HC Deb 07 July 1969 vol 786 cc1108-19

Amendments made: No. 1, in page 3, line 15, leave out 2 ' and insert: '(Power to provide for investment of public dividend capital in B.E.A.)'.

No. 2, in page 3, line 22, leave out 2(2) ' and insert: (Power to provide for investment of public dividend capital in B.E.A.) (2)'.—[Mr. William Rodgers.]

11.5 p.m.

Mr. William Rodgers

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

The Bill is now as good as when it received its Second Reading and better than it was an hour ago. I hope that it will commend itself to the House.

11.6 p.m.

Mr. Tim Fortescue (Liverpool, Garston)

I wish to make briefly a point, made in Committee and finally rather grudgingly conceded by the Government, because I want it to be on the record of the House.

At first sight, the Bill appears to convey that B.E.A. is to have an advantage of £25 million. In fact, as will be seen by reading subsections (2) and (3) of Clause 1 in conjunction, it will have the benefit of considerably more than this sum, because it is to have £25 million added to its revenue under subsection (3) and to have its debt reduced by £25 million under subsection (2).

Over the period of years to which these subsections refer, the interest of the sum which will have been reduced from its debt will amount to £5½ million and, therefore, the first tranche of this arrangement will give it £30½ million rather than the £25 million which appears at first sight. On the second tranche, under subsection (4), where £12½million is referred to, B.E.A., if that tranche is activated, will receive an additional £1,850,000 from the reduction of interest on that sum, making a total of £14,350,000.

Thus, the total amount which could be made available under the Bill is not £37½ million, which appears at first sight, but £44,850,000. This point is well worth making. It was at first resisted by the Government in Committee, but at last they told us that this matter was taken into account when the original sums were done. This was not entirely convincing to me, but now that it is on the record of the House perhaps we are all clear about it.

11.8 p.m.

Mr. Donald Williams (Dudley)

The Bill has been brought about by the necessity for a capital reconstruction of B.E.A., which has been based to a great extent upon a policy agreed by the House—that B.E.A. should fly British. That is something which everyone here has supported. As a result, a form of compensation had to be made available to B.E.A. and one of the great problems we have met is how the calculation of compensation was made.

We now find that there is a first tranche of compensation of about £25 million, plus the relief or voiding of the interest thereon in the steps by which this sum is to be given. We understand this to be essential compensation for the fact that B.E.A. has not got the aircraft it would like to have now, but will have certain aircraft it wants in the future. The Bill goes further and says that if, perchance, B.E.A. is not viable by 1972, then it shall be relieved of its indebtedness to the extent of another £12½ million, together, of course, with the voiding of the interest on that sum.

The great problem is how and on what basis this compensation has been fixed. The Minister of State said in Committee: I have no reason to believe that the calculations made a year ago were not made on the best available evidence."—[OFFICIAL REPORT, Standing Committee D, 12th June, 1969; c. 21.] I believe that we would all accept what he said there. But hon. Members have very little information upon which to make a reasoned understanding of what the Minister is proposing in the Bill, and it does come at a time when—as I have complained in Committee and will complain again in the House—the latest information that we have is based upon figures available at 31st March, 1968. It is quite apparent, when one looks at the accounts of B.E.A. at that time, that B.E.A. has incurred capital commitments of a very large sum of money—I believe over £63 million at that date.

As I pointed out then, this means that B.E.A. will need to have further very substantial advances from the Board of Trade to meet its current payments on capital account, and will, therefore, be meeting ever-increasing interest charges on the new money which is being loaned to it.

I asked in Committee if one vital piece of information could be given, and it is the sort of information which anyone negotiating a deal like this would want. That is: what is the true value of the assets of B.E.A. at any given time? It owns very substantial leaseholds and freeholds, and the Government, in the 1967 Companies Act, decided in their wisdom that joint stock companies should reveal any major variations between true values and those shown in the accounts. Anyone negotiating a deal such as this would really want to know the true asset value of B.E.A., and I hone that the Minister will at least give us some guidance on that before the debate is over.

There is one factor which has rather amazed me this evening, and that is when the Minister said that public dividend capital is not part of the reconstruction. I accept that it is not part of the immediate reconstruction, but it is obviously the hope that this will form part of a reconstructed capital for B.E.A. at some time in the future. The basis for this was given by the Minister in the Standing Committee, when he said: I hope that the Committee will not disparage this because morale and incentives in nationalised industries are as important as in any other field—a clear incentive to B.E.A.'s Board. It wants public dividend capital. It has been refused so far. It cannot have it for a considerable period ahead under this Bill. It knows that its total performance, the extent to which it becomes viable, is crucial to the decision on the award of public dividend capital."—[OFFICIAL REPORT, Standing Committee D, 17th June, 1969; c. 84–5.] So it appears that we have restored this evening a whole Clause to the Bill which is only to give some form of hope to the board, to the management of B.E.A., of something which it quite easily may never have. I believe that one of the things hon. Members would have liked was a much fuller disclosure of more of the information which lies behind the deal which has been done, and which, I feel, has been brilliantly negotiated by members of B.E.A. with the Board of Trade. If we had more of this information, I feel certain that hon. Members would be much happier to endorse the Bill.

11.14 p.m.

Mr. Ridley

I hope that this is the last of such Bills which we will have before us. I think it impossible to calculate what the correct amount of capital write-off should be, and that it puts the House in an impossible position to be asked to write off sums of money for reasons such as this.

I know that it is a great advance in thinking on nationalised industries that we should identify the uneconomic content of what they are required to do, and pay for it separately. That is a principle to which I entirely subscribe, but with respect, I do not believe that it has been followed on this occasion.

The uneconomic content is the uneconomic production of uneconomic aircraft, and the way to deal with that is to subsidise the aircraft we make so that they are generally saleable around the world, including to B.E.A.

In future, the right policy for the country will be to trade in the world as a whole, to design aircraft for the world as a whole and to sell them in the world as a whole and perhaps—who knows?—to subsidise them, and I am not saying that we should not. The wrong policy is to require B.E.A. to place a specific order for an aircraft which suits only it and then to subsidise B.E.A. so that the cost of this tailor-made aircraft can be brought down to suit the Corporation.

We will never know the uneconomic element of the cost of this aircraft. We do not know what the growth of world air traffic is to be and we do not know what share of it B.E.A. will be able to maintain. We do not know how long this aircraft will last, or how much it will lose per annum compared with comparable aircraft which B.E.A. would buy.

My hon. Friend the Member for Dudley (Mr. Donald Williams) believes that the Board of Trade has been taken for a ride by B.E.A. He may be right. There is nobody in the House who can say what will be the outcome of this financial deal in 20 years' time. It is, therefore, wrong for us to subsidise B.E.A. to a specific amount resulting from this particular deal.

For those reasons, I hope that this will be the last such Bill coming before the House. If the Government wish to encourage the aircraft industry, let them aid and supplement its revenues directly and let them tell B.E.A. and B.O.A.C. to buy their aircraft on the world market and to buy aircraft which suit them most. What we lost in foreign exchange on the latter transaction we should gain by selling our aircraft world wide.

There is one last regrettable consequence. It looks as though tonight the House is passing a Bill to subsidise B.E.A. It has had enough of the taxpayers' money in the past, but to be fair we must admit that this is not money to subsidise B.E.A. It is money to subsidise the aircraft industry, because if it had not been for the high cost of the aircraft which B.E.A. was forced to buy. presumably it would have asked for this money. So we have made it look as though B.E.A. needs bailing out when it is not B.E.A. but the aircraft makers themselves. This is a point of presentation. It is a bad piece of public relations for all concerned.

This has been a sorry little episode. It has been badly handled and it has arisen out of bad policy. I hope that the lessons from it have been learned. It has cost the taxpayer £37½ million, which is chickenfeed compared with what the Government are used to devouring, but I am not complaining about that at present. I hope that the lesson has been learned—that this is not the right way in which to run an aircraft industry or an airline. If we can buy that piece of knowledge for £37½ million, I for one will be content to give the Bill its Third Reading.

11.19 p.m.

Mr. Michael McNair-Wilson (Walthamstow, East)

Throughout our debates on this Bill there has been a slight air of unreality. As is made clear in Clause 1 of the Bill, the Act was due to come into effect on 1st April, 1968, rather more than a year ago. There is thus an onus on us all to pass the Bill, because B.E.A. may already be operating on the assumption that it will get the money.

The basis for the Bill, as we have heard so often, is the fact that B.E.A. cannot have an aircraft of its wishes and must be compensated for having aircraft which it cannot get until 1971. That aircraft is a new British aircraft, the Trident 3. In view of the remarks of my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley), it is only fair to say that this will be a good aeroplane. There is no reason to suppose that it will be otherwise, but it will be late, and B.E.A. clearly has a case for compensation.

As we know, B.E.A. wanted the Boeing 727, but was told that it could not have it. But all the way through, and this is crucial, there has been an assumption of loss of profitability because B.E.A. cannot have the Boeing now and is to have the Trident later. That is a curious way in which to approach compensation.

B.E.A. argues that its forward planning allowed for the Boeing and, in turn, that allowed it a measure of profitability. But how could it know? Forward planning is not an exact science. It is a science of ifs, buts and possibles. Therefore, to make this assumption and ask for this amount of compensation implies a measure of accuracy in forward planning which B.E.A. does not possess.

I would prefer to think that B.E.A. might have chosen to make the best of a bad job. Denied the aircraft of its choice, why could it not have soldiered on with what it has? I understand that it has notched up considerable profits for this year. Why could it not have gone on to 1971, seen how matters stood, and then worked out the compensation? B.E.A. was aggrieved by the decision not to be allowed to buy the aircraft that it wanted, but I cannot believe that £25 million plus a possible £12½ million extra is the right way to get competitiveness into the airline or give it that measure of incentive which will make it more efficient.

I agree with my right hon. Friend the Member for Cirencester and Tewkesbury that it is to be hoped this will be the last Bill of its kind to be put before the House. What is needed now is for the State airlines to be made to be as commercially viable as possible. They should not be compensated by Governments merely to bolster their balance sheets on problematic forward planning.

11.22 p.m.

Mr. Dobson

It would be unfortunate if there were not a small welcome given to the Bill from the back benches on this side of the House. We have listened to several speeches from hon. Gentlemen opposite which have expressed their grudging support, if not their outright opposition to the Bill.

I take the view, with a number of my hon. Friends, that the terms agreed by the Board of Trade with B.E.A. were rather generous. However, there are escape Clauses in regard to the second tranche, which means that the Government have not over-committed themselves to meet B.E.A.'s desire for compensation.

It is right that B.E.A. should be compensated, and the Bill is necessary to make good the pledges given by the Government when they decided to force B.E.A. to buy British aircraft. The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) has said twice that, as a result we shall be subsidising the aircraft manufacturers. We are, of course, and he knows that we are. A lot of money goes directly into the pockets of the aircraft manufacturers.

We are dealing here with an attempt to assess as fairly as possible the loss caused to B.E.A. by the late delivery of aircraft which it did not want because it failed to meet its technical specifications. That does not mean that the Trident 3 is a bad aircraft. It is not. If it had been, B.E.A. would not have taken it and we would not have had this Bill.

While hon. Members on this side have some reservations about the total amount involved, they do not invalidate our view that it was right to honour the pledges of my right hon. Friend and his predecessors to recompense B.E.A. for its purchases of a very good British aircraft.

11.25 p.m.

Mr. Corfield

The first comment that I should like to make, without too much repetition, is that the Edwards Committee will compel the Government to legislate when there was no necessity to look ahead at all in relation to the £12½ million or to the public dividend capital.

However that may be, as my hon. Friend the Member for Dudley (Mr. Donald Williams) has said, this is a Bill basically to compensate B.E.A. for being prevented from having the aircraft of its choice. It is not being made to take a second-rate aircraft; it is being compensated largely for the delay in having an aircraft coming into service which the decision of the Government, with which we all agree, involved.

We should remember that had B.E.A., in the early days, not put so much influence on Hawker-Siddeley to reduce the specification of the Trident I, it would have been almost exactly the same aircraft, from an operational point of view, as the Boeing 737 which B.E.A. wished to buy. I suppose that we could make an argument for B.E.A. paying compensation to Hawkers, but that is for another occasion.

I agree with my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) that in future the aircraft manufacturers—and I think they all recognise this—will have to aim at world markets. If they are successful, and a particular aircraft does not quite fit B.E.A., we shall be able to afford, on the export results of our world-beating aircraft, either to let it buy the foreigner or certainly to subsidise the cost of the British aircraft rather than on this basis of vague calculations on the difference in operating costs and the costs of delay and all the rest.

It is a great pity—and we must face this in future—that we have been told throughout that it is not in the commercial interests of B.E.A. that we should know the basis of this calculation. We were told the same over the £30 million which was given to B.O.A.C. in relation to the VC10. Yet there is a good deal of evidence—at the least strong suggestion, if not evidence—that the load factor on the VC10 has enabled it to produce probably a 10 per cent. higher load factor than the Boeing 707. As Flight this week puts it, a 5 per cent. load factor above the break-even point over the 10 years of operation would be £25 million, which would amply have covered the extra cost of operation.

There is a strong case here, as my hon. Friend the Member for Waltham-stow, East (Mr. McNair-Wilson) said, for ex post facto checking of the sums. We have at last moved to a situation, in regard to Government contracts to the aircraft industry, where, under certain circumstances, it is fair to do some post costing. It seems odd that the Government have not applied this principle to the airlines where the problems of forecasting and estimating are every bit as formidable as in the manufacturing industries, although for entirely different reasons.

I hope that the airlines will face up to the fact that one of the things that most impressed me, and, I gather, reading between the lines, most impressed the Edwards Committee when visiting the C.A.B. in Washington, was that all these figures, and more, are available very quickly after the event. About six weeks after the financial returns per month are in, they are available on payment of a modest sum. They are broken down to show the operating costs of every particular aircraft on every particular route.

I hope that the airlines, whether B.E.A. or B.O.A.C., will realise that if I ever have anything to do with it, these figures will be published. I do not believe that they harm the commercial interests of the aircraft industry. I believe that the lesson of America is that they sharpen competition and are immensely valuable to the market research of the aircraft industry in finding the right slots in the market. So it is high time that B.E.A. and B.O.A.C. grew up and grew away from the idea of secrecy and all the rest. It is public money. They are accountable to this House. We should be told how the sums are done and they should be checked after the event.

We on this side recognise the achievements of B.E.A. It probably has a more difficult task than most airlines because, alone of countries, we divide our two airlines horizontally, with the short haul in one airline and the long haul in the other. With B.E.A. operating on an average fare of £10, I think that it does remarkably well. But that is not to say that we ought to be complacent. We ought to look at these things carefully before we pass them. We wish B.E.A. well. We only regret that it has even to be suggested that the compensation is needed in relation to a British aircraft, instead of an American one.

11.30 p.m.

Mr. William Rodgers

With the leave of the House, perhaps I might say a few words at the end of our debate.

Nothing that has been said this evening, or that was said in Committee, makes me believe that the principle embodied in the Bill is wrong, or that the figures for compensation are wrong, given the real difficulties in forecasting. I agree with what has been said, that we should make our techniques more refined in this respect. I also want to make clear that in general I am in favour of the disclosure of an increasing amount of information, though the rule which we apply to the corporation should be applied to the civil aviation industry as a whole. Secrecy is the enemy of wise decisions at all times, and I hope that we shall move increasingly in the direction of knowing a good deal more about why decisions have been made.

Perhaps I might add, in passing, that hon. Members who were on the Committee will remember the discussion on the question of B.E.A.'s accounts. I then said that I would be in touch with Sir Anthony Millward and convey to him that the Committee wished to urge him and his board to move in the direction of increasing disclosure, except—and I think that this remains so, though the circumstances must be minimal—when real commercial confidentiality is at stake.

Hon. Members will be glad to know that Sir Anthony has readily responded to this approach, and despite the fact that the accounts for 1968–69 were already in an advanced state of preparation B.E.A. has undertaken to incorporate additional material. For that reason I think that when the accounts are published they will contain some of the information for which hon. Members were asking. But if they do fall short of what can reasonably be required of B.E.A., no doubt further representations will be made to my right hon. Friend and to myself, and I am sure that we shall look at them sympathetically. The principle is, I think, established. The only question is how fast we can move.

On the question of the basis of the calculations embodied in the Bill, attempted in Committee to give as much information as I thought I could. I do not think that this is the time, at 11.30 p.m., to try to produce more detailed information. If an occasion arises I shall certainly do so. I make only one point again, that a large part of these calculations concerns an aircraft of which there is as yet little or no experience. As I said in Committee, the Trident 3B will not fly until December, and to that extent the calculations were a matter of judgment, though I think I can say that B.E.A. took at valuation the manufacturers' own view of the performance of the aircraft.

Mr. Ridley

Does the hon. Gentleman think that it might be a good idea, in five years' time, to go into actual determined operating costs and check with the estimates to see whether we have provided too much or too little, just to square it up?

Mr. Rodgers

I have a good deal of sympathy with the suggestion. Quite frankly, it seems that a lot could be said for doing that exercise on the VCIO, because, for the reasons which have been mentioned this evening, it is desirable that we should know. The fact that the calculations may turn out to be right or wrong does not invalidate the argument for having made the judgment this way. In every commercial undertaking one can be right sometimes, and wrong sometimes. The important thing is to be right more often than wrong. We should get away from the situation in which we cannot examine the past for fear of what it may reveal. That is not a good way of making decisions, though here I should apply the same rule to the private as to the public sector.

The hon. Member for Dudley (Mr. Donald Williams) mentioned two matters. I have dealt with the first, the general one about disclosure. The other was about the valuation of assets. I understand that there are three bases of revaluation used by the commercial world. First, the estimated costs of replacing assets. Second, the estimated price they would realise if sold. Third, the assessed value based on their earning power on a "good concern" basis.

I have tried to apply all these three methods to B.E.A., given that revaluation generally occurs only on change of ownership, takeover or public flotation, I have not found a means by which these could profitably be applied to B.E.A.'s assets. If, however, the hon. Member has some other course in mind, if he writes to me I will certainly examine it.

The hon. Member for Liverpool, Garston (Mr. Fortescue) drew attention to something to which he drew attention in Committee. I am not, I think, in disput with what he said or not with the larger part of it. The hon. Member has tried to make clear that the figure is, perhaps, slightly larger than might appear at first sight. As I said in Committee, however, our decisions were made on the basis that the hon. Member has in mind and, therefore, there is no reason to change them.

I was delighted, as I always am, by the warm friendship of my hon. Friend the Member for Bristol, North-East (Mr. Dobson), who believes that it is a good Bill. That must be the verdict.

I am glad also that the hon. Member for Gloucestershire, South (Mr. Corfield) said that he wished B.E.A. well. That is a sentiment which has prevailed throughout all our discussions. We wish B.E.A. well and we hope that the Bill will be a basis upon which its fortunes will increasingly improve.

Mr. Corfield

I should like to make it clear that in suggesting a post-costing of the VC10, I am not interested in finding out that somebody has made a mistake, which is bound to happen from time to time. I am interested to know, and the purpose is to assess, the true value of this aircraft. It could have made a lot of difference to the sale of the aircraft had we had that information.

Question put and agreed to.

Bill accordingly read the Third time and passed.

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