HC Deb 20 July 1979 vol 970 cc2183-98
The Secretary of State for Trade (Mr. John Nott)

With permission, Mr. Speaker, I will make a statement on the financing of British Airways.

British Airways has embarked on a major programme of fleet replacement and expansion and I believe that it has excellent growth prospects. As our principal national carrier, it is operating in an increasingly competitive market and, while the world energy situation creates considerable uncertainties, I am none the less confident that the airline will, with the Government's full encouragement, face these challenges successfully.

Clearly there must be some flexibility about the rate of expansion in the face of these uncertainties. Nevertheless, the present appraisal is that British Airways will require a substantial increase in capital investment from both internal and external sources over the next few years in order to meet its objectives. For this reason, I have been looking at its capital structure and financial requirements, and I should like to let the House have my views and proposals.

First, the Government are concerned to give British Airways the most effective form of organisation for carrying out its programme in response to the changing demands of the market rather than on the basis of Government targets and support.

Second, I propose therefore that the framework of the Companies Acts should be used to provide British Airways with a new capital structure and that a substantial minority shareholding in the enterprise should be offered for sale to the public.

Third, the Government will give up control, for example, over British Airmays' investment programme and it will in future satisfy its financial requirements from capital markets both at home and overseas.

Fourth, my proposal does not involve a separate disposal of any part of British Airways.

Fifth, special arrangements will be made to enable employees of British Airways to take up shares in the enterprise should they wish to participate in its future and share in its growth.

Sixth, I envisage the fullest possible process of consultation with the airline's management and employees.

Seventh, I will put forward proposals later in the year for the legislation which will be required. The timing of any issue of shares will depend on market and other circumstances.

Eighth, I will also set out the Government's thinking on the licensing provisions administered by the Civil Aviation Authority. I can say now, however, that there will be no arbitrary reallocation of routes.

Mr. John Smith

Is the right hon. Gentleman aware that the decision to make a statement of this gravity and importance on a Friday allocated to Private Members' business is contemptuous of the House? What possible reason is there for not making this statement next week on one of the days allocated to public business? Is it not a further example of how the Leader of the House is allowing the rights of hon. Members to be overridden by those of departmental Ministers?

On the substance of this alarming statement, may I ask whether the right hon. Gentleman is aware that it will be greeted with shock and dismay by all those who wish well to one of our most important public utilities? Will he confirm that there is not a word about such a proposal in the Conservative Party manifesto and that the present Government, who did not have the guts to put these proposals before the electorate—it was obviously a preconceived proposal—have no mandate to sell off a profitable section of a public industry to their private sector friends and to their party contributors?

Is the right hon. Gentleman aware that in the statement he cannot and does not seek to justify this change of ownership —because that is what is involved—in terms of increased efficiency, profitability or industrial relations? Will he say what problems have existed in the past in raising the necessary finance for British Airways? The truth is that such finance can in the future, as in the past, be found from public resources.

What is meant in this Delphic statement by the phrase " a substantial minority shareholding "? Will the legislation —and I want the right hon. Gentleman to give a definite answer on this question—give a guarantee that it will never become a majority shareholding? Finally, is it not astounding that a change in the ownership of an airline should be announced without any consultation whatever having taken place with any of the people who work for that airline? Does that not indicate that the Government's views on industrial relations are as negligent as is their concept of the trusteeship of public assets?

Mr. Nott

I was anxious to make the statement as soon as possible. We have only one more week to go before the Summer Recess, and I appreciate that Friday is not an entirely convenient day for the right hon. Member for Lanarkshire, North (Mr. Smith). In view of his personal position, I am sorry that the statement could not have been made at a more convenient time, but I was anxious to make it as soon as possible.

Contrary to what the right hon. Gentleman said, I believe that there will be no shock or dismay. In fact, I believe that exactly the opposite will be the case when we explain the purposes and reasons behind our action. Unlike the Labour Party, we are not prisoners of our manifesto. Our proposals are entirely in accordance with everything we said during the election and everything that was contained in our manifesto. As for selling off shares in British Airways to the private sector—to our " friends ", as I think the right hon. Gentleman called them—perhaps he did not hear me say that one of the principal purposes of the operation is to give the 57,000 employees of British Airways the opportunity to own shares in the airline. It will also give the pension funds, with millions of beneficiaries, the opportunity to share in the future of British Airways. At present British Airways is effectively controlled by one or two Ministers and the odd Treasury official. That is what public ownership often means. I want to give an opportunity for widespread real public ownership in our national carrier.

As for the proposals for a minority shareholding, I have explained the Government's present proposals. I cannot possibly say what future Governments may wish to do. However, my present proposals are specific. We are concerned in these proposals with the selling off of a substantial minority shareholding.

Of course, I intend to have consultations with the employees. [HoN. MEMBERS: " Too late.") There is not much point in my having consultations with anybody until I have set out my proposals to the House. Now that I have set out my proposals, I intend to have consultations with the trade unions and with the employees, and they are today being informed of these proposals by the chairman of the airline. I have already written to them saying that I shall be happy to see them next week and to discuss these proposals with them.

Mr. J. Enoch Powell

I sympathise with the economic philosophy which appears to underline this statement, but will the right hon. Gentleman explain how the remaining majority shareholding in the enterprise will be represented on the management? If it will be represented by Government appointees, will they be required to act on the Government's instructions, or will they be entirely uninstructed and act as private individuals in their personal capacity? If the latter is not the case, how can others be expected to entrust their capital to an enterprise over the management of which they have no control?

Mr. Nott

One of the purposes of my proposal is that the airline management should be more independent of Government than it is at present. As to precisely whether the Government as a majority shareholder should have directors on the board and how many there should be, these are all matters clearly for decision at the time of the share issue. They will have to be contained in the prospectus of any share issue. We can then consider them.

The right hon. Gentleman is well aware of the special circumstances surrounding BP, for instance, and the Bradbury letter. I see no reason for that kind of arrangement. The Government will be the majority shareholder of the airline and therefore will be entitled, as is any other shareholder, to have their representatives on the board. But we can consider all these matters in the next year or so. I am including provisions to turn the corporation into a company in a civil aviation Bill which I hope to bring forward in the autumn and which will give plenty of time to debate these issues.

Mr. Adley

Is my right hon. Friend aware that, in contradistinction to the two views which we have heard from the Opposition, both of which in their own way were extreme, most people with the interests of British Airways at heart will welcome this mixed economy solution which he has proposed?

Is he also aware that many of the staff—and I am referring not to Mr. Clive Jenkins but to people who actually work in British Airways—feel that Goverment control of British Airways in the last few years has acted more as a brake than as an accelerator, and that today's statement should give fresh impetus to the growth of an airline which is having to face increasingly strong competition and which this statement will do much to help?

Mr. Nott

I thank my hon. Friend for his remarks. The Government wish to secure an investment programme for British Airways. It is an enormous programme which amounts to about £2.4 billion over the next five years. We wish to secure that investment programme for the benefit of British Airways, its employees and the country in a way that will ensure that it is not continually subject to the vagaries of wider public expenditure constraints. When the employees of the airline understand the proposition, I believe that they will welcome it. It will give them and the management more independence of the Government and, therefore, a more secure future. There is enormous interest in the matter, notably on the part of Rolls-Royce employees. That company may provide many engines for the aircraft which British Airways will buy in the next few years. Anything that can be done to secure the future in that way is positive for jobs in the country.

Mr. Donald Stewart

Is the Minister aware that, in my view, British Airways has been thoroughly unsatisfactory as a nationalised industry in meeting its obligations to the more distant and less profitable parts of the country? It has been operating in a capitalist system in any case, but if his plan is carried out areas like my constituency will be taken out altogether because it will be one of the less profitable parts of the operation. We shall have no chance to survive. Will the Minister desist from the most outrageous piece of looting that has been undertaken so far by this Government?

Mr. Nott

There is no reason why, if it is considered to be essential in a number of years, a specific subsidy should not be granted to a private sector industry. I am anxious that the airline should be more independent of the Government. A far wider group of people will have a genuine chance of participating and sharing in the future of British Airways, particularly its employees. The right hon. Gentleman should welcome the plan.

Mr. Trotter

Does the Minister agree that this is the most likely way of ensuring a prosperous future for the 50,000 employees of British Airways? Is is not by meeting competition through efficient management that the employees' prosperity will be assured for the future? Is not the withdrawal of the dead hand of politicians and civil servants the major step to be taken to ensure a successful future for our major flag carrier?

Mr. Nott

I understand my hon. Friend's ideology. The Opposition believe that this sort of enterprise, which is already operating in a competitive world market, is better controlled by a few Socialist politicians than by a group of shareholders who include the employees of the airline. I do not agree with that.

Mr. Buchan

Does the Minister appreciate that there will be bitter resentment among the many workers of British Airways both over the manner in which the statement has been made and its content? He is insulting not only the House but the workers in the industry by the way in which he has done it. Is he saying that, instead of making this great carrier subject to what he calls public restraints, he will leave it to the free operations of the market? Will not that mean that the public will have to continue to pay for the less profitable areas while his supporters reap the profits from the profitable sections?

Mr. Nott

I do not understand why the hon. Gentleman believes that British Airways is not subject to free competition in the market now. The future of its employees is now directly related to its success in competing in the world airline market. Nothing will change in that respect for the employees of British Airways because some of the shares are already held by pension funds and the employees of the airline.

I have studied carefully the shareholding of other national airlines. Eighteen per cent. of Lufthansa shares are held outside the public sector; Alitalia has private sector participation in the form of non-voting preference shares; Air France and Air Inter have private sector participation by firms with transport and travel interests; and in SAS the Swedish, Danish and Norwegian Governments hold 50 per cent. of the shares while the public hold the other 50 per cent. Indeed, British Airways holds shares in other airlines. What is so radical and dramatic about my proposal? It adheres to the normal pattern for world airlines.

Mr. Wilkinson

I declare a commercial interest as a non-executive director of an air charter company and a constituency interest in that many British Airways workers live in my constituency. I welcome the statement. As my right hon. Friend says, it provides an opportunity for the airline not to be subject to the vagaries of public expenditure changes at governmental level. I welcome the fact that it will not be disposed of piecemeal but made a commercial entity. It will be a good thing if dual designation could be encouraged in a review of the CAA guidelines rather than a geographical carve-up.

Mr. Nott

We are currently examining the guidelines and in due course we shall make a statement about them. I am sure that what my hon. Friend says about his constituents is correct. We must all try to explain the matter to the employees of British Airways before the ideological brigade of Labour Members tries to tell them that it is against their interests—it is not.

Mr. George

Is this a late and great conversion to syndicalism worker democracy, or is it a cynical attempt to buy off potential opposition from British Airways employees? Is this what Sir Frank McFadzean, that great Socialist, was doing during the election? Was he plotting to flog off public funds? Is it not a high price to pay to give workers in the Conservative Party a cheap thrill at the party conference?

Mr. Nott

The hon. Gentleman talks about syndicalism. I thought that I had heard him and his hon. Friends speaking in favour of worker ownership and workers' co-operatives. Time and again the hon. Gentleman propagates the cooperative principle as being one that he favours. What is wrong with offering British Airways employees a share in its future?

Mr. Colvin

Is my right hon. Friend aware that Conservative Members appear to be more in touch with the workers of British Aerospace than do Labour Members? When the time comes to float the shares on the market or offer them to employees there will be no shortage of willing buyers.

Mr. Nott

My hon. Friend is right. There will be a demand for British Airways shares not just from the employees but also from pension funds which will wish their millions of beneficiaries to have a real share in the national carrier rather than the unrealistic one that is known as public ownership.

Mr. Skinner

Is the Minister aware that it should be put on record that the previous Government were not prisoners of their manifesto? Had they been so imprisoned, the right hon. Gentleman would not have made his statement because there would have been a Labour Government in office. Was not the central argument of the Tory Party manifesto that if the Tory Party was returned to office it would look after the taxpayer? Taking that into account, is it not totally contrary to sell off the easy pickings within the nationalised industries while leaving the difficult bits to be picked up by the taxpayer? In coal mining terms, is it not like selling off Selby to the private investor, the Tory campaigner, while, at the same time, leaving less profitable areas like Durham, South Wales and Scotland for the taxpayer?

Mr. Nott

With regard to the hon. Gentleman's first point, I hope that he will be more successful than he was previously in making the Labour Party the prisoner of its manifesto. If he succeeds, we shall remain in power for the next 50 years. I am concerned about the taxpayer. If the share issue goes through successfully, about £1,000 million of what is classified as public expenditure will come out of Government accounts. I want that sum to be outside the balance sheet of the Government, because I see no reason for its being there. In that way, the Treasury and the Exchequer will not interfere with the future programme of British Airways. I do not think that that is beneficial to the employees, the airline or the country.

Mr. Lawrence

May I congratulate my right hon. Friend on a courageous and exciting, if rather unexpected, decision? Only to doctrinaire Socialists will the decision be alarming. They do not seem to care very much about the enhanced work prospects of Rolls-Royce employees who live in my constituency. Labour Members seem to be out of touch with the will of the people.

What effect will my right hon. Friend's decision have on the borrowing requirement of the nation? Will the fact that British Airways will be purchasing its aircraft overseas mean that the cost of financing the purchases will fall outside the ambit of public expenditure?

Mr. Nott

British Airways has in its plans the purchase of a large number of Boeing 747s, Lockheed Tri-Stars and Boeing 757s, all of which have Rolls-Royce engines. The more that we can secure the investment plans of British Airways against the vagaries of public expenditure restraints, the more likely it is that my hon. Friend's constituents will have interesting and secure jobs.

In regard to my hon. Friend's question about public expenditure, we are talking about technicalities, but if the scheme goes forward as I propose about £1,000 million which appears in the public sector borrowing requirement will no longer do so.

Mr. Foulkes

Does not the right hon. Gentleman agree that workers' participation can, and should, be achieved without relation to their ability to purchase shares? Will he guarantee that if, as a result of his consultations, it appears that there is a significant body of opinion against his doctrinaire proposals, he and the Government will change them? If he does not, the consultants will be seen for the complete sham that I believe that they will be.

Mr. Nott

I am prepared to make the consultations as genuine as I can. That is the purpose of them. I cannot see any purpose in calling in trade unions and others to discuss matters until I have set out what it is that I intend to discuss. I thought that it would be more appropriate if I made the statement in the House and set out the proposals. Next week I shall have the opportunity of discussing them for the first time with the employees.

Mr. Onslow

May I congratulate my right hon. Friend on his statement and his robust response to the ritual histrionics of the Opposition Front Bench and other Labour Members? The freeing of British Airways from the constraints of the public sector borrowing requirement must be a major contribution to the airline's success. The participation of employees in the equity and efficiency of the business ought to give the public the hope of a better service. May I stress that I hope that my right hon. Friend, in revising the guidelines, will not perpetuate any protection for British Airways against the spur of competition from other free enterprise British operators?

Mr. Nott

On my hon. Friend's final point, I cannot go beyond what I said in my statement. There will be no arbitrary reallocation of routes. As soon as I am ready to make a statement about revised guidelines, I shall do so. I thank my hon. Friend for his remarks.

Mr. Robert C. Brown

I am sure that the right hon. Gentleman will realise, on reflection, that his plan will be seen in the country as nothing short of aerial piracy. Aircraft are normally hijacked one at a time, but the right hon. Gentleman proposes to hijack a whole airline in one fell swoop, without consideration being given to those with a real interest —the people of the nation. There was no reference in the Conservative manifesto or in the Queen's Speech to that disgraceful proposition. Will the right hon. Gentleman seriously reconsider his proposals? Is he not aware that it is monstrous to present the workers in the industry with this fait accompli?

Mr. Nott

I should explain to the hon. Gentleman that I am thinking of a two-stage process. I am anxious that parliamentary draftsmen should start drafting, during the Summer Recess, the few clauses—I do not know precisely how many—that will be necessary to convert the corporation into a Companies Act company. Now that I have made my announcement, that process can continue. We hope to bring forward the relevant clauses in a civil aviation Bill in the autumn. As soon as that is on the statute book, there will be a process, which will take some time, of transferring the assets to the new company. At that time we shall consider the timing, the market and other circumstances of a share issue.

That is the process which we intend to undertake. It must take time. There is a great opportunity for the management and board of British Airways to consult their employees and for Ministers to consult those employees. I genuinely intend that that should happen. I cannot say more than that.

Several Hon. Members


Mr. Deputy Speaker (Mr. Bernard Weatherill)

Order. This is private Members' day and we have an important debate to follow these exchanges. I shall call two more hon. Members from each side of the House.

Mr. English

Will the right hon. Gentleman consider the Dutch idea and in his reconstruction of British Airways make provision for consumer directors elected by passengers? The one thing that he suggested that is not true is that British Airways, or, for that matter, most of the other airlines that he mentioned, live in a competitive world. If he studies what is happening in the United States and advocates that course of action in the EEC, it would enable us to travel to France, Germany or Italy for a great deal less.

Mr. Nott

I welcome the hon. Gentleman's support for the market economy and a more competitive environment in the world airline business. I believe that that would be to the advantage of airline users. I want to see air fares come down. That is our wish.

The hon. Gentleman referred to directors representing the consumers' interests, but that is what the board of directors is there to do. It should make sure that its operation provides the best possible service to the consumers of the product, in this case the airline passengers. I hope that the new environment that I am suggesting will encourage better consumer representation in that sense.

Mr. Jessel

Is my right hon. Friend aware that his statement will be warmly welcomed by many of the 57,000 employees of British Airways, a large proportion of whom live in my constituency, which is close to Heathrow? If the issue of shares is over-subscribed, will my right hon. Friend ensure that employees of the airline get preference? He has twice mentioned pension funds. Will he see that the institutions are not allowed to squeeze out small and individual applicants for shares and ensure that shareholdings are as widely distributed as possible?

Mr. Nott

We shall want to give special attention to that matter in preparing the detailed arrangements. When we come to the preparation of a prospectus for sale, we shall obviously give close attention to the allocation of shares to those who work in the airline. I do not think that that will be a difficult process because there is a well recognised City practice of setting aside a number of shares on a preferential basis for those who work within an organisation. That is certainly one of our principal purposes, and we are sure that that will happen.

Mr. William Hamilton

Do the Government have any further plans for flogging off successful public enterprises to private speculators? Does the Secretary of State not agree that it seems to be the principle of Tory Governments that when private enterprise is in difficulty, as with Rolls-Royce, they nationalise it, and that when it is successful as a public enterprise they turn it back to private enterprise? Will the right hon. Gentleman give an assurance that if he has any further plans—this point is addressed to the Leader of the House as much as to anyone—he will announce them not on a Friday but when the attendance of the House is at its height and all hon. Members have the chance to examine? Was any pressure brought to bear on the right hon. Gentleman by the workers in the industry to bring about the proposals in the statement?

Mr. Nott

I think that the hon. Gentleman should address further comments about on which day of the week the statement should have been made to my right hon. Friend the Leader of the House. I have already answered that point.

I do not understand why the hon. Gentleman needs to refer to the potential shareholders in British Airways—people such as the 57,000 who work there —as private speculators. It is an abuse of even the hon. Gentleman's own ideological prejudices to speak in that way. I could not, of course, convince the hon. Member in the short time available to me that neither the employees of British Airways nor the millions of beneficaries of British pension funds are necessarily private speculators. I shall do my best on some future occasion to convince the hon. Gentleman.

Mr. Hill

Is my right hon. Friend aware that I have an interest to declare in that I served with British Airways for 11 years and am in receipt of a very small pension. I hope, therefore, that he will not think that in my question I am in any way biased. When the employees are welcomed into sharing in the assets of British Airways, could not that be extended to the pensioners who in many cases have served British Airways for upwards of 25 years? My right hon. Friend says that he wishes the airline to be more independent. Will he reiterate that one of the prime causes of the downfall of British Airways from time to time in the past has been Government insistence on purchasing certain types of aircraft?

Mr. Nott

My hon. Friend's latter point is a fair one, and one of which I am conscious in making these proposals. I am not entirely unaware of the interests of pensioners—I shall not call them old-age pensioners. My hon. Friend the Under-Secretary, who sits beside me, is also a pensioner of British Airways.

I see no reason why we should not try to work out some such system. I cannot commit myself at this stage, because these matters lie a long way ahead, but I take my hon. Friend's point that pensioners who have served the airline long and faithfully should be given due consideration along with the employees.

Mr. Buchan

On a point of order, Mr. Deputy Speaker. We look to you always for guidance and protection, and I hesitate to raise this matter now because Private Members' time is valuable. I represent one of the largest airports in Britain outside London. It was only by the sheerest accident that I came into the House and heard the statement. As far as I can see from the statement, the only reason for its being made today is that the Government have made such a jam-up over the Pandora's Box of next week's business.

Is it not clear that the Government Front Bench has treated the House with a good deal of contempt over recent weeks, that the contempt is increasing, and that it ought to be diminished? Is it not a gross insult to Private Members and to the understanding of the House for the Government to choose a Private Member's day—a Friday—on which to make such a statement? Will you, Mr. Deputy Speaker, make it known to the Government Front Bench that this practice ought to cease?

Mr. Deputy Speaker

That may well be so, but it is not a matter for the Chair. The Leader of the House is present and will have heard what has been said by the hon. Member for Renfrewshire, West (Mr. Buchan).

Mr. Clinton Davis

Will the Minister explain why, when I predicted during the election campaign that this was one of the courses likely to be followed by a Conservative Government, it was described by the Conservative Party as a dirty lie? Is it not clear that whatever representations might be made to the Government, whatever evidence might be produced, they will not be deflected from these half-baked, hard-boiled proposals, and that the offer to consult is therefore a complete sham?

As to the employees' shareholdings, will the Secretary of State indicate what proportion of the shares he has it in mind for the employees to hold? Is it not likely that that proportion will be minuscule in relation to the total shareholding? Is it not likely to be just a fig leaf of respectability to hide the real motives of the Government which are to plunder a successful State enterprise to pay for the benefit which has been given and which is still to be given to the most wealthy in society?

If the right hon. Gentleman is so concerned about enhancing the voice of the employees, why does he not help to build up the authority of the British Airways trade union council? He has bypassed it in this respect. Why does he not arrange with it for its voice to be heard directly on the board? Is it not clear that the reason for the unseemly haste in making the statement today is that the Secretary of State is more concerned about making his number at the Conservative Party conference in October than in safeguarding the true interests of British Airways and its employees?

Mr. Nott

Let me deal with the penultimate point first. The hon. Member has just completed a term as aviation Minister, a post he held for four or five years. It is a bit odd, when we have been in government for two months, that he should complain to me about the lack of trade union representation on the British Airways board. If he is so keen on it, what has he been doing all these years? For him to say that to me sounds very strange.

I have made it clear that I intend to consult the trade union bodies that he has mentioned. There is more than one. I have written to them and have offered to see them next week. I cannot do more than that. Until I announce our proposals, I have nothing to consult them on.

As for the point of order by the hon. Member for Renfrewshire, West (Mr. Buchan), perhaps the hon. Gentleman should bear in mind that the House complains when it reads leaks in the newspapers and an announcement has not been made in the House first.

Mr. Buchan

The statement should have been made on Monday.

Mr. Nott

When there has been no leak of the Government's intention and I have come to the House to make the first announcement, Labour Members complain—

Mr. Clinton Davis


Mr. Nott

How can it be cowardice to make the statement when I believe that it will be widely welcomed throughout the country?

We shall look at the percentage of shares to be made available to employees when we come round to making a share issue. That is a long way ahead, and the timing will depend on a host of circumstances. To some extent, it will depend on the number of employees who want to hold shares. However, we shall certainly make sure that preferential arrangements are provided for them. I think that those are the points that the hon. Gentleman asked me—

Mr. John Smith

What about the dirty lie?

Mr. Nott

I must look to see which particular authority put that out.

Mr. Clinton Davis

It was the Tory Party. Here it is.

Mr. Nott

It looks like the Daily Mail to me.