America. That initiative was agreed by the Council and is now part of the European Union's policy. On external affairs, the Council underlined the importance of successful implementation of the Bosnian peace agreement and gave support to Mr. Carl Bildt, who will be there leading the international civilian effort. It also discussed the European Union's relations with Russia, Ukraine and Turkey and welcomed the agreement at the recent European Union/United States summit to strengthen the relationship with the United States.

At the Council, the key decisions for the future were identified rather than taken. The programme of work for the next five years, the "Political Agenda for Europe", is set out in the Madrid conclusions. It is a formidable programme. In that period Europe must review the treaty at the intergovernmental conference; review the Union's policies, including the common agricultural policy and the structural funds; take decisions on a single currency; carry out enlargement negotiations; determine the Community's future financing; contribute to new European security arrangements; and develop its relations with neighbouring countries, especially Russia, Ukraine, Turkey and other Mediterranean countries. The decisions that we take in that period will determine the shape of Europe well into the next century. They will vitally affect the United Kingdom's interests and our future security and prosperity. That is why, at successive meetings of Heads of Government, I have argued for cautious and careful consideration before decisions are finalised.

The European Union must carefully weigh the practical consequences of all those issues. Its decisions must be securely grounded in reality. We need, above all, a Europe that works. In that respect, important steps were taken at Madrid, as they were at Majorca a few months ago. They would not have been taken if we had not been prepared to raise the difficult questions and to demand practical answers to real problems. In the interests of the United Kingdom, it is essential to continue taking a hard-headed approach at the centre of European policy making, and I intend to go on doing so.

May I thank the Prime Minister for his statement? There are several areas with which we can obviously agree.

On enlargement, I warmly welcome the European Council's commitment to begin negotiations at an early date. Will the Prime Minister clarify whether those negotiations will indeed begin at the same time as negotiations with Cyprus and Malta? Will he also tell us how the European Union intends to differentiate between countries that will enter more rapidly, such as Hungary, the Czech Republic and Poland, and the others that will take more time? I agree totally with what he says on the common agricultural policy, but instead of using the need to reform the CAP as an excuse to delay the entry of those countries into the European Union, should not we rather be using enlargement as the lever for changing the CAP?

I welcome the agreement at the Council to open the intergovernmental conference in March next year. I also welcome the agreement on the importance of the European Union tackling unemployment as

"its principal social, economic and political objective",

as well as the strongly expressed support in the President's conclusions for social partnership and job creation measures. However, how is such support for job creation measures and for help for the unemployed consistent with the savage cuts in the training in work programmes for the unemployed in this country today?

I accept and agree with the Council's decision to take more effective action on racismhouses—the Ministers all committed themselves to taking further action on that issue. Will the Prime Minister perhaps tell us what further action he believes we should take here? I also welcome the progress towards implementing the principle of subsidiarity in European law making at the Council, but how can he agree so much with the principle of subsidiarity in Europe and deny it so completely here at home in the United Kingdom?

May I come to the heart of the matter, which is monetary union? Can we be clear on that which has now been agreed unanimously by the European Council: that the Maastricht timetable stands, that the third and final stage of monetary union should begin on 1 January 1999, that all the criteria for convergence, for the setting up of the European central bank and for the fixing of currency conversion rates have been reaffirmed; and that the Prime Minister has agreed to it all in Madrid, despite his objections?

Why then has the Prime Minister been so utterly powerless in this situation? Whatever happened to those great new alliances that we kept reading he built with the French, his triumphal visit to Italy, and his constant claims that the rest of Europe was coming round to his way of thinking? Why was he driven to concealing his impotence with the fig leaf of some study into the effect of the single currency, which was so threadbare as to be an embarrassment to behold? May I tell him why? It is because no one knows what his position on monetary union is. [HON. MEMBERS: "Oh!"] Conservative Members criticise us for our positionhouses—[Interruption.] They cannot have it both ways. They spend half the time criticising us for having a position on the single currency and the other half criticising us for not having one.

Can the Prime Minister tell us whether he still believes in monetary union, as he used to say he did? Does he want to delay it or does he in fact want to abandon it? Are his hesitations about a single currency those of economic practicality or are they those of constitutional principles?

We do not know what the Government's position is. We do not know because one half of his party believes, as we do, that it depends on Britain's nationalhouses—[HON. MEMBERS: "What about the Labour party?"] I am saying what our position is. Our position is, like that of some members of the Prime Minister's party, such as the Chancellor, that it depends on national economic interests. The other part of his party, however, believes that there is an insuperable constitutional objection to monetary union. But what is the Prime Minister's position? We have made our position clear: what is his position?

Is not it the case that the divisions between those Conservative Members who believe one thing and those who believe another are so deep that they consign the Prime Minister perpetually to weakness and indecision on the very issue that matters? Is the Chancellor right, for example, in saying that it is 60:40 likely that there will be currency union? Does he agree with that or not? Is the Chancellor right in saying that we may have to decide by March 1998 whether we shall aim at joining?

Is the Prime Minister seriously going to go into an election not telling us where he stands on the issue of constitutional principle? Is he going to tell us or not? Is he going to be driven to a referendum despite his earlier rejection of it and despite the fact that his Chancellor described it as madhouses—not as a way of letting the British people decide, but as a way of letting the Conservatives avoid deciding the issue of principle? If that is what he is going for, as the papers have been briefed, is it credible that the Cabinethouses—with one half siding with the Chancellor and the other half with the Defence Secretaryhouses—could ever put a united proposition on joining the single currency to the British people? [Interruption.] Some Conservative Members are shouting out that we are the poodles of Europe, and others are saying that we have not made up our minds. The fact is that we have a position set out and the Prime Minister does not. Until he is prepared to say personally what his position is, they cannot resolve the impasse.

For too long, is not it the case that Government policy has proceeded on the fantasy that the rest of Europe was not actually going to proceed with monetary union? Of course it may still not happen, but we can no longer assume that it is not going to happen. Indeed, after Madrid, we should surely assume the opposite. I put it to the Prime Minister that it is simply no longer tolerable that, because of the divisions in the Conservative party, a proper national debate on the single currency is postponed, the Cabinet muzzled and the Chancellor sworn to silence on an issue that profoundly affects the future of this country.

Is not it time for a serious and well-informed national debate to begin? The Government's European policy after Madrid is still in tatters and uncertain. Rebuilding that policy is essential for Britain's credibility. To rebuild it, we must have the debate on this issue that has been suppressed for too long, and time is running out.

I shall first touch on the points on which I am in agreement with the right hon. Gentleman. I, too, as he acknowledged, am in favour of enlargement. On the timing of enlargement, as I said in the statement, a small number of stateshouses—and in answer to his particular question, that will depend on the Commission's opinion, which will largely be based on economic criteria, so it is an unknown numberhouses—will begin negotiations at the same time as Cyprus and Malta. The matter of which ones they are will depend on the detailed examination of their economies, which will take place immediately.

On the common agricultural policy, I am of course doing precisely what the right hon. Gentleman asked me to do over using enlargement as a lever for changehouses—which we have long argued is necessaryhouses—and reform, to which a number of Labour Members are late converts.

Of course unemployment is important. Much of the debate on unemployment was concerned with the need for deregulatory moves and for cutting down the costs that have led to so much unemployment across Europe. What was signally missing from the right hon. Gentleman's tirade was an acknowledgment that it is here, in this country, that unemployment is falling, and that it is in the socialist countries of Europe that unemployment is in some cases well over 20 per cent., and in other cases 12 or 13 per cent., where non-socialist Governments have inherited the effect of socialist Governments.

There was no substantive discussion among Heads of Government on racism. There had been discussion at an earlier stage. There is general agreement that where there are loopholes in legislation across Europe, individual countries will seek to deal with them. The loophole that arises with the United Kingdom is over the fact that it is possible to print racist material here. It cannot be distributed here, but it could conceivably be printed here for distribution abroad. Clearly, that is a loophole that we would wish to block and I have indicated that we will certainly block that. There are some minor technical issues still being worked out, but I do not envisage that they will cause any great difficulties. They will be examined.

The points about subsidiarity are familiar. We have debated them on many occasions in the past. We are a single nation state. The point about subsidiarity is taking authority from nation states to a central body, not the distribution of authority within a nation state.

On economic and monetary union, the right hon. Gentleman is certainly correct to say that we reiterated the treaty timetable. The treaty timetable was originally in the Maastricht treaty. For those who are able to meet ithouses—that is an unknown and probably small numberhouses—it has again been reiterated.

The right hon. Gentleman had something to say about divisions. He was not of course as clear as he might have been about his own position. Does he agree with the deputy leader of the Labour party, who again was in Europe making mischief on other matters over the weekend? Does he agree with the right hon. Member for Kingston upon Hull, East (Mr. Prescott), who said of a single currency,

"Yes we are against a single currency"?

Or does he agree with the right hon. Member for Copeland (Dr. Cunningham), who said that he was

"Personally…in favour of a single currency"?

Does he agree with his Members of the European Parliament, who are in favour of a single currency within the time limits and timetable, or with the hon. Member for Livingston (Mr. Cook), who said some time ago that setting such a timetable would be "irresponsible"?

It is good to see that there is such clear-cut agreement and leadership in the Labour party on that vital issue. If the right hon. Gentleman had observed the faces behind him, I do not think that he would have said much about agreement in the Labour party. I seem to recall reading recently that one third of the Labour party is in favour of a single currency, one third is against, and one third of them have not yet made up their minds or do not know. That is the right hon. Gentleman's idea of agreement on that extremely difficult and complex position.

I have made it perfectly clear on a number of occasions that there are questions about a single currency that are vital to this country's interests, which are not yet known. It is the answers to those questions that I have demanded are examined in the European Union. If the right hon. Gentleman wants to make up his mind on the most important single economic issue that we have faced this century without the facts, let him take that position in this great national debatehouses—although if he is entering into a great national debate, he might make up his own mind what his own position is before he tries to debate with anybody else. Those are issues of immense importance. We will demand that they are properly discussed so that a proper decision can be taken in the interests of this country, when the facts are known and not before.

The right hon. Gentleman contradicted himself. He said that I had said that a single currency could not proceed, and that it would not happen. Then he said that, of course, it may not—in successive sentences. What I have said consistently is that the small minority may proceed. It is dangerous if a small minority proceeds and is not ready, and it is potentially damaging if a small minority proceeds without knowing the implications for the majority of countries that do not proceed.

Even on the most favourable interpretation and the most optimistic scenario, fewer than half the citizens in the European Union would be part of a single currency union at the outset. That is quite apart from the position of the 10 or more countries that may enter the European Union over the next few years, but which will not be remotely ready for European currency union for very many years in most cases.

For as far ahead as we can see, whether a minority goes ahead—there is certainly a chance that a minority will—it is undeniable that a majority will not be in a single currency in 1999, and a majority will not be in a single currency for very many years.

Will my right hon. Friend, in contrast to the Leader of the Opposition today, keep his mind open to the idea of a referendum on a single currency, should the Government at any stage decide that it is in Britain's interests to join?

I recall discussing that matter with my right hon. Friend as long as two years ago. I know that he has thought long and hard about the implications for Europe and for this country of a single currency. I agree with him that we need to be clear about the circumstances and the conditions. The study that we commissioned in Madrid will help in that.

I can certainly reassure my right hon. Friend that, for a decision of such magnitude, we shall keep in mind the possibility of a referendum, if the Cabinet were to recommend British entry. That has been in my mind, as my right hon. Friend knows, for a long time and it remains there. I think that it is right to keep that before us for consideration.

Watch that space. Is not it the case that what the Prime Minister has today described as a formidable programme is what he told us a year ago had about as much relevance as a rain dance? Some rain dance.

Does the Prime Minister understand that the whole nation has now spotted and understands his formula for ducking difficult decisions on Europe? It consists of obstructionism abroad, and appeasement at home; of playing the Euro-realist in the conference chamber, and the Euro-sceptic in the columns of The Daily Telegraph. Does the Prime Minister believe that that is the kind of leadership this country needs on an issue of such importance, and that we should be asked to hide from our future to cover the divisions in the Conservative party?

Does not the Prime Minister understand that trying to face both ways at once in Europe means that he cannot see what is right in front of him? What is now in front of us in Europe is rising nationalism within our borders, deepening chaos outside, and—I regret—the strong probability of isolationism growing in the United States of America. Chancellor Kohl can see that; President Chirac can see that; and every other leader in Europe can see that. But the Prime Minister is so mesmerised by the divisions in his party that he is blind to it.

The Chancellor said only two days ago that he believed that there was a 60:40 chance of monetary union occurring before the end of the century, and that the economies that would join it would be the strong ones. Does the Prime Minister agree?

The right hon. Gentleman started off by completely misquoting what I wrote in The Economist two years ago. The answer to his first question, therefore, is no. He was talking complete unadulterated rubbish, and continued to do so for some time. What I actually wrote in The Daily Telegraph was what I said in the conference chamber to my fellow Heads of Government. The right hon. Gentleman can therefore be in no doubt that the message I deliver here in this Chamber is—

indicated dissent.

Oh, the right hon. Gentleman shakes his head. He was there, was he? It was he who brought in the tea, coffee and the biscuits. What I said in that conference chamber is what I said here, what I wrote down and what I will take to the country.

The fact is that the right hon. Gentleman does not understand the issue. He has a slogan. He believes that whatever happens in Europe, he and his colleagues should rattle along behind it whether it is right or wrong, whether it is considered or not and whether it is in this country's interests or not. He does not know enough about the subject to consider the implications.

What the right hon. Gentleman said was copper-plated nonsense. He does not know, for example, what would be the effect of a partial EMU among some countries on Community decision taking. Can he tell me the answer to that question? Of course, he cannot. He does not even understand the question, let alone the answer. I shall spare the House the long list of the other questions that he does not understand.

Is not it high time that we stopped talking about a single currency, as what is now envisaged is clearly a core currency? That is the expression that we should use. Is not it equally apparent that it is inconceivable that the members of an enlarged Community would be able to move towards a single currency in the foreseeable future?

On a referendum, is not this a highly complex issue? My right hon. Friend has rightly pointed out that the leader of the Liberal party does not understand it. The public do not even know the difference between a single and a common currency. Will my right hon. Friend therefore bear the complexity of the issues in mind?

My right hon. Friend is entirely right to draw the distinction between a single and a core currency, because, as I said to the House a moment ago, at the outset only a minority would be members. In the couple of decades ahead, with the growth of the European Union, there is no prospect that there would be one single currency right across the enlarged European Union. Of course, it may cover some countries—that has certainly always been possible—but it will not cover them all. My right hon. Friend is right about that. On the complexities of a referendum, I understand entirely my right hon. Friend's point, and that is why we are considering the matter carefully.

The Prime Minister is clearly moving in the right direction—[Interruption.] Will he confirm what he has previously said: that the United Kingdom will not join, or rejoin the exchange rate mechanism during this Parliament? If that is so, as I believe it is, will he confirm that the United Kingdom will not join a single currency on 1 January 1999 for the simple reason that whatever may be the wishes of the Chancellor of the Exchequer, we shall not conform with the necessary qualifying rule of rejoining the ERM two years before the actual decision about the single currency is made in March 1998?

Finally, will the right hon. Gentleman confirm that when he said that he would not recommend that Britain should join or rejoin the ERM after some countries have gone ahead and joined the single currency, that means in effect that we shall never join the single currency because one cannot join it unless one first rejoins the ERM?

Let me try to clarify matters for the right hon. Gentleman. I was interested when he said that I was moving in the right direction, because the look of pain upon the faces of those on the Opposition Front Bench was a joy to behold. That was one of those occasions when I am so pleased that we have television in the Chamber.

I certainly reiterate to the right hon. Gentleman that I made it perfectly clear that we would not go back into the ERM in this Parliament. As I said in my statement, I do not propose that I would take sterling back into a changed ERM in the next Parliament either. The right hon. Gentleman concluded from that that we shall not meet the Maastricht criteria, but that is no longer the case, because the ERM that existed at the time of our membership no longer exists. If one were to apply those strict criteria, the reality would be that nobody would be able to enter a single currency. The other Maastricht criteria, of course, fully apply, while the ERM criteria for all of Europe disappear because, the right hon. Gentleman may recall, they were effectively to be a part of the inner band of the ERM, which no longer exists.

As the number of difficult and technical issues connected with the move to a single currency mount, does not the wisdom of my right hon. Friend in negotiating a double option for Britain become more and more apparent? Will he give the country an assurance that he does not intend to throw away either of those options in the near future?

Secondly, will my right hon. Friend comment on the fact that the Leader of the Opposition, while criticising the opt-out that my right hon. Friend negotiated, clutches it to his own bosom? As the Leader of the Opposition says that there are no constitutional issues attached to a move to a single currency, is not the logic of his position that, if Britain were to be convergent, we would automatically enter a single currency?

That is certainly the logic of the Leader of the Opposition's position, and we look forward to his early confirmation of that, so that no one can be in any doubt when he begins the great national debate that he has called for. With regard to my right hon. Friend's earlier remarks, both the opt-outs are the envy of many of our European partners, which wish that they had negotiated them. I intend to exercise to the full the opportunities given to this country by that negotiation.

May I congratulate the Prime Minister and the Chancellor of the Exchequer on publicly resisting the demand of the right hon. Member for Wokingham (Mr. Redwood) and other Euro-sceptics that the Government rule out the option of Britain joining a single currency within the next Parliament?

I indicated, first in my reply to the Leader of the Opposition 10 days ago and again over the weekend, that I was not prepared to rule out the option of joining a single currency in the next Parliament. Nobody should draw any conclusions either way about that, and I will reiterate to the hon. Gentleman why that is the case.

It is very important that this country's voice—raising questions that would not have been examined but for this country—is heard in the negotiations right up to the time when a decision is taken as to who should join and who should not. Whether we exercise the right to opt in or to opt out, this country—and every other country in the European Union—will, in one form or another, be affected by the decision to proceed to a single currency, even if only a minority of countries proceed. Upon that basis, I do not believe that this country's voice—one of the most powerful in Europe—should be excluded from that debate.

I very much hope that my right hon. Friend succeeds in his opposition to federalism in Europe, but does he accept that monetary union is tied up with political union? Does my right hon. Friend agree that we sold the pass at Madrid, because we did not disagree with the determination of the other member states—buttressed by the determination of Germany and by a capitulating France—to go ahead with political union? Does he agree that we must ensure soon—in a White Paper or by some other means—that we no longer go down the route of political union? Should we not utterly repudiate the use of British taxpayers' money on a propaganda exercise by the European Commission to promote the very political union that my right hon. Friend has expressed himself to be so against?

I do not believe that the pass was sold in our discussions in Madrid. We agreed to discuss questions which must be discussed but which have not yet been discussed. It would be folly to proceed without having detailed and proper answers to those questions. Many aspects of political union will come up in different parts of the intergovernmental conference. We are considering carefully our precise response to all the important points that will come up there.

On the expenditure on publicity, I am bound to say that the Commission's public relations campaign was not, as reported, put to Heads of Government at Madrid and received no specific endorsement from Heads of Government at Madrid. The reason is that the Commission has authority to determine the proportion of its budget to be spent on information work and has chosen to exercise it in that fashion. It was emphatically not a matter that was put to Heads of Government at Madrid and endorsed by them.

The Prime Minister will have noted that on page 8 of the communiqué, there appear the words:

"kept on a sound track".

Assuming that those words refer not to some method of amplification but to sound money within Europe, and in view of the fact that the Prime Minister has rightly said that the decision is one of the most important this country has taken for, perhaps, 200 years, will he consider the establishment of a super, high-powered Select Committee, with representatives of all parties in the House thereon, to examine and come up with hard facts as opposed to opinions? Such a Committee would have the extra benefit of enabling certain parties to concentrate their own minds.

I can certainly confirm to the right hon. Gentleman that the words "sound track" relate to sound money and sound economic policies. The guiding lights of those were first put in the Maastricht treaty, at British insistence. They remain there for any move forward to EMU and have the strong support of a number of other nation states. I shall reflect on what the right hon. Gentleman said. Within Government, we shall conduct our own examination of whether those matters are being followed, quite apart from an examination of the outcome of the Maastricht criteria.

Does my right hon. Friend accept that his excellent questions at Madrid about the ill-named "Euro", its huge potential cost for the European budget, its divisive potential and its threat to employment in Europe were penetrating and timely? It is a great pity that we have not heard similar intelligent questions from Opposition Front-Bench Members.

Looking ahead, does my right hon. Friend accept that if we get to the transitional period, when a hard "Euro" will circulate along with the national currencies, the system will have some resemblance to his own plan for the hard ecu, which he put forward five years ago? Will my right hon. Friend suggest a more intelligent and modified version, if we get to the transitional period, to make it a permanent period on the ground that nothing lasts like the provisional?

My right hon. Friend is correct to say that in the proposed transitional period of 1999–2002, the new currency will effectively co-exist as a parallel currency with national currencies rather than as a core currency, to use the words of my right hon. Friend the Member for Worthing (Sir T. Higgins). That is similar to the hard ecu proposal which I first put forward in 1990, except that it would not proceed, as the hard ecu would have proceeded under my proposal, by a market-driven route to become a single currency, but would move, under the present proposals, arbitrarily on a fixed state to become a single currency.

It may be that as we approach that period, the prospect of reviving the sound economics of the hard ecu proposal will return. At the moment, enthusiasm for proceeding under the Maastricht treaty route remains and I am not optimistic about the hard ecu reappearing. In economic terms, I do not believe by any stretch of the imagination that I am the only Head of Government sitting round the table who now regrets that we did not take that route.

Mr. Andrew Faulds.

Oh.

Thank you, Madam Speaker. Was there any discussion in Madrid that because of the plasticity of European purpose, or perhaps lack of policy, America had to step in to sort out the Bosnian imbroglio and bring just the possibility of peace?

There was some discussion of future policy in Bosnia. There was no look back on how the present position came about. There was considerable discussion about the peace implementation force and about the activities of Carl Bildt in ensuring that the civilian aspects of the Bosnian peace are carried forward. We spent some time discussing that and no one is in any doubt about the huge matters that still have to be dealt with.

Does my right hon. Friend agree that any core currency is bound to contain both France and Germany? France's attitude towards the core currency will be vitally influenced by whether Britain is there as a balancing power against Germany. Are we not going to create great resentment if we do not tell France and Germany as soon as possible what our attitude in principle is?

Our attitude is one of practice. We shall make our decision when we know precisely what the circumstances may be that would impact upon our country. Whatever interest we may have in helping France or other countries to make up their mind, and I appreciate that they may welcome a view of where Britain might be at some stage, the first obligation that we have is to make the right decision for this country. I do not believe that we can make the right decision for this country until we know the answer to questions as yet unanswered and know the economic circumstances that have not, as yet, unfolded.

Does the Prime Minister exclude UK participation in any exchange rate arrangements if EMU does go ahead?

I certainly do not exclude UK agreement to matters such as inflation targets in order to ensure a market-driven route towards largely convergent economic policies and secure exchange rates. I do not believe that going back into the artificiality of an exchange rate mechanism, which, on this occasion, would be outside the core currencies, is a negotiable proposition among the Heads of Government and it is not one that I would wish sterling to join, as I said earlier.

May I congratulate my right hon. Friend on the way in which he is handling these issues? I remind him that a policy which is both careful and cautious is a policy of prudence and that, bearing in mind the complexity and the scale of the ultimate decisions on the matter, he is absolutely right to occupy the crease and bat for Britain as long as it takes?

I am grateful to my hon. Friend, who has a long and distinguished interest in European matters. I assure him that I shall continue to do that. When I indicated to the House earlier that the decisions taken upon monetary matters and enlargement were crucial not just to the future of this country but to the future of all Europe, I did not regard that as a casual throwaway line, but I meant it to be taken absolutely as I stated it. It is fundamentally true. For that reason, I believe that we have an obligation to be cautious. The burden of proof must rest upon those who wish us to make the change rather than those who wish us not to do so. I think that we are right to be cautious and I will remain cautious.

Is not the truth of the matter that the Madrid decisions, with which the Prime Minister acquiesced, represent another two or three small steps towards economic and monetary union? Why did not the Prime Minister vote against some of the issues that were presented to him? Why did not the Government decide to oppose that barmy name "Euro" for the currency? Is not the fact of the matter that the Prime Minister has come here today to represent a lot of camouflage about the Madrid summit to try to appease his Back Benchers, when the truth is that he sold out at Madrid and that the people out there will understand that?

If camouflage was needed, I would have thought that it was between the Labour Front Bench and below the Gangway on that side of the House. If there is going to be a debate, I suggest that it starts on Labour Benches, and Labour Members can try and work out precisely what their position is. We now see just how split, despite all they have said, they really are on European matters, and have been right from the start. [HON: MEMBERS: "Answer the question."] The answer to the hon. Gentleman's question, in every respect, is no.

While it is correct, as my right hon. Friend has said, that if the wrong decisions are taken on monetary union, the result will be turmoil and chaos, could I possibly dig out of him an admission, however tentative, that if the right decisions are taken, to create a currency union among 150 million of the world's richest citizens could be highly beneficial to all the nations concerned?

My hon. Friend puts precisely the question to which an answer needs to be found. We cannot be certain of an answer to that question without answers to the questions that I asked in Madrid, which is precisely why I asked those questions. We need to know the answers before making a judgment, which is the view of a number of people in Europe. Equally passionate views are held in the opposite direction. Until we know the details and answers to those questions, it is not possible to take a rational view of the implications of a single currency. That is what I seek to provide.

My question is on a different but increasingly important issue, in view of events in Russia: the Community's relations with the Ukraine. What exactly are we doing to help those people? In his talks with President Kuchma last week, what did the Prime Minister respond to the President, who is also the former technical director of Baikenor, on technical co-operation, not least in relation to the Ukraine's valuable resources in space, which are left over from the Soviet Union, and the skills that could benefit us all?

I raised a number of matters when I spoke to President Kuchma a week or so ago. As the hon. Gentleman and the House would have expected, we discussed Chernobyl and spent some time discussing the package of support that the international community has now provided for closing Chernobyl at the turn of the century. We also looked at a variety of ways in which we could increase the trading and investment relationship between the United Kingdom and the Ukraine. There is huge scope, particularly in the energy sector, for the mutual benefit of British investment and for British technology to go into the Ukraine, where it would be warmly welcomed by the Ukrainians. I also stressed to President Kuchma that one of the inhibitions to ensuring that that investment can proceed are the present financial and legal restraints in parts of the Ukraine.

That was the substance of our discussion. It was an extremely worthwhile visit, which will be followed up by further ministerial visits to the Ukraine. I hope that some of those will take with them high-powered delegations of business men, so that we can examine the business relationship between the United Kingdom and the Ukraine and build on it, because the Ukraine will be an important part of the European business scene in future.

Despite the usual trading of insults between the party leaders today on this momentous matter, which is of great importance to this country, and the regrettable lack of listening to the sensible suggestions made by the leader of the Liberal Democrats, would not it be a good idea for the party leaders to get together? As a large majority of Members of this House are in favour of EMU, they could, on a free-vote basis, present the positive factors in favour of monetary union to the British public.

I always believe in the politics of rationality. My hon. Friend pitches a question that would demand a high price for the Leader of the Opposition in terms of discussing the reality of what lies immediately ahead. I saw no great sign of it from the leader of the Liberal Democrats this afternoon. If we can determine the answer to the questions that I have put, they will be material to framing the opinions of people in this House and beyond about the desirability or otherwise of the course that was set out some time ago. I reiterate the same point because it is undeniable: without that information, credible decisions cannot be taken. I am trying to provide it. I shall then willingly make it available to the Leader of the Opposition in a tutorial or in any other way that he wishes.

As a decision must ultimately be taken, will a time limit be placed on the study? What will happen once the study becomes available? Will it be widely available and how will we move into decision mechanisms?

It is not quite clear how long the study will take. I saw it reported that it will take two or three years. That is clearly nonsense—it will take nothing like that. I would expect a report when we get to Florence in the summer, but I am not sure whether it will be the definitive report, and neither is anybody else. Once the report has been produced, I am sure that it will be discussed by ECOFIN and the European Council. It may be placed on the European Council's agenda, but that has not yet been decided.

In view of the substantial misery and unemployment created already by European fixed exchange rates, is the Prime Minister aware that people with all kinds of views of EMU will enthusiastically welcome his statement that, in the event of the "Euro" being established by a small number of countries, there is no way that sterling will have a fixed relationship with it? Am I correct in my interpretation and, if so, does the Prime Minister accept that that will be very widely welcomed, not only in the Conservative party?

Yes, my hon. Friend sets out the position entirely accurately. It is as he says.

May I say to the Prime Minister that, personally; I very much welcome the concept of a single currency, although certain safeguards are necessary, including making unemployment levels part of the convergence criteria?

On a more practical matter, was the story in the Sunday newspapers—that the Queen's head is too large for the "Euro" coin—true? If that is so, does the Prime Minister intend to negotiate the size of the coin, or does he have more drastic measures in mind?

On the hon. Gentleman's first argument about unemployment levels, I simply have to say to him that, if he were to make unemployment levels part of the convergence criteria, there would be no single currency in his political lifetime, however long that is likely to be.

It depends what the banding is.

The hon. Lady says, "It depends what it is." She probably believes that the 13 per cent. of France is a good convergence level. I am not sure that that is what her hon. Friend had in mind. Perhaps that is another difference between Labour Front and Back-Bench Members; I cannot imagine. We seem to be uncovering so many differences today that it is difficult to determine. Let us hope that we can go on and find some more.

As very few countries will be able to qualify for the single currency, will my right hon. Friend say what the position of those countries will be when they find that their economies are subject to intense competition from the countries that do not form part of the single currency? Will he give the House an assurance that, in that event, there can be no suggestion of any reprisals being taken by members of the single currency against countries outside it?

My right hon. Friend puts his finger on precisely one of the matters that I have been raising with our colleagues at the European Council. It is precisely for that reason that some of the countries that anticipate that they will be in a single currency have asked for an exchange rate mechanism outside the single currency, to prevent the flexibility with which countries usually deal with economic difficulties. The danger of that, apart from the inherent difficulties that have been demonstrated several times in the past six or seven years, is that it would lead to very high structural levels of unemployment in some of the weaker-performing countries in the southern part of Europe.

That is precisely the matter that the hon. Member for Newham, North-West (Mr. Banks) brought to the forefront of my mind a moment or so ago, when he suggested that unemployment levels should be convergent. If that were the case, many of the southern countries of Europe would never, on that basis, be likely to meet the criteria for gaining admission to a single currency. That might mean that a European Union—although I believe that it will become more variable in the application of its policies to different members, and I believe that that is desirable—would for the first time find a fundamental variation in policy on one of the very basics of the whole basis of the European Union, that is, the currency question.

Those are questions of immense importance. There is, as yet, no credible answer to the question that my right hon. Friend asks. I am asking for one.

As economic and monetary union surely requires the convergence of the total economies of the member states, why is it that only certain indices in the public sector are included? Why not also include comparable indices in the balancing private sector?

Surely economic and monetary union also requires the establishment of a centralised, absolute monarchy of bankers, who are separate from national Governments and from the institutions of the Community. However, surely one of the principles of European Union is to defend the western view of democracy, which is voting into power assemblies that, in turn, control government? Is not that an anomaly, and will the Prime Minister tell us whether the European Council has explained that anomaly? If it has not, will he do so now?

I have some sympathy with the hon. Gentleman's earlier comments about convergence, although he is plainly wrong when he refers to convergence as only affecting matters in the public sector. One of the most important convergents is a high degree of price stability. Price stability, which has clear implications for what is happening elsewhere in the economy, not only is a matter for the public sector, but goes right across the economy as a whole. The hon. Gentleman is wrong on that point and I think that his subsequent points were addressed and determined many years ago.

May I congratulate my right hon. Friend on his description of the other member states, which he said were rushing like lemmings over a cliff towards currency union? While 150 million people may be inside the currency union, is it not a fact that 5.5 billion people remain outside it? Is it not a perfectly viable option for this country to choose to opt out of monetary union and model ourselves on the thousands of economies round the world—large and small—which have independent currencies?

That is certainly an option. From the moment when I negotiated the opt-out at Maastricht, it has always been possible that this country might decide to take the decision, in its own interests, not to be a part of a larger currency union. There is no doubt that we could continue without entering into a currency union. We would have to decide whether the balance of advantage for the Government, the City, the economy and our future trading relationships rested with our being in or being out. That is precisely the substantive point. Of course we could be out and there is no doubt that we could stay out. We shall have to weigh the balance of advantage when the time comes.

My hon. Friend is correct in his earlier point: more citizens of Europe will be outside the single currency at the outset, and for some years afterwards, than inside it.

Will the Prime Minister confirm that it was the common understanding of our partners at Madrid that no substantive decisions would be made on the IGC until after the conclusion of the election in this country? Does that not mean that, increasingly, this Administration will be seen by our partners as a lame duck Administration, which is bad for Britain?

The hon. Gentleman builds his question upon a false premise, as there was no such agreement at Majorca or at Madrid. When we begin the intergovernmental conference, which will be launched in Turin on 29 March, I hope that we shall begin to take decisions as we move through the year. Decisions will not all be held to the end of the year. We may complete the intergovernmental conference within a year, or it may take longer. If we complete it within a year, the whole matter may be determined within the lifetime of this Parliament. That is the decision that I have reached and, unless the hon. Gentleman was serving biscuits somewhere, he is in no position to shake his head.

Does my right hon. Friend agree that much of the drive in Europe has come from Germany, which has a lot to do with the fact that Chancellor Kohl is ashamed of Germany's past and frightened for its future? Does my right hon. Friend also agree that the democratic institutions in Europe are woefully inadequate? If we drive towards political union without proper democratic representation at the centre, it will lead to the emergence of fascist and ultra-nationalist parties, which will want to withdraw from Europe and break up the European Union. That would deny Chancellor Kohl the goal that he is seeking and, for many hon. Members, would lead to a very unsatisfactory outcome.

The democratic institutions of Europe are bound to be considered at the intergovernmental conference. That is true of both the present powers and nature of the European Commission and the other institutional questions, which will be considered expressly during the forthcoming intergovernmental conference. We must examine those issues for another reason, apart from those set out by my right hon. Friend. As the European Union enlarges—as I profoundly hope that it will——I believe that it will provide an historic opportunity for this generation of politicians to change the face of Europe in a thoroughly beneficial way. In those circumstances, many of the present institutions of the European Union will prove inadequate to deal with the enlarged number.

rose—

Thank you, Prime Minister. We must now move on to the second statement. I regret that so many hon. Members are disappointed, but I have kept the Prime Minister at the Dispatch Box for more than an hour.

With permission, Madam Speaker, I should like to make a statement on the franchising of passenger rail services.

The House will be aware that, on Friday, the Court of Appeal, considering an application for judicial review by Save Our Railways, found against the Director of Passenger Rail Franchising on whether the passenger service requirements for some of the first seven franchises had been developed in accordance with the instructions and guidance that had been issued to him by the Secretary of State.

The court ruled that the franchising director could proceed with the award of the first three franchises—Great Western, South West Trains and London Tilbury and Southend Rail—although it ruled that the PSR for LTS Rail was not consistent with the instructions. The court also ruled that the PSRs for the next four franchises were similarly inconsistent. In doing so, the court was overruling an earlier judgment of the High Court that had dismissed the judicial review.

The court's ruling comes after the franchising director made excellent progress in preparing the first franchises for award to the private sector. Indeed, the first three franchises are ready to be awarded soon.

We have, of course, given careful consideration to the implications of the court's judgment. I confirm that, as planned, the franchising director hopes to announce the award of the first three franchises later this week, and I welcome the court's agreement that he should go ahead with them.

The court has been concerned with the consistency between the franchising director's instructions and guidance and the PSRs. It is, in the court's words, a "limited legal problem". The court has not questioned the Government's policy. Indeed, the judgment describes the franchising director's approach to developing PSRs as

"intelligible and in no way irrational".

The franchising director has prepared his PSRs in a manner which my predecessors and I have consistently approved. We believed them to be consistent with the formal instructions and guidance that were given to him. The Court of Appeal has now examined the meaning of the existing instructions and guidance and concluded that the existing PSRs are not consistent with them.

I have decided, therefore, to clarify the instructions and guidance to the franchising director to ensure that they reflect beyond doubt the policy that we have always followed. Franchisees should have flexibility to adjust commercial services, but the franchise agreement should ensure that a core service level is protected so that service levels operated by franchisees are broadly similar to those operated immediately prior to franchising. My intention is to ensure that the work done in developing the PSRs so far can be relied on in the continuing franchising process.

I am pleased to tell the House that, while clarifying the franchising director's instructions, I intend to go beyond the requirements of the Court of Appeal judgment. I shall instruct him, when considering the award of future franchises, to take account of bidders' contractual commitments to, and future plans for, providing services over and above the PSR. In practice, bidders for the first franchises are offering significant commitments in addition to the minima required by the invitations to tender, and they have been taken into account by the franchising director when evaluating bids, but I have judged it right to require him formally to do so for the future to ensure the continuation of that policy.

In view of the uncertainty generated by the court's judgment, I hope that the House will welcome this statement of the Government's intentions. Our concern is to ensure that passengers should be allowed to enjoy as soon as possible the benefits that franchising will bring. The Government's policy has been clear and consistent and I assure the House that there will be no change as a result of last Friday's judgment.

Will the Secretary of State confirm that his statement amounts to an admission that the early franchises prepared by the franchise director, who is a creature of the Secretary of State, did not guarantee services as good as those currently provided by British Rail? Does he further agree that the courts found that five of the seven early franchises were in breach of his guidelines and undertakings to Parliament?

Will the Secretary of State clarify his statement in plain language? Is he admitting that, because the early franchises were not in line with his own guidance, he now plans to rewrite the guidance and reduce the minimum standards required to "a core service level"—which is a new concept—and to take into account non-contractual promises? Will his revised guidelines permit the four franchises that were ruled illegal by the Court of Appeal to go ahead without revision?

Does the Secretary of State agree that the first three franchises should now be withdrawn? First, the franchise for the London-Tilbury-Southend line was held to be illegal by the Court of Appeal, although for technical legal reasons it was not stopped; in honour, it should be stopped. Secondly, it would be wrong to let early franchises on the basis of guidelines that are different from those that will apply to later franchises. Indeed, I think that it would lead to litigation.

Finally, does the Secretary of State accept that even those who initially supported rail privatisation now believe that the method chosen by the Government is a disaster and will produce less investment and worse services in return for more public subsidy? Will the right hon. Gentleman now agree to halt the privatisation process and review progress? Surely he will agree that it is wrong for him to proceed on the basis of party dogma. His duty is to protect the national interest—and that requires him to halt the process of rail privatisation.

I was pleased to see on Ceefax that the hon. Lady is reported to have welcomed Railtrack's current 10-year investment strategy. That strategy is possible at the higher level envisaged only because we are privatising Railtrack. At no point has the hon. Lady or the Labour party made a commitment to provide more resources for Railtrack, but more resources will be available as a result of privatisation.

The court specifically ruled that the franchising director should be allowed to go ahead with all three of the first franchises, as it would be detrimental to good administration if he were prevented from doing so. I hope that he will proceed; I think that when he does, and when the franchise bids are in the public domain, people will realise that much of the concern that has been expressed is unfounded.

I hope that the hon. Lady noted from my statement that, to deal with some of the concern that has been expressed, I am giving guarantees over and above those that were necessary to comply with the court's judgment. It is important to understand that the minimum PSRs are not the same as the timetable. I genuinely believe that, as we make progress with franchising, and as people see the quality of the bids and the range of services provided by the private sector, much of the concern of the past few weeks will be shown to have been unfounded.

Do not the Government's critics seriously underestimate the level of service that will be provided under the franchises? Will not the timetables prove less of a mirage than some of those published by British Rail? At present, services can be removed with relative impunity—as, for example, on the London to Cambridge line, which goes through my constituency. No guarantees whatever are given.

My hon. Friend is absolutely right. Under the structure that we are introducing, passengers will be given guarantees that were not available to them before. First, key fares will be guaranteed and linked to the retail prices index or lower. Secondly, as my hon. Friend rightly pointed out, services specified in the contract will have to be provided for a minimum of seven years. That guarantee has never existed under a regime operated by British Rail.

I also agree with my hon. Friend's view that, now that we can make progress with the awarding of franchises, people will realise that a better service can be provided. We want to hear from the Opposition at some point whether they will confiscate franchises from the private sector even when they provide passengers with a better service at less cost to the taxpayer.

The Secretary of State will know that, in our previous debate on this matter, it was made clear that the PSRs were based on the existing British Rail timetable. It appears from the right hon. Gentleman's statement that they will be based on something broadly similar to existing services. By what criteria will he be guided in future in ensuring that the PSRs are legal?

It seems that the right hon. Gentleman intends to proceed with the first tranche of three franchises with the current PSRs rather than with what would be preferred. If that is so, does he recognise that inconsistencies will be built in across the region between two levels of service? What action does he propose to overcome that inevitable disparity?

I said in my statement that I planned to change the guidance and instructions, and explained the general lines on which that would be done. I shall, of course, place the new guidance and instructions in the Library so that hon. Members may inspect them.

I genuinely believe that the franchising director is approaching the matter in the right way. The country has been divided into 25 regions. The franchising director is inviting people to bid for services; he will then choose the best bid. I believe that, when we make progress with the policy, the hon. Gentleman will see that it is possible to run a railway that is better than that of the past 30 or 40 years, which has consistently declined. Our policy will unlock access to fresh investment that will not be constrained by being in the public sector, and will invite people outside British Rail to operate services. I think that it is possible to provide a better range of services, to market those services more efficiently, to introduce more creative fare structures and to reverse the historic decline in railway use—and I believe that our policy will do that.

The guidance that my right hon. Friend has announced will be widely welcomed both in the House and outside. It would be disastrous if the first three franchises were not awarded. Is my right hon. Friend aware that my constituents, who have lived with an inadequate British Rail service for half a century, are now looking forward to a better service, and look to him to ensure that the process goes ahead?

I am grateful to my right hon. Friend for his support. I can confirm that the franchising director has said that there have been good quality bids in response to the invitations to tender. I hope that, in the near future, it will be possible to proceed with the franchise for LTS Rail; my right hon. Friend's constituents will then be able to see the quality of the service being offered, and the debate will move from the theoretical to the actual. People will be able to see for themselves exactly what services are being provided, and I am happy for our policy to be judged on that basis.

Is it not demeaning for a Secretary of State to have to rewrite the rules to bring the bids into line? Will the right hon. Gentleman tell us precisely how much each taxpayer will have to pay if the Government write off billions of pounds of debt, throw away the assets of the railway system and, on top of that, make taxpayers provide a larger subsidy than they provide now?

The hon. Lady will not be surprised to learn that I do not agree with the thrust of her questions. All our experience has shown that, at the end of the day, the taxpayer does better when nationalised industries are privatised. We are familiar with the £50 million a week that the nationalised industries were costing us, and the £50 million a week that the privatised industries now bring in. I see no reason why our privatisation policy should not bring benefits not only to taxpayers but to passengers.

Does my right hon. Friend agree that, if the Opposition were truly interested in the travelling public and the railway industry, they would oppose any further delays and uncertainty? If we are to secure much-needed investment, the faster we get on with the franchising process the better. Will my right hon. Friend assure us that the next batch of franchises will be let very rapidly, particularly the franchise for the South Eastern Train Company?

I am grateful to my hon. Friend for his support. I hope that, now that we have clarified the legal position, the franchising director will be able to make good progress with the next round of franchises.

What we must hear from the Opposition at some point is where the extra investment is to come from if it is not to come from the private sector. Is it to be secured by means of higher taxation or higher fares, or would Labour cut the level of service provided by British Rail?

I welcome the good news—for those who have a railway in their area—that fares will be pegged. Will the Secretary of State confirm, however, that the secret of the process is the question of core services? "Core services" means scarcer services. The right hon. Gentleman appears to be doing to our rail services what Beeching did some years ago: he pulled down a three-storey mansion and replaced it with a cottage. Now that the cottage is to go, what will be left, particularly in the north-west?

I am not sure that the hon. Gentleman has looked at the details of what is proposed by the franchising director. Every station and every line is guaranteed, and we have opened or reopened some 229 stations since we came to power in 1979. The Beeching decimation was a feature of a previous Labour Administration. I am determined to reverse that and to secure a prosperous railway that is built on the private sector, that is more customer-oriented and that is not wholly dependent on taxpayers' funds. I hope that the hon. Gentleman's constituents will be better served by the railway that I have just described.

Can my right hon. Friend confirm that the franchising director will look in particular for a commitment to improve industrial relations when franchise companies run the lines?

The franchising director is responsible for deciding who shall pre-qualify for the bids, and I know that he will take into account the factor that my hon. Friend has outlined.

During the past few years, British Rail has been disrupted by industrial action. I hope that the more regional approach that we have promoted—whereby local employees deal directly with one of the 25 operating companies—will reduce the likelihood of national strikes. I believe that smaller units of management and a better relationship between staff and local management is a better way in which to promote good industrial relations.

If the Secretary of State were to respect the Appeal Court's decision, would he be required to give new instructions to the franchising director? Will he put rail privatisation to the test and allow a vote in the House—or is he too worried about the reactions of his Back Benchers?

No vote is required in the House to change the instructions. I would welcome such a debate and a vote and would hope that the Opposition would come clean on their policy for British Rail. Do they believe in a publicly owned BR? If so, how would they pay for it?

Is my right hon. Friend aware that it is the inevitable complexity of some of the arrangements that causes uncertainty and concern among my constituents, and that he would go a long way towards reassuring my rail-travelling constituents, of whom I have a large number, if he were to give us some idea how the new policies would address the problems that are caused by the unreliability of services, the problems of signalling failures, which are all too frequent, and the fact that overcrowding is now a characteristic of all too many services on the Carshalton line?

Overcrowding will be dealt with specifically in the franchising director's requirements.

The new regime introduces tough penalties for Railtrack if it fails to provide a path, and for the train operator if it fails to use a path that is made available to it. The new financial regime will provide a strong incentive for punctuality.

I think that everybody who looks at this matter objectively agrees that we are more likely to get the investment that we need if the railways do not operate within the constraints of the public sector, competing against hospitals and schools for investment. The best answer that I can give my hon. Friend is not to tell people, rather to show them by making progress with the policy so that they can judge for themselves the quality of service that can be provided.

How many adequately remunerated lawyers are available to the franchising director and the Department? How in heaven's name did they manage to get it so wrong?

The franchising director was successful on judicial review; Justice Macpherson dismissed the challenge, awarded him costs and refused leave to appeal. Last Friday, the Court of Appeal overturned that decision on what it described twice as a limited legal problem. It also identified at the end of the judgment a possible solution—that the Secretary of State could change the instructions. That is the solution that I have adopted.

As, for the first time, passengers will now have guarantees on services and fares, can my right hon. Friend tell the House how those guarantees will be monitored? Will he continue to drive on in the way he announced, because Conservative Members want to put the passenger first, whereas the Opposition wish to leave left-wing trade unions in control of a nationalised industry?

The House will be refreshed by my hon. Friend's robust common sense.

The franchising director has all the powers that he needs to ensure the guarantees on services and fares. The operator will not be able to increase fares beyond a level approved by the franchising director, and there will be a clear contract outlining the services that the franchise operator has to provide. That will be part of the contract with the franchising director.

Will the Secretary of State admit that one of the key reasons why the exercise of privatisation is taking place is, among other things, to reduce the number of trade union jobs on the railways? Now that he has come up with a new proposal to rewrite the timetables—I presume that there will be fewer trains—how many fewer jobs will there be?

The object of the policy is to get more people to travel on the railways and to improve the quality of service that they receive. I very much hope that the railways of the future will provide good, well-remunerated employment for those who work on them.

I am a regular traveller on the very unsatisfactory London-Tilbury-Southend line, which has problems, including those of this morning. Is my right hon. Friend aware of the great danger that, after privatisation, every time a train is late or a light bulb is not working, privatisation will be blamed? Will he tell the whole story—I am sure that it will be a good one—and publish every three months details of what has happened, such as whether there are more passengers and whether the trains are more punctual? Will he tell the public and the House the whole story about the first lines to be franchised so that the public can see precisely what has happened and whether things are getting better, as I believe they will, or worse?

I recall travelling on that very train service with my hon. Friend three or four years ago, when he took the opportunity to communicate to me some of his views on the Common Market.

I think that there will be intense public interest in the first franchised services when they become operational next spring. I welcome that publicity and am confident that those who win the franchises will respond to it, because they will have the same interest as the Government in showing that the new regime is a better way to meet the needs of the passengers. I welcome all publicity about the progress that will be made as our policy develops.

What confidence can the House and the country have in the Secretary of State's statement that he intends to issue new guidance and instruction, as the previous guidance and instruction was found not to be legal? Surely the door has been opened for an individual to take a passenger service requirement to court. As the Secretary of State knows, the taxpayer is paying £23,000 per day in legal fees alone associated with rail privatisation. Will he tell the House how much last week's legal adventure cost the taxpayer and how much he expects the taxpayer to have to find in the future?

If the hon. Lady tables a detailed question, we will give her the information. I am confident that the action that I have outlined today—a potential solution outlined by the Court of Appeal—is the right way forward, and I believe that it will give a better deal to her constituents who travel by rail. I hope that, at some point, the hon. Lady and her party will come clean on how they would provide the level of investment now envisaged by Railtrack which is over and above that which would have been provided by British Rail.

Is my right hon. Friend aware that, when the privatisation of British Rail was first announced, the Isle of Wight was at the top of the queue? Unfortunately, for reasons that nobody has been able to discern, it is now at the bottom. When my right hon. Friend sends the franchising director instructions, will he tell him where the Isle of Wight is, and remind him that it is the most simple of all privatisations? Can we please get on with it? Everyone on the Isle of Wight is extremely anxious to get the train out of the station and on to the track so as to give a better and more comprehensive service?

I am delighted to hear of the appetite for privatisation among my hon. Friend's constituents. I shall ensure that the franchising director is aware of my hon. Friend's enthusiasm that that particular franchise should be brought forward.

When the Railways Bill was before the House, Ministers repeatedly assured the House that franchised services would be based on the BR timetable. The Secretary of State has now amended that to "broadly similar to". Will he tell the House whether that amendment would increase or reduce the minimum requirement for franchisees?

With specific reference to the east coast service between London and York, will he confirm that the passenger service requirement will allow franchisees to drop the number of weekday trains from 26 to 17 a day? Will his new formulation allow such a large drop? Will he say what will be the minimum number of daily weekday trains between London and York under his new formulation?

It is worth reminding the House that the Select Committee on Transport endorsed the broad approach that the franchising director has adopted in identifying minimum PSRs. The Select Committee stated:

"We also have no objection in principle to the omission of profitable services form PSRs since it would be in franchisees' interests to provide them."

The hon. Gentleman will find some reassurance in my statement because, when awarding future contracts, the franchising director will have regard not just to minimum PSRs but to the totality of services that are offered by those who are bidding for the franchises. It is important for people to understand that minimum PSRs are not the same as timetables. I hope that my statement goes some way towards removing concern.

Does my right hon. Friend agree that the franchising director's announcement later this week for the London-Tilbury-Southend line will enable the successful bidder to state the level of service that is intended? I suspect that it will be far in excess of the minimum PSR. Does my right hon. Friend further agree that the successful bidder will announce the future investment programme which, I suspect, will also be welcome news for my constituents—although Opposition Members who represent the vested interests of the trade unions may not be so happy?

I entirely agree with my hon. Friend. Now that we have resolved the uncertainty, it is important to make progress and to put in the public domain the level of services that are being offered. When that happens, my hon. Friend's constituents will see exactly what is offered by those who have bid for the franchise. I hope that the franchising director will soon award the LTS Rail contract.

Does the Secretary of State agree that Doncaster is a major station on the east coast main line? At the moment, 33 northbound and 32 southbound trains stop at Doncaster, but there is increasing speculation that in April 1996 that number will be significantly reduced. In the light of last week's Appeal Court judgment, will the Secretary of State guarantee that those services will not be reduced?

The hon. Gentleman is making the mistake, to which I referred a few moments ago, of assuming that the minimum PSR equals the timetable. The Select Committee has made it quite clear that it is legitimate to specify the loss-making services. The franchise operator has an incentive to provide the profitable services. There is no advantage in ossifying the timetable by specifying it in advance and giving a franchise operator no freedom or flexibility to grow the market and respond to it. If the hon. Gentleman is patient he will see that his fears about dramatically reduced services are unfounded.

Does my right hon. Friend understand that his best Christmas present to the people of Worcestershire would be to put all the pressure that he can on the franchising director to ensure that the franchise for the Great Western main line service is announced this week? Does he understand my enthusiasm for winning for my constituents the improved services that franchising will bring and for the first ever guarantees of express trains between Worcester, Evesham and London since the Oxford, Worcester and Wolverhampton railway began services in, I think, 1853?

I welcome my hon. Friend's enthusiasm and I share his hope that we may be able to make progress with the Great Western railway in the near future. I think that we shall see franchisees offering services above the PSRs and, of course, they will have incentives to attract more passengers to their trains. We want to reverse the historic decline in the use of the railways. The structure that we are promoting is the right one to do that.

If the Isle of Wight is at the bottom of the list, will the Secretary of State put Lancashire and the north-west there instead, because that would certainly be welcome? Despite what the right hon. Gentleman says about PSRs, people believe that they will lead to a reduction in service provision. Will he guarantee that those who win the franchises will not be able to come back at a later date and ask for a reduction and a renegotiation of their seven-year contracts?

They will have seven-year contracts with the franchising director. I invite the hon. Gentleman to wait. I hope that, within a few days, he will see for himself whether those who win the franchises offer services above the PSR—as I believe will be the case. The hon. Gentleman will also see whether they offer better services than British Rail. When that information is in the public domain, people will be able to judge for themselves whether our rhetoric or that of the Opposition is correct.

Does the Secretary of State recall that, the last time a group of his hon. Friends rebelled on these issues, the Secretary of State gave commitments, one of which has been mentioned today, on the retention of timetables and the stability of fares, and about British Rail being allowed to bid for franchises? Is not it true that all the proposals have been watered down, that the Secretary of State is not honouring any of the commitments and that, overall, he will create a weaker service in the long run?

I am not aware of having broken any undertakings given by any of my predecessors. I have developed a policy that was worked on by a number of Secretaries of State and I have taken it forward. I hope to have the good fortune to be Secretary of State while the benefits of the policy come into the public domain.

Does the Secretary of State accept that, on the first three franchises, he got off on a technicality? As he has announced that the PSRs for the franchises that he is holding back will be "broadly similar" to the current timetable, has not he now established a two-tier franchise, with the first three franchisees being penalised far more than the others? In relation to the Great Western PSR, there is a 100 per cent. cut to the existing timetable, and the line between Swansea and Paddington has had, on average, a 20 per cent. cut. Are those timetables "broadly similar"?

If the hon. Gentleman looks at the Appeal Court judgment he will find a response to his question about GWR.

It is a technicality.

The hon. Gentleman speaks about a technicality, but the Court of Appeal spoke about a "limited legal problem". It stated:

"We confine our attention to the much more limited legal problem defined above. In approaching that limited legal problem the court must steer very well clear of any involvement in making or evaluating substantive decisions."

The answer to the hon. Gentleman's question is that, if these matters reach the public domain, he will see for himself whether GWR plans to provide the basic minimum or whether it plans to provide much more than that. If we can make progress, the answer to the hon. Gentleman's question will shortly be in the public domain.

The Secretary of State drew great comfort from the court's finding one aspect or another of his policy not to be irrational. Does he see that it would be wholly irrational for the rest of the country to be served by franchise holders who guaranteed to provide services that were equivalent to the old BR timetable while those who served the south-west were at liberty to reduce them considerably? If the much-derided British Rail is capable of providing 14 services a day form Taunton to London, why should the new franchise holder be asked to guarantee to provide only eight? Will the Secretary of State make it a matter of policy to put the south-west on the same footing as the rest of the country regardless of whether there is a technical hitch with that part of the court case?

If the hon. Gentleman waits he will see whether South West Trains or Great Western Railways are putting in only the minimum PSR. If, as I expect, they put in more than that, the hon. Gentleman's question falls.

The Secretary of State's quite extraordinary inability to answer the questions asked by my hon. Friends the Members for York (Mr. Bayley), for Doncaster, North (Mr. Hughes) and for Pembroke (Mr. Ainger) and by the hon. Member for North Devon (Mr. Harvey) reveals the fraudulence of his statement. Does he not understand that the courts have told him that it is unlawful to propose passenger service requirements that are 20, 30, 50 or 100 per cent. below the existing timetable? He cannot tell the House that the import of his new guidelines is that it will be impossible to present passenger service requirements at the same unsatisfactory levels. Will he answer my hon. Friends' question about whether the door is still open for the kind of passenger service requirement that the courts were concerned with? Will he recognise that this will be remembered as the day that the passenger service requirement was redefined as a "core service level"—three weasel words that will be understood throughout the country even if they are not understood by the right hon. Gentleman's Back Benchers.

The Secretary of State also evaded the question asked by my hon. Friend the Member for Burnley (Mr. Pike). Will he say clearly whether, when the ballyhoo about the franchises has died down, it will be open to franchisees to come back and demand either a reduction in service or more money from the franchising director as long at the Tories are in office?