LOCAL AUTHORITY FINANCIAL CONTROLS IN ENGLAND AND WALES (Hansard, 9 April 1986)

§ Mr. Snape
I beg to move amendment No. 14, in page 16, line 19, after 'company', insert 'formed under section 12'.

Mr. Deputy Speaker
With this we may take the following amendments:
No. 15, in page 16, line 22, after 'of', insert 'such'.
No. 16, in page 16, line 27, after 'company', insert 'formed under section 12'.
No. 17, in page 16, line 29, after 'of', insert 'such'.
No. 18, in page 17, line 3, at end insert— '(3A) Where any public airport company is not formed under section 12, then, for the purposes of Part VIII of that Act—

(a) any amount—

(i) being an advance of capital nature made to the company or a subsidiary of subsidiary of the company by the controlling authority of that company, or

(ii) raised by the issue of any securities by the company or a subsidiary of the company to the controlling authority of that company,

shall be treated as prescribed expenditure of the controlling authority of that company, and

(b) any amount repaid by the company or a subsidiary of the company in respect of any such advance as is mentioned in paragraph (a)(i) shall be treated as a capital receipt of the controlling authority of that company in accordance with subsection (2), but

(c) no expenditure incurred or amount received by the authority for the purposes of or in connection with the company other than such expenditure or receipts as are mentioned in paragraphs (a) and (b) shall be treated as prescribed expenditure or capital receipts of the authority;

Provided that such a public airport company shall not borrow or raise any amounts other than as mentioned in paragraph (a) without the consent of the Secretary of State who shall exercise the power of giving consent to any borrowing in the national interest.'.

§ Mr. Snape
The purpose of this amendment and those associated with it is threefold. First, it is to preserve the local authority's right to form proper independent companies. This would overcome what we consider to be the ludicrous argument that a company is independent only when shares are vested in the private sector. We believe that the private sector's willingness to invest in any trading undertaking is dependent upon the viability and status of that undertaking and not on who owns the shares. We can give as an example the success of private involvement in Manchester airport plc.
The second purpose of the amendments is to free such independent companies from the constraints of local 294 authority capital expenditure controls. We believe it is nonsense that an independent company should compete for borrowing power approvals with highway authorities, for example, up and down the country. Building terminals at airports surely should not be equated with maintaining roads. The existing funding arrangements for airports in fact acknowledge this point.
Thirdly, we recognise that the Secretary of State will not wish to give up some control over the activities of independent companies. That is the sentiment behind this Bill, as it is behind other privatisation measures that the Government have introduced. These amendments are designed to provide for advances made to an independent company other than by a local authority. We accept that as prescribed expenditure. The Secretary of State should be asked for his consent to such expenditure. He could exercise his power to consent to such borrowings in the national interest in exactly the same way as is provided for in clause 9(1) in connection with the BAA holding company when it is wholly owned by the Government. We believe that such an approach would have the virtue of consistency and would go a long way to meet the criticism that the Secretary of State is being less than even-handed in his approach to local authority airports compared with his approach to those airports owned by the British Airports Authority.

§ Sir Peter Blaker
I have a relatively brief point of clarification. This clause tightens up the rules relating to what will be treated as prescribed capital expenditure by a local authority when it comes to capital expenditure for its airport. Again, this is relevant to Blackpool airport. I would like from the Minister an assurance that the airport pool will still be available for the local authorities for the purposes of borrowing for capital spending. I am thinking particularly of smaller local authorities such as Blackpool. Will the Government also give an assurance that they will do what they can to ensure that the airport needs of the smaller local authorities, such as Blackpool, are born in mind when the borrowing requirements are being discussed. I have it in mind that Blackpool airport will need soon to spend a large sum on renewing the runway, if it is to remain effective.

§ Mr. Ridley
The hon. Member for West Bromwich, East (Mr. Snape) moved his group of amendments, the main purpose of which is to allow public airport companies not set up under clause 12 to obtain private capital without that finance counting against the controlling authority's capital allocation. I point out that there is only one such public airport company—Manchester. I do not know why this series of benefits should be extended to Manchester rather than to any other local authority. I do not really need to know why. The reason may be obvious. We hope all our airport companies will look to the private sector to help finance investment, but so long as those companies are subject to local authority control capital finance from any external source, whether from the authority itself or from private sources, counts against the public sector borrowing requirement. This is not because the company may or may not be viable. It is because local authorities enjoy the same credit-worthiness as the Government because of their taxing powers. An investor in an airport company and an authority controlling an airport company will know that the authority stands behind it and guarantees it, as it were, in the same way as the 295 Government stand behind public corporations. Therefore, the clause provides that private capital counts against the controlling authority's capital allocation in the same way as any loan that it might make to the company. There is no difference between the local authority borrowing and the company borrowing because, ultimately, the local authority stands behind both.

Mr. Shape
What is the difference between a plc such as that set up to run Manchester airport and the BAA holding company which, at least initially, is wholly owned by the Government and will presumably be outwith the public sector borrowing requirement? Is the right hon. Gentleman saying that the BAA holding company will still be part of the PSBR for financial purposes?

§ Mr. Ridley
As long as the BAA holding company is in the public sector, it will be part of the PSBR and any borrowing that it undertakes will count against public expenditure. The same applies to any local authority airport company or bus company. As long as the authority holds 51 per cent. or more of the company, its investment will count towards the PSBR. If the company went bust and lost all of the money that had been lent to it, the Government, in the case of the BAA, or the local authority would have to pay off the debt.
The amendment acknowledges that there should be a borrowing consent system. That involves no significant change in the way the system will be now operated. The necessary capital allocations will be given when we judge such loans to be in the national interest and an affordable charge on the PSBR. An authority can enable a company to escape the control on local authority capital expenditure by removing the need—by transferring control to the private sector.
If Blackpool airport has to make investments and the council applies in the normal way for investment control, the projects of national or regional importance system will apply. We have very nearly always authorised airport investment under the PONORI system, and we always will, provided that it appears to be viable and is within what the public sector can afford. It is not an area where there have been complaints of the Government holding back consents.
Amendment No. 14 would also enable controlling authorities to incur capital expenditure in connection with airport companies not set up under clause 12 without that expenditure counting against their capital expenditure allocations. As such, it represents a widening of the scope of an amendment that the hon. Member for West Bromwich, East moved in Committee to enable companies to borrow from the private sector for capital expenditure associated with the setting up of the company without that expenditure counting against allocations. It was withdrawn because the hon. Gentleman recognised its narrowness and failed to give any examples of such capital expenditure. He has made it wider this time, but I see no reason why, if an authority chooses to incur capital expenditure in connection with an airport company, it should receive special treatment.
We have already made a concession to enable the internally generated funds of airport companies to be reinvested outwith the controls. The amendment would go further and abolish those capital controls. That would be going too far, and I cannot advise the House to accept the hon. Gentleman's amendment.