HL Deb 22 July 1969 vol 304 cc774-85

3.5 p.m.


My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.

Moved, That the House do now resolve itself into Committee.—(Lord Beswick.)

On Question, Motion agreed to.

House in Committee accordingly.

[The Earl of Listowel in the Chair.]

Clause 1 [Financial assistance for B.E.A by reduction of indebtedness and transfer of stock]:

On Question, Whether Clause 1 shall stand part of the Bill?

The Earl of KINNOULL

I wonder whether I may raise one point with the noble Lord this afternoon on Clause 1, which covers what B.E.A. is to receive. That, of course is the principal purpose of the Bill. As the Committee will know, this clause came under a good deal of criticism in another place on two issues. The first was the total secrecy of how the sum of £37½ million of compensation is arrived at between the Board of Trade and B.E.A. The second is the fundamental issue: is it right for the State Air Corporation to receive a public subsidy for the purchasing of British aircraft when others in the same industry purchase and operate, with profits, the same aircraft in direct competition and without subsidy?

May I turn briefly to the first issue, that of secrecy. As I have said, this matter was debated at some length in another place and I do not intend to repeat all the arguments. The Government's reply in another place was that the sole reason for secrecy was to protect B.E.A.s commercial interest. As the debate went on, it was shown that in America the fullest information on types of aircraft, on routes and on airline operators, is given by the C.A.B. I understand that all this information is published monthly, and in no way does it appear to harm the operators commercially. Indeed, it does the exact opposite; it sharpens competition and it aids market research.

The damage of secrecy is something which we should feel worried about. It is certainly harmful as regards the aircraft involved; that is, the Trident 3B and the BAC 1-11 500. To foreign operators and possible purchasers it must appear that these aircraft must be secondclass aircraft which are uneconomic to run and a bad buy. This damage is suffered by the manufacturers in the aircraft industry, in this case Hawkers and BAC; but they, of course, receive no compensation. The worst of it all, as the Committee know, is that these aircraft are some of the finest British aircraft that have ever been produced, and it is only because they were the second choice of B.E.A. that they were condemned to this cloud of uncertainty.

In the debate in another place, during the Committee stage the Government appeared swayed by the continual arguments in favour of more full information; and Mr. Rodgers, answering for the Government, said when winding up on Third Reading on July 7: Secrecy is the enemy of wise decisions at all times, and I hope that we shall move increasingly in the direction of knowning a good deal more about why decisions have been made."—[Official Report, Commons, 7/7/69, col. 1117.] He then went on to say (col. 1117): Perhaps I may add, in passing, that honourable Members who were on the Committee will remember the discussion on the question of B.E.A.'s accounts. I then said that I will be in touch with Sir Anthony Millward and convey to him that the Committee wished to urge him and his board to move in the direction of increasing disclosure, … and I think that this remains so, though the circumstances must be minimal. Hon. Members will be glad to know that Sir Anthony has readily responded to this approach, and despite the fact that the accounts for 1968-69 were already in an advanced state of prepara- tion B.E.A. has undertaken to incorporate additional material. Perhaps the noble Lord could go a little further to-day and tell us whether the Government will, in future, implement Mr. Rodgers' desire of publishing further information if and when compensation of the nature we are discussing today arises again. Secondly, could he advise us what further information B.E.A. are going to give us in their new Report?

The second fundamental issue is whether an Air Corporation should receive a subsidy on aircraft which others in the industry operate commercially successfully. The question that comes out of this fundamental issue is, what is happening to the subsidy? Is it being diverted to a less profitable area of the Corporation? The subsidy under Clause 1 covers the compensation payment for operating the BAC 1-11 as regards foreign sales the most successful civil aircraft since the Viscount. Can the noble Lord tell us this afternoon if, say in four years' time, with the benefit of hindsight, it can be shown that no subsidy has in fact ever been required, the Government will take powers to recover the subsidy?

I turn briefly to the amounts of subsidy. The Committee will be aware that there has been a good deal of criticism that the compensation (that is, the £25 million already committed and the £12½ million due to be committed in 1972 to 1975) is far too large. Perhaps the noble Lord could tell us to-day about the £25 million which has already been committed; how much is to be paid out every year over the next four-year period and can the sum vary at the Government's discretion? Turning to the £12½ million additional payment to be made during the period of 1972 to 1975, could the noble Lord give us a clearer picture of on what criteria or basis this additional sum will be made available by the Government to B.E.A.?

While the noble Lord is answering these points, and perhaps looking through his brief, I wonder whether he could also reply to a further point which strictly has nothing to do with this clause but which I believe is of general interest. The question I should like to put to him concerns the appointment of the new Chairman of B.E.A. We have arrived at a situation when we have a permanent Chairman of B.E.A. due to retire next March, and a temporary part-time Chairman of B.O.A.C. ready to give way at any moment. I do not believe that this situation is either good for management or for the Corporations. Could the noble Lord tell us what is in the Government's mind as to a statement on this subject, which I believe is long overdue.

3.14 p.m.


It appears as though we are going to take this question of compensation on Clause 1, so, by leave of the Committee, I would put some points similar to those made by my noble friend Lord Kinnoull, and perhaps press the Government for a little more clarification of this figure of what I understand to be £27 million plus an optional £12½ million to be paid to B.E.A. to compensate for the Government's insistence that they operate the Trident 3B. First, I understand, and I hope the noble Lord will be able to confirm this, that the compensation is directly related to the Trident and is not related to the BAC 1-11. I think there is no suggestion that B.E.A. were denied the opportunity to buy any aeroplane in place of the 1-11. Indeed, I understand that that aircraft was their first choice and that they are now very satisfied with it, although it is true to say that they had to wait until the stretched version was available. It may be, therefore, that the noble Lord, Lord Beswick, would like to ascribe some of the subsidy on that account.

As I understand it, B.E.A.'s argument in favour of this subsidy was that the delay in delivery of the Trident 3B was such that they would be at a competitive disadvantage on some of the routes that they operated compared with their competitors, and for this reason they had to have a subsidy. I find that argument incredibly difficult to follow. If we accept that the Trident 3 will go into service, say, two years later than the Boeing 727, the stretched version, would have gone into service had they been allowed to order it, we then have to ask why it is that B.E.A. were at a competitive disadvantage in having to operate the smaller Trident l's and 2's on the routes on which they would otherwise have operated the 727. As I have said, I fail to see this competitive disadvantage, because if they are able to operate a smaller aircraft on the route, then surety they will be able, within the maximum number of seats that they are allowed to offer, to operate a greater number of services per day, and thus surely offer a better service to the customer and perhaps be able to attract more custom on that account.

However, apparently that is not the situation. Indeed, in accordance with their request the Government are to make available these immense sums of money, simply because for two years they had to operate a smaller aircraft and thus apparently were not able to compete with the other carriers. I have often heard quoted the example of the London/Paris route, on which Air France operate the stretched Boeing 727, and B.E.A. have to operate—up to this time at least—the Trident l's and 2's. I fail to see how it is that B.E.A. are at a substantial competitive disadvantage—at least to the extent that they claim.

One other point I should like to make concerns the question of fuller information. I think it is widely and completely accepted that air carriers in general—not B.E.A. or B.O.A.C. in particular—ought to provide more information on the performance of their services on particular routes. We all know that in the United States this is already the case, and has been for many years, and has met there with widespread success and approval. The simple answer surely is not so much to obtain more detailed statistics through the medium of the Board of Trade, but for the Air Transport Licensing Board to issue licences on the condition that proper and regular returns, in the form that may be prescribed by the Board, are made. This would not require any additional legislation because the A.T.L.B. are already empowered to attach such conditions to licences, and indeed if they really wanted to do so they could vary all licences now to that effect.

Finally, may I ask the noble Lord, Lord Beswick, to clarify the sum that has been agreed with B.E.A. to be paid by way of subsidy for this Trident operation, and ask him whether he will explain how this figure was arrived at, because I think this is the crux of the matter.


Which figure?


The figure of £27 million which we understand the Government have agreed to pay B.E.A. by way of compensation for having to operate the Trident 3B aircraft. Was it simply the case that B.E.A. sent in their invoice for £27 million and the Government in no way questioned it? I hope the noble Lord will be able to clarify this point because it is a point of great importance.


The two noble Lords, the Earl of Kinnoull and Lord Trefgarne, asked some very good questions. I cannot honestly say I am glad they have asked them because they are just a little difficult to answer—at any rate in this context. First of all may I say, and I hope they will take it as something that I say sincerely because I have said it so often and over such a length of time, that I agree with them that the maximum amount of information should be given on these matters. That is absolutely certain. This is something with which the present Ministers also agree, and the noble Earl quoted something which a Minister had said in the other place.

However, we are here dealing with a somewhat different situation. I believe it is not the kind of situation in which an air transport operating company should give the maximum possible information about its revenues and traffics to the new Air Transport Licensing Board. Here we are dealing with a position in which the Corporation wished to buy American aircraft. The Board of Trade, looking at the matter as a whole with all the national interests involved, decided that it was better that they should be asked to buy British aircraft. The noble Earl, Lord Kinnoull, and the noble Lord, Lord Trefgarne, agreed with the decision that British aircraft should be bought. But, if we are to justify that decision, it is a little difficult to justify giving all the details if we are not going to say something which could be used in the markets of the world to disparage British aircraft. That is where the real difficulty and the real delicacy came in. It is for that reason, and that reason only, that the Minister in another place has not found it possible to say precisely how these sums were arrived at. It is a little disconcerting to have a public meeting on the Benches opposite, when I am trying to explain the problem to the noble Lord whom, I hope, I shall convince in the end.

It was a little difficult to give the detailed sums. I do not understand the £27 million about which the noble Lord, Lord Trefgarne, talked. It was, in fact, £25 million plus £12½ million possibly from 1972. We were talking, in the first place, of £37½ million. The noble Lord and the noble Earl are both concerned lest the Board of Trade are too generous to the Corporation. Now in order to meet this possibility, it was decided, instead of a sum of money of £37½ million over seven years, that it would be broken up into two tranches, one of £25 million over four years, with the possibility of a further one of £12½ million in the period of three years following 1972. This means that there is a greater control of this money. Nor was the £25 million to be given in one year; it was to be given in four separate amounts of £5 million, £4 million, £8 million and £8 million.

In answer to the noble Earl, there is provision in subsection (6) of Clause 1 for varying the amounts which were originally agreed. The idea of varying the amounts is to ensure that there would be a fairly even result over the four years. What we want to do, instead of making it possible to make a heavy profit in the one year, probably a less good profit in the second year, and a doubtful profit in the third year, is to even out the advances so that we get a fairly even return over the four years.

On the question of whether or not we are being too generous, may I say that this is not really a matter of new money. No new capital is being infused into the Corporation. The only real cash advantage to the Corporation would be the saving of interest on these sums. The £25 million is really the old capital which is being converted into a special account, and which will then be used as income over the four years in the amounts to be determined by the President of the Board of Trade. So again I think noble Lords were being a little over-apprehensive as to the generosity of the Department.

The noble Lord, Lord Trefgarne, asked whether any compensation at all was due to the Trident 3B, rather than to the BAC 1-11. Of course, the Trident 3B will come into operation later, whereas the American aircraft would have been available almost straight away. The loss of revenue will of course be greater in the case of the Trident 3B, if for no other reason than that it will be introduced three years later than the aircraft which B.E.A. originally wanted. Moreover, it will be a smaller aircraft than they originally wanted. It was on the basis of those considerations that the figure of £25 million was reached.


Can the noble Lord confirm that no part of this £25 million is ascribed to the BAC 1-11 500 series, which B.E.A. have just now taken into service?


I cannot confirm that. I think it would be wrong for me to say precisely how it is allocated. This is part of the commercial considerations which it was thought better, in the interests of the aircraft manufacturers, to keep out of publication. I am sorry, but I cannot give the noble Lord that information. But it is fair to assume that the greater part of it is due to the Trident 3B which, as I said, will come along much later than the Corporation originally wanted.

I have been asked about the £12½ million. The £12½ million, for which provision is made in 1972, will be advanced if it is thought that the competitive position of B.E.A. is still worsened by virtue of the fact that they have had to wait so long for these aircraft. But if things go well and if their returns justify it, it may well be that the £12½ million will not be advanced at all. I have been asked why it is that as from this date we make provision in the Bill for the possibility of an advance in 1972. The answer to that, as I have said, is that originally the sum of £37½ million was to cover a seven-year period, but it is now to be in two periods of four years and three years, and 1972 is the beginning of the second, the three-year period.

I was asked about the possibility of recovering any of this money in the event of things going very well. The answer to that is that, in subsections (1) and (2) of Clause 3, there will be power under this Bill for the Board of Trade to recover from the Corporation sums in the reserves which are thought to be excessive. So with that additional power, I think noble Lords will feel on consideration that the Board of Trade are being very reasonable in protecting the interests of the taxpayers. However, as I said, the taxpayers will not really be providing this money as cash, because they are only agreeing to an arrangement under which part of the old capital structure shall be used as income. With that explanation, I hope that we can now decide to agree to Clause 1.

The Earl of KINNOULL

Can the noble Lord say anything about the appointment of the new chairman?


I had not forgotten that, but I thought we could probably return to it on a later clause, when I have had time to consider it.

Clause 1 agreed to.

Clause 2 [Power to provide for investment of public dividend capital in B.E.A.]

On Question, Whether Clause 2 shall stand part of the Bill?

The Earl of KINNOULL

May I ask the noble Lord one or two questions on this clause. The Committee will be aware that this clause led a somewhat disjointed life in another place. In fact, it parted company with the Bill during the Committee stage, and I believe most of us thought that the Government had, for once, removed their dark glasses and seen the clear logic of the uselessness of this clause. But, to one's disappointment, on Report stage this clause was reinstated. It deals with the introduction of public dividend capital into B.E.A. on or after 1972; in other words, in four years' time.

Now public dividend capital is a subject which is rapidly becoming a hardy chestnut in all the new State Corporation Bills the Government introduce. I think that my noble friend Lord Bessborough will in fact be referring to this point some time later on to-day in relation to the Iron and Steel Bill. But there are, I think, four pretty valid and sound reasons why many of us object to its purpose as regards Clause 2 of this Bill. The first is that the Select Committee on Nationalised Industries came down heavily against its inclusion as regards B.E.A. only two years ago, and they had a pretty good number of reasons against it. Secondly, it was clear at that stage that the Treasury, too, were against it. Thirdly, the introduction of public dividend capital into B.O.A.C. was made, in 1965-66, only, as the Government then said, on a trial basis of five years. Fourthly, this clause asks us to agree to something which will happen in four years' time. All these, I believe, are sound reasons why, in their Committee stage, another place rejected this clause. I think that to-day we are entitled to ask the noble Lord for a pretty full justification of the inclusion of this clause. Why, for instance, have the Government ignored the Select Committee's Report and recommendations, 1967? Why have the Treasury changed their mind? Why do we have to include this clause now, when it will come into operation only in four years' time? Why cannot we consider it in four years' time? What evidence from B.O.A.C.'s trial run is there to justify this Clause for B.E.A.? Finally, what good results will it bring about for B.E.A.?

3.33 p.m.


I am asked to justify the provision of public dividend capital for B.E.A.; but, of course, this is not what the Bill does. The Bill makes provision for public dividend capital only if later, in 1972, it is agreed that this should be done. We are not here discussing the merits of public dividend capital or otherwise. We are discussing whether in this Bill, as there is a Bill going through Parliament, we should make provision in this way. I should have thought that it was reasonable so to do as, of course, the Bill deals with the reorganisation of the capital structure of the Corporation. This seems to be eminently sensible and efficient. The merits of public dividend capital—a fascinating argument which we might enter into at some later date—really do not arise on this question. The reason it is being done now in this way and why it was not done before is that it was thought we ought to experiment with B.O.A.C. first. That experiment has not been sufficiently long to enable us to come to any final conclusions. It is still at an initial stage, and we shall be in a better position to see what the experience is by 1972, when the provisions of this Act will require us so to do. I am informed, incidentally, that we are not ignoring the Select Committee. They were not really coming down against public dividend capital: they simply said that in this case they did not think that this was the right way to do it.

There is one further point. The noble Earl asked me about the future position as regards the Chairman of B.E.A. I am sorry, but I am not in a position to give him any information about that; and I suppose he is not really expecting me to announce now who the next Chairman will be. The difficulty here, as I am sure the noble Earl will appreciate, is that we are now considering the future structure of the two Corporations in the light of the Edwards Committee's Report, and until decisions are made about the Edwards recommendation we shall not be in a position to say what kind of Chairman will be required for B.E.A. The situation will be rather different if B.E.A. is to be a completely separate Corporation from what it will be if B.E.A. is a part of the British Air Holdings Council or Board, as Edwards recommends.

Clause 2 agreed to.

Remaining clauses and Schedules agreed to.

House resumed: Bill reported without amendment; Report received.

Then, Standing Order No. 41 having been suspended (pursuant to the Resolution of July 14), Bill read 3a.


My Lords, I beg to move that this Bill do now pass.

Moved, That the Bill do now pass.—(Lord Beswick.)

The Earl of KINNOULL

My Lords, perhaps I may be allowed briefly to say at this final stage (and I am sure that many of my noble friends would agree) that the past achievements of B.E.A. do not go unrecognised, at any rate on this side of the House. The dominant share of the European market which they have built up against stiff competition from foreign operators is a tribute to their commercial enterprise. Their safety record is another factor which we all admire and are grateful for, especially those of us who travel with B.E.A.; and it operates, as we know, short-haul, often on an average fare of as low as £10, which in itself demonstrates the problems of management. If this Bill succeeds to help them to continue their course of success I, for one, can only wish them well.


My Lords, may I thank the noble Earl, Lord Kinnoull, for what he has said, and associate myself with the congratulations which he offers to the Corporation? Undoubtedly, as the Edwards Committee said, the Corporation's standing is very high in the aviation world, and I am sure that all of us are pleased to see that and are pleased to give them every encouragement and support, no matter what eventual decision is taken on the recommendations of the Edwards Report. May I also take this opportunity of saying how much I appreciate the co-operation of noble Lords opposite in dealing with the Bill in the way in which we have been able to deal with it, so that it can go forward and the necessary provisions can be made for the Corporation.

On Question, Bill passed.