§ Order for Third Reading read.5.27 pm
§ The Secretary of State for Trade (Mr. John Nott)
I beg to move, That the Bill be now read the Third time.
Although the Third Reading of this Bill has been awarded prime debating time, I do not think that it is an occasion for a Second Reading speech on civil aviation generally. Indeed, Mr. Deputy Speaker, you would call me to order if I were to attempt to make it so. The Bill has already been discussed in considerable detail, and in a most constructive spirit, on both sides of the House. My chosen task in opening the short debate today will be to highlight one or two aspects of the Bill that merit public attention and employee interest—that is, the employees of British Airways.
Part I of the Bill deals with British Airways—our prime national flag carrier—and provides the legislative framework for a change in the status of the airline to accommodate an injection of private sector equity capital—as well as greater freedom of operation for the management.
British Airways is not a monopoly. It has to operate in an international market which is highly competitive and at the forefront of technological progress. The best way for the Government to ensure British Airways continued success in that market is to provide management with full commercial freedom to take and implement its own decisions. It is that freedom which will offer British Airways the best chance for continued success and profitability. As I made clear from the outset, my colleagues and I no longer wish to stand in judgment over the detailed running of the business, take decisions on the amounts that British Airways should invest, what aircraft it should buy, and the amounts it may borrow. I want to get the Treasury off the back of British Airways. All these controls will be abolished when the Bill is implemented, and I am convinced that the airline's future prospects, and therefore those of its employees and customers, will be better for it.
541 Although part I of the Bill contains the legislative framework for the change of status to a company on an appointed day, we intend to retain complete flexibility about the timing of the sale of shares.
The international civil aviation market is at present going through a difficult time, due largely to the rapid increase in fuel prices over the last year or so, together with some falling off in demand for air travel. British Airways has not escaped these problems, and the results for 1979-80, which will be announced shortly, will fall considerably below what the board had earlier expected. British Airway's continues to face problems in the current year and, as the House will know, the board has developed a plan of action to maximise profits and maintain its competitive position.
The industry faced similar problems before in the mid-1970s, and British Airways showed its ability to recover then. In the past few years, airline traffic has grown at an average of 8 per cent. per annum, and I do not believe that the present difficulties will be long-lived. I am confident that when the market does recover British Airways has the right plans and the right policies to continue to operate profitably and to achieve a successful flotation The earliest possible date for such a flotation would be the summer of 1981. However, I emphasise again that it is too early to take any decisions. We have no commitment to any particular date, and we shall continue to preserve flexibility on this issue.
Throughout the debates on the Bill, my hon. Friends and the official Opposition have rightly raised many points about the interests of the employees, and in particular about employee shareholding. In my statement on 20 July last year I said: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."—[Official Report, 20 July 1979; Vol. 970, c. 2183.]That is our intention. We believe that the employees should be given the opportunity to acquire a more tangible stake in the company and should be able to do so on favourable terms. We are working out four ways of making employees into shareholders. The principal 542 offer that we would like to make to the employees of British Airways is to make "two shares for the price of one" available on the same lines as the recent BP offer. The idea is that for every share that an employee is willing to buy at the ordinary offer price, another share will be given to him free, provided that both shares are held by trustees. The value of the free share will then not be subject to income tax. Under the new concessions in clause 46 of the Finance Bill the shares need be held by the trustees only for a minimum period of two years instead of five years under the Finance Act 1978. If the employee decides to withdraw his shares from the trustees and sell them during the next five years, the tax concession is wholly or partially withdrawn.
The Finance Bill also raises the maximum value of shares which can be given to an employee in any one year from £ 500 to £ 1,000. I hope that a large number of British Airways employees with more than a qualifying period of service will take advantage of this bargain offer—which could entitle them to a substantial investment of up to £ 2,000 at about half the offer price to outside shareholders, and with considerable tax advantages in train.
§ Mr. John Smith (Lanarkshire, North)
Perhaps the Secretary of State will be good enough to explain why this announcement, which appears to me to be quite a new matter, was not announced earlier by the Government so that it could have been considered in detail and with care by hon. Members, sitting both as a House and in Committee. It is extremely odd that the Government should produce a new statement at the last gasp of consideration in the House of Commons. I submit that that is not a proper way to treat Parliament.
§ Mr. Nott
I do not think that that is correct. When the proposals for the British Airways employee shareholdings were discussed in Committee my hon. Friend the Under-Secretary of State said that the development of our ideas must wait until we saw what my right hon. and learned Friend the Chancellor presented in his Budget. We now know that he made two valuable tax concessions available in the Budget to encourage growth of employee shareholdings in general. I thought that it was appropriate to give 543 notice now of our intentions. I intended this to be helpful, and I am not quite sure why the right hon. Gentleman should consider it unhelpful to give favourable news to the House. I am sorry, but I am slightly lost.
§ Mr. Smith
The right hon. Gentleman obviously does not understand what I am driving at, which is that it is the responsibility of Parliament to consider what the Government say. Despite his fleeting appearances during discussion of the various stages of this Bill, the right hon. Gentleman knows perfectly well that we have spent two days on Report discussing the matter since the Budget was announced. In addition, it is open to the Secretary of State to make a statement, or to answer a written question, at any time he likes. The truth is that he has put this forward at the last gasp of consideration in the House of Commons. With respect, I believe that to be wrong.
§ Mr. Nott
I do not think that there was any obligation to put forward the details of what the share offers to employees might be in the event of a flotation. I merely thought that it would be helpful to the House if I did so now. Had the right hon. Gentleman tabled an amendment on Report—[Interruption.] I am trying to help the right hon. Gentleman by giving notice of something which at the earliest can conceivably happen only in the summer of 1981. Therefore, I do not think that he has anything to complain about.
Secondly, the Finance Bill contains provisions for savings-related share option schemes in clause 47 and schedule 10. We are working on an offer which will take advantage of these provisions.
Thirdly, we would intend to have a system of priority allotment for as many shares as any employees care to subscribe for at the full price, although we would caution employees not to commit too great a proportion of their savings to any one investment.
Finally, we would propose also to make a free offer of shares to all eligible employees, whether they subscribe their own money or not, of up to about £ 50 worth of shares per employee. Naturally, the figures and details for all these offers can be worked out precisely only in the prospectus, when we know the price at which 544 the shares will be sold and the full financial facts.
All these proposals are within the responsibility of the Government, as the seller of the shares initially, but I am glad to inform the House that British Airways itself intends to work out an employee share ownership and profit sharing scheme for the successor company. This will mean that employees with 10, 20 or more years' service will build up quite a large shareholding in the company.
I hope that the House will feel that I have given enough detail at this stage to make it quite clear that we mean business, and that we intend to play our part in helping the employees of British Airways to identify themselves with the airline's fortunes. After all, British Airways is nothing if it is not about those who work in the airline, from the chairman to the youngest stewardess or most junior clerk.
There are still details to be settled, such as the qualifying period of service and whether there should be an upper ceiling on the total percentage of the shares which might be in the hands of employees, on which we are still happy to receive the views of the staff representatives. I would also be happy, as I have been throughout the progress of the Bill, to discuss this or any other matter with the British Airways trade unions. If they wish to change their position and offer their advice, we shall be glad to receive it and consider it.
§ Mr. Clinton Davis (Hackney, Central)
From the discussions that he has had with the interested parties, has the right hon. Gentleman been able to form an approximate judgment—I cannot ask for more than that—as to the proportion of the shares that are likely to be acquired by or on behalf of the employees?
§ Mr. Nott
It is impossible to judge that at this stage. We do not know what the profits of British Airways will be at the time. At present, we do not know the timing of the share issue. As I said, we want to keep this flexible. We do not yet know what the price may be. Those are all factors which would be relevant to a decision by the employees as to whether they might wish to put a small proportion of their savings into the airline. I cannot answer the hon. Gentleman's question at this stage. It is simply not 545 possible to give an answer to that question.
Turning to part II of the Bill, I should like to deal first with the removal of the Secretary of State's power to give guidance to the CAA. I note that it formed a major part of the debate on Report on 7 July, which, sadly, I missed.
The Civil Aviation Act 1971—a Conservative measure which established the CAA—adopted the novel method of regulating a statutory undertaking by the issue of ministerial guidance. Experience of the guidance over the last nine years has shown that it is a highly unsatisfactory legislative tool. Even a superficial glance at the two policy guidance documents issued in 1972 and 1976 reveals that the majority of the guidance consists of no more than what my hon. Friend the Under-Secretary and the industry have come to call "motherhood clauses", urging the CAA to do a good job and to use its common sense. More damagingly, where the guidance has sought to go beyond the terms of the 1971 Act, or where it has attempted to remedy deficiencies in that Act, it has run the risk of being torpedoed by the ultra vires test applied by the courts. That is not to suggest that those parts of the policy guidance which were subsequently overthrown by the courts had mischievous intentions. It is simply that the power to give guidance suffers from the insuperable defect of either saying nothing useful or saying what ought to be set out in the Civil Aviation Act. The criticism that we are giving undue power to the CAA is in reality a criticism that we are requiring the Act to say what Parliament intends rather than leaving it to ministerial rules. In future, primary legislation will clearly predominate. I hope that the House will consider this a matter of constitutional propriety rather than the opposite.
Thus, part II sets out the broad objectives and functions of the authority. To remove any doubts, I must make it clear that the CAA will continue to undertake research and development work, to provide expert advice to aid British exporters, and to seek to improve safety standards. The need for those functions stems directly from the CAA's basic role as the regulatory authority for civil aviation in this country. It is not the Government's 546 intention that the Bill should make any change in the basic pattern of the CAA's activities.
So I come to the second major purpose of part II, which is to give the interests of consumers—airline travellers—a more prominent place among the CAA's objectives. The CAA's duty to further the reasonable interest of users of air transport services will no longer be subordinated to the authority's other objectives but will be on an equal footing. The Government took the opportunity of introducing the new section 23A on Report because of an uncertainty in some quarters as to the power of the CAA to take full account of the benefits to consumers arising from competition. As I have already said, I read with great interest the proceedings of the debate that took place on 7 July.
The purpose of the amendment was to make clear beyond doubt that the CAA can, and should, take account of the benefits of having two or more operators on a route, and ensure that the interests of consumers—the airline passengers—are at the forefront of the Civil Aviation Authority's objectives when deciding licensing applications. The dramatic change in the price levels of fares on the North Atlantic route and in the variety of services offered to passengers on that route followed directly from the introduction of a proper measure of competition.
It is my firm belief that a similar change will become evident on the London to Hong Kong route. Indeed, I understand that Cathay Pacific's new service, with a very much cheaper bookable ticket than was available previously, has already stimulated 7,000 advance bookings, and British Airways' even cheaper firecracker ticket is fully taken up for a fortnight in advance.
It may be—I put it no higher than that—that my predecessor, the right hon. Member for Lanarkshire, North (Mr. Smith), who described as "blarney" the notion that low fares would attract more airline passengers, is proved just as wrong as his predecessor the right hon. Member for Stepney and Poplar (Mr. Shore), when he said in respect of Skytrain:having regard to the existing facilities that are available for cheap travel, it would confer no 547 really worthwhile benefits to the consumer." —[Official Report, 11 February 1976; Vol. 905, c. 443.]I do not think that any one can claim that Skytrain and the lower North Atlantic fares have not been of benefit to the consumer. In the same way, I hope that the 7,000 advance bookings which Cathay Pacific has already taken for the Hong Kong route augur well for a similar useful encouragement to airline travellers from cheaper fares on the Far East route. I believe that there is a large untapped market of people who will travel if there is an attractive price on offer. In the future, I believe that the CAA will take the initiative in identifying opportunities where competition would open up air travel to a much wider public.
However, before concluding I must add a note of caution. Regulation by Governments is a fact of life in the aviation world at the present time. The United Kingdom cannot force other Governments to loosen the constraints of regulation. All that we can attempt to do is to persuade other Governments to follow our course. There is no question of an "open skies" policy being introduced by this Bill, because it is not in our power, acting unilaterally, to bring such a situation into being—even if we wish to.
Meanwhile, it is the Government's intention to keep up pressure on other Governments, particularly in Europe. Government shareholdings in national airlines, as in many European countries, should not deny air travellers the benefits of competition which apply in other industries.
This country is sometimes lectured, sermonised and patronised—admittedly mainly on a private basis—by my colleagues from other European member States and by the Commission about our alleged protectionist bias—a charge that is constantly levelled at me, and no doubt may surprisingly be made against the right hon. Member for Lanarkshire, North. Yet when we seek to open up competition in areas where we are in an ascendant position, we find a total incapacity, or unwillingness, to follow our lead.
I shall take Germany first. I often wonder why, for instance, Count Lambsdorff, the German Economic Minister, is unable to persuade his Transport colleague of the benefits of competition in air transport, when he would not be slow to chide 548 me for my alleged lack of enthusiasm for competition in trade that is damaging British interests. The German delegation is among the most restrictionist when we discuss this question in Europe. I fail to understand why Germany, of all countries, which privately is not beyond lecturing us here and there, should not wish to see further liberalisation of air fares in the interests of the air traveller.
Then there are the French. I am beginning to enjoy my speech. It has been a considerable disappointment to me—and indeed to the travelling public—that the French Government have recently refused to accept innovative fares between London and Paris which have recently been proposed by British Caledonian and British Airways. Now I hear—we had hoped that it would not be the case—that the Dutch have turned down a low British fare to Amsterdam.
§ Mr. John Wells (Maidstone)
As my right hon. Friend clearly hates the Dutch, why does he not do something about the unfair competition of Dutch tomatoes?
§ Mr. Nott
I love all the human race, particularly any member of the human race who was fortunate enough to be born within the European Economic Community. I think that tomatoes are rather more the area of my right hon. Friend than me.
We shall keep up pressure on European Governments to get the best deal on fares. For example, we are currently in discussion with the Belgians. And my Department, together with the CAA, has been firm in resisting unjustified fare increases that have been proposed by other European airlines and Governments. At the same time, we have been examining what initiatives we can usefully take within the EEC to advance our objective of lower fares in Europe. At a meeting of the European Community Ministers of Transport last month we secured agreement to a British proposal for an examination of air fares. The first meeting of national experts is to take place later this week. We shall argue that this work should be pressed ahead quickly, with the practical interests of the air traveller in the forefront of discussion.
At the same time, a Community study of the scope for liberalising cross-border services, other than those between two 549 capitals, and the better utilisation of regional airports, is going ahead. Here our objective is to make it easier for airlines to develop new routes, and to develop innovative fares, with a minimum of control by Governments.
§ Mr. Mike Thomas (Newcastle upon Tyne, East)
I am sure that the right hon. Gentleman will agree with me that charity begins at home. Would he like to comment on the fact that it now costs as much to go to Newcastle and back as it does to go to Hong Kong?
§ Mr. Nott
It would, of course, be admirable if the Newcastle-London route were not such a thin route in terms of airline passengers. If there were greater volume on that route I do not doubt that it would be possible to have lower air fares on it. I also want to see lower domestic fares, but this depends on the volume of traffic and on the ability of the airlines to reduce fares.
§ Mr. James Hamilton (Bothwell)
Is the right hon. Gentleman aware that the routes from Glasgow to London and from Edinburgh to London carry very heavy traffic, and that the air fares are higher than from London to Hong Kong?
§ Mr. Nott
I accept that travellers between London and Glasgow feel that the fares are very high. Like the hon. Gentleman, I should like to see them come down. I cannot order them down. I accept his point—not least because I have to travel 300 miles every weekend and sometimes go by air—that the fares are very high on the domestic routes, and that within Europe they are particularly high.
We are doing our best throughout the world to take a lead in bringing about lower air fares, and I believe that there is growing sympathy for this objective in Europe, if not always in the individual Ministries of Transport. We can derive some encouragement from the support given by the European Parliament and the Council of Europe to the objective of lower fares on European routes.
I hope that the House, in granting the measure a Third Reading, will feel that the Bill takes a further step towards the Government's overriding objective of limiting unnecessary activities of the State and encouraging the development of 550 healthy competition for the greater benefit of the consumer—in this case the travelling public.
§ Mr. John Smith (Lanarkshire, North)
At the beginning of the debate the Secretary of State reminded us about the rules of order applying to these debates, and about what it was and was not appropriate to say on Third Reading. He then proceeded to introduce wholly new matter by making a statement about employees' shareholding.
It would have been much better if the Government—who must have had the matter under consideration for some time—had made a statement at an earlier stage of our proceedings. For example, there was an excellent opportunity to examine the subject in depth in Committee, but reticence was maintained at that stage, and apparently the excuse now is that the Government were awaiting the provisions of the Budget. It will not have escaped the attention of the House that the Bill has been before the House twice since the Budget and that there was ample opportunity for the matter to be considered then.
To produce this new matter at the very last stage of consideration in the House of Commons is not a fair way in which to treat Parliament. Those of us who listened to what the Secretary of State had to say would like to study it with interest. It is difficult for hon. Members to reach firm conclusions on the merits or demerits of what is proposed without having an opportunity to consider it carefully and to consult those who will be affected by it. I reiterate that it would have assisted us all if the statement had been made much earlier.
The Secretary of State had little to say in defence of part I of the Bill, apart from the statement that he made. The House will be aware that the main object of part I is to change the present public corporation into a Companies Act company, for one purpose—to permit the Government to sell off some of the shares in British Airways. As the Opposition have made clear from the beginning, we are opposed to the selling off of public assets in this fashion.
One of the things that struck me as curious throughout the course of our debate on Second Reading, and during 551 our lengthy Committee stage, was that there was very little in the way of justification by the Government for the purpose behind the selling of shares. We were told that it was to loosen control, and the Secretary of State said again today that his purpose was somehow to free British Airways from the shackles of Government control.
Having held his job for a short period, I did not at any time feel that I was in the position of shackling British Airways. I believe that British Airways had a fair amount of freedom of management decision under both Labour and Conservative Governments, although from time to time it has complained because particular Ministers took a restrictive view. Be that as it may, there is nothing to prevent the Government from allowing freedom of control to British Airways management if they want to do that. They do not have to sell a single share in order to achieve that purpose.
The Under-Secretary of State defined that freedom from control during our consideration on Report by saying that after the Bill became law British Airways could open up an office in Oxford Street or Piccadilly Circus. I do not know whether that is a definition of commerical freedom that springs easily to the mind of the Under-Secretary of State. I should not have thought that there would be much argument with any Government about where British Airways wanted to have its office.
§ The Under-Secretary of State for Trade (Mr. Norman Tebbit)
That observation was in relation to a specific point. I am surprised to learn that the right hon. Gentleman never at any time had any problems whatever with the Treasury in clearing all the capital expenditure that British Airways may have wanted. I should have thought that from time to time between 1974 and 1979 British Airways was asked to restrict its capital expenditure because of Treasury restrictions on borrowing.
§ Mr. Smith
The hon. Gentleman seems to have forgotten that when I was Secretary of State we announced the refinancing of British Airways, which was very satisfactory from the Government's point of view and from the point of view of British Airways. It is rather an in- 552 appropriate point to put to me, of all the people who have held the office. My major point is that the Government do not need to sell the shares in order to give some freedom of management control; they can achieve that by the policy that they follow.
The other reason that the Government have from time to time disclosed is the effect that the proposals will have on the public sector borrowing requirement. In so far as one can define any logical reason behind the desire to sell off shares this appears to be the nearest candidate, but I am afraid that behind all the evasions that we have had from time to time during the passage of the Bill through Parliament the real reason why the Government want to sell off shares is one of dogma.
As we look at the Government's policies towards the publicly owned industries in this country we see that, basically, they are motivated by an attitude of malevolent spite to the public sector. That is why, since the last general election, they have been sniffing round the public sector—and particularly the assets of the public sector—like half-starved and mangy Alsatian dogs, to see what they can sell off.
In recent days there has been a great barrage of statements by Ministers, and that may have something to do with satisfying the more primal instincts of those who will be at the Conservative Party conference at Brighton later this year. They are trying to satisfy the faithful. We have seen it in regard to British Rail assets, the energy industries, and the other transport industries, with Ministers tripping over each other to come to the Dispatch Box to make announcements about hiving off or privatising the various industries for which they are responsible.
All that stems from a trouble centre in the Government—the ideological laboratory in the Department of Industry, presided over by that malevolent magician the Secretary of State for Industry. He there conducts primitive experiments on, unfortunately, five patients—the management and work force of British industry. His younger and more junior colleagues have to show that they are at least part-time practitioners of the art. That is why the Secretary of State for Trade had to have some hiving-off proposals in his portfolio. He would not otherwise be 553 demonstrating the sort of virility that wins approval from the right hon. Lady the Prime Minister.
The purpose of the Bill—apart from the advancement of the personal interests of the Secretary of State—is silly and trivial, and there is little surprise that the development of the Government's policy, which has such murky origins, has been attended by confusion and muddle.
Before we proceed to vote on the Third Reading of the Bill I should like to remind the House of what is proposed. As far as the present position can be understood. it would appear that the Government propose to sell off a minority of the shares, and therefore to retain a majority of the shares, but they say that they will give up all control over the management of the company. They do not want even one director on the board to look after their majority shareholding. What sense that makes for the Government, the company or the taxpayer I fail to understand. Why anyone who is a majority shareholder should voluntarily seek to give up power and control, which would be the only justification for retaining a majority shareholding in the first place, is difficult to understand.
I do not think that the Government will get away with this. If this manoeuvre succeeds, and if the Secretary of State plans later to say that he has no responsibility for British Airways, I warn him that the House of Commons will expect him to be accountable for the use or non-use of his majority shareholding, because the House of Commons is entitled to act as the guardian of the taxpayer's interest as the majority shareholder in the company.
It is remarkable that there is still such hopeless confusion about what the Government are to sell. We sought in Committee to pin down the Under-Secretary. When he was asked precisely "What are the Government going to sell when they say that they are going to sell a minority shareholding?", he said "I think it is somewhere between 25 per cent. and 49 per cent. of the shares". That is all the precision that we got from the hon. Gentleman, and I think that he would be the first to admit that 554 that leaves a fairly wide band of discretion to the Government.
At least at that stage it seemed clear that the Government were insistent on selling only a minority of the shares, although, as has been pointed out time and again, the Bill would give them the power to sell all the shares in the company without further reference to Parliament.
If the Government sell a majority shareholding they will lose control of the company. By and large that will be the case. Certainly if they sell substantially more than a majority shareholding they will lose control of the company. That would be significant, and for that reason we put down amendments requiring parliamentary approval for such a significant and vital change, but that suggestion has been rejected by the Government.
In the past the Government have said: "There is no need for it because we are not going to sell a majority of the shares", but the position became more complicated when a statement was made by the Under-Secretary on Report on 30 June. That statement is so illuminating with regard to the Government's intentions that it should have a wider audience than it has had to date.
My hon. Friend the Member for Huddersfield, East (Mr. Sheerman) questioned the Minister on his policy of selling the shares. He asked whether he was going to sell a majority. The Minister replied:The hon. Gentleman may think that I am an unusual Minister. He is entitled to that opinion. However, the Government's policy is and, so far as I can see, will remain to keep a 51 per cent. or greater holding for as long as it suits them. That policy is unchanging. How much suits us may change from day to day."—[Official Report, 30 June 1980; Vol. 987, c. 1127.]That was the Under-Secretary of State's answer to the specific point, and it was supposed to help us. The hon. Gentleman, having so defined "unchanging", will understand the terror that struck us when the Secretary of State said that he believed in a flexible policy on some of these matters. If that is unchanging, God keep us from the consequences of flexibility.
The truth is that Parliament has not the faintest idea at this stage whether the Government will sell any, 3 per cent. or 555 97 per cent. of the shares in British Airways when they come to float them, if they ever do. It is an intolerable state of affairs for any Parliament to be asked to give this power to a Government when there is such a lack of information.
If the Government feel that it is not yet appropriate to make the decision whether to sell a majority or a minority of the shares—that may depend on some future battle between the hawks and the doves, or the wets and the drys in some Cabinet sub-committee—the very least that a legislature should demand is the right to approve that important change of policy by having a clause in the Bill that provides that parliamentary approval is required if the Government step over the line between majority and minority shareholding. That, I regret, has consistently been refused by the Government.
The House may have thought that the Under-Secretary's tone was meant to be humorous, but he looked very serious when he made his statement. If it is not to be taken as humorous, it is an arrogant statement. It is saying to Parliament "Mind your own business. We shall decide whether we have a majority or a minority shareholding. It is not of much interest to you, so do not bother yourself about it. It is a decision for the Government to take." That is an appalling view of the British constitution. I think that Parliament should be involved. If Parliament is not involved at this crucial stage, it should deny a Third Reading to the Bill. If on no other ground, I believe that that is a reason for opposing it tonight.
§ Mr. Tebbit
Does the right hon. Gentleman think that what we are doing is any less respectful of Parliament or of this country's traditions than the proposal made by the national executive of the Labour Party to nationalise industries without compensation, by statutory instrument? I should have thought that that was pushing the right hon. Gentleman's luck a bit.
§ Mr. Smith
There are many reasons why the Bill should be opposed, but one of the main reasons is that if it went ahead in the present circumstances of the international aviation industry the public would get a very raw deal from the sale of the shares. It is well known—indeed, the Secretary of State referred to this matter briefly—that international aviation is going through a difficult patch and that there are awkward circumstances relating to British Airways. International aviation is not at a highly profitable stage of development, and British Airways is on the brink of a massive new re-equipment programme involving the expenditure of £ 2.4 billion. The most likely consequence of the Government's selling off shares is that they will be sold at an absurdly low valuation of the real assets of British Airways, and that would be a fraud on the taxpayer.
Some of these potential difficulties are beginning to dawn on the Government. I noticed that in the Sunday Telegraph—the Sunday house magazine of the Conservative Party—it was stated that the proposal to sell British Airways shares was vanishing into the clouds. I hope that that is the case. That would be a glimmer of light amidst the encircling gloom. I hope, too, that it comes to pass that the Government have second, third and fourth thoughts about their unchanging policy, approach it with the flexibility defined by the Secretary of State and decide that perhaps after all their commitment to sell shares can be put off and put off and put off. I should even be understanding enough to allow them to make such an announcement after the Conservative Party conference, rather than before it, to assist them in that objective. The wisest thing that they could do would be to forget part 1 completely, because it makes no sense for the Government, the taxpayers or the aviation industry.
If the first part of the Bill has elements of tragedy, the second part has elements of comic farce. I think that what the 557 Secretary of State said about the justification for removing the responsibility for civil aviation licensing policy for himself and Parliament and giving it to the Civil Aviation Authority must have been written before the Hong Kong decision that he made. It struck me that it must have been lying in a drawer in the Department, having been written for a Third Reading debate at a much earlier date, and was pulled out and given to him on his way to the House without anybody having thought that he had made a decision in the meantime which overthrew his policy.
I remind the House that the Secretary of State said that he wanted to give up responsibility for making aviation policy, to take it away from Parliament—that is what it amounts to—and to leave it to the CAA to decide the policy for itself.
§ Mr. Smith
It is in column 52 in Hansard of 19 November 1970. The Secretary of State talked about his attitude to the Civil Aviation Authority and said that he would not interferewith the Authority's licensing decisions unless there are good reasons for doing so".—Official Report 19 November 1979; Vol. 974, c. 52.]Let us test that theory.
§ Mr. Smith
We have the Under-Secretary of State on record almost too often, but it does us little good when he defines his unchanging policy in the manner in which he did on a previous occasion.
The Secretary of State's main point was that he wanted to transfer responsibility for the making of civil aviation licensing policy to the CAA. If I am mis-stating the Secretary of State's argument I hope that he will correct me. I have put before the House our clear understanding of 558 the motivation of his policy. However, when we come to the Hong Kong licensing decision, we find that he overthrows the CAA. He does not do that because of an overriding international commitment or because an air service agreement has been ignored. He changes a decision of fact arrived at by the authority. The authority said that there was not room on the Hong Kong-London route for more than two carriers, namely, British Airways and one other.
Evidence was laid before the authority and it came to its conclusion and expressed it in trenchant fashion. It was at pains to draw a clear distinction between the North American route and the London-Hong Kong route. The Secretary of State is muttering. I think that he is saying that it was an opinion and not a fact. With respect, it was a judgment, reached upon the facts made available to the authority. On the whole, the authority is likely to have a slightly better chance of forming a good judgment on these matters than is the right hon. Gentleman. That is proved by his absurd decision on the London-Hong Kong route, if nothing else was needed to prove it.
Having set out to transfer responsibility to the CAA, the right hon. Gentleman grabs it back from the authority when the first decision has to be made. We are left with a most unsatisfactory state of affairs. The Minister's policy is not one that has been declared by the Government and approved by Parliament. It is one to be deduced from the right hon. Gentleman's decisions on appeal, from nudges and winks, and from all the various ways in which he may communicate his desires through the Civil Service to the authority, which is left in the difficult position of trying to interpret his wishes by taking into account his contrary and inconsistent decisions. That is a foolish and unfortunate state of affairs.
No one who believed what the right hon. Gentleman and the Under-Secretary of State had said expected the decision that was made. I do not believe that the Under-Secretary of State has much time for his right hon. Friend's decision on the London-Hong Kong route, but of course constitutional propriety will forbid him from disclosing his true views on that issue. Surely no one with his 559 knowledge of the industry can agree with the decision. The fact remains that anyone who believed what the Secretary of State said could not have expected such a decision, and the right hon. Gentleman's credibility is now suspect.
When we discussed the Bill on Report we had the humour of the Government saying "We have made this decision, but there appears to be some doubt about our capacity to do so. We shall put I t right—not that we need to—for the avoidance of any doubt. We shall rewrite the criteria in the Bill to bring them in line with the decision that the Secretary of State has made, who has not operated that which Parliament has approved in principle." Retrospective validity was given to the undisclosed intentions of the Secretary of State on the London-Hong Kong route.
We intend to continue our opposition to the Bill, on both substantial parts of it. The Bill is irrelevant to the needs of the civil aviation industry in general and to British Airways in particular. We condemn it as a malevolent attack on the public sector, motivated by the narrowest and most dogmatic political prejudices. We hope that its major proposal, namely, the sale of British Airways' shares, if not over turned by a vote in the House of Commons, will be frustrated by the likely turn of events.
§ Mr. Cranley Onslow (Woking)
One of the troubles with Opposition Front Bench speeches these days is that even moderates and Right-wingers, among whom I dare say the right hon. Member for Lanark (Mr. Smith) places himself, seem under an obligation to talk the same extravagant nonsense as the authors of the dark manifesto. I am an expert on the nonsense that the right hon. Gentleman talks because I have heard too much of it. If he had cut it out this afternoon we could have got on a great deal faster.
I shall say no more about the right hon. Gentleman now, because the House, as was expressed by one of our amusing sketch writers, seems to be living lately on a diet of civil aviation and chips. I think that it is probably getting a bit fed up with it. I know how keen hon. Members are to move on to the lashings of Scottish crime that we have to follow to entertain us this evening.
560 Once more the right hon. Gentleman tried to talk down the value of British Airways. We know that the aviation industry is having a hard time. That is known by British Airways. It issued a press statement a week ago that summed up the situation very neatly. There was no need for the right hon. Gentleman to dwell on the obvious at such length. He might have more usefully dwelt on the steps that British Airways is taking to put matters right.
I do not suppose that the right hon. Gentleman has read the press release. Perhaps he should do so. It sets out in detail and convincingly the action that British Airways management is taking to deal with the situation in which it now finds itself, which is by no means particular to British Airways. There is a shortfall of traffic, which means that it has surplus aircraft capacity. There is a shortfall in revenue, which means that it has a cash flow problem.
I welcome the news that British Airways is launching an aggressive sales campaign to increase market share. Apparently it is to cut excessive capacity on routes where full capacity is not being used, cut operating costs and sell a number of aircraft surplus to its needs. Those are the actions taken by a prudent business when it finds itself in such circumstances. It is action that helps to increase confidence in management.
British Airways also stresses—of course, the right hon. Gentleman would not say a word about this—that one vital ingredient in the success of its plan is the achievement of its staff numbers target, which requires flexibility and cooperation from the staff. My right hon. Friend's announcement this afternoon is the sort of inducement that should lead to cooperation from airline staff. Of course, the right hon. Gentleman would not say a word about that, either.
I am sick and tired of hearing the right hon. Gentleman do his utmost to talk down the value of British Airways, to undermine confidence in the enterprise and to denigrate potential investment. They are responding to the situation in which they are placed. We are witnessing action that should give us confidence in their management and confidence in it as a prospective investment. The airline staff will see it that way, and I wish that 561 the right hon. Gentleman would so recognise it.
§ Mr. J. Grimond (Orkney and Shetland)
I welcome the enthusiasm that the Secretary of State has shown for low fares. There is no doubt that what the consuming public who use airways want from the Bill are conditions in which they pay less for air travel and air freight. I sympathise with the right hon. Gentleman's difficulties over the French. The French are charming people individually, but they must be hell to deal with as a Government. They sell nuclear know-how to the Iraqis and the ayatollah to the Persians and they hold up air freight charges in Europe. The Dutch have long been notorious for having faults in matters of commerce. I hope that the right hon. Gentleman will succeed in getting lower fares in Europe. At present such fares are unnecessarily high.
I draw the right hon. Gentleman's attention especially to the level of fares within Britain. As has been said by the hon. Member for Bothwell (Mr. Hamilton), the fare to Hong Kong is no more than the fare from London to Glasgow or Edinburgh. It is about half the fare to Orkney and Shetland. The aircraft are well filled. There is no lack of traffic to Glasgow and Edinburgh. There is a danger that on certain routes we shall find only Members of Parliament, civil servants, local government servants and expense account travellers. There is the danger that on certain routes no one else will be able to afford to use air transport.
Aviation should be an enormously expanding industry in Britain, and to some extent it is, but, apart from services, we have had no new routes for a very long time. The level of fares is frightening. That is partly due to the fact that so much traffic is creamed off by charter flights. When airways consider their overall takings I hope that they will take into account the amount that they receive from charters.
I welcome the determination of the airways to introduce lower tariffs. The level of competition that has recently come into Scottish airways has been a good thing. It has led to an improvement in services and has done something to hold down 562 fares. There is no doubt that the high level of fares is a serious factor.
I welcome the proposal to sell shares to the employees of British Airways if and when the shares are sold off. I do not understand why the Government want to retain a majority shareholding if—rightly, in my view—they do not want to interfere in the running of the corporation. I was relieved to hear the quotation from the remarks of that clearheaded man, the Under-Secretary of State for Trade. It seemed worthy of Mr. R. A. Butler at the height of his powers, and all the better for that. It could mean something, or nothing. It has the veneer of knowledge and of wisdom that we have come to expect from the Government Front Bench.
I may have misheard the proposals, but I understood the Secretary of State to say that if and when the company was sold off every employee would get £ 50 worth of stock free. That is not worth having. If stock is to be given away, more should be given. There would be problems about handling £ 50 of stock on the Stock Exchange. No stockbroker would sell such a quantity. Such an amount will not prove a great incentive. In pre-war terms, the amount is equivalent to £ 5.
I understand that those who subscribe will get two shares for the price of one. That is worth having. However, given the restrictions on resale, are they to be held by a trust or by individual employees?
§ Mr. Nott
The proposal in the Budget was that both shares could be sold at any time. However, if the free shares were sold within a certain restricted period, the individual would lose the income tax benefits that attached to that free share. He would still be free to sell it, but would lose the benefits if he did so within a certain period.
§ Mr. Grimond
I understand that the shares are to be registered in the individual's name and not in the name of a trust, on his behalf. Has the Secretary of State considered making amendments to the Companies Act? At present, a company cannot hold or buy its own shares. For the purpose of future employees, it might be desirable for the company to have a pool of shares, which 563 it could sell or give to them. They would then have an interest in the company. I hope that the Secretary of State will consider making amendments to the Companies Act, in order to facilitate such transactions.
§ Mr. Nott
The right hon. Gentleman will be glad to know that one of the jewels in my crown is a Green Paper, which can be obtained from the Vote Office. It mentions the possibility of introducing legislation during the next Session relating to the right to purchase own shares. That proposition is already in circulation.
§ Mr. Grimond
I am sure that the Secretary of State's crown is full of all sorts of jewels. I understand that the Treasury is sympathetic to changes being made under the next Finance Bill. Such changes would make the process easier. The Secretary of State for Industry—that much maligned man—and the Secretary of State for Employment—who is equally maligned in some quarters—have made encouraging noises about such developments. They are useful developments, but they will not solve all our industrial troubles.
I am a little surprised that all British Airways' operations are to be kept together. It is a large company and there may be something to be said for returning to a division between the different services. However, I urge the Government to maintain their enthusiasm for low fares and to make that enthusiasm effective. When and if they sell the shares, I hope that they will do so on a generous basis. If the employees respond to that, they will have some representation on the board. The Secretary of State for Employment suggested that that should be a feature of British industry. Surely, this is the right time for the Government to show an example.
§ Mr. Kenneth Warren (Hastings)
I welcome the Secretary of State's determination to get the Dutch, West Germans and French round an EEC negotiating table. It is nice to see something happening in Europe for a change. During my time at the Council of Europe and at the Western European Union, I had the privilege of leading several discussions, in which unanimous agreement 564 was reached in favour of lower air fares. I got fed up with admonishing people, because they went back to their Parliaments and did nothing about it. It is good to see a British Government, particularly a Conservative one, doing something that we pledged to do at the Council of Europe and at the Western European Union.
As for the discussions in Brussels, I should like to commend to the Secretary of State some of the obligations that the Treaty of Rome places on the Commission. The Treaty places a responsibility on member States and on the Commission in relation to transport regulations, pricing and competition. Case law in France has clearly shown that the word "transport" includes air transport within the Community. The Secretary of State should throw that responsibility at the Commission. He should point out that according to article 80, member States have only to ask the Commission to examine the rates and conditions. That article points out that if any of the rates and conditions involve an element of support or protection they will be prohibited.
In the chapter entitled "Rules on competition" article 85 implies that all aspects of European air-fare negotiations—called bilaterals—between airlines and Governments are probably illegal under the Treaty of Rome. Article 85 states that terms and conditions will be prohibited as incompatible if they involve agreements preventing, restricting, or distorting competition. If we fix the purchase price or selling price of, for example, air fares, it is illegal. If we limit the production of transport by controlling the frequency of operations between European centres, it is illegal. Indeed, such control is rigidly exercised. If we share out markets—which is the way in which bilaterals have been negotiated—those markets are illegal. The article states that any such markets are automatically void.
The European air transport industry has been living in a fool's paradise for many years. It has not realised that the terms and conditions under which it sells fares and operates services are illegal under the Treaty of Rome. Under article 89 the Commission is obliged to investigate anything that a member State puts before it.
565 I hope that the Secretary of State will maintain the leadership that he has displayed by bringing the countries involved to the negotiating table. I am disappointed that we had to wait for a virile, vibrant and enthusiastic Secretary of State. One would have expected the Civil Aviation Authority to undertake such action automatically under the 1971 Act. One would have expected that body to show more initiative and to seek the Secretary of State's agreement to get such negotiations under way in Europe. I welcome what has been done, but I hope thaat this is only the beginning of better things to come for the traveling public.
§ Mr. Clive Soley (Hammersmith, North)
The provision relating to shares for employees does not come as any surprise. My hon. Friend the Member for Hackney, Central (Mr. Davis) may remember that we discussed such a possibility some time ago, at a public meeting held at Heathrow airport. I spoke on this subject to the trade unions involved. However, it is unacceptable that the provision should come at this stage. We could have discussed it in Committee if the proposal had been made earlier. Many questions are involved—voting shares, the amount, limitations, the proportion of total shares, and so on. In Committee, we spent a considerable amount of time discussing the involvement of British Airways employees. That would have been a good time to discuss the proposal.
I have never doubted that such a provision was part of the Tory Party's aim. It is clear that this secret was not unwrapped at the Tory Party central office. However, if the Secretary of State had asked me about it, I would have told him that that was the intention. The Minister does not seem to be certain whether the Government intend the shares to be sold to trusts or to individuals. They are to be sold to both, but particular encouragement will be given to individuals. That is the Tory Party's philosophy and policy. A select few have known that for some time.
We have gone over many of the arguments before. The Bill is irrelevant, because it is based on economic theories 566 that were devised in the eighteenth and nineteenth centuries. They were only partly relevant then, and they are certainly not relevant now. There is no comparison between large-scale capital-intensive organisations and the organisations to which those economic theories were directed in the eighteenth and nineteenth centuries.
BA's competitors will be protected or subsidised. That is a fact that we all know. The Government are launching British Airways with their eyes closed and their fingers and toes firmly crossed. That is not the right way to approach the problem. We all want British Airways to succeed. If they are to succeed the proposals must be launched at the right time and in the right way. They must be given protection. That assumes that the Goverment's economic philosophy is right, which I do not accept for a moment, because I am against the selling off of public assets of this type.
The fear is that if the plan goes wrong it will be yet another example of the de-industrialisation of Britain. If we ask British Airways to compete effectively with airlines that are protected in a way in which it is not, they will be in trouble,
British Airways issued recently a useful, honest and open statement. It stated:'Civil aviation all over the world has been experiencing growing competition, lower fares and a weakening of government support for national carriers.It stated that the situation had been made worse by a trade recession, which was likely to last throughout 1981. The statement continued:Airlines worldwide are experiencing little or no growth. Traffic on many important routes is actually declining. Last year, the international scheduled airlines collectively did not even cover their interest charges.British Airways are doing better than the industry as a whole and most of their direct competitors. If that is so, why make a change? Why change what is accepted to be one of the most successful airlines? Why change to a system that is likely to put British Airways in a difficult position?
The British Airways' statement continued:The shortfall in traffic means that aircraft capacity exceeds what is needed, now and in the future. The shortfall in revenue that has resulted creates a shortage of cash with which to run the business and pay for new aircraft and equipment.567 In Committee we talked at some length about what would happen if British Airways ran into a cash crisis. The Under-Secretary of State accused me of being gloomy. British Airways are talking rightly of selling off some of their aircraft in order to help meet the cash difficulty. That is a sensible policy. However, if the situation becomes worse and British Airways are not protected or subsidised, like some of their competitors, my gloomy predictions will come true. I do not want that to happen. If it comes to that we shall be faced with the problem of selling off the profitable parts in order to get British Airways over a short-term financial crisis. I do not want that to happen. However, I fear that the Bill does not face that possibility.
The Under-Secretary of State is experienced in flying. Only now has it dawned on me that he must have gained his experience with the Japanese. I suspect that he trained kamikaze pilots. If he had been successful in a kamikaze mission we should have missed him. Nevertheless, I fear that the epitaph on his action would have been the same as it is on the Bill—that it is irrelevant, but calamitous for the individual. The action could be irreversible, particularly if it misses its target or fails to reach it.
§ Mr. Bill Walker (Perth and East Perthshire)
The hon. Member for Hammersmith, North (Mr. Soley) rightly drew attention to the decisions being made by British Airways in these difficult times. He forgot to say that many of the decisions are influenced by the Bill. The decisions made by both management and employees have been influenced by the conditions that will operate in future.
I welcome the Bill. I welcome the denationalisation of British Airways. It is right to set up a new company in which the Government will be only shareholders and, more importantly, in which the employees will be shareholders. British Airways have been cosseted and cushioned. Their manning levels have grown to a point where they adversely affect the airline's ability to compete. The airline is now at a stage at which something must be done. Anyone who knows anything about the airline business knows that.
I welcome that part of the Bill which deals with the duties of the Civil Aviation 568 Authority. In particular, I like the way in which the Bill deals with the authority's licensing function. It calls on the authority to carry out its licensing function so that British airlines are required to compete as effectively as possible with other airlines in providing air transport services on international routes. In simple language, the CAA is to consider licensing requests in the interests of the fare-paying passengers. That is long overdue.
I am always interested to hear Scottish Opposition Members criticising the price of air fares from Scotland. The lack of competition causes the problem. We look for an improvement in Scotland in services, facilities and competitiveness.
§ Mr. Walker
I shall not give way, because there is little time available. If the hon. Member for Bothwell (Mr. Hamilton) wants to make a speech he can do so.
The improvement in Scotland depends on how the CAA reacts to requests from operators that wish to operate out of Scotland, particularly on internal routes where no negotiation is required and overseas interests are not involved.
In Scotland we need a Laker-type service. That would reduce fares on all the routes from Scotland's airports.
§ Mr. Walker
What about it? I wish that I had the opportunity to wear a British Caledonian tie. I noticed that an Opposition spokesman was wearing a British Airways tie. I should prefer to wear a Laker tie. I believe that that company has done much more for pricing than any other airline operating out of the United Kingdom for many years.
I want to see a Laker-type operation out of Scotland, so that we can enjoy the type of benefits of which I intend to make use on the North Atlantic route this year and of which I could not previously make use because the fare was too expensive.
Mr. Barry Shearman (Huddersfield, East)
I did not intend to take part in the Third Reading debate, and I shall speak for only one or two minutes. I served 569 on the Standing Committee for many weeks and I do not wish to miss the chance to respond to the Secretary of State's opening remarks.
The Bill is about the interests of the passenger and consumer. I back up the arguments made by my hon. Friends. Some insistent voices have come from Government Members who know a great deal about civil aviation and who are reluctant to support certain aspects of the Bill. There is much disquiet behind the scenes at the tenor of the Bill.
On Second Reading the Secretary of State made an interesting point. He said that the Bill was not intended to destabilise international aid traffic. I suggest that the Bill will destabilise the British interest in aviation. That is because it is a two-pronged Bill. The first part denationalises British Airways. When will that take place? When will the Government sell off 49 per cent. of their share, or even 5 per cent. or 10 per cent. of their share?
Secondly, denationalisation will change the nature of British Airways, and changing the nature of the Civil Aviation Authority will destabilise the British position over international air routes. The two changes together will harm a great British industry. British Airways are a fine corporation and a great foreign currency earner. We have had niggardly remarks from Conservative Back Benchers. It has been suggested that British Airways have been cushioned and cosseted and that they are a second-rate operation. We believe that they are a great airline, which has withstood the test of time. As my hon. Friend the Member for Hammersmith, North (Mr. Soley) pointed out they are now showing a better return on investment than almost any other airline in the world. Given a bad international climate they are doing very well.
The Government have been hiding behind their role as champions of the consumer. At the end of the day, if consumers have any sense—Scottish Conservative Members should recognise this—they will see that although it is easy to take a cheap, short-term bargain, by doing so we shall sell our future for a mess of pottage. In the long term the Bill may destabilise the international aviation industry. In the short term we may have cheap flights to Hong Kong.
570 The Secretary of State mentioned Laker. After a period of cheap bargains for the consumer, we may find that there is a monopoly on Atlantic flights. The Bill promises a bad future for the British aviation industry and for Britain.
§ Mr. John Wilkinson (Ruislip-North-wood)
The hon. Member for Hudders-field, East (Mr. Sheerman) illustrates the dangers of taking a walk-on part in debates. Had he arrived earlier he would have heard what my right hon. Friend said about his intention to float shares in June 1981.
§ Mr. Wilkinson
In that case the hon. Gentleman should listen more attentively. My right hon. Friend was explicit about the timing of the flotation.
§ Mr. Wilkinson
I shall address my brief remarks to part II of the Bill and in particular to the emergency powers. I was unfortunately unable to be present for the Report stage, because of the mini-session of the Council of Europe. Had I been here I should have drawn attention to clause 10 (1), which speaks of certain contingenciesIn time of war, whether actual or imminentThe other place should delete the phrase "whether actual or imminent". What is required is for the Secretary of State to have powers in times of war or great national emergency to requisition civil aircraft for military air transport purposes, such as reinforcement and supply. It is not clear from the measure how those powers are to be exercised. This legislation makes no such provision, which is a signal deficiency. For example, in the autumn there is a reinforcement exercise, "Crusader 80", for which the requisitioning of civil air transports should be necessary for the deployment of troops to Europe. Following the 1975 defence review the Royal Air Force is deficient in transport aircraft, and in wartime would need to requisition aircraft.
The Bill contains no suggestion that the personnel who would be required for the manning of requisitioned aircraft 571 should be subject to military discipline. There have been consultations between my right hon. Friend's Department and the Ministry of Defence about the disciplinary aspects. In reply to a question last Tuesday my hon. Friend the Under-Secretary of State for Defence for the Royal Air Force told me that the matter was under review. How far has that review gone and have any decisions been taken?
If no decisions have been taken, the Secretary of State could give an order under clause 10 (3) to persons managing an air transport business, but those under them may not necessarily carry out the instructions passed on to them. It may not be the policy of their trade union to do so. There are powers in the Bill to ensure compliance—for example, a fine not exceeding a statutory maximum of £ 1,000, and, on conviction, a term of imprisonment not exceeding two years. However, I assume that those sanctions would be applied to persons managing such undertakings and not to ordinary employees. It is a grave deficiency. Perhaps my right hon. Friend can explain the situation and say whether his consultations with the Ministry of Defence have made the position more watertight.
§ Mr. Michael Colvin (Bristol, North-West)
I am grateful to you, Mr. Deputy Speaker, for calling me. I believe that you very nearly half-called me before, so I shall make only a half-length speech.
The Civil Aviation Authority has started the process of consultation, which will lead eventually to the publication of its draft policy for licensing. Could the Minister comment on the best use of regional airports, in particular on the very strange situation in Scotland, where the Civil Aviation Authority looks after some airports and the British Airports Authority looks after others? Perhaps the Minister would speculate on the future relationship between the CAA and BAA. The time may have come to merge their operational functions—for example, air traffic control and airport management—under the British Airports Authority, leaving the CAA purely as a licensing and safety organisation.
Following the Government's welcome intention to privatise certain nationalised industries, is not the British Airports Authority, with its need to raise large 572 sums of money for airport development, a prime candidate so that it can operate more commercially? Is it not against some of the international conventions to which we subscribe that exhorbitant airport charges at Heathrow should go towards the cost of building an airport like Stansted? I should welcome an answer to those questions. As my right hon. Friend suggested, the privatisation of the British Airports Authority would get the Treasury off the back of a large nationalised industry.
§ Mr. Clinton Davis (Hackney, Central)
We have heard much in recent weeks about dawn raids. A considerable time has passed since the Secretary of State for Trade—Biggies Nott—decided to carry out his dawn raid on British Airways on 20 July last year. Since then, we have had about 67 hours of debate on the Bill, some of it on the Floor of the House but most in Committee, and all that has been demonstrated is that, like so many of their colleagues—perhaps I should say rivals—in the Cabinet, the two Ministers in charge of the Bill want to devote themselves with unbelievable energy to topics that are injurious to the strength of the British civil aviation industry.
We have not been given a convincing explanation of why the Government are proceeding with the Bill. As the days go by, there is a great deal of scepticism, even among their usual supporters in the press, about whether the flotation will ever take, place.
The hon. Member for Ruislip, North-wood (Mr. Wilkinson) must have misheard the Secretary of State. The right hon. Gentleman did not say that he would proceed with the flotation on a particular date. He said that it would happen not before 1981.
§ Mr. Wilkinson
If I was being hard on the hon. Member for Huddersfield, East (Mr. Sheerman), I am only too glad to apologise, but I understood my right hon. Friend the Secretary of State to say that from June 1981 it would be possible for the Government to proceed with the flotation if economic circumstances were propitious.
§ Mr. Davis
The hon. Gentleman was not hard, but hard of hearing. We have still not been told what the Bill will do to deal with the basic problems affecting 573 British aviation. How will it improve industrial relations and productivity in British Airways? How will a greater competitive spur in an already vigorously competitive international market be provided if we sell 49 per cent. or 75 per cent. or whatever proportion the Government decide? Why have the Government vigorously opposed enshrining in the Bill an assurance that was repeatedly given in Committee by the Under-Secretary that he had no intention of selling a majority of shares in the successor company?
§ Mr. Tebbit
I have never given an assurance that the Government will never sell a majority of shares.
§ Mr. Davis
The hon. Gentleman said that that was not his intention, but he could not bind his successors. That is a fair resume of what he consistently said in Committee.
We have been given no good reasons why at least two Government directors should not be appointed to the board of the successor company to act, as the hon. Member for Brentwood and Ongar (Mr. McCrindle) requested, as watchdogs to protect the public interest while it is still so substantial. Of course, that would have been a commonsense proposal and, for that reason, would have been out of place in the Government's thinking.
The Government have still not indicated what they are to sell and why there is to be no accountability to Parliament. Those are important issues and, as long as the Government retain a majority shareholding, they are vital for the people of this country.
I suppose that to expect an answer from the Under-Secretary in the closing moments of the debate would be tantamount to expecting the greatest miracle since Moses struck the rock. It is not going to happen.
The Government are hiding behind a fig-leaf—the provision, selling or giving of some shares to some employees. I shall come to the question of the viability of that proposal later, but I suspect that there will be only limited interest in the scheme. If that is what the Government wanted to do, it would have been possible to do it without embarking on the whole programme of privatisation.
574 The credentials of the Bill have been in the gravest doubt from the beginning. There was no electoral requirement for it because it was not in the Conservative Party's manifesto. It did not engage-in consultations in advance, but it was the Secretary of State's burnt offering to the Tory Party conference in October 1979. That is why it had to be announced in July of that year.
In order to justify the lack of consultation about the principle underlying the proposals—and I repeat that the trade unions regarded that as a deliberate snub, and were right to do so—and despite the fact that from the Government's own pragmatic view it was absurd to go along that road, the Under-Secretary has repeatedly treated the House to a veritable cornucopia of constitutional drivel about why he could not engage in prior discussions with those whose lives revolved around the industry.
That has not deterred the Secretary of State from engaging in discussions with those interested in other Bills before the proposals have been announced. That is true of the Companies Bill and a variety of measures. Only recently, the Minister of Transport said that he had consulted British Rail management and the National Union of Railwaymen before bringing a proposal to the House. The Under-Secretary claims that constitutional proprieties prevented him from doing that. That is balderdash. If it were not an offence to the great constitutional lawyer Dicey, I should refer to it as a dicey proposition.
There are no compelling reasons and no justification for the Bill, except the dubious one of removing British Airways' operations and investment programme from the public sector borrowing requirement.
The truth is that the Bill has been introduced for doctrinal reasons alone. The Government's reasoning represents all the bogus rationale of the monetarist school, of which the Secretary of State is so prominent a member. It is the Department of Trade's contribution to rolling back the frontiers of public ownership. The tragedy for the country is that the Government are made up of men and women suffering from an overwhelming compulsion to believe what is demonstrably untrue.
575 This irrelevant measure must pose an enormous question mark over the future of British Airways. The Government are pursuing their policy regardless of the consequences. I believe that it represents a threat to the stability of the airline—a vital commodity if British Airways are successfully to withstand foreign competition. The Bill will represent a threat to the morale of the work force and management, particularly if the flotation of the shares proves to be unsuccessful. It is a bad proposal and we shall remedy it.
For all those reasons, I can only liken the Bill to a mule. It has neither pride of ancestry nor hope of posterity. The real question is: how viable is the proposition to sell the shares? Ministers have regularly refused to address themselves to that question.
The Secretary of State said that British Airways fared better during the recession of the early 1970s than did most of their competitors. They have done that again, under the existing management and under public ownership. They have unquestionably provided a much better service overall than some of their detractors in the Sunday Express and other rabble newspapers have suggested.
The Under-Secretary and the Secretary of State have paid tribute to the role played by British Airways. We are in accord on that, but it is clear that in no circumstances can the airline provide, in present circumstances, a track record of profitability, which is the usual criterion for establishing a flotation.
The Under-Secretary refers to the United States scene with considerable interest from time to time. What is the position there? Airline after airline is showing a considerable deficit. Whatever the reasons—they are largely attributable to the oil crisis—I have cited on a previous occasion the status report by Paine Webber Mitchell Hutchins Incorporated, a very reputable organisation, which, having recited the situation at the present time, concluded:All this should mean lower airline earnings in 1980 and no big earnings recovery in 1981. In order to achieve large near term gains in stock prices, a large rebound in 1981 is a must. Otherwise, the group may continue to drift lower and/or at best offer dead money for some time. Neither possibility argues for heavily owning these stocks.576 What is the difference between owning stocks in British Airways under these circumstances and owning stocks in a large number of American airlines? I believe that the Sunday Telegraph is right in pouring scorn on Government intentions.
I turn briefly to part II. The transformation in Government thinking on this issue is extraordinary. Originally, the plan was for the Government to distance themselves from aviation policymaking despite the fact that the Opposition contend that it should be the role of the Secretary of State to determine a clear policy within which parameters the Civil Aviation Authority should operate. It should be accountable to Parliament on these matters.
The Government went ahead with their proposals despite considerable opposition from virtually all the airline interests. That was the policy until just before the Report stage. The plan, at that time, was to turn the Civil Aviation Authority from a quango into a tango—a totally autonomous non-governmental organisation. Suddenly, all that was changed by the Secretary of State's Hong Kong decision. The right hon. Gentleman made the change in time for his now famous after-dinner speech at the Dragon Boat dinner. He abandoned his quasi-judicial role—never mind his offering the thinnest possible veneer of adhering to that important role—and ignored all the evidence presented to, and analysed by, the Civil Aviation Authority. The right hon. Gentleman effectively opted for, although he still denies it, an open skies policy on that route. He held that the Civil Aviation Authority had entirely mis-directed itself on the issue of having four carriers on the route. What he has achieved is turmoil.
One possibility is that we are now back to the pre-1971 situation of pantomime hearings before the Civil Aviation Authority with arbitrary decisions made by the Secretary of State on appeal. If, on the other hand, it is simply a one-off decision, made clearly for political purposes, he hopes that it will have so intimidating an effect on the Civil Aviation Authority that, in future, to avoid a clash with the Government, the authority will operate within the vague philosophy that he has enunciated but for which he provides no statutory basis. That would be a sinister turn of events.
577 I recall reading, I think in Lloyd's List, in the early days of the Secretary of State's ministry, an article which stated, appreciatively and with some justification, that the right hon. Gentleman had a great sense of humour. One needs to have a sense of humour to be a member of this Government. The article recalled that the right hon. Gentleman had been financial adviser to Burmah Oil when it had gone bankrupt in 1974. According to the article, the right hon. Gentleman said about that event: "It was not my finest hour."
By comparison with his accomplishments as Secretary of State in charge of aviation, I think that it was the apogee of his career. This is the glittering limelight into which he has gone. He has posed a wilful threat to the success and the future of British Airways, which remain a priceless national asset that over 50,000 people have sought to preserve and enlarge. He has left civil aviation policy in a shambles. This is a bad Bill, based on the invincible ignorance of the right hon. Gentleman and his hon. Friend about the needs of our aviation industry. It should be rejected by the House.
§ 7.4 pm
§ The Under-Secretary of State for Trade (Mr. Norman Tebbit)
We regret the departure of Kermit the frog from the Muppet show, but we shall nevertheless get on without it. We have been through all these arguments time and again. The hon. Member for Hackney, Central (Mr. Davis), his right hon. Friend the Member for Lanarkshire, North (Mr. Smith) and Opposition Back Benchers complain perpetually that they have not had any answers. The problem is that they cannot understand the answers offered them. That is not because the answers are bad. Nor, in many cases, is it because they are intellectually limited. They are possessed by a sheer, blind determination not to understand.
The same determination comes from members of the trade unions—no, that is wrong—from the leaders of trade unions, who complained that they were not consulted, despite the fact that I made plain that my office door was open at all times for them to come and see me to discuss the nature of the employee share offer, the guidelines for the Civil Aviation 578 Authority and many other matters. They have chosen not even to answer the letters that I have written asking for their opinions.
§ Mr. Tebbit
The hon. Gentleman says that I rejected them at the outset. I did not reject them. As soon as it was proper, in my view, that they should be invited to offer their opinions, they were invited. If they take the attitude that they will sulk out of pique and say that they do not care about their members' interests in the matter—for example, of the share offer to employees and will not even discuss it—that is a matter between them and their members.
§ Mr. Davis
How does the Minister reconcile his refusal to talk to the trade union leaders, before the announcement in July was made, with the fact that before making his announcement recently his colleague the Minister of Transport engaged in consultations with the NUR and the management of British Rail?
§ Mr. Tebbit
I suggest that the hon. Gentleman asks my colleagues how they manage their outfits, and that he asks my right hon. Friend and I how we manage ours. I have told the hon. Gentleman that I thought it was appropriaate that after we had made our decision we should bring it first to the House instead of informing people outside. This is characteristic of the half-baked logic that the hon. Gentleman brings to this whole matter. He rightly describes British Airways as a great airline, but goes on to imply—indeed, virtually directly to say—that no one other than the taxpayer would want to own any shares in it. What sort of logic is that? Is it a good enough investment for the taxpayer? If it is, why is it not a good enough investment for anyone else?
The right hon. Member for Lanarkshire, North took the view that the Government either should or need not intervene in the management of British Airways while it is in public ownership. The right hon. Gentleman said "You do not need to do all these things. All you need to do is not to intervene in the management." He then criticised the Government, saying that when we had sold a 579 substantial part of the share capital we should keep on intervening when we own less than the whole of it. The right hon. Gentleman should make up his mind which he wants.
The right hon. Gentleman also pretended that he had never heard of that delightful ritual, to which I hope I am allowed to refer, called the Treasury bilateral, where a Minister from a Department meets someone such as the Chief Secretary to the Treasury to discuss what public expenditure will be allowed which he can offer to the nationalised industries in his care for their investment programmes. I do not think that it is any secret to those inside or outside the House that these things happen. Nor is it any secret that the nationalised industries concerned often do not get all the money that they need. Nor is it any secret that they are often not told how much money they can have until considerably later than is proper for the best management of then business. That sort of interference in the proper management of a commercial organisation is inevitable if it is nationalised. It is one of the reasons why we want to denationalise British Airways. [Interruption.] Yes, I use the expression "denationalise", but of all the expressions I prefer the word "liberate", because that is what this Bill is about. It is about liberating British Airways, their employees and their assets, to enable them to govern their own affairs and take responsibility for all that they do.
Some questions were raised in the course of the debate and I shall reply to them briefly. My hon. Friend the Member for Hastings (Mr. Warren) referred to the Treaty of Rome. I think that he might ask himself whether, as no action has yet been taken in the EEC to enforce the competition articles of the Treaty of Rome, he might conclude that all legal opinion is not unanimous on whether those articles apply.
The hon. Member for Hammersmith, North (Mr. Soley) asked what would happen about the issues of shares for employees. I said quite clearly in Committee that that would depend, in part at least, on what the Chancellor of the Exchequer was able to do in his Budget. We have had the Budget, and my right hon. Friend the Secretary of State has explained the position further today.
580 Labour Members were not interested in this matter earlier, or they would have raised it on Report. It is not for a Minister to introduce a matter on Report when that matter does not require amendment to the Bill, or legislation of itself and about which he has not been asked by any hon. Member. Therefore, it was perfectly right for the Secretary of State to raise the matter at this stage.
My answer to the right hon. Member for Orkney and Shetland (Mr. Grimond) is that I think that my right hon. Friend the Secretary of State may have inadvertently misled him about the period for which shares must be held by employees from the free issue and the cheap issue, if I may call it that. Both types of shares must be held by trustees for a minimum of two years before they can be sold. The tax will then be payable at reduced rates over sales within the next five years, and after seven years the shares can be sold free of income tax. That probably makes the matter clear.
The hon. Member for Huddersfield, East (Mr. Sheerman) asked when the shares would be sold. My right hon. Friend said that it would not be before next summer. Personally, I should have taken refuge in that time-honoured expression used at the Dispatch Box—"Not next week."
My hon. Friend the Member for Ruislip. Northwood (Mr. Wilkinson) was concerned about the provisions for the takeover of transport aircraft in an emergency. I know that the House is anxious to move to a Division, so I refer him to columns 619 to 662 of the Official Report of Standing Committee B on 14 February and 26 February, when these matters were explored at length. I have continued to explore them with my hon. Friend the Under-Secretary of State for Defence for the Royal Air Force.
My hon. Friend the Member for Bristol, North-West (Mr. Colvin) questioned the relationship between the Civil Aviation Authority and the British Airports Authority over ownership of the airfields in Scotland. It seems appropriate that the BAA should manage Aberdeen, which is a large and busy airfield, akin to the others that the BAA manages in other parts of the country. The way in which the CAA has managed the Highlands and Islands airports has been both popular and efficient, and there is no 581 reason to change these matters simply out of administrative tidy mindedness.
On the question of the introduction of private capital for the BAA, it would be difficult to find the right format. But no one should exclude the possibility of introducing private capital to ease the problems of financing the considerable expansion that the BAA wishes to undertake.
§ Mr. Wilkinson
Would it not also be possible for the British Airports Authority to borrow, as other public bodies are able to do, to meet its capital requirements for construction and other important works?
§ Mr. Tebbit
If the PSBR is to be contained at any figure, that which the BAA borrows cannot be borrowed by another authority somewhere down the line or spent in some other way by the Government. It is possible, of course, for the BAA to borrow, but it is a matter of the total that we can allow in Government expenditure.
Finally, the Bill in its two parts prepares the ground to liberate British Airways. Liberty has its price and its perils and British Airways must be responsible, after the transition, for their own future. It will be up to everyone in the airline, from members of the board to the most junior employees, to assure his own future, and with it that of a large part of the British civil aviation industry. I am sure the whole House will wish British Airways every success both in their present public corporation form and in their future private sector guise.
The other main provisions of the Bill concern the CAA and air transport licensing. The authority will govern the regulation of the industry through what may well be a testing time for civil aviation, world-wide. There will be changes of degree, emphasis and style, rather than a wholesale rooting up of all that has grown up in the past in favour of entirely untried ideas.
The CAA has established a world-wide reputation over the past nine years, and that springs from the quality and the work of its staff, not only in licensing, but in safety, particularly of aircraft certification, crew standards and air traffic control.
582 Some questions have been asked about whether the CAA will have a continuing commitment to technical research, the provision of expert advice to British exporters and the improvement of safety. I give a firm commitment on behalf of the authority that that work will continue as part of the authority's broad objective and functions, and that it will be unaffected by this legislation.
Despite what has been said about the Government's attitude towards public sector industries, there is something in the Bill for the British Airports Authority which, I hope, will help it to export its expertise, services and goods in the general national interest. There is no prejudice among my right hon. and hon. Friends against the work of the nationalised industries. We aim merely to ensure that that work is carried out in the most efficient and effective way, and above all in the interests of the consumer. I am sure that the House will want to wish both the Civil Aviation Authority and the British Airports Authority every success under the new arrangements of the Bill, which I now commend to the House.
§ Question put, That the Bill be now read the Third time:—
§ The House divided: Ayes 317, Noes 229.