Airports Bill

HL Deb 21 April 1986 vol 473 cc974-1014

4.6 p.m.

Second Reading debate resumed.

Baroness Burton of Coventry

My Lords, I start from exactly the same place as the noble Lord, lord Underhill. First of all, however, I should like to thank the noble Earl, Lord Caithness, for his opening speech. It was a polished and succinct description of the Bill as it stands on paper. Nevertheless, my hope is that when he replies to the debate the noble Earl will depart altogether from his brief and that he will answer the points put to him.

We on these Benches also believe that the Government's plan to privatise the British Airports Authority has nothing whatever to do with any pressing need to revise the structure and methods of managing the authority or to correct any faults in the airports system. It is primarily a political objective. Indeed, as the noble Lord, Lord Underhill, said, it is exactly the same as the situation that has arisen in respect of the gas industry. When, recently, I asked the BAA whom it thought would benefit from the privatisation its answer straightaway, without pause for thought, was, "Oh, the Government and the shareholders". I had to remind it of the customers and the airlines.

On Second Reading in another place the Alliance tabled an amendment declining to give a Second Reading to the Bill. That was not successful. However, I should like to assure the noble Earl that we on these Benches feel just as strongly as our friends in another place. We, too, believe that selling outright the profitable BAA shows a lack of appreciation of partnership between the public and private sectors.

And we are not happy about the effect in the regions. As the House will know, it is not only the Alliance and the Labour Opposition who hold this view. The Minister will recall that on 9th April in another place the Government's majority was cut to 63 in one of the biggest revolts in the current Parliament. On that occasion 37 Conservatives voted with the Opposition in an attempt to force a change in the Bill. The revolt concerned Stansted and the fear that if Stansted was privatised, together with Heathrow and Gatwick, the regional airports would face unfair competition.

Here I come to another matter also decided purely for political reasons. I offer no excuse for returning yet again to the issue of a second runway at Gatwick. I hope that the House will bear with me because that question has considerable bearing on what we are discussing today.

To recapitulate briefly, I would just put three facts before the House. First, as Minister of Transport and Civil Aviation, responsible for the decision in June 1954 to develop Gatwick as a major international airport, the noble Lord. Lord Boyd-Carpenter, declared that Gatwick was designed as a two-runway airport, adding that experience throughout the world had shown that a minimum of two runways is a basic requirement for a major airport. That was in a letter to The Times on 5th June 1985.

Secondly, the county planning officer of West Sussex County Council, writing to The Times on 31st May 1985, stated, It is by no mischance that the British Airports Authority abandoned its proposals for a second runway and sited the second passenger terminal astride its former alignment". Thirdly, in the House on 23rd May 1984 (col. 221 of the Official Report) I was told in answer to a Question that— the present Government were not consulted about the agreement and are not parties to it. That being the case, the Government cannot be bound by its terms". The agreement was that entered into by the British Airports Authority and the West Sussex County Council in 1978. From the Answer given me on 23rd May 1984, it follows that the Government themselves are preventing the laying down of a second runway.

It is so much wasted breath to talk about developing Gatwick as a hub-and-spoke airport for the future and to deny what is so obviously necessary. I think that it is also dishonest. The Government and the British Airports Authority stand accused of this refusal to look at the full future potential of Gatwick and hence the inability for full development.

Why have I risked wearying the House with this oft-repeated story? The answer is simple. I think—and believe that the Minister will agree with me—that I should not be exaggerating if I were to say that the one statement which keeps recurring in all the publicity and in all the statements by government spokesmen is that the primary restriction on passenger capacity relates to runways. Nobody with knowledge of this problem will deny that the limiting capacity factor currently in the BAA London airports system is runway capacity. That is why I keep on. I consider that the Government and the BAA should be held to account for what they have done to prevent the fullest possible development of civil aviation in the United Kingdom.

This whole affair has some nasty undertones. One has only to study comments and opinions in another place: the abortive attempt by the Government to stampede its ill-fated Civil Aviation Bill through the Commons, and its abandonment in May 1985, following almost total condemnation there of the proposal to develop Stansted as London's third airport. People living around Stansted were deeply concerned that the matter had come up repeatedly. The BAA had been determined to have Stansted, however many experts and public inquiries found against the proposal. The Government have been equally supportive.

Even Conservatives in another place have objected to the manner in which the Government have packed the Standing Committee to avoid further rebellion there. I have considerable sympathy with the Member in Standing Committee who said that if the top officials of the Department of Transport were moved into the BAA, and the top officials from the BAA were moved to the Department of Transport, we should see no change in policy.

Sir Norman Payne, chairman of the British Airports Authority, on 22nd October 1984, in an article entitled "Don't Stifle Success" appearing in Airport News, stated: Gatwick will remain a single runway airport so there will be a capacity problem ahead". Deliberate action by the authority has cut out the possibility of having a second runway at that airport. Together with the Government, it stands accused of making that problem worse.

I am not against the development of Stansted. That would be putting my head in the sand. But I am against the amount of development now, and I repeat "now". The BAA has repeatedly said that it is in favour of full development at Gatwick. It is not, of course. It is in favour of full development at Gatwick with only one runway.

I believe that we should have had this second runway, allowed Stansted to develop its present capacity of 2 million passengers per annum and given support to regional airports where the conviction remains that they will suffer financially because of the Government's determination to build up Stansted whatever the cost. This determination led to the biggest revolt in the current Parliament, to which I referred at the beginning of my remarks today. That revolt has been surpassed by that on the Shops Bill, but not at the time I prepared my notes.

This brings me inevitably to the present position at Stansted, quite apart from a second runway at Gatwick. I have referred already to the nasty undertones in this affair. However, additionally there are puzzling ones. The British Railways (Stansted) Bill was debated in another place on Monday 24th February. If I say simply that it was not considered that the Government had made their case, that is an understatement to save your Lordships' time.

Suffice it to say that Members were not at all convinced and could not understand what confidential information must have been given to British Rail enabling it to press its scheme when the House was asking itself whether indeed the establishment of a rail link ensured that Stansted would be a runaway success. The question was posed in various ways and by many Members as to whether, as they put it, there had been nudges and winks to British Rail about the degree of traffic that would be diverted deliberately to Stansted under the powers that the Secretary of State was taking in the Bill.

In short, the other place did not like what was before it and talked out the Bill, whereupon the Government proposed that the debate should be resumed on 6th March. I can only ask your Lordships to read the Commons Hansard for Monday 24th February, when it will be seen that, far from exaggerating, I have understated the whole affair.

Anyway, the resumption of this adjourned debate has been transferred from 6th March to the 13th, to the 20th, to the 26th, to 10th April, to 17th April; and, when I was preparing my remarks for today, I did not know what had happened on 17th April. I might have guessed. The Bill was again transferred and is now due for discussion on Thursday 24th April. I must ask the Minister when he comes to reply why all this has happened. The Government have run into trouble. We should like to know what kind of trouble. One can only assume that they are faced with the difficulty of getting the Bill through the House.

In trying to steer a logical course through this tangled web, I come now to the allocation of slots and the suggested powers allowable to the Secretary of State; both are inextricably bound up with Stansted, with its rail link and with the direction of airlines. I suggest that we must accept that allocation of slots on a voluntary basis through a scheduling committee composed of airlines operating at airports may reach a point of collapse. Arising from this, it seems obvious that any allocation committee will have to face a problem totally new to it: what to do when there are no slots left at a particular airport. In the London airports system there is potential excess of demand over supply at both Heathrow and Gatwick, and the reverse at Stansted. Several of the charter airlines have their operating base at Gatwick, and there is clearly enormous catchment area demand for charter services out of Gatwick.

In our debate on 30th October 1984 I said that I believed that, under the Government proposals, the charter airlines would indeed be squeezed out of Gatwick. As the House is aware, this is a highly efficient sector of British air transport which fulfills a substantial demand for charter seats arising in that particular catchment area. The matter could not have been put more realistically than by the Civil Aviation Authority in its report, which was requested by the Government in 1984, when it stated at paragraph 38: If the price of developing the scheduled service network at Gatwick was progressively to squeeze charters out, this would be to render a major disservice to a substantial category of public demand. Furthermore, at paragraph 32 the report went on to say that to rule that charters should increasingly be operated from some other airport is thus: to substitute the planner's judgment for the proper working of the market-place. I was glad to note that in March this year the Civil Aviation Authority, in its recommended measures for the distribution of air traffic among the London area airports reiterated its objection to the calls for: the wholesale removal of charter services from Gatwick as this would fail to recognise the importance of Gatwick as a regional charter centre for the South East as it has developed in recent years. I think that this matter should be emphasised. I think that the charter airlines are in grave danger in possible future developments.

The fundamental problem of trying to reallocate charter traffic to Stansted is that there would be substantial catchment area demand severely inconvenienced by being obliged to travel to Stansted. As the House will know, the majority of operators at Gatwick, including the charter airlines, have rejected this philosophy and pointed out that a passenger is entitled to equal treatment, no matter whether scheduled or charter, and that a vast proportion of Gatwick's catchment area consists of holiday passengers in London and the South East. Most strongly stated, and I suggest most dangerous to our civil aviation industry, is the belief that to force traffic to Stansted would be counter-productive. It is believed that many charter passengers would not travel at all or would find a more convenient way of doing so: not for them the inconvenient journey to Stansted or, for that matter to Heathrow. I think we would all agree that it is highly improbable that overseas airlines will be voluntary candidates for reallocation to Stansted.

On the problem of allocation of air slots, we on these Benches would agree with the Civil Aviation Authority that a price mechanism, whether through increased landing charges, a direct passenger charge or the compulsory trading of landing and take-off slots among airlines, would not be compatible with the Government's objectives and would almost certainly be inconsistent with this country's international obligations. There is a strong body of opinion which believes that ultimately the Civil Aviation Authority should assume responsibility for slot allocation. We on these Benches I share that view.

So far I have tried to deal with the problems of runway capacity, the rail link to Stansted, the allocation of slots and the fears of charter airlines. I come now to my last aspect, I am sure to the relief of the House. However, I thought that if I listed those it would refresh the memory of the noble Earl when he comes to reply.

What about the powers available to the Secretary of State under this Bill? This question caused considerable anxiety in another place on all sides of the House. Here I should like to pay tribute to the work of the scheduling committees, which have acted impartially and worked well. It seemed to me well-stated, in another place—and I think that the noble Lord, Lord Underhill, referred to this—that this Bill makes no provision for any scheduling committee. Therefore, what will happen once the airports are privatised? If an airline wants to fly into an airport when capacity is full, it must be told that it cannot and that someone will be displaced. My fear is that under this Bill the Secretary of State has powers to remove someone who is already there. That is quite different from giving the final power to a scheduling committee made up of the airlines. Is it not correct that the only people the Secretary of State can move around are British carriers? Would not international agreements make this inevitable?

In the debate on the British Railways (Stansted) Bill, which produced such a setback for the Government, this question of powers being given to the Secretary of State loomed very large. Would Mr. Ridley use his powers to direct more scheduled traffic to Stansted or would he use them to direct more charter traffic there? Was it correct that the Secretary of State intended forcibly transferring all charter aircraft operations from Gatwick to Stansted? Is it not correct that the Secretary of State seeks powers to regulate the distribution of air traffic within the London airport system, etc? I can assure the Minister that the airlines are worried and that Parliament is worried, and I think that the Government must explain to the House today what powers this Bill is intended to give to the Secretary of State.

It would be churlish to debate a Bill on airports policy, heavily involving the British Airports Authority, without paying tribute to the authority and to all those involved in its work. The organisation is efficient and profitable. Moreover, it has provided a service catering for the transport needs of the airlines and millions of customers who pass through the airports during the year. As the House knows, my main quarrel with the authority is over the refusal to allow Gatwick—and not only Gatwick but the civil aviation industry as well—the opportunity that exists today for the full expansion which we need if in coming years this country is to maintain the position it holds today.

My Lords, not even the Minister can deny that the British Airports Authority is a monopoly. There is a high risk that a privatised monopoly like the BAA would not find it in the best interests of the shareholders fully to meet airline demand by timely provision of new facilities. Either the BAA must have such a duty (as now) or it must forfeit its exclusive privilege to provide new capacity at its airports so that other companies can compete with the BAA—such as the provision of new terminal capacity.

I apologise to the House for taking up so much of its time, but I felt that I must try to make the case on Second Reading. I hope that on this occasion I shall get an answer to the five points I have noted down on my pad here; I am sure that the noble Earl will give me an answer when he comes to wind up. We on these Benches believe that such a monopoly should be in the public rather than the private sector, and we oppose the Bill.

4.30 p.m.

The Earl of Dudley

My Lords, my intervention in this debate results from an approach made to me at the end of last week by the metropolitan borough in the Midlands whose name I bear. I admit that my experience in these matters is minimal, as a user only. My problem in the next few minutes will be to try to keep my feet firmly on the ground. When I looked at the question and briefed myself over the weekend it seemed to me that the matters raised by my friends in Dudley were such as were appropriate to bring up in this Second Reading debate. They raised questions of principle, one or two questions of interest, and one matter of concern.

I should like to say at the outset that Dudley District Council fully supports the broad objectives of this Bill, especially in so far as they relate to the translation of the assets and liabilities, land and buildings at Birmingham Airport, to company status. I, too, support the objectives of the Bill. I should like to remind the noble Lord, Lord Underhill, who took pride in his rather elongated arm's length part-ownership of British Airports, that he has had no choice in the matter. This part ownership was imposed upon him. He had no opportunity to quantify either the benefits or the risks to him as a taxpayer. At least now he will have a choice as to whether to be a part-owner of British Airports and will be able to measure directly the risks involved.

In my view company status will bring about an environment for airports in which commercial constraints and considerations will generate growth, will foster development, and in some instances reveal decay. It will create a climate in which managements and work-force will be at their best, and it will provide the owners with a negotiable asset, although to what extent that asset will be negotiable will depend very much on decisions that the Minister still has to take on criteria of which we, as yet, are not fully aware.

This brings me to the main point which concerns my friends in Dudley. Over the years the airports have built up overall debts; airports covered by this Bill have incurred debts of nearly £250 million, and the seven district councils which own Birmingham Airport through that airport share some £30 million of debt. These debts have been brought about by borrowing money either on a sound basis to provide development growth or else with less justification to fund and cover repeated losses.

When the airports move to company status there will be only three categories of person who can either repay or service these debts. They will be the companies and their shareholders, ratepayers, or taxpayers. There will be no other sources of funds. Under Part I of the Bill the Secretary of State seeks powers whereby the debt of the airports owned by the British Airports Authority, amounting to nearly £42 million, will be transferred by a mechanism to the new company. The airports owned by the regional authorities receive rather different treatment.

The Secretary of State in another place expressed the preference that in the case of loss-making companies the debts should be transferred to the district councils. In the case of the companies that were profitable, or marginally profitable, he said that he looked for an equity-debt ratio in the companies of approximately 70 per cent. to 30 per cent. Whether or not this is an appropriate ratio is a matter for greater experts than I am to decide.

I remember years ago going to a seminar in which it was posited that it was perfectly responsible for a company to have equity and loan stock on a 50–50 basis, but in those days of course interest rates were about 4 to 4½ per cent. Interest rates are now falling again, and it may be that when the time comes for these matters to be decided by the Minister he may feel that a slightly better proportion is tolerable.

Be that as it may, this will still leave a considerable proportion of debt to be transferred to the councils. In the case of the seven Midland district councils to which I referred the effect of this transfer of debt would be to increase the rates by over 1.60p in the pound over the entire county. Personally I cannot think that that is in line with the policies that have been expressed at various times from this side of the House.

This figure is brought about not only by the direct charge of the debt but also by the anomaly that the councils will lose their grant on the part of the debt that they have to take over. The effect of that in the case of the seven district councils, will be that whereas if they did not lose the grant the direct cost of the debt would be just under 1p in the pound, this is increased to the figure of 1.64p to which I referred.

That brings me to my plea and my reason for intervening in this debate. It seems to me that there is some case for a part of the debt being transferred to the councils because, after all, under the present arrangements the councils have a contingent risk in the event of a failure of the airport, and there must be some value in being absolved of that risk. In my view it should be a matter of negotiation between the Minister and the councils as to how, and on what terms, they should be absolved from that risk.

If there is a balance still to pay, I make a plea to the Minister to consider before the Committee stage whether he could not seek powers under an amendment to the Bill—I believe I am right in saying that there are no such powers at the moment in the Bill, but I should be glad if the Minister would correct me if I am wrong—to enable part of the debt to be either extinguished or serviced through the Exchequer.

After all, these regional airports bring national as well as regional benefits. They ease communications to remote manufacturing and exporting areas, and in so far as they bring national benefits this should be recognised. Although the Government have already made grants for the airports, I do not believe that the grants have been on such a scale that they could not reasonably consider some further contribution in the way of easing the burden to the councils.

I hope that the Minister will give this point serious consideration and that when we reach Committee stage we might find some acknowledgement that the burden of these debts will be spread in a tripartite way; not simply on the companies or on the councils, but on companies, councils and Exchequer.

4.40 p.m.

Lord Taylor of Blackburn

My Lords, I rise to address your Lordships on this Second Reading with some trepidation because this is something that I know little about. I have never spoken before in any way at all on airports, navigation or aviation. Therefore I am completely at a loss when I hear the noble Baroness speaking about the great London airports and even Manchester Airport. I know very little about them except as a user. But I know something about the region in which I live and the region in which I work and have interests in. That is the Lancashire area.

In particular, I wish to speak on Blackpool Airport this afternoon. Blackpool, in comparison with Heathrow and Gatwick, is a very small airport; nevertheless, it is a vital one in the economy of Lancashire in general and particularly central Lancashire and east Lancashire. This airport is used by quite a number of local industries which have connections all over Europe and which use it widely and extensively. Also, the airport is used to service the gas in the Irish Sea.

It has been owned by the local authority roughly since 1909. I do not think that the local authority has been able to draw any money or receive any financial benefits from the airport since it started in 1909. I think that the nearest it got to solvency was last year, when its deficit was somewhere in the region of £30,000. It is hoping, with the increased trade that is going on there, possibly to come on stream in two or three years' time. But over the years the local authority—both the county borough, as it was, and the district council, as it now is—has ploughed a lot of money into this airport and made it very successful.

Members of the authority realise the spin-off to the Fylde coast from the number of tourists who now fly into Blackpool, and also they realise how people are interested in using the airport when coming to political and other conferences in Blackpool, and how useful it is. My friends in Blackpool are different from those friends about whom the noble Earl, Lord Dudley, has been speaking. My friends in Blackpool want to retain the airport as it is. They feel that they have done a good job. We feel, as citizens of the area, that they have done a good job.

We do not know what they have done wrong. They have conformed to government policy and they have done so when the Government have not been to their liking; because we must remember that, apart from two years, Blackpool has been consistently a Conservative-controlled authority and is a Conservative authority at the present time. They have conformed; they have modernised; they have brought up to date; they have done everything that they possibly could; and now the question that they are putting to the Government is: what are they charged with? Why should this airport be privatised when they are doing a reasonable job, one of which, as Lancastrians, we are proud?

This is not the time to go into detail. We shall go into detail at the Committee stage, regarding debt charges and so on. We ask the Government to be a little more considerate not just to Blackpool but to places such as Blackpool and Carlisle; and perhaps one may mention some of the other airports of similar size on the eastern side of England.

4.45 p.m.

Lord Boyd-Carpenter

My Lords, this is a very important and a very complex Bill. I think that a good many of the points about which your Lordships are concerned are basically Committee points which no doubt will arise and be debated during the Committee stage. It is certainly a quite complex Bill, full of such points. But is has one curious omission; that is, that nowhere in the Bill can I see any objectives stated or laid down for the new company or companies which are to operate the airport.

Some of your Lordships may have seen a recent letter in The Times by a former chairman of the British Airports Authority, Sir Peter Masefield, a man who has done an enormous amount for British aviation over the years, in which he recalls the original objectives which his board, when in command of the BAA, set forth and which he suggests might well be considered for inclusion perhaps in this Bill as being the objectives of the new body.

Perhaps I may remind your Lordships what they are. The first is to provide at the airports under its control adequate capacity to meet the requirements of civil air traffic; the second is to achieve and to monitor a balance between profitability and good service consonant with the obligation of the board to pay its way. Those two objectives seem to be admirably stated. I hope that the noble Earl, my noble friend on the Front Bench, will give some thought as to whether it might not be a useful addition to the Bill to include some objectives expressed either as Sir Peter expresses them or on similar lines.

The noble Lord, Lord Underhill, made, if he will allow me to say so, a stockbroker-orientated speech which was rather unusual for him. I suppose that it is an example of the old adage, "The Devil can cite scripture for his purpose". But to have the noble Lord, from that Bench, quoting two very distinguished firms of stockbrokers with apparently enthusiastic approval, is really rather remarkable. So, too, was his argument. He said that the British Airports Authority is efficient. No one disputes that. Indeed, I am a great admirer of them. But the noble Lord will surely appreciate that however efficient one may be, it is the greatest possible mistake to rule out the idea of one becoming more efficient. One of the most dangerous things of all in this life is complacency, saying, "This is a jolly good show; improvement is impossible"; because there is no human activity of which that is true. Therefore, it is really no answer to this Bill to say, as the noble Lord, Lord Underhill, appeared to be saying, that because the British Airports Authority is well run and has been well run for a number of years, there is no need to make this change.

In this context, I should like to pay a tribute to the present chairman of the British Airports Authority, Sir Norman Payne, who has done a really remarkable job in the British Airports Authority and has advanced it, subject to all the limitations and difficulties that government and outside circumstances can cause, with very great success and ability.

However, I have yet to hear that Sir Norman is opposed to these proposals and I have yet to hear that anyone regards them as in any way at all a reflection on the way the BAA is run or has been run. The only blot on the way that the BAA has been run goes back to a previous administration and is of course the one referred to by the noble Baroness, Lady Burton of Coventry: the quite gratuitous, wholly unnecessary giving of an undertaking to West Sussex County Council that the second runway planned from the beginning for Gatwick Airport should not be built. That was a very serious failing and fault. It is fortunate that Her Majesty's Government and successive governments have said that they do not regard themselves as bound by it. It is an interesting question as to whether the successor company would regard itself as being under any such similar limitation. I hope profoundly that it would not, because I agree with every word the noble Baroness said. It is utterly absurd, and contrary to world experience, to believe you can operate an airport with up to 25 million passengers a year on a single runway. What is clear is that, if you attempt to do anything of the sort, not only will you have congestion but you will erode the margin of safety.

The building now of a terminal across the planned route of the second runway will make the building of it—and it will come, because it will be forced by events—more expensive and more difficult and will involve the acquisition of more land. That will have the incidental advantage of annoying the West Sussex County Council.

I agree wholly with the noble Baroness that, with that exception (the administration under a previous regime) the British Airports Authority has done an extremely good job. Those concerned in it who have contributed to it will. I am sure, continue to contribute in the new shape and form that it will take.

There are a number of points in this Bill which are perhaps mainly Committee points but which nonetheless strike one noticeably. I believe that the provision in respect of regulating airport charges—in which apparently, as I understand it, both the CAA (which knows about them) and the Monopolies and Mergers Commission (which does not know much about them) are to be involved—is a cumbrous affair. The Civil Aviation Authority is a highly expert and responsible body which understands the British civil aviation industry. I should have thought the right thing is to leave the regulation of airport charges in its hands, subject in case of dispute to reference to the Secretary of State. But I do not see why you want the Monopolies and Mergers Commission, with all the other things that it has to do and with all this consideration of takeover bids which must give it at any rate a measure of full employment at the moment. It seems so unnecessary to involve it.

Similarly, I am puzzled by the proposal in the Bill that the Secretary of State should have the right to limit air traffic movements at airports where the runway is not fully employed. That seems to be a reversal of what one would expect. If you have an underemployed runway, in certain circumstances the Secretary of State is given power to make it even more underemployed. It seems an odd and almost perverse provision.

There are other aspects also which we shall want to explore in Committee. Although I am an enthusiastic supporter of the general policies of the Bill, I am not at all sure that in every way it has been completely well thought out. I am glad to see that in general the role of the Civil Aviation Authority is to be enlarged and that the importance of the help it can give to the Government and to the industry in connection with the airports is fully understood in the Bill.

Your Lordships will allow me one moment, I hope, of personal jubilation. That arises from Clause 63 which, as you will instantly recall, increases the number of members of the Civil Aviation Authority from 12 to 16. When I was chairman of that authority some 10 or 11 years ago I put forward the proposal that the then limit of 12 should be raised to 15 for reasons that I shall give in a moment. But the Government of the day would have none of it, though they had legislation going through. Similarly, my successor had no success in 1982 when, as your Lordships will see, the 1982 Act restricted the number to 12.

The reason why it is necessary to expand the membership of the authority, as this Government appear now to be convinced, is that the authority's responsibilities are widespread and therefore it is necessary to have on the board of the authority not only those in charge of particular activities such as national air traffic control services (and the Controller NATCS should certainly be on the board), safety, economic regulation and so on, but also people with experience of aviation, particularly for the purpose of hearing appeals, for example, from pilots whose licences are challenged. It is then highly desirable to have a number of part-time members with business experience.

As a matter of mathematics, it simply is not and was not possible to get all the talent and ability that you want within the compass of 12. I am glad to see that the present chairman of the Civil Aviation Authority has exercised greater persuasive powers than I was able to do, although perhaps the other explanation is that he had a more amenable and reasonable Minister on which to exercise them. At any rate, it is a matter for rejoicing.

Another matter of rejoicing, if I may be allowed to suggest it, is that I was delighted to see that these responsibilities under this Bill will be taken over by Mr. Christopher Tugendhat. He is taking over as chairman of the authority from, I think, June. Mr. Tugendhat has experience in another place and distinguished experience in Europe. It seems to me he is exactly the type of man to advise the authority and the Government in these difficult matters, and particularly in the problems which will arise in respect of the airports where the CAA will have to guide the hands of the Government and of the new company.

One comes back to the question which the noble Lord, Lord Underhill, raised: why do this at all? The experience now—and we have accumulated a good deal of (I hate the word "privatisation" and prefer the good, honest expression "denationalisation") experience of many cases of denationalisation—is that you seem to get a better performance from the bodies concerned at all levels when they have passed into private ownership. I shall not weary your Lordships with examples quoted only the other day—Jaguar, for example—but this seems to be the case, and I believe there will be an increased spirit of enterprise in this very important body when it passes into the form of a private company.

However, I have one anxiety which I shall pick up in this case, I think, from the noble Lord, Lord Underhill. I believe it would be dangerous if a controlling interest in this company were acquired by foreign interests concerned with aviation. I am not now indulging in the current weakness of noble lords opposite of anti-Americanism. I am strongly pro-American and I am not at all sure that an American interest in the airports may not be a most excellent thing, since it may bring even more American airlines here.

But I should be very alarmed indeed if a French or, perhaps even more significantly, a Dutch interest were to acquire a substantial control, since it is well known that the competition that exists in this industry is the competition with Schiphol at Amsterdam, Charles de Gaulle in Paris or Frankfurt. There could be a risk if any of those foreign interests were to assume a controlling interest in the authority and the new company. I ask my noble friend to tell us when he winds up whether the Government have considered this risk and, if so, what steps they are taking.

Your Lordships have talked in this matter of monopoly and in a sense—in an internal sense of major airports—this is a monopoly. As I have already remarked, we fortunately have an existing body to supervise in the shape of the Civil Aviation Authority which can do perfectly well what Oftel does in telecommunications and whatever the appropriate body will be in the gas industry. We have an existing expert supervising body. Overseas we have no one.

There is strong competition today from Schiphol. The Dutch are doing their best to lure traffic there, even to the extent of offering free overnight hotel accommodation to passengers of airlines which come through that airport. Charles de Gaulle and Frankfurt also offer inducements. There is vigorous competition. That is where the competitive attitude of a public company will make a useful contribution to retaining and obtaining a greater share of traffic for British airports.

This matter is of major economic importance. We are concerned not only with the earnings of airports, which are substantial. Under the good administration that they have had their profits have been admirably large. We are concerned still more with the contribution that the attractiveness of British airports makes to the profitability of British airlines. Let us take the simple example of the American or Canadian who wishes to come to Europe. If he is attracted by the place at which he will arrive he will take an airline that goes to that place. He may well therefore be attracted away from Biritish Airways to KLM if he want to go to Schiphol or to Air France if he wishes to go to Charles de Gaulle airport. British airlines and their traffic have a major interest in this matter. Their contribution to the British economy is substantial.

Above all, there is our tourist industry, which your Lordships were discussing a day or two ago. The tourist industry is now one of the biggest contributors to our balance of payments. It is because it is easy for tourists to come on British airlines or indeed foreign airlines that service British airports, that the tourist industry has grown as it has over the years and is now a major factor in our economy.

This is therefore not a small matter. It is of major importance for our economy. I am glad that the Government have had the courage to come forward with this proposal. I hope that they will add to their courage a certain degree of flexibility and accept your Lordships' assistance to ensure that they have it right.

5.3 p.m.

Lord Mountevans

My Lords, I think I can safely say that the noble Lord, Lord Boyd-Carpenter, has not read my notes, but in the concluding minutes of his speech it seemed to me that he must have read my mind, because I could not say more than he had just said. I agree with him that anyone who takes an interest in British aviation and airports policy will welcome the Bill and that one cannot treat the one in isolation from the other. They are interrelated.

As one involved in tourism, to which the noble Lord referred, I want a policy which gives us airports able to deal with the demands of the 1990s and the early part of the 21st century. In that industry we are dealing with long lead times. The prospects for the next 25 years demand that decisions are taken now if we are not to lose the excellent competitive position which our airlines and airports enjoy, as the noble Lord said. The BAA is successful by any standards. Those of your Lordships who have seen Terminal 4 will appreciate the expertise involved in bringing that terminal into operation on time and on budget.

I mentioned long lead times just now, and your Lordships will recall that the earliest decision to pursue the route which has led us to Terminal 4 was embarked upon some eight or 10 years ago. It is such timescales which make it essential that BAA should be privatised and, as the noble Earl the Minister said, removed from political control and the restraints of being embraced by the tentacles of the public sector borrowing requirement. I do not say that public sector control has constrained the BAA's development, but I feel that as a private sector company it will be able to react very much quicker to the threats posed by our competitors in Paris, Amsterdam, Frankfurt and other airports which the noble Lord, Lord Boyd-Carpenter, mentioned.

The airports industry is perhaps another phrase that one can use. I appreciate the success achieved in recent years by my friends in Newcastle, Manchester, Birmingham and the other local authority managements, not to mention some of the private airports which we already have in this country. I am aware of their reservations about the Bill and, in particular, about the status of Stansted. They are concerned about subsidy. They believe that such subsidy will divert traffic to the London system and that that will be to the disadvantage of regional airports, if one can use that phrase—the out-of-London airports.

I have seen the success of Manchester and Newcastle in recent years. It is a success that has been achieved despite the low charges at Stansted or the rapid increase in charges at Manchester. It is a success based not on airport charges but on the public's wishes as to where they wish to fly to or from. Those wishes are interpreted by the scheduled and charter airlines. They are, as the noble Earl the Minister suggested, influenced little by airport charges as such.

Scheduled carriers introduce services for which they perceive a public need, and which they can turn into earnings and profits. The charter carriers fly services on contract to tour operators or other buyers. They see a public requirement which they seek to satisfy. If the demand is for a scheduled service from Manchester to Dusseldorf or for charter packages from Birmingham to Corfu, then operators will come in to give the customer what he or she wants.

I have worked with some 15 civil airlines over the past year and I cannot conceive that subsidy while Stansted is developed will switch any of them from the wish to provide the Manchester-Dusseldorf or the Birmingham-Corfu service. As I said in our debate on the White Paper, if the customer wants steak it is no use offering him the best salmon in the world.

There are one or two matters that cause me concern. Again, they were pre-empted by the noble Lord, Lord Boyd-Carpenter. I hope that some form of golden share arrangement will be arrived at to prevent foreign airlines or anyone else who would wish to destroy the pre-eminence that we have from obtaining control of a privatised British Airports Authority. I hope that the Minister will be able to give us some reassurance on that point.

I also hope that in touching on the CAP's first discussion document on traffic management the noble Earl will tell us what the Government's reactions are to the thought that the minor carriers which service Heathrow, and to a lesser extent Gatwick and Stansted, would be forced out of Heathrow. I firmly believe that the growth of the London airports is, as I have said, not necessarily disadvantageous to the growth of the provincial airports. I believe that they can grow in tandem, but it is essential for the provincial airports to have the ability to interline on the major hub, which is Heathrow. To force the minor carriers out of Heathrow would not only be ruinous to them—I very much wish them to succeed—it would be ruinous for the provincial airports such as Carlisle, Dundee, Plymouth and Newquay. I hope that the Minister will be able to give us an assurance that such a compulsory diversion will be not a line of last resort but something that will not come to pass.

Lastly, I should like to mention a matter relating to Heathrow, if not to the Bill. I have given the noble Earl a little notice of this point. The White Paper touched upon the increasing concern felt about access to Heathrow. It announced the setting up of an inquiry into the options available for improving access to that airport, which I think many of your Lordships will agree is beginning to become chaotic. Those of us who use Heathrow realise that the problem is complex. It is also urgent. I wonder whether the noble Earl can give any news about the inquiry mentioned in the White Paper.

5.10 p.m.

Baroness Fisher of Rednal

My Lords, this afternoon many noble Lords have spoken about Heathrow, Gatwick and Stansted, but I shall be concentrating my remarks on Birmingham Airport. That is my particular interest on which I shall be speaking in the few minutes at my disposal. I want to reiterate that, to a great extent, the impact of the West Midlands depends upon the airport. It is an important gateway into the conurbation, it is at the centre of the country and it therefore offers facilities for economic regeneration in the West Midlands, which is urgently needed in view of the high unemployment figures throughout the whole region.

The airport is absolutely ideal for this purpose because it is very close to all the major road and rail links—and the latter are Inter City—and it has adjacent to it the National Exhibition Centre, which is not only nationally known but is world renowned as an excellent exhibition centre. The freeport is being established right on airport land and Birmingham has bid for the 1992 Olympics. So the airport would then be used by thousands of people. The airport is important not only for regional purposes, but for the holiday trade as well.

Some noble Lords have complained this afternoon that people in the South-East would not want to go as far as Stansted to catch their charter aircraft. Perhaps I may say that there are thousands of people in the West Midlands who do not even want to go as far as Gatwick to start their charter holidays when they have an excellent airport on their own doorstep.

The development of the airport has taken place over the last 10 years. A new airport terminal building has been built, with the old airport building acting as the cargo base, and there is a capacity of 3 million passengers a year. That development was undertaken by the West Midlands County Council which instigated the whole prospect.

Since 1st April 1986 the airport has become the responsibility of a joint committee of the seven district councils in the West Midlands; namely, Birmingham, Coventry, Dudley, Sandwell, Solihull, Walsall and Wolverhampton. The controlling groups in each of those local authorities are not all of one political party. There are the two political parties that are in the majority in some of those district councils. But they have been working together, regardless of the political complexion of the councils, with the idea of forming a company, and before the Bill was introduced they set up a joint committee to look into the formation of a company and to make sure that the airport was retained in local government ownership. They feel that joint ownership and effective management by the local authorities will be quite possible, and the authorities will be able to take up a lesser shareholding or determine their own involvement at any time.

So they are not against the policy of setting up joint companies in the West Midlands. They use as an example local authority involvement in the National Exhibition Centre. I had an early involvement with that, when I was a member of the Birmingham local authority, and it did not receive from the Government who are in power today support to go forward with that marvellous enterprise, which is exceedingly profitable so far as ratepayers are concerned.

Since 1975 Birmingham Airport has not received any money from ratepayers in the district. The reserves were left by the county council and, as the noble Earl, Lord Dudley, said most eloquently, we have to look to the future trading position. The reserves were intended to cover any deficits arising from borrowing costs, but that position is now threatened under this Bill. The noble Earl, Lord Dudley, set out quite clearly the problem that will arise if the Government do not see fit to look at a transfer scheme that is applicable to the company and yet will leave extensive powers to the Secretary of State. Therefore, the structure of the company will be particularly important in regard to the debt problem.

Looking at the decisions that have been taken in the other place, it seems on the cards, as the noble Earl, Lord Dudley, said, that some of the outstanding debts will fall upon the local authorities. This seems iniquitous when the debts of the BAA at Heathrow, Gatwick and Stansted will not have to be carried under privatisation. Its debts will somehow disappear into thin air, but the debts that arise in the case of regional airports will have to be met by the ratepayers, unless the Government see fit to make some alterations to the proposals in the Bill which were outlined in the other place.

For that reason there is particular concern in the West Midlands about debt charges, while the idea of a company is accepted there. The noble Earl, Lord Dudley, pointed out what a burden this will be, especially when the local authorities will be automatically rate capped because they will be overstepping their allocations. This is very unfortunate and may make some local authorities in the area feel that they do not want to participate in a future company that might be set up. They would not want to feel that their ratepayers were being rate capped in order to provide facilities at the airport.

It should be realised that a debt of just over £3 million, which is divided between the local authorities, automatically becomes £6 million under rate capping. So not only are the regional airports—and I use Birmingham as an example—in a very difficult situation compared with Heathrow, Gatwick and Stansted, but they are being doubly penalised because they are in a rateable area.

There are other issues in relation to the Bill which are equally important to the district councils. Mention has been made of the restriction on councillors acting as directors of companies and of the regulations under which airports are used. But in conclusion I should like to add my voice to what has been said about Stansted. As the noble Baroness, Lady Burton, pointed out, the situation at Stansted has a direct impact on the regional airports. Whatever the Government say, the financing of Stansted has to be very seriously considered. I know that the noble Earl the Minister gave us all kinds of assurances this afternoon about the transparency of accounts and so on, but he did not say that there will not be any cross-subsidisation. When the noble Lord, Lord Underhill, took the Transport Bill through this House, the constant point of view from the Government Benches was, "We will not accept cross-subsidisation. Every one of the different routes must stand on its own feet and make its way". Therefore one hopes that in the Airports Bill the Government will also state quite clearly that there will be no cross-subsidisation to Stansted. If there is, it will have a direct economic effect upon all the regional authorities that run airports.

5.21 p.m.

Lord Monk Bretton

My Lords, we are dealing with a most important industry for the country. Its welfare is of great importance to us all. For that reason I should like to make it clear that I welcome the Bill and the effort to privatise.

There are those who think that the right thing to do is to leave the industry as it is. It depends, of course, on one's view as to what should be done for a business with a large degree of monopoly; whether it is better that it should be regulated but in the private sector or regulated at the same time subject to the trammels of public sector finance. I happen to believe—and I can only say how profoundly I agree with what my noble friend Lord Boyd-Carpenter said—that the Government have made the right choice. I do not agree with everything that my noble friend Lord Boyd-Carpenter said. I am going to talk about the need also to continue to take into account in airport development, particularly in the South-East, the environmental factor. This cannot be left out of the count and its cost forgotten.

From there I go on to say how glad I am that it is intended to keep the London airports together. I do not think it would work to separate them. Those points have already been made and I shall not labour them now. I am sure that this will enable a sensible balance of development at these airports to be achieved and that it is the best overall means to control the environmental factors. These must have proper consideration.

I want to put forward the views of a consortium of certain local authorities over the area of the South-East—Berkshire, Buckinghamshire, Hampshire, Kent, Surrey, East Sussex and West Sussex. The consortium is called a National Policy for Britain's Airports. London boroughs and district and borough councils in the area are also involved. There are 28 of them all told. I counsel the importance of considering the views of this consortium. I should like just to mention four main concerns, some of which I feel and it feels were not sufficiently discussed during the passage of the Bill in another place.

The first thing it wants is something that I am sure will give no anxiety to my noble friend the Minister. It believes that it is right to resist attempts to secure financial independence for any one of the major London airports; they should remain a group. I do not think that we want to allow people to start fighting their corners again in the South-East. We have now had a decision on a development programme to which we want to stick.

The second matter about which it is concerned has already been mentioned. There is no express provision in the Bill for consultation with local authorities and with airport consultative committees of local authorities. I do not think that the provision in Section 35 of the 1982 Act (which I believe still remains) will be sufficiently wide. This is a matter which should be gone into at the Committee stage, as also should the responsibilities and constitution of consultative committees.

It is highly desirable also to mention that the view of the National Policy for British Airports is that limits on air traffic movements—ATMs—should be laid down for all major airports and that this matter should be debated. In the original Clause 30 of the Bill this was virtually laid down but now under Clause 30(2) of the Bill before us there is an amended version which I am not so sure is as happy as it should be. We should go into this most carefully.

I should like finally to refer to those factors to be taken into account by the CAA in carrying out its airport licensing function. It should be incumbent on the CAA to maintain a balance by giving reasonable weight to the needs of the environment when discharging its responsibilities. Under Section 5 of the 1982 Act these factors are taken into account by the CAA. I believe that the House should consider inserting similar conditions into this Bill.

I very much hope that these comments will not come too much amiss to my noble friend the Minister. As I am sure he will see, they are not intended to quarrel in any way with the main thrust of this important Bill, for which I should like to reiterate a firm and hearty welcome.

5.27 p.m.

Lord Dean of Beswick

My Lords, noble Lords speaking previously in this debate indicated that there was a non-political approach to this subject, but this is a politically motivated Bill. I recall that earlier in the debate a speaker referred to the fact that the municipal airports, of which there are a number of very successful ones, were spawned by municipal enterprise. That was not the prerogative of one party. I have no widespread knowledge of this industry on a national basis, but I want to relate my remarks to my native city of Manchester which, outside of London, has perhaps the largest and most rapidly developing airport. That airport was developed because just after the war people of both major political parties decided that a city such as Manchester needed an airport. That decision had the support of both parties.

My only contribution took place about 11 years ago at the time of local government reorganisation. The new metropolitan county of Greater Manchester put in a bid for the control of the airport to which, naturally, the City of Manchester was bitterly opposed. It was due to the all-party approach that a deal was agreed to joint ownership between the county and the City of Manchester. That arrangement has worked tremendously well because the airport itself has progressed over the past 10 or 12 years as fast and as definitely as anybody could wish. Now, however, this Bill will bring that to an end. I should therefore like to address my remarks to the situation as it is seen in Manchester.

Earlier in the debate my noble friend on the Front Bench referred to the fact that the Bill had been challenged on its hybridity in another place. I am not qualified to determine what is hybridity, but some of the clauses in the Bill contradict some of the comments that the Minister made on Second Reading. If the Bill is not hybrid, I can find in it some crossbred issues that, if they are imposed upon the local authorities that presently control the airports, will have a contradictory effect to that suggested by the Minister.

This afternoon I wish to address two vital issues. The first relates to Part I of the Bill and the Government's proposals for restructuring BAA airports, particularly those in London. The second relates to Part II of the Bill and the impact that it will have on Manchester Airport, with which, as noble Lords know, I am fairly familiar.

So that noble Lords may appreciate the issues surrounding BAA airports, I ask the House to think back a little more than 12 months ago, when it had an opportunity to debate the Eyre Report. Many of your Lordships expressed grave reservations about a major expansion of Stansted Airport. Your Lordships will recall that the Eyre Report recommended an expansion of 15 million passengers, rising to 25 million. I and other noble Lords expressed opposition to that development for two reasons.

First, we were deeply concerned about the effect that such a major public investment would have on the North of England as a whole, which, since 1979, has lost a total of 730,000 jobs—equivalent to 64 per cent. of the nation's total job losses. We were concerned also to see our regional airports given a fair crack of the whip. In our opinion far too many regional passengers were being forced to use the London airports. What was required was a sensible policy designed to exploit the potential of the region.

That policy would include a clear and unequivocal commitment to fair and equal competition between airports: in other words, the elimination of subsidies to Stansted, so that if that airport were to grow, it would be the market that determined the pace of its development and not the motivations of the BAA. We thought that that nettle had been largely grasped by the Government in their 1985 White Paper. It was made clear that subsidy would be eliminated and that fair and equal competition would ensue. It is now a matter of considerable concern that the Government have, for all practical purposes, decided to undermine completely the basis of that policy.

The restructuring arrangements that the Government propose to pursue under Part I of the Bill make it inevitable that subsidy will continue to be employed at Stansted in huge quantities. It is not the case, as some have tried to argue in the other place, that subsidy will be eliminated by ensuring that any transfer of funds between the BAA holding company and its subsidiary airports will take place only at commercial rates of interest. Noble Lords will know that interest rates differ according to the risks involved.

When capital is raised on the market by the holding company, but specifically for Stansted, the risk will not be attributable to Stansted—but may well reflect the profitability of Heathrow. The rate of interest will, therefore, be lower than it would otherwise be, and that will represent a subsidy incapable of accurate definition. At the same time there will be nothing to prevent the Stansted subsidiary not repaying such a loan.

I appreciate that the noble Earl, Lord Caithness, may indicate that under Part IV of the Bill it will be possible for subsidy to be exposed and controlled. However, that argument fails to acknowledge that being able to see a subsidy does not make it go away. It was equally made clear in another place by the right honourable gentleman the Member for Manchester Wythenshaw that there are major constraints to full transparency being achieved. There is no mandatory requirement in the Bill for the production of separate accounts: there is too much emphasis in the Bill on the need to produce information in aggregate form only. At the same time there is too little emphasis on the need for charges to be cost-based.

There has been a failure on the part of the Government to respond to those issues and I hope it will be possible for them to take a more positive attitude during the passage of this Bill towards correcting those omissions. However, let me make it clear that even if the Government do accept such changes, they can only be regarded as minimum changes. As the North of England Regional Consortium has pointed out, the only effective way of ensuring elimination of subsidy is for Stansted to be operated on an independent and freestanding basis. It is my earnest hope that we will return to that vital issue in Committee.

I now turn to Part II of the Bill and its impact on Manchester. The Secretary of State mentioned in another place that Manchester had dominated the debate on Part II of the Bill. That was inevitable, because Manchester's peculiar position demonstrates just how misguided are the Government's proposals. Noble Lords may find it helpful in understanding the significance of the issue if I briefly provide some background information on Manchester's position.

In June 1984 the Secretary of State for Transport made a statement in another place on the structure of the regional airports. He advocated the creation of Company Act companies to ensure, transparency of subsidy, separation of politics from management, and proper accounting".—[Official Report, Commons, 22/6/84; col. 600.] He added that local authorities could own shares, so that they would have a direct interest in them … [and] be able to influence the conduct of the airports". It was made clear that local authorities could establish such companies voluntarily, but in any event legislation was promised. The Secretary of State was extremely anxious to see private capital employed in the operation and development of airports.

At the present time local authorities have wide powers to create corporate structures. That is made clear in a recent DoE consultation document on local authority capital expenditure control. The local authorities in Greater Manchester had to face up to making structural changes to the airport because of the Local Government Act 1985. At that time it was only sensible that the invitation extended by the Secretary of State to establish a company structure should be considered.

That proposal had appeal for a number of reasons. First, Manchester Airport was by common consent probably one of the major growth points, if not the major growth point, in the North-West region. Its growth needed to be protected and encouraged in the interests of the region as a whole. Secondly, the development needs of the airport were likely to be considerable over the next few years. It was likely, or possible, that by the early 1990s a second terminal would be required, at a cost believed to be in the region of £200 million. Noble Lords will know that the ability of local authorities to fund such a cost was limited. There was a need to employ private capital in greater quantities to secure the future of Manchester Airport.

Thirdly, the BAA was likely to be restructured and it was important that Manchester should be able to compete on equal terms with Stansted. That applied just as much to access to the money market as it did to landing charges. Finally, there was potential for all of those objectives to be achieved without—on this, the Government's own admission—the local authorities having to sell their shares.

In the light of those factors the local authorities subsequently decided to establish an airport company. Manchester Airport plc was therefore created on 1st April this year, with all shares held by the local authorities. This private limited company is an independent company and operates today outside the local and central government framework. It is not, therefore, subject to detailed expenditure control. The company enjoys this status because it is at arm's length from the local authority; in other words, the control and operation of the airport's day-to-day affairs are no longer the responsibility of the local authority but are now the function of the company and, in a material respect, the senior management of that company. The role of the local authority is limited to determining the overall strategy of the company in no way differently from any other shareholder.

The test of whether or not the company is independent is one of law. The local authorities in Greater Manchester have received independent specialist advice, including advice from leading counsel. They have no doubt that Manchester Airport plc is independent in every sense.

It would be wrong to deny that the Government have reservations about some of the aspects of the package, and the Bill addresses itself to some of these. While the motivations behind the proposals are obviously questionable, they are at least consistent with the Government's approach to the Manchester company over the past few months. However, what is deeply worrying and completely undermines the Secretary of State's statement in June 1984 and the Government's whole approach to company formation is Clause 20, which will bring under control the expenditure of Manchester Airport plc. Unless the company is able to compete with complete freedom on the open market, company formation is not relevant at all to Manchester.

It is argued that unless a majority shareholding in regional airport companies is vested in the private sector their expenditure must be controlled. In my view that is nonsense because what regional airport could be developed on that basis? What it means is that the total funding for an airport, unless the authority sells 51 per cent. of its share, as I understand it, would have to come from the local authority's annual capital grant. That, with the figures I have mentioned is completely outside their aim. My point is that in his opening remarks the Minister was saying one thing but some of the clauses in the Bill are contradictory in their effect.

First, at present no such controls apply. This is confirmed by the Government and it is the Bill that will bring those into operation. Secondly, no similar controls will apply to the BAA holding company. There is a large difference between the controls contemplated by Clause 9 when the holding company is wholly owned by the Government and the imposition of detailed capital expenditure controls under Clause 20. The Government have made clear that, in practice, airport allocations will be subsumed by the transport allocation; in other words, airports will compete with highways authorities for funds and I doubt whether anybody could regard that as sensible or desirable, certainly from the point of view of developing these airports further. I should also point out that there will be no controls whatever on the BAA holding company when 50 per cent. of the shares are disposed of. That can be contrasted with the provision that controls will continue over regional airport companies while local authorities have a majority of the shares.

Finally, there is no direct relationship between the employment of private capital and the shareholdings of a company. Private interests are concerned about cash flow and a return on capital. That is why private capital is already a significant feature of airports and why Manchester Airport plc is now operating in the open market with complete freedom. I find it strange that a government anxious to see private capital employed in airport development should seek to constrain an independent airport company such as exists in Manchester from competing with total freedom on the open money market. I find it unbelievable that the Government should seek to control that company in the same stringent way they control the capital expenditure of local authorities. I hope noble Lords will understand if I return to that point in Committee.

I apologise to noble Lords for a rather lengthy declaration of the situation in Manchester, but it has been necessary because it is a one-off situation. It is outside the general scheme because of its size and the fact that it has its company in existence; and it has some problems arising from the imposition of the Bill. Finally, I close by saying that some noble Lords have referred to the lack of consultation procedure in the Bill concerning air traffic movement, and so on. We shall have to come back to that subject in Committee and I conclude on that basis.

5.46 p.m.

Baroness Vickers

My Lords, I should like to say a few words on this Bill but first say to my noble friend Lord Boyd-Carpenter that I fully agree with him about investment. We must be careful about that in the future. I hope that my noble friend will elaborate on that on another occasion.

I refer to airport security. As far as I can understand it, there is nothing about security in the Bill. In view of recent happenings I feel that we should include some measures in this respect. When we dealt with the Royal Ordnance Factories this aspect was eventually included in the Bill. We have specially trained policemen to look after these factories. I therefore suggest to my noble friend the Minister that he considers that possibility.

I am particularly interested in Part II of the Bill, which enables the Secretary of State to require the local authority to form a public limited company and then transfer it to their airport undertaking. The local authority may retain all the shares but as long as they retain more than 50 per cent. of the shares they will be subject to central government controls over capital investment.

The local authorities feel that this requirement is inappropriate, at least in the case of the smaller provincial airports. The Government accept that size is relevant because the power to issue a direction only arises where the annual turnover is in excess of £1 million.

There is a special reason for objecting to the creation of a plc at a small airport. An example is Exeter airport. The county council retains British Airports International, an independent company, to run the airport on its behalf under a seven-year agreement in which there is profit sharing. To interpose a plc between the county council and British Airports International would appear to be an unnecessary complication. I hope that my noble friend the Minister will look into that situation.

I understand that a timetable has been outlined which entails doing this before 1st April 1987. Ministers have so far shown an unyielding determination to issue directions for every airport above the threshold; there is no suggestion that any discretion will be exercised in the light of arguments put to them about whether or not to issue them. The £1 million turnover threshold is arbitrary. It cannot be the case that an airport which is £10 above the threshold is ripe for transfer to a plc whereas one which is £10 below is not. The first argument, therefore, is that Ministers should exercise genuinely the discretion conferred upon them. I hope that they will be prepared to listen to arguments from the local authority before doing so.

I am afraid I must refer again to Exeter, and the special circumstances of that airport. Devon County Council has recently completed a series of capital improvements. The cost amounted to £3–3 million. The annual cost of servicing the loan debt is £350,000. Income from the airport comes nowhere near meeting these annual loan charges and there is, therefore, a net loss which varies between £450,000 and £500,000 annually. Devon County Council knew that it would have these losses when it embarked on the capital expenditure but was content to wait, probably until the next decade, for the airport to move into profit.

A Companies Act company is wholly inappropriate for a lossmaking undertaking. The solution given in the other House to this is that the local authority will be required to transfer the airport to the company free of the outstanding loan debt. The ratepayers will be left to shoulder the burden of that, which is deception. It will give the illusion of profitability and conceal a heavy subsidy.

Ministers hope that the new companies will achieve a degree of real independence from their local authorities, but in the case of Exeter Airport, for example, it is unrealistic to suppose that Devon County Council will ever dispose of shares in the airport until the time, some time in the next decade, when profits begin to be high enough to start paying off the long-accumulated debt from the capital expenditure programme.

As to the introduction of private sector methods of management, the airport already has these, and there may be other airports that have followed its example. Ever since the airport was bought from the Ministry of Defence in the early 1970s it has been managed by the private sector, first by Exeter Airport Limited and now by British Airports International. It is run by the company under licence, with profit-sharing on the operating profits. I believe that the Minister will say that the Government welcome this arrangement.

What do the Government want in the future? It is said that the airport should pay corporation tax, but this is irrelevant since it is not in profit, and British Airports International pays corporation tax on its share of the operating profits. It is also said that it should not benefit from local government exemption from VAT. That seems a poor argument for creating a company. The Government say they want an arm's length relationship. British Airports International is far more at arm's length that would be a company wholly owned by the local authority. They say that accounts are required that show the true subsidy from the local authority, but arrangements could easily be negotiated to secure this, subject to scrutiny by the Audit Commission.

The worst feature, however, is the proposal to interpose between the local authority and British Airports International a company which it would be expensive to create and which can have no role other than to hold the freehold of the airport. To my mind, this makes an unnecessary complication The Government should be prepared to look at each case on its merits and move away from a doctrinaire assumption that every airport above an arbitrary threshold of £1 million annual turnover must be forced into a straitjacket.

There are a great many good things in this Bill, but I thought in the short time available that I should just point out the things that are worrying certain local authorities.

5.54 p.m.

Lord Campbell of Croy

My Lords, at this stage of the debate I shall be brief. Britain should be the natural first stop for air traffic from the American continent, both North and South. We could also be a natural stop for traffic between Europe and other continents. International traffic of this kind generates business and earns foreign exchange in significant quantities. This is an important factor affecting the subject of the debate which I initiated in your Lordships' House only last Wednesday on the British tourist industry. I emphasise I it again today and support everything that the noble Lord, Lord Mountevans, said on this subject earlier in the debate.

We have keen competition from the airports of Amsterdam, Paris and Frankfurt in particular. British airports can beat that competition. It is no reflection on the BAA or other existing airport authorities that denationalisation is now to happen. The private sector's commercial enterprise and management are appropriate to a growing, very large British business which should and will, I believe, compete successfully with the European competition.

I should like to add to what my noble friend Lord Boyd-Carpenter said in reply to the points raised by the noble Lord, Lord Underhill. The fact that most of the airports in Europe are still publicly owned and run by public corporations is not a reason why we should not take an initiative in the form of the proposals in this Bill.

The speakers for the official Opposition are bound, I think, to speak in opposition to the principle of privatisation. I absolutely understand that as a matter of principle, and I think it is fruitless of me today to try to pursue counterarguments, as I am unlikely to persuade them in a matter of a few minutes. But this Bill will enable members of the public and employees of the new airport companies in particular, as shareholders, to identify with a commercial business in a way that is not possible with the present form of ownership.

I have been involved with development of airports in Scotland, but I am not a "little Scotlander". I see success in the London airports in attracting traffic which would otherwise land in continental Europe as stimulating additional activity for our regional airports. London is a hub for international air traffic and for our own domestic routes. We should steer as much traffic as possible direct to Scottish or to provincial airports if the passengers have destinations in those areas, but we should not try to force them to go there much out of their way.

I have three points that I should like to raise at this stage concerning the Bill. First, I ask whether the Government are satisfied that there are safeguards to limit the amount of foreign ownership so that there is no possibility of shares being bought by foreign interests, with the negative purpose of stifling progress in the United Kingdom.

Secondly, I raise the matter of compensation. The Bill provides for directions to be given by the Government. The Secretary of State is enabled to give directions, for example, on national security and also on providing VIP accommodation. These matters are not connected with the ordinary efficient operation of an airport, though they are important from a national point of view. There seems to be nothing to indicate that the airport companies would be compensated for expenditure which they had to carry out as a result of such directions. If there is no such provision, this would raise uncertainty in financial planning when extra burdens could be imposed by the Government, without much notice, for extraneous reasons.

My third point is that there appears to be nothing in the Bill requiring airport companies to provide the basic facilities and services needed by those airlines that are expected to use the airports. How much should there be at an airport? There should be a runway, a control tower and a terminal building, but what else? What is there in the Bill to determine the minimum provision of facilities; or are the Government confident that this is a matter that will be automatically resolved, because in order to get the business of the airlines an airport company will have to reach agreement upon sharing the contributions towards those facilities and services?

If nothing else is needed, I think guidelines are necessary on this subject. I trust that the Government will be able to provide satisfactory answers to these points either today or at a later stage.

6 p.m.

Lord Tordoff

My Lords, I think that noble Lords have been very careful today to avoid getting themselves into a debate on the White Paper, and in fact to a remarkable extent they have managed to concentrate their minds on the Bill. If I may say so without disrespect to your Lordships, that is unusual. I cannot pretend for a moment that this Bill will bring mobs out on to the streets in protest. Indeed, I am surprised to find so many noble Lords in the House at this time; but doubtless we shall dwindle back to our usual merry bunch of half a dozen or so as the Committee stage progresses.

Having said that, it seems to me that there really is very little logic to the Government's position on this Bill. The noble Earl, Lord Caithness, gave us the usual lecture on the virtues of the marketplace and how this stimulates competition and will make things more efficient. Then, of course, he immediately went on to say that the market must not be allowed to operate over large sections of the airports lest, for one thing, it squeezes out the less profitable operators. So let us not pretend that this is really a clear-cut philosophical division between different parts of the House as to whether there is a belief in a nationalised airport policy or a totally denationalised airport policy. The truth is that none of us in this House believes in either of those two extremes. It is of course much easier to express that view in your Lordships' House than it is in another place. Therefore I hope that as this Bill progresses we shall actually have one of our usual more helpful and useful debates, in which we try to improve the Bill as we go along.

I really do not wish to enter this argument about Gatwick save only to say that, were I the Government caught in the cross-fire between my noble friend Lady Burton of Coventry and the noble Lord, Lord Boyd-Carpenter, I should be digging myself a very deep shelter.

I was very interested in what my noble friend said about scheduling committees, and I agree entirely that they have much to commend them and that it would be far better to leave the question of slots to the scheduling committees rather than for it at any stage to slip into the hands of the Secretary of State, who has other things on his mind and may be more interested in parameters other than those which would be in the minds of the scheduling committees. So the question is how far the airports should be a purely commercial venture and how far they should be part of the economic infrastructure of the country and part of the nation's transport requirements, and those of the region and the local authority.

I was very interested to hear what the noble Lord, Lord Boyd-Carpenter, said on the question of objectives. I think he touched closely on the sort of thing that we on these Benches have in mind. It is not often that we find ourselves on the same side of an argument. I listened most carefully, and I shall be interested to read his remarks in Hansard because they came very close to the nub of the problem. There is not in the Bill a clear sense of the objectives. We all understand the underlying objectives in terms of the Treasury's requirements. It is the Chancellor's requirement to gather money into the kitty in order to have a reduction in income tax before the next election, but that has not really much to do with transport policy. The noble Lord says that he thinks it is "not completely well thought out", and again, if I were sitting in the seat of the noble Earl, I would wish to take cover, because it is not often that such a phrase, however much in code, comes from that Bench below the gangway.

What we on these Benches want to see, as my noble friend has said, is a proper partnership between the public and private sectors, because this is an area where there could be such a partnership. That is why my right honourable and honourable friends in another place, at Second Reading, tabled an amendment which said: That this House declines to give a Second Reading to a Bill which, by requiring the profitable British Airports Authority to be sold outright, fails to appreciate the virtues of partnership between the public and private sectors, including the introduction of private capital into publically owned companies, and which seeks to stifle municipal enterprise, which was responsible for the successful development of regional airports such as Manchester, Birmingham, Leeds/Bradford, Newcastle and Luton". This brings me to the question of local authorities. I listened with particular interest to what the noble Lord, Lord Dean of Beswick, said—and I am sorry that he is not in his place because I think that we Mancunians should stand together occasionally, particularly on a day which is not only the Queen's birthday but also the birthday of the Duke of Lancaster, I would remind your Lordships. In the last few comments he made about Manchester airport the noble Lord seemed to me to be going along with the words contained in the amendment which I have just read out. Unfortunately, his honourable friends in another place referred to those words as "weasel words" and could only vote solidly against the Bill, hook, line and sinker. I expect more constructive support from the Labour Benches in this House than my friends received in another place.

Blackpool has been mentioned, and so has Birmingham—twice, in fact—and I was very interested to hear what the noble Earl, Lord Dudley, said on the question of the debt situation there. Certainly I think that we have all had a considerable amount of correspondence from local authority airports up and down the country, which are all worried about this question of the debt with which they will be saddled at a time when their asset is being stripped away from them. It seems to me to be totally unfair. It may be that in the course of the Bill we can do something in that direction, perhaps by raising the £1 million limit, because if that figure were brought up to a sensible level, a number of local authorities would escape this trap. One really needs to ask the Government again (though I know that they have been asked before): why has the limit been set so low? It seems to me that if it were set at £5 million or £10 million it would begin to make sense.

As has already been said, the people in local authorities who come from all political persuasions, have a very genuine civic pride in the airports which they have built over the years and there is concern that they should be treated in such a cavalier fashion by the Government. One is tempted to say that this is part of the Government's general attack on local government and the lack of faith that they have in local government today, which is certainly not the traditional position of the Conservative Party.

The noble Lord, Lord Monk Bretton, dealt with the question of consultation and environmental considerations, and I certainly support him there. But to come back to the comments of the noble Lord, Lord Dean of Beswick, I would remind your Lordships, in reinforcing what he said to this House, that the Greater Manchester area in fact comprises a conurbation, a hinterland, which contains quite the largest concentration of people in the United Kingdom, and it is an area which deserves the success which it has achieved.

As I think I have said before to your Lordships, I was in fact at the opening of Manchester airport in the 1930s, and therefore I have always had a soft spot for Ringway. I believe that the city fathers, and subsequently the Greater Manchester Council and the county's local authorities, have done a very good job at Manchester. They took the risk in the early days. There is no question but that the regional airport for the North West should have been at Liverpool, but the city fathers in Liverpool were foolish enough to believe that Cunarders would sail to America for ever, whereas the civic authorities in the Greater Manchester area took the enormous risk in the 1930s of building an international airport. Certainly, as the noble Earl has said, the airport was very small in those days. It was a little more than a tent, but the buildings there were really rather shoddy until after the war. Nevertheless, the risk was taken and it seems to me that these civic authorities have a right to greater consideration than they have received so far.

One place that has not been mentioned and of which I should like to remind your Lordships is Luton. They are certainly extremely worried about the position of the debt that they are carrying. Recently they have spent something like £12 million on a new terminal. Their total debt is running at about £17 million—again because they have taken a risk on the future. They have a belief in their ability to sell their services, particularly, of course, in their case, to the charter market. They are now likely to be saddled with this debt. If they have to carry the whole of it—we wait to hear what the Government have to say in response to the noble Earl, Lord Dudley, as to what proportion of debt will be carried—it means that they will lose all their block grant and that the rate increase in Luton in coming years could be as much as 60 per cent. This cannot be justice.

Basically, at this stage, I would argue that the Bill is unfair to local authorities and that the figure of £1 million is too low. The local authorities deserve better because of the investments that they have made. There is much that the Government can do outside this Bill in relation to local airports. At last they are beginning to do so in arranging licences and doing deals with other countries to increase the traffic that goes through regional airports. I should like to draw your Lordships' attention to a reply given by the Minister to my noble friend Lady Burton on 17th April, at column 752 of the Official Report, when he said: I am pleased to be able to tell the House that we have recently secured Spanish approval for 14 new routes, mostly from regional airports in the United Kingdom". I congratulate the Government on that, and hope that we can have more. This is the way that the load can be spread more evenly to markets across the country. But, as the noble Lord, Lord Mountevans has said, the demand has to exist. There is need for the Government to give encouragement to local and regional airports to enable them to pick up the demand. The Government should use their influence internationally to make sure that flights go to those places.

As to the British Airports Authority, I am sure that Sir Norman Payne, if he was still around these premises, would be pleased to hear that we, from these Benches, congratulate him on the good job that he has done. I can well understand that he would greatly prefer to have a totally free hand. What chairman of a nationalised industry would not? One has only to listen to the interventions of the noble Lord, Lord March, when he talks about the problems of being chairman of a nationalised industry. We well understand the feeling. To have a free hand in the market with the sort of assets that Sir Norman has behind him must give him great joy. But the Government have to recognise that there are other considerations. A wide-ranging transport policy, with a genuine belief in the need for a proper infrastructure and taking account of environmental considerations, is also most important.

One matter on which I would congratulate Sir Norman and the Government is that they seem to have sorted out the pension position. I wish that the Government had been as flexible when we were dealing last year with the buses Bill and that they had given way on some of the amendments for which we on these Benches and noble Lords in other parts of the House, fought hard and long. I am, however, pleased that it appears that, on this Bill at least, we shall not have to go through those long and turgid debates trying to make sure that the pension rights of existing employees are properly covered.

I understand also that Sir Norman would prefer to have a monopoly position in the South East. This has its positive aspects. The career structure of the management of the British Airports Authority is obviously easier to manage if it has three airports. On the other hand, many of the problems of a monopoly situation have been drawn to your Lordships' attention. I would mention another—the ancillary services at airports. It seems to me that we are talking not only about a monopoly in respect of landings and handling of aircraft and passengers but also a monopoly of franchise for all the peripheral activities such as catering that take place within a large airport. Where is the consumer protection going to exist? To what extent are consumer groups going to be allowed into airports to have their say? I suspect, on the basis of what the Government have said previously, that they tend to believe that consumer groups are not necessary when places have been privatised. I would press them to see that in a monopoly situation such as this there are some constraints.

As regards flotation, we may not yet be in the position where we have to lie back and enjoy it, but it is important that the level of flotation should not be too low. The flotations so far, for whatever reason, have been far too greatly over-subscribed. I recognise that the Government want some quick cash. But they must not sell the nation's assets short, as they did with British Telecom and in a number of other respects. Like many noble Lords, I am worried about the eventual shareholding. This is not a fear of it passing into the hands of foreigners. We are good Europeans, and we are not, I hope, anti-American. But is is important that the shareholding, as the noble Lord, Lord Campbell of Croy said, should not pass into the hands of competitors. It is the prospect of competitors being able to stop the airports authority carrying out its proper job and inhibiting the taking of decisions in the interests of the country that is the worry.

Once again, as has happened on so many Bills, too much is left to the Secretary of State. I have no doubt that in Committee we shall be seeking to amend that position. To sum up the attitude from these Benches, we believe that this is an opportunity that has been missed and that the rules and regulations for the 21st century not only for airports but also for airlines should have been thought out as part of a coherent transport policy. I fear, once again, that this is a case in which transport policy has yielded to the needs of the Treasury. It is that aspect of the Bill that I regret almost more than anything else.

6.16 p.m.

Lord Carmichael of Kelvingrove

My Lords, you will not be surprised to hear that I agree with the last remark of the noble Lord, Lord Tordoff. The content of the Bill has been subjected to the will of the Treasury. This shows that ideology is not always pursued simply by those on this side of the House. It would be surprising if we ever had a Bill on airports in respect of which the noble Baroness, Lady Burton, did not plough her furrow about the importance of Gatwick and the second runway. This time, the noble Baroness has at least one open convert. The noble Lord, Lord Boyd-Carpenter, spoke in favour of it. I have never understood why this agreement, of all agreements made by Governments was so sacrosanct, since all Governments in past years—

Lord Boyd-Carpenter

My Lords, I apologise for interrupting so early in the noble Lord's speech. The agreement in question was not made by the Government; it was made by the British Airports Authority.

Lord Carmichael of Kelvingrove

My Lords, I am sorry. I should have realised that. Even then, one would have thought that a Government willing to go to the enormous expense of Stansted would have looked more closely at the likelihood of expansion at Gatwick. I am inclined to agree with the noble Lord, Lord Boyd-Carpenter, that a second runway at Gatwick will ultimately come unless there is a big revolution within airlines and in the development of short take-off aircraft.

I should like to take up the point raised particularly by the noble Earl, Lord Dudley, who seemed to suggest that the real reasons for privatisation were efficiency and accountability, whereas control by a nationalised industry had to be exercised at arm's length. It is one of the great fallacies that there is somehow less control within a nationalised industry than is the case with private enterprise. I would invite your Lordships to study the background paper issued by the Library of the other place detailing British Aerospace shareholders. If one looks at the list of shareholders and how they have changed within a year—from 157,000 in January 1981, to only 27,000 in January 1982—and if one looks at the numbers of shareholders (and I shall not bore the House by going through them all) it means that one or two of the major shareholders could go along to a meeting and in order to overturn them, one would need to have a meeting place the size of Wembley Stadium. When one considers that almost all large shareholders are institutions, the individual shareholder becomes more remote from any control of the company than the noble Lord, Lord Underhill, would be if he went to his MP and tried to raise a matter with him.

The Earl of Dudley

My Lords, I take the point of the noble Lord. However, I still think that a shareholder, if he exercises his option, can have a greater degree of control over the activities of the company in which he has shares than a taxpayer over the affairs of a nationalised company.

Lord Carmichael of Kelvingrove

My Lords, that is very doubtful. Those of us who have been in the other place know that if an issue becomes important the postbag becomes bigger and bigger—as happened not so very long ago in the other place, when the postbag became very large. The Member of Parliament pays a great deal of attention to it and ensures that he makes respresentation to the Minister. It can be very direct, and can have a very telling effect on the action of the Minister. I think that it is obviously a matter for debate, but I would rather have the democracy of the ballot box than the democracy of the small shareholder trying to change the world.

I find this a curious Bill. Perhaps that is not very surprising because, as the noble Lord, Lord Tordoff, suggested, it is trying to reconcile the irreconcilable. The Secretary of State had to maintain his reputation as one of the original "privatisers" of the Government. I have known him a very long time, and I know that he has always had this point of view. He was one of the pillars of the 1979 and 1983 manifestos on the question of privatisation. He saw the great virtues in private ownership as against any public enterprise. He wanted the grand design and, of course, he was very well supported by the desire of the Treasury and the Government to raise the money.

But when looking at the difficulties of privatising the airports industry the Government realised that there were great, irreconcilable differences between an international industry which is essentially involved in the movement of traffic all over the world and another type of company, or monopoly. It had to be accepted that there would be a monopoly in the London region. The problem was how to control the monopoly. I think that the contradiction was nicely put by my honourable friend who shadows in the other place on transport matters. He suggested that perhaps Parts I and II of the Bill were written by the Secretary of State, who then went on holiday and his civil servants or junior ministers were left to deal with the consequences of his doctrinaire penmanship. I thought that that was rather a nice way to put it.

We therefore have Parts III and IV of the Bill which build so many controls into airports policy. Questions have been asked in all seriousness—I think they have been suggested here tonight—as to whether a reasonable price will be obtained in the open market for this great national asset, paid for over the last 40 years or more by the British taxpayer and the travelling public. My noble friend Lord Underhill has already referred to the Grieveson Grant analysis on the subject. They concluded by saying that the price that was obtainable for the privatisation of British Airports Authority would be dependent on the position of duty-free sales and the nature of the regulations which will be set out by the Secretary of State. These regulations are still a mystery to us. We do not know what they will be. We do not have even the slightest hint from the Minister or the Treasury as to what they expect to be able to get for the airports.

I do not believe that a prospectus can properly be drawn up for the sale unless we are aware of the type of regulations under which the airports will need to operate and whether we shall be accepting what has been put forward by the EC with regard to the abolition of duty-free sales in EC countries. We know that that affects only about 30 per cent., but it would still be a very large sum, and a very big factor. Anyone who was wishing to buy into the airports industry would want to know whether the EC regulations on duty-free sales were likely to be supported by Britain. As I understand it, the only airport in Britain which does not make its final profit from duty-free sales is that at Glasgow. I may be wrong but that is my information. It is perhaps for a whole set of special reasons. However, airports are very dependent on duty-free sales and therefore these figures have to be known.

I am sure that it did not escape the notice of noble Lords who are particularly interested in this subject that there was a growing sense of coolness towards the proposals in the Bill in another place while it was going through Committee and Report stage. We had this coolness here. It was interesting that today almost every speaker on the other side began by saying, "I am totally committed to privatisation of British Airports but, but, but…" and went on with the reasons why he or she was worried about it. This was very evident in the other place all through the Committee stage. The Minister must be aware of that.

One of the matters that has been raised a number of times in very telling and important speeches by a number of Members on all sides of the House is the question of the local authority airports. The difficulty in the other place was very largely caused by the worries about local authority airports. As has been pointed out already, the whole of an area has a vested interest in a local authority airport and its importance, not just the local authority which is directly involved. The whole question of an airport in these areas is vital to the growth of the area.

I believe that people on local authorities thought that it was well worth the effort—this was said by a number of people and again by the noble Lord, Lord Tordoff, when he spoke of Manchester in the 1930s—when, being very farsighted but taking a great risk, they decided that they would build their airport and would keep it going through difficulties and temporary slumps hoping that traffic would build up. They saw that it was vitally important for the attitude to the whole area that these airports continued operating.

In point of fact, most local authority airports—even the quite small ones—have a reasonably good or very good record. My noble friend Lord Taylor of Blackburn gave the illustration of Blackpool Airport. This was almost always a Tory-controlled authority which thought that it was vital to maintain its airport. Its concern was not whether the profit or loss of the airport was one way or the other: it felt that, for the whole area and for the future of a town like Blackpool, the airport had to be maintained. This is something to which we have to pay a great deal of attention and we must give great credit to the local authorities which have supported the airport through thick and thin.

I personally would much rather trust local authority airports to those who know them and who can balance their total value, not overlooking the local pride that many of these people may have in them and the social, commercial and other attributes which airports may bring to the area, than trust them merely to businessmen who may be resident in the Bahamas, the Cayman Islands or any other part of the world. We have many examples of businesses being bought in Britain by someone a long way away who then decides that they are of no value, that they are not making a good enough return, that they do not fit the balance sheet, and who therefore closes them. In many cases, despite all the problems, a local authority will decide that it is worth persevering a bit longer because there is more at stake than the figure at the bottom of the balance sheet. That is something to which we should pay attention.

I believe that the Bill's treatment of local authority airports capital investment is punitive and unfair, and will make it inevitable that local authorities will need to put up to 51 per cent. of their shareholding on the market. If that happens, we shall lose the local enthusiasm and involvement that now exists. I thought that the noble Earl the Minister actually blushed slightly (because he has a much softer approach to these matters than has the Secretary of State) when he suggested that there are no powers to force local authorities to borrow outside. If we say to a local authority—and this has been well detailed today—that if they do not sell off at least 51 per cent. of their shares, everything they spend will be taken into account in relation to their borrowing powers, obviously we would be forcing local authorities to go to the market and sell.

In this House it is customary that we do not vote on Second Readings, but there are many amendments which I and many others would like to make to the Bill before it leaves this House.

In closing, perhaps I may specifically ask the Minister whether he will deal with what, in national terms, is the most contentious issue involved in the privatisation of our airports. It has been referred to by almost everyone who has spoken. It is the question of the control and the ownership of airports, which is sometimes referred to as the "golden share". I am not sure exactly how the golden share would operate in a case like this, but I am sure that others who know a great deal more about how a boardroom works will realise that someone who has a controlling interest does not necessarily have to be involved. If the debate were about the expansion of Heathrow, someone in a boardroom could quite easily very cleverly hold everything up until it was too late to go ahead with the expansion because the expansion of some other airport in Europe had been found to make the expansion of Heathrow not worthwhile.

I think that we need a specific control so that, if necessary, the Government can step in and say that we must break through this barrier and these difficulties and allow the new British Airports Authority plc to get on and do the job it wants to do. In another place the Secretary of State made some late reference to the golden share as though he had not thought it out very fully himself. I believe that we should have an answer from the Minister tonight, or at least before we reach the Committee stage of the Bill, because I am absolutely sure that there will be opposition from all sides of the House and he will be rather surprised at the reaction if he does not make sure that, when the British Airports Authority is privatised, it remains under the control of this country.

6.35 p.m.

The Earl of Caithness

My Lords, as I expected, this has been a very interesting and constructive debate, and at the start of my closing remarks I should like to give an assurance that I shall study with great care all that has been said this afternoon. I fear that I shall not be able to answer everybody's questions. The noble Baroness, Lady Burton of Coventry, asked me five questions. I think that there are 15 speakers on the list, and if I spent one minute on each I believe that I would wear the House's patience. No doubt at the Committee stage we shall return to the detailed points that have been raised.

However, let me try to address now at least some of the remarks made this afternoon. I start with the closing remark of the noble Lord, Lord Carmichael of Kelvingrove. It was a point raised by many of your Lordships: that of restrictions on share ownership. We are considering the case for any such restrictions through the articles of association rather than on the face of the Bill. We are also considering the case for a golden share, which would give the Secretary of State the right to veto any proposed change to such restrictions in the articles. I look forward to a more extensive debate on that at the Committee stage.

The noble Lords, Lord Underhill and Lord Tordoff and my noble friend Lady Vickers asked me about the £1 million threshold. We chose that because it catches the larger airports, such as Birmingham, Luton, Bristol and Southend, without imposing a burden on those of lesser economic account. Broadly, the airports above the £1 million per annum turnover account for about 100,000 passengers per annum and employ about 40 people; and that is a fairly substantial business.

Lord Tordoff

My Lords, if the noble Earl will give way, perhaps he would like to correct the figure of 40. I thought he said that these airports employ 40 people. He may have slipped a nought.

The Earl of Caithness

My Lords, 40 is the number for the airports. The number of concessionaires or licensees may be different. The noble Lord must not confuse this in his mind. If one looks at the list of airports and their turnover, one will find that the £1 million figure is a logical target and cut-off point. Wherever one draws a cut-off point in these discussions—and we have been through this before—there are always arguments on both sides. However, we believe that the £1 million figure is about right.

The noble Lord, Lord Underhill, asked me about write-off of debt. The key point is that it is a technical write-off of debt because it is not appropriate for a private sector company to have loans from the National Loans Fund. However, the amount of debt written off under Clause 3 would at least be replaced by an equal value of its private sector equivalent, which is debentures; and these will be issued to the Secretary of State under Clause 4 together with equity. These debentures and shares will then be offered for sale and the proceeds paid into the Consolidated Fund. There is therefore no loss to the public purse.

The noble Lord, Lord Underhill, and my noble friend Lord Monk Bretton asked me about consultative committees. All the ex-BAA airports will be designated under Section 35 of the Civil Aviation Act 1982. The airport operators—that is, the separate ex-BAA subsidiaries—will be obliged to provide facilities for consultation comparable to those currently provided under the Airports Authority Act 1975. More than 30 airports currently provide consultative facilities by virtue of Section 35 of the 1982 Act. The arrangements work successfully and the Government are confident that they will operate equally well with regard to the ex-BAA airports once they have been designated.

The noble Lords, Lord Underhill, Lord Dean of Beswick and Lord Carmichael of Kelvingrove, and my noble friend Lady Vickers asked about local authority control of capital expenditure. Under Clause 20 of the Bill, the control is extended to capital finance obtained by a public airport company from the private sector. The reason for this is very simple; it is because a lender to a company controlled by a local authority enjoys the same security as if the loan were to the authority itself.

The noble Baroness, Lady Burton, said that runways were the constraining factor at London's airports. The noble Baroness is right in some circumstances, but I am sure that she would be the first to support me in saying that there are other constraints, including airport capacity at the terminals and the concrete aprons and standings. It was not so long ago that Heathrow was constrained more by the terminals than by the runways. The noble Baroness, the noble Lord, Lord Carmichael of Kelvingrove, and my noble friend Lord Boyd-Carpenter mentioned the second runway at Gatwick. The noble Lord, Lord Tordoff, said that I should duck and take cover. No, my Lords, I do not want to do that, because the inspector at the Stansted-Airport inquiry considered this option and recommended that the Government should reaffirm their policy of no second runway at Gatwick.

Baroness Burton of Coventry

My Lords, may I interrupt the Minister? It is on a point of fact. I think he is wrong on that. Does he not remember that the inquiry conducted by Mr. Graham Eyre was not asked for an opinion on whether or not there should be an additional runway at Gatwick? It was definitely stated—and I have it here, if the noble Earl wants it—that Mr. Eyre was conducting that inquiry on the assumption that the Government had decided that there should be no second runway at Gatwick. It was not within the remit of Mr. Eyre.

The Earl of Caithness

My Lords, I cannot remember exactly; I do not have it with me. Perhaps I may deal with this with the noble Baroness. I know that she raised it when we came to the White Paper debate, but as I have quite a lot to get through, may I leave it there for the time being?

Baroness Burton of Coventry

My Lords, if the noble Earl refers to the debate that he has just mentioned, he will find that I gave him a column number and the date; so he need not do any more than just look up that speech.

The Earl of Caithness

My Lords, that is what I said I would do, and I shall. The second runway would cause serious environmental problems in the area and would entail extremely high costs of construction.

The noble Baroness and the noble Lord, Lord Tordoff, mentioned scheduling committees. I have listened in agreement to the tributes paid to the scheduling committees which administer the allocation of slots at especially busy airports. The Government have great regard for the efficient operation of these committees and I hope that the voluntary arrangements will continue to operate satisfactorily. The provisions of Clause 31 are designed simply to fill the breach in case the heavy pressure of demand, which will grow as the airline industry expands, proves too much of a burden for the scheduling committees and the voluntary system collapses or fails to operate properly.

The noble Baroness also raised the question of BR's Stansted Bill. I understand that the Bill stands adjourned in another place. As it is a private measure it is for BR and the Chairman of Ways and Means in another place to arrange for time for a further debate; it is not for Her Majesty's Government, as the noble Baroness will well know from a previous incarnation some years ago.

Baroness Burton of Coventry

My Lords, I am sorry that I have to rise again, but I am receiving quite a lot of education. I was under the impression that if something was put down by the Government for discusssion, it was up to the Government to have that discussion and not to defer it from week to week to week. Can the noble Earl say when there is likely to be this discussion, because Stansted cannot be proceeded with, I would imagine, without some thought of a rail link?

The Earl of Caithness

My Lords, the noble Baroness pre-empts me; I was going on to say that I further understand that it is routine for a Private Bill in such circumstances to appear on the Order Paper in the rather repetitive but amusing way that the noble Baroness described. But I go back to the point that, it being a Private Bill, it is up to the Chairman of Ways and Means in another place to arrange for a time for further debate.

The noble Baroness, Lady Fisher of Rednal, spoke about Birmingham Airport. There has been a complete redevelopment of the terminal there on a new site, with a new apron and taxi ways, between 1981 and 1984. The cost was about £60 million, and of this sum the Government paid £24 million free of interest charges. So there was quite a good deal of subsidy going into Birmingham Airport. The noble Baroness mentioned the question of subsidy to Stansted. We shall ensure that there can be no unfair cross-subsidy enabling Stansted to charge artificially low prices which harm, or are intended to harm, another airport.

The noble Baroness, the noble Lords, Lord Underhill and Lord Tordoff, and my noble friend Lord Dudley also mentioned regional airports and the capital structure thereof. It will be our objective to create a capital structure which will give the new companies an opportunity to become profitable in the long term. We shall be flexible in consideration of appropriate ratios. We shall certainly have regard to the medium-and long-term prospects of the company, and guidance will be given on this aspect in the summer. We shall tailor schemes to the circumstances of each airport.

It can be expected that in the case of an airport with profitable medium- to long-term factors it will be appropriate to leave some debt with the company. But the amount to be borne by the company and the amount to be borne by the local authorities concerned will be matters for decision. My noble friend will also wish to be aware that my honourable friend the aviation Minister is meeting a delegation of West Midlands district councils on Thursday, and I am sure that he will wish to consider the points made by your Lordships today.

The noble Lord, Lord Taylor of Blackburn, said that it was a shame that Blackpool has to be privatised. No, my Lords, that is not true. Blackpool has to form a company, and it is then up to the shareholders of the company as to whether they should privatise in whole or in part. My noble friend Lord Boyd-Carpenter commented on the enlargement of the board of the CAA. He recounted to the House the problems he had experienced in the past. I have little experience of those problems, but I am sure that he must be right in saying that it is because of the fact of my right honourable friend the Secretary of State now being in the chair that we have made this progress.

My noble friend, and my noble friend Lord Monk Bretton, asked about ATMs. The purpose of an ATM limit is to provide a control on the growth of use of a developing airport, so that the local infrastructure is not swamped by demand for the airport. That is why the ATM powers are restricted to airports with significantly under-used runway capacity. My noble friend commented on the role of the MMC in economic regulation, and asked why, if you have the CAA, do you have to have the MMC. The CAA has a specialised expertise. It knows about airports and airlines, but the MMC has a much wider expertise. It is knowledgeable and respected on all matters concerning the public interest generally. We believe that the two bodies will complement each other rather than duplicate and thus provide the best of both worlds.

My noble friend and the noble Lord, Lord Todoff, asked about objectives for the BAA. The reason that we did not include them on the face of the Bill is that we believe it is better for such matters to be enshrined in the memorandum and articles of association, which will be subject to Government approval. The noble Lord, Lord Mountevans, asked about the improved access to Heathrow and the study that was being undertaken into roads, rail, and Underground access. Consultants have been appointed and, I am pleased to report, have started work. They expect to complete the study towards the end of the year.

I can assure my noble friend Lord Monk Bretton that my officials are in discussion with his advisers, and I hope that he will be satisfied upon some of the points he raised without having to go into a different Lobby from me at Committee stage. The noble Lord, Lord Dean of Beswick, indicated that Stansted would be a threat to Manchester and that it would be better if it was privatised separately. I believe that to be wrong. I recently had a discussion with some of his noble friends, and they believe that Stansted on its own would be more of a threat than being part of a London hub. I think a similar argument can be posed at Manchester, which some of his noble friends were saying threatened the Scottish airports hub.

Lord Underhill

My Lords, I think my noble friend would agree that he never asked that Stansted should be privatised separately, but that it should operate independently within the privatised BAA.

The Earl of Caithness

My Lords, in that case it will operate as a separate company within the London hub of the three London BAA airports. On a general point of the noble Lord, Lord Dean, if passengers want to come to the South-East and there is no provision for them to come to the South-East, they will, as several noble Lords and in particular my noble friend Lord Campbell of Croy said, invariably go to European airports. That is from where the competition comes as much to the South-East as it does to Manchester. On Manchester it is worth bearing in mind that there has been a substantial growth under this Government in passengers at Manchester from 3.5 million in 1979 to 6 million in 1984. The number of points served from Manchester has risen from 19 in 1979 to 35 this year. Birmingham had four new services last year; Glasgow had three new services last year. No government other than this one have done so much for regional airports. I do not think that the noble Lord is justified in saying that we will now throw Manchester out with the bath water.

The noble Lord commented on the fact that Manchester had become a plc. We are fully aware that, on 1st April, that happened. We shall be studying the memorandum and articles of association but I must tell the House that if the memorandum and articles of association of the present company are at difference with those laid down by my right honourable friend the Secretary of State in this Bill it will be necessary to give a new direction under Clauses 12 and 14 creating a new public company.

My noble friend Lady Vickers asked about aviation security. I do not think that this is a subject to be written into the Bill. In these troubled times, it is a matter which is changing with rapidity. But I can assure her that we have set in hand a review of aviation security measures and that at the BAA and regional airports measures are being taken wherever they feel that the situation could be improved. My noble friend also asked why we are insisting on airports managed by independent management companies being made into public airport companies. Although management by independent companies is useful, we believe that it does not go far enough. It does not provide for Companies Acts accounts for the airport; it does not impose the disciplines of directorships upon councillors; it does not achieve arm's length relationships and it does not provide for the sale of shares in the airport.

My noble friend Lord Campbell of Croy asked about compensation for directions. Airports operate in an international market and I believe that you cannot divorce international aviation from issues of national security, international relations and international obligations which are the only grounds on which the Secretary of State can issue directions; and given the international dimension of running an airport I think that it is not unreasonable to expect an airport operator to bear the cost of complying with a direction, given the restricted grounds on which the Secretary of State can make such directions.

The noble Lord, Lord Tordoff, mentioned the work that we have done in another place on pensions. I should like to thank him for his words on that. I believe it is an improvement and I would hope that that situation is now clarified. The noble Lord, Lord Carmichael of Kelvingrove, asked me about the sale price. I cannot give him a sale price at the moment; it would be too early. I think that we shall have to wait and see, but I take account of what he said. I hope that I did not misunderstand him when he said that local airports would lose their local identity. I do not believe that they will. Even though we are asking some of them to become public airport companies, I still believe that the flexibility we have built into the Bill, that a local authority can sell part or the whole of its shares, is beneficial and enables the local authority to retain such local contact with the airport as is necessary.

I described in my opening speech the existing development of the airport industry since the early days after the war. I explained how our major airports have matured into highly successful, fast-growing and dynamic enterprises. I outlined how this Government were responding to those developments in this Bill and were setting out to create the conditions in which British airport could continue to be the envy of the world. I come back to the first point that the noble Lord, Lord Underhill, asked me: why privatise the British Airports Authority?

I do not believe that I could put into any more concise words the answer that my noble friend Lord Boyd-Carpenter gave to the noble Lord, Lord Underhill. It is part of the Government's programme to reduce the role of the state and, if I may say so, I believe that it will be beneficial for the airports to get us politicians, both central and local, out of their hair. It will provide greater freedom for BAA's management especially to seek private sector finance and to pursue a wider range of activities. It will encourage management to be innovative and to improve efficiency and to be even more responsive to customers.

It has one final advantage on which the Labour Party finds it very difficult to express anything except agreement. It will encourage wider share ownership, including that of the employees. That is something that we on this side of the House want and I am sure that the whole House would support us in that aim. Our aim is to give to as many people as possible a direct stake in the success of British industry and to get them to identify more closely with the wealth-creating sectors of British society. Our aim is a profoundly ambitious one. We make no apology for that. We are seeking to change attitudes and perceptions. The privatisation of the British Airports Authority is a further step on the same path. I commend this Bill to the House.

The Earl of Dudley

My Lords, before my noble friend sits down, may I repeat the question that I asked during the course of my remarks, to which I think he has not replied. The question was whether the Secretary of State has powers or is seeking powers either to service or to extinguish part or all of the regional authority airports' debts through the National Loans Fund.

The Earl of Caithness

My Lords, I think I covered the general gist of that question. I am sorry if I did not answer my noble friend in detail. I think perhaps that is one point of detail to which we should come back on Committee. I look forward then to resuming the discussion with my noble friend.

On Question, Bill read a second time, and committed to a Committee of the Whole House.