§ Order of the Day for the House to be in Committee read.
§ Moved, That the House do now resolve itself into Committee.—(Lord Chesham.)
§ On Question, Motion agreed to.
§ House in Committee accordingly.
§ [The LORD MERTHYR in the Chair.]
§ Clause 1 agreed to.
§ Clause 2 [General limits on borrowing]:
§ On Question, Whether Clause 2 shall stand part of the Bill?
§ LORD SHACKLETONIt seems suitable, before we pass from Clause 2, to consider Whether the money that is proposed to be provided for borrowing by the Corporations is in, fact the right amount. This means that I must again raise certain questions bearing on Government policy with regard to the Corporations, and the way in which they want them to operate, because it is apparent from our debates that there is some difference of view as to whether the Corporations are required to operate purely as commercial bodies, or whether they have certain public duties.
It would probably be more likely to lead to success if the Government took a little more trouble to understand the problems that confront British Overseas Airways Corporation in the process of discharging their duties, and were slightly more sympathetic to them I must say again that I greatly deplore the misinterpretation of the statement by the Chairman of B.O.A.C., Sir Matthew Slattery, who in his famous "bloody crazy" statement was referring to certain of the less commercially desirable activities of B.O.A.C., which they undertook either in their judgment as in the public interest, or under pressure from the Government. This was misinterpreted by the Minister of Aviation, by the noble Viscount, Lord Massereene and Ferrard, and by many other people as referring to the whole of the accumulated deficit.
The noble Lord, Lord Chesham, in replying to this point on the Second Reading, set the record straight by saying that he realised what Sir Matthew in- 1134 tended, but he rather indicated that it was not a very clear statement. The statement was made at a Press conference, and I think the very least a responsible Minister Should have done, before criticising the Chairman of one of our nationalised bodies, who is in no position to answer, was to ask him what he actually said. Although we are grateful to the noble Lord, Lord Chesham, for setting the record straight, I think the Minister of Aviation might have done both the House of Commons and Sir Matthew Slattery the courtesy of checking what it was that Sir Matthew actually said. It is part of the criticisms that have been made, and lit is part and parcel of—I will not say prejudice, but a rather superficial approach.
I should like to return again to the statement made by the Minister of Aviation in another place, and on which we received little satisfaction from the noble Lord, Lord Chesham. In this statement the Minister of Aviation said that he could not accept so easily [OFFICIAL REPORT, Commons, Vol. 666 (No. 6), col. 814]
that the depreciation in the value of the Corporation's aircraft fleet has only been fully revealed this year. This is not a situation which has come upon us in the night. It has been building up for two or three years past; and in any business efficient management must call for a clear understanding and a clear presentation of the balance sheet.The noble Lord, Lord Chesham, does not apparently agree with that, because when we discussed this he said [OFFICIAL REPORT, Vol. 245 (No. 23) col. 837]:… my understanding was that the criticism was devoted not to the mechanics of the thing but to the thought lying behind it: that it ought to have been thought of before; not that there had been delay in putting it into the accounts.What does the noble Lord, Lord Chesham, mean? Either we have proper accounts, and they reveal the situation properly, or we have a situation in which the report will say one thing and the accounts another.If these accusations, so lightly made, had been made of a private company, I think they would have caused the greatest alarm and despondency among the shareholders and very severe criticism of the board. Furthermore, it is particularly unfair, since for the last few years British Overseas Airways have been trying to do precisely what they 1135 are now blamed for doing at the last moment. In their accounts this year they referred to the obsolescence of aircraft, but in their notes to their Accounts in 1958–59 they said:
As the aircraft in question are still in service, no provision has been made in these accounts for any consequential and possibly substantial deficit which may emerge if and when such realisation is effected.It was the wish, I understand, of the board of B.O.A.C., and certainly of the auditor, that some reflection of the anticipated write-down should go into the accounts, and this was the recommendation of the auditor.I am of the opinion—and I have information to this effect—that there was direct intervention by the Government of the day, Mr. Watkinson and the accountants, on some curious argument that it was impossible to start writing down assets while they were still in use, which is an astounding doctrine; and that, furthermore, the board of B.O.A.C., probably wrongly, agreed to this pressure. The noble Lord, Lord Chesham, made considerable efforts to suggest, as did the Minister of Aviation, that no improper pressure, or indeed any pressure, had been brought to bear on B.O.A.C. in regard to commercial and other matters. I have already given an indication, and I am told that the same things have happened in this year, that it is conceived that B.O.A.C. might have wished to show even further figures, and were told that this might damage the saleability of the Comets. Actually, it was the wrong Comets that the Minister of Aviation was thinking about—the earlier ones, which might well have carried an even greater write-down.
We have had the Report of the Select Committee on Nationalised Industries. I do not know whether the noble Lord is going, to say that in fact that Select Committee reported wrongly, in making clear the extent to which pressure and influence have been brought to bear upon the Corporation over the years (it is in Hansard, and I have the Report here if any noble Lord wants to challenge it) to engage in activities which an ordinary, fully commercially-motivated undertaking would not have done. If B.O.A.C. are to fulfil the purposes which 1136 the country and, I think, the board themselves interpret them to be, we must recognise this fact. If the Government want a certificate from the chairman or board of the nationalised body every time they agree to co-operate, they will not find they will get either good co-operation or responsiveness to the public interest. We know perfectly well, because the figures have been given, their enormous value from the standpoint of the nationalised interest, in foreign earnings, in exports of aircraft, and in helping with undeveloped areas, and if the Corporation continue to do this I think it would be better if the Minister of Aviation showed a little more fairness. It is not appropriate, on the Question, That Clause 2 stand part, to discuss the whole question of the policy of commercial aviation. We know that there are certain restrictions on trooping and other matters, into which I gather there is going to be an investigation. But I hope that the record will be set a little more straight than has hitherto been done.
§ 2.58 p.m.
§ THE PARLIAMENTARY SECRETARY, MINISTRY OF TRANSPORT (LORD CHESHAM)I am indeed grateful to the noble Lord, Lord Shackleton, that he should have seen fit further to raise in the course of this Committee stage the matters to which he referred on Second Reading, because I am only too glad to have the opportunity of, as he calls setting the record straight as it does need some setting straight. The noble Lord started by asking the Government to treat the Corporations, and B.O.A.C. in particular, with greater sympathy. The reason why the record needs setting Straight, if I may mix my metaphors, is that if the noble Lord has not got hold of the wrong end of the stick in many respects, he has at least got hold of it by the middle so that the stick is wobbling about.
To start with—I shall try to take the points in the same order as the noble Lord spoke of them—let us settle this matter lot this rather interesting and forceful comment that was made by the Chairman of B.O.A.C. I do not think that even the noble Lord, Lord Shackleton, would want to accuse my right honourable friend of having delivered himself of some kind of snap reaction in haste. I think he may take it that my 1137 right honourable friend did inform himself of What had been said art this Press conference. I still think, as I said to your Lordships on Second Reading, that the form of the statement was open to some misinterpretation as to exactly what the Chairman was referring to at the time. I also said—and for convenience I repeat it—that the Chairman has since taken considerable steps to make it clear exactly what he did mean. I then went on to say that the question of a capital reconstruction, whether it included or exceeded the field to which the Chairman had been referring, might well be looked at in the future, but this was not at the time. After that, the noble Lord said that it followed from Government interference, which is a point to Which I should like to return in a moment; but at the present time I do not see that there is any need for the apology for which he called. I think the atmosphere is very much clearer now, and that the actual position of this rather more than usually forceful statement is now very much nearer the proportion Which it deserves.
The noble Lord went back again to the subject of depreciation, about which he had some things to say. To-day, he did not use the word "malpractice", which is the word he used on the last occasion in the same connection; but he used the word "accusations", which had rather the same implication. The first thing I should like to paint out to your Lordships is again something that I said on the last occasion, which is again appropriate. Not only did I say it, but it was said in another place, and it has been said before, in reply to the Report of the Select Committee on Nationalised Industries, from which the noble Lord, Lord Shackleton, has quoted quite freely. The Minister of Aviation has the power, it is agreed, to give directions as to the manner in which the accounts of the Corporations are presented, but he has no power to determine the sums which are to be included under any particular heading in the accounts. I am sorry to take up time by saying that again, but I think it is very important to get it crystal clear. The normal thing that happens is that the Corporations present the form of their accounts to the Minister from year to year in advance of their publication, and it has been the practice for the Department and the Corporations to 1138 discuss any questions arising out of them which are of common concern to them both. In the course of these discussions it is not surprising or unusual—in fact, I think it would be regarded as normal—for the Minister to raise questions and to give advice—Which, in the past, has sometimes been taken and sometimes not.
Before I come on to the events of 1958–59, to which the noble Lard, Lord Shackleton, has referred, I should like to deal with the noble Lord's suggestion as to what has happened recently with regard to the Corporation's proposals for depreciation. He said that there were "unhealthy accusations", or something like that, formerly referred to as "malpractices". What actually happened was this. In the course of such discussions as I have just been describing, the Ministry fully agreed with B.O.A.C. in their desire to look ahead and to allow far the expectation of a shorter life and a fall in the second-hand value of their aircraft, so that they could present a more realistic picture than had appeared to date. It it quite true that B.O.A.C. had it in mind to write down the Comets even more sharply than they had, and by doing that they would have left the annual depreciation provisions for future years where they had been up to the present. The Ministry considered that B.O.A.C.'s proposal to accelerate the depreciation of the Comet was right in principle—and this is the point to which I should like the noble Lord to pay special attention. What the Minister disagreed with was the proposal to write the provisions for depreciation down so sharply that exactly that effect would come about—that the future years' depreciation, while the Comets were still in service, would remain the same as at present.
The reason he thought that was not right was because it would be open to public misunderstanding and criticism, on the ground that it might well look as if B.O.A.C. were relieving future years of their due amount of depreciation. Now depreciation is as much a part of the running cost of an aircraft as is the pilot's salary and the fuel bills, and the Minister did not think (and in my view he was right) that that was the proper way to do it. He thought also that it went further than was required by the application of the principles which had been agreed between the respective accountants in the past. Further, he 1139 thought that it might have a damaging effect on the sales of Comets. The noble Lord may well say that that has nothing to do with B.O.A.C.; but, at the same time, I do not think it is a consideration which my right honourable friend could properly leave out of account.
These matters to which I have just referred were thoroughly discussed with B.O.A.C., and, in the event, the Corporation decided to accelerate the depreciation but to accelerate it rather less than they had proposed. The extent to which they have in fact increased it and have anticipated future obsolescence will, I think, be found quite graphically indicated in their Annual Report.
If I may go back to the events that happened in 1958–59, of which the noble Lord has made quite a lot, and which he laid at the door of Mr. Watkinson, again we had this implication of some sort of improper interference or malpractice. But if anyone is going to say that what was done at that time was wrong, and is going to read into it grounds for accusations of malpractice, then I must say, with the greatest respect to the noble Lord (for whom, I may say, I have a very healthy respect), that it is nonsense. You have only to look in the Report of the Select Committee on Nationalised Industries, from which the noble Lord has himself freely quoted, to see that B.O.A.C. themselves volunteered in evidence before the Select Committee that they thought they had not allowed sufficient depreciation, and that they would have allowed more but could not afford it. That is what they said, and I think it must have impressed the Select Committee who said in paragraph 21 of their Report that
B.O.A.C. themselves recognise that they have not in past years put aside adequate sums for depreciation; it seems that their overseas competitors provide amortisation at a higher rate.Paragraph 124 referred to it and more specific reference to this matter will be found in Questions 2,351–2–3.May I tell your Lordships, in view of what has been said about this, exactly what it was that happened in 1958–1959? It is true that B.O.A.C. came to the Minister with proposals for writing off a large amount of capital. It is true again that these proposals included 1140 sharply writing down the D.C.70's, as well as other much wider proposals for revaluation of their assets and changing the form of the accounts. That is a very different matter from proposals for normal depreciation. The Minister at the time was quite properly concerned that the account should not show a needlessly unfavourable result. He raised some questions one by one on each of the various items which comprised the total. And he invited B.O.A.C. and their accountants to reconsider their proposals so as to avoid unnecessary losses. They did that and decided to make special provision for only one of the items in the original total. That was the redevelopment expenditure in connection with the Britannias and Comets. Perhaps, before I leave the point, it is worth mentioning that if B.O.A.C. had proceeded with their original proposals some £15 million or £16 million would have been written off as a capital loss without passing through either the operating or profit and loss accounts. I think the noble Lord, if I recall his words properly, asked me whether I wished to confirm or deny what he had said. I am not going to do that myself. Having revealed the facts of what happened at that time, I am going to leave it for the House to judge whether it is confirmed or denied.
§ LORD SHACKLETONBefore the noble Lord leaves that point, he is not suggesting it would not have appeared in the Balance Sheet, is he?
§ LORD CHESHAMNo, I am not suggesting it would not have appeared in the Balance Sheet. I said—and I will repeat it in case the noble Lord did not hear me very clearly—either the operating or profit and loss accounts. That is what I said, and that I understand to have been the position. I do not think that the Minister at the time was wrong to query that form of presentation.
My Lords, I should like to turn now, because it is most important, to what the noble Lord said and to his allegations of interference at various times by the Minister of the day which has caused B.O.A.C. to be in the financial state that it is in and have this large accumulated deficit. I am sorry to bore your Lordships, but I think I shall not make 1141 my point unless I requote the paragraph, or the extract from the paragraph, from the Report of the Select Committee which the noble Lord, Lord Shackleton, quoted last time. It reads:
Although the Minister has no express statutory control over the Corporation's capital expenditure they always seek his approval (and that of the Treasury) for orders of aircraft, and these amount to 80 per cent. of their total capital. They have agreed not to open new routes without the Minister's consent. They fly on various routes, domestic and international, because he asks them to, and they lose money in the process. They seek his approval for all fares and rates on non-international routes. They refrain at his wish from keeping aircraft specifically available for charter work; they come to him for permission before creating or investing in a subsidiary company.The noble Lord quoted that paragraph and he quoted it as evidence that whatever had gone wrong in B.O.A.C.'s life so far was the fault of the Government because of this control they had, whether statutory or otherwise.
§ LORD SHACKLETONMy Lords, the noble Lord really is misrepresenting me. I never at any time attributed the misfortunes of B.O.A.C. to Government interference. The whole burden of my speech was that the Minister denied that there had ever been any Government interference except over Kuwait Airways; and that this was not therefore an excuse. I have never suggested that it was wrong for the Government to exercise this sort of influence.
§ LORD CHESHAMWell, I am getting either deaf or stupid, My Lords.
§ LORD CHESHAMQuite likely the latter, I agree. The noble Lord used this to try to convince your Lordships that there had been interference, because he has been alleging that all along, with the depreciation rate B.O.A.C. wanted to make, and also that it was the result of non-commercial policies imposed by the Government which gave rise to the remark we have been talking about and which was attributed, among other remarks, to the Chairman. Shall I modify what I said if I chose my words without care? Shall I say he quoted that paragraph as backing him in his contention (which is paraphrasing what he said himself) that the Corporation are subject to such pressures from the Government as to make it unfair to 1142 expect them to operate commercially? Perhaps that would be another way of putting it which he might find more accurate. I think it is a matter over which there can be long and probably unprofitable argument.
I am sure, since the noble Lord quoted freely from the Select Committee Report, that he will not mind if I, too, should be allowed to quote from it as well. On routes, the Chairman of B.O.A.C. at the time told the Committee—and this is to be found in Question 595:
I think it absolutely right to say that all the routes we operate are operated of our own free will.And when asked what difference it would make if B.O.A.C. were actuated entirely by the profit motive in the choice of routes, he said (and his managing director agreed with him at the time) that it would not make a very substantial difference to profits. Those are Questions 611–612.On the Question of choice of aircraft, the Report says that Government policy is that the Corporation should fly British wherever they can. That seems to me an entirely admirable and proper policy, and I am sure that your Lordships would be properly critical if the policy were otherwise. But it does not mean that they have been forced, against their wishes, to take aircraft that they do not want. The Chairman told the Committee (Question 287):
I am not aware of the Ministry having refused to allow us to buy the aircraft we needed—not in my time.On the same point, an official of the Ministry told the Committee (Question 91):We do not impose"—he was, of course, referring to aircraft—on the Corporations. We would merely suggest to them that there are certain reasons why it might be better to go to one place rather than another. After we have done that, if the Corporation say that the aircraft or the source which we have suggested is not going to produce the aircraft type they want, we could not press that against their view. They themselves must have the last choice, because they have to operate the aircraft and only they know what it is that will give them the commercial benefits they are looking for. And so, in the last resort, it is they and they alone who can say, 'We must have a certain aircraft'.In Questions 388 to 390 the noble Lord, Lord Douglas of Kirtleside, in his capacity as Chairman of B.E.A., made it 1143 plain that he was able to insist on gaining his wish, based on his commercial preference, to place orders for the Trident.In Question 257, the B.O.A.C. Chairman agreed that no pressure had been exerted against his wishes in having his choice of aircraft. On the question of investment in subsidiaries, about which we have had some conversation, the Managing Director of B.O.A.C., in his reply to Question 1801, emphasised the value of these companies as providers of feeder traffic. In his reply to Question 1806, the Chairman said that Kuwait was the only instance of such an investment being made at the direct request of Her Majesty's Government. In reply to Question 2409, the Deputy Chairman said:
We go into these arrangements primarily because we think that they will be valuable to our commercial interests.I could go on in this way and make many more points. I could say, for instance, that the original quotation which the noble Lord, Lord Shackleton, made in aid is out of date in certain respects. It refers to the question of the Corporations' keeping aircraft specifically available for charter purposes and the prohibition on doing so. Well, there is no restriction on that now. And the question of fares is now not one for my right honourable friend and his Department; it is one for the Air Transport Licensing Board. Similarly, any airline, nationalised or independent, can apply to that Board for a licence to operate any route. So, to that extent, I think the noble Lord will agree that the paragraph is now out of date.When we study the Select Committee's Report in this kind of detail, it gives an impression which is different from the picture which the noble Lord drew from it by building on his quotation from one paragraph only. There is no question of a sort of malevolent Ministry impeding the Corporations' every wish and imposing endless uncommercial policies on them. The situation is much more like the proper and natural one, with a constant exchange of information, frequent meetings and discussions, and the kind of close co-operation which is inevitable when the Minister has to answer for the Corporations in Parliament. I would only ask that if anyone doubts that, including the noble Lord 1144 himself, he should read paragraphs 215 and 216 of the Report.
I do not agree with the noble Lord that an apology is owed by the Minister to the Chairman, on the lines of the argument which the noble Lord put forward. The Minister is rightly perturbed because a nationalised industry has built up an accumulated deficit of £65 million, of Which nearly £50 million appear in a single year's account. I think that your Lordships would be critical if he did not show concern at that kind of loss. Surely this is no time for complacency in the matter, or even, if I may say so, for quarrelling about the exact shade of meaning of past expressions. As I have told your Lordships, the Minister has very properly put in hand an investigation to get the facts, so that adequate remedial measures can be taken. I have outlined to your Lordships what could be the consideration given to certain aspects din future. I think that this is a time, above all others, when B.O.A.C. need the full co-operation of the Government, and vice versa, and I hope that your Lordships will proceed with the final stages of this Bill, which will enable that to take place.
§ 3.27 p.m.
§ LORD SHACKLETONMy Lords, I will not detail the Committee beyond saying that I think that the noble Lord, Lord Chesham, has completely missed the point of my intervention. I have never accused the Government of malevolent attacks on B.O.A.C. Indeed, a great deal of what they did was definitely in the public interest. But I do think that the speech of the Minister of Aviation in another place was, in the circumstances, grossly unfair. Of course, I do not expect an apology to the Chairman. Ministers practically never apologise, anyway. All I said was that it would have been a reasonable act of courtesy to ask the Chairman of a nationalised corporation, for whom you are responsible, what he really said before criticising him in public. And we have the record more straight on that.
On the question of Government interference, and whether it be right or wrong—much of it. I think, is right—the noble Lord's account of the action of the Government in regard to the writing off of depreciation comes under the magic phrase of "accelerating more slowly". 1145 If there is any single commercial decision which is surely the responsibility of the managing board of any business, it is the rate of depreciation; and here, clearly, we have been shown that there were considerable talks and considerable pressure. Whether the Corporation were right to agree, I do not know. I think it is perfectly right that the Minister should do this. What I am objecting to is the calm dissociation by the Minister from any responsibility in the matter and the putting of the whole responsibility on to the Corporation.
§ LORD CHESHAMMy Lords, before the noble Lord leaves this point, I have no doubt that he will recognise, if he follows my argument right from the beginning, that I did make the point, that, while the Minister may express his opinion and offer his advice, the Corporation do not have to take it.
§ LORD SHACKLETONMy Lords, this question of taking advice from Ministers is a pretty tricky one. I think that any nationalised body who did not heed very closely and follow the advice of the Minister in a matter of this kind would be in trouble. However, I am not blaming the Corporation for taking the advice or the pressure of the Minister. Again, I never suggested that the Corporation's routes were forced on them for uncommercial reasons. What I did say was that it was unfair of the Minister in another place to deny that the decision to invest in these associated or subsidiary companies had been inspired by the Government for reasons of foreign or Commonwealth policy, and to deny, by inference, that there had been, except in the case of the Kuwait operation, any inspiration. Frankly, I do not believe it to be true.
I do not want to go over the whole ground again. I think the Minister of Aviation should stand up a little more for the Corporations for whom he is responsible, and I think he should be fairer. I am grateful to the noble Lord, Lord Chesham, for the facts that he has revealed, and I am extremely glad that there is going to be an investigation by a specially appointed Government auditor in these matters so that we may learn exactly how certain of these decisions, and particularly on the accounting side, are arrived at.
§ Clause 2 agreed to.
§ Remaining clauses agreed to.
§ House resumed: Bill reported without amendment; Report received.
§ Then, Standing Order No. 41 having been suspended (pursuant to the Resolution of December 13), Bill read 3a, and passed.