§ 7.6 p.m.
§ Lord Trefgarne
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 Tregarne.)
§ On Question, Motion agreed to.
§ House in Committee accordingly.
§ [The LORD WELLS-PESTELL in the Chair.]919
§ The Deputy Chairman of Committees (Lord Wells-Pestell)
The Civil Aviation (Amendment) Bill: I understand that neither of the noble Lords who had given notice of their intention to speak on Clause stand part—
§ Lord Trefgarne
It may be for the convenience of the Committee if I, quite out of order I think, intervened at this moment to say that there has been a slight change of plan, and I understand that my noble friend Lord Kinnoull would now wish to have his amendment considered.
§ Clause 1 [Increase of financial limit of British Airports Authority]:
§ On Question, Whether Clause 1 shall stand part of the Bill?
§ The Earl of Kinnoull
I must apologise to the Chairman of Committees for that misunderstanding. We have been allocated 40 minutes for this Committee stage, and I shall do my best to keep within the 40. As my noble friend will realise, an amendment to leave out Clause 1 I hope allows the Committee to examine in more detail the work of the British Airports Authority in that at Second Reading one was talking more about the generalities of civil aviation. I should say straight away that I do not necessarily intend to press to a Division, as I am sure that my noble friend will satisfy us all.
It was noticeable during both the passage of this short Bill through another place and indeed on Second Reading in this House that there was a disquiet over the policy of the British Airports Authority financing. Indeed, the noble Baroness, Lady Burton, even threatened to call up the reserves forces in the form of Lord Taylor of Gryfe. Luckily for my noble friend, I see that he is not here this evening. The bones of the argument are, simply, should the British Airports Authority continue to fund their now massive capital programme very largely out of their annual profits or, as has been said, why should the customers of today pay for airports of tomorrow? Indeed, would such a programme cause such a spiral in costs to the detriment of the BAA, our national airports, and indeed our trade interests?
The British Airports Authority's financial results over the last 15 years make the most staggering reading, and are even better, I suggest, than those of the heyday of Mr. James Slater during his best wheeler-dealer days. I would see little difficulty in the present scope of their accounts if Her Majesty's Government were to consider privatisation. The capital base in 1965, when the body was born, was £70 million. Over the last 15 years it has invested £400 million and has only had to raise on borrowed money £14 million out of that figure. Thus, it has financed out of profits £386 million, and today it has an asset value of, apparently, £820 million. We know that in the next five years BAA have the intention of a capital programme of 920 £800 million and under this Bill they will be granted approximately 20 per cent. of the capital they will require.
One can see that the result of that could possibly be even more escalating costs to the users and indeed detrimental to the authority, to our airports and to our trade. I suppose the duty of Government and Parliament is to frame public corporations such as BAA to be able to run profitably, to run efficiently, but, above all, to run in the best interests of the country. On profitability, as I have said, there is little doubt that BAA can show a good profit, even if at the moment they show it simply by raising their charges; although I do not suggest for a moment that the obviously well run BAA do that simply to show a profit. Nevertheless, they raise their charges, as we have seen in the past, particularly their landing charges, to a somewhat contested extent.
On efficiency, I have no comment except to say that one has great faith and admiration for the dedication of the staff and board of BAA. But as to the best interests of the country, I am, frankly, more doubtful, because one is concerned about the charges to the users, for the health of the airlines and about the law of diminishing returns. As my noble friend will be well aware, the Civil Aviation Authority own and run Sunburgh Airport, and some years ago they put in facilities to meet the helicopter services and decided to recoup those costs over a 10-year period. The result has been that the costs have been so large that they forced the operators away from Sunburgh and they have now moved to Aberdeen. There is a classic case of the law of diminishing returns. The alternative to the present financing, clearly, is to allow BAA either to raise bonds in the market or to do what many other countries' airports do, and most effectively.
My next point is the question of the duty of planning that the BAA have. I much admire the way they have shown both perseverance and determination to be able to provide facilities in time to meet the future growth of traffic. While realising that the Stansted inquiry is in the middle of its life—we hope it is the middle of its life—may I ask if my noble friend can give any projection at all as to when a decision is likely to be able to be reached? Secondly, may I ask him to say, on a similar basis, something about the second terminal at Gatwick? Thirdly, if by chance—this is of course a hypothetical question—the inspector of the third London airport inquiry should come down in favour of the fifth terminal, may I ask my noble friend to say whether the Government have shut the door to that alternative, or are they able to reconsider it? I hope that those questions are not trespassing on the inquiry in any way—that has not been my intention—and, in order to obtain information, I speak on this Motion.
§ 7.14 p.m.
§ Lord Ponsonby of Shulbrede
I support the noble Earl, Lord Kinnoull, in his concern over the financing of the British Airports Authority. I often feel that in Second Reading debates we are in danger of making Committee stage remarks. Tonight it is probably the other way round—we are possibly in danger of re-running the Second Reading debate in Committee—but I shall try to avoid doing that and avoid discussing 921 on the Motion the general question of civil aviation policy. The Motion enables us to discuss the financing of BAA. I raised this question on Second Reading, when the noble Lord, Lord Trefgarne, said:It might not be entirely appropriate this evening to go into the philosophy behind the British Airports Authority's finances … but it is perhaps worth saying that the mere possibility of BAA borrowing substantially to cover current capital costs would not necessarily have any effect on the current level of charges ".—[Official Report, 18/1/82; col. 486.]BAA is a very successful state enterprise and operates without any form of subsidy from public funds. Since 1966, it has borrowed money in only three years and over that period its capital expenditure has approached some £400 million, which has been met largely from its own cash resources. The authority now faces a major capital programme involving some £800 million in the next five years, and again this will be financed mainly from cash flow and only partly from loans.
The fact that so much of BAA's capital expenditure is financed from its own cash flow means that the new facilities which it is creating for tomorrow's users are being paid for by today's users. The noble Lord, Lord Trefgarne, will have seen that BAA's annual report for 1980–81 stated:Heathrow's financial results for the year showed a trading profit of some £46.4 million against some £24.9 million for 1979–80. A further £33 million was invested in capital facilities. Excluding security, income rose by 27 per cent. and expenditure by 17 per cent. before depreciation ".That means that today's users were providing, first of all, £33 million for immediate expenditure on capital facilities at Heathrow, and a further £46 million, which was reduced to £18 million after taxation and after offsetting BAA's losses elsewhere in the system, towards tomorrow's facilities. The question must be asked: is that the correct way of financing the future development of airport facilities in the United Kingdom?
I have dealt in earlier debates with the adverse effect that this form of financing can have on the long-term outlook for traffic at Heathrow, particularly in view of the high landing fees charged there; this point was made by the noble Earl this evening and I do not wish at this stage to delve further into that question. If one is building a new facility, like a road bridge—for example, the Humber Bridge—a common way to finance such a project is to borrow the money and ask future users to pay by levying a toll for the use of that facility. I am, therefore, compelled to ask whether the borrowing limits proposed in the clause are entirely appropriate. The limits which are proposed just take account of inflation, go no further than that, and do not suggest any new ways of financing the future developments of the British Airports Authority.
When one knows, for example—the noble Earl touched on this, too—that the Paris Airport Authority borrowed £100 million for the Charles de Gaullle Airport at a rate of 5 per cent., that the airport at Copenhagen is 100 per cent. Government financed, and like that at Frankfurt, pays interest on loans at the rate of 4½ per cent., and that United States airports can raise cash through tax-free bonds, often guaranteed by the airlines themselves at very favourable interest rates, one asks whether the Government are strangling the goose which is laying the golden egg in the airport 922 industry by sticking rigidly to the traditional form of financing.
I should add that the British Airport Authority is at a further disadvantage vis-à-vis local authority-owned airports since it is subject to corporation tax, while they are not. I wonder whether in this Committee stage of the Bill the noble Lord can be more forthcoming about any future new ideas for financing the work of the British Airports Authority.
§ Baroness Burton of Coventry
My Lords, I shall not detain the House for more than a minute, because the points to which I referred on Second Reading have arisen tonight, but I shall be very interested in what the noble Lord, Lord Trefgarne, has to say in reply. I felt very strongly that the users of today should not pay for the airports of tomorrow. I was also very interested in the question asked by the noble Earl, Lord Kinnoull, as to whether the Government had quite definitely decided that a fifth terminal at Heathrow should not be built. That was my reading of what was said, and I shall be most interested to hear what the noble Lord, Lord Trefgarne, has to say in reply.
§ 7.22 p.m.
§ Lord Trefgarne
My Lords, we have heard a number of critical comments this evening, and indeed on other occasions, about the arrangements for financing the British Airport Authority's capital expenditure, and allegations have beenmade that certain changes would enable the authority to reduce its charges. I think that that is the burden of what the noble Lord, Lord Ponsonby, was saying. Before I respond to the specific points which he, my noble friend, and indeed the noble Baroness, raised, perhaps I should make a couple of general observations.
The financial arrangements for the nationalised industries which are now in place were introduced by the then Labour Government and presented to Parliament in a White Paper published in March 1978. The present Government endorse these arrangements, and perhaps for a moment I may refresh your Lordships' minds on one or two of the details. Because of the pervasive influence of the nationalised industries throughout the economy, the efficiency with which they use their share of the national resources is a matter of great importance. Thus an adequate level of nationalised industry profits is essential to the continued wellbeing of the industries and their customers and indeed of the economy as a whole. They—that is, the profits, with depreciation—provide some of the funds for the very large investment programmes necessary to maintain supplies and services to the public. This keeps down the industries' new borrowing requirements, thus helping to reduce the burden of taxation and enabling the Government to maintain other important public expenditure priorities.
I should now like to turn specifically to the points that have been put to me. The noble Lord, Lord Ponsonby, and my noble friend Lord Kinnoull—and I suspect that the noble Baroness, too, would have made the suggestion had she spoke at greater length—suggested that airport charges could be reduced if present users were not expected to pay for future investment. As is the case with other nationalised industries, the Government expect the authority to earn a proper rate 923 of return on its assets. This policy is based on the principle that the prices of goods and services should reflect the full economic cost of supply; that is to say that the authority should price to cover its long-run marginal costs—an accepted economic principle of pricing, which I explained to your Lordships at some length in reply to the noble Lord, Lord Ponsonby, during the debate on the 1980 Civil Aviation Bill. If I may, I shall spare your Lordships a repetition of the arguments that I advanced on that occasion.
It has also been suggested that the authority should be allowed to borrow more from the private sector. As I have explained, it is misconceived to believe that the source and amount of debt financing is the primary influence in the determination of charges. Simply being able to borrow on the open market would not bring about any changes in the determination of proper charges. In fact the Airports Authority Act 1975 does not allow the authority to borrow, other than temporarily, in sterling other than from the National Loans Fund, though in any case, because of its greater worthiness, the Government are able to offer loans at a more advantageous rate than the private sector, especially now that there is greater flexibility of terms and now that a proportion of each industry's borrowings may be taken up at variable rates of interest. However, as my honourable friend the Parliamentary Under-Secretary in the Department of Trade said during the proceedings on this Bill in another place, the Government are looking at ways in which private sector finance can be introduced into the authority's investment programme.
I now wish to turn to one or two of the points raised by my noble friend Lord Kinnoull. He referred to the example of Sunburgh. It is not I think true to say that the decline in the use of Sunburgh was a result of the charges that are in force at that airport. As my noble friend rightly said, Sunburgh is operated by the Civil Aviation Authority, but as an example of pricing policy it is not true to say that the prices there dictated the decline in the use of that aerodrome, which has indeed taken place in recent years and months—
§ The Earl of Kinnoull
Has my noble friend invited comment from the operators?—because I have received the opposite view.
§ Lord Trefgarne
My Lords, I was about to explain to my noble friend why the decline took place. As I said, it was not due to prices, though operators may claim that. The truth is that longer-range helicopters came into service, which meant that the traffic, which in any event originates other than at Sunburgh, can now proceed to most of the oil rigs and production platforms in the North Sea direct, without making a stop at Sunburgh. So whereas originally the helicopters operated from Sunburgh to the rigs—and Sunburgh itself was served by fixed-wing aircraft—it is now possible for the helicopters to proceed direct from Aberdeen, for example, and not land at Sunburgh. It is certainly the case that the facilities that gave rise to the level of charges to which my noble friend has drawn attention were specially installed for the benefit of the oil-related traffic, and thus in our view it was right that that traffic should in general bear the cost of providing those facilities.
924 My noble friend also referred to the question or Stansted. I am not yet in a position to give him a date as to when a decision could be reached on that matter. Suffice it, however, to say that the provisions of this Bill have no particular bearing on that, because they would certainly fall outside the 5-year period to which it is envisaged the existing provisions should relate.
My noble friend also referred to the position at Gatwick. There is indeed an outstanding decision in respect of Terminal 2 at Gatwick. My right honourable friends the Secretaries of State for Trade and for the Environment are inviting further comments on that proposal in the light of certain new traffic figures that came to hand recently, and they will be deciding the way forward in that particular connection as soon as the comments have been received and analysed.
My noble friend, and indeed the noble Baroness, Lady Burton, also referred to the position with regard to a fifth terminal at Heathrow. I am reluctant to speculate on what would be a purely hypothetic supposition, but clearly my right honourable friends would consider the inspector's report very carefully, if it included such a recommendation, before reaching their decision in respect of the Stansted application, to which my noble friend has referred.
I hope I have convinced your Lordships that the way in which the authority's capital investment is financed is really of no relevance to the determination of their charges, but perhaps this would be an appropriate opportunity to remind your Lordships that in 1980/81, as in previous years—and I think it was the noble Lord, Lord Ponsonby, who referred to the profits of the British Airports Authority—they in fact made a loss on their overall traffic operations. Their profitability is a result of the commercial revenue which they earn from other, not directly related activities.
I hope that in the light of what I have said the Committee will agree that this clause should stand part of the Bill.
§ Clause 1 agreed to.
§ Clause 2 [Increase of financial limit of British Airways Board]:
§ On Question, Whether Clause 2 shall stand part of the Bill?
§ The Earl of Kinnoull
May I very briefly ask one question of my noble friend? It is to do with European air fares, which, of course, is very much a matter which British Airways are facing and, indeed, are trying to promote. The Government, I know, are in negotiations with various countries over air fares, and I am wondering whether my noble friend has anything to comment on this evening.
§ Lord Trefgarne
I am afraid I am not up to date on the latest position as to that, but I will certainly ascertain what the position is and write to my noble friend. However, perhaps I could just say that the borrowing powers being conferred on British Airways by this clause are of course for the purposes of their current capital expenditure programme.
§ Clause 2 agreed to.
§ Remaining clauses and the schedules agreed to.925
§ House resumed: Bill reported without amendment: Report received.
§ Moved accordingly, and, on Question, Motion agreed to.
§ [The Sitting was suspended from 7.33 p.m. until 7.45 p.m.]