HC Deb 23 November 1956 vol 560 cc2083-8

Motion made, and Question proposed, That the Clause stand part of the Bill.

11.6 a.m.

Mr. F. Beswick (Uxbridge)

I have one or two questions I should like to put on this Clause, Sir Charles. On Second Reading, the Parliamentary Secretary said, in connection with the sum of money referred to in the Clause: Each Corporation's borrowing requirement is a net figure obtained by deducting from estimated total capital expenditure the sum which it should itself raise internally".—[OFFICIAL REPORT, 19th November, 1956; Vol. 560, c. 1390.] This would appear, really, to beg the question which we put to him, namely, how was the estimated total capital expenditure arrived at? As my right hon. Friend the Member for Vauxhall (Mr. G. R. Strauss) said on Second Reading, this figure ought to bear some relationship to the estimated total revenue of the Corporations in five years' time, and we are wondering whether the Minister has, in fact, arrived at such an estimate, and if he has, whether he would be good enough to tell us what that figure is.

Moreover, if he has an estimate of the revenue which it is expected will be received in about five years' time, I should have thought that he would have some clearer idea as to the routes from which the revenue would be collected. In that connection, of course, I am thinking of the South American service. Incidentally, I hope the Minister will not allow himself to be put off too readily by the statement that the South American service has never shown a profit.

I am not sure that that is absolutely accurate if one goes back to 1946. The returns were complicated by the mid-Atlantic route which, I think, was probably lumped in with the South American service; and, in any case, if that argument had been adopted, we should not now be running a service over the North Atlantic to the United States because, over the same period, I think it is very doubtful whether that service actually showed a profit.

The question I ask, therefore, is this: may we be told whether there is a figure of estimated total revenue in about five years' time, and, if so, how are the figures arrived at? The resultant figure was reached after deducting the amount which it was estimated would be forthcoming from internal finances. May we be told how that figure is arrived at? Is this to be from obsolescence account, or is it estimated that a great part of it will result from the surpluses at the end of the year's trading? Could the Minister give us some indication as to how he reached the figure of money which will be forthcoming from internal financing?

I would remind the right hon. Gentleman, that he did tell us a little time ago that he was asking the Corporations to come to some common policy in connection with the writing off of aircraft. I am wondering whether he has made any progress in that direction, and if so, whether he can tell us what the policy is now to be.

Next, a question arises under the system which will be operating over the next two years, under the direction included in the last Finance Act, in accordance with which the Corporations, like all other nationalised bodies, will go to the Treasury for their borrowing requirements. At the end of the year, there will be a total sum of money outstanding. Part of that may well be a deficit as a result of the year's trading. The remainder will be money borrowed to purchase capital equipment, namely, aircraft. I imagine that the outstanding sum at the end of the year will be divided; part of it will be a temporary loan, and the remainder a permanent loan.

What will be the nature of this permanent loan? Will it be funded into some airways stock with a date? If so, what sort of date has the Minister in mind? What will be the rate of interest payable on such a loan? These are the questions which we have in mind. If the Minister can help us with some answers, we shall be able to make some progress.

The Minister of Transport and Civil Aviation (Mr. Harold Watkinson)

I will certainly respond to what the hon. Member for Uxbridge (Mr. Beswick) has just said, and try to give the House, quite shortly, the various facts for which he has asked.

First, there is the question of the Corporations' revenue. Of course, we have formed an estimate of what their revenue is likely to be, not only over the next five years but as far as we can see over about the next eight or nine years, which is really the period of which we are thinking in buying aircraft. Why I did not give these figures to the House, and why I must say that I think that I should, in the interests of the Corporations, give them now with considerable reserve, is that they must only be an estimate.

For instance, the hon. Member knows the changes that are to come in relation to fares. We cannot possibly compute how those changes will affect revenue until we know what the fare structure is likely to be. Therefore, these figures are, of necessity, based on the current fares and, of course, on the estimated traffic on the graphs which both Corporations keep of traffic expansion.

On that basis, B.O.A.C.'s revenue is expected to grow two and a half times in the next five years, that is to say, from £42 million to £105 million. It will grow three times by 1963–64. B.E.A. is not quite so good. In the next five years it anticipates that its revenue will grow only twice, that is, from £21 million to £45 million; but it will, again, grow about three times over the period from 1955–56 to 1963–64.

Those are very conservative estimates, as they should be, and they are only an approximation. It would be most unwise, I think, for the House or for anyone else to read into that some accurate presentation of what exactly the Corporations will be doing in those years. It is the best guess that the Corporations can make. I hope, myself, that they will do much better, but it would be most unwise for us to base this sort of estimate on anything but the lowest fair assumptions.

The hon. Gentleman's second point concerned make-up of the internal financing. The answer is that B.O.A.C.'s internal financing over the next five years amounts to £47 million, which is made up of obsolescence and depreciation, £31 million; and disposal of aircraft, £16 million. B.E.A.'s internal financing is made up of obsolescence and depreciation, £22¼ million; disposal of aircraft, £3 million; and surplus on revenue account, £¾ million.

As, I think, the hon. Member knows, the stock issues of both Corporations are detailed, in their accounts—B.O.A.C.'s, in page 49, and B.E.A.'s, in page 78. The Corporations do not require to redeem any of their stock before the prescribed date, and the stock regulations require them to set aside certain sums each year for the redemption of stock. The amounts standing to the credit of the redemption funds may be applied to redeeming the stock according to the terms of issue, to purchasing and extinguishing stock, or to investing in statutory securities. B.O.A.C. has regularly used the moneys placed to the credit of the redemption fund in purchasing and extinguishing stock. On the other hand, B.E.A. has temporarily used the money for the purposes of its business.

11.15 a.m.

As to how the borrowing of Exchequer advances is to be funded, the position is that at the end of each financial year the sums advanced in the year at the same rate of interest will be consolidated, and repayment of the consolidated sums will then be made by equal instalments of principal, yearly or half-yearly at the option of the borrower, over a period of seven years.

Finally, the hon. Gentleman asked about the common policy for writing-off aircraft. The Corporations have not yet agreed a common policy with their auditors—it is not a very easy thing to do—but what I hope they will do, and, I think, are agreed in wishing to do it, is to set a fixed term of years—a normal commercial practice—rather than to have the somewhat complicated principles now being adopted such as writing-off tenths or twentieths of aircraft.

I hope that with that explanation the Committee will pass this Clause.

Mr. G. R. Strauss (Vauxhall)

May I ask the Minister to explain a little more fully the writing-off policy of which he has spoken? I was not quite clear how far he had got. The present arrangement seems quite ridiculous to the layman like myself, who does not understand a great deal of these matters. It seems ridiculous in the first year to write off practically nothing, in the second year a little more and, at the end of five years, to write off about 50 per cent. I think that that is a wrong principle.

I think that the Minister is asking the Corporations now to try to get a uniform policy in both cases, which will be more sensible and defensible, but this matter has ben going on for a very long time. It was raised a long time ago, particularly by my hon. Friend the Member for Uxbridge (Mr. Beswick). I wonder how far the right hon. Gentleman has gone, and whether we can know within the next month or two that a policy has been agreed and that it will be the same policy for both Corporations?

Mr. Watkinson

The right hon. Gentleman is absolutely right. The present position is not easy to understand and is, I think, generally wrong. B.E.A. has made a start, and some of its later aircraft will be written off in seven years. That is the sort of term of years—without committing the Corporations to that term of years—that I should like to see adopted by both Corporations. On the other matter, I certainly hope that it will be within the next month or two that agreement will be reached.

Mr. Strauss

And the policy will be the same for both Corporations?

Mr. Watkinson

Yes, Sir.

Question put and agreed to.

Clause ordered to stand part of the Bill.

Clause 2 ordered to stand part of the Bill.

Bill reported, without Amendment; read the Third time and passed.