Airports Bill

HL Deb 10 June 1986 vol 476 cc128-92

3.14 p.m.

Report received

Clause 1 [Power to direct reorganisation of BAA's undertaking prior to appointed day]:

Lord Underhill moved Amendment No. 1:

Page 2, line 17, at end insert— (" ( ) The Secretary of State shall not approve proposals relating to Stansted Airport under subsection (3) unless the memorandum and articles of association of any company nominated to operate that airport include provision to prevent the company from receiving any loan from another company in the same group of companies otherwise than on terms (whether as to repayment, interest or security) equivalent to those available on the open market.").

The noble Lord said: My Lords, in moving this amendment, which relates to Stansted Airport, I feel I must make a comment on procedural difficulties. This is in no way an official complaint and I am not criticising the Ministers responsible for this Bill or even the hard-working officials at the Department of Transport.

However, it is difficult for Members to handle a Bill of this kind when the Marshalled List was not made available until 11.15 this morning and the grouping of amendments was not presented to me until just before half-past one. That makes life difficult for everyone concerned and I have no doubt that the Minister has found the same problem. Perhaps the Leader of the House—unfortunately he has left the Chamber—will take note of this comment, which is not a protest, as it may indicate the state of government legislation and the overburdening of Parliament with it.

In Committee, amendments to Clause 1 were tabled relating to Stansted being operated as an independent and free-standing company. I think it would be generally agreed that the ensuing debate was less than satisfactory. The noble Lords, Lord Boyd-Carpenter and Lord Broxbourne, saw the amendment as a threat to the Government's decision to develop Stansted airport. The noble Earl, Lord Caithness, largely agreed with those sentiments. The noble and learned Lord, Lord Denning, questioned the adequacy of the wording of the amendment. That view was taken by the other noble Lords to whom I referred and they generally felt that the wording of the amendment was ambiguous.

Therefore I think it is fair to say that the rationale of the amendment basically was not considered at all during that debate. This new amendment overcomes the concern about wording. It provides that loans between Stansted and the other BAA companies should be prohibited unless there are adequate safeguards. Those safeguards are written into the amendment. This will be contained within the constitutional documentation of the Stansted company. Its effect would be to limit the funding of Stansted's operation and development to the use of revenues generated by Stansted itself and the funds obtained by the Stansted company directly from the open market. This would ensure that Stansted operates as an independent and free-standing airport. That was our intention in Committee but the wording of our amendment was questioned.

It should be emphasised that the amendment does not prevent the Stansted company from entering into contractual relationships with other BAA companies in relation to such matters as central services and similar items. The amendment relates solely to loans. Under the proposals which the Government intend to bring forward for reconstructing the BAA airports it is clear that subsidy will continue to be afforded to Stansted. The proposed holding company will be able to make loans to its subsidiary companies.

The Government argue that these loans will be controlled by the provisions of Part IV of the Bill, and in particular Clause 39. However, we make the point that Clause 39 is primarily geared to loans which are not at commercial rates of interest. As a result, the issue will be as to what constitutes a commercial rate of interest. That is a significant issue given the reconstruction arrangements that the Government intend to implement.

Noble Lords will be aware, possibly even more than I am, that commercial rates differ according to the risks involved. The BAA holding company could use its surplus and lend to Stansted at rates which appear to be commercial but fail to reflect the real risk involved. Alternatively, capital could be raised from the market by the holding company especially for investment in Stansted, and because of the holding company's ability to issue guarantees the interest rates would be lower than if Stansted obtained the loan itself direct from the market. In both cases a hidden subsidy would be involved and this would be very difficult to identify.

In previous debates about subsidy to Stansted extraordinary conflicts in the Government's approach have been revealed. For the better part of four years the local authorities concerned have campaigned hard to have eliminated the damaging effects of subsidy to Stansted. In their White Paper the Government responded with a commitment to that end, and since that White Paper the former Secretary of State for Transport has made numerous statements confirming this particular commitment. On the other hand, when problems and ambiguities, the effect of which would be to undermine totally those commitments, are properly pointed out, the Government argue that the subsidy to Stansted really does not matter. In fact, the noble Earl, Lord Caithness, said as much on 15th May: Stansted's prices have been much lower than Manchester's throughout the last six years. But one soon sees that Manchester's traffic has grown from 3.5 million passengers to over 6 million passengers a year, whereas Stansted is handling only half a million".

And the noble Earl concluded: I do not believe that these airports are in direct competition".—[Official Report, 15/5/86; col. 1286.]

That argument fails totally to recognise the realities of life. At the present time Stansted is only a local airport. It competes with the Lutons of this world. It has an annual passenger throughput of only half a million passengers. It is not tenable for the Government to suggest that the reduction in Luton's traffic over the past few years has not been influenced by a subsidised Stansted with low traffic charges, free car parking and similar facilities; nor is it tenable to suggest that similar consequences will not flow throughout the civil aviation system once Stansted is developed from a local to an international airport.

In fact, we all know that the Government have recently sanctioned a £290 million terminal development at Stansted. This will ensure for the future that Stansted will compete for traffic with other major airports; and not just Luton, but other airports, such as Southend, Birmingham and East Midlands will be concerned. It is also at this stage that competition with the Manchesters of this world will take place. This is why it is all the more important that the subsidy should be eliminated.

The final point to note is that a free-standing Stansted will be able to operate economically. The North of England Regional Consortium has produced detailed figures to demonstrate this fact. So far as I am aware, the Government have never challenged the validity of that work. Therefore we can only assume that the Government accept what the northern consortium has said. If the Government are sincere on this particular issue, they should have no difficulty whatever in accepting this amendment. It simply achieves what the Government say they are committed to achieving, which is that the Stansted company should be a free-standing company. If the Government reject the amendment, surely they should do the honourable thing and publicly announce that they have decided to withdraw the commitments that they have previously given. I beg to move.

Baroness Burton of Coventry

My Lords, I should like to support this amendment. I repeat straightaway that I am not opposed to the development of Stansted Airport, but I am opposed to the amount of development that is being undertaken now and I am opposed to the way in which the Government have been carrying out this procedure from the very commencement of the plan.

The amendment that we are discussing today relates to loans, but so far as I am concerned our discussion takes place against a background of distrust, which, as the noble Earl the Minister knows, I feel has been engendered by the Government and their actions in this whole affair. Whether we are dealing with loans, with access or with buildings, it is obvious that the Government are determined to push ahead with so large a development, disregarding the protests and arguments of local authorities or anybody else, and if other airports suffer financially from what is being done, that is just too bad.

I should like to mention another important and indeed vital financial aspect, which is the projected rail link to Stansted. I gather that already serious financial problems have arisen, and perhaps the Minister would comment on these when he comes to reply and let us know whether what I have been told is indeed correct and that there are these problems. The British Railways (Stansted) Bill has really been a shambles, which nobody could deny. Noble Lords will recall that the noble Earl, Lord Caithness, very good humouredly took a certain amount of exception to what I had to say about the constant deferment of the Second Reading, which was made necessary by another place refusing, on 24th February, to pass the Bill. Indeed, the noble Earl, Lord Caithness, may remember that on the first day of the Committee stage of this Bill on 15th May I gave him in my remarks the information that he was proposing to give to me in his reply; namely, that the British Railways (Stansted) Bill was to be discussed in another place that night.

We were both rather surprised the next morning when we came to look at it to find that the matter had slipped once again and been still further deferred. The noble Earl the Minister knew no more about the reason for this than I did. The matter had just gone. However, a resumed debate of some sort was managed on 3rd June, when less than one hour was allowed for discussion, to the indignation of many Members in another place who wished to speak. It is still the feeling of many Members there that money spent on Stansted will penalise developments elsewhere. The attitude of the Government is seen as one of determination that, to quote one Member, "Stansted shall become a sort of third charter airport".

However, I should like to remind the House that the Government have still not accepted the proposal put forward by British Rail many months ago. As Mr. David Mitchell, the Minister of State at the Department of Transport, said on 3rd June: We have not yet finished examining the viability of the case that British Rail has put to us. When we have done so, we shall certainly make an announcement".—[official Report, Commons, 3/6/86; col. 821.] The Bill has now been committed. When the Minister comes to reply, can he give us any idea of the timescale that is now envisaged?

These questions are all linked with our discussion today. As the Minister will recall, in previous debates I have pointed out how Luton has suffered from a subsidised Stansted. I believe that the long-term subsidisation of Stansted, which is essential to the success of Stansted, will similarly affect other airports. That is why many supporters of this amendment believe that subsidy for Stansted should be eliminated, and we would welcome a statement from the Minister when he comes to reply as to how long he feels that this subsidisation must continue.

Lord Denning

My Lords, I hope that your Lordships will not accept this amendment. On the previous occasion when we talked about the freestanding company I complained that the term was unintelligible—to me, at all events. It is quite clear that this amendment is trying to prevent a commercial company from obtaining any loan from a company in the same group. It seems to me that commercially that is quite unacceptable. The whole object of this amendment is to try to prevent the development of Stansted, and I hope that your Lordships will not accept it.

3.30 p.m.

The Lord Bishop of Manchester

My Lords, whatever the noble and learned Lord, Lord Denning, says about whether the proposal is commercially desirable, the amendment fits into wider regional policy. We had a short and quite spirited debate on unemployment a short time ago when the Secretary of State for Employment declared how vital it was to deal with long-term unemployment. He also talked about the older industries declining in certain areas of which the North-East and the North-West of Britain are two.

If one fits airport policy into that whole picture, it is incumbent on the Government to make quite sure that where there are opportunities for encouraging regional airports that should be done. It may be argued that fears about Stansted's development are bogus, but I believe that the arguments put forward by the noble Lord, Lord Underhill, should carry a great deal of weight. Stansted would undoubtedly be moving into a different ball game altogether.

It is generally recognised by all of us on all sides of the House that airports generate employment. They are vital for the areas in which they operate. Here there is a threat from one of the more favoured parts of Britain, one would maintain, at the expense of regional airports in other parts. I believe that in this case the Government ought to show their concern in a real and genuine sense for those parts of the country where unemployment is high, particularly in the North of England. Regional airports would undoubtedly be encouraged if they felt that Stansted was not being subsidised in hidden ways. I hope that your Lordships will support the amendment.

Lord Lloyd of Kilgerran

My Lords, I follow the right reverend Prelate in expressing my surprise at the narrow, legalistic view directed by the noble and learned Lord towards this important amendment. There are wider matters beyond legalistic views, commercial viability and so on, as the right reverend Prelate said. The Government must have in mind wider regional policy and they should endeavour to encourage regional airports. I heard the eloquent statements of several noble Lords on the other side of the House about how regional airports encourage employment and are a great asset regionally. I strongly support the amendment on the grounds that if that attitude is adopted by the Government, it will generate employment.

Lord Dean of Beswick

My Lords, I rise to speak in favour of the amendment. I support the comments of the noble Lord, Lord Lloyd, regarding the brief intervention of the noble and learned Lord. His advice is always valuable, but in a strange departure from his usual modus operandi in the House he gave little reason for what he said on this occasion. If the Bill stays as it is, Stansted will operate with a heavy subsidy at the expense of regional airports; it will be in an advantageous position.

Noble Lords who were present on the last occasion when the Bill was debated will have heard the noble and learned Lord give us the benefit of his advice that there is no such legalistic term as a "free-standing" airport. I said that with my limited education I fully understood the term. It would mean that it stood on its own feet and financed itself out of its revenue. I saw no point in trying to mask that by saying that there was no legalistic recognition of the terminology.

I support the amendment. It is designed to ensure that Stansted Airport operates on a free-standing and independent basis and that subsidy is eliminated. I do not think it will come as a surprise to your Lordships when I indicate my complete support for it. I have spoken on the same subject in your Lordships' House before.

What should surprise us is that this debate should be taking place at all. The previous Secretary of State for Transport, who is now the Secretary of State for the Environment, more than made clear his commitment over 12 months ago to eliminate heavy subsidy to Stansted in the interests of fair and equal competition among airports. The fact that those commitments have now been eroded as a result of the provisions of the Bill means that we are now in the almost laughable position of seeking to explain to a free market Government the rationale of their philosophy in so far as airports are concerned.

I wish to cover three issues in my contribution. The first is the prejudicial effects of heavy subsidy to Stansted upon all airports outside the South-East. As other noble Lords have said, the subsidy will have a wider impact than merely affecting other airports. We are dealing basically with the well-being of other areas. The second issue is the way in which high levels of subsidy will be possible, notwithstanding the provisions of Parts I and IV of the Bill; and the third is the way in which this amendment would secure everyone's objectives, including those of the Government.

Stansted makes a huge loss in relation to turnover. In 1984–85 a loss of £3.1 million was recorded on a turnover of £3.7 million, which is pretty substantial. In operating terms the airport has recorded a loss every single year since 1971–72. Compared with local authority airports, Stansted's performance is very poor. Indeed, Stansted enjoys the next to worst financial performance of all the 17 airports which operate international flights.

One of the reasons why the airport performs so badly is that it has more spare terminal capacity than any other airport in England. Another reason is its extraordinarily low levels of income. Despite the fact that it enjoys a throughput of passengers of around 500,000 a year (a usage which is significantly higher than that of several regional airports), revenue yields per passenger were more than 50 per cent. higher 15 years ago than they are today. That is mainly a reflection of the very low landing charges which are employed at Stansted and which have seriously undermined the growth of other airports near to London, particularly Luton.

It is my firm belief that in the future that prejudicial effect will not be contained in the South-East. Subsidy will increase in scale to such an extent that no airport will be immune from the consequences associated with predatory pricing policies.

To airports outside the South-East low charges and subsidy represent unfair competition in the extreme. Those airports have to operate as free-standing entities. Their charges need to reflect the cost of operating and developing their facilities. Very low landing charges at Stansted mean that they will be unable to compete effectively. It is no answer to say that there is no competition among airports. Such an argument coming from a Government who believe that there is a case for promoting competition in the supply and distribution of water, and so on, is simply ridiculous.

I now turn to my second point as to how subsidy will continue under the arrangements proposed by the Government. It has been argued—and no doubt the noble Earl, Lord Caithness, may make the same point in closing the debate—that by restructuring Stansted as a semi-autonomous company under a holding board and ensuring that any loans between companies are made at commercial rates of interest, subsidy will be eliminated. The Secretary of State made those views clear in a Statement to the other place on 5th June. I am afraid that that view is misconceived.

The proposed holding company will of course be able to make loans at commercial rates of interest to its subsidiaries, but it is not automatic that such loans will or need to be repaid. The Government have argued that Part IV of the Bill, and Clause 38 in particular, will assist in controlling subsidy, but in a practical sense that is doubtful. The Government have made considerable efforts to tighten up that part of the Bill, but the task that they have set themselves is enormous because of the impossible starting point.

Subsidy will happen—indeed, it will be encouraged to take place by the restructuring arrangements—and it will be for the CAA to try to keep up and control it. That will be almost impossible. Clause 38, for example, talks of the need to control loans at commercial rates of interest or otherwise. That raises the question of what is an appropriate commercial rate of interest. Commercial rates will differ according to the risks involved. The BAA holding company can use its surplus and lend to Stansted at rates which appear to be commercial but fail to reflect the real risks involved. That would make for a hidden subsidy, incapable of accurate definition. If we cannot identify the subsidy, we cannot control it, and that is the major problem with Part IV of the Bill.

Lord Soames

My Lords, I hope that the noble Lord will forgive me for interrupting him, but do I gather from his argument that the new airport should be sited where unemployment is bad rather than where the site is good, from the point of view of passengers who wish to fly into this country?

Lord Dean of Beswick

My Lords, as with the privatisation of the bus companies, the noble Lord has missed the bus. I was not talking about that.

Lord Soames

My Lords, I could not hear very well what the noble Lord was reading.

Lord Dean of Beswick

My Lords, the noble Lord obviously was not listening to me. He may have been talking. I was making the point that it is not a question of the siting of airports, it is a question of the equalisation of treatment.

I now turn to the most important question: can Stansted be operated on a viable, free-standing basis? I am interested in that point. People who understand my strong objections to the development of Stansted have often pointed out to me that my wish to see subsidy eliminated from Stansted is motivated by a desire to see Stansted fall. That is not the case. The work which has been undertaken in the regions and which is cogently summarised in the North of England regional consortium's latest booklet Stansted and the Airports Bill clearly demonstrates our position.

On the basis of the work undertaken, there is no doubt that Stansted can comfortably pay its own way provided that it enjoys the level of demand which the Government believe it will accommodate over the next few years. The work also shows that at the same time it would be possible for Stansted to service itself, without subsidy, a significant cost commitment associated with the development of its terminal.

Unlike the Stansted investment recently approved by the Government, the results of the work have been laid before Members of Parliament and Peers. At no time have its assumptions and conclusions been challenged by the Government or their advisers. They obviously feel that there is no economic or social case for subsidising Stansted; otherwise we believe that they would have said so.

Subsidy to Stansted is not capable of justification. It would create prejudicial effects throughout the airport system. If airports outside London are to grow and to exploit their potential on an equal basis, subsidy must be eliminated. That would ensure that the pace of Stansted's development would be a reflection of market demands and not the desire of the BAA to maximise the size of its asset base. The work shows beyond all reasonable doubt that Stansted could work profitably on such a basis.

In the other place, Members from all parties and representatives of all interests united to support the amendments now being debated. I hope that your Lordships will take note of the points that I have made. All that I am asking for is equal treatment for regional airports and Stansted. On that basis, this amendment is worthy of your Lordships' support.

Lord Mountevans

My Lords, it has been argued, and I think rightly, that airports generate employment. I cannot, however, accept the contention that it follows that airports must be built where unemployment is high, and in the case of this amendment, out in the provinces. Nor can I accept the contention that a subsidised Stansted would leave the directors of the board of a privatised BAA in that position for a long time.

I believe that airports should be built, as the noble Lord, Lord Soames, implied, to satisfy demand, not to counter unemployment problems. If I want to go to Rome, the construction of a subsidised airport and the existence of free facilities at Bologna are irrelevant. I do not want to go to Bologna; I wish to go to Rome. If a customer wants to come to London, which is where at the moment demand is identified as being the fastest growing and the strongest, we must build Stansted as part of a united London airport system. I therefore urge your Lordships to reject the amendment.

3.45 p.m.

Lord Sefton of Garston

My Lords, the case against the unfair subsidisation of Stansted has been well and truly made. I should not have intervened in the debate if it had not been for the last intervention and that of the noble Lord, Lord Soames. It is right to say that the opposition to the subsidisation of Stansted arose because someone wanted to build an airport in areas of high unemployment. The last speaker said that plainly. That is not the reason for the opposition.

I shall remind your Lordships of the comment of the noble Lord, Lord Young, when he replied to my noble friend Lord Dean about unemployment. It shows how people who see no further than the Watford Gap—I mean the Watford Gap near the Midlands—see this problem. When the noble Lord was questioned about unemployment, he said that there was a possibility that vacancies in the South-East of England could be filled by unemployed people from the North. That shows that the Government believe that one of the solutions to high unemployment in our country could be bringing people from the North to the South-East to take up the many vacancies that everyone knows exist there.

That was a direct implication by the Government. What does it mean? They would not bring anyone who was over 60 or who was infirm from the North. No; they would not want that. To fill the vacancies in the South-East they would bring, as this country has been doing for about half a century, all those people who were able-bodied, young, fit and able to strive for themselves. They would leave behind another growing problem. Whenever the House considers social matters, it unanimously points out that there is a problem in the inner cities in the North of this land. Those inner cities are left with a high proportion of elderly people and people who are not as able and willing to move as others.

The noble Lord, Lord Soames, shakes his head. That merely illustrates the fact that he has not studied the subject of airports in the context of the nation. With all due respect to the noble and learned Lord, Lord Denning, his sights seem to be somewhat limited. He thinks only of Stansted. He says that it would not be sensible not to subsidise Stansted. Stansted will be subsidised. There is no demand by people to go to Stansted. It is being encouraged by the growth in the South-East of England.

I do not fault the Government for looking at airports on a regional basis, because airports are not designed merely to serve the West End of London. Heathrow is not there just to accommodate pop stars who want to come in and out of the capital. Heathrow has been built up because there is a continuously growing demand in the South-East of England. When the Government look for expansion, they do not think of looking at Prestwick in Scotland, and for a long time they did not think of looking at Manchester. Now they acknowledge that Manchester is a growth airport for the North-West region.

What are they doing in the Bill? Whether or not the Government admit it, they are saying that Stansted will be subsidised by the activities of the South-East, and if it is not subsidised by the airport activities in the South-East it will be subsidised sooner or later by the Government. The money will come out of the public purse. If we look at the same situation from a regional point of view, for example the northern regions, what do we find? We find that the Government are prepared to back Manchester. They are prepared to pay lip service to other regional airports which have been laid down for a long time and have not merely come into existence when unemployment increased. They have been there for a while. What are they going to do at Merseyside? Liverpool airport is the only possible place for expansion of airport facilities in the North-West. There is no other. Yet we cannot obtain from the Government a satisfactory answer as to what they intend to do to keep Liverpool airport in existence. All that we get are fair words saying that the Government desire that Liverpool shall be a success.

However, the Government will not put a hand in their pocket and pull out £3.5 million to help it. Oh no! They are prepared to underwrite all the public expenses that will go into the provision of airport facilities at Stansted that people in the area do not want. They prefer to do so because they are blinded by the metropolis in the South-East of England. The noble Lord, Lord Young, in his innocence gave the game away. The noble Lord is a new politician. He revealed how the Cabinet thinks. It thinks South-East, It thinks London. If it was possible to wipe off the rest of the country from the Wash northwards, the Cabinet would be quite prepared to do so. It does not understand the nation.

All that I shall say is that the Government should have another look at the matter. They should not be talking about producing an airports plan simply for the South of England. They should not be talking about producing an airports plan to meet present-day demand. They should have sufficient courage to look 50 years ahead. They should be asking themselves how they want to plan the airports system in the country as a whole. If they look at the matter seriously, they are bound to conclude that there should be no unfair subsidy at Stansted and they should do more at regional airports than at the moment they seem to want to do.

Lord Howie of Troon

My Lords, I have no great wish to look 50 years ahead in the context of the Bill. I am sure, however, that my noble friend is right in saying that we should look 50 years ahead in terms of air transport. Today, we should stick to the Bill. I rise briefly to say that to my dismay I shall be obliged to vote against the amendment. It is totally misconceived. It is possible that Stansted will be subsidised at an early stage in its life. I do not know. That is a matter for the airport authority. If it is subsidised it will be subsidised by the airport authority's money. It will be a cross-subsidy within the revenues earned by the airport authority from the seven airports. Incidentally, it is likely that Prestwick airport will be subsidised as well. I come from a good deal further north of the Watford Gap than my noble friend. I know Prestwick quite well.

I shall explain what prompts me to oppose my noble friends. When, in another place I represented Luton, a good deal of my activities were devoted towards encouraging people to build up Luton airport. At that time, in the early and middle 1960s, the airport was not an obvious success. It was bound to become a success, and indeed now is a success. But in those days, many people locally saw Luton airport as nothing more than a burden on the rates. The airport was subsidised, quite properly, from the rates. It was subsidised quite properly in accordance with the principles of the party of which I have been a member for a long time. I am fairly sure that Liverpool airport at one stage in its career was subsidised from the rates and still is. That is right. I do not object at all.

It is fairly likely also that Manchester was at some time subsidised from the rates. I do not object to that, either. I agree of course that the regions should have fair treatment. But the principle of developing Stansted has been accepted by the Government, by both Houses of Parliament and by the report on the third London airport. What we are asking for is fair play for Stansted. If Stansted needs to be subsidised in its early stages, it should be. The best course my noble friends can take is to air the principles embodied in the amendment and then withdraw it to save me the embarrassment of voting against it.

The Parliamentary Under-Secretary of State, Department of Transport (The Earl of Caithness)

My Lords, I am grateful for the intervention of the noble Lord, Lord Howie of Troon. He brought us back to the amendment which seems to have been forgotten in some of the earlier discussion. The noble Lord has put the whole matter back in perspective.

The amendment is yet another attempt to ensure that Stansted cannot be cross-subsidised. It is an entirely unnecessary amendment. The concern about cross-subsidy stems from the fear that this will allow Stansted to offer lower charges and to attract traffic that would otherwise have used regional airports. But the Bill already contains very effective safeguards to ensure that such unfair cross-subsidy is prevented. These provisions have been considerably strengthened during the passage of the Bill. Clause 39 enables the CAA to prevent any airport pursuing a predatory pricing policy. Predatory pricing is defined very widely to embrace any pricing policy that harms or is intended to harm another airport and that results in prices that are lower than costs or artifically low as a result of receiving any subsidy including loans on noncommercial terms, failure to achieve a reasonable return on capital, failure to pay reasonable dividends or failure to have appropriate proportions of equity or debt.

This goes much wider than the current amendment which is rather narrow in that it is confined to the terms of inter-company loans. In addition, Clause 39(5) makes clear that in considering whether prices are predatory, each airport will be considered as if it stands alone and not as part of a group. That was a point well met when the noble Lord, Lord Howie of Troon, mentioned Prestwick. This provision constitutes an absolute defence against any cross-subsidy harming another airport's business.

I have been a little disappointed by the debate. Some noble Lords have, I believe, failed to take into account what was said in another place and what I said at Committee stage. We had a fair discussion then. Some arguments have been reiterated without any consideration being given to what the Government have said. I am a little disappointed that this should happen in your Lordships' House. I should like, however, to answer one or two specific points. The noble Baroness, Lady Burton, mentioned the British Railways (Stansted) Bill. We have been through this before. It is a fairly old chestnut between us. We shall be making a decision shortly on financial viability. That is currently with Ministers.

The right reverend Prelate the Bishop of Manchester said that we should encourage regional airports. I can tell the right reverend Prelate that this is the Government's policy. We have encouraged regional airports. During our tenure of office, traffic at Manchester has grown from 3.5 million to over 6 million passengers a year. No Government have done more for regional airports than this one. The noble Lord, Lord Dean of Beswick, summed it all up rather well when he said that all he was seeking was equalisation of treatment. If the noble Lord wants equalisation of treatment, then the Government should give a grant to Stansted in exactly the same way as governments have given £25 million to Birmingham airport. Manchester is subsidised; Prestwick is subsidised; many airports are subsidised. If that is what the noble Lord wants, he will get unfair subsidy of Stansted which is not what the Government want.

4 p.m.

Lord Dean of Beswick

My Lords, we are discussing the Bill and not what has happened in the past. We are discussing what effect the Bill will have on airports. During our earlier proceedings on the Bill, I referred, as did others, to the fact that to develop Manchester in the foreseeable future will require another terminal costing in excess of £200 million. Whatever format Manchester takes after the passage of this Bill, it will be expected to find that £200 million. During my contribution on this amendment, I said that with a turnover of just over £3 million Stansted had made a loss of almost the same amount. That money was found by somebody else. I am asking what will happen in the future. It is not equal treatment whichever way one looks at it.

The Earl of Caithness

My Lords, I think that all I can add to that is that Manchester, as with any airport which has developed well, has come out of the stage of subsidy. However, the principle remains. If the noble Lord wants equalisation of treatment with regard to any airport that is trying to get off the ground, where there is a demand for traffic as there is in the South-East and as there will be at Stansted, the Government are perfectly entitled to give Stansted a grant—

Lord Dean of Beswick

My Lords—

The Earl of Caithness

My Lords, no. The noble Lord has already abused Report stage, I am afraid, and I must continue. He cannot differentiate suddenly between the past and the present, because what he wants is continuity and continuity would ensure a grant to Stansted and would ensure unfair cross-subsidy. That is not what the Government want. Any loan to Stansted will have to be clearly shown in the accounts and balance sheet. There will be no unfair cross-subsidy for the reasons that I have explained. I therefore believe that the amendment is not only unnecessary but also incompatible with the memorandum and articles of association of the company, which would not be the appropriate vehicle for a provision of this kind. It could not be effectively enforced. It could also be removed at any time by the private sector BAA holding company which will own 100 per cent. of the shares in the Stansted airport company.

The concerns of noble Lords who have spoken on this matter about the actions of a subsidised Stansted have already been met by the Bill as drafted. I think that we should terminate this matter by asking the noble Lord, Lord Underhill, to withdraw the amendment.

Lord Underhill

My Lords, I am extremely disappointed in the Minister's reply because he has not answered the important points that I put forward in moving this amendment. I am very grateful to other noble Lords, some of them barristers, who have supported the amendment. It has nothing to do with where an airport should be built, as the noble Lord, Lord Mountevans, stated. What we all know and no one will deny is that for a period of years Stansted has been heavily subsidised. At the Committee stage I gave figures which my noble friend Lord Dean of Beswick repeated this afternoon as to the huge losses incurred by Stansted on relatively small turnovers over a period of years because it has been subsidised. It was the intention of the BAA to subsidise it.

I always hesitate to criticise our learned judges, but the noble and learned Lord, Lord Denning, in his brief intervention said that we are trying to stop loans from fellow companies. We are not. We are saying that they have to be on a fair basis. That is why we have put in the words, (whether as to repayment, interest or security) equivalent to those available on the open market". That is why those words were deliberately included. There is certainly no intention in this amendment to stop development at Stansted, whatever may be our personal views.

At the Committee stage on 15th May the noble Earl said: I reiterate the intention that Stansted should not pose a problem to regional airports on an unfair basis and cause unfair competition. The noble Earl said that that is the Government's aim. He continued: We share the noble Lord's aim that such competition should be fair". That is why I say to my noble friend that I am moving this amendment. I hope that when I call for a Division in the House my noble friend will realise that is why we are moving this amendment—so that competition shall be absolutely fair.

The noble Earl says that the amendment is unnecessary because of Clause 39. I refer the noble Earl to what I said in my opening comments about Clause 39. He referred to predatory pricing. There is nothing in my amendment about predatory pricing. We are talking about the possibility—and it is a definite possibility, or probability—that the BAA could encourage loans either by itself or between one company and another on a basis which could never be obtained on the open market. That is the point of this amendment. Everyone who believes in fair competition and justice for all airports will support this amendment. Therefore I have no hesitation whatever in saying that we shall not withdraw it. It is a principle which I think many Members in this House should like to see observed.

4.6 p.m.

On Question, Whether the said Amendment (No. 1) shall be agreed to?

Their Lordships divided: Contents, 85; Not-Contents, 135.

DIVISION NO. 1
CONTENTS
Airedale, L.	Leatherland, L.
Amherst, E.	Listowel, E.
Ardwick, L.	Llewelyn-Davies of Hastoe, B.
Aylestone, L.	Lloyd of Kilgerran, L.
Banks, L.	[Teller.]
Blyton, L.	Mackie of Benshie, L.
Bottomley, L.	McNair, L.
Brockway, L.	Manchester, Bp.
Bruce of Donington, L.	Milford, L.
Burton of Coventry, B.	Molloy, L.
Caradon, L.	Monson, L.
Carmichael of Kelvingrove, L.	Mulley, L.
Chitnis, L.	Nicol, B.
Cledwyn of Penrhos, L.	Northfield, L.
Cudlipp, L.	Oram, L.
Davies of Penrhys, L.	Parry, L.
Dean of Beswick, L.	Phillips, B.
Diamond, L.	Ponsonby of Shulbrede, L.
Elwyn-Jones, L.	[Teller.]
Ennals, L.	Prys-Davies, L.
Falkender, B.	Rathcreedan, L.
Falkland, V.	Rhodes, L.
Fitt, L.	Ritchie of Dundee, L.
Foot, L.	Seear, B.
Gallacher, L.	Sefton of Garston, L.
Glenamara, L.	Shackleton, L.
Graham of Edmonton, L.	Shepherd, L.
Gregson, L.	Silkin of Dulwich, L.
Grey, E.	Stallard, L.
Grimond, L.	Stedman, B.
Hampton, L.	Stewart of Fulham, L.
Hanworth, V.	Stoddart of Swindon, L.
Hatch of Lusby, L.	Taylor of Blackburn, L.
Houghton of Sowerby, L.	Taylor of Mansfield, L.
Hughes, L.	Underhill, L.
Hutchinson of Lullington, L.	Vernon, L.
Irving of Dartford, L.	Wallace of Coslany, L.
Jeger, B.	Walston, L.
John-Mackie, L.	Wells-Pestell, L.
Kagan, L.	Whaddon, L.
Kennet, L.	Wigoder, L.
Kilbracken, L.	Williams of Elvel, L.
Kilmarnock, L.	Willis, L.
Kirkhill, L.

NOT-CONTENTS
Ailsa, M.	Cameron of Lochbroom, L.
Alexander of Tunis, E.	Campbell of Croy, L.
Allerton, L.	Carnegy of Lour, B.
Ampthill, L.	Cathcart, E.
Annan, L.	Constantine of Stanmore, L.
Auckland, L.	Cork and Orrery, E.
Bancroft, L.	Cottesloe, L.
Bauer, L.	Cox, B.
Belhaven and Stenton, L.	Craigavon, V.
Bellwin, L.	Craigmyle, L.
Beloff, L.	Cullen of Ashbourne, L.
Belstead, L.	Dacre of Glanton, L.
Bessborough, E.	Davidson, V.
Blake, L.	De Freyne, L.
Boyd-Carpenter, L.	Denham, L. [Teller.]
Brabazon of Tara, L.	Denning, L.
Brookes, L.	Derwent, L.
Brougham and Vaux, L.	Dilhorne, V.
Broxbourne, L.	Drumalbyn, L.
Butterworth, L.	Eccles, V.
Buxton of Alsa, L.	Effingham, E.
Caithness, E.	Ellenborough, L.

Elliot of Harwood, B.	Mersey, V.
Faithfull, B.	Monk Bretton, L.
Fortescue, E.	Montgomery of Alamein, V.
Gainford, L.	Morris, L.
Gibson-Watt, L.	Mountevans, L.
Glenarthur, L.	Murton of Lindisfarne, L.
Gray, L.	Newall, L.
Gray of Contin, L.	Nugent of Guildford, L.
Grey of Naunton, L.	O'Brien of Lothbury, L.
Gridley, L.	Onslow, E.
Hailsham of Saint Marylebone, L.	Orkney, E.
	Orr-Ewing, L.
Halsbury, E.	Plummer of St Marylebone,
Harmar-Nicholls, L.	L.
Henderson of Brompton, L.	Porritt, L.
Hives, L.	Portland, D.
Holderness, L.	Quinton, L.
Home of the Hirsel, L.	Radnor, E.
Hooper, B.	Rankeillour, L.
Howie of Troon, L.	Rochdale, V.
Hunter of Newington, L.	Rodney, L.
Hylton-Foster, B.	St. Aldwyn, E.
Ingrow, L.	St. Davids, V.
Jessel, L.	Saltoun of Abernethy, Ly.
Kaberry of Adel, L.	Sanderson of Bowden, L.
Kings Norton, L.	Seebohm, L.
Kinloss, Ly.	Sempill, Ly.
Kinnaird, L.	Skelmersdale, L.
Kitchener, E.	Soames, L.
Lane-Fox, B.	Strathcarron, L.
Lauderdale, E.	Strathspey, L.
Layton, L.	Sudeley, L.
Long, V.	Swinton, E. [Teller.]
Lucas of Chilworth, L.	Terrington, L.
Lurgan, L.	Thorneycroft, L.
Lyell, L.	Torrington, V.
McAlpine of Moffat, L.	Tranmire, L.
McFadzean, L.	Trefgarne, L.
Macleod of Borve, B.	Trenchard, V.
Mancroft, L.	Ullswater, V.
Manton, L.	Vaux of Harrowden, L.
Margadale, L.	Vickers, B.
Marley, L.	Vivian, L.
Marsh, L.	Ward of Witley, V.
Maude of Stratford-upon-	Westbury, L.
Avon, L.	Whitelaw, V.
Merrivale, L.	Young, B.

Resolved in the negative, and amendment disagreed to accordingly.

4.14 p.m.

Lord Underhill moved Amendment No. 2:

Page 2, line 17, at end insert— ("( ) The Secretary of State shall require that before he approves proposals under subsection (3) the memorandum and articles of association of any nominated company to which the proposals relate contain such restrictions on the allotment and transfer of shares that the holding or holdings of any one or more shareholders (whether individual or corporate) cannot exceed in aggregate ten per cent. of the issued capital of the company, and that the Secretary of State shall retain a special share which will give him the right to veto any proposed change to this Article.")

The noble Lord said: My Lords, this amendment should have been moved by my noble friend Lord Carmichael, but in his absence I shall formally move it and he will then speak on it. I beg to move.

Lord Carmichael of Kelvingrove

My Lords, the House may remember that we discussed this matter at some length on 15th May when a very large number of Members on all sides of the Committee took part and, I think it is fair to say, showed a certain anxiety about it. I also think that the Minister himself realised that an important point was being made by those noble Lords and he promised to come up with a form of words which he hoped would allay the fears that were raised by many noble Lords. This of course the Government have done in the form of an Answer to a Written Question in another place. Mr. Michael Spicer gave a reply saying that a provision would be included in the articles of association of the privatised BAA restricting the shareholding of any individual or of parties acting in concert to 15 per cent. of the total issued capital.

Lord Boyd-Carpenter

My Lords, if the noble Lord will allow me, he referred to an Answer given in another place, but is he aware that my noble friend Lord Caithness gave an Answer in this House on 4th June on these lines? Therefore, this House is well aware of the position.

Lord Carmichael of Kelvingrove

My Lords, yes, I do have a note of that. The paper I have in front of me merely contains the earlier answer. I hope that I did not suggest that this House was not aware of the Answer that had been given, but I was using this particular piece of paper.

As I said, the noble Earl, Lord Caithness, said that he would try to find a form of words, and these words have been produced. That is the important point. I believe that they are a good attempt, but they are not quite firm enough and do not quite meet the spirit of the amendment which was supported by so many speeches throughout the Committee last time we discussed this matter.

I hope that it will be for the convenience of the House if I also speak to Amendment No. 5. The amendments which I propose make two changes of some significance. Instead of the 15 per cent. shareholding, Amendments Nos. 2 and 5 both suggest that the figure should be 10 per cent. I understand that many people in the industry believe that even 10 per cent. is rather high for a powerful organisation or company, such as these companies are likely to be, but that 10 per cent. is considered to be a more suitable figure.

Secondly—and perhaps this is the more important point—there is the question of the special share, or what has colloquially come to be known as the golden share, being held by the Minister. Of course, this is included in the Answer which was given in another place and also in this House. From this point of view, looking at some of the statements that were made in the very excellent speeches on 15th May, we find, for instance, that the noble Lord, Lord Tordoff, agreed with the amendment then tabled, which is repeated in this Marshalled List, that, on the face of the Bill or in some other entrenched way, there should be a golden share or a special share so that there can be certainty.

The noble Lord, Lord Boyd-Carpenter, said that even if we were to run a marginal risk of losing control of our airports, it would be essential to introduce something in the nature of a special share. Again, I believe, and I hope he believes, that that should be on the face of the Bill rather than merely be in the articles of association or under the control of the articles of association by an agreement with the Minister. We know that Ministers can change. We know that it could be withdrawn at some later date without Parliament having any say at all, whereas if it were on the face of the Bill, it would need an order or require the Minister to come to Parliament to make the case for withdrawing his control over an individual or a group of individuals.

The noble Earl, Lord Dundee, had much the same anxiety about the need to restrict an airline share ownership and foreign share ownership. We believe on this side of the House—and I hope the House generally will accept the spirit of this—that the Government have gone some way, but we are still uneasy that they have not put it on the face of the Bill. We believe it is absolutely crucial that it should not be something that can be too easily changed by a future Secretary of State or future government. Therefore, I hope that the Minister will accept this amendment in the spirit in which we have tried to move it.

Lord Lloyd of Kilgerran

My Lords, with the leave of the House, I should like to make a short preamble to my own remarks in support of this amendment. My noble friend Lord Tordoff has asked me formally to apologise for the fact that he is unable to be present today at the Report stage. My noble friend mentioned this point at Committee stage I believe, and certainly he mentioned his position to the Front Bench of the Government. However, he has thought fit to put down his name in support of about 20 amendments at this stage of the Bill. At rather short notice I have been asked to stand in for my noble friend. It is an interesting situation in which I find myself. Accordingly, I have prepared myself by reading everything my noble friend Lord Tordoff said during the three days of the Committee stage. I have read all the amendments, and the conclusions I have come to may help the House to shorten the proceedings on this Report stage.

What has struck me about most of the 20 amendments is that they are almost self-explanatory. They will be moved by members of the Front Bench of the Labour Party, and I shall listen to what I expect will be their usual thorough and skilful way of presenting amendments to the House. I shall listen carefully to see whether there are any gaps which ought to be filled, but it is not my intention at this stage of the Bill to make Second Reading speeches.

Coming to this amendment, the noble Lord, Lord Carmichael of Kelvingrove, mentioned that the noble Earl the Minister indicated at col. 1308 on the first day of the Committee stage that he hoped that the Committee would not divide. He said: I want to study everything that has been said today. I cannot over-emphasise that point. The matter"— which is in effect the subject of the present amendment— is seriously under discussion in my department at the moment. My right honourable friend the Secretary of State, the Minister for Aviation and myself were discussing the matter only this morning. With due respect to the noble Lord, it would not be beneficial to divide the Committee now. At a later stage that might be the right thing to do, but I hope the noble Lord will not choose to do so while we are still formulating our final thoughts".—[Official Report, 15/5/86; col. 1308.] I have endeavoured to discover what those final thoughts are. I have not been a party to any of the correspondence, but I have noticed that a large number of amendments have been put down under the name of the noble Earl, Lord Caithness. I must confess that in the short time at my disposal I have not been able to take adequate advice about the contents of most of these amendments. Therefore, it may be that among the many amendments there is an answer to this particular one but I have not been able to find it.

The position I take with regard to this amendment is that in the articles of association there should be certain words as set out in the amendment. I need not repeat them, because the noble Lord, Lord Carmichael, has indicated them to your Lordships. In the view of those of us on these Benches that in itself is not sufficent. Articles of association can readily be amended by the shareholders whenever they wish, and in order that the position should be preserved in relation to this point this amendment should be in the Bill, giving the Government the powers to prevent any amendment of the articles of association unless they agree. That seems to me to be the simple point in relation to this amendment.

The Government have gone quite a long way towards meeting the attitude of the Opposition and also of my noble friend Lord Tordoff at the Committee stage, but not quite far enough. All we are asking the Government is this: if the amendment appeals to them, they should preserve the position by putting in the Bill an amendment which enables the Government to prevent any change of the articles of association by the shareholders of the company concerned. I strongly support the amendment.

Lord Boyd-Carpenter

My Lords, at Committee stage I thought that noble Lords opposite were on to a good horse, and, frankly, I was surprised that this Bill should have got so far as to reach the Committee stage in this House without some step being taken to secure that there was no risk of airports being taken over by some interests who might wish to see those airports run down. But with all due respect, I think the noble Lord, Lord Carmichael of Kelvingrove, is now flogging a dead horse. He was good enough to give way when I ventured to remind him that an Answer had been given in this House by my noble friend Lord Caithness—and the noble Lord, Lord Carmichael, mentioned also an Answer given in another place—indicating the intention of the Government to deal with this point by way of the articles of association of the new company.

I can understand that noble Lords might prefer something in the Bill. However, from a practical point of view provided that the Government carry out their undertaking to put this in the articles, I cannot see that there is anything really to worry about if the matter is dealt with in that way.

I did not understand the noble Lord on the Liberal Benches when he said that the Government would not be able to deal with the proposed amendment of the articles. If the noble Lord will look at the answer which my noble friend gave him on 4th June, he will see that it ends with the words: The Secretary of State will retain a special share which will give him the right to veto any proposed change to this article".—[Official Report, 4/6/86; col. 1084.] That seems clear enough. Therefore, the only danger that theoretically one could imagine would be the arrival of a Secretary of State who was prepared to hand over the British airports to foreign interests or interests which would run them down. Noble Lords opposite know better than I the character of those who might fill this office in alternative governments, and I should not wish to be so offensive as to suggest that either the Labour Party or even that quaint mixture of interests which calls itself the Alliance—rather less allied now than two or three days ago—is likely to throw up a Secretary of State of that kind. Therefore, it seems to me that the position is perfectly satisfactory as it stands.

Lord Lloyd of Kilgerran

My Lords, I do not want to enter into the rather acrid atmosphere of party controversy by mentioning the rhetorical reference to these Benches, but before the noble Lord sits down may I say to him that it is true that in the reply in this House given by the Parliamentary Under-Secretary to the Department of Transport it was said that the, Secretary of State will retain a special share which will give him the right to veto any proposed change to this article". The noble Lord who has just sat down wholly gives his case away. He knows very well that in regard to the future no government can be committed to this important matter constitutionally, except of course if it is in the statute. Whatever government may be in power—even the present Government may find themselves in a position to change something that they wish to change—if it is in the Act itself then there is the greater safeguard; and that is all that these Benches ask.

4.30 p.m.

Lord Boyd-Carpenter

My Lords, before the noble Lord sits down, will he allow me to point out to him that if he is prepared to assume a lunatic Secretary of State, or a Secretary of State completely oblivious to the national interest, it would be equally easy to assume a Parliament similarly stupid? Most of us who understand the way our constitution works believe that however much we may differ from policies of Secretaries of State, it is stretching one's credibility to the limit to believe that you would have a Secretary of State who would deliberately agree to amend the article and so let down the operation of airports in this country. Even if the noble Lord is naïve enough to believe that, he is even more naïve if he believes that Parliament would let him.

The Earl of Caithness

My Lords, the noble Lord, Lord Lloyd of Kilgerran quoted from what I said on 15th May—the extract in the Official Report, at col. 1308—and then I gather he solved his riddle by finding the answer I gave to my noble friend Lord Boyd-Carpenter on 4th June. It was one of many possible solutions when we were discussing restrictions on share ownership, with which these amendments deal.

Perhaps I may first deal with Amendment No. 5. That is the one concerning the local authority airport companies. We introduced amendments at Committee stage to remove the former Clause 24 which would have prevented local authority owners from including in the articles of their airport companies restrictions of the type proposed by this amendment. Clause 24 is now much more limited in its scope and it gives local authorities the freedom to introduce the type of restriction proposed by this amendment—or different restrictions if they consider that these are feasible and necessary.

But the point is that the Bill as currently drafted gives local authorities the freedom and flexibility to decide whether to introduce such restrictions; it does not force a restriction on to them. They can take that decision in the light of the particular circumstances of their own airport and the implications for the region which that airport serves. I am sure that this is a matter which should be left to the local authorities themselves. It would not be appropriate for the Secretary of State to hold a special share in airports which are not currently owned by central government.

Turning to the British Airports Authority, we, as promised, announced on 4th June that we had decided to place a restriction on shareholdings in the privatised BAA, limiting the holding of any individual, or of parties acting in concert, to a maximum of 15 per cent. of the issued share capital. This announcement was in response to the concerns expressed, in particular by noble Lords, about the need for such a restriction in the national interest. We concluded that a general restriction of this kind was appropriate, bearing in mind the serious practical legal difficulties with more specific restrictions on particular groups of shareholders, which I mentioned at Committee stage.

This restriction is certainly not an isolated safeguard. It is very much a belt and braces provision, bearing in mind the whole series of other safeguards which exist against undesirable action by shareholders of an airport company. These include the provisions of the Airports Bill itself—for instance, in relation to discrimination between users of an airport. There will also be continuing regulation of issues such as safety and security. And there is also the Fair Trading Act, which provides for a reference to the MMC if a shareholder proposes to purchase enough shares to be in a position materially to influence policy or to gain effective control. If such an acquisition is judged to be against the public interest it can be prevented by the Secretary of State for Trade and Industry.

These provisions should be sufficient to guard against the problems envisaged by noble Lords. But we have provided yet a further safeguard with the 15 per cent. restriction on shareholdings. We consider that a restriction at this level is fully adequate to meet the concerns expressed, and even the concerns expressed by the noble Lord, Lord Carmichael of Kelvingrove, just now. It balances restrictions on the influence of individual shareholders with the need to ensure that the BAA's shares are freely negotiable—a key principle of the Stock Exchange. This level of restriction is precedented in a number of previous privatisations, most recently British Telecom, and is proposed for British Gas. I do not consider that there is a case for a more restrictive provision in the case of the BAA. The amendment as drafted proposes to place the restriction on the BAA's subsidiary companies, but the intention is that these will be 100 per cent. owned by the BAA.

In talking of precedents, there are well-known precedents for a share restriction of this type in other privatisation measures such as British Telecom. They have always been written into the articles of association. There has not been a need to write it on to the face of the Bill, because that gives no more reassurance than the reassurance of the statement of 4th June by the Government. Therefore I do not believe that it would help in any way to have it on the face of the Bill, and I would ask the noble Lord, Lord Carmichael, to withdraw the amendment.

Lord Carmichael of Kelvingrove

My Lords, I am rather disappointed at the noble Earl's reply. We always get this argument that there is a safeguard for British Telecom. In this instance, airports are special. We are speaking particularly about the London airports, and the possibly predatory intentions of certain other airports in Europe. There is no one from abroad suddenly going to take over British Telecom and run it down in order to make the telephone companies of France, Germany or Holland better. There is no comparison. It is a bad example to use, and it has been used a number of times. Airports, because of their international nature, are special in this way.

The noble Lord, Lord Boyd-Carpenter, spoke most fluently and convincingly at the Committee stage of the Bill on 15th May when he said, at col. 1300: There is then the subtler (but I should have thought not wholly non-existent) risk of an acquisition by foreign interests designed not crudely to damage the operation of our airports but working so as to prevent their proper development". Had I not been convinced earlier by the amendments, the noble Lord's argument would certainly have convinced me.

Today in another important and powerful speech he spoke much more in support of the Government. He tried to clarify the question of having it on the face of the Bill. I think I got his words correctly when he suggested that I was flogging a dead horse. But he added, "provided the Government carry out the intention of including it in the articles of association". However, the noble Lord, Lord Lloyd of Kilgerran, stated that there was nothing, other than the Written Answer to a Question in both Houses, to say that the Government are going to do this. This House is going to let this Bill go without an assurance, other than the assurance given in those Answers.

Lord Boyd-Carpenter

My Lords, is the noble Lord suggesting that where a Minister of the Crown, in that capacity, has answered a Question in this House committing the Government to certain action, it is even conceivable that he should not implement that?

Lord Carmichael of Kelvingrove

My Lords, I was paraphrasing the noble Lord's own words when he said. "provided the Government carry out their intention". All kinds of things flow from that. There is some doubt unless we get it on the face of the Bill. Of course no Minister would give his name to something he did not intend to put into effect, but why did the noble Lord, Lord Boyd-Carpenter, show a doubt himself? The words may not be exactly as they are in the Written Answer.

When the Minister sits down to discuss this with his civil servants it may be slightly different.Therefore I think that the amendment I have put forward from this side of the House is one that clears up any doubt. It does not add anything to the statement made in the written reply. It merely makes it quite clear that we want the Secretary of State to have this controlling share without any doubt or risk of omission, deliberate or otherwise.Therefore I feel it is asking very little for the Government to go a little beyond what they have said in this statement and put it on the face of the Bill. It would give a great deal of protection for the future than merely having it in the articles of association.

On Question, amendment negatived.

The Earl of Caithness moved Amendment No. 3:

After Clause 9, insert the following new clause:

("Statements in connection with flotation.

.—(1) This section shall apply where—

1. (a) an offer for sale to the public of any securities of the successor company is made by or on behalf of the Crown;
2. (b) any invitation or advertisement is issued (whether or not in documentary form) by or on behalf of the Crown in connection with the offer; and
3. (c) that invitation or advertisement does not contain all the listing particulars.

(2) None of the persons mentioned in subsection (3) shall incur any civil liability by reason of the invitation or advertisement, or any omission from it, if—

1. (a) the contents of the invitation or advertisement were submitted to the Council of The Stock Exchange;
2. (b) the Council did not object to the contents of the invitation or advertisement; and
3. (c) the invitation or advertisement and the listing particulars, taken together, would not be likely to mislead persons of the kind likely to consider the offer.

(3) The persons referred to in subsection (2) are—

1. (a) the Crown;
2. (b) any person acting on behalf of the Crown in connection with the offer;
3. (c) the maker of any statement contained in the invitation or advertisement;
4. (d) any person responsible for the preparation of, or of any part of, the listing particulars.

(4) The reference in subsection (2) to a person mentioned in subsection (3) incurring civil liability shall include a reference to any other person being entitled as against the person so mentioned to be granted any civil remedy or to rescind or repudiate any agreement.

(5) In this section "the listing particulars", in relation to the offer, means such particulars as, by virtue of any provision of any enactment other than this section or of any subordinate legislation, have been approved by the Council of The Stock Exchange for the purposes of the admission of the securities to which the offer relates to the Official List of The Stock Exchange.")

The noble Earl said: My Lords, at this stage I must apologise for the number of Government amendments that I have brought before your Lordships at this rather late stage of a Bill. It is not what we would have wanted ideally; and some, I acknowledge, would have been more appropriately tabled at Committee stage. But the process of improving a Bill, which is what our deliberations have been all about, seldom lends itself easily to a strict timetable with a definite cut-off point. Some of the amendments, particularly to Part IV and to new Schedule 1, are consequential to amendments made in Committee. Some indeed—as the noble Lord, Lord Lloyd of Kilgerran, will be pleased to hear—are as a result of further considerations that I have been able to undertake on behalf of the Government, perhaps with some success, which I hope will be welcomed by parties opposite. Some are needed because other legislation has not progressed as speedily as we might have hoped.

Turning now to Amendment No. 3, the Financial Services Bill presently being considered in another place provides for protection against civil liability arising as a result of the publication of abridged listing particulars if these have been approved or authorised by the Council of the Stock Exchange. That provision recognises the increasing use of what are known as mini-prospectuses in share sales, which were first given general application under the terms of the Stock Exchange (Listing) Regulations 1984.

As your Lordships will be aware, the Government are committed to increasing the numbers of people who hold shares. We have already had substantial success in this field. Mini-prospectuses have an important role to play in this respect. They can make the acquisition of shares a less daunting prospect for the first-time buyer, as they do not contain all the complexities of the offer document.

It is possible that the relevant clauses of the Financial Services Bill may not be brought into force by the time of the main advertising campaign leading up to the BAA privatisation: I am therefore proposing this new clause in the Airports Bill as a safeguard against this possibility. An identical provision has already been included in the Gas Bill, which is presently at its Committee stage in your Lordships' House, as we know full well.

This new clause provides protection against civil liability arising simply from the abridging of the prospectus, despite full disclosure having been made elsewhere. There is still a very clear requirement that persons of the kind likely to consider the offer shall not be misled, and the Council of the Stock Exchange has the power to object to the contents of the document. If it did so, the exemption from civil liability would become void.

This new clause forms a small but valuable part of our drive to widen share ownership. I commend it to your Lordships and beg to move the amendment.

4.45 p.m.

Lord Williams of Elvel

My Lords, I am grateful to the noble Earl for his explanation of the new clause. He is right in saying that this amendment is already in the Gas Bill which is in Committee of your Lordships' House, and I hope your Lordships will excuse me if part of what I say will be repeated tomorrow when Clause 58 of the Gas Bill is debated in Committee.

To my mind there are three problems with this clause. The first concerns the responsibilities of those who are concerned with offering securities of the successor company for, by, or on behalf of, the Crown. The new clause specifically exempts, as I understand it (I am asking as much as anything for clarification on these points) the directors of the company, who would normally be responsible under company legislation for ensuring that the mini-prospectus is correct and not misleading. It seems to exempt those directors under subsection (3)(d). It exempts those who are acting as agents of the Crown as well as the Crown itself under the other subsections. These exemptions apply to civil liability. It therefore fairly and squarely places the responsibility on the Council of the Stock Exchange. If the Council of the Stock Exchange approves the mini-prospectus or any other documents which may be issued then the terms of this clause apply and others, as the noble Lord has said, are exempt from any liability in the civil courts.

The noble Earl referred quite rightly to the passage of the Financial Services Bill. The Financial Services Bill, in its present form—the noble Earl is right in saying that that Bill may be changed in your Lordships' House—grants immunity to the Council of the Stock Exchange as a self-regulating organisation. Indeed this is a concession that the Government made after the debate in Standing Committee in another place, so that the result of the Financial Services Bill, if passed in its present form, would be to grant the Council of the Stock Exchange immunity not only for its own members, which was the original contention from our side of the House, but also from civil suits from third parties who may thereby be damaged. This is a point which will be raised by some of my honourable friends during the Report stage in another place of the Financial Services Bill. However, I understand that the Government have rather nailed their flag to this particular mast and have decided that the self-regulating organisations will be immune from civil liability when carrying out their functions under the Bill.

I therefore ask myself the question: if the Crown and those acting on behalf of the Crown are immune; if the directors of the company are immune; if the Council of the Stock Exchange is immune, and I find as a potential investor—I do not know whether I will be or not—that any of these prospectuses are misleading in any sense, against whom do I have recourse? All the people against whom I might have recourse appear to be immune under one form of legislation or another.

My second problem is this. The noble Earl has referred to the new clause. The new clause in subsection (1)(a) refers to an offer for sale to the public of any securities of the successor company". The noble Earl and I had an exchange during Committee about what the proper capital structure of the British Airports Authority, as to be privatised, might be. There was some discussion as I remember it about debt equity ratios and the noble Earl asked me to write to him. I placed a copy of my letter in the Library; the noble Earl was kind enough to write back to me and also placed a copy of his letter in the Library. There are two points relating to securities which I should like to raise: one is that it is my contention that the capital of BAA should be converted into ordinary shares rather than a mixture of shares and other securities. Therefore I should have preferred the new clause to have read simply, "shares".

I rest my case on what the noble Earl wrote to me. A copy of the letter is in the Library. He quite rightly refers to the fact that the British Airports Authority, as a nationalised industry, has built up substantial reserves over and above the initial capital fund, if you like, that was provided by the National Loan Fund. The noble Earl said in his letter: It would be inappropriate to offer the BAA to the financial markets with such large reserves. Although the policies which have caused these reserves to grow were appropriate for a nationalised industry such as the BAA, a private company would probably have not have pursued them. Instead it would have distributed a significant proportion of its profits and financed capital expenditure through the issue of new securities. As a result, its reserves would have been much smaller and its other liabilities much larger than those of the BAA". It is not for me to judge what the conduct of a private company in those circumstances might or might not be. It seems perfectly reasonable; there are many private companies which build up their reserves and do not have recourse to debt. They build up their reserves because that gives them greater financial stability; and for the Government simply to assume that in those circumstances a company would have had resource to debt instruments rather than financing itself entirely from its own cash flow seems to me to be rather a large assumption.

However, I am afraid that worse is to follow because the noble Earl goes on to say in his letter: Although, as you say, the precise balance between debt and equity is a question which we shall decide at a later date, I can assure you that the net assets figure will not change at the time of vesting and will remain equal to the sum of liabilities and reserves". Unless the Accounting Standards Committee of the Institute of Chartered Accountants of England and Wales have changed their policy since I rose to my feet on this, it simply is not true to say that the net assets figure will be equal to the sum of liabilities and reserves. It might be true to say that the gross asset figure will be equal to the sum of liabilities and capital reserves, but I am afraid it is simply not true to say what the noble Earl has said in his letter to me. I have no doubt he will take this opportunity of correcting what I am sure is a mistake on the part of his advisers.

There is also a third point. If such a statement were repeated in a prospectus, mini-prospectus or other, to my mind it would be a wholly misleading statement—not only misleading but quite false in accounting terms. I come back to the first point: against whom do I have recourse? If everybody is immune, I have recourse to nobody. I would ask the noble Earl to clarify these points because they are important. I understand that he may wish to return to them on Third Reading, but I hope that he can deal with these very important questions because to my mind the letter that the noble Earl wrote to me contains an error of simple accounting fact, and I want to know if that error is to be corrected or if it is to be potentially reproduced in some prospectus. If it is to be so reproduced, who can I sue?

Lord Lloyd of Kilgerran

My Lords, I should like to thank the noble Earl for the clear way in which he explained the context of this amendment. I should also like to identify myself with the three problems raised by the noble Lord, Lord Williams of Elvel. Perhaps I may say that I was not a party to the correspondence to which the noble Lord, Lord Williams, has referred, though I suppose I could have seen it in the Library had I made my searches there and had I had more notice of what had happened. However, if there is any further correspondence, I should be grateful if I could be sent copies of it.

A further point I should like to raise is associated with the second problem brought forward by the noble Lord, Lord Williams, and it relates to subsection (1)(a) of this new clause. It refers to, an offer for sale to the public of any securities". Leaving out the rest of the wording, immunity is granted by the rest of the clause in regard to an offer for sale to the public of any securities. I ask this question, apologising to the noble Earl for the fact that I have not given him notice beforehand: does this mean that the Government are not claiming immunity for any other offer of sale to the public, such as industrial assets or even intellectual property rights, to take one limited field? Is the immunity intended to refer solely to securities?

I do not know what definition is to be given to "securities". The noble Lord, Lord Williams, suggested, instead of the word "securities", the word "shares". I merely ask the Government whether the immunity in relation to the offer for sale which is referred to here is limited to securities in the narrow sense. I am sorry; I fear that I have interrupted the noble Earl in his discussions and I know that he will have a difficult problem in answering all these questions. All I am asking for is a clarification of the scope of the word "securities" and whether the Government are claiming any immunity in relation to other matters which obviously will be offered for sale in the course of this operation.

The Earl of Caithness

My Lords, I am grateful for the comments and the questions which the two noble Lords have put to me. I find myself in some difficulty over the first question that was posed by the noble Lord, Lord Williams of Elvel, for the very good reason that the Financial Services Bill is still in another place and it would be wrong for us in this House to start consideration of the Bill before it reaches us here. However, I shall draw to the attention of my right honourable friends in another place the point that he raises, and I hope to be able to get an answer to him before Third Reading in regard to where he links this Bill with the Financial Services Bill. I hope he will accept that assurance in the good faith in which it is offered.

The noble Lord also asked whether everyone was immune and against whom, if he is misled, can he take legal action? That is another interesting point which I will investigate and then reply to him later. However, I would emphasise that this Bill does not grant immunity to the Stock Exchange and therefore the point he is making is more relevant to the Financial Services Bill than to this Bill.

The noble Lords, Lord Williams of Elvel and Lord Lloyd of Kilgerran, asked me about securities. Both noble Lords would have preferred the use of the word "shares" rather than "securities". We used the term "other securities" because of the commitment that at least an equivalent element of debt will be included in the company's structure to that which is written off under Clause 3. We included that precisely at the request of the Opposition in another place and if the noble Lord, Lord Williams, has difficulty, I wonder whether he would perhaps liaise with his honourable friends in another place. We could discuss that, too, before Third Reading.

I turn finally to the letter of 4th June. In fact, I wrote two letters to the noble Lord on that date, and he has picked up a point from the penultimate paragraph of one of them which I had also picked up on reconsideration. Indeed, I had asked for a letter to be written to the noble Lord. I believe there is a confusion between us and that confusion may have arisen because of the differences in accounting practice between nationalised industries such as the BAA and private sector companies, in the definition of "net assets". I shall be happy to continue to seek advice on the letter and will write to the noble Lord, Lord Williams, on this point. The basic point is that we would expect to draw on the reserves in order to increase the liability of the BAA, but its total assets will remain unchanged. I hope that the noble Lord, Lord Williams, will not be too disappointed with that reply, and I shall try to get further information to him as soon as possible.

5 p.m.

Lord Lloyd of Kilgerran

My Lords, before the noble Earl sits down, may I go back to the question I asked about the scope of the word "securities"? Is it merely limited to shares and, therefore, are the Government not claiming any immunity in regard to any other assets which they propose to offer for sale?

The Earl of Caithness

I am sorry, my Lords, but I thought I had answered the noble Lord, Lord Lloyd. The words "other securities" were requested. I believe that they are wider than the word "shares", but I will take advice on that and write to the noble Lord.

Lord Lloyd of Kilgerran

My Lords, I am very much obliged to the noble Earl.

Lord Morris

My Lords, I do not know whether I can help on this point but, as the noble Lord, Lord Lloyd, knows, the phrase "offer for sale" is a technical term which is defined in one or other of the Companies Acts—I cannot remember which. It would refer to securities, because it embraces debentures as well as shares in a company. That is why it is absolutely necessary and Her Majesty's loyal Opposition were absolutely right to insist on this term.

Lord Williams of Elvel

My Lords, I am grateful to the noble Earl for his response, even though he found some of my questions rather difficult. If I may for his guidance, return to some of the points that I made and which he covered—

Viscount Davidson

My Lords, I am sorry to interrupt, but this is Report stage and on Report it is only the mover of the amendment who can speak twice.

On Question, amendment agreed to.

Clause 12 [Transfer of airport undertakings of local authorities to companies owned by such authorities]:

Lord Underhill moved Amendment No. 4: Page 10, line 2, after ("may") insert (", subject to subsection (5A),").

The noble Lord said: My Lords, it may be for the convenience of the House if I also speak to Amendment No. 6. The aim of these amendments is to require the Secretary of State to issue directions to airport authorities to establish airport companies in phased batches of similarly sized airports. We envisage that this provision would be used by the Secretary of State to issue directions in the first instance to, say, the largest local authority airports, such as Birmingham, East Midlands, Luton, Manchester and Newcastle. The remaining 11 airports currently caught by the provisions of Part II of the Bill could subsequently be covered by directions on additional batches.

There are three primary justifications for suggesting that this course should be followed. First, 16 local authority airports fall within the £1 million annual turnover threshold which is included in Clause 13 of the Bill. We have listed those on previous occasions. But the variation in their size, function and financial viability is considerable.

It is essential that the particular circumstances of individual airports are given close attention by Ministers, civil servants and their consultants when proposals for company formation are being considered. This is more likely to be possible if airports with similar characteristics are handled together. This will ensure that the available resources are focused constructively and not diverted on to a wide variety of issues. The very fact that 16 airports are covered by Part II of the Bill is likely to cause difficulties for the civil servants responsible for handling the company formation process, which will not be inconsiderable.

Ministers have made it clear during the passage of the Bill that they are keen that all 16 airports should be subject to company formation; and may I stress at this stage that we are talking about company formation and not privatisation, because that is not referred to in the Bill. This is more likely to be achieved effectively if the process is spread over a number of months and is not the subject of unseemly haste.

At all stages of the Bill amendments have been tabled designed to exclude the smaller local authority airports from the provisions of Part II of the Bill. Those amendments have been constructive and well reasoned, and local authorities with smaller airports quite reasonably believed that the case put forward would be so acceptable to the Government that there would be a lower criterion and therefore they would be covered by Part II of the Bill. Hence they have not really started to formulate any proposals for company formation.

These amendments would ensure that they have adequate time to prepare transfer schemes and that their companies are established on a sound basis. In no way do they hit at the purpose of the Bill. They will make the implementation of Part II more smooth, reasonable and sensible. Therefore, I hope that the Government will accept them. My Lords, I beg to move.

The Earl of Caithness

My Lords, before dealing with this amendment, may I, with the leave of the House, quickly go back to the last amendment? It escaped my memory at the time but the point raised by the noble Lord, Lord Lloyd of Kilgerran, with regard to shares is, of course, covered in the definitions on page 72 of the Bill as printed.

I am grateful to the noble Lord, Lord Underhill, for explaining the purpose of these amendments, but what the noble Lord did not make clear was their effect. When are turnovers comparable and how many years would it take for local authority airports with an annual turnover in excess of £1 million to become public airport companies? This goes to the very root of the amendments. It is the Government's view that all airports with an annual turnover of over £1 million are sizeable businesses which would benefit from being converted into Companies Act companies at an early date, and they have had notice of this for quite some time.

The planned date for establishing public airport companies at all of the local authority airports with a turnover of more than £1 million is 1st April, 1987. It is, we know, a tightish timescale, but we want a timescale in which the necessary safeguards can be made to ensure a proper transition to company status. Therefore, it is a practicable timescale. We have now issued draft guidance on the establishment of public airport companies and my officials and our consultant advisers, Price Waterhouse will be discussing this with airports and local authorities before it is finalised. If one considers that the timescale is tight, one would do well to think back to the speed with which the Greater Manchester district councils managed to establish Manchester Airport plc, and that was even without the benefit of Government guidance. Therefore, I hope that the noble Lord will withdraw this amendment.

Lord Underhill

My Lords, the timescale is set out in the new subsection (5A) of Amendment No. 6 which reads, (a) that there is a period of no less than one year between each such direction". As I have explained, the purpose of the amendment is to effect a smooth formation of these companies.

The noble Earl referred to his advisers. There is a subsequent amendment dealing with advice and perhaps we can deal with that question when we come to that. In the meantime I suggest that I withdraw the amendment and seek further advice, because local authorities are very troubled and concerned to see that there will be no hasty decisions in setting up these companies, perhaps to get them all done at one stage, and taking no account of their size and the difference between one airport and another. So they should like this to be considered further. In the meantime I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Carmichael of Kelvingrove moved Amendment No. 5:

Page 10, line 14, at end insert— ("( ) The memorandum and articles of association of the company shall contain such restrictions on the allotment and transfer of shares that the holding or holdings of any one or more shareholders (whether individual or corporate) cannot exceed in aggregate ten per cent. of the issued capital of the company, and the Secretary of State shall retain a special share which will give him the right to veto any proposed change to this article.").

The noble Lord said: I spoke to this amendment with Amendment No. 2. I should like to take it to a Division in order to get the opinion of the House, largely because we have reached a point where local authority airports could be even more easily influenced by not having a golden share on the face of the Bill, since 51 per cent. could quite easily be sold by local authorities. It may be necessary for it to be sold by them because of other conditions within the Bill which would cause local authorities to raise money outside. Therefore I hope that the House will show its desire to have on the face of the Bill the concept of the control of the Minister through the golden share. I beg to move.

The Earl of Caithness

My Lords, I do not think I can add anything to what I said earlier.

5.10 p.m.

On Question, Whether the said amendment (No. 5) shall be agreed to?

Their Lordships divided: Contents, 89; Not-Contents, 127.

DIVISION NO. 2
CONTENTS
Ardwick, L.	Kirkhill, L.
Attlee, E.	Listowel, E.
Aylestone, L.	Llewelyn-Davies of Hastoe, B.
Banks, L.	Lloyd of Kilgerran, L.
Birk, B.	[Teller.]
Blyton, L.	Longford, E.
Boston of Faversham, L.	Lovell-Davis, L.
Bottomley, L.	McNair, L.
Brockway, L.	Melchett, L.
Brooks of Tremorfa, L.	Milford, L.
Bruce of Donington, L.	Molloy, L.
Burton of Coventry, B.	Monson, L.
Caradon, L.	Mountevans, L.
Carmichael of Kelvingrove, L.	Mulley, L.
Cledwyn of Penrhos, L.	Nicol, B.
Crawshaw of Aintree, L.	Northfield, L.
David, B.	Oram, L.
Davies of Penrhys, L.	Parry, L.
Dean of Beswick, L.	Phillips, B.
Diamond, L.	Pitt of Hampstead, L.
Donaldson of Kingsbridge, L.	Ponsonby of Shulbrede, L.
Ennals, L.	[Teller.]
Ewart-Biggs, B.	Prys-Davies, L.
Ezra, L.	Ritchie of Dundee, L.
Falkender, B.	Robson of Kiddington, B.
Falkland, V.	Rochester, L.
Fitt, L.	Seear, B.
Foot, L.	Sefton of Garston, L.
Gallacher, L.	Shackleton, L.
Gladwyn, L.	Shepherd, L.
Glenamara, L.	Silkin of Dulwich, L.
Graham of Edmonton, L.	Stallard, L.
Gregson, L.	Stedman, B.
Grey, E.	Stewart of Fulham, L.
Grimond, L.	Stoddart of Swindon, L.
Hampton, L.	Taylor of Blackburn, L.
Hanworth, V.	Taylor of Gryfe, L.
Houghton of Sowerby, L.	Taylor of Mansfield, L.
Hughes, L.	Underhill, L.
Hutchinson of Lullington, L.	Vernon, L.
Jacques, L.	Wallace of Coslany, L.
Jeger, B.	Walston, L.
Jenkins of Putney, L.	Wells-Pestell, L.
John-Mackie, L.	Williams of Elvel, L.
Kilbracken, L.	Ypres, E.
Kilmarnock, L.

NOT-CONTENTS
Alexander of Tunis, E.	Brougham and Vaux, L.
Allerton, L.	Broxbourne, L.
Annan, L.	Bruce-Gardyne, L.
Auckland, L.	Butterworth, L.
Bauer, L.	Buxton of Alsa, L.
Belhaven and Stenton, L.	Caccia, L.
Beloff, L.	Caithness, E.
Belstead, L.	Cameron of Lochbroom, L.
Bessborough, E.	Campbell of Croy, L.
Boyd-Carpenter, L.	Carnegy of Lour, B.
Brabazon of Tara, L.	Cathcart, E.
Brookes, L.	Constantine of Stanmore, L.

Cork and Orrery, E.	Maude of Stratford-upon-
Cowley, E.	Avon, L.
Cox, B.	Merrivale, L.
Craigavon, V.	Mersey, V.
Craigmyle, L.	Middleton, L.
Cross, V.	Monk Bretton, L.
Cullen of Ashbourne, L.	Montgomery of Alamein, V.
Dacre of Glanton, L.	Morris, L.
Davidson, V.	Murton of Lindisfarne, L.
De La Warr, E.	Newall, L.
Denham, L. [Teller.]	Norfolk, D.
Derwent, L.	Nugent of Guildford, L.
Dilhorne, V.	Onslow, E.
Drumalbyn, L.	Orr-Ewing, L.
Eccles, V.	Pender, L.
Ellenborough, L.	Peyton of Yeovil, L.
Elliot of Harwood, B.	Plummer of St Marylebone,
Erroll of Hale, L.	L.
Faithfull, B.	Porritt, L.
Fanshawe of Richmond, L.	Portland, D.
Fortescue, E.	Quinton, L.
Fraser of Kilmorack, L.	Radnor, E.
Gainford, L.	Rankeillour, L.
Gibson-Watt, L.	Renton, L.
Glenarthur, L.	Rochdale, V.
Gray, L.	Rodney, L.
Gray of Contin, L.	St. Davids, V.
Hailsham of Saint	Saltoun of Abernethy, Ly.
Marylebone, L.	Sanderson of Bowden, L.
Halsbury, E.	Seebohm, L.
Harmar-Nicholls, L.	Selborne, E.
Hives, L.	Selkirk, E.
Holderness, L.	Sempill, Ly.
Home of the Hirsel, L.	Shannon, E.
Hooper, B.	Shaughnessy, L.
Hunter of Newington, L.	Skelmersdale, L.
Hylton-Foster, B.	Stokes, L.
Ingrow, L.	Strathcarron, L.
Kinnoull, E.	Strathspey, L.
Kitchener, E.	Sudeley, L.
Lane-Fox, B.	Swinton, E. [Teller.]
Lauderdale, E.	Terrington, L.
Layton, L.	Thomas of Swynnerton, L.
Long, V.	Thorneycroft, L.
Lyell, L.	Torrington, V.
McAlpine of Moffat, L.	Tranmire, L.
McAlpine of West Green, L.	Trefgarne, L.
McFadzean, L.	Ullswater, V.
Macleod of Borve, B.	Vaux of Harrowden, L.
Malmesbury, E.	Vickers, B.
Mancroft, L.	Vivian, L.
Margadale, L.	Ward of Witley, V.
Marley, L.	Whitelaw, V.

Resolved in the negative, and amendment disagreed to accordingly.

5.18 p.m.

[Amendment No. 6 not moved.]

Clause 14 [Transfer schemes]:

Lord Underhill moved Amendment No. 7:

Page 12, line 6, at end insert— ("( ) When formulating any advice for the purpose of subsection (2) or considering any scheme for approval under subsection (3) the Secretary of State shall take into account the financial consequences for the transferor authority of implementing the advice or scheme.")

The noble Lord said: My Lords, in moving Amendment No. 7 it may be for the convenience of the House if I speak also to Amendment No. 8. The first amendment relates to issues associated with debt; the second to independent advise, to which reference was made on the previous amendment. It may be helpful if I explain each amendment in turn.

Amendment No. 7 relates to debt. The Committee discussed extensively the issues associated with handling debt in the context of establishing airport companies. The noble Earl has acknowledged the complexity of the issues, for on 22nd May he remarked that: We realise the problems that may be entailed and we are looking at these seriously … I hope to have something to report to the House at Report stage".—[official Report, 22/5/86: col. 414.] I hope that will be so, but as I am permitted to speak only once, except for a brief response at the end, I had better outline the purpose of the two amendments, in case what the noble Earl has to say does not fully accord with what we hope he will have to say.

The amendment now tabled safeguards the position on the basis that the Government's deliberations do not produce their own amendment. We are particularly concerned that an amendment shall be made to the Bill because assurances that the Government will adopt a flexible approach in considering proposals are obviously not sufficient. During the passage of the Transport Bill local authorities were assured that there would be little or no cost to the passenger transport authorities by transferring assets to the new public transport companies. However, experience shows those assurances to have meant nothing. In one PTA area—namely, Greater Manchester—the Department of Transport is asking the ratepayers to pick up a bill that could amount to as much as £58 million, with no indication that the expenditure limit will be determined with that level of commitment taken into account.

As has been previously made clear in Committee, based on the latest accounts for the year ended 31st March 1986, debt outstanding in relation to those local authority airports affected by the Bill amounts to no less than £120 million. Those amounts range from more than £28 million in Birmingham to less than £½ million in Southend. I have a schedule, of which the noble Earl no doubt also has a copy, listing the debts and interest charges of all 16 local authorities affected.

The way in which debts at each airport are handled could have very serious implications for their local authority owners. In the case of Birmingham the annual interest charges alone on outstanding debt would be £3½ million, and the potential loss of grant of £3 million would make a total charge of no less than £6½ million to that authority. That would equate to a £1.64p rate in the pound, which is not met at present.

The transfer scheme to be determined by the Secretary of State under Clause 14 will determine what is to be the legal responsibility of the airport company. If debts are not assigned by that scheme to the company, they will remain the legal responsibility of the local authority concerned. It will be left with them as a matter of law until those debts are redeemed.

The Government have demonstrated some level of understanding of the problems, but a balance will clearly need to be struck between the creation of viable company structures and the financial interests of the transferor local authorities. It is equally clear that no two airports will be alike and that it would be counter-productive to attempt to define hard and fast rules for inclusion in the Bill as though they were. It is still considered vital that the Bill should not remain totally silent on this issue and that the Secretary of State will take into account the interests of transferor authorities in the way in which he determines schemes under Clause 14.

The amendment is designed to encourage that. It does not bind the Secretary of State to do anything except to take into account all the possible financial consequences. The 16 local authorities concerned all hope that the Government will accept it. I use the words "take into account"; I hope that they will not be challenged by the noble Earl, because time after time the Government have justified the use of those words in various Bills when we have attempted to make certain matters more firm.

Amendment No. 8 deals with independent advice. I regret that it was one of the amendments that the noble Earl described as being superficially attractive but wrecking at the Committee stage. However, he did confirm: So there is nothing to prevent the local authority and the airport from seeking independent advice. If that advice is given to the local authority and the local authority presents it to us before we finalise our thoughts, we shall of course take it into account".—[Official Report, 15/5/86; col. 1368.] In the light of that statement the Government should have no difficulty in accepting Amendment No. 8. It would simply confirm in the Bill that which the Government have said they will do, and that would be of great comfort to the local authorities.

The need for confirmation of that point is paramount. The concern of the local authorities stems largely from the fact that they are far from convinced that the Government understand all of the issues. The Government's insistence on creating company structures for all the airports, irrespective of size and turnover, is a reflection of their dogmatic approach to company formation. The issues need to be handled with considerable sensitivity. The blanket approach simply will not do. Each airport will pose different problems requiring different solutions.

Both the Government and the local authorities will find it beneficial to have independent advice available. Neither side has the monopoly of wisdom. The noble Earl referred to their expert advice, and the local authorities similarly want expert advice. The Government have appointed independent experts to appraise the transfer schemes produced for the initial bus companies, and we want to ensure, with Amendment No. 8, that taken independent financial advice is taken and submitted before the scheme is put forward.

I understand that a meeting today of the grants working party and Department of Transport representatives moved some way on that matter, and I hope that the noble Earl will have something to report. It is suggested that an additional grant related expenditure assessment for airport debt remaining with the local authorities after the establishment of the new airport companies was one of the matters considered, and that the Government have it in mind to make proposals.

If the Government do have a statement to make, then I suggest that the precise methodology for constructing grant related expenditure in that case was not explained, although I understand that the local authority associations are to be notified by letter. Naturally, as we are discussing this particular clause, this House would like to know the method today. Also, it is not clear whether, at that meeting, the Exchequer grant total was increased by a corresponding amount. The proposal will result in some additional block grant for authorities with airport underakings, but within a fixed grant total that could mean that it would be at the expense of all other local authorities.

I thought that it was necessary to put those points because they were matters to which the noble Earl referred at the Committee stage, when he said that he hoped to have something further to say on Report. Meanwhile, I hope that the Government will accept the amendment. I beg to move.

Lord Parry

My Lords, as this is the Report stage, I shall not say that Cardiff, Wales, airport is the best airport in Great Britain; I will spare the House that. However, it does have a great interest in this particular amendment and I have been asked by the joint committee that serves the airport to point out that the amendment is one that the Minister, should he feel so disposed, could accept.

As my noble friend who leads from this side of the House has already said, the amendment is designed to ensure that, in view of the particular circumstances of individual airports, there should be flexibility in the application of schemes, and that schemes should have regard to local circumstances and needs. That is particularly important in the case of Cardiff, Wales, airport, which is the only national airport specifically serving Wales.

The amendment further provides that any advice in that respect obtained by a principal council from independent financial advisers should be taken into consideration by the Secretary of State. In our case, the Secretary of State for Wales has contributed to the development of the airport by his agreement to a recent extension of its runway. Therefore, I see no reason why the Minister should not on this occasion say that he can accept the amendment and that we can proceed to the next stage.

5.30 p.m.

The Earl of Caithness

My Lords, we are grateful for the attention given to this amendment by the noble Lord, Lord Underhill, and also the attention given by my noble friend Lord Dudley, whose presence we sadly miss today. Both noble Lords have given considerable attention to transfer schemes under Clause 14, and in particular to the question of transferring airport debts.

I said in Committee that we were giving this question further consideration, and indeed we have given it considerable thought. I was able to report the results of that further consideration in a letter yesterday to my noble friend Lord Dudley; with a copy to the noble Lord, Lord Underhill, which I hope he has received. I also sent copies to the noble Lord, Lord Tordoff, the noble Baroness, Lady Fisher, who took part in the consideration in Committee, and to my noble friend Lord Butterworth. I hope that they are pleased with the results of our deliberations.

I believe that we have now found a solution that reconciles our objectives of establishing airport companies which are viable, or have every prospect of viability, with the objective—expressed in this amendment—of taking account of the financial consequences for the transferor authority of doing so by leaving airport debts with local authorities. The solution that we propose is to introduce from 1987–88 a new grant related expenditure assessment to cover the cost of servicing airport debts left with local authorities. The total for this GREA will he an addition to the debt charges component of total grant related expenditure; and the addition will be taken into account in determining the level of aggregate Exchequer grant. The details will be incorporated in the rate support grant settlement.

This solution was suggested by the local authority associations and therefore should be acceptable to them. I could expand on the method of operation of this new special GRE but it is complex and in view of what I have been able to say I will spare the House further details unless I am specifically requested to do otherwise. I will also make sure that a copy of the letter to my noble friend Lord Dudley is placed in the Library for everyone to see. We believe that it is a major step forward and I am grateful to the noble Lords who encouraged us to take it.

Lord Diamond

My Lords, perhaps I may intervene on a matter of explanation. Can the noble Earl confirm that he referred to an injection of new money, additional money, and that it is not merely a reallocation of the rate support grant?

The Earl of Caithness

My Lords, I will clarify what I said. What we are proposing would involve the introduction of a new grant related expenditure assessment for past airport debt borne by the controlling authorities. The notional cost of financing this debt would be calculated using standard interest rate and repayment rate factors consistent with those used for the other GREAs for debt charges. The amounts calculated in this way would be added to the individual authorities' overall GREAs to ensure that the entire notional cost of financing past airport debt is met with the rate support grant. For airports owned by more than one authority, as most are, the airport debt GRE will be divided among the joint owning authorities, pro rata to their shares in the airport company.

I hope that as a result of the major move that we have made the noble Lord, Lord Underhill, will see fit to withdraw his amendment. By introducing a special GRE we have taken account of the financial consequences to transferor authorities in a specific practical way. The special GREs are referred to in the draft guidance on the establishment of public airport companies that my department issued today.

The department's advice will, I am sure, now be thought fully satisfactory on this important point of treatment of airport debt. Indeed, the noble Lord, Lord Underhill, was correct in saying that there was a meeting this morning to explain to the representatives of local authorities how our proposals will work. Naturally, we shall look at each proposal submitted by local authorities, carefully taking into account the individual points that each airport has. I know that Cardiff will not be excepted from that generalised rule. In view of this major concession and what I have said, I hope that the noble Lord will withdraw his amendment.

Lord Underhill

My Lords, I am encouraged and grateful to the noble Earl for confirming what I understood was the position at the joint meeting. There is such a thing as bush telegraph! However, he has not answered one of the points that I made, and I do not think that it is within his power to do so. I think it is possibly the Secretary of State for the Environment who should know something about this and it is his position to answer.

The point I made, which was echoed by the noble Lord, Lord Diamond, is that we still do not know whether this will be new money. The noble Earl said that this will be added to the past GREAs of the authorities, but will it be totally new money in the actual rate support grant settlement when that is announced by the Secretary of State for the Environment? That is the important point. Otherwise, it will be taken from the national pool in order to advance this additional GREA, or some of the authorities will suffer. I hope that the noble Earl will ensure that his right honourable friend is shown this passage in Hansard because these are important questions to be answered. We also want to know the method which will be used to calculate the amount. I believe that was not discussed at this morning's meeting. In the meantime, I beg to leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 8 not moved.]

Lord Underhill moved Amendment No. 9:

After Clause 14, insert the following new clause:

("Application of Part II to passenger transport authorities.

. The Secretary of State may by order apply the following provisions of this Part to a metropolitan county passenger transport authority as they apply to a principal council.").

The noble Lord said: My Lords, this amendment is primarily concerned with the position of Liverpool airport. It may be remembered that we had a lengthy debate on this subject in Committee. However, I remind your Lordships that the airport is at present owned by the Merseyside Passenger Transport Authority which, under the provisions of the Bill, is able to establish an airport company if served with a direction under Clause 12 but is not allowed to retain ownership of the company.

The Government envisage agreement being reached among the constituent district councils over the future ownership of the airport company. The amendment provides the Secretary of State with a fallback position enabling him to allow the passenger transport authority to retain ownership should the districts fail to reach an agreement. The Merseyside PTA considers that the Government should have covered this possibility in the Bill, or at least accepted the amendment tabled in Committee enabling the authority to retain ownership of the airport.

In response to the amendment tabled to Clause 11 in Committee, the noble Earl confirmed that the PTA would not be able to hold shares in an airport company, he said: This was a quite deliberate decision taken by my right honourable friend because the Government did not see PTAs as an appropriate body to hold shares in an airport, to deal in such shares, to provide certain services to an airport, to make loans to it and the other things which principal councils are enabled to do under Clauses 15 to 26 of the Bill. We believe that public sector shareholdings in the public airport companies should be held by directly elected bodies, rather than indirectly elected ones".—[official Report, 15/5/86; col. 1326.]

When pressed further, the noble Earl said: It is clear to me that the PTA own the airport. We believe they are not the right body to own it, and we appreciate the problems that have arisen over the temporary basis, and perhaps it is not the ideal way of doing it, but we believe that following privatisation it should be the five district councils who own it".—[Col. 1329.] Incidentally, I note the use of the word "privatisation" but we are not arguing about that; we are talking about the formation of a public company.

This amendment has been tabled not because the PTA is particularly keen to retain ownership of the airport but because it is keen to remove any uncertainty regarding the future ownership and financing of the airport and to ensure that adequate arrangements are made to give the airport the opportunity to expand its operation to justify the significant investment over recent years.

The Government's antipathy to the passenger transport authority retaining ownership of the airport is surprising and conflicts with the combined effects of the Government's Local Government Act 1985 and their Transport Act 1985. Those two pieces of legislation established the metropolitan passenger transport authorities and provided for them to become owners of the metropolitan transport companies. It is difficult to understand how it can be proper for the six passenger transport authorities to hold shares in passenger transport companies when the Government believe that it is inappropriate in the case of an airport company. Why in the one case and not the other?

The Government's position is dependent upon the Merseyside districts reaching agreement on the ownership of Liverpool airport; yet the fact that the PTA currently owns the airport is a direct result of the failure of the districts to reach agreement on ownership following the abolition of the Merseyside District Council. It was unclear from the Minister's response at the Committee stage whether it was the Government's intention to approach the five Merseyside district councils to establish their position on the future ownership of the airport company. Do the Government intend to take the initiative or are they looking to the passenger transport authority to pursue the matter?

The latter approach will be particularly unfair because the authority was not a party to discussion between the district councils in Merseyside over the ownership of the airport following abolition of the Merseyside District Council; it was not informed about proposals by Liverpool City Council to take responsibility, nor was it told that the Secretary of State found that proposal unacceptable. The Government still seem to be assuming that the district councils will want to take over the airport. That may well not be the case. That is why we believe that the Government should accept the amendment that has now been tabled.

The district councils concerned will be faced with an important decision. How do the Government plan to councils expected to receive advice? There is no allowance in the staffing levels of the passenger transport authority to carry out this additional work. Maybe that is another matter to be considered when the question of GREA is under consideration.

On the issue of the airport debt remaining with the PTA, if the authority is no longer responsible for the airport that will be grossly unfair. The authority is rate capped and additional expenditure on servicing debts will result in a loss of grant through the GREA mechanism. An obvious alternative would be to give the responsibility to the Merseyside residual authority, which will levy a charge on each of the district councils. In fact, there is some logic in the Merseyside residual body preparing a transfer scheme. But we still cannot understand why the Government are averse to the simple solution, which is that of accepting the passenger transport authority as shareholders for the airport. Basically, that is the purpose of this amendment. I beg to move.

5.45 p.m.

Lord Sefton of Garston

My Lords, I almost feel that I should apologise for intervening again in this debate. We had a long discussion on Merseyside and Liverpool airport during the Committee stage of the Bill and I thought that we had taken steps then which might finally resolve the difficulties in Merseyside and in my mind. I asked the Minister to write to me and explain the exact situation in regard to Liverpool airport, particularly in the light of the not very remote possibility that the district councils will not consider that they have a role to play in regard to Liverpool airport.

I received a letter from the noble Earl and when I had read the first page of it I thought that it seemed to sort the matter out. The Minister says: We propose, therefore, that when the new company is formed under the forthcoming legislation and assets are transferred to it, the shares should pass to the 5 districts". That seemed to be definite enough, and the districts would have to take the shares. The letter continues still more helpfully: However, it is our intention to ensure that the new company, so far as possible, is given every opportunity to become viable". I fail to see why the passing down of a past debt enables a company to become viable in circumstances such as those of Liverpool, because the sums are mounting up by £33½ million every year.

The letter then states: This would mean that all 5 districts would continue to service past debt and contribute to its extinguishment through PTA precepts as they are doing at present". I should like to point out to the Government that some of the districts consider that they were not doing that; that they have been compelled to do it. As districts, they did not want to participate in Liverpool airport, but Liverpool airport was maintained and kept going by Merseyside County Council, which was not composed of delegates from the district councils but of directly elected representatives from the whole of Merseyside. Anyway, I thought that this was making progress.

However, the letter goes on: It will be for the 5 district councils collectively"— and that word poses a problem— to decide the proportion that each will take of the equity capital"— I assume that if payments to the airport are to depend upon the proportion of the equity capital held by the different district councils, there will be some difficulty in getting the district councils to accept a major portion of that equity capital— and the arrangements for continuing financial support to the airport". That of course comes under the same heading. If a decision has to be taken collectively by five district councils (which to say the least have some difficulty in coming to a consensus) in order to decide how much each individual district council will contribute to Liverpool airport, then I can imagine that there will be some problems.

Then the letter says: We would expect proposals on these matters to form a part of the scheme to be presented by the PTA under C1.14 of the Bill". My sympathy goes to the PTA. Now we have a situation where the Government are saying to the PTA, "You go along and meet the five district councils"—which are all composed of politicians and, if I may say so, fairly active politicians—"each speaking for its own district council". According to this letter, it looks as though the PTA will have the job of obtaining a consensus from the district councils and submitting it to the Minister. I have had some experience in Merseyside. I was the first chairman of Merseyside County Council. Suffice it to say that I do not envy the role of the PTA.

Finally, the letter concludes: We believe that this represents the most equitable solution to the problem of allocating Liverpool Airport debts". The Government may believe that. I can only say about this letter that it does not get us much further. My specific question to the Minister was: will he write to me and tell me what in particular the Government intend to do if there is not any agreement among the district councils in respect of Liverpool airport? My noble friend on the Front Bench has just made that point.

I hesitated to speak, but this is the Report stage of the Bill and if one wants answers to a problem it is not possible to get up and down, as one can in Committee, and therefore I had to speak now. If I have delayed the proceedings of the House I am very sorry, but again I urge the Minister to give specific answers to the following questions: first, where is it stated in the statute that he can compel local authorities to take over responsibility? Secondly, where is it stated that he can compel them to meet and decide a scheme that apportions their responsibilities and equity capital in the new company? Thirdly, where is it ensured that any direction given by him will be carried out by the district councils? Finally, what will the Government do if in fact he does not have the power or is unable to obtain agreement among the district councils?

If the Minister cannot answer those questions now, before this Bill goes any further, I suggest that the only fair course that he can take is to take the action as proposed in this amendment, which does not instruct him but merely gives him the facility to clear up the matter once and for all, if in fact he cannot obtain agreement.

The Earl of Caithness

My Lords, as the noble Lord, Lord Underhill, said, there is only one airport currently owned by a PTA, and that is Liverpool which is owned by the Merseyside PTA, as the noble Lord, Lord Sefton of Garston, has just reminded us.

As I explained at an earlier stage, we do not think that this is an ideal solution. It came about only because Merseyside District Council was unable to reach agreement on ownership. We should prefer that the new public airport company that will operate Liverpool airport should be initially owned by the district councils within the area of the old county councils—the districts which, through their membership of the metropolitan county council, have supported the airport over the past decade. We propose therefore that the shares should pass to the five district councils.

We were not able to achieve that under the Local Government Act 1985 because the district councils could not agree on the future operation of the airport. But in this Bill—and this answers all the questions of the noble Lord, Lord Sefton—we have taken powers to resolve such disagreements. Under Clause 14 the Secretary of State can modify transfer schemes or in the case of complete disagreement substitute one of his own. But we hope that that will be unnecessary and that the five district councils can come together with an agreed solution.

I think that we have reached a major disagreement on philosophy between both sides of the House. We strongly believe that the district councils (the elected body) should be the owners and not the PTAs. I can understand the reasons for the noble Lord, Lord Underhill, requiring ownership by the PTA, but we have a major disagreement and I do not think that I can be of further help to him at this stage.

Lord Underhill

My Lords, I am sorry that the noble Earl feels that the Government can be of no further help to the House—because it is not just a question of being of no further help to me—or to Liverpool. This is one of the problems that we said would arise under abolition. The Government have not fully thought out all the issues that will arise from abolition and as each problem arises they have to find a way to get over it.

In this case they are getting over it by Clause 14 where, if there is not agreement, the Secretary of State can modify the scheme, substitute another one for it or bring forward his own. One of the criticisms that we made on Second Reading concerned the powers given to the Secretary of State. Here we have the situation that if five district councils cannot agree, the Secretary of State will have his own way, whatever that might be, with the advice of his civil servants and outside consultants.

As the PTA represents the elected members of the five district councils, it is common sense that that should be the body to run the company. I do not think that anybody would argue much about that. That is the disagreement of philosophy. The Government believe that if they can get agreement, okay; if they cannot, the Secretary of State will impose his own scheme.

We can only wait and see. I do not want to labour the point. It affects only one area but it is an important area. We may have to consider whether to come back to this again on Third Reading. I do not believe that the Government's answer is satisfactory. It will certainly not be welcomed in the Merseyside area and at the end of the day it is not democratic. However, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 17 [Disabilities of directors of public airport companies]:

Lord Underhill moved Amendment No. 10:

Page 15, line 2, at end insert— ("( ) The Secretary of State may grant a written dispensation from subsection (2) in the case of any individual member. ( ) any such dispensation—

1. (a) may extend both to the consideration or discussion of any such contract or other matter and to voting with respect of it, or to either alone;
2. (b) may relate to contracts, proposed contracts or other matters of all discriptions or of any particular description specified in the dispensation; and
3. (c) may be withdrawn or varied at any time by a notice in writing given by the Secretary of State to the member in question.").

The noble Lord said: My Lords, this is another matter which we debated at Committee stage, but it is an important issue and I hope that the Government will relax the view that they took then.

The question of the rights of elected member directors to participate in the consideration of airport matters in council meetings has been discussed not only here but at every stage of the Bill's passage through Parliament. But at no time have Ministers acknowledged the key justification for the Opposition amendments or explained why they felt it necessary to reject them at every stage.

At Committee stage, the noble Earl referred (in col. 425 of the Official Report) to a similar package of amendments as "Oliver" amendments. This amendment is not asking for anything new or for more, but simply for the scope for dispensation contained in the Transport Act 1985.

In the view of the Minister's refusal to acknowledge the validity of the Opposition's arguments (which I should say were accepted by various parts of the House in previous debates), it is necessary to explain the justification for the amendment in detail. Clause 17(2) of the Bill prevents an elected member director from voting on any matter relating to an airport company, including a contract or proposed contract with the authority, and taking part in any discussion of a contract or proposed contract. The Bill would, however, enable an elected member director to participate in discussions about the company apart from any contract or proposed contract between the company and the council.

The Minister was thoroughly correct in his assertion, as I stated at Committee stage, that the Transport Act 1985 imposes more severe constraints on elected member directors, preventing them from discussing or voting on any matter relating to a public transport company. But that Act enables the Secretary of State to issue a dispensation from those provisions, and that was also stressed at the Committee stage. The Secretary of State quickly issued a dispensation which enabled elected member directors, in the words of Department of Transport Circular 4/85, to: play a proper part in their authority's consideration of matters relating to its general control over the company". The effect of that dispensation is to bring the constraints imposed by the Transport Act into line with those proposed in the Bill.

But under the provisions of the Transport Act there is scope for wider dispensations to be granted by the Secretary of State in particular circumstances. That is explained in Circular 4/85: Members wishing in exceptional circumstances to vote on any matter or speak on a matter excluded from the dispensation … may apply to the Secretary of State for Transport, or in Wales the Secretary of State for Wales, for particular dispensation". This amendment is intended to write into the Bill the scope for the additional exceptional dispensations to be granted in the same way as those envisaged in the Transport Act. Frankly, Ministers have not made out a case for their refusal to do that.

During the Committee stage (at col. 427 of the Official Report of 22nd May) the noble Earl said: The reason that the Bill is phrased in its present terms is because we took on board the points … made on the Transport Bill and therefore we extended the provision to make it more liberal than the Transport Act, and as a consequence deleted the dispensation". But the provisions of the Bill are not more liberal than the combined effect of the provisions of the Transport Act and the general dispensation already issued.

I want to know why it is right to give dispensation under the Transport Act and yet the Government are refusing to give it in similar circumstances under this Bill. Why is there a difference? Why cannot the Government accept the amendment and bring the Bill into line with what they themselves brought forward in the Transport Act? I beg to move.

The Earl of Caithness

My Lords, I must admit that I was a little surprised to see this amendment on the Marshalled List as it is a slimmed-down version of Amendment No. 38 moved in Committee by the noble Lord, Lord Underhill. We took the matter to a vote and the amendment was defeated.

As the noble Lord has reminded us, Clause 17 already provides a rather more liberal regime than its counterpart in the Transport Act 1985 as it will allow members of the principal councils who are also airport directors to take part in the consideration or discussion of matters relating to their airports other than matters of contracts or proposed contracts between the airport company and the council. That was done deliberately, to allow the maximum informed discussion on airport matters. The amendment would allow the Secretary of State discretion to extend that liberal regime further in specific cases or, indeed, more generally, if he were to be persuaded that that was justified.

The overwhelming consideration must of course be that conflicts of interest of airport directors who are councillors should be avoided and that the highest standards in the conduct of public business should be maintained. There is a balance between maintaining such standards and the potential benefits which could stem from further relaxation. We have given this matter further consideration but, as I have already explained, we believe that we have gone as far as is prudent and consistent with establishing, so far as possible, an arm's length relationship between the new public airport companies and local authorities.

I ask noble Lords to recognise that we have already produced a more liberal regime than under the Transport Act 1985. I am unable to help the noble Lord, Lord Underhill, further on this point, and I hope that he will withdraw the amendment.

Lord Underhill

My Lords, I do not think that the noble Earl has advanced any reason why the amendment should be withdrawn. Admittedly we debated an amendment in Committee, and the noble Lord recognises that it has come back in a different form. A couple of paragraphs have been left out. I remind noble Lords that the Division on the amendment last time was defeated by only six votes. We have brought forward the amendment in a different form this time because of the principle contained in it. It is wrong for the noble Earl to repeat yet again that there is a more liberal regime. The clause does not provide for the liberality that is given in the Transport Act 1985. All we are asking is for the Government to be consistent and to put in the Airports Bill what they themselves put in the Transport Act 1985. For that reason, apart from any other considerations, the House should agree to the amendment, and I hope that it will.

6.2 p.m.

On Question, Whether the said amendment (No. 10) shall be agreed to?

Their Lordships divided: Contents, 85; Not-Contents, 116.

DIVISION NO. 3
CONTENTS
Airedale, L.	Glenamara, L.
Ardwick, L.	Graham of Edmonton, L.
Attlee, E.	Grey, E.
Aylestone, L.	Hampton, L.
Birk, B.	Hanworth, V.
Blyton, L.	Harris of Greenwich, L.
Bottomley, L.	Houghton of Sowerby, L.
Brockway, L.	Hughes, L.
Brooks of Tremorfa, L.	Irving of Dartford, L.
Burton of Coventry, B.	Jacques, L.
Caradon, L.	Jeger, B.
Carmichael of Kelvingrove, L.	Jenkins of Putney, L.
Cledwyn of Penrhos, L.	John-Mackie, L.
Crawshaw of Aintree, L.	Kagan, L.
David, B. [Teller.]	Kilbracken, L.
Davies of Penrhys, L.	Kilmarnock, L.
Dean of Beswick, L.	Kirkhill, L.
Diamond, L.	Llewelyn-Davies of Hastoe, B.
Donaldson of Kingsbridge, L.	Lloyd of Kilgerran, L.
Donoughue, L.	Longford, E.
Elwyn-Jones, L.	Lovell-Davis, L.
Ennals, L.	McGregor of Durris, L.
Ewart-Biggs, B.	McIntosh of Haringey, L.
Ezra, L.	Mackie of Benshie, L.
Falkender, B.	McNair, L.
Fitt, L.	Manchester, Bp.
Foot, L.	Mayhew, L.
Gallacher, L.	Melchett, L.
Gladwyn, L.	Milford, L.

Molloy, L.	Shackleton, L.
Monson, L.	Shepherd, L.
Mountevans, L.	Stallard, L.
Nicol, B. [Teller.]	Stedman, B.
Parry, L.	Stewart of Fulham, L.
Phillips, B.	Stoddart of Swindon, L.
Pitt of Hampstead, L.	Taylor of Mansfield, L.
Ponsonby of Shulbrede, L.	Underhill, L.
Prys-Davies, L.	Wallace of Coslany, L.
Rea, L.	Walston, L.
Ritchie of Dundee, L.	Wells-Pestell, L.
Rochester, L.	Whaddon, L.
Russell of Liverpool, L.	Williams of Elvel, L.
Sefton of Garston, L.

NOT-CONTENTS
Alexander of Tunis, E.	Layton, L.
Allerton, L.	Lindsey and Abingdon, E.
Arran, E.	Long, V.
Bauer, L.	Luke, L.
Beaverbrook, L.	McAlpine of West Green, L.
Belhaven and Stenton, L.	McFadzean, L.
Beloff, L.	Macleod of Borve, B.
Belstead, L.	Malmesbury, E.
Bessborough, E.	Margadale, L.
Blake, L.	Marley, L.
Boyd-Carpenter, L.	Marsh, L.
Brabazon of Tara, L.	Marshall of Leeds, L.
Brookes, L.	Maude of Stratford-upon-
Brougham and Vaux, L.	Avon, L.
Broxbourne, L.	Merrivale, L.
Bruce-Gardyne, L.	Mersey, V.
Butterworth, L.	Monk Bretton, L.
Caccia, L.	Montagu of Beaulieu, L.
Caithness, E.	Montgomery of Alamein, V.
Cameron of Lochbroom, L.	Morris, L.
Campbell of Croy, L.	Murton of Lindisfarne, L.
Carnock, L.	Napier and Ettrick, L.
Cathcart, E.	Newall, L.
Colwyn, L.	Norrie, L.
Constantine of Stanmore, L.	Onslow, E.
Cork and Orrery, E.	Orr-Ewing, L.
Cox, B.	Pender, L.
Craigavon, V.	Peyton of Yeovil, L.
Craigmyle, L.	Plummer of St Marylebone,
Cross, V.	L.
Cullen of Ashbourne, L.	Portland, D.
Dacre of Glanton, L.	Quinton, L.
De La Warr, E.	Radnor, E.
Denham, L. [Teller.]	Rankeillour, L.
Dilhorne, V.	Rochdale, V.
Dundee, E.	Rodney, L.
Eccles, V.	St. Davids, V.
Ellenborough, L.	Seebohm, L.
Elliot of Harwood, B.	Selborne, E.
Erroll of Hale, L.	Selkirk, E.
Faithfull, B.	Skelmersdale, L.
Fortescue, E.	Soames, L.
Fraser of Kilmorack, L.	Strathcarron, L.
Gibson-Watt, L.	Strathclyde, L.
Glenarthur, L.	Strathspey, L.
Gray, L.	Sudeley, L.
Gray of Contin, L.	Swinton, E. [Teller.]
Grimston of Westbury, L.	Thomas of Swynnerton, L.
Hailsham of Saint	Torrington, V.
Marylebone, L.	Tranmire, L.
Holderness, L.	Trefgarne, L.
Home of the Hirsel, L.	Ullswater, V.
Hooper, B.	Vaux of Harrowden, L.
Hylton-Foster, B.	Vickers, B.
Ingrow, L.	Vivian, L.
Killearn, L.	Ward of Witley, V.
Kinnoull, E.	Whitelaw, V.
Kitchener, E.	Young of Graffham, L.
Lane-Fox, B.	Zouche of Haryngworth, L.
Lauderdale, E.

Resolved in the negative, and amendment disagreed to accordingly

6.10 p.m.

The Earl of Caithness moved Amendment No. 11:

After Clause 19 insert the following new clause:

("Capital controls relating to investment in public airport companies by local authorities in England and Wales.

.—(1) Where a local authority dispose of any securities of a public airport company (whether it continues to be such a company after the disposal or not)—

1. (a) any amount received by the authority in respect of the disposal shall be treated for the purposes of section 72 of the 1980 Act (expenditure which authorities may make) as a receipt of the authority which, by virtue of section 75(1) of that Act, is a capital receipt of the authority for the purposes of Part VIII of that Act (capital expenditure of local authorities etc.) but
2. (b) only the relevant sum shall be taken into account under section 72(3)(d) of that Act.

(2) In subsection (1) "the relevant sum", in relation to an amount falling within paragraph (a) of that subsection, means

1. (a) three-tenths of that amount, or
2. (b) if regulations are made for the purposes of section 72(3)(d) of the 1980 Act which prescribe a proportion other than three-tenths in relation to disposals falling within subsection (1), the proportion of that amount so prescribed.

(3) Where a local authority incur any expenditure in respect of the acquisition of any securities—

1. (a) of a public airport company, or
2. (b) of any company which, as a result of the acquisition by the authority of those securities, becomes a public airport company.

the amount of that expenditure shall, in so far as it is not prescribed expenditure of the authority for the purposes of Part VIII of the 1980 Act by virtue of Schedule 12 of that Act, be treated as prescribed expenditure of the authority for those purposes.

(4) In this section and section 20 "the 1980 Act" means the Local Government, Planning and Land Act 1980; and this section and section 20 apply to England and Wales only.")

The noble Earl said: My Lords, we have made no secret of the fact that we should like local authorities to privatise their airports, though we will take no steps to oblige them to do so. There is already an incentive to authorities to sell their shareholdings in so far as they would be able to use the proceeds to finance capital expenditure within existing resource limits, or to redeem debt. Either course would enable them to reduce external borrowing, and the burden on the ratepayer, for financing a given level of capital expenditure.

The proposed new clause would add another incentive, by enabling authorities to use the proceeds of the sale of shares to augment their capital expenditure allocations. That is done by classing the proceeds from the sale of shares as capital receipts for the purpose of the local authority capital control system. The only constraint is that the use of these receipts to justify extra spending will be limited by the same prescribed proportion—that is 30 per cent. as already applies to other non-housing receipts, or whatever proportion may subsequently be prescribed by regulations. I know that noble Lords opposite may say that these receipts should not be subject to any limitations on their use, but I hope nevertheless that they will welcome this opportunity for local authorities to increase their spending power by selling shares in airport companies. I beg to move.

Lord Carmichael of Kelvingrove

My Lords, I am grateful to the Minister for his explanation. He says that the proceeds of the sale by a local authority of shares in a public airport company will be treated as capital receipts for the purpose of the controls contained in the Local Government, Planning and Land Act 1980. What is surprising from a government such as this is that local authorities are to be restricted to spending 30 per cent. only of such receipts in succeeding years. That applies even if they are endeavouring to sell more than 51 per cent. of the shares. I am not as concerned about this as the Government should perhaps be. However, for a government bent on privatisation to impede a local authority in the use of money received in endeavouring to reach the magical 51 per cent. about which the Government speak seems to show a slight inconsistency in the Government's thinking. They are perhaps so strong in their feeling that local government should not be able to spend money that they are putting this consideration even before what until now has been their blind urge to privatise.

Lord Lloyd of Kilgerran

My Lords, I am grateful to the Minister for explaining the scope of the new clause. Like the noble Lord, Lord Carmichael, I wonder what is the magic of the three-tenths. Is the Minister able to clarify the 30 per cent. in subsection (2)? Is there any reason apart from taking a figure more or less out of the air?

The Earl of Caithness

No, my Lords. the figure of 30 per cent. is not taken out of the air. It has been discussed, I understand, in the House previously and is well precedented in relation to non-housing receipts of local authorities. Section 20 of the Local Government, Planning and Land Act 1980, which applies to England and Wales only, might help the noble Lord, Lord Lloyd of Kilgerran.

On Question, amendment agreed to.

6.15 p.m.

Clause 20 [Local authority financial controls in England and Wales]:

The Earl of Caithness moved Amendment No. 12: Page 16, line 41, leave out from second ("the") to end of line 43 and insert ("1980 Act—").

The noble Earl said: My Lords, in moving this amendment, I should like also to speak to Amendments Nos. 14, 15, 16 and 17.

Clause 20 applies the same controls to private capital raised by public airport companies as to capital finance provided by the controlling authority, because both add to the public sector borrowing requirement. These amendments address the situation in which an airport company issues securities that transfer control of the company to the private sector or where a subsidiary ceases to be controlled by the airport company. Because the private sector would then be bearing the risk of their investment, the amounts raised by these share issues will not add to the PSBR. Therefore, they should not count against the capital expenditure allocation of the local authority, which would cease to control the airport company as a result of the share issue. I hope noble Lords on all sides of the House will welcome the clarification provided by these amendments. I beg to move.

Lord Williams of Elvel

My Lords, I should like to reserve my comments for the next amendment that we shall be moving on the same clause, more or less on the same subject.

On Question, amendment agreed to.

The Deputy Speaker (Lord Wells-Pestell)

My Lords, I have to inform your Lordships that if Amendment No. 13 is agreed to, I cannot call Amendment No. 14.

Lord Williams of Elvel moved Amendment No. 13: Page 17, leave out lines 6 to 11.

The noble Lord said: This amendment addresses itself to the problem about which the noble Earl spoke on the previous amendment and which was debated at some length in Committee. It is, if I may say so, an extremely important point for two reasons. First, the definition of what is in the public sector borrowing requirement is a matter of considerable controversy. On this side, we do not accept the present definition of the PSBR as one that is necessarily right. Secondly, the clause as drafted would make the situation worse for some airport authorities that will have to deal with it. I should like to illustrate what I am saying.

Local authority airport companies, when they wish to raise funds, assuming that they still have majority control, will be required to submit their capital expenditure and their borrowings to local authority expenditure controls in operation under the 1980 Act. This, for at least one airport, is somewhat worse than the present situation. It also means that the new directors of new companies which may be minority controlled by the private sector and which have individual private shareholders will be constrained from operating their companies in the best possible manner in the interests of all their shareholders, as is their duty under the Companies Acts. It therefore imposes upon them restrictions that we believe are both difficult and fundamentally unhealthy.

As the noble Earl said during previous amendments, these restrictions derive from the question of PSBR accounting. If we are ever to get any sense into national accounting, particularly the public sector borrowing requirement, we have to make sure that where there are minority interests involved—even where the majority is held by a public body which is subject to the normal procedures—those companies should be free to go out and borrow wherever they want without having the control from the Treasury, or wherever it may be. We have to develop these arguments in extenso—if I may use that expression in your Lordships' House—in Committee.

However, I would very much hope that the noble Earl will feel able to be a little more helpful on this point than he was previously. If he does not, he must recognise that he is making life harder for existing airports. At Manchester there is already freedom to borrow outside, which will be restricted. For companies with potentially minority private shareholdings, where any other company in any other situation would be free to borrow properly on the financial markets under its directors' judgment and intent, it makes those companies subject to an extraneous control which would, in our view, inhibit the directors of the company from fulfilling their proper functions. I beg to move.

The Earl of Caithness

My Lords, as the noble Lord, Lord Williams of Elvel, said, we had a good canter around this course before—a gallop, as he prefers to call it, and I would agree with him—when I explained this in detail to the House in Committee on the 22nd May. The aim of this amendment is to remove control over private capital raised by airport company share issues while retaining control over that raised by loans. It seems to make what I would regard as a totally spurious distinction between different methods of raising private capital. Both add to the public sector borrowing requirement, in the way that I explained to the House in Committee on the 22nd May. Therefore, private capital raised by either means should be subject to the same control. I would therefore ask the noble Lord to withdraw his amendment for the very good reasons advanced earlier.

Lord Williams of Elvel

My Lords, did I hear the noble Earl correctly? I raise this question by way of clarification. Did he say that whether public airport companies sell shares or raise debt this falls under the public sector borrowing requirement? Perhaps before I reply he would confirm whether he said this.

The Earl of Caithness

My Lords, no. I think what I said was "raised by airport company share issues".

Lord Williams of Elvel

My Lords, how can you issue a share without selling the share? I am trying to clarify the point. Clearly, if there is a share issue, someone has to buy the share. That means that the shares are sold, assuming that the share issue is successful. I do not see how that falls in any sense under the public sector borrowing requirement on any definition of any official in any Treasury in any country in the world. I accept that the raising of debt might fall into such a definition.

My point specifically relates to debt. Where share issues are made, where shares are sold successfully to the public, and where there is a minority interest, it is in the interest of the minority—and the directors have to represent the minority as well as the majority shareholders—that debt issues which the company which might wish to make should not be constrained by extraneous factors because of some arbitrary PSBR accounting.

The Earl of Caithness

My Lords, with the leave of the House, perhaps I may try to clarify the situation. The money raised represents a call by the public sector on the private sector. As long as the company is controlled by the local authorities then that money should be classed within the PSBR.

Lord Williams of Elvel

My Lords, I think that I understand the noble Earl. He is not referring to share issues at all, or the selling of shares. We can leave that aside. The noble Earl is referring to raising debt—borrowing, as I understand from what he said. The argument of the noble Earl is that debt issue—the raising of debt—should be within the PSBR. My argument stands that we are dealing with companies where there are minority shareholders. If the noble Earl cannot give any help on this I do not see how he will get minority shareholders to come into local airport companies when their debt raising capacity will be constrained by the limitations of the public sector borrowing requirement.

On Question, amendment negatived.

The Earl of Caithness moved Amendments Nos. 14 to 17:

Page 17, line 7, after ("(b)") insert ("subject to subsection (1A),").

line 13, at end insert—

("(1A) Subsection (1)(b) shall not apply to any amount raised by the issue of any securities—

1. (a) by a public airport company where, as a result of the issue of those securities, it ceases to be such a company; or
2. (b) by a subsidiary of a public airport company where, as a result of the issue of those securities, it ceases to be such a subsidiary.").

line 17, leave out ("that Act (expenditure which authorities may make)") and insert ("the 1980 Act").

line 40, leave out subsection (6) and insert—

("(6) Section (Capital controls relating to investment in public airport companies by local authorities in England and Wales) (4) applies for the purposes of this section.").

The noble Lord said: My Lords, I have spoken to Amendments Nos. 14 to 17. I beg to move en bloc.

On Question, amendments agreed to.

Clause 22 [Provision of services for public airport companies]:

The Earl of Caithness moved Amendment No. 18: Page 18, line 27, after ("applies") insert ("in relation").

The noble Earl said: My Lords, this is simply a technical amendment which provides for consistency in the drafting. I beg to move.

On Question, amendment agreed to.

Clause 24 [Avoidance of restrictions on transfer of securities of public airport company]:

The Earl of Caithness moved Amendment No. 19: Page 19, line 35, after ("dispose") insert (", or offer to dispose,").

The noble Earl said: My Lords, I beg to move Amendment No. 19 and, with the leave of the House, speak to Amendments Nos. 21 and 22.

The objective of Clause 24 is to ensure that principal councils do not thwart the Government's policy of encouraging the sale of airport company shares outside the local authority by making it in practice impossible for any of the local authorities to dispose of their shares to whom they wish. Subsection (1)(b) already invalidates provisions which could restrict the sale of shares to the private sector by requiring that they be sold only to other shareholders or particular categories of persons. The amendments are specifically designed to prohibit further restrictions which would require the transferor to offer the shares to other shareholders, in the first instance, before being allowed to sell them to a third party. It is also possible that under the memorandum of articles of an airport company a transferor may be precluded from freely disposing of his shares unless certain conditions or circumstances pertaining to the sale are satisfied. The amendment to subsection (1)(c) extends the scope of provision so as to render void any such restrictions on the disposal of shares. I beg to move.

The Deputy Speaker (Lord Wells-Pestell)

My Lords, I ought to say at this stage that Amendments Nos. 21 and 22 should be in the name of the noble Earl, Lord Caithness, and not under the names that appear on the Marshalled List.

Lord Williams of Elvel

My Lords, I am very grateful for the clarification that the noble Lord has offered. Under no circumstances whatsoever would our side of the House be party to Amendment No. 22 to which I wish for the moment to speak.

My worry with regard to the amendments that the noble Earl has moved—particularly Amendment No. 22—is that the Government appear (if I may continue the equine analogy of our last exchange) to be making legislation on the hoof. We have here a clause which refers to on the fulfilment of particular conditions or in other particular circumstances". There is no definition as far as I can see. I do not see how the courts will be able to define what the "particular conditions" or "particular circumstances" may or may not be. I put this simply in the interest of clear legislation, in which your Lordships' House should be interested. I have no particular comment to make on the substance. I shall comment on the substance when we come to Amendment No. 20.

6.30 p.m.

The Earl of Caithness

My Lords, perhaps I may just look at the point which the noble Lord, Lord Williams, has raised to see whether it can be clarified. I shall return with an appropriate amendment at Third Reading if that is helpful, or I shall certainly write to the noble Lord if we believe that the amendment as drafted is all right.

Lord Lloyd of Kilgerran

My Lords, will the Minister kindly let me have a copy of this correspondence, because I am a little confused about the particular conditions and circumstances in the amendment?

The Earl of Caithness

Of course I shall, my Lords.

On Question, amendment agreed to.

Lord Williams of Elvel moved Amendment No. 20: Page 19, line 37, leave out from ("persons") to end of line 40.

The noble Lord said: My Lords, I beg to move Amendment No. 20. This is in the nature of a clarifying amendment, if I may put it like that, because in Committee, when the noble Earl and I had a short discussion on this matter, we mentioned certain areas where Clause 24, as originally drafted when it came to your Lordships' House, might be defective. The Government brought forward certain amendments, and there are certain amendments to those amendments which have been brought forward now. Therefore we are dealing with a relatively new clause.

The noble Earl was kind enough to write a letter to me dated 10th June, which I received just at the beginning of the Report stage of this Bill, so perhaps he will excuse me if I have imperfectly digested its content.

In Committee, I was arguing that whatever the Government tried to do to prevent a local authority from putting its shares in a local airport company under restriction could in my view be defeated by all kinds of different transactions which a local authority might enter into. I instanced the case of a local authority pledging shares to a bank, and a bank holding those shares until such time as the loan that the bank would make to the local authority was discharged, and during that time—

Lord Lloyd of Kilgerran

My Lords, I apologise for interrupting the noble Lord, but I am trying to follow his argument. He has referred to the previous argument at the Committee stage, at which I was not present. Would it be convenient for him to tell me where that can be found in the appropriate Hansard? Can it be found at col. 450 of the second Committee day? I am sorry if I have asked a difficult question, but I am trying to follow the argument.

Lord Williams of Elvel

My Lords, the noble Lord must excuse me because, although I have the two relevant copies of the Official Report in front of me, I am afraid that I have not had time to find the column numbers. I thought that the noble Earl and I were on common ground in understanding the debate that we had actually had at the time. I did not refer to the columns and I am not quite sure exactly where it can be found. However, it is in a debate on Clause 24 which we had in Committee, and that is the clause we are debating at the moment. I apologise to the noble Lord, Lord Lloyd, for not being able to point immediately to the column in the Official Report, but I hope that he will soon be able to find it.

The point I was making was that a local authority would be enabled to defeat the legislation by pledging shares in the local airport company to a bank; and that bank would hold those shares as security for a loan; and until that loan was redeemed by the local authority the shares could not be sold. I am advised by the noble Earl, Lord Caithness, in his letter that this is a normal banking practice, and I think that I can confirm that. The letter then says: But it is not the Government's intention to prevent arrangements of this sort. Our concern is only to ensure that where a public airport company is owned by a number of local authorities, no one local authority is prevented from disposing of its shares if it wishes to do so by its fellow local authorities. It is this that the new clause sets out to achieve. The sort of arrangements you described would be ones entered into freely by the local authority itself. There is no reason why a local authority should feel the need to encumber itself in this way", etc. I understand that the point I made in Committee is well taken by the Government and I understand the tenor of the noble Earl's letter. I think that that is all absolutely clear.

Where I come to a problem is in the new amendment, Amendment No. 22, to which the noble Earl has spoken, which is to insert: on the fulfilment of particular conditions or in other particular circumstances". In my view, it would be perfectly possible for the courts to interpret the particular circumstances to cover the sort of banking arrangement that I have in mind, and this is why I would press the noble Earl again to look at the wording of his amendment, to which he has just spoken, in the light of the assurance he has given to me in the letter which I received today.This is really the point of the exchange—to try to clarify the Government's thinking on this matter.

The Earl of Caithness

My Lords, I confirm that I shall look at that particular point again. I would not want to invalidate something about which I have written to the noble Lord, Lord Williams. With that assurance, I hope that he will withdraw his amendment.

Lord Lloyd of Kilgerran

My Lords, before the noble Earl sits down, perhaps he would kindly let me see any future correspondence, because as regards the discussion on this particular point I find that I do not understand the argument of the noble Lord, Lord Williams, or the answer of the noble Earl, Lord Caithness. It is of course entirely my fault, but it would be helpful if a copy of future correspondence could be sent to me.

The Earl of Caithness

My Lords, with the leave of the House, I reconfirm what I said earlier to the noble Lord, Lord Lloyd of Kilgerran.

Lord Williams of Elvel

My Lords, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Earl of Caithness moved Amendments Nos. 21 and 22:

Page 19, line 39, after ("except") insert— ("(i)").

Page 19, line 40, at end insert (", or (ii) on the fulfilment of particular conditions or in other particular circumstances.").

The noble Earl said: My Lords, I beg to move Amendments Nos. 21 and 22. I have already spoken to them.

On Question, amendments agreed to.

Clause 28 [Directions to airport operators in the interests of national security etc.]:

The Earl of Dundee moved Amendment No. 23: Page 22, line 30, at end insert ("or to be in the interests of national policy for the development of air transport")

The noble Lord said: In its present form the Bill contains certain safeguards and incentives to encourage the development of air transport. But although these safeguards have a very useful part to play, they do not appear able in themselves or in combination to promote the proper development of air transport at all times. Nor is it hard to notice the potential conflicts of interests or of purpose which they do contain at any time.

The intention of this amendment therefore is to give reserve powers to the Secretary of State to protect the development of British aviation along with the reserve powers he already has under Clause 28 to look after interests of national security and of international relations.

In what way do existing incentives and safeguards not go far enough? Since the BAA's major source of future profits derives from traffic growth, clearly there is a good economic incentive to provide capacity and facilities corresponding to that growth. However, in the event of a world recession, for example, airport owners might well be discouraged by high interest rates from a long-lead investment. And in the short-term, whether or not there is a recession, it is often more profitable not to expand and develop since new capital does not have to be found as a result. Of course, airport owners would always want to further the national interest if they could, but under the Bill their first responsibility is to shareholders, and what is the best policy for the first consideration would not always be so for the other.

Yet there is also the CAA as economic regulator to help ensure the timely provision of capacity. However, when we look at how the CAA's powers would in fact be exercised under the Bill, these do not appear adequate to ensure such provision. The BAA's prices will be monitored to show a reasonable profit, whether or not it provides additional capacity. It is difficult to see what incentives the BAA can receive for providing capacity or what penalties could be imposed if it did not. If a higher financial return could be obtained by investing in projects not airport-capacity related, it would be difficult for the airport mangement to recommend major capital investment in terminals if it could achieve a higher return elsewhere, such as by building supermarkets. Indeed, the difficulty which the Civil Aviation Authority would face under the Bill has been clearly recognised by that body and intimated in the chairman's preface to the recent publication CAP 522 on air traffic distribution, in which advice given to the Secretary of State is as follows: In the light of the privatisation of the British Airports Authority and the changes in its objectives which will inevitably ensue, the industry will need to look to the Government to take the lead in securing adequate capacity at the right time".

On the other hand a further safeguard is contained in the Bill through the planning process. Any proposed change of use of airport land for non-airport purposes would need planning permission, and no doubt the likelihood of such land being needed for aviation purposes would always be taken into account. However, regarding such protection as can ever be afforded by the planning process, there is no safeguard to guarantee the preferences of local planning authorities. Past experience might well suggest that these authorities would prefer supermarkets to terminals. Planning approvals might then be easier to obtain for non-airport activities.

Yet, my Lords, if we do accept that existing economic incentives to the owner, the existing economic and regulatory powers of the Civil Aviation Authority and the existing planning process are neither sufficient in themselves nor in combination and thus that there is a good case for Government reserve powers to protect the proper development of British aviation, we should be asking conversely, what problems, if any, might arise from such Government powers? One fear might be that the commercial value of an airport company would suffer once reserve powers are known to exist. But for that fear to be justified reserve powers would have to be exercised fairly often rather than very infrequently, which is the probability. And, while it may be alleged that commercial interest would never conflict with national interest, at present the Government are powerless to intervene if in fact it ever did.

Another concern could well be that this type of amendment puts too great a burden on the Secretary of State. Can he really be the best judge in this matter? Does he know better than the airport owner about capacity? However, we do not question the role and judgment of the Secretary of State on national security and international relations. Equally, if another of his tasks comes to be to protect the proper development of air transport, this task is then to protect the national interest on the rare but significant occasions when necessary, rather than to interfere with normal aviation decisions. Yet it has to be conceded that reserve powers enable the Secretary of State to be coercive—however infrequently he may use them. Against that it should be observed that we would accept that this measure of coercion is to be applied to a privatised monoply with its own compulsory powers of purchase, and thus is not to be applied to small businesses or individual interests with which there might have been some kind of emotive confusion.

Previous amendments on this issue in your Lordships' Committee, and in the other place, took a more detailed form, and thus gave rise to specific objections, apart from the principle concerned. This amendment deals with the principle that the Secretary of State should be able to protect the development of air transport in the national interest. That does not denigrate the existing measures and incentives in the Bill, hut simply suggests that they do not go far enough and should go further. I hope my noble friend may be able to accept the amendment and I beg to move.

6.45 p.m.

Baroness Burton of Coventry

My Lords, I think there can be no better introduction to this amendment than the advice submitted by the Civil Aviation Authority to the Secretary of State for Transport entitled, measures for the distribution of traffic among the London area airports, (CAP 522). Equally, I would suggest there can be no doubt that on almost every available forecast London will need additional runway capacity by the turn of the century or, if some forecasts are correct, sooner than that.

I believe that in the light of the privatisation of the British Airports Authority and the changes in its objectives that will obviously ensue the industry will need to look to the Government to take the lead in securing adequate capacity at the right time. Further to that, it is vital that the necessary preparations are put in hand now so that the industry can develop logically and without hardship to the general public. This was what the Chairman of the CAA emphasised again and again, and most strongly—that there was a need to provide additional runway capacity before the end of the century. As the House knows, on many occasions, and most recently on Second Reading, I said I believed that the Government and the British Airports Authority must stand accused of refusal to look at the full future potential of Gatwick and hence inability for its full development.

I believe—as I am afraid the House also knows—that we should have had this additional runway capacity at Gatwick, that we should have allowed Stansted to develop to its capacity of 2 million passengers per annum, and that we should have given support to regional airports where the conviction remains, whatever the Government may say, that they will suffer financially because of the determination of the Government to build up Stansted whatever the cost.

If Members of this House have had time to study the at-last-resumed Second Reading debate on the British Railways (Stansted) Bill in another place on the 3rd June, they will note that that conviction remains. Members were far from satisfied. I consider that there has been too hasty an amount of development at Stansted. Those were the words I used on the first day of our Committee stage on 15th May. I remain convinced that the proposed increases in charges at Stansted will be covered by subsidisation, and quite obviously Stansted cannot succeed unless it has increased charges. I believe that the traffic will have to be directed to Stansted and, as I have said many times, going back months and years, I believe that the charter industry is in very grave danger from this Bill.

This brings me back to the Civil Aviation Authority and its urgent recommendation; namely, that we are going to be short of runway capacity. If the Government accept the advice of the CAA on air traffic distribution in the London area—and I think we must remember that the Government by no means have accepted the advice of the CAA in the past—they will have to make necessary preparations now for any alleged shortage of runway capacity in the 1990s. This House knows that it takes as long as 10 years, or even longer, from initial conception of a new terminal building or runway to its final entry into service. The British Airports Authority has prevented the construction of the additional runway capacity at Gatwick, although the Government have been most careful to say that they do not regard themselves as being bound by the terms of the agreement made in 1978. If such timidity—and I should like the noble Earl, Lord Caithness, to note this—on the part of the Government to grasp the nettle of additional runway capacity at Gatwick is to continue in the future, it will gravely affect the future of civil aviation in the United Kingdom and—to quote the amendment to which we are speaking today—it will not, be in the interests of national policy for the development of air transport". The Chairman of the Civil Aviation Authority is retiring and has passed on to Mr. Christopher Tugendhat these views on further runway capacity being needed. Mr. Nicholas Ridley has passed on to Mr. John Moore his timidity about a second runway at Gatwick—apart from distancing the Government from the agreement made. Indeed, the House was told that the present Government were not consulted about the agreement, and are not parties to it. I hope, and many in the industry hope, that Mr. Tugendhat and Mr. Moore will start afresh on providing this urgently needed capacity particularly—and I stress "particularly"—for the future of our air charter industry.

Before today's debate I looked up Mr. Tugendhat's entry in Who's Who and I noted that prior to taking up office as a commissioner and subsequently as a Vice-President of the Commission of the European Community, he was a Financial Times leader and feature writer. So I thought that perhaps I might bring to his attention what that paper had to say on 2nd June last: Alternative possible sites for potential runways need to be clearly identified, and the necessary planning procedures initiated. Unless that is done soon, London could face the possibility of runway starvation at the turn of the century". In replying to this amendment, I hope that the noble Earl, Lord Caithness, will be able to tell the House that the Government have taken on board this recommendation of the Civil Aviation Authority that additional runway capacity will be necessary in the 1990s, and that, as it takes 10 years to bring any runway to fruition, they are prepared to undertake the matter in the near future.

Lord Boyd-Carpenter

My Lords, I hope that my noble friend Lord Caithness will take this amendment seriously. It seems to me to raise a point of considerable importance for the future of our civil aviation industry. The Bill already provides that the Government can give a direction where our international relations are involved, and this is of course right. But it is silent on the question of what is to happen if the new airport company does not in fact provide adequate accommodation for the British civil aviation industry.

If it does not so provide there is the possibility—indeed the near certainty—of serious economic damage to this country. No one knows better than the noble Earl how successful has been the development of British civil aviation. It is one of our success stories of recent years. It has gone on both within the publicly-owned sector and the privately-owned sector to expand, develop, and to increase both directly our earnings from aviation services, and indirectly even more our earnings from tourism, by facilitating flights into this country and out of this country. It is a major factor in our economy, and it is one of the bright features of our economy.

What is to happen if the new set-up—if I may use shorthand—does not provide adequate airport capacity to serve that industry? We know that Heathrow is very near to capacity. We know that Gatwick is building up, and we know—and I shall not go into the details of it—some of the problems of Stansted. But as the Bill stands, if the new successor company does not make adequate provision, no power appears to lie in the Government of the day to secure that that capacity is provided.

If that capacity is not provided, it is clear what will happen. International civil aviation is a flexible and mobile set-up. If it is not possible to get a convenient slot into Heathrow, Gatwick or Stansted, transatlantic aircraft will go into Schiphol, Charles de Gaulle, Frankfurt, or wherever it may be, and we shall lose both the earnings that British airlines would have if passengers were flying on those routes and the tourist income from the tourists they would bring. We should also lose the income from the businessmen who would come.

It is an extremely important aspect—and this I have not touched on—of the financial prosperity of the City of London that at the moment it is a city which is singularly accessible by air. Therefore, I must press my noble friend to say what, if the Bill stands in its present form and he does not accept my noble friend's amendment, this Government or a successor government would do if inadequate capacity were provided.

I do not think that this is just a nervous fantasy. I have experience going back over some years of the difficulty of providing additional airport capacity; of the massive vocal opposition which any proposal to extend an airport arouses; of the interminable public inquiries during which so-called environmentalists employ expensive counsel to delay proceedings month after month and year after year. It is a major undertaking to expand any airport. It would perhaps be understandable if a company, with its duty to its shareholders, did not feel inclined to face the expense, the trouble, the contumely, the ill will which it would encounter from any proposal for expansion.

Moreover, if an airport is already operating to capacity it is likely to be a profitable airport. From the airport shareholders' point of view it is the ideal situation, because you are getting the maximum return on the capital invested in the airport, and that is good for the company. But as I have tried to say, and I do not want to weary your Lordships by repeating it, it would be serious for this country if our airports, particularly those serving London, were to become completely occupied and therefore traffic had to be turned away.

Is this likely to happen? I can only say that the Civil Aviation Authority, which is the expert body on this matter—with great respect to my noble friend, the Civil Aviation Authority knows much more about civil aviation than the Department of Transport ever has or ever will—has said in CAP 522, which my noble friend behind me quoted, that there will be a shortage of runway capacity in the London area before the end of the century. The end of the century is only 13½ years off, and as one of my noble friends reminded us, and I think the noble Baroness too, any airport extension, particularly involving the building of a runway, involves years and years of effort before it can be brought into being.

Therefore, I suggest to my noble friend that this is not just a nervous fantasy but a real issue of probably fairly early import. My noble friend owes it to the House, as he certainly owes it to the civil aviation industry, to indicate, if he does not accept my noble friend's amendment, what the Government propose to do about this situation. I can tell him, from a number of contacts that I happily still have with the civil aviation industry and the airlines, that those responsible, intelligent, and far-seeing people who run our airlines are very much concerned and worried about this.

If the Government were just to stand pat and say that they were not going to interest themselves in even the possibility of taking power to deal with this problem as and when it arises, they would be causing considerable alarm and concern in this important and growing industry. I very much hope that my noble friend will give us a helpful reply.

Lord Underhill

My Lords, in view of the impressive speeches that have been made on this subject it would be wrong not to pass some observation from this Dispatch Box. First, we had not considered that this aspect would be covered by Clause 28, but as noble Lords know the Labour Party's general policy is that there should be an all-embracing policy for civil aviation and airports as a combined matter, and when we come to Clause 32 my noble friend Lord Carmichael will be speaking on this and dealing with the development of the civil aviation industry in all parts of the United Kingdom. Therefore, we shall reserve our comments until we reach that particular amendment.

7 p.m.

Lord Monson

My Lords, I think that the noble Earl, Lord Dundee, has made out an excellent case for this amendment, and indeed for Amendment No. 24, which I take to be an alternative, although I fear that I was not in the Chamber to hear his opening remarks.

Of the two alternatives I slightly prefer Amendment No. 24, for the following reason. If a Green or Green-inclined party were ever to come to power in this country or were to form part of a coalition, it is quite likely that national policy for the development of air transport for as long as the Greens were in government would be radically transformed and that national policy might be to cut the incidence of air traffic by 50 per cent. or more. For that reason I believe that Amendment No. 24 is slightly better. In any case, I hope that Her Majesty's Government will accept one or other of these two amendments.

The Earl of Kinnoull

My Lords, the noble Lord, Lord Underhill, referred to Amendment No. 32, which refers to environmental consequences—

Lord Underhill

No, my Lords; Amendment No. 30.

The Earl of Kinnoull

My Lords, I shall not comment. I beg your pardon.

Perhaps I should briefly intervene, because my noble friend Lord Boyd-Carpenter has put the case so powerfully to the House that noble Lords would not wish any repeated arguments, particularly at this time of night. I believe that my noble friend's amendment, which he has moved so lucidly, is a matter simply of principle and judgment. The judgment in my view is whether the Government should have the final responsibility under this Bill over the long-term strategic planning of air transport. At every stage of this Bill, both in another place and in this House, this issue has been raised and concern has been expressed from all sides. There is plenty of concern outside the House as well, as my noble friend said.

I have tried to examine exactly what powers the Civil Aviation Authority has and can implement if there is a question of conflict of policy over the best interests of long-term air transport policies. The power it has, as my noble friend reiterated at the last stage of this Bill, is to encourage investment; it is not to compel investment or to compel anyone, but simply to encourage investment. I suggest this is a peashooter of a power when one is talking of the long-term interests of air transport. We all know how unpopular is longterm planning of airports. We have all seen Stansted over the past 25 years, going back and forth from public inquiry to public inquiry. I cannot believe that with a private company there would be the energy or the impetus to enter into the conflict of a new airport. Yet, as my noble friend has said, there is concern about the future capacity of London's airport runways. As my noble friend has said, the late chairman, who I believe retired on 31st May, put in his preface this very point on CAP 522. I shall not quote that again.

I hope my noble friend will be able to say something encouraging on either of these two amendments. As the noble Lord, Lord Monson, said, it is a question of choice of amendments. But like my noble friend I believe that the principle behind the amendments is crucial to this Bill.

The Earl of Caithness

My Lords, I believe we were also discussing Amendment No. 24. These amendments seek to add to the Secretary of State's powers of direction under Clause 28 a very broadly-worded provision in relation to the national interest for the development of air transport.

Notwithstanding the sincerity with which noble Lords and the noble Baroness have spoken of the longterm future and good of the Civil Aviation Industry, these amendments would give the Secretary of State an open-ended power to direct any airport operator to undertake activities which could be regarded as having any bearing on the national interest for air transport development. That is something which is very difficult to define objectively and its interpretation might change with the government of the day. Such activities could apparently be required irrespective of cost. The power is so broad that it could even be used to require an airport operator to develop an entirely new airport or close an existing one, whatever the effect on his business.

I consider that we must seek to circumscribe such open-ended powers of direction in the Bill so far as possible. Clause 28 is confined to the fundamental issues of national security, together with international relations. Airports operate in an international environment and the Government have international obligations to other governments in the field of aviation which they must ensure are fulfilled. But to add to these provisions a wide power of direction in respect of national policy would be a serious imposition on the freedom of airport operators which I do not consider justified. I hope that my noble friends and the noble Baroness will bear in mind that if such a wide and broadly based—

Lord Harris of Greenwich

My Lords, is there not any national interest involved? This is exactly the point made by the noble Lord, Lord Boyd-Carpenter. If it becomes clear that there is a risk that this country will not have enough airport capacity, what steps will the Government then take? That is the question asked by the noble Lord, Lord Boyd-Carpenter. So far, the noble Earl has not addressed himself to it.

The Earl of Caithness

My Lords, so far, I have not finished what I was going to say. If the noble Lord, Lord Harris, will bear with me—I know he is probably anxious to go elsewhere—I shall continue. I hope that even he will realise that there are many who would be unhappy about investing in a company which had such an open-ended threat hanging over it on such a very broad provision. Therefore we consider at the moment that this power of direction is unnecessary as it gives the Secretary of State (not only the current one but all his successors) power over a commercial airport operator which he could operate irrespective of the impact on their business. That is something we should all bear in mind.

We believe that the development of air transport will be best served by ensuring that airports operate in a commercial environment responding to the market pressures to provide facilities and that the privatised airports and the local authority airports, where they see a demand in the future, will respond without the necessity of the Government having to have such a draconian power written into the Bill.

My noble friend Lord Dundee says that it is a reserve power, but I am sure he knows as well as I do that when it is written into the Bill, even though it is a reserve power, there will always be the threat that there will be a demand for it to be used from the moment the Bill is enacted, where other methods of encouraging the industry would be preferable.

A number of noble Lords referred to the recent publication known as CAP 522. The Government have taken decisions that will provide sufficient capacity in the London area up to the mid-1990s. Thereafter there might be further expansion of Stansted or a fifth terminal at Heathrow, but both would require planning permission. That would provide sufficient capacity to take us past the end of this century and into the next. We believe it is difficult to plan now for beyond the end of this century. It is difficult to forecast traffic growth with certainty that far ahead and the contribution that regional airports could play and how far Manchester will develop as an international hub. In addition, there is the question of the size of aircraft. With bigger aircraft, we might not need further runway capacity. Although some people would say that we must start providing for airport capacity now, the next generation of aircraft could enable better utilisation of the existing runways. Indeed, a fifth terminal at Heathrow might be the answer rather than another runway.

Yesterday my department published new passenger and aircraft forecasts and they maintain the consistent pattern of growth shown in recent air traffic forecasts. These forecasts are the fifth to do so since 1979. We remain of the view that we expressed in last June's airport policy White Paper that an objective of United Kingdom airports policy is to make the best use of the existing facilities. However, where there is demonstrable demand for the provision of additional capacity the Government will take such steps as they can to initiate, encourage and facilitate the provision of such capacity without it having to be written on the face of the Bill.

My noble friend Lord Boyd-Carpenter said that civil aviation is a success industry. I could not agree with him more. I am very proud and very impressed by what we have been able to do. I think we can continue the success story without the necessity of having to write such amendments as these on the face of the Bill by encouragement and other steps.—

Lord Boyd-Carpenter

My Lords, would my noble friend allow me to intervene? I was encouraged to hear him say that should the need for additional airport capacity become apparent the Secretary of State would take such steps as he could to see that it was provided. But under the Bill as it stands, what power would he have to do so?

The Earl of Caithness

My Lords, I believe that he has the powers already existing in the civil aviation legislation; but at this stage I cannot point my finger at a particular section of an Act that gives the enabling power. However, I shall look into that specific point for my noble friend. Going back to the CAP 522 point, and in particular in answer to the noble Baroness, Lady Burton of Coventry, we have not made a final decision on the recommendations of the CAA. We are considering this and a final decision will be forthcoming, I hope, in the not too distant future.

Baroness Burton of Coventry

My Lords, I am grateful to the noble Earl for giving way. With regard to the remark he has just made, is he referring to the rail link to Stansted or to the runways? I wanted to ask him whether he is rejecting the opinion of the Civil Aviation Authority that London will need additional runway capacity before the end of the century. It takes at least 10 years to lay down such a runway.

The Earl of Caithness

No, my Lords; that is one of the many points we are still considering at the moment as part of the CAA's submission to us. If I may sum up, we believe that the free marketplace will provide all the necessary incentives to take care of the situation envisaged and described so eloquently by so many speakers today. That is a preferable way of doing it rather than by means of the heavy draconian powers of either of these amendments.

The Earl of Kinnoull

My Lords, before my noble friend sits down—I am not sure whether I am allowed to speak a second time on Report stage—he has raised an important point, and I should like to ask him exactly what are the powers the Minister could take in the future? My noble friend has said that he will write to another of my noble friends. However, this is really the kernel of the amendments and I find it unacceptable that, although my noble friend has come prepared with an answer, he cannot answer the kernel and the purpose of the amendment. May I suggest to my noble friend that as we continue our discussion perhaps further advice could come from the Box behind, so that he will be able to answer this question? If he cannot answer it I would say, with respect to him, that he has not given us a totally satisfactory reply.

Can I also ask my noble friend whether he is disagreeing with the general principle that the Minister who is responsible for air transport should in the national interest always protect air transport? Is he saying that the amendments before us at the moment are too draconian, and is he prepared to see whether he could bring forward substitute proposals at a later stage that would satisfy the House?

7.15 p.m.

Lord Monk Bretton

My Lords, I think it is worth mentioning one point, since I have had to study this in the light of other amendments. I do not think that Section 4 of the Civil Aviation Act 1982 is being repealed. Its effect is to be modified when matters to do with Clauses 29, 30 and 31 of this Bill will be considered; but I think that otherwise it stands. It does say most of the things that we want, one of them being: to further the reasonable interests of users of air transport services".

Lord Harris of Greenwich

My Lords, I did intervene earlier on this point and the noble Earl chastised me for having interrupted him when he said he was going to come and give a full and adequate answer to the questions which had been put to him. As the House will realise, none of the questions in fact has been answered. The noble Earl has now been asked one specific question. He claims there is a general power in civil aviation legislation. What is the power? The noble Earl is representing the Government in this House and is trying to reassure us that the power the House wants to write into this Bill is unnecessary because it is already part of the legislation of this country. The noble Earl must therefore answer this question, and in detail I hope. What is in fact the position? Can he answer the question?

Baroness Nicol

My Lords, I am sorry to intervene. I wanted simply to remind the noble Lord and the House that we are at the Report stage and I think it would be better if we confined ourselves to one speech.

Lord Harris of Greenwich

My Lords, with great respect, I asked a question earlier. I have now in fact put the point made in a former speech, which is, to ask the noble Earl to answer the question that I and others have put to him today: namely, can he now answer this question in precise detail? The question is: what is the effect of existing legislation on this particular point?

The Earl of Caithness

My Lords, I thought I had answered the noble Lord. I said I was unable at the moment to put my finger on the precise point in order to answer, and therefore the answer that I gave was a specific answer. I would say to my noble friend Lord Kinnoull that I quite understand the House wants a specific answer which I am at the moment unable to give. Therefore I should like to reconsider this matter with my officials and I hope to be able to give all the necessary answers at a later stage.

The Earl of Kinnoull

My Lords, in that case, can my noble friend given an assurance that we can bring this point back again at Third Reading without being in breach of our rules of procedure?

The Earl of Caithness

My Lords, with the leave of the House, perhaps I might answer that and try to help the House a little further. Under the provisions of Section 1 of the Civil Aviation Act 1982 the Secretary of State has the duty of carrying out and encouraging measures for the development of civil aviation. He would have no power himself to provide an airport but clearly could give encouragement for an airport under that Act. If my noble friend seeks to withdraw his amendment and to bring it hack at a later stage, I do not see from my knowledge that there is any objection to his doing that.

Lord Boyd-Carpenter

My Lords, did my noble friend's answer, recently provided for him, indicate (as I understood it to do) that while the Secretary of State could make encouraging noises, and so on, he would not actually have any power to make the new authority or the new company set up under this Bill create additional capacity?

The Earl of Caithness

My Lords, the words I used were that, the Secretary of State has the duty of carrying out and encouraging measures for the development of civil aviation. It is the words "carrying out" that I should like to investigate further, because they might well solve the problem.

The Earl of Dundee

My Lords, I am very grateful to all noble Lords who have spoken to this amendment. Certainly, there is a question of balance. Too many restraints on the airport owner could always be counter-productive. Against that there is the national interest and national aviation policy, but of course there is always the need to ensure adequate protection. In this case I believe that the risk to national aviation policy is far more significant than any risk that reserve powers might be counter-productive. But in view of the assurance which my noble friend the Minister has just given, I beg leave to withdraw the amendment.

Amendent, by leave, withdrawn.

[Amendment No. 24 not moved.]

Lord Underhill moved Amendment No. 25:

Page 24, line 15, at end insert— ("( ) The Secretary of State may, with the consent of the Treasury, make grants to airport operators for the purpose of defraying or contributing towards expenses incurred by them in complying with directions given to them under this section.")

The noble Lord said: My Lords, I can be extremely brief on this amendment. The amendment was set down to deal with the question of directions on national security. Quite clearly, we accept that the Secretary of State should have these powers and we recognise what was said by the noble Earl at Committee stage about the Secretary of State not taking these powers of direction lightly. But they could be directions to a particular airport operator which must be operated continuously, or they could be directions for a particular occasion.

It is with directions for a particular occasion that this amendment is concerned, because they might be costly to the airport operator. Even though the directions might be desirable and necessary for security purposes, we believe that it ought to be possible for the Secretary of State, with the consent of the Treasury, to make grants to defray either all of the cost of the directions or part of it.

The amendment is permissive and not mandatory. It states that, The Secretary of State may, with the consent of the Treasury". While not challenging, in any way, the motives behind this clause, we believe that there ought to be this power for the Secretary of State to make grants, with the agreement of the Treasury, where he considers it necessary. My Lords, I beg to move.

The Earl of Caithness

My Lords, when we considered this Bill in Committee, the noble Lord, Lord Underhill, who has proposed this amendment put forward a similar one which applied not only to the powers of direction under Clause 28, but also to those in respect of special facilities at airports. For our Report stage, noble Lords have, in effect, divided their original proposal into two, in that they have tabled a similar provision for incorporation into Clause 63. I am happy to tell the House that thus far I am in agreement with them; that is, I agree that the issues fall into two distinct parts. Directions made in the interests of national security or to discharge international obligations are, indeed, different from directions to provide special facilities at airports.

As I promised when we debated these matters in Committee, I have discussed both aspects of the powers of direction with noble Lords who expressed an interest. Those discussions have borne fruit and, thanks to the powers not of direction but of persuasion which those noble Lords have deployed, I can tell the House that I shall be in a position to take a very sympathetic—indeed, the most sympathetic—stance towards the amendments which noble Lords opposite have proposed to Clause 63, with regard to powers to pay compensation to an airport operator for running VIP facilities. So we have heeded the good arguments put forward by noble Lords opposite and indeed by some of my noble friends.

However, I have to say to the noble Lord, Lord Underhill, that the Government are firmly against the incorporation of provisions—even discretionary ones—to pay compensation for directions which may be imposed under Clause 28 on the rare, but extremely important, occasions when national security or the United Kingdom's international obligations are at issue. I oppose this amendment principally for the following reasons.

International civil aviation very largely exists because of the framework of international agreements which have been negotiated and it must accept the costs, as well as the benefits, which flow from those agreements. The Government's policy is that the civil aviation industry should meet the costs of the necessary regulatory measures which are taken to ensure its safe operation within the international agreements which govern it. Airports have a national security and international relations dimension which goes beyond managing an airport business.

The Clause 28 powers over airport operators are analogous to those over the CAA in Section 6 of the Civil Aviation Act 1982, except that the Clause 28 powers are much more restrictive to reflect the independent status of airport operators. The powers of direction under Clause 28 are heavily circumscribed. General directions can be given only in the interests of national security or international relations; specific directions only in the interests of national security or to discharge an international obligation. Therefore, in the light of that explanation and with the assurance of a sympathetic response to a similar amendment to Clause 63, I hope that the noble Lord, Lord Underhill, will withdraw this amendment.

Lord Underhill

My Lords, we are naturally very encouraged by what the noble Earl said about Clause 63 when we reach it, but I must say that I cannot fully understand the Government's reasoning on this amendment. There could be circumstances where, for reasons of security and international obligations, there is a short visit to a small airport by someone for whom security measures must be taken, though the local authority may already be burdened with debt in connection with that airport. It seems to me that in such a case it is wrong not to give the Secretary of State power to make a grant. The noble Earl says that he has consulted with his advisers. We shall have a further look at what he has said, but I still believe there is common sense and fairness in our proposal. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Brabazon of Tara

My Lords, in moving that further consideration on Report of this Bill be now adjourned, I suggest that we do not return to this Bill before half-past eight. I beg to move that further consideration on Report be now adjourned.

Moved accordingly, and, on Question, Motion agreed to.