THE INITIAL DEBT

HC Deb 29 June 1971 vol 820 cc229-37

Mr. Noble

I beg to move. Amendment No. 11, in page 6, line 35, leave out '£35 million' and insert '£50 million'.

Mr. Deputy Speaker

With Amendment No. 11 it would be for the convenience of the House to discuss Amendments Nos. 12 and 51.

Mr. Noble

When the Committee was considering the amount of the Authority's initial capital debt, I explained that we had not yet been able to decide what basis to adopt for the valuation of the assets to be transferred to the Authority. This is a difficult question, especially in the present case, for reasons which I shall explain. I fear that we have still not reached a decision on the matter. The purpose of this Amendment and Amendment No. 12 is, therefore, no more than to set maximum figures for the initial debt and borrowing limit of the Authority high enough to cover any of the possible bases of valuation which might be adopted. The purpose of Amendment No. 51 is to avoid tying the Authority for tax purposes to a basis which might not, in the event, be adopted for purposes of valuation.

The problem is one which has been of some concern to the Public Accounts Committee, which was rightly anxious that assets should not be transferred from the Government to another body at a figure below their current value and consequently representing in effect the giving of a concealed subsidy. By the same token, although it is not suggested that this has ever happened in practice, the value should not be so high as to represent the imposition of a concealed tax. These are important points of principle, and to judge by what the hon. Member for Craigton and I said in Committee, it seems that both sides of the House are in agreement on them.

The difficulty so far as concerns the Authority is to determine what basis of valuation would be neither too low nor too high in this context, given the particular nature of the assets to be transferred. The assets fall mainly into two groups. First, there are the aerodromes in Scotland consisting of land, runways and other facilities, together with other parcels of land, often very small and in inaccessible places, on which beacons and other pieces of equipment have been placed. Second, there are the specialised radars or other forms of equipment used for traffic control and navigational purposes.

So far as concerns these two main categories of assets, because of their specialised nature there is no market in the ordinary sense in which their disposal value can be measured, while their alternative use values, where there is an alternative use, give no guide to their value in their present use. Replacement cost is not a satisfactory criterion, as a large part of the assets, such as radar sets, are unlikely to be replaceable by similar equipment.

Nor does the earning power of the assets provide an answer. The Authority will initially be in receipt of substantial subventions from public funds, although we intend it eventually to become self-supporting. In any case, the Authority does not have complete control over the level of its earnings, because they are in part dependent on international agreement on user charges. If we adopted earning power as a basis of valuation, the economic value of the assets to the Authority would be nil.

This leaves two possibilities. Either one accepts the widely used and well understood present convention of written down book values based on historical costs or one starts from this but allows for the effects of inflation on the value of the assets since they were acquired at the time they are transferred. Both of these methods are abitrary—I think that is inevitable in the circumstances—but we have not yet been able to decide which is the more appropriate or, perhaps I should say, the less inappropriate, as a measure of the assets' present worth in their present use in the very special circumstances of this particular case. Clearly, this is something which we shall have to decide well before the transfer takes place.

If we do adopt the latter basis—that is, the net book values adjusted by price indices—it is likely that a higher aggregate figure than £35 million would result, though perhaps not as high as the £50 million we now propose as the outside limit. If it turned out to be something like £50 million, I readily accept that we should need to revise the date by which the Authority could reasonably be expected to become self-supporting and, instead of allowing five years for this, we should need to allow anything up to seven or eight years.

There is an additional complication which needs to be borne in mind. Most of the income of the Authority will eventually derive from a charge for navigation services, and that charge will be calculated on an internationally agreed basis which at present adopts written down book values.

As I have said—perhaps my explanation has served to confirm this—this is a particularly difficult problem and I seek the indulgence of the House for the fact that I am not yet ready with a solution. It is something which I am sure that we should do our best to resolve as fairly as we can. I trust that the House will accord us further time in which do to this, by agreeing to the Amendments, which are designed to keep both options open.

I shall listen with care to any views that hon. Members may wish to express on a problem which is a difficult one both for us and for the Public Accounts Committee.

Mr. Millan

The Minister has given us a very interesting disquisition on the difficulties of the valuation of the assets to be transferred to the Authority. Without necessarily going all the way with everything that the right hon. Gentleman said—we shall want to consider his statement carefully when we see it in print—I readily accept, as we on this side accepted in Committee, that this is a very difficult problem and that there is no absolutely obvious way of valuing these assets.

The change in figures which the right hon. Gentleman now recommends the House to accept would have—or at least may have—very serious effects for the Authority's financial viability. In Committee the right hon. Gentleman explained that the figure of £35 million was arrived at on the basis of historical cost value. He then said this: As the figures came out, the cost of the fixed assets was about £42 million, less depreciation of £14 million, bringing the amount down to £28 million. Adding on a contribution to the Ministry of Defence on the Linesmen of £4 million and current assets of £2–£5 million brings the figure to £34–5 million."—[OFFICIAL REPORT. Standing Committee A, 6th May, 1971; c. 262.] The right hon. Gentleman will remember that we had tabled a probing Amendment in Committee seeking to eliminate any reference to a figure, because we did not quite understand why there should be a figure in the Bill and we were more concerned with getting a basis of valuation stated in the Bill than with determining in advance what figure would be likely on the basis of that method of valuation. The right hon. Gentleman seemed to be fairly confident then, not that he had necessarily got the absolutely right figure, that this would be the kind of valuation we would be talking about.

It is important to know what the figure is, because Clause 6(1) lays this responsibility upon the Authority: It shall be the duty of the Authority so to conduct its affairs as to secure that its revenue is not less than sufficient to meet charges properly chargeable to revenue account, taking one year with another. That is a fairly familiar form of terminology in the various nationalised industries Statutes.

Some of us pointed out in Committee that it seemed to us to be, at least in the earlier stages, a rather unrealistic objective to set the Authority. The Minister admitted that this was so, that we were giving this general objective to the Authority in the Bill but that in practice it was not to be expected that the Authority would be able to reach the position of economical working until perhaps about five or six years after its inception.

I mention these points to bring out the fact that there is a tremendous amount of uncertainty about the whole matter. First, the Authority is set an objective: the duty is laid on the Authority to pay its way. However, it is admitted by the Minister that the Authority will not be able to pay its way for five or six years. We are not even clear, because some of these matters of air navigation charges, and so on, are subject to international adjustment, whether the Authority will ever be able to pay its way. So in this respect the Bill provides something which may turn out to be unrealistic.

Second, the initial debt is important in this regard, because interest will be payable on this debt, which was in at £35 million up to the Committee stage but which is now, if the Amendment is agreed to, to be £50 million. This is another area of uncertainty, We understood that the figure of £35 million, although not completely accurate, at least represented as accurately as possible what the figure was likely to be. We are now told that it should be £50 million, but we are not sure whether the eventual figure will be anything like £50 million: the figure is put in so that the Government can be on the safe side.

The third area of uncertainty is that the Minister has said that the basis of valuation is very difficult to determine, that there are all sorts of factors which might be taken into account, and that he has not made up his mind about it yet. So we have no guidance on the basis of valuation.

This is unsatisfactory. It is not fair to the House. It will not be fair to the Authority if the legislation states nothing more than this, assuming that the Amendment is agreed to.

In Committee we proposed that the Bill should prescribe a basis for valuation. We were not at that stage dogmatic about what the basis should be. We knew that the Public Accounts Committee had views about this in relation to other statutory authorities. However, we wanted there to be a provision in the Bill at which we could look to decide whether it seemed reasonable to the Authority and to the Government who are transferring the assets.

I therefore ask the right hon. Gentleman to give an undertaking that, even if he is not able to state this basis of valuation now, he will make every effort to have it put in by means of an Amendment in the other place so that at least we know what the basis of valuation will be. It is much better that it should be in the Act than that we should be merely told about the difficulties and that the Government have not yet been able to solve them.

5.0 p.m.

Second, I ask the right hon. Gentleman to look again at Clause 6, dealing with the general financial duties of the Authority. It is becoming more and more unrealistic to have the duties of the Authority expressed in the form in which they are now expressed. In Committee we moved that there should be a qualifying phrase in Clause 6 to say that the Authority would be obliged to pay its way as soon as practicable. We were told that that was not a very useful way of amending the Clause, but some kind of qualifying phrase should be inserted, and I ask the right hon. Gentleman to give an undertaking that at least he will consider that when the Bill is in another place.

Third, the right hon. Gentleman might publicise rather more widely the point he has just made that if the new figure is entered in the Bill, and it becomes anything like the burden which the Authority will have to take on, it will be seven or eight years, and perhaps even longer, before the Authority is expected to pay its way. He knows that the airlines, like B.O.A.C., which issued a statement last week, are extremely concerned at the additional burden that may fall on them if the Authority is bound to pay its way and if a number of financial responsibilities now borne directly by the Government are to be borne by them.

We should treat our airlines in a way comparable to the way in which other countries treat theirs. I said in Committee that there was no argument for saying that as a permanent arrangement the airline passengers should be subsidised. Therefore, if the general principle is that eventually the airline passengers should pay for these things, I would not. go against that. But we should not place our national flag carriers at a disadvantage compared with other airlines. Before we agree to the figure proposed being included in the Clause, we should have a pledge that that is a principle to which the Government will attach importance once the Authority has been established.

Mr. Noble

I will do my best, but I cannot promise, to resolve this particularly difficult problem before the Bill leaves Parliament. I accept, and I think the hon. Gentleman does, the general principle which the Public Accounts Committee has enunciated that where assets are being transferred in normal cases their valuation should take account of inflation since they were originally acquired.

Here we are dealing with a most unusual type of operation. The problem is that the assets are not making any money or are not likely to do so for a long time. They have possibly no value whatever if they are removed from what they are doing, and there is not even a fire insurance value. There is no basis on which I can find an easy method of saying to the Public Accounts Committee or hon. Members, "This is a fair valuation."

We have thought a great deal about the matter and shall do our best to come to a conclusion. If we can, we will include it before the Bill leaves Parliament.

I have noted what the hon. Gentleman said about Clause 6 and will consider it. I very much appreciate his point about our national carriers being treated differently from others with regard to air navigation charges in the present highly competitive international world. These are matters that are decided internationally. I shall try to see that our carriers are treated in the same way as those of other nations.

Mr. Leslie Huckfield

The Minister has missed some of the points made by my hon. Friend the Member for Glasgow, Craigton (Mr. Millan). My hon. Friend was not exactly saying that the internationally-fixed charges were the problem here. The problem was the additional charges on top of the internationally-negotiated charges.

We accept, and airlines accept, that national regulatory bodies, particularly those concerned with air traffic control, have a right to get back from airlines some of the money for the air traffic control services they provide. But it would appear that, on top of those internationally-fixed charges, B.O.A.C. and our other national carriers will have to bear some of the administrative charges which in other systems are either borne by the taxpayer or are financed in some other way. For instance, B.O.A.C. already contributes about 25 per cent. of the total cost of the Air Transport Licensing Board and 17 per cent. of the total cost of the Air Registration Board, as well as about 7 per cent. of the Secretary of State's recovered expenses in respect of air navigation services. If airlines like B.O.A.C. will, in addition, have to pay further administrative charges for the Civil Aviation Authority, that is an unfair and cripplng burden on our major national carriers.

My hon. Friend said that he would have no objection to airline passengers' bearing the full proportion of total costs attributable to the services provided for them. But that is not the precedent which has been adopted with other forms of transport. For example, the Department of the Environment and the Home Office provide various services at the taxpayer's expense for road users and other transport users. Already the taxpayer is subsidising existing forms of surface transport. It does not seem particularly unfair to extend that principle into air transport.

Before we move on to the next Amendment, I should like the Minister to give us some reassurance on the kind of financial burden airlines like B.O.A.C. will have to carry. If we are to increase the value of the air traffic control service assets and still expect the C.A.A. to break even in six years, B.O.A.C. might be asked to bear even more than the 3 per cent. of its annual revenue now being forcecast. That, on top of the £6 million from its annual revenue which is already being shed, is a big burden.

Mr. Noble

I made the point—the hon. Gentleman may have missed it— that what we propose is simply to keep both options until we make up our mind on what is the right and fair valuation, and that, if we increased it, it would clearly be necessary to increase the amount of time the C.A.A. had to break even from five to seven or eight years, so that in that respect there would be no extra charge on B.O.A.C.

Mr. Leslie Huckfield

Can the right hon. Gentleman tell the House anything about the kind of burden a carrier like B.O.A.C. will ultimately have to bear?

Mr. Noble

I cannot at this stage. There are calculations that could be made, but they would be much too wide to be worth giving to the House as a general guide. The problem, as the hon. Member for Glasgow, Craigton (Mr. Millan) appreciated both in Committee and today, is that we have to strike a balance between what is given as a subsidy to air passengers by non-air passengers and what is sensible in the national interest in relation to what other major airlines are bearing. That is a balance which we must strike when the time comes.

Mr. E. S. Bishop (Newark)

Can the right hon. Gentleman tell us whether the Authority has taken the equipment and property outlined in Schedule 2, now costing £50 million? It may be saddled with a lot of clapped-out equipment or aeronautical bangers. Is there any appeal against having to take it over? If so, who decides on the valuation?

Mr. Noble

I think I gave the hon. Gentleman a categorical answer in Committee—that we would not attempt to transfer to the Authority anything which it did not want and which was not being used.

Amendment agreed to.