AIR CORPORATIONS BILL

HC Deb 24 April 1969 vol 782 cc684-741

4.26 p.m.

Order for Second Reading read.

The Minister of State, Board of Trade (Mr. William Rodgers)

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

The Bill will, I believe, be welcomed by the House because it will give B.E.A.—Britain's leading airline and flag carrier in Europe—the opportunity to face the future on a sound financial footing. It implements the Government's pledge of 2nd August, 1966—the "Mulley pledge", as it has become known—when the then Minister of Aviation told the House that B.E.A. would re-equip with British aircraft instead of the American alternatives it would have preferred. At that time the Minister said that the Government would take steps to ensure that B.E.A. is able to operate as a fully commercial undertaking with the fleet it acquires."—[OFFICIAL REPORT, 2nd August, 1966; Vol. 733, c. 261.] The events giving rise to the pledge underline the continuing problem of the relationship between Government—any Government—and the nationalised industries, bearing in mind, on one hand, the Government's responsibilities for the economy as a whole and, on the other, the prime need of the industries to be allowed to operate commercially, free from day-to-day intervention. Government policy and the affairs of B.E.A. interact in various ways, including the Government's concern with the well-being of the aircraft industry as well as the operators and with the balance of payments.

The State has a major interest, as owner and banker, in the nationalised airlines conducting their affairs as fully commercial undertakings able to compete with foreign airlines on equal terms. I am sure that this aim is common to us all. But in the last resort the Government, with the agreement of the House, must reserve the right to decide whether broader objectives outweigh the commercial considerations which should normally guide B.E.A. As the Select Committee on Nationalised Industries said in its Report of 1967 on B.E.A.: In so far as the Government's choice of aircraft to be developed is influenced by considerations of international co-operation and of dollar-saving and equalising the work load on the industry, your Committee accept that the interests of Government policy override B.E.A.'s interests …". The problem, then, is this. How can we reconcile the consequences of proper Government intervention, particularly over re-equipment, with full commercial responsibility for B.E.A. at all other times?

It may be helpful if I briefly recall the circumstances leading to the present situation. In June, 1966 B.E.A. proposed to re-equip with a fleet of 23 Boeing 737s and 18 Boeing 727s. This was the fleet composition of B.E.A.'s choice based on its commercial judgment. It would have been failing in its responsibilities if it had not made clear the best way in which it judged that its needs could be met. I am sure again that there can be no quarrel with this. But B.E.A. was not allowed to buy the aircraft of its choice. The Government took the view that it should continue to fly British. This decision was welcomed by both sides of the House. Accordingly, Government approval for B.E.A.'s proposal to purchase 18 BAC 1–11/500s, with an option on a further six, was announced by my right hon. Friend's predecessor in a statement to the House on 16th December, 1966.

For the second and major part of its re-equipment, B.E.A. asked in February, 1967 for approval to buy 30 BAC 2-11s, with an option for a further ten. Hon. Gentlemen will recall that the position was complicated by the tripartite agreement with the French and Germans to build a European airbus using Rolls-Royce's RB207 new technology engine; and also by the concurrent efforts by Rolls-Royce to secure American orders for the RB2-11 engine, which was also the designated power unit for the BAC 2–11. However, after thoroughly examining B.E.A.'s proposal, the Government decided that the BAC 2–11 could not be supported, since there did not appear sufficient justification for the investment required for launching aid.

Instead, B.E.A. was told that the Government were prepared to meet a share of the launching costs for the Trident 3B and to approve its purchase should B.E.A. decide to buy it. B.E.A. accordingly proposed a purchase of 26 Trident 3Bs, with an option for a further ten, subject to fulfilment of the 1966 pledge. My right hon. Friend gave approval in principle to the purchase on 13th March last year.

I must make quite clear that the assistance provided by the Bill is not a subsidy for operating British aircraft. The aircraft B.E.A. has chosen—the BAC 1–11 certainly and the Trident 3B, we hope—are fine examples of what the industry can do. Let there be no doubt about that: they are planes of which British industry, and Britain, can be proud. The BAC 1-11s already in service are proving attractive to European passengers, and I am confident that both British jets will prove profitable to B.E.A., once maximum utilisation has been achieved. But—and this is the crux of the matter—it will take some time before this can happen: and whereas the Trident 3B cannot come into service before the 1971 summer season, the American aircraft of B.E.A.'s choice would already be coming into service now. The Boeings are also established aircraft which could probably have given B.E.A. a high rate of utilisation from the outset. In addition, some of their operating characteristics, and also their size, would have allowed a pattern of operations more suitable for B.E.A.'s own particular network. This is no reflection on the British aircraft but a plain statement of fact about needs and means in the highly complex and very competitive airline industry. I should perhaps add that the independents are always free to buy what they want where they can get it to meet their own particular operational needs, which are not necessarily the same as B.E.A.'s.

As the House knows, the Edwards Committee's Report is to be published shortly. My right hon. Friend has already received it. The Committee has assumed that the Government will implement their promise to give B.E.A. the opportunity of operating commercially; and nothing in the Report casts any doubt on the desirability of doing so. There can thus be no controversy about the wisdom of, or need for, implementing the Government's pledge at this stage.

The financial settlement we reached with B.E.A., which is embodied in this Bill, was outlined in my right hon. Friend's statement to the House on 10th July last. We are reducing the capital liabilities of B.E.A. by some £25 million with effect from 1st April, 1968, and are providing for this sum to be carried to a special account from which sums will be credited to B.E.A's revenue accounts in predetermined instalments over the four years from 1968–69 to 1971–72.

There is also provision, should this be needed, and subject to the approval of the House, to convert a further tranche of borrowings of up to £12½ million into a special account on 1st April, 1972, to support B.E.A.'s revenue accounts over the three years 1972–73 to 1974–75.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

What could the second tranche of £12½ million be needed for? Presumably, the costs of the introduction of the Trident have already been assessed and added. What is the need for a possible further £12½ million at some stage in future?

Mr. Rodgers

I hope I shall answer the hon. Gentleman during my speech, but if not I will try to give him more detailed information when I reply to the debate.

At the same time, we seek power to introduce an element of public dividend capital into B.E.A.'s capital structure on or after 1st April, 1972. Finally—and this is important—the Bill provides that the Government should have the power from 1st April, 1972, to require B.E.A. to surrender any sums in reserves which appear surplus to requirements or to convert such sums into interest-bearing redeemable loan capital.

We reached agreement with B.E.A. on this form of assistance because it is consistent with the concept of B.E.A. as a commercial undertaking—in contrast to a morale-sapping general subsidy. It achieves the underlying aim of avoiding an accumulation of substantial losses; it can be readily identifiable in B.E.A's accounts and involves no fresh outlay of Government funds. Instead the National Loans Fund forgoes interest on and redemption of the loans involved.

We decided that the course consistent with the pledge was to assess the amount needed to give B.E.A. the opportunity of achieving profit margins, after payment of interest charges, sufficient to allow modest appropriations to reserves. B.E.A.'s forecasts over a ten-year period were the basis for this calculation. These showed a prospect of continuing losses until 1974–75 with profits thereafter which we considered to be adequate for commercial viability.

Mr. Cranley Onslow (Woking)

When were these forecasts formulated?

Mr. Rodgers

I like to give way to help hon. Members, but I shall cover that point in my speech as well.

We were conscious of the special difficulty of forecasting in the airline operating business, which is prone to unpredictable troughs and peaks owing to vulnerability to political and economic developments in the international market it serves. The fallibility of forecasting is not peculiar to B.E.A. I noticed, for example, in Flight for 26th December last that B.U.A. was able to forecast a profit for the year 1968 and a larger one for 1969, whereas a year previously it had been expecting losses of over £1 million in each year. However, on all the information available at the time, we assessed £35 million as the amount required to afford B.E.A. the opportunity of achieving the profit margins I have indicated.

In view of the inherent uncertainties in forecasting so far ahead, the Government decided that the figure of £35 million should be divided into two tranches; £25 million to cover the period until 1971–72 and up to £12½ million—the additional £2½ million being in recognition that B.E.A. will be paying interest on the second tranche from April 1968 until April 1972—to cover the following three years if these should turn out to be necessary. Waiver of interest on these sums amounts in a full year to £1.4 million on £25 million, rising to £2.1 million if the second tranche is required.

The scheme allows for incentives to B.E.A. to improve on its forecast results. In the first place, the transfers from special account to revenue accounts will be pre-determined. The instalments have been agreed with B.E.A. and they are £5 million in 1968–69, £4 million in 1969–70 and £8 million in each of the last two years. If B.E.A. achieves better results than forecast, these transfers will not be reduced on this account. Instead, B.E.A.'s reserves will benefit.

Secondly, Sir Anthony Milward has accepted the challenge of so improving over forecast during the first four year period as to be able to manage without the second tranche of assistance. If B.E.A. succeeds in attaining this objective, the Government have undertaken to consider the possibility on or after 1st April, 1972, of giving it some public dividend capital. This will depend on B.E.A.'s financial prospects at the time and on the outcome of the experiment with B.O.A.C.

The Bill also provides for some recompense to the State if B.E.A.'s future fortunes should justify it, in that, on or after 1st April, 1972, the Government can require B.E.A. to surrender any sums in reserves which appear surplus to its requirements or to convert such sums into interest-bearing redeemable loan capital. This is the provision for "clawing back".

I am glad to say—and I hope that the House will be pleased too—that, since the settlement was announced nearly a year ago, B.E.A.'s financial results and prospects have somewhat improved. The accounts for 1968–69 have not yet been finalised or audited but B.E.A. tells me that provisional figures indicate that the profit for the year, after crediting £5 million from the special account and after allowing for some additional provision for depreciating aircraft shortly to be phased out of service, could amount to some £3 million. This is an improvement of rather more than £1 million over the out-turn assumed last year and the outlook for the next few years also looks more promising.

This can be largely attributed to an improving rate of traffic growth for operators generally—one example has been a higher level of holiday traffic, helped by the experimental winter tariff. B.E.A. has secured a share of this growing market. Its management effort will continue to be directed towards attracting more traffic, reducing costs and increasing productivity.

But I am certain—and I emphasise this—that this more encouraging trend is no reason for going back on our promise of last July to give assistance as provided in the Bill on the strength of which B.E.A. placed its order for Trident 3Bs. B.E.A.'s objective of managing without the second tranche could not be achieved without improving on last year's forecasts, and for the first year of the period they seem to have moved towards attaining the required measure of improvement. As I say, the prospect is better but forecasting remains an art, not a science. We cannot be quite sure which way the cookie will crumble.

But one consequence of this improvement in prospects is that we have been able to set a financial objective, in agreement with B.E.A., at a higher level than would otherwise have been reasonable a year ago. On the basis of current expectations and the present organisation of the industry, we and B.E.A. believe that it should be possible for the Corporation to achieve an average of 8 per cent., after aid but before charging interest on borrowings, on net assets over the four-year period 1968–69 to 1971–72. It seems likely that the return in 1968–69 will turn out to be somewhere in the region of 5 per cent., so the House will appreciate that B.E.A. will need to do well over the next three years if it is to succeed in raising the average to 8 per cent. over the period as a whole. This 8 per cent. target, which is rather higher than B.E.A.'s current estimates indicate, is consistent with the Select Committe's views on the financial objective as a realistic assessment of what a nationalised industry can be expected to achieve, assuming that appropriate investment and pricing policies are pursued with maximum efficiency. We have agreed with B.E.A. that we should jointly review the 8 per cent. figure in a year's time to see if a change should be made in the light of the out-turn of this year's operations and any decisions following the Edwards Report.

There are two more provisions in the Bill to which I should refer. The first relates to B.E.A.'s borrowing powers. At this time last year, my right hon. Friend introduced a Bill, now the Air Corporations Act, 1968, to increase B.E.A.'s borrowing limits to £210 million, rising, subject to the approval of the House, to £240 million; and to confer on B.E.A. the power to borrow within these limits, and the Board of Trade to lend, sums required for financing any deficit on revenue account up to £10 million accumulated by March, 1970.

This deficit financing power was precautionary and has not been used. With the financial assistance granted under the Bill, the power will no longer be required and is consequently repealed. B.E.A.'s borrowing limits are reduced by the same amount to £200 million and £230 million respectively and these limits are expected to be sufficient to meet B.E.A.'s requirements to the end of 1973, taking account of the fact that their existing level of borrowing against these limits is reduced by the Bill.

The second provision is intended to bring both B.O.A.C. and B.E.A. into line with other nationalised industries by empowering the Board of Trade to require their Board members to disclose any financial or other interest likely to affect their functions as Board members. This provision should, I believe, be particularly non-controversial.

Mr. Hugh Jenkins (Putney)

Would I be right in thinking that this provision does not apply to the British Airports Authority, and should it not apply, having regard, for example, to the longstanding connection between the Chairman of that Authority and Beagle Aircraft Corporation, for example?

Mr. Rodgers

That is quite a different question. The Bill involves B.E.A. and I regret that my hon. Friend has used the opportunity to make remarks which I think are inappropriate to the Bill but which I should be very glad to deal with on a future occasion. Although it would be unfair for any implications to be attributed to what my hon. Friend said, he will appreciate that now is not the time to debate Mr. Peter Masefield. Although that second additional provision may not entirely satisfy my hon. Friend, I think that it will be acceptable to the House as a whole.

The objectives of the Bill are, I believe shared by the whole House and its terms follow my right hon. Friend's Statement of July last, which was welcomed. If there are any further points on the Bill, I will do my best to answer them at the end of the debate. Meanwhile, I commend the Bill to the House.

4.46 p.m.

Mr. Cranley Onslow (Woking)

The last time we debated B.E.A. was almost exactly a year ago, when the Minister's predecessor said: Obviously Parliament will not wish to have presented to it a series of civil aviation measures, each modifying the previous one."—[OFFICIAL REPORT, 4th April, 1968; Vol. 762, c. 700.] To the extent to which the present Bill removes that need, we must certainly welcome it. It is not a controversial Bill, although we may have some reservations about its timing. After all, we have had to wait nine months for it since the President of the Board of Trade made his statement on 10th July. This may be the normal striking pace of this Government, but it is a long time.

It is a shame, however, that it could not have been just one week more, since then we would have had the advantage of having the Report of the Edwards Committee, which I understand is due for publication on Monday. Why this timing has been forced upon us I do not know. It may be that the organisational genius of the Leader of the House has contrived this situation, but one must also remember, I suppose, that, originally, it was forecast that the Edwards Committee's Report would be available in the spring of 1968.

In one sense, the Bill is still something of a stop gap Measure. Although it finally disposes of the consequences of decisions, dating back to August, 1966, that B.E.A. should not purchase American aircraft, which were welcomed by the whole House at the time, a good deal remains uncertain—not simply the effects of the Edwards Committee's Report and subsequent legislation on the future structure of B.E.A., but also the extent to which all the powers which the Bill provides may ultimately prove necessary.

The Minister said that there was considerable room for reconsideration of past forecasts in this respect. We may well want to consider this in Committee. After all, we know that there must be at some time in the next two years, one trusts at least, a major civil aviation Bill to cover the whole field, although I doubt whether it will fall to the present team to introduce it. It is of some advantage that we have been obliged to wait, because it should enable us better to test, in the light of experience, the validity of the forecasts on which the Bill's calculations are based. It looks as though we may hope to discover in Committee from the Minister that some of the forecasts which were made pessimistically have been improved upon with the performance of the past year.

The prospects of B.E.A. have altered in the past year. The likely original loss for 1968–69 seems to have been reduced by about £1 million, which is a considerable achievement. It is particularly noteworthy in the context of remarks by Sir Anthony Milward in the B.E.A. newsletter on 1st January, 1969. Speaking of 1968, he said: In retrospect, the year proved a better one than was at one time feared. In the light of some of the "difficulties, disappointments and disasters" which befell B.E.A. in 1968, one is bound to express one's gratitude that such a good result has ultimately been achieved. Sir Anthony mentions the decision not to proceed with the BAC 2–11, the increased landing fees at Heathrow, the crash at Heathrow which deprived B.E.A. of two of its Tridents at the peak of the season, the "miserable restrictive" travel allowance, the strike in France, the industrial troubles at Abbots-inch and the "valuable planning time" taken up by the European air bus negotiations which produced no result except that the future of the BAC 3–11 now looks "considerably brighter".

As I said, we shall need to test the calculations in Committee. However well they may have been worked out by the Board of Trade and B.E.A. together, Parliament still has a right to be informed and a duty to insist on information before approving the expenditure of public money.

In that context, I would remind the Mininister of the exchange that I had with him at Question Time on 11th December last, concerning the basis of the calculation. I asked him whether he agreed that Parliament was entitled to ask for the necessary explanation and that the necessary explanation would be given. The somewhat eliptic answer that he gave was that he was sure that Parliament was entitled to ask for the information. Perhaps it was accidental, but he did not say that the necessary information would, of course, be given. When we come to the Committee stage, I hope that we can go some way to satisfying the legitimate requirements of Parliament on this issue. I have no desire to insist upon the publication of information which would put B.E.A. at a disadvantage in its operations in terms of its competitors. It would be no wish of mine to try to drag out of anyone information which would do B.E.A. damage. However, this is an issue upon which the members of the Committee should be informed and, if it cannot be done in the conventional process of exchange across the Floor of the Committee, I still hope that a way round this difficulty will be found.

The Committee will also want to know what have been the detrimental effects of the past year and what are the prospects of the coming year for B.E.A. It now faces unexpectedly increased costs in certain areas. Increased air navigation service fees have been announced and are the subject of a Prayer which I hope that we shall come to in due course. I will not enlarge upon it at the moment, except to say that the result will be that a good deal of money will have to be spent by B.E.A. which it could not have budgeted for originally. No doubt there are other effects of the latest Budget, including the prospective increases in National Insurance contributions, which will put additional burdens on the operation of the Corporation.

Another offsetting factor about which we would like some information is how the aircraft coming into service with B.E.A. are performing. I am thinking of the Trident 2, for example, which has been in service for almost exactly a year—the first was delivered, I think, in April, 1968. It could not have had its performance taken into account in the forecasts made except on a purely guesswork basis. I want to ask the Minister if he has any reason to suppose that the original forecasts of the operating performance and passenger appeal of the Trident 2 were again pessimistic ones. We remember with some distress the way in which the attractions of the VC10 were written down by B.O.A.C., the pesimistic forecasts of its profitability that were pat about the world and the resulting damage to the manufacturing industry. We should not do the industry any service by ignoring the possibility that, in operation, the Trident 2 may prove to be a much more attractive aircraft than cautious forecasts originally suggested.

Such inquiries as I have made lead me to suggest that it is drawing in a considerably higher load factor than originally estimated. If we ignore that, we are not just ignoring a fairly vital part of the whole equation but playing down the value of the products of the British manufacturing industry in not going out of our way to establish where they beat their specifications and forecast performances. In due course, if the Trident 3 also provides a bonus in this way, we should be prepared to recognise it when it comes and to consider how far the calculations in this Bill can be revised in terms of the second tranche of £12½ million. By the time that consideration of the payment of that tranche comes due, I hope that we may be able to say that nothing like £12½ million will be required.

I want now to refer to some other aspects of B.E.A.'s operations. I have no intention, Mr. Speaker, of testing your generosity by seeing how far we can range over the whole of aviation. I think that we were taken by surprise on the last occasion when the President of the Board of Trade launched us on a major civil aviation debate when most of us expected to be talking only about B.E.A. The debate may widen itself, but I do not seek to extend the bounds of order.

There are some matters concerning B.E.A. about which the House could usefully be informed. One is the status and profitability of its two subsidiary companies. I refer to the two wholly-owned subsidiaries of British Air Services Limited, in which B.E.A. holds 70 per cent. of the capital. They are B.K.S. and Cambrian. I do not know how they are going. I do not know whether they have any future aircraft equipment plans. I hope that they are not thinking of buying American aircraft. The House will welcome any more information about them when the Minister comes to wind up the debate.

It will also welcome information on the extent to which B.E.A. contemplates using its resources over the next few years to invest directly or indirectly in the hotel business in this country. The Minister spoke of B.E.A. having the opportunity to put certain sums into reserve. It was not clear whether he meant that B.E.A. could make use of those sums not to increase its reserves but to increase its capital investment in other areas of activity.

Mr. Ian Mikardo (Poplar)

It would be a good idea.

Mr. Onslow

The hon. Member for Poplar (Mr. Mikardo), who is always anxious to diversify public corporations, says that it would be a good idea. I would be delighted to have a long doctrinaire debate with him about that, but I will not detain the House now.

In the context of this Bill and the arithmetic in it, we had better know what plans B.E.A. is committed to or is considering in terms of investment in the hotel industry. I would not promise those plans the uncritical and cordial welcome that the hon. Member for Poplar would accord them in his capacity as Chairman of the Select Committee on Nationalised Industries.

Another important aspect of B.E.A's operations is the Highlands and Islands service. I understand that it is a point on which the Edwards Committee has been asked to report. In view of that, it is perhaps premature to say anything much about it now, but when we are considering B.E.A's finances over the next few years, I think that we ought to consider whether this service, with its strong element of social need, can be justified on the present financial basis. Should it not be treated on a par with other transport services where there is a direct subsidy accruing to the operator concerned? This has always been treated as difficult, if not impossible, in the past, partly because of the obstacles to isolating the costs of the operation. The fact that B.E.A. has now established a separate Scottish division may make the accounting process somewhat easier. Certainly I feel that we ought to ask ourselves, if there has to be some element of subsidy in the operation of the service, whether it is wholly appropriate that it should come from B.E.A's passengers on other more profitable routes.

Then there is the position in relation to borrowing abroad. I understand that B.E.A., like B.O.A.C., has moved into a policy, no doubt with Government approval, of financing some of its needs by raising loans on foreign markets. It seems to me that we ought to have an opportunity to examine the effects of this, if nothing else. Where this happens, we are to an extent pre-empting future foreign exchange earnings and mortgaging future sterling balances. I am not sure that I am convinced it is a wholly good idea to be doing it, nor do I know how far the Government intend that financing of this kind should go.

B.E.A. has also announced plans to set up a separate charter company. I do not know that this is necessarily the best thing. No doubt we shall be able to test it in due course against the recommendations and findings of the Edwards Committee, although one of the few leaks which has come from Edwards suggests that the Report will not necessarily favour this operation.

I turn now to the question of other capital investment in necessary services, particularly investment in the cargo terminal being put up jointly with B.O.A.C. at Heathrow. I saw it with other colleagues the other day. It is a highly sophisticated and necessary piece of equipment which amounts to a real recognition of the growing importance of air freight in the air transport business. It is highly capital-intensive, but at the same time it brings out a peculiar problem in modern industrial relations. It looks to me as if the few men who will be employed in operating that cargo terminal will have great industrial power in their hands. It looks as if here, once more, we are having a new nerve point created in the economy where irresponsible industrial action can deliver a sort of karate chop to society. Industrial relations in B.E.A. are not bad. I had better not say more, because it might have the wrong effect. But certainly their record in the past has not been amongst the worst in British industry.

To digress for a moment, may I say, in the presence of the Chairman of the Select Committee on Nationalised Industries that, as an ordinary member of this House, it seems to me that there is a case for that Committee considering the state of labour relations in the nationalised air corporations. If it could do this, it should have the effect of adding to the status of Parliament and proving the flexibility of the Committee. I think that it would also produce a kind of informed report, which is extremely difficult for the House and the public to obtain by any other means. Happily there appears to be no immediate crisis in either B.O.A.C. or B.E.A., but it may be that this would make such a course of action the more appropriate at this stage. I merely throw out that suggestion as an ordinary member of this House, in the hope that, the members of that Committee will give it some consideration.

Turning to the longer term re-equipment problem of B.E.A., which must be very much in our minds, I do not think that I can say that the Government have been wrong in the way that they have handled the questions which have so far come before them on the airbus or the BAC311. I am not sure that they have been right on purpose. I have a feeling that some of the skill we can detect in retrospect may have been inadvertent unless they were quite Machiavellian in their insistence on getting 75 orders for the airbus by last July, which everyone knew to be impossible, and unless they foresaw the possibility that the RB207 engine could never be built by Rolls-Royce because the resources involved would not be available if their hopes for the R B211 bore fruit. Whether they have avoided error on purpose or by accident we are in a situation where the important and correct decision still remains open to be taken.

I think that we must express it in this way. The apparent willingness of the French and Germans to continue with the A300B makes it clear that this is a politically motivated aeroplane. As such, it is not one that should interest us. We ought to be thinking of commercial and internationally competitive aeroplanes for our industry to build.

The BAC311 still shows every sign of being just that, particularly when we take into account the balance of payments burdens which would be involved in massive purchases of American aircraft which have already and rightly, proved so objectionable to the Government. We are, of course considering a Bill today which arises from a similar danger. I hope that we shall see Government interest in the BAC311 continue. I hope that we shall not see the dead hand of the Treasury economisers fall on the project. I believe that this aircraft offers great potential and the only real prospect of continuing the situation where B.E.A. flies British right through to the end of the 1970s.

The aviation industry is, we must all hope, expanding. As a nation, we ought to be aiming to increase the British share of this major international activity and to derive increasing profits from it. When Edwards reports next week I hope we shall find his committee has had the courage to diverge a little from its somewhat negative and introspective terms of reference. Looking back now we can see that they would have been much improved had they had words included, "To maintain and, indeed, to increase the British share of the international aviation market." But to do this we have to be sure that the capital will be there. When we consider the longer term effects of the Bill we must satisfy ourselves whether the proposals for Treasury equity and the continued existence of a measure of Treasury control will ensure this. I realise that we will have to consider all this further in the light of what the Edwards Report says. However, when we come to consider that report we ought not to forget that other nations have developed different approaches to the business of competition in the aviation industry. For example, K.L.M. and Lufthansa, which do not finance themselves in precisely the way that we now find our nationalised industries financed and whose methods of maintaining themselves as efficient competitors in aviation certainly should not pass without examination. Looking at Lufthansa's performance on the North Atlantic, it would be very interesting to know why it gets the good results that it does.

When we approach the Edwards Report, we should not dismiss from our minds, from any purely doctrinaire reasons, the possible benefits which may accrue from measures which will have the effect of attracting private capital participation into operations of this kind. In the long term all depends on the environment. This is why the reform of the environment is the most important task which will face us when Edwards reports. This concerns the future of the A.T.L.B. which one Committee of the House has recommended should be abolished, but which I prefer to see very much strengthened. We have to wait for Edwards but we must go into the future of aviation with a mood to compete, to expand and to recognise that this is the sort of progressive economic activity to which our nation is particularly suited. We must not be tempted to yield to the dangers of what I should call, to give it a pseudo-medical name, the "Foulness syndrome" which simply leads people to suppose that if aircraft cannot be uninvented at least they should be banished as far from sight and sound as possible, totally regardless of the economic consequences involved. That sort of attitude will not help us or B.E.A.

In closing I should like to pay tribute to B.E.A., to Sir Anthony Millward, who is now entering his last full year of office and to whom the country owes a debt for the way he has fought and continues to fight for British aviation, to all the staff, the pilots, the cabin staff, the ground staff and to all the employees of B.E.A. at home and overseas. We should not allow ourselves to forget the importance of the contribution which the latter make.

I was recently the guest of B.E.A. on a Trident 2 inaugural flight to Tel Aviv. I hope the House will not misunderstand me when I say that I could not fail to be impressed by the standard of the service. But, rather than ask the House to accept a compliment which it may regard as somewhat prejudiced in this respect, I should like to quote part of an advertisement which I saw during that flight in Time magazine. It reads as follows: B.E.A. is a superb way to fly. If it wasn't, we wouldn't waste our own space saying so. B.E.A. did not pay for that advertisement; that makes it all the more worthwhile. It was paid for by one of B.E.A.'s competitors and it was a tribute such as we must all wish to see continue to be paid to this important section of our aviation industry.

5.10 p.m.

Mr. Ian Mikardo (Poplar)

I begin by commenting on three observations made by the hon. Member for Woking (Mr. Onslow). I first associate myself, and, I am sure, with myself most, if not all, hon. Members, in the tribute he paid to the work and progress of B.E.A. It has some defects, and the Select Committee drew attention to them, but with all those defects it is still a pretty good advertisement for British initiative and enterprise.

Second, I listened with interest to the suggestion the hon. Member made that the Select Committee on Nationalised Industries might take a look some time at the broad question of labour relations throughout the public sector. I entirely agree with what he said, and I am grateful to him for having said it. When a few months ago the Select Committee was considering its programme for this Session and choosing subjects to investigate, I took the liberty of suggesting a number of possible topics. One was an inquiry into labour relations, but the Committee in its wisdom chose one or two others as more urgent and interesting. I hope that the Committee will come back to consideration of this matter in the next Session, and I hope that it will be influenced by what the hon. Member was kind enough to say.

The third point has reference to the Air Transport Licensing Board. The hon. Member said he did not agree with the Select Committee's suggestion that it should be abolished. Has he read the transcript of the evidence in which witnesses from the board appeared before the Committee?

Mr. Onslow

I hope the hon. Member will not misunderstand me. I should like to see the Board reformed. I should like the average age of some of its members reduced. I should like to see it given real powers, and staffed by men positively seeking to maximise the opportunities which exist in this industry in this country.

Mr. Mikardo

The Committee formed the impression that the average age of its members might with advantage be reduced. I formed the impression—and here I do not speak for any other hon. Member—that their competence could be considerably increased, but one also got the impression that they were trying to do something which could not be done in that way by that sort of instrument. If one reads the transcript one sees that it is a piece of comic literature which does not give one any confidence.

I welcome this Bill. I express thanks to the Minister, which I am sure are shared by all the teeming multitudes at present in the Chamber, for the speech he made. It was a most helpful, informative and clear exposition of the Bill and its purposes. I want to comment only on Clauses 1 and 2. My comments on Clause 1 are highly interrogative and designed to get the Minister, when he winds up, to say more on one or two points which would make his ideas and the ideas behind the Bill even clearer than he has made them.

I begin by way of preamble by referring, as the Minister did, to the examination of B.E.A. by the Select Committee. We gave B.E.A. generally a clean bill. We referred to some defects, and I am greatly impressed by the very fair-minded attitude which the Corporation has taken in its reply to our Report and the criticism we made. It has not been defensive. It has been gracious enough to admit error here and there and to say that it will try to put the error right. The Corporation gave the Committee every assistance and came out of the whole matter extremely well. But the Minister will know that the general theme of the Committee is that while, of course, it must be, and must remain, true that in the end the Government must have the power to decide in the overall national interest that a corporation ought to do something which is not strictly commercial on its own account, when the Government make such a decision they should bear the cost and responsibility of that decision.

So far as it is possible the extra burden imposed by that decision should be isolated and quantified. It should be borne, as the hon. Member for Woking suggested, not by the passengers but by those who have made the decision and those in whose interest the decision has been made. What the Committee has never liked—this goes back to long before the time when I was associated with it—is that the effects of non-commercial impositions upon a public corporation should be blurred and hidden away in some general overall sum, call it subsidy or whatever one will, so that it is impossible clearly to allocate responsibility and impossible to say how far the operations of the corporation are being carried out efficiently because the picture of that efficiency is blurred by this overall degree of subsidisation.

My feeling about the relationships between the Government and public corporations—the Select Committee brought this out in its major report on the general relationships between Government Departments and public corporations—is that the relationships ought to exist in this way: "I, the Minister, can instruct you, and will instruct you, to do things you may not want to do in your commercial interests. We shall quantify how much those instructions are costing you. I will pay you that amount. I will be, so to speak, your customer in the provision of those services which I am requiring you to provide, having been your customer and having paid you your just price, as to all the rest you jolly well have to operate on a commercial basis because you have no excuse for not doing so. You cannot say afterwards, Minister, we made a loss this year but this was your fault because you compelled us to do this, that or the other' because the answer will be, 'I paid you to do what I wanted you to do.'"

This is what I mean by sharply dividing responsibility between Minister and corporation. Let each bear his own burden. Then we can see to what extent each is carrying out properly his own functions.

This is interrogative. I am not arguing and debating sideways. This is a request for information because I am not clear about it. I ask the Minister how far this £25 million, if it is ever called upon, and the subsequent slice of £12½ million—I hope the House will not think me eccentric in using the English word "slice" rather than the French word "tranche"—measures up to this criterion of not being a blurring factor. How will these amounts be settled? Will the payments out of this fund cover all losses, or will they cover only the losses directly attributable, as the Minister described them, to the delay in carrying into service the new Tridents and the BAC 111 500s? I would not want a situation to arise in which the waiver of interest about which the Minister told us constituted a hidden and, above all, unidentifiable subsidy. The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) made a pertinent intervention when he said that the one thing which the second slice cannot be is compensation for delay in bringing these aircraft into service because by then they will be well and truly in service. This process has wide implications for the new financial objective about which the Minister told us.

I make in all friendship a small criticism of the Minister's speech. In that part of his speech in which he spoke about financial objectives he did not appear to have kept up with the most modern thinking about the financial control of nationalised industries. The 1966 White Paper on financial control of the nationalised industries, although it is highly ambiguous, as almost all Treasury White Papers are—some passages can be read to mean anything that anyone wants them to mean—said, "We have been grossly wrong in the past in thinking of the financial objective as the sole instrument of financial control. We should be pretty wrong in thinking of it as a major instrument of financial control. We should be wrong to some extent in thinking about it as a realistic instrument of financial control."

That White Paper pointed out that there are three interlocked factors which affect each other—the pricing policy, the rate of discounted return on new investment, and the overall financial objective—and that the fixing of any two of these will residually automatically fix the third. Although there were some reservations, the White Paper came down on the side of making pricing and investment return the operative factors and the financial objective only the residual factor. I detected in the Minister's observations a departure from that point of view. If I am wrong, I shall be delighted to hear it.

I turn to Clause 2 and make some observations about the introduction of Exchequer dividend capital. When I got my copy of the Bill and read that the Government proposed, doubtless on the advice of the Treasury, whose advice is always operative in these matters, to introduce Exchequer dividend capital in B.E.A., I was more excited than I had been in all my 20 years' membership of the House. That wild excitement was due, not to my belief that there was something wonderful about having Exchequer dividend capital in B.E.A.—it is not bad, it does not do any harm, but there is nothing marvellous about it—but to the fact that for the first time in my 20 years I had evidence that the Treasury was prepared to admit an error.

When we were examining the Treasury witnesses in our inquiry into B.E.A. we had the temerity to ask them why they thought it right to have Exchequer dividend capital in B.O.A.C. and not in B.E.A. They told us that they applied three criteria in deciding whether any corporation should have Exchequer dividend capital. They said that all three criteria applied in B.O.A.C. but not in B.E.A. There follows in the transcript of the evidence another piece of ripe comic literature. If the Minister is looking up the reference, I can help him. It is Question No. 265. In cross-examination it became evident that not only was it not true that the three criteria which they applied operated in B.O.A.C. and not in B.E.A. but, that they operated more in B.E.A. than in B.O.A.C. It seems that the Treasury was influenced by that little passage of arms. What I find exciting is the revelation that it is possible to make a microscopic dent in the Treasury's permanent assumption of its own monumental infallibility. I welcome the change of heart—"There is more joy in Heaven over one sinner that repenteth …".

The Committee did not think—and I share its view—that the introduction of Exchequer dividend capital makes a great difference. It may make a psychological difference, and, to be fair to B.E.A., that was the ground on which, as a second line, it argued it. I do not ignore the fact that psychological factors are important in running an operation. B.E.A. made a chump of itself in the first place by trying to bargain acceptance of aircraft which it did not want against Exchequer dividend capital, which was a nonsensical thing to do. The Committee said that it was nonsensical, and I am delighted to see that B.E.A. has admitted that we were right. It spoiled its case, such as it was, for Exchequer dividend capital by linking it to something to which it was not relevant. Now that it has come, so be it. I do not want to see too much made of it. In the end, the criteria for control should come not out of this sort of thing but out of the more sophisticated instruments of control to which I have referred.

I welcome the Bill. I hope it will enable the Corporation to make even better progress than it has made in the past.

5.28 p.m.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

I agree with all the points which the hon. Member for Poplar (Mr. Mikardo) made, except one. I agree that we can all rejoice that the Treasury changed its mind over Exchequer dividend capital. However, I feel that it did so in the wrong way and that it might have been better if it had decided to abandon the experiment for B.O.A.C. and not introduced it for B.E.A. The Second Report of the Select Committee on B.E.A. in 1967 said: If one of the three methods is to be chosen, the method (advocated by B.E.A.) of capital reconstruction with an element of Exchequer dividend capital similar to that of B.O.A.C. appears to Your Committee unsuitable. Although I was not a member of the Sub-Committee which made the Report, I feel that there is something bogus about Exchequer dividend capital and that when it is coupled with writing off a large chunk of debt it is even more misleading. It is possible, as B.O.A.C. has done, to pay a very large dividend on the Exchequer dividend capital, because the interest does not have to be paid on the debt which was waived. I think that in the case of B.O.A.C. it was £110 million. This gives a false impression as to the profitability of the airline, which may be good for the morale of those who work in it, but is less good for the morale of the taxpayers who are carrying the interest burden on the £110 million.

The Bill represents a further injection of subsidy into our two Corporations. In 1952 we injected £60 million; in 1968, I think, £110 million; and in 1969 the Bill proposes as much as £37½ million more, making a total of £227 million subsidy on capital account.

We should take a look at airlines in other parts of the world which have got through this, admittedly difficult, 20 years with much lesser sums in subsidy, or none at all in some cases. The House should muse a little as to why this has been necessary. I am sure that the greatest reason—and I shall mention three—is the question of buying aircraft. In so many instances we have bought unsuitable aircraft, which not only cost more to buy but very often cause large losses because they are unsuitable for the task for which they were bought. It is a pity that the VC 10, the Vanguard and the Trident have all proved not to be world sellers.

The time has come when we should consider whether it is the right policy to require the nationalised air corporations to commission and tailor-make aeroplanes from British manufacturers which are suitable to what they imagine to be their own needs. I do not say that the Government should not assist the British aircraft industry. I shall say in a few minutes how I think they should do so. But we must keep the boundaries of responsibility much more clear. If we tell airlines to make money in the business of carrying passengers, we give them a clear definition of what they are to do. If we tell aircraft manufacturers that they are to make money in the sale of aircraft, they also know what they are to do. The market for aircraft is world wide, they should do their market research world wide, design their aircraft for world markets and sell them in the world market.

The airlines, so far as I can see, should confine themselves to choosing in the world market that aeroplane which is most suitable and which is on the market, for the task they have in mind. This would enlarge our operations, and although we might buy more foreign aircraft I believe that we would also export more British aircraft, and the foreign exchange plusses and losses would balance out. At present we have a situation in which we are locked into a narrow protectionist view of the matter, which in the long run could well result in the strangulation of the British aircraft industry.

If the Government wish to subsidise the aircraft industry as a whole, or any particular aircraft, they can still do so by giving the industry or that aircraft special aid. But I am sure that the decision as to what aircraft to buy should be in the hands of the airline corporations and not in those of the civil servant, who probably does not know so much. If he does—and here I use the phraseology of the hon. Member for Poplar—he should be employed by the airlines and not the Board of Trade.

I think that we have also been wrong on the question of uneconomic routes. The duty of airlines should be to make money in the operation of their passenger and freight aircraft. If they have a route that is uneconomic there is no doubt in my mind that they should refuse to continue to operate it unless they are specifically rewarded for the loss by whoever wants it done, whether the Government or somebody else. B.E.A. is operating at least two routes at a loss—the Highlands and Islands network and the Berlin-Hanover route, which I happen to know does not pay.

If the Government want B.E.A. to continue to operate those routes it should not twist its arm or adjust its capital, but should ask, "How much do you want to run these routes?". If the reply is a sum that they think worth paying, that amount should be paid openly and annually to the airline. I realise that that gives the airline an opportunity to blackmail the Government. It could say that it would not fly to the Highlands and Islands unless the Government gave it such large sums of money that it would be making an unnecessarily large profit. That is why I believe that we need competing alternative airlines, so that if one takes the Government for a ride the contract can be given to another airline. There should be as many as three or four alternatives who can take up such contracts, one in competition with the other.

A third area in which I think we have been doing the wrong thing concerns the veiled reference to earning dollars made by the Minister in his speech. The subsidy to British airlines is often justified with a sort of undefined comment that they are major earners of foreign exchange, and that in a situation of financial crisis, such as we have permanently, it is wrong for anybody to question anything that earns foreign exchange; that it must be right. I want to question this assumption.

The price we must pay for earning foreign exchange depends on how much we are in debt and what our balance of payments is. But it may well be that rather than by investing another £37½ million into B.E.A., if we put that money into agriculture we might save more foreign exchange. To take another example, we have just put £40 million into an aluminium smelter which will certainly save foreign exchange, but may be a very high price to pay for it.

But in all these questions of how much foreign exchange we shall save by any particular subsidy or Government policy, we should assess what we are putting in in terms of subsidy in order to achieve the foreign exchange. In other words, we should put a price on foreign exchange; we should have a premium as to what it is worth our while in investment or subsidies to achieve a given quantity of foreign exchange.

In all this, it seems to me that airlines are not for earning foreign exchange, nor are they for promoting the British aircraft industry, nor are they for subsidising remote districts and areas which cannot economically maintain an air route by the strength of traffic which they generate.

These are perfectly legitimate objects of Government; to bolster the aircraft industry, to provide a service to the Highlands and Islands, or to earn foreign currency reserves. But in all cases the Government should require the airlines to be entirely commercial and to resist pressure to do things of this sort unless they are openly and suitably rewarded in the way I have indicated.

I ask myself how other airlines cope with these problems because they are not singular to us. I visited both K.L.M. and Lufthansa, and had the honour of long discussions with the directors and some of the officials in each of these airlines, when I discussed the very questions we are now discussing. They both said that this sort of interference is intolerable, that it makes it quite impossible to run their businesses if they are always going to be told what aircraft they should have, where they should fly to, or how they should raise capital and things of that sort. They said that it is a very competitive, very difficult business, that they have managed to pull Lufthansa and K.L.M. into the black out of loss situations, and that the one essential they have insisted on with their Governments is that the Governments stop interfering. The President of K.L.M. went so far as to tell me that the airline was in such a financial state that he was able to make his own terms. He is a distinguished industrialist and was able to say to the Government "I will not take on the Presidency of the K.L.M. unless you give me everything I want". They were so desperate that they agreed.

He said that the need to insulate the airline from the interferences of Government was so great that one could not trust good intentions, however much the Government of Holland, or indeed the Government here, might say "We have finished interfering. We are not going to tell you to do any more of these un-commercial things ever again". When chairmen of airlines had lunch with the Ministers there was no directive, but those subtle pressures, which those who have been in politics for a few years understand better perhaps than those who have not, began to be exerted.

The President of K.L.M. said "In order to make sure that you do not interfere with me and make me do uncommercial things, but allow me to run my airline according to my best commercial judgment, I want there to be a few other owners. I want a few other people who will be able to protest if I do anything which is not in their best interests." He insisted that half the equity shares were sold on the market to private individuals or companies of Dutch nationality in Holland. I do not know whether it was 49.5 per cent. or 50.5 per cent., but the fact is that an equity holding was introduced into both those airlines, as into other airlines on the Continent of Europe, in order to give a guarantee that other people will be involved if interference takes place.

There is one other advantage in this procedure. We know that the strain on our finances as a nation is becoming excessive. We know that one of the great difficulties in the future will be to raise these large sums of capital. The sums which are represented by this Bill, and by previous Bills, involve £227 million which has already been written off. This is as nothing compared to what we shall have to put in in future in terms of new capital.

Lufthansa airline and the Royal Dutch airline raised their new capital by means of rights issues. They simply say that all existing shareholders, Government and private, are able to take up their rights or sell them when they need new capital. Most of the new capital which has been put into our competitors in Europe has not come from the taxpayer, but from private investors. Of course, with an airline like K.L.M., which is half Government-owned, the Government must take up its rights or it loses control of the airline. Subject to what Edwards may say, and subject to all kinds of ifs and buts, I suggest that we should be wrong not to examine this sort of solution to the problems which beset British airlines.

I do not wish to be offensive, but I thought that there was a note of inevitability about the Minister's speech this afternoon when he said that this was a direct and foreseeable matter, indeed almost a consequence to be welcomed, arising out of the way we have run the airlines. There was no note of regret at all about the £227 million—which would be enough to float an enormous airline, a third airline on the world airline scene, or indeed to float a large company which could be situated in Scotland or in one of the development districts to manufacture and give employment. We must have regard to the value of the capital which we have written off over the years, and we must be careful that we do not commit ourselves in the future.

The argument of insulation against the effects of Government interference and the need to raise new capital are matters which are fundamental to the reasons why our airlines have not proved financially successful in the past. Whatever may happen in the future, this is a matter which from now on we cannot afford not to take up.

5.45 p.m.

Mr. R. F. H. Dobson (Bristol, North-East)

I have had the pleasure on a few occasions recently, both on the Floor of the House and in Committee, to follow the hon. Gentleman the Member for Cirencester and Tewkesbury (Mr. Ridley). He spoke of his solutions to some of these problems, and I was struck by what he feels to be the rôle of the public sector in the way in which it deals with its finances in the future. He knows from our previous discussions that I could not possibly agree with him on the matters about which he has talked, intriguing as they are and put forward in such an agreeable and lucid manner.

I thought that the hon. Member was unfair when he said that the Minister's speech contained a note of inevitability in regard to the future of airlines. As I understood my hon. Friend, he was saying that a guarantee had been given in the statement last year and that this Bill was a result of it. All the more credit to him, because in the interim period the finances at B.E.A. have improved above the forecast which was then assessed without substantial difference between the President of the Board of Trade and the airline authorities themselves.

The hon. Member for Cirencester and Tewkesbury left out one part of the equation which was most important, namely the aircraft procurement programme. The part of the equation which he left out of his assessment is that no new aircraft can be built in this country without support on a massive scale by the Government of the day. This has been done not only by the present Government, but by previous Governments. However much we should like to see a change in that situation, one can never see it taking place because of the sheer practical conditions under which aircraft manufacturers work.

Mr. Ridley

I do not think I said that this should not be done, nor did I say that it could not be done. I said that it would probably still be necessary to subsidise British aircraft, but that it should be done in relation to an aircraft saleable in the world market rather than in the narrow market of the British Corporations.

Mr. Dobson

The hon. Gentleman is only saying what was said by the Plowden Committee in 1965: that where it can be achieved all aircraft projects should have a sale which is international.

The problem in practice is that it is most difficult to get into international markets. One can criticise previous Governments for not bringing the aircraft manufacturing people together early enough to make an impact in the way of British sales of aircraft on world markets. The hon. Gentleman is right to say that it is a difficult problem to solve in the way of aircraft procurement for B.E.A. and all other airlines.

The decision which was made last year, about which I had a slight reservation, to get B.E.A. to buy British was, in retrospect, quite right. It was right for two reasons. First, had it bought American aircraft it would have taken on a large capital debt which it is doubtful whether it could have solved, projecting it into these figures. B.E.A. might have got some improved operating from the aircraft in comparison with the Tridents, but it was right that we should meet the difference in the cost, if that is the particular problem which bothers B.E.A.

But that is not the full answer for the future. In one thing the hon. Member for Cirencester and Tewkesbury was right—that there should be more consultation between the airlines and the aircraft manufacturers on an aircraft which fits the bill for the routes which they have. The difficulty, of course, is that, in discussions of this kind, which are continual, both sides have different answers and sometimes some difficulty in assessing actual costs, rather than a rough "guesstimate". Nevertheless, there is a need to look to the future to see whether or not aircraft manufacturing policy relates to the needs of British aviation.

The point is now being met in part at least by the sort of marketing survey which B.A.C. has done for its 3–11. One might feel that some of its sums might be wrong—for instance, its penetration of the American market—but substantially what it is trying to do is to forecast the need for a British aircraft into the international scene, and to that extent the job should be useful to the Government.

But the hon. Member starts from a different position to mine. He feels that Government intervention is totally and wholly wrong and I do not. If the Government finance a publicly-controlled Corporation, we have every right at all stages to query, qualify, discuss, amend and generally process what the airline is doing within the sort of ambit of the President of the Board of Trade's authorities.

It is unfortunate that we did not have the Edwards Report before this debate, but if it does anything at all the Report should be so substantial—I hope that it will make some satisfactory changes—that we could not have had a debate next week or the week after to do justice to it. We have been cliff-hanging for the Report for a long time, and in such a major area of policy it will be looked for as the good Report which we have not had so far for the future of civil aviation.

I think that the hon. Member for Woking (Mr. Onslow) was wrong to suggest that Edwards could not look ahead. The terms of reference were clear and included the term: … the prospects of the British civil air transport industry … which gave it some authority to look ahead for the British share of world markets, which is where we want to see developments.

The hon. Member for Cirencester and Tewkesbury—I hope that he does not think that I am picking on him, but he made an interesting speech—was wrong to write off the foreign savings from selling seats to people for dollars or other foreign currency. He is much more of a financial expert than I, but I think that he is wrong there, because he starts from the wrong basis.

The last B.E.A. Annual Report and Accounts is a valuable document, especially for its detailed information, but it has one major defect. In the review of the year and the look ahead, it seems to be pessimistic—I was about to say "anti-Government". It seems wrong for a public Corporation owned and backed by the Government to make continual references to Government interference and pessimistic statements about doing something or not being allowed to do something else, the economic crisis and the continuation of the overseas travel allowance, described as "a travesty of justice to B.E.A.".

That might be the view of some people, but it ill behoves a public Corporation to say these things in the way that they have been said several times. I would expect it from some independent travel and tourist operators, but when the Government technically own and finance the airline, help to run it and see it through difficult passages, as with this Bill, it is not a good idea to write such statements into the Annual Report, however much the individuals responsible may feel that they are true. But the information in the Report is absolutely superb: it could not be bettered.

On National Insurance, according to my calculations, in a total wage bill of £29 million for a year, possibly now increased to over £30 million, even if the insurance stamp were increased by a shilling, it would be an increase of £0.05 million, and, if it were two shillings, an increase of £0.1 million, which are derisory sums compared with expenditure of over £30 million.

The Report is very valuable for the background of this short Bill. The hon. Member for Woking said that there was a complaint about air navigation fees increases. I would have thought that this was the wrong thing to do. There is a need to increase fees, because safety regulations for aircraft coming into British airports must be improved. If one can criticise British airports it is for the fact that very few are adequately equipped for modern aircraft, not only in runway length but by the navigational and other aids which they need. But I was very disturbed to read in the B.E.A. News of Friday, 18th April, that the lack of ground facilities at certain airports is holding up the blind landing and auto-land techniques.

I believe this is something which the Minister could usefully look at. We all know that the most dangerous time for aircraft in flight is as they land; and the object of automatic landing is to make that operation as safe as anyone can make it. It brings down the accident risk substantially. It enables aircraft to land automatically without risk to the passengers in extremely close weather conditions which otherwise would close the airfield or restrict its use. This system is valuable, therefore, from the point of view of reducing potential accidents to passengers and in relation to the ability of aircraft to land in bad or close weather, which may also be to the passengers' disadvantage at times.

On one flight returning to London I was first diverted to Hamburg. That seems a ludicrous diversion. I am not saying that in such a case automatic landing would have got me down in London but it might have done so and saved me a great deal of inconvenience and extra travelling time. The statement in a report of this kind that blind landing facilities in the United Kingdom are lagging behind, presumably because of lack of development, is something which should be mentioned in a debate of this kind. I am sure my right hon. Friend is aware of it, and I hope that he will do his best to improve it. I feel that I can give a general welcome to this Bill because it is sensibly laid out; it is making adequate provision against the background of a pledge given by the then Minister of Aviation; and we ought to have no trouble at all in passing this Measure this afternoon.

6.0 p.m.

Mr. Tim Fortescue (Liverpool, Garston)

I am glad to follow the hon. Member for Bristol, North-East (Mr. Dobson), with many of whose ideas on aviation I always find myself in agreement. On one or two small points that he has made I should like slightly to disagree, and I am sure he will understand that there is no personal element in that disagreement. He rather chided B.E.A. for daring to criticise the Government in its annual report. This is a fashion which has been set by the chairmen of all the nationalised industries, with Lord Robens in the lead. The Governor of the Bank of England and heads of every national industry make a practice of criticising the Government, and I do not see why B.E.A. should be held to be an exception to this apparently universal rule.

The second point with which I would slightly disagree is the question of air navigation charges being increased at municipal airports. I should declare an interest since they are being increased at Liverpool Airport, which happens to be in my constituency. The complaint of municipal operators is that although charges at their airports are being increased by 50 per cent.—a remarkable increase in the light of the prices and incomes policy and the other restrictions on our economy—charges at Heathrow are not being increased on the ground that it pays its way; but charges at other British Airport Authority airports are not not being increased either. This is the burden of the complaint of municipal operators, and, as my hon. Friend the Member for Woking (Mr. Onslow) has said, it is to be hoped that we shall in due course have a chance to put the arguments against these increases to the House when a Prayer to annul the Order is moved.

We are debating the future financing of an airline of which the whole House and the whole country is very proud, an airline which advertises itself as No. 1 in Europe, and which in the minds of most citizens of this country certainly is regarded as No. 1 in Europe. As several hon. Members have said, that is no reason at all why we should not criticise it and look at what is wrong with it, because there is something wrong with every human institution. I hope that nothing I may say will be construed as meaning that I am not very proud of being a part owner of British European Airways. The Chairman of B.E.A. in a statement at the end of last year, just after the sad demise of British Eagle, a statement which was given wide publicity, said: How I wish we could, as a nation, stop arguing private versus public ownership, because one can only promote the one by denigrating the other. Could not we call a halt to all this and accept, for better for worse, that this nation has a mixed economy and will always have one? I am sure that in the Middle Ages the bold, had baron in his castle looking out over his domain at the peasants working in the fields said something like that, asking, "Could we not call a halt to any attempt to change the present situation? We have always had a mixed economy and we always shall have". I am sure that the aristocrats in France just before the Revolution looking at their serfs toiling in the field must have said, "Thank goodness we have a mixed economy and shall always have one".

Sir Anthony Milward—to whom I pay tribute—showed in his statement a lack of imagination in chiding the independent sector of the airline business for saying that perhaps there ought to be a change in the balance between the public and the private sectors. He is the "haves". They are the "have nots". He has all the schedule routes, and they have hardly any. It is all very well when one is sitting on a bag of gold from which someone wants to take just one or two pieces to say, "We have a mixed economy. This is the way we do things. We have always done this and always will". For airlines the schedule services are the key to prosperity. Without scheduled services it is very difficult to make an airline pay. Historically, scheduled services in Europe and the United Kingdom have been reserved for B.E.A., though one or two have escaped the net. British Eagle managed to devise a few which B.E.A. did not want, and it was ingenious in doing so. But no independent airline can possibly become prosperous unless it has some of the scheduled services which at the moment are reserved to the nationalised Corporations, which the independent airlines get only as crumbs from the rich man's table. The prize example is British United Airways. When B.O.A.C. said it did not want to run the scheduled South America services any more because it could not make them pay, British United picked up that very substantial crumb— the only time there has been one. Within one year it had made a profit on those services, and yet B.O.A.C. wanted a subsidy of £1¼ million to continue to run them for a year. This is direct evidence of the ability of independent airlines to work on a financial and economic basis if they can have scheduled services.

I strongly believe that unless we want to hand a complete monopoly of the air services in this country to B.E.A. some of the scheduled services will have to change hands. This is what the Edwards Report is all about. I can understand the Minister bringing on this debate before the Report is published, because had it been published before this would have been a debate on the Edwards Report, which is not at all the intention of the Government. To my mind that was right because that report will take many days to debate and we have only half a day. Not content with hogging all the scheduled services in Europe and the United Kingdom and objecting always when anybody else applies for one, B.E.A., I understand, is now going to invade the charter section of airline business which until now had been more or less reserved for the independents. This bold, bad baron, not content with sitting in his own castle watching the peasants in the fields, wants to pinch the fields as well. I believe that this enterprise must be looked at very closely. There is a tendency just beginning for blocks of seats in aircraft on scheduled services to be reserved and chartered at cheap rates. This must be looked at. It should be a matter of the closest consideration by the Government because if the Corporation, with Government money behind it, is to be allowed also to invade this sphere, then I see very little future at all for the independent airlines.

Mr. Leslie Spriggs (St. Helens)

Is the hon. Gentleman aware that because of the high quality of service which B.E.A. provides to the public, there is a public demand that B.E.A. should enter the charter service?

Mr. Forteseue

The service provided by B.E.A. is like the curate's egg. It is good in parts.

I am a little surprised to find, though this is to a degree because of my own ignorance, that hitherto there has apparently been only inadequate provision in the legislation covering B.E.A. on the level of Schedule 2 of this Bill, which provides that board members of B.E.A. should not have a conflict of interests when they are appointed to the board. This will become more complicated when the new charter activity of B.E.A. begins. I recommend the Minister to re-examine the interests of the present directors of B.E.A. to make certain that none of them has interests in charter companies or in travel agencies which place a lot of their business with charter companies. I think that this new activity will complicate the position, and the provisions in Schedule 2 have come just in time.

I turn now to the standard of service provided by B.E.A. The Civil Aviation Licensing Act, 1960, passed by the Conservative Government of nine years ago, is entirely out of date, and will, I am sure, be modified as a result of the Edwards Report. Under that Act the Air Transport Licensing Board has to take certain matters into consideration when granting a licence, or considering granting a licence, to an airline. There are many factors which it has to take into account, but I shall refer to the principal ones only.

It has to take into account the competence and fitness of the applicant to operate the service having regard to his experience and financial resources. It has to take into account any unfair advantage over other operators through the conditions of employment of his staff. It has to take into account the need for the proposed service, and the extent of any likely duplication or diversion from other licensed services, and so on. Nowhere in that Act is it said that the board in considering granting a licence has to take into account the interests of the passenger. He is not mentioned anywhere. By law the airline does not have to look after the passenger. The applicant for a licence is given a licence whether he is willing to look after the passenger or not. Nor are the interests of the British aviation industry one of the criteria which the board must take into account.

The chief safeguard for standards of service to be maintained in any undertaking is the competition of similar undertakings. This is the one matter which keeps people on their toes—that if an operator does not have proper standards of service his competitors will take his business. This is why people provide a good service, and this is proved in the case of B.E.A.

I do not know how many hon. Members have flown by B.E.A. from Frankfurt to Berlin. The competition there is very hot indeed. The route into Berlin is flown by several airlines, and they are all very good. B.E.A. did not have jet planes, and it found that it was losing business. As soon as it put the BAC 1–11 500 on the route, its business picked up. These airlines watch one another like hawks. The standard of service on that route is magnificent, and I pay the highest possible tribute to it. I am sure that anyone would be proud to fly B.E.A. over that route.

In this country, however, where B.E.A. has only the minimum of competition, can anybody in this House say that when he flies by B.E.A. on a domestic route, or when he uses one of B.E.A.'s subsidiaries on a domestic route, he is proud of the service that he gets and satisfied that the service could not possibly be improved? I fly a lot in this country, and I am constantly ashamed of the service that I get.

The route between London and Liverpool, which I fly frequently, used to be operated by both British Eagle, of blessed memory, and Cambrian Airways, which is now a subsidiary of B.E.A. When they were both flying that route, the service was very good. British Eagle is not there any more, and this route is now flown by Cambrian Airways alone. There is now a new pattern of behaviour. One goes to the airport, and just before the aeroplane is due to leave the passengers are herded into a bus. The bus has only a few seats, and one has to stand for 15 or 20 minutes waiting for the bus to move off to the aeroplane.

I have complained long and bitterly about this. The reason given for the hold-up is that after the ordinary passengers have got into the bus the airline staff begin to check in people who are there on the off-chance that they will get a ride—what are called stand-by passengers who pay a reduced fare.

That is one way of doing things, but it is not a very good way. When there was competition between British Eagle and Cambrian Airways it never happened. Passengers were not kept waiting 20 minutes in a bus before boarding the plane because both airlines knew that if one of them did that, on the next occasion the passengers would use the other airline. Standards of service can be kept up only if there is proper competition, and it is essential for the standards of B.E.A. services to be stimulated constantly by competition wherever this is possible.

We have heard about the new aeroplanes which B.E.A. is to get, and good luck to them. We have heard the hope expressed that B.E.A. will be able to buy the new BAC 3–11. We shall look forward with great interest to hearing from the Minister of Technology eventually whether development backing will be given to that aircraft. I hope that it will be. I have every reason to believe that B.E.A will be delighted to have it.

But we have to look one generation of aircraft beyond that. We have to look to the end of the 'seventies and the beginning of the 'eighties. By then the new concept in civil aviation of vertical take-off and landing or short take-off and landing aircraft will be with us and will be a commercial proposition. We have heard that by 1973 the Americans will have in service a 40-seater helicopter which will carry passengers over a range of 500 to 600 miles at a cost of 2½d. per route mile, which compares with anything flying now.

Trains do the journey from London to Liverpool, station to station, in two and a half hours. Trains will be improved, and we shall get to the era of super-trains running on different kinds of track, and perhaps even running on the hovercraft principle. When that happens, the journey time between London and Liverpool by train will be reduced, and unless within the next ten years there are air services from city centre to city centre our airlines will lose all their traffic to the trains.

The opportunity for providing such services will become available because, by the march of events the dock areas in our great cities will become smaller. With the container revolution in shipping, fewer docks will be needed. Ships will turn round more quickly, and these huge areas of docks in the middle of London, Liverpool, Manchester and Southampton—to name but a few—will no longer be required. The dock areas in our great cities will be ideal sites for vertical take-off and landing planes, which will be able to convey passengers very quickly from point to point, though, of course, no faster in the air than—if as fast as—is the case now.

In the intervening stage between now and then, what better could B.E.A. do than turn its attention to the two short take-off and landing aircraft now in operation all over the world? They are both British made; we can be very proud of the Islander and the Skyvan. These are two most excellent small aeroplanes holding their own in markets everywhere, and yet no one in this country, except in the very north of Scotland, is even considering them.

B.E.A. has an helicopter service from Penzance to the Scilly Isles. It is the only scheduled helicopter service in this country. It is operated with American helicopters. Is this not an ideal opportunity to replace those American helicopters with the Islander or the Skyvan, both of which can land on and take off from the Scilly Isles with full loads, to prepare the way for the time which must come in the near future when this type of aircraft is operating on trunk routes in this country?

I wish the Bill well and hope that it has a speedy passage through Committee, where, I assure the Government of my support for its general principle.

6.20 p.m.

Mr. John Rankin (Glasgow, Govan)

I listened to the hon. Member for Liverpool, Garston (Mr. Fortescue) with great interest. I agreed with a great deal of what he said. I welcome B.E.A.'s intention to take part in holiday traffic because it will ensure higher standards of treatment and safety for passengers than are provided by many other operators catering for this type of traffic. It is a lucrative and expanding traffic. The hon. Gentleman said that civilian passengers should travel in the best conditions. I agree. I apply the same dictum to holiday traffic. There has been a tendency to pack people into aircraft which have been out of use for long periods and to take them to the Continent as quickly as possible. I have heard it said—I have not proof of this, but it comes from good sources—that sometimes their return is not assured.

I disagree with the hon. Gentleman about the service provided by B.E.A. on the ordinary passenger routes. I have been travelling on these routes since the days of the D.H. Rapide. Therefore, I can compare the time when we did not even have a glass of water to ease our trepidation, if we were nervous, with the facilities of comfort and speed provided by the Trident. I can compare the 54 minutes of sleek comfort which one enjoys while the Trident covers the distance between London and Glasgow, and vice versa, with the 2½ hours which one used to spend on the journey.

Mr. Fortescue

I have no criticism to make of the safety and efficiency of the aeroplanes and their crews once they are in the air. Those are first-class. It is the cavalier way in which passengers are treated on the ground at both ends of the journey which worries me and which is not nearly as good as the treatment which one receives between Frankfurt and Berlin where the competition is much more acute.

Mr. Rankin

It puzzles the hon. Gentleman, but it mystifies me. The bus has disappeared at London Airport. I am lucky perhaps because I cannot recall when I last saw a bus. The pier now is fully used. Therefore, there is no crowding of passengers into buses. We are like people going to work in the morning. We leave at 9 o'clock and return at 4 o'clock. There is no rush, and a seat is waiting for us. The hon. Gentleman must admit that tremendous progress has been made not only in the development of the aircraft and its safety but in the way in which passengers are dealt with at our large terminals.

I completely agree with what the hon. Gentleman said on the second matter to which he referred. In Britain we are at the beginning of another revolution. Profound changes are taking place under our noses. The hon. Gentleman referred to the speed at which trains now operate between London and Manchester, Newcastle and even Glasgow. With the advent of a different type of rail, the speed of those trains will be doubled. When that happens, the short-haul aircraft in the United Kingdom will begin to see the end of its days. Surface transport will take over again, and the aircraft will have to seek its fortune outside these shores.

Another development is the jumbo jet. The crowd of 100 people which used to get off the Vanguard will rise to 250 or 280 when the jumbo jet lands. There will be an entirely different approach to the phenomenon of air travel. People will visit places on holiday which they do not even visualise now. Instead of Europe, holiday makers will be going to East Africa and the nearer parts of Asia.

We are waiting not for Lefty, but for Edwards. Whenever we debate aviation in the House, we are waiting for somebody's report. What will happen when we have the Edwards Report? We shall debate it for a day when about a quarter of the Members who wish to speak will not be able to do so. The Edwards Report will follow the path of other reports, back to the Library, and we shall carry on. This time, we shall not be able to do so because development, invention and expansion will drive us forward. In this short debate we seek to prepare ourselves for the age which lies almost at our feet.

Lured on by the hon. Gentleman, I have said many things that I did not mean to say and that were not initially in my mind. I am now wondering how to work in the speech which I have prepared. I believe in Government intervention. I like to think that the Government are always prepared to intervene in this industry, because in my experience Government intervention has always been good for the industry. I hope that the Government will continue their activity in the industry and that there will be a Government-patronised operating unit such as B.E.A. always functioning.

I was glad to hear the Minister pay tribute to the B.A.C. 311. I hope that was an indication of the direction in which Government thoughts are turning and that the 311 will be the Government's choice for the jumbo jet age.

What appeals to me about the organisaton of B.E.A. is that it has established excellent labour relations at all levels. This has been one of the great factors in B.E.A.'s success.

Knowing that there is another debate awaiting and that others wish to speak in this debate, I must leave the matter at this point. I congratulate my hon. Friend the Minister of State on the way in which he presented his Bill.

6.35 p.m.

Mr. Peter Blaker (Blackpool, South)

I agree with the hon. Member for Glasgow, Govan (Mr. Rankin) that B.E.A. services are better than they used to be, but I doubt whether that quite answers the point which was made by my hon. Friend the Member for Liverpool, Garston (Mr. Fortescue). I should like to have a word with the hon. Gentleman privately about how he gets this V.I.P. treatment at Heathrow, because his experience does not accord with mine. I can only think that the explanation must be that the hon. Gentleman is going through the V.I.P. channel.

I was glad that my hon. Friend the Member for Woking (Mr. Onslow) raised the question of B.E.A.'s plans to go into the hotel business. This is an important subject and a new tendency on the part of B.E.A. We know that it has plans to go into the hotel business in a big way, because Sir Anthony Milward published in The Times on 21st January a piece headed Why B.E.A. needs a hotel stake. This interesting article makes it clear that B.E.A.'s plans to go into hotels are ambitious. Moreover, it has an interest in the proposal to build a 1,000-bedroom hotel at Victoria Station.

I do not claim that such a venture would be beyond its powers under the statutes. I simply question whether it is necessary or desirable for B.E.A. to go into the hotel-building business. If private enterprise is capable of doing the job without any disadvantages to B.E.A. in its primary rôle of running airlines, that would be a better way of doing it.

In the article in The Times Sir Anthony said: A full and comprehensive overall travel service means, inter alia, seeing that passengers are provided with suitable accommodation at destination points, and this in turn can mean booking, buying or building hotel rooms as the case may be … we would prefer to leave the running of hotels to hoteliers and their development to entrepreneurs, but we cannot afford to sit and wait and risk letting down our future passengers. Sir Anthony refered also to the impending introduction of jumbo jets and, finally, to the great need, which he believed was not being met adequately, to provide modern, inexpensive hotel rooms.

I want to explore why, to use Sir Anthony's words, the booking or buying of hotel rooms is not adequate and why it is necessary for B.E.A. to go into the business of building hotels. Have the airlines been seeking to persuade private hoteliers to build the hotel rooms which they believe to be necessary and which they do not think are being constructed? Have they explored the opportunities of encouraging private enterprise to do the job, as Sir Anthony himself says he would prefer to happen?

My information, such as it is, suggests that they have not explored this possibility. I am told that no British hotel concern was approached about the 1,000-bedroom project at Victoria. I believe that at one time it was intended that Intercontinental Hotels of America should be associated with the development and that not only was no effort made to persuade British companies to go into the enterprise but that they were not even given an opportunity to come into the scheme, and that, indeed, one British hotel company received a brush-off when it approached the airlines.

The article appears to assume that hoteliers are not aware of the impending arrival of the jumbo jet. Of course they are. It is very much in their minds. The Minister of State and I have had exchanges upstairs in Committee repeatedly in the last few weeks about hotel construction, and we are pleased that it is going ahead fast. There is a tremendous spate of building of new hotels, induced largely by the Government's new scheme for grants and the fact that it will expire before long. People are building hotels while the scheme is available.

I wonder whether Sir Anthony is right in thinking that this job is not already being done by private enterprise or that if he chivvied private enterprise and tried to persuade the very efficient British hotel companies to do the job they would not be prepared to do it.

Hon. Members opposite may ask—I am sure the hon. Member for Glasgow, Govan would—why should not B.E.A. do the job of building hotels? The hon. Gentleman might point out that other airlines do it. They do; but that does not show that it is necessary or desirable for B.E.A. to do it or that these other airlines were right about their own interests. At any rate, it does not show that a wholly nationalised airline should be doing it.

If the interesting suggestion floated by my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) reflected the actual situation, if we had a national airline which had a substantial percentage of private equity capital, my anxiety about its intention to go into the hotel business would be very much reduced, but when we have a totally nationalised airline we should look at its intention to go into hotel business with a sceptical eye.

This is, first, because the financing of these new hotel developments is going to be a burden on public funds. We all know the difficulty of raising public funds for capital purposes which Governments can experience. The second reason is that I believe that there is likely to be involved an element of subsidy in the construction of hotels by the nationalisd airlines. On 3rd April, 1968, my hon. Friend the Member for Gloucestershire, South (Mr. Corfield) asked the then Minister of Transport if she will give a general direction to the British Railways Board that no railway land should be disposed of, whether to a private firm or a nationalised industry, at less than the full market value."—[OFFICIAL REPORT, 3rd April, 1968; Vol. 762, c. 101.] This is relevant to the enormous and important scheme at Victoria Station. He received from the Joint Parliamentary Secretary the flat answer, "No". That cannot encourage those of us who are worried about the possibility that land might be provided by British Railways to the nationalised airlines at subsidised prices.

My hon. Friend returned to the charge by asking the Minister of State, Board of Trade last July to ensure that, in so far as hotels to be built by nationalised airlines were built on land at present owned by the railways authorities, no special financial arrangements would be made. The Minister of State said that he would take note of that point. This is surely a suitable opportunity, since he has been able to reflect on the question, to say something further in order to allay our anxieties.

I have been talking of the possibility of a subsidy for the construction of hotels but there is also the question of a possible subsidy for running them. In his article, Sir Anthony Milward said: Political circles sometimes get excited about the known ambitions of B.E.A. and B.O.A.C. to participate more and more in hotel ownership. I think that "ambitions" was perhaps a curious word to use when he had just disclaimed the desire to go into the hotel ownership business at all. He went on: In particular it is suggested that it is unfair to private enterprise for nationalised coporations to use public money as capital for projects competitive with the private sector. This is a narrow view which completely ignores the obvious benefits … to the economy of developing hotels. He added: … all our hotels have got to pay. He regarded that point as disposing of the argument that there might be a subsidy in the running of the hotels.

I hope the Minister of State may devote some time to the question of subsidies for the running of hotels. It is obviously true, as Sir Anthony says, that we need new hotel building, but why do we have to put public money into building or running them?

Mr. Spriggs

The hon. Gentleman is asking why the Government should put money into the public sector of the hotel business, but he does not oppose the Government subsidising the private sector of the hotel industry. Would it not be fair to accept the principle of a little competition here and give a little to the public sector as well as to the private?

Mr. Blaker

Perhaps it would be unwise for me to go far along the path the hon. Member for St. Helens (Mr. Spriggs) has opened up. Perhaps I can send him some of the speeches I have made in Committee upstairs on this point. In relation to subsidies for the private hotel sector, the short answer is that I should like to see the private sector treated on a par with other industries. It is certainly not being treated so at the moment. It is being heavily discriminated against.

I do not see how the public will be able to know whether there is a subsidy for hotels opened by B.E.A. Would it even be possible for this House to know whether a subsidy is paid to B.E.A. for hotels, whether for construction or running costs? Perhaps the Minister of State will tell us how this House, which has the job of looking after public expenditure, will know whether there is a subsidy. Even if there is no subsidy in a direct sense towards the running costs, it is surely impossible to believe that there will be equality of competition.

In the past, speaking of B.O.A.C., the Minister of State has said that the fact that it is expected to make a return of 12½ per cent. on net assets is a guarantee against unfair competition. Perhaps the words "unfair competition" are rather emotive, so let us say, "equality of competition." When talking about B.E.A., it is not a question of 12½ per cent. on net assets. The Government White Paper of 1967 put the figure at 6 per cent., and the Minister of State said today, as I understood him, that the target which would be set in the period 1968–69 to 1971–72 would be 8 per cent. before charging interest.

How could a hotel company in the private sector be satisfied to show a return of 8 per cent.—even assuming that B.E.A. achieved its target, for it is now reaching only 5 per cent? A private hotel pays interest on borrowed money of probably 9 per cent., together with Corporation Tax of 45 per cent., it has to pay dividends, and has to have some cover for its dividends in order to plough back money for future development. To the extent that B.E.A. is taking part in hotel development, the inevitable result is likely to be that its hotels will be able to charge lower tariffs, or that it will be able to develop hotels which a commercial concern could not afford to touch.

There is a further point. The rate of return which B.E.A. is expected to make—6 per cent. if we are talking about 1967 and 8 per cent. if we are talking about the objective which the Minister has just explained—is presumably a suitable return for aviation, which is the primary objective of B.E.A., but is it necessarily a suitable return for a hotel enterprise? I do not think it is. The figures for hotels would, logically, be different from aviation figures. So, even without taking into account that nationalised corporations have a bottomless purse, without taking into account that they have favourable arrangements for raising money and that there is no risk, for example, of their being subject to take-over bids, it is difficult to see how competition can be on an equal basis.

On the assumption that my remarks may not persuade the Minister to give a directive to B.E.A. not to go into the hotel business, the possibility of which I must face, what will be the policy of B.E.A. in the running of the hotels in which it has an interest? Will it ensure, so far as it has the power to do so, that any consortium in which it joins for the purposes of hotel construction will offer the British hoteliers a fair opportunity to compete for the running of the hotel? Notoriously, this did not happen with the projected hotel at Victoria. British hoteliers are very worried about this. I understand that it is proposed to form a consortium of several European airlines, and it is fair that British hoteliers should ask that an equal opportunity on a fair basis should be accorded to them to participate in the running of hotels in this country in which British airlines have an interest.

6.53 p.m.

Mr. Russell Johnston (Inverness)

Inevitably, at this stage of a debate on a Bill which is largely non-controversial, most of the basic points have been covered. I seek not to reiterate those points but briefly to record from this bench our support and welcome for the Bill. I welcome particularly Clause 2, which provides for public dividend capital. My hon. Friend the Member for Orpington (Mr. Lubbock) argued for this as far back as November, 1962.

Equally, the House accepts that it is to the benefit of the British aviation industry and of B.E.A. that we should be able to use the Trident. The first Tridents have been very successful, and there is every indication that the third will be an outstanding aircraft.

The hon. Member for Woking (Mr. Onslow), in his wide-ranging remarks at the beginning of the debate, asked one or two questions about the Highlands and Islands services, to which I will briefly refer. We are awaiting the Edwards Report and, in consequence, it is perhaps unfair to tax the Minister about any of these matters, since he will inevitably say, in the equally unfair fashion of Ministers, that he is unable to say anything until he is in a position publicly to comment on the report, which doubtless he has already seen and examined.

I know that acute concern is caused by those sections of the B.E.A. network which run at a loss, and the situation on the Highlands and Islands sector is fairly critical. Last year the annual report of B.E.A. showed the loss in that sector to be £374,000. Leaving out of account any argument as to how exactly accurate this figure may be, the B.E.A. representative, Mr. Herring, was quite specific about it. At paragraph 197 on page 29 of the Minutes of Evidence given before the Select Committee on Nationalised Industries. Mr. Herring said: We have accepted a figure—it has never been defined, but it is in the order of £300,000 a year—as a loss which we can contain very largely from profits elsewhere, but we certainly could not exceed it. If B.E.A. is reaching the position of being involved in a loss which it accepts as something which it cannot contain, we must ask how that loss will be paid for?

I do not know whether the Minister will be able to comment on whether the principle which the Government have accepted in the Transport Act, 1968, for the railway system is a general principle which they are likely to apply to the airway network. I should not have thought there was a basic difference between the two services.

I have not had the glorious experiences of the hon. Member for Glasgow, Govan (Mr. Rankin) of being whisked straight into aircraft, but I fly by B.E.A. probably more regularly than any other hon. Member to and from North Scotland. I make the journey very week, and sometimes two or three times a week, and I find that the overall standard of service and punctuality is extremely good. The people who complain most about B.E.A. are the sporadic users of the service which hit a bad time. They complain bitterly that they could not get on to the aircraft or that they were buffeted by the cross-winds at Turnhouse. This is hardly the responsibility of B.E.A., but may to some extent be the responsibility of the Minister. As one who uses the service regularly, I appreciate the standard which is maintained by B.E.A., and I hope that the Bill will contribute to that standard being maintained in future.

6.58 p.m.

Mr. Stanley R. McMaster (Belfast)

I shall not detain the House for long as the hour is late and there is other business to be done tonight. I shall briefly refer to some matters to which I feel the Minister should pay particular attention. Like the hon. Member for Inverness (Mr. Russell Johnston), I, too, travel regularly by B.E.A., not between London and Scotland but to and from Northern Ireland. Generally speaking, I agree that the servise is of a high standard, though it must be said that one can experience difficulty on occasion.

Only a week or two ago I booked a ticket by telephone. I was told that I should check in an hour before take-off, which seems a little excessive when one considers that the flight to Belfast takes only an hour. However, perhaps it turned out to be right, because I was a little delayed by traffic on the way to the airport. When I arrived, there was a short queue at the desk, but eventually I was able to check in. Due to delays in dealing with passengers who had arrived earlier, when finally I got my ticket I was left with barely 20 minutes in which to check in my luggage, and I found that my seat had been sold. The result was that I had to get another flight, though the notice on my ticket said that it was possible to check in up to 20 minutes before take-off. To round off the story, when I arrived at Belfast I found that my luggage had been lost. I must have got out of bed on the wrong side that morning. I drew the facts to the attention of B.E.A., and I received an apology. It may be that there is a little substance in the comments of hon. Members who have criticised the service.

One or two shortcomings might be considered. First, there is the requirement to check in one hour before take-off. Then there is the fact that one finds only two clerks issuing tickets for the whole of B.E.A.'s domestic services. There are the same number in Belfast, which is a very much smaller airport. That does not appear to be paying proper consideration to the needs of passengers. One of B.E.A.'s aims is to provide a fast city-centre to city-centre service. It is hardly consonant with that to have to check in the same time before takeoff that it takes to fly the 200 or 300 miles to a destination in Scotland or Northern Ireland.

My hon. Friend the Member for Liverpool, Garston (Mr. Fortescue) made the point that B.E.A. must keep up and improve its services. It might even be possible for it to introduce flights such as those between New York and Washington, where one can check straight on to a plane and thereby save half an hour. To persons like the hon. Member for Inverness and myself, travelling every week in both directions, half an hour saved on a flight represents a considerable amount of time.

B.E.A. should remember that on many routes in the United Kingdom it has a virtual monopoly position. As a result of the activities of the Air Transport Licensing Board, very few licences have been given to its competitors. Being in a monopoly position, B.E.A. should take great care of its passengers. It has a special duty. It is not as though it is being pressed by competitors, and, therefore, it should take special care to see that complaints about lost luggage and discourtesy at airports do not arise. Some years ago British Eagle was given a licence to operate flights to Belfast, and British United Airways has now taken it over, but in both cases the licence was granted for only one or two frequencies a day. None the less, a viable service is provided, and it is noticeably better than that provided by B.E.A.

B.E.A. and our whole airline policy would be improved if we allowed more competition on routes within the United Kingdom. Against that, it has been said many times that B.E.A. is in a special position in that a lot of public money is invested in the air corporations. Licences are hotly contested by the State corporations, and it is said that providing them to competitors would only reduce the profitability of B.E.A. and damage the taxpayers' position. However, I think that that begs the question, because it assumes that the same number of passengers will fly in any event.

Where there is competition one normally finds improved standards and more advertising, both of which result in increased traffic. In turn, increased traffic tends to reduce fares and provide more efficient services, and still more traffic is stimulated, As a result, a better market is created for British aircraft, and that assists in the design and production of new aircraft.

A more liberal policy is required if air traffic is to be stimulated and if we are to improve the services rendered to the community. Those, after all, are the ultimate aims of this Bill, and Government policy, at the same time, should be to benefit our aircraft industry.

My hon. Friend the Member for Liverpool, Garston spoke about vertical and short take-off aircraft. I am not so convinced as he is that it is possible for a vertical take-off aircraft to land in the centres of large cities. An aircraft of the size necessary to provide an economic service must carry at least 50 or 60 passengers, and it would require an enormous thrust to take off vertically. In addition, even though a considerable height can be attained with a vertical take-off before transferring to forward flight, the amount of noise created in lifting such an aircraft off the ground would be considerable, and it would require a greater area than is to be found in the docks, as my hon. Friend suggests.

I was pleased to hear my hon. Friend mention the Short Skyvan, which is produced in my constituency, as one aircraft in which B.E.A. might take an interest. In that connection, the question raised by my hon. Friend the Member for Woking (Mr. Onslow) about the competition for a new airbus is one to which the Government should pay very special attention.

It may be that there is a place for both the A300B and BAC311, but I am apprehensive that the Government's indecision about which of these aircraft to support is in danger of making us fall between two stools. Recently, the French and German Governments indicated that they are prepared to go ahead with the A300B, even if the British Government do not support it. That involves Hawker Siddeley withdrawing from the project. Hawker Siddeley has provided a great deal of capital for the development of the aircraft. It will be a tragedy for the British aircraft industry if we lose not only the participation, the employment and the development and design work which this will provide, but also the benefit of that part of the design already contributed by Hawker Siddeley, which has done a great deal of work on the wings and the engine pods of the aircraft.

There is also a danger that if Britain pulls out of the European airbus project we shall lose the engine contract. As long as we were one of the partners it was likely that the Rolls-Royce engine, the RB211, which has already been provided for the Lockheed airbus in America, would be installed in the A300B. But it has been suggested—I believe with some justification—that if Britain pulls out, the French and the Germans, with perhaps Italy also participating, will go on and use the American Pratt and Whitney engine, the competitor of the Rolls-Royce engine. These are important considerations. If France and Germany go ahead, the question remains whether B.A.C. can produce the B.A.C. 311 and whether there is a slot for both aircraft. The A300B would have a sure market in France, Germany, and perhaps Italy, which would leave too small a market for the BAC Three-Eleven. I feel that the Government must come to an early decision on this vital question affecting the future of our aircraft manufacturing industry.

7.12 p.m.

Mr. William Rodgers

rose—

Mr. Speaker

Order. The Minister of State needs the leave of the House if he wishes to speak again.

Mr. Rodgers

I ask the leave of the House to reply.

We have had a useful and fairly wide-ranging debate. I am glad that it has remained on the business and affairs of B.E.A. and has not spread into the whole area which will no doubt be covered when we have the Edwards Report. A number of points have been raised about the need for more competition—for example, about the rôle of B.E.A. in the inclusive tour market. Those are matters which we shall have to discuss at that time.

In preparing for this debate I thought that at this stage I might have to assume a defensive role. I am delighted to find that this is not the case. In particular, I am pleased at the tributes which have been paid to Sir Anthony Milward and to all those who work for B.E.A. Although we may from time to time find some criticism of B.E.A., it is in fact a first-class air line, highly competitive and successful in many ways. No doubt its services can be improved. I share the view of the hon. Member for Belfast, East (Mr. McMaster) that where an air line has a monopoly it has a special obligation to try to maintain standards upon which competition might otherwise have an effect. By and large, I think that B.E.A. has been treated fairly and sympathetically this afternoon, and I am delighted that there is a general feeling that the provision in the Bill is right, given all the circumstances.

The hon. Member for Woking (Mr. Onslow) was helpful in saying that some of the matters which he raised would have to be pursued in Committee. That is the appropriate time to deal with points of detail.

Navigation charges have been raised by the hon. Member for Liverpool, Garston (Mr. Fortescue) and others. As there is a Prayer on this matter, that will be the appropriate time to go into greater detail.

The new forms of aviation—VTOL and STOL—are likely, over a period, to make a real contribution. At the moment, as the hon. Member for Belfast, East has said, VTOL aircraft are exceedingly noisy and this problem will have to be overcome.

It may be of interest to the hon. Gentleman to know that I flew in a Skyvan before it received a certificate of air worthiness. Ever since I have thought it a good plane which deserves to sell well.

I have taken note of what was said by my hon. Friend the Member for Bristol, North-East (Mr. Dobson) about blind and automatic landing. I entirely agree that we must ensure that the lead which Britain has given at her airports in this respect is maintained.

My hon. Friend the Member for Poplar (Mr. Mikardo) gave us a typically well-informed and thoughtful speech which was concerned, in a sense, with the philosophy of the policy upon which the Bill is based. I share his view, and the view of the Select Committee, that it is desirable, in the case of B.E.A. and other airlines, to isolate as far as possible the element of subsidy, to deal with it in a clean and straightforward way without any blurring, and then allow the industry to carry on with its business in a proper commercial fashion. Anything else is likely to lead to inefficiency and to weaken morale.

I think that my hon. Friend will agree that the real point is the fair price. Our discussions with B.E.A. concerned the fair price; in other words, the compensation to be paid to B.E.A. because it was not allowed to buy the aircraft of its choice? At that point many questions come into the equation.

We considered various ways in which the Government's pledge could be honoured. Amongst others, we considered the courses favoured by the Select Committee on Nationalised Industries. Though it is not possible to quantify what the consequence will be of B.E.A. buying this aircraft at the end of the day we felt this was a fair and effective method. We hope that the delay, and the fact that the aircraft does not have the exact capacity which B.E.A. would like, will not loom large and, therefore, that the out-turn will be better than we now anticipate. However, we cannot be sure.

The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) raised the question of the extra £12½ million. He said that it was coming at the end of the period in which the aircraft would be introduced. The Trident 3B is a new aircraft which will be coming into service in about two years. It will not be the precise size that B.E.A. wants. It would be wrong to assume that it will immediately have the earning power of the alternative aircraft had B.E.A. been allowed to buy it. These are matters of judgment and calculation.

The hon. Member for Woking said that he would like more about the figures on which these decisions were based. It was a fair request and I shall do my best to meet it within the framework that he suggested of not unfairly impinging on B.E.A.'s commercial confidentiality. Whereas the expenditure of an airline can be fairly easily predicted for a number of years ahead, it is more difficult to forecast revenue. Revenue depends not only on the attractiveness of the equipment, but upon the growth of the gross domestic product, and the extent to which people change their habits and travel more. It depends, as my hon. Friend the Member for Poplar said in discussing the factors which should be taken into account, on the fare structure—and that is not necessarily within our control. Many factors come into this difficult equation. The matter was looked at very carefully a year ago, and a best judgment was then formed. It would take a brave man to say that the out-turn will be precisely the same as we anticipated then or precisely the same as we might anticipate now.

The hon. Member for Cirencester and Tewkesbury also entered into a very interesting discussion, with which I have a large measure of sympathy, on the crucial question of the relationship of publicly-owned airlines to the manufacturing industries. It is a very complex problem upon which I find it difficult to be dogmatic. One's first instinct is to say that an airline which is expected to operate commercially should be free to buy the aircraft that it wants. But apart from the balance of payments considerations, which can be exaggerated, there is the whole question of the British aircraft industry and whether a British airline should be so free, irrespective of the consequences to British manufactures. We then get on to the further stage and ask, should not the industry seek to build aircraft for which there will be a world market? But here, in a highly competitive field, they are naturally looking round for the airlines which are most likely to provide them with business.

In future, there should be a continuing dialogue, so far as there has not been one in the past, between the airlines and the industry and there should not be too rigid a position in which the airlines say what they want and the manufacturers provide the planes which, in their own judgment, will not pay their way by sales in the world. There are many sophisticated elements in this problem, so I will do no more for the moment than note what the hon. Member says and agree that this should be taken into account in future.

The hon. Member for Garston and the hon. Member for Inverness (Mr. Russell Johnston) mentioned the Highlands and Islands services, as also did my hon. Friend the Member for Poplar when referring to the general problem of subsidy. I agree that the present position is somewhat anomalous, in that B.E.A. has accepted the considerable responsibility of carrying a deficit on its Highlands and Islands operations. As the years go by, the view may be taken either by the House or by the Government that this is a service which should be isolated and dealt with, as my hon. Friend suggested, in the way which we have adopted for the railways. However, for the present, B.E.A. takes the view that this is an obligation which is proper for it to undertake and which has desirable implications for the rest of its network.

I should issue a cautionary word here, if we are looking to the future. We should assume, because of the nature of airline operations, that there will be some routes which turn out to be uneconomic but which an airline, whether nationalisec or independent, believes that it should try to operate. Certainly, in the United States, apart from the routes which are subsidised by the C.A.B., most of the airlines say that, for purposes of their own, they accept an obligation to fly on uneconomic routes. The House would be wise to await the Edwards Committee's Report before deciding what the future structure should be, both in terms of the serving of uneconomic routes for social or economic purposes and, for that reason, where the Highlands and Islands fit in.

The hon. Member for Blackpool, South (Mr. Blaker) raised a number of questions about competition in the hotel business. If we consider that the nationalised industries are here to stay, we must be sure not to place them in an unreasonable position by denying them a right to diversify into fields closely related to their other activities. There is a reasonable requirement to ensure that competition is fair. But it would be defeating the purposes of allowing them to operate commercially if they were told that they could not, for example, enter the hotel market.

We have to be consulted about any major investment in hotels, and the criteria we would apply is the present one of at least an 8 per cent. d.c.f. return. We have control of major capital expenditure, so at the end of the day it would be for Parliament to discuss and to decide whether the scale of investment in hotels by B.E.A. was right.

It is misleading to talk of B.E.A. as an owner of hotels. Its investment in hotels in the whole of Europe over the next five years is estimated at about £3 million. The intention is that most of the capital will be provided from other, mostly private, sources. Private interests will have an adequate opportunity to participate.

On the hotel at Victoria, I note what the hon. Gentleman said, as I am sure B.E.A. will, but firm proposals have not yet been made and we shall have an obligation to consider them when they are made.

Mr. Ridley

I am sure that the hon. Gentleman will agree that there should be absolutely separate and properly presented accounts of such business. He would undertake that B.E.A. or any other nationalised industry which carries on an ancillary activity of this sort will publish completely independent accounts of it, would he not?

Mr. Rodgers

I would certainly assume that B.E.A. would not conceal the outcome of its investment. As has been said, B.E.A. accounts are very detailed and helpful. I wish that all airlines, public and private, were prepared to set so much information on record. As a general principle, that is the direction in which we should increasingly move. So there are proper safeguards for fair competition for B.E.A.'s investment.

The hon. Member for Garston spoke feelingly about the rôle of public airlines in a mixed economy. He was a little unfair to Sir Anthony Mil-ward, who was simply pleading for recognition of the fact that what we want is the growth of British civil aviation and that whether it is in the public or the private sector should not cloud the desire for growth.

It is true that some snide remarks have been made from time to time—although I am glad to say not today—about B.E.A., yet it provides a substantial service. Certainly I have come across no criticisms of the private sector from the nationalised corporations. In the long run, I do not know where the line will be drawn. This is essentially something upon which the Edwards Committee will report, the Government will decide, and the House will debate. In principle, we want to see the growth of civil aviation. I assume that it will be a growth of a mixed sector, but in that mixed sector B.E.A. will have a continuing and very important rôle to play.

I hope that the Bill will receive its Second Reading and will then pass smoothly through Committee to the Statute Book.

Question put and agreed to.

Bill accordingly read a Second time.

Bill committed to a Standing Committee pursuant to Standing Order No. 40 (Committal of Bills).