New Clause A

HC Deb 05 November 1980 vol 991 cc1293-307

Lords amendment: No. 1. in page 2, after clause 1, in line 15, at end insert—

"A. In section 9(1) of the British Airways Board Act 1977 (limit on borrowing powers of the Board) for the words from "shall not" to the end there shall be substituted the words" shall not exceed £1,000 million." ."

3.39 pm

The Under-Secretary of State for Trade (Mr. Norman Tebbit)

I beg to move, That this House doth agree with the Lords in the said amendment.

Mr. Speaker

With this we may take Lords amendment No. 6. I must inform the House that the amendment involves privilege.

Mr. Tebbit

The amendment is des-signed to increase the board's financial limits. My right hon. Friend the Secretary of State for Trade announced recently that the flotation would not be made of the shares of British Airways next year.

The clause provides for British Airways' statutory borrowing limit to be raised from the present level of £850 million to £1,000 million. When my right hon. Friend the Secretary of State made a statement, on 13 October, to the effect that in view of present difficulties in the civil aviation market it would not be possible to launch a successful flotation of British Airways shares in 1981, it was clear that British Airways would require additional finance in order to see it through the period until the launch.

Although we were disappointed at having to reach such a decision, it was inevitable, given that reduced traffic this year has had an adverse effect on the financial performance of all airlines, including British Airways. Nevertheless, the announcement demonstrates what the Government have often said about the timing of the flotation. We shall not proceed until we consider the time is right, taking into account the interests of all concerned, particularly those of British Airways.

It remains our intention to proceed as soon as we can.

Mr. Russell Kerr (Feltham and Heston)

It was never a runner.

Mr. Tebbit

That remark underlines the hon. Gentleman's long-held lack of faith in British Airways; nothing more. If the hon. Gentleman believes that British Airways are viable he must believe that it is possible to launch it on to the market.

Mr. Kerr

The Minister has got it wrong. I am concerned about the way in which the Government are messing up an otherwise efficiently run airline. In Committee we warned the Minister and his colleagues that this would happen. I very much regret that such things have come to pass. It is a sad day for me, because the Minister has fallen flat on his face.

Mr. Tebbit

Although the hon. Gentleman has used a lot of words he has not said anything. If he believes that British Airways are a viable, well-run airline, he must believe that they could stand on their own feet as a private sector company. If he does not believe that private investors could be persuaded to put their money into the airline, he must ask himself whether any public investor could be so persuaded.

Until the launch, British Airways will remain a nationalised industry and will have to continue to fund their investment programme, particularly the modernisation of their aircraft fleet. That programme is essential, but it cannot be met from British Airways' internal funds alone. It will require further external borrowings. The new clause increases the airline's statutory borrowing limit to permit those borrowings. The increase does not represent any addition to forecast public expenditure, because the airline's future borrowing requirements have already been taken into account in the forecasts. Essentially, the new clause provides British Airways with financial stability, so that the fleet replacement programme can continue. I commend it to the House.

Mr. John Smith (Lanarkshire, North)

The Minister's tone was quieter than normal. That is appropriate, because he has had to eat some humble pie. The Government wish to increase British Airway's borrowing powers, because they have reluctantly had to announce that they will be unable to float the shares in 1981. In addition, I suspect that the Minister will find that he cannot float them after that date.

My hon. Friend the Member for Hackney, Central (Mr. Davis) and I, as well as many other hon. Members, repeatedly told the Minister what would happen during the many hours spent in Commit. tee. Time after time the Government insisted that they would put the shares on the market, although they would not be pinned down to a precise date. What are the consequences of the Minister's action for the public sector borrowing requirement? The Government said that selling the shares would lead to a reduction in the public sector borrowing requirement.

Mr. Tebbit

Perhaps the right hon. Gentleman did not hear me say that the increase does not represent any addition to forecast public expenditure, because the airline's future borrowing requirement was included in that forecast.

Mr. Smith

I heard that, but I doubt whether that is the whole story. If there had been a successful flotation of the shares the Government would probably have claimed that they had achieved a reduction in the public sector borrowing requirement. However, that is another matter. One must watch what the Under-Secretary says and study the fine print carefully when he tries to sell something to the House.

It is important to ask why it was necessary to introduce the Bill. The Government were in a hurry to get part I through the House in this Session, so that they could sell the shares. The parliamentary timetable has been overloaded. The Government have had longer than normal to deal with this issue. They have been in office almost one and a half years, because of the date of the last election. Last year the Bill was one of the first runners, yet we are still debating it at the tail-end of the Session. As it turns out, we did not need it.

Part II deals with civil aviation licensing, but the Government have departed so far from the policy that they announced that it is hardly necessary They said that they would interfere less with the Civil Aviation Authority, but they have done nothing but interfere with it. The Bill appeared important but, not for the first time in our legislative process, it has turned out to be unimportant. It is a topsy-turvy operation.

The Government should not tease us each year. We do not want them to say, this time next year, that as a result of the circumstances surrounding the aviation industry they are forced to announce that they cannot float the shares in 1982. Nor should they come along at the end of 1982 to make a similar statement for 1983. It is better to bite the bullet now. They should consider the long-term viability of British Airways and that company's future security. They should decide that British Airways do not provide a suitable vehicle for such an ideological experiment. That would help British Airways and all those who work for that company.

I am not a student of the Government's tactics, and I do not know whether this move represents a U-turn. The Government will probably say that it is not a U-turn and that they are parking in a layby. At a suitable time, they may say that they are ready to emerge from the layby and get back on the road that leads to selling shares. I do not think that that will happen. The Government are on a slip road leading off the road. I hope that they will carry on along that slip road, although they may stop for a little while in the layby for the convenience of the party's morale. They should move confidently out of the layby and on to the slip road. They should not return to the main road.

I shall not taunt the Government about making a U-turn, because it is in the national interest for them to do so. If it makes it easier for the Government to adopt this course without ribbing from the Opposition, I am prepared to forgo some political advantage in the general interests of British Airways and our aviation industry. This is a significant moment. It is an interesting example of a Government who have had to face reality. In the difficult circumstances of international civil aviation there is no reason to believe that British Airway's position will be any better a year from now. Most private sector airlines, particularly those in the United States of America, find themselves in difficult circumstances. We all understand the reasons. They include depressed demand in the world economy, increased fuel charges, and all those other factors that make international aviation a difficult business.

We shall not oppose the amendment. The Government have made a wise move. Perhaps they could have made a more open declaration of their change of policy, but I hope that they will not linger in the layby for too long. I hope that they will move confidently into the slip road and that the House will accept the amendment.

Mr. Cranley Onslow (Woking)

I am anxious not to detain the House or the right hon. Member for Lanarkshire, North (Mr. Smith), who I know has a pressing engagement later today, but I do not think that we should let him get away with that superficial speech. The Government have made a sensible decision and it does not represent a U-turn in any sense. I know that Labour Members are anxious to represent it as such at all costs, but in fact the position is quite clear—the Government remain committed to proceed with the sale of assets of British Airways, in part at least, and will do so at the right and propitious moment. The "right moment" was something that Labour Members called for in Committee, so their support for this amendment should not come as a surprise.

None of us will be surprised to hear that this is not the best moment for selling shares in this industry because there are great problems that the industry must overcome. When the right hon. Gentleman said that British Airways have no solution to its problems or when he implied that, as he most clearly did, he—

Mr. John Smith

I did not.

Mr. Onslow

The right hon. Member did, because he said that British Airways shares would never be marketable.

Mr. Smith

That is idiotic. I did not say that.

Mr. Onslow

If the right hon. Gentleman wishes to make idiotic statements, perhaps he will do the House the courtesy of getting to his feet.

Mr. Smith

The hon. Member is such an expert on idiotic statements that I cannot rival him, but he must be reminded of our opposition throughout the Committee stage—I suppose that he listened to the debates from time to time—when we said that it was not impossible but completely unwise to sell shares.

Mr. Onslow

I can claim to be an expert on idiotic statements, having listened at length to the right hon. Gentleman in Committee. That was an education in itself. Although he is boxing the compass now, he made it perfectly clear in Committee that his opposition to this measure was not on grounds of saleability but on a doctrinaire basis. That will not surprise anyone. The right hon. Gentleman should know that British Airways and other airlines throughout the world are taking steps to increase viability and slim down costs in order to put themselves in a position where they can offer a decent return to investors. The sooner that time comes the better all of us will be pleased—except the right hon. Gentleman, of course. We look forward to that day even if he does not.

I hope that my hon. Friend will accept that there are ways in which he may be able to bring forward the date on which British Airways become a floatable company. There are areas in which the Government might be able to increase efficiency—in air traffic control, or in other areas—by relieving the airlines operating through Heathrow of some of the burdens of charges on the ground, particularly the security charges. I am glad that I appear to carry the right hon Member for Lanarkshire, North with me on that point at least. We now have a bit more time available in which British Airways can slim down and capitalise on the programme that they have been running for some time to reduce overmanning and equip themselves with the kind of fleet that they need. The airline can increase their efficiency and punctuality and improve their service to the public.

None of this is bad and none of it represents "sitting in a lay-by", as the right hon. Gentleman said. It represents a sensible recognition of reality. I am sure that the right hon. Gentleman would recognise that if he were not sitting on the Opposition Front Bench. There is no reason why the House should regard this as anything other than a sensible measure. We look forward to my hon. Friend coming to the Dispatch Box early in the next Session but one and announcing that the sale will go ahead. I am sure that when he does so the staff and employees of British Airways particularly, who know first-hand what they have done to make the company more efficient and more marketable, will be correspondingly eager to take up the shares when the time comes.

In that spirit I commend this Lords amendment to the House.

Mr. K. J. Woolmer (Batley and Morley)

I address my remarks to the effect on the public sector borrowing requirement of the failure to go ahead with the sale of shares. I hope to draw the Minister out a little more on this question.

The reason given for the haste in proceeding with the Bill at all in the lifetime of this Parliament was, in part, the contribution that it would make to offsetting the PSBR. I think that that is fair comment. This Bill was not presaged in the pre-election period. It was not in the manifesto commitment of the Conservative Party. It appeared very rapidly after the election and it appeared to have this motivation, along with the ideological wish of the Conservatives to privatise. Hon. Members will remember the word "privatisation", which began to creep round in Committee. The Minister shakes his head, not in disagreement but in horror of that word. We share a horror, not of the word but of the reasoning and the thinking behind it.

Having sat month after month in Committee and through various stages in both Houses, we are now told at the last gasp that the proposal will not go ahead at all in the foreseeable future. Perhaps the Government hope that it will happen some time, but I suspect that the Minister will not tell me when it will be.

Mr. Tebbit

I think that it is worth making two points. First, the hon. Member has omitted one reason for the denationalisation of British Airways—in fact, the prime reason. Denationalisation will be good for British Airways; it is a better way to run an airline. Secondly, the hon.

Member says that the launch will not be in the foreseeable future. Certainly it will be in the foreseeable future, but, in the words of the Leader of the House most weeks, "Not next year, sir".

Mr. Woolmer

The Minister is attempting to avoid the obvious charge that there has been a complete misjudgment by the Government about the state of the economy and the business that they were proposing to privatise or denationalise. The outcome of all this has been months of uncertainty. British Airways have had considerable difficulty, and at the end of the day there has been no indication of any time scale for the proposal.

The hon. Member for Woking (Mr. Onslow) says that this is a sensible decision and that it does not represent a U-turn. There are many people in this country who see a sensible decision by the Government and a U-turn as being one and the same thing. I do not see any contradiction in terms in saying that this U-turn is a sensible decision and I believe that that would reflect the attitude of most people about present Government policies. It is not the time to sell shares in British Airways or in any company in the United Kingdom. The state of profitability is so bad that it is not the time to sell any shares at all.

I hope that the Minister will be much clearer and firmer about his intentions on flotation. Will he give us an assurance that the Government will not push ahead with flotation until the time is right and the circumstances allow it? Of course we would say that they should not do so at all.

Secondly, can the Minister indicate the consequences of the failure to carry the flotation through in the time scale that was envisaged when the Bill got off the ground? What will be the consequences for the loss of revenue or the loss of the reduction in the public sector borrowing requirement that the Government hoped for originally?

4 pm

Mr. Michael Colvin (Bristol, North-West)

I support this amendment. I am very pleased to see the Civil Aviation Bill entering the legislative home straight at last. I welcome the Government's pragmatic approach to the flotation of shares in British Airways, just as I welcome the indication of pragmatic Socialism from the Labour Front Bench. It is time that we saw more of that. I appreciate that the delay in the flotation of shares has been instrumental in the need for this amendment. It is one of the reasons for it.

Can my hon. Friend tell us a little more about guarantees to British Airways? The continuance of guarantees was raised in another place but was not adequately answered. Because of public sector borrowing requirement considerations, I appreciate that when British Airways become a private company the Government will no longer give loan guarantees. At the moment they do, which enables British Airways to go into the market in the United States of America, where they raise most of their money to buy aircraft and to get favourable terms. Once privatised, will those existing loan guarantees continue? That is an important consideration in the preparation of the prospects for the sale of shares in the company.

Secondly, I wish to ask about the route structure of British Airways. The most valuable asset of any airline is its route structure. British Airways' route network domestically, in Europe and internationally, long and short haul, is one of its prime assets. Can my hon. Friend undertake that he and his right hon. Friend, should they ever be tempted to use the judgment of Solomon once more with regard to the allocation of routes, will bear in mind that British Airways' route structure is fundamental to the preparation of a good prospectus for the sale of shares?

I and several of my hon. Friends had the pleasure last night of meeting senior executives of British Airways and discussing their forecast for the future of the company and civil aviation generally. We appreciate that civil aviation internationally is very much in the doldrums. The market is very difficult indeed. We applaud the efforts of Mr. Ross Stainton and Mr. Roy Watts, who lead British Airways, the senior executives and all members of the company at all levels to increase productivity within the corporation and bring it back into profit. When the time comes to float the shares, I am sure that the flotation will be extremely successful.

Mr. Clinton Davis (Hackney, Central)

The Under-Secretary's speech is the second concession speech that we have heard in 12 hours. While humility has never previously been the hon. Gentleman's forte, on this occasion he has obviously decided that if humble pie has to be eaten the best way to eat it is to bolt it whole, although he did exhibit shades of schizophrenia when interrupted by my hon. Friend the Member for Feltham and Heston (Mr. Kerr).

What the Minister said today and what was said in another place underline all the points regarding part I of the Bill that we have made from the moment, more than 15 months ago, when it was introduced. The Bill is a massive irrelevance, even from the starting point of the Government's philosophy. However, the Government have chosen to conduct the Bill over many hours of debate with, as we now see it, a vigorous inconsequence. Our stand has been wholly vindicated.

Apart from our objections in principle to the proposed raid on public assets, we said, time and time again, that flotation in 1981 would be absurd. That argument is now conceded, because of the continuing fuel crisis, the heavy investment programme that has to be undertaken, and so on. There is no evidence to suggest that against the background of the international aviation scene the flotation could be viable in 1982, even accepting the Minister's criteria. It is unlikely to be successful in the foreseeable future. It is no good the Minister saying that the Opposition do not want British Airways to succeed. That is not true. The reality is what will happen internationally. There is no silver lining to the aviation cloud at present and it is unlikely to appear.

Of course we object to such a doctrinaire proposal in principle, but, even looking at the matter pragmatically from the Government's point of view, there is little likelihood because of the present situation—and that has nothing to do with the viability of British Airways or the way that they are conducting themselves—that that proven track record of success, which is an essential element in a successful flotation, will be available. I stress that that is not the fault of British Airways, as was conceded by the Government spokesman, the noble Lord Trefgarne, in another place on 16 October. He pointed out that in 1979: British Airways', own fuel bill rose 72 per cent… . but they still managed to make a profit, more than could be said for many of their competitors. More recently, the general economic downturn has reduced airline traffic throughout the world and this has inevitably hit operators' profits, again throughout the industry worldwide."—[Official Report, House of Lords, 16 October 1980; Vol. 413, c. 1495.] Those are the facts. We are not attacking British Airways or the steps that they are taking, or the dedication of their work force to make the airline a success. I hope that the Minister will not continue to raise that bogus point. British Airways, on the Government's admission, have done rather better than most of their competitors under public ownership.

All the facts were obvious to everyone except the Ministers in the Department of Trade 15 months ago. When one considers the statement made in another place on 13 October 1980 one becomes aware of the extraordinary chronology of events in this saga of incompetence. On Friday 20 July 1979 the Government rushed out a statement. Friday is an odd day for such a statement. They refused to consult anyone about the principle of the proposals before that statement was made. In contrast, the Bill has had a leisurely progress through the House. It was not until 13 October 1980 that any evidence was exhibited that the Government were showing the slightest willingness to embrace reality. All the facts were known long ago. Why did it take the Government so long to wake up?

In the other place on 13 October Lord Trefgarne apparently failed to digest, or was not given sufficient time to digest, the implications of his statement. He said that the transfer of British Airways' assets would be made to a nominee company under the terms of the Bill. Hastily, doubtless after one of the hurriedly scribbled notes that occasionally arrive for Ministers from civil servants in the box, he had to retract that piece of misinformation. As late as 13 October, therefore, the noble Lord did not know his own case.

One of our major criticisms of the Government has been their determination to plough ahead with their doctrinaire proposals, regardless of the views of others who they could have consulted but refused to do so. I am sure that all the debates on that point will be vividly recalled by the Minister. In response, the Minister treated us to a novel series of constitutional objections to show why consultation was not only inappropriate but improper. Putting it politely, yet using the letter "B", it was a supreme example of bogus Bagehot.

This great custodian of parliamentary liberties and proprieties was not only proposing to neuter virtually every possibility of parliamentary surveillance of British Airways while they remain a substantial public stake—and this applies also to the other proposals in the remainder of the Bill; the indictment is much worse. The Government have been prepared not simply to sidetrack the management and the trade unions that could have acquainted them with some of the facts of life—the birds and bees of the aviation industry—but to sidetrack Parliament. The other place was sitting early in October, but the Government chose to make to the press a public announcement of their decision on the matter that we are considering. If it had not been for the vigilance of the Opposition in another place, the statement would not have been made in Parliament until three days later, when the Committee stage of the Bill was due to be reached. That point was conceded by Lord Denham, who said: I have done my best to find out exactly what would have happened if another place had been sitting at this moment and in what way the Statement would have been made. I can tell the House that the best I have been able to find out at the moment is that the Statement would have been made in the same way, as a press statement."—[Official Report, House of Lords, 13 October 1980; Vol. 413, c. 868.] The noble Lord was conceding that this House would have been shown the same disrespect as was shown to another place. The Government's action was offensive and arrogant, and showed little regard for the constitutional proprieties of which the Under-Secretary claims to be the custodian.

In the face of reality, the Under-Secretary should announce that he is prepared to abandon the hair-brained proposals in part I. We shall be delighted if he will establish that he is a failed kamikaze pilot. To go on with the threat over the head of British Airways is to continue to undermine stability in the airline and the confidence of the work force. Let British Airways get on with the task of competing effectively in a difficult aviation climate. Part I represents a gratuitous distraction, and it should be removed.

Mr. Tebbit

By leave of the House, it may be helpful if I answer one or two of the points that have been raised. The hon. Member for Batley and Morley (Mr. Woolmer) wanted me to reassure him that we would not attempt to launch shares at a time when it would be damaging to the corporation. I gave that assurance a number of times during the earlier stages of the passage of the Bill through the House and I am happy to give it again. Since the prime objective of denationalisation is to benefit British Airways, we would not carry it through in a way that would damage the corporation. That would not be the way to persuade anyone to invest.

The hon. Gentleman also asked about the implications for the public sector borrowing requirement. I cannot put into figures what benefit might have come from the sale. It is not possible to say how much would be realised by the sale. That depends on a great deal that we cannot know—the state of the airline industry, the state of the stock market, and so on. Since the external financing limits for British Airways for the coming year have not yet been announced, it would be wrong for me to give an indication of that side of the equation, either.

All that I can say is that the PSBR would have been that much smaller, or we would have had more to spend on other things—perhaps social programmes, which are near to the heart of the right hon. Member for Lanarkshire, North (Mr. Smith). It is certain that the money cannot he spent in two places at the same time. If it has to be spent on financing aircraft for British Airways it will not be available for other programmes. Certainly there would have been a benefit.

Mr. Woolmer

Why does the Under-Secretary continue to be so coy about the amount that he would hope to raise from the sale of British Airways? Does he not owe it to the country to tell us how much he expects to raise, at least within a broad range, from selling what, on his own ad- mission, will be a profitable national asset?

4.15 pm

Mr. Tebbit

I do not know what the state of the stock market will be, or how profitable the airline will be. I do not know what other opportunities there will be for investors to invest in alternative propositions. It is impossible to give a figure. The hon. Gentleman can read the accounts and make his own estimate.

My hon. Friend the Member for Bristol, North-West (Mr. Colvin) asked about the guarantee of loans. The position is clear and there should be no confusion. Loans drawn down before British Airways is converted will be subject to guarantee. After that, borrowings made by the corporation will not be subject to guarantee. Of course, the guarantee will continue for loans before the changeover.

My hon. Friend also referred to route rights. No one can guarantee that a route will be given to an airline for all time, but we have made it clear that we would not expect the Civil Aviation Authority to go in for arbitrary reallocation of routes, and there is no sign that it intends to do so.

My hon. Friend the Member for Woking (Mr. Onslow) asked for some comfort on the question of costs for British Airways from external causes. As the House knows, I am inhibited in what I can say about that, at least in one area, but I assure my hon. Friend that, at least in the case of the security levy, I hope that I shall have quite good news before too long.

The hon. Member for Hackney, Central (Mr. Davis) made his usual speech. I suppose that we all make our usual speeches, but I assure him that in my view British Airways are not a lame duck. They may have lost a feather or two during the recession, like most other airlines, but we are confident that they are in good flying shape and that they will be in sufficiently good shape to be denationalised and attract private sector support.

Mr. Clinton Davis

The hon. Gentleman will concede that British Airways is in good flying shape under public ownership, which demonstrates that there is not much reason to change the situation. He constantly suggests that we are seeking to denigrate the activities of the corporation in order to subvert his scheme.

The contrary is true. We believe that British Airways are a viable, successful concern, which could be more successful if the Government withdrew their wretched Bill.

Mr. Tebbit

In saying that he believes that British Airways are a viable and successful concern, the hon. Gentleman underlines our belief that public sector investors will come forward to buy shares in it.

I assure the hon. Gentleman that no disrepect was meant to either House in the way that the announcement was made by my right hon. Friend. We had never announced a date on which a sale of shares would take place and we merely confirmed that it would not be during 1981.

Mr. Davis

Would it not have been better if the Government had gone to another place, which was sitting, and made the statement there, as they were required to do? Is the hon. Gentleman aware that this is not the first time that the Government have behaved disrespectfully to another place? They had to apologise not only on this occasion but on another.

Mr. Tebbit

I am sure that if I were in the hon. Gentleman's position I should be looking for some reason to say that the Government had been disrespectful to this House or to another place. However, that is not the case. The statement was singularly unexciting, and was properly dealt with by my right hon. Friend.

Question put and agreed to. [Special Entry.]