HL Deb 15 May 1986 vol 474 cc1347-79

House again in Committee.

Clause 13 [Airports to which s. 12 applies]:

Lord Underhill moved Amendment No. 20:

Page 11, line 7, leave out from ("if") to end of line 10 and insert—

  1. ("(a) the annual number of passengers passing through the airport exceeded 200,000; and
  2. (b) the annual turnover of the business carried on at the airport by the airport operator exceeded £2 milion;
in the case of at least two of the last three financial years ending before the relevant date.")

The noble Lord said: This is an important amendment, and the fact that Clause 13 appears in the Bill at all indicates that the Government accept that the benefits they consider will accrue from company formations do not apply to local authority airports. The clause is based on the assumption that company formation is not applicable to the smaller local authority airports. The Under-Secretary of State, Mr. Michael Spicer, said that the line must be drawn somewhere and that it was a matter of judgment. There is no real formula for determining this matter; it is a matter of judgment.

The question that the amendment seeks to address is whether the judgment the Government have made about where the line must be drawn is acceptable. The annual turnover threshold of £1 million which is contained in Clause 13, as drafted, would mean that local authorities responsible for 16 airports would have to establish airport companies. The airports are, Birmingham, Blackpool, Bournemouth, Bristol, Cardiff, East Midlands, Exeter, Humberside, Leeds-Bradford, Liverpool, Luton, Manchester, Newcastle, Norwich, Southend and Teesside. The effect of raising the threshold to £2 million, as is suggested in the amendment, and including additionally an annual passenger throughput of 200,000, would reduce that number to nine. The nine left would be Birmingham, Bristol, Cardiff, East Midlands, Leeds-Bradford, Luton, Manchester, Newcastle and Teesside.

The clause is of central importance to the operation of Part II and yet to date there has not been a great deal of parliamentary debate about it. The Under-Secretary of State said in Hansard (col. 346): I believe that we have the turnover about right. A £1 million business is substantial. Such a business will have an average of 45 employees and a throughput of about 100,000 passengers. If we raise the threshold … we shall introduce more distortions".

The number of local authority airports convered by Part II must be significantly reduced from the list that I gave. The first reason is that the costs of forming a company are likely to be considerable. Authorities will have to buy in specialist legal, financial and administrative skills. Even in the case of the smallest of the airports which will be caught by the thresholds contained in the Bill the cost is likely to be about £50,000.

The second reason is that company formation could affect the viability of local authority airports. That is because of the revised accounting requirements involved and the changed tax liability. In addition to questioning the level of the turnover threshold, we have reservations about the use of a turnover figure and whether it is an acceptable criterion for determining whether an airport authority should have to establish an operating company. Turnover does not necessarily reflect profitability.

The number of passengers using an airport each year is a far more simple and direct measure of its size and viability. Ministers criticised an amendment tabled in the other place which was designed to achieve that on the ground that it ignored freight and general aviation. If noble Lords look at the amendment, they will see that it is intended to overcome that criticism by combining turnover and throughput figures. That seems to be more realistic than the Government's proposals, and I hope that the Government will see their way to accepting the criteria. I beg to move.

Lord Foot

I respectfully agree with the noble Lord, Lord Underhill, that this is an amendment of considerable importance and I should like to explain how the clause and the amendment will operate in the case of Exeter airport. Exeter airport is owned by Devon County Council, and the council has been concerned as the Bill has been going through Parliament as to what the outcome will be for Devon and Exeter airport. It still does not know whether the Secretary of State will exercise his discretion provided in the Bill as it now stands with regard to a threshold of £1 million turnover and make a direction to the council with regard to Exeter airport. The council is worried as to what the situation will be if he does.

Earlier the noble Lord, Lord Underhill, rightly said that all these airports have different problems. It may be wrong to try to fit them all into the same framework, as the Bill does.

Perhaps I may draw the Committee's attention to four of the matters which are of interest to Devon Council and Exeter airport. There is no doubt that it is the council's wish that it should not receive a direction and have to form a company to take over the management of the airport if it can be avoided. As the noble Lord, Lord Underhill, said, under the £1 million turnover threshold contained in the Bill Exeter will fall within the definition contained in Clause 13 and will be liable to receive a direction. If, on the other hand, the amendment is carried, Exeter will not fall within the Bill's embraces and the council will be able to continue to manage the airport as it has been doing. There is no doubt that Devon County Council wishes to carry on as before.

There are four reasons why this matter is of special interest to Devon. The first is that so far as I know no one has made any serious criticism of the way in which the airport has been managed and run since it was taken over from the Ministry of Defence in the early 1970s. The second reason is that Exeter airport today is only just over the £1 million turnover threshold and if the threshold can be raised to £2 million with the additional condition of throughput, it will escape. Although it is above the threshold of £1 million, it is still a small undertaking. It is implicit in Clause 13 that it is not appropriate to insist upon setting up a company in the case of small undertakings. As the noble Lord, Lord Underhill, has said, it is a matter of judgment and deciding where to draw the line. Clearly, however, the Government are committed to the principle that if an undertaking is small enough there is no call for the radical measures contained in Clause 12. Those are two of the considerations.

A third reason is this. Over the past few years Devon County Council has completed a series of capital developments at a cost £3.3 million. The cost of servicing that loan debt is no less than £350,000 a year. The county council entered into that commitment with its eyes open, knowing that it would mean that, for some years to come, the income derived from the airport would be quite insufficient to meet the service of the loan. It did so with the clear intention and in the belief that with the passage of time—in a few years' time—the airport would move into profit and that it would then be able to deal with the loan.

The county council is now in complete doubt as to what will be the situation in regard to the loan if the Secretary of State directs it to form a company in compliance with Clause 12. The noble Earl said earlier, if I recollect correctly, that we would come to the question of dealing with liabilities at a later stage of the Bill. That is, of course, right. There is an amendment down on that subject. But as matters stand the Devon County Council is completely in the dark as to what its situation is going to be.

Possibly the most important consideration of all is the fact that from the time the Devon County Council took over the airport in the early 1970s it has employed and has had a contract with an independent company that has managed the airport on the council's behalf. An arrangement of that kind has existed throughout the whole period. The independent company with which the county council is at present engaged is British Airports International. That is an entirely independent company. The arrangement is that British Airports International manages and runs the undertaking and that it and the council have a share in the profits. What the county council has done is, therefore, largely what would happen if it was given a direction. It has already contracted with this independent company for the management of the concern.

I suppose, therefore, that it has already gone a long way to meet the wishes of the Government in this regard. But it would be an almost impossible situation if the Secretary of State was to issue a direction that it should form yet another company and that that company should be interposed between the county council and the management company that is already in operation. If that was done, not only would it be an enormous complication but it is also difficult to see what function the new company would perform other than that it would be the holder of the freehold of the airport itself.

Those are some of the considerations that have been worrying the Devon County Council. I understand that while the Bill was passing through the other place efforts were made on behalf of the county council to try to find out from the Government what intentions the Secretary of State might have with regard to Exeter. Clause 12, as I understand it, gives the Secretary of State a discretion as to whether or not he will issue a direction. The fact that it falls within the definition of Clause 13 does not automatically mean that the airport concerned is going to be made the subject of a direction. Those efforts were made, but, as I understand it, we were not able to get any confirmation from the Government as to what intentions the Secretary of State may have with regard to Exeter, if indeed he has formed any intention up to now. If the noble Earl can give me any enlightenment this evening, I shall be very much obliged.

Baroness Fisher of Rednal

I am not intending to speak about Birmingham airport. I have, however, been approached by Humberside, which is in a very difficult position. Humberside has tried to expand. To a certain extent, this expansion depends upon the servicing of helicopters and aircraft flying back and forth to North Sea rigs. Humberside is very concerned that a small organisation, as it is, will be caught in a crossfire and be unable to afford to set up a plc, which would involve it in an estimated debt of £250,000. This is a considerable amount when one takes account of the size of the airport.

Humberside supports this amendment, giving it perhaps an extra three or five years to continue growth and development. At present, it is at a critical stage of evolution. I understand that the erection of an hotel had been agreed on the site of the airport to be funded by private capital and intended for weekend stays by those working on the rigs. The developers have now pulled out because of fears that, under privatisation, Humberside airport will not be viable. That is rather unfortunate.

Another point is that Humberside is a region able to claim EC grants. There is now an urgent need for these grants in order to extend the runway. It is concerned that on becoming a plc the airport is more likely than not to come out of the categories that are allowed to receive EC grants. Humberside views that again with some dismay. It is concerned that it will be in a very serious position if this amendment is not carried. No doubt the noble Lord the Minister will have some observations to make.

8.30 p.m.

Lord Tordoff

I am grateful to my noble friend Lord Foot for illustrating the Exeter position so well. I agree very much with the noble Baroness, Lady Fisher of Rednal, in relation to Humberside.

It seems to me that the group of airports to which reference was made by the noble Lord, Lord Underhill, forms a separate category. When we look at the pattern of airports in this country we can see that there are the major airports which are in British Airports Authority control at the moment and will remain with them. There are the other major airports—the nine which were referred to by the noble Lord, Lord Underhill—some of which are regional and some partly regional and partly international, such as Manchester and Birmingham. But then there is this group of much smaller airports which are there because of the courage of the local authorities in taking the risk to put money up as part of their investment in their own locality and in trying to improve the infrastructure and communications of their own local area. They may not in the short term be viable. It may be that the risk will not pay off. But at least these areas have taken the risk to invest in their own areas and many of us believe that they should be given the opportunity to succeed if they are going to succeed.

It seems to me that that is what this amendment is concerned with. It is trying to set a level at which this group of airports is allowed to mature—or indeed perhaps to fail. They should not be exposed to the total winds of free competition, to the total operation of market forces, until they have had a chance to see whether they can succeed. That is what we are trying to provide for in this amendment that is before the Committee at the moment.

Exeter, Blackpool and Humberside are very good examples of this with different objectives in mind. I referred to the airport at Blackpool at Second Reading. This is again a case where the airport is servicing the rigs in Morecombe Bay and the Irish Sea. Left to the pure interplay of market forces it would probably not succeed. If the airport is privatised the local authority is left not only with the debt based on the risk capital that it has already invested, save only so far as the Government are prepared to offset that—and still do not know until a later stage of the Bill how much that is the case—but also with the very large costs of forming a plc. These are quite high, and could be crippling with regard to local authorities which are already suffering from spending restraints from theTreasury.

We are asking the Government to step back a little from taking the view that everything that is good is private and everything that is bad is municipal or nationalised and to look at these things in a slightly different light. We are asking them to say, "Here is a group of airports which ought to have the chance of showing whether they can perform or not". If the limit is £1 million, most of them will be caught within this network and may very well find themselves not acceptable in the private sector. The local authorities may find themselves carrying debts which they thought were investments. In the case of Exeter in particular it may find itself having to renege on a contract with heaven only knows what consequences in terms of compensation that may have to be paid by the ratepayers of that great city.

I therefore hope that the Government will look sympathetically on this amendment. It may not have precisely the right wording. It may not be precisely the right amendment or be at the right level. But if we can consider airports in three categories—the great national airports, the great regional international airports, and the smaller local authority airports—then the third category needs to be treated rather more gently than this Bill treats it at the moment.

The Earl of Caithness

As Clause 13 is at present drafted, 16 airports are within the scope of the £1 million criterion. The proposed amendment, if put into effect, would, we believe, exclude from the provisions of Clauses 12 and 14 six airports, not seven. I shall come to that in a moment. We believe that the six excluded are Blackpool, Bournemouth, Exeter, Humberside, Norwich and Southend. As I understood it, the noble Lord, Lord Underhill, believed that Liverpool would also be excluded. However, looking at the latest figures I have available, the passengers going through the terminals at Liverpool were 227,800, and with a turnover estimated of £6.1 million I believe that it would be caught even by the scheme of the noble Lord. Does he have different figures from me? I do not want to get into too much detail at this point.

Lord Underhill

I am grateful to the noble Lord for asking me that. I can only go on the information provided to me. Bearing in mind that the amendment refers to, in the case of at least two of the last three financial years", one would have to check that to see whether it meets the criterion of the noble Earl. However, we would have to seek advice on whether or not Liverpool meets the £1 million figure. My information is that it would be excluded.

The Earl of Caithness

That alone highlights the problem which I mentioned at Second Reading, that wherever one draws the line one has a problem.

All the airports I mentioned have passenger traffic of 100,000 to 150,000 passengers a year and directly employ between 40 and 90 people. Some of them—Bournemouth in particular—also have quite substantial cargo traffic. They are not, then, negligible businesses. The noble Lord, Lord Foot—whom we welcome to our discussions on airports—said that they were small. I believe that there are many companies which are benefiting from privatisation and being able to raise money on the market smaller than these airport companies employing between 40 and 90 people.

Perhaps I may deal with some of the points mentioned by the noble Lord, Lord Foot. Because there has been no specific criticism of how the airport has been run to date, that must not blind the noble Lord into thinking that is the right way to proceed for ever. I hope that he, with a liberal mind, would see that matters can always be improved and that doubtless the Government's way is the right way to proceed.

The noble Lord also said that the Devon County Council were in the dark about the future; and asked what the Government were going to do. We should turn the question round and say, "Come on, Devon County Council, come forward and talk to us", which they are doing. It is up to Devon County Council to put forward their proposals. If they have proposals which can convince my right honourable friend the Secretary of State that Exeter should be excluded from the provisions of the Bill as they now stand, then we shall listen to them.

The noble Lord also said that one reason for excluding Exeter was because it is contract-managed by British Airport's International. I think that there are still advantages in the Government's requirements. The basic philosophy is that we want to get airports at arm's length from councils. I think that is right. There is no requirement for Devon County Council to have Companies Act accounts and there are also the directors' responsibilities which will be required in the future. There are certain advantages in that.

The noble Baroness, Lady Fisher of Rednal, mentioned the case of Humberside. The noble Lord, Lord Tordoff, mentioned Blackpool, as he did on Second Reading. We are aware that when an airport is oil-related it is rather different because it can fluctuate. Indeed, few predicted the dramatic reduction in oil prices which must have an effect on an oil-related airport. Indeed, there is a noticeable change at Aberdeen, but we hope that it will not last and that Aberdeen will pick itself up again. However, that is one of the points that will undoubtedly be looked at when the airports submit their schemes under the Bill. We shall look very carefully at the situation. We are not immune to arguments on those fronts.

The noble Baroness asked about EC assistance. As I understand it, they will not lose their assistance provided there is majority control by the local authority. Therefore, as I understand it, they could dispose of 49 per cent. of the shares (still retaining 51 per cent.) and still benefit from EC provisions. As regards the hotel development, we were not aware that there was a definite proposal, but we heard that it was in the offing. Without knowing the full details of the situation, it would seem more likely that another effect rather than that of privatisation caused the developer not to proceed to any concrete terms.

I highlighted earlier the problem of drawing the line. If we look at the list of airports, we find that, on the figures which the noble Lord, Lord Underhill, mentioned, we automatically have a problem as regards Liverpool; whereas on the figures produced by the Government and the £1 million threshold, which is nice and simple, there is quite a gap down the league to, I think, certainly Coventry which has a turnover of about £500,000. Therefore, there is quite a large gap below the £1 million figure which the Government have in the Bill at present.

As a result the Government are convinced that those companies—substantial companies—with a turnover of £1 million or more will benefit from being placed in a Companies Act environment and subject to the normal disciplines of companies. We believe that that will benefit the airport companies concerned and that they will provide sharper and more commercial attitudes—something of which I would hope Devon County Council would approve. That will be of benefit to the ratepayers, the regions, air travellers and the airlines themselves.

Another point which we must bear in mind is that as it is a basic philosophy of the Government to move airports outside of political control I can foresee a situation where a particularly politically dominated council would seek not to expand the airport—which would then bring it within the purview of Lord Underhill's criteria because it would be just below the level—and that would be detrimental to the ratepayers and the air travellers. We must bear that in mind. Therefore, I cannot agree to the amendments.

Lord Tordoff

I am sorry, but the noble Earl's last remark is quite unacceptable. To assume that local authorities have so little regard for the economic structure of their local area is grossly unfair to them.

The Earl of Caithness

I certainly did not say "all local authorities"; I was very specific in saying a "politically dominated" local authority.

Lord Tordoff

I have the feeling that all local authorities are politically dominated. It may be that there are those who believe that if they have a Conservative administration it is non-political, but that is not a view which I take.

I talked about there being three categories, and the noble Earl has referred to a fourth division. If the Government insist on going down what is essentially a dogmatic road, they will push a great many of the third division people down into the fourth division. In my view the plcs will, frankly, not be able to sustain a number of these airports about which we are talking in the third division. They are there today because local authorities and local communities have had the courage to invest in their own airports in a way which some others have not. If that is taken away, many of these airports will decline and possibly go out of existence. That will be to the detriment of the whole economic environment of the area concerned.

I believe that the Government should think again. Will they please, just for a moment, drop their manifesto and accept that it is not always better all the time to have everything privatised, that there are times when there are other ways in which to finance and direct matters other than totally through the private sector?

The level which the noble Lord, Lord Underhill, has proposed of £2 million has some sense in terms of the kind of delineation to which I have referred. I hope that the Government, even at this late hour, will be prepared to think again and lift the threshold from £1 million to £2 million.

8.45 p.m.

Lord Underhill

I appreciate the support which other noble Lords have given to the amendment. Apart from not understanding what the noble Earl really meant by politically dominated local councils (because even hung councils are dominated by political parties), I cannot understand also the statement which is repeated time and time again by Ministers in connection with the Bill; namely, "We want the local airports to be at arm's length from local councillors". Have we no faith at all in local government? This seems to be a matter which comes up time and time again with this Government in one piece of legislation after another. They really have no faith in local government.

I shall not mention Liverpool because we have to check the figures. However, those that will be excluded by the amendment will be Blackpool, Bournemouth—a solid socialist-dominated area—Exeter, Humberside, Norwich, and Southend. I have met the representatives of a number of those bodies. I have attended various seminars of the Joint Airports Committee of Local Authorities (JACOLA). One matter which has emerged—and I mentioned this on Second Reading—is that irrespective of politics, local authorities are proud of the development of their airports and what they do for their community, trade, general interest and maybe tourism as well.

Therefore, let us put on one side the question of the airports being at arm's length from local authorities or political domination. The noble Earl has admitted that it is a matter of judgment. I believe, from the speeches that we have heard from other noble Lords in support of the amendment, that the local authorities concerned have to make a judgment as well. It is interesting to note that subsection (3) says: The Secretary of State may by order substitute for the sum for the time being specified in subsection (1) such greater sum as may be specified in the order". It may be argued that is done merely to cope with inflation. However, the Government provide that the figure can be increased if the Secretary of State should so decide by order.

We are saying that before the provision comes into operation, not only should the figure be increased, but also there should be the additional criteria concerning the 200,000 passenger throughput. I hope that the noble Earl will take a careful look at what he has said. I am certain that the local authorities will listen very carefully to what he said about not being immune to listening to them. I hope that every one of the local authorities concerned, whatever eventually happens to this clause, demands to see the Minister to give him firm reasons why he should change his proposals.

The question is—and this was referred to on previous amendments—whether the Minister is prepared to listen or whether he has fixed ideas because of the dogma that it is far better to have what he calls an "arm's length" approach, and that a company will mean that there will be far more effective control than there has been up to now through an appropriate committee of the council.

We shall look carefully at what the noble Earl has said. I hope that he will take note of the points made here. We shall decide whether or not to come back on Report, perhaps with the same amendment with some further figures because they may be important. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Tordoff moved Amendment No. 21:

Page 11, line 16, leave out from ("year") to ("but") in line 17.

The noble Lord said: It may be for the convenience of the Committee if we discuss Amendment No. 22 with this amendment. Regardless of what level is finally set, whether it is £1 million or £2 million, or some other threshold, this amendment is intended to exclude grants to an airport from the definition of turnover. It is necessary because in many cases the grant is payable for non-commercial reasons, such as the airport's role in local economic development. We have talked about local economic development already; but that is the sort of non-commercial reason for which grants may be payable.

We consider that as a matter of principal grants should be excluded from the calculations involved in determining whether or not an airport should be subjected to the provisions of Part II. These two amendments are as simple as that, and I hope that the Government will accept them on that basis. I beg to move.

The Earl of Caithness

The definition which these amendments seek to change is important because it sets out what must be included in the threshold criterion which in turn determines which local authorities shall be required to form airport companies. We selected annual turnover because, all things considered, it was the best indicator available of airport activity.

It is a matter of fact that some airports need a subsidy from their parent authorities—regrettable, but we recognise that for some this may be necessary for some time. However, any subsidy (or, as the Bill describes it, "Grants from any public or local authority") does represent, in the same way as and together with other revenues, activities of the airport in question. It is therefore proper to include such subsidies—or grants—in the definition of annual turnover.

I think I understood what the noble Lord, Lord Tordoff, was saying—I hope I did. I shall read his remarks. But he has not convinced me that there is a good case for excluding grants in this instance.

Lord Carmichael of Kelvingrove

I should like to support the noble Lord, Lord Tordoff, on this amendment. I am disappointed that the Minister has fallen back on the narrow definition including grant as part of the turnover. He conceded that some airports would require grant or subsidy from the local authority. It struck me then as being unfortunate that he did not give them any credit for making this subsidy.

If he thought about it he would realise that many of the smaller airports started by a seeding grant from the local authority because of local pride and because of a feeling that they needed an airport to give more accessibility to the area. That was one of the reasons when Blackpool airport started. It was not started for oil (nobody thought of oil) but it was started because people felt that Blackpool had to have as many communications as possible. Whatever we say about Blackpool, they have been extremely progressive in attracting tourism and visitors.

The Government are missing the whole point of local pride in the airport, and the importance of the airport to the community, which far outweighs the relatively small grant frequently made from the local authorities. It is vital to the local community and the whole feeling of pride. It is almost like the money spent on advertising. It comes into the same category, although in many cases—and everybody hopes in all cases—it will gradually build up as aircraft become more plentiful and become more spread out throughout the country.

As with places like Blackpool, they will get closer to the black than the red. I hope that the Minister will look at this carefully. It is an amendment that has a great deal of feeling behind it from the local authorities, and I hope that the noble Earl will think once more about it.

The Earl of Caithness

I wonder whether it would be helpful if I said another quick word here without delaying the Committee. It is the Government's intention that when the local authority airport companies are set up, they will be viable enterprises. We do not foresee the situation where we are creating an entity purely for it to go down. That would be entirely wrong, and that is contrary to what we propose.

We are therefore conscious that when creating a new airport company it should be given every chance to succeed in the market and to attract more business and to improve. I think I have also got to say that a grant is a proper measure of activity, and included as such we believe that it must be taken into account in these criteria.

Lord Tordoff

May I delay the Committee for a second while we look at this question of the sort of airport we are talking about. We are talking about places that have grown up over a number of years. They have perhaps been private clubs in some cases. They have perhaps been old military airfields in some cases. They have perhaps been non-airfields that have been converted into airfields. They have been brought to the level that they are at the moment because the local authorities have felt that it is in the interests of their community to create an airport for their community.

There is a good future for a lot of these airports, particularly when we start to get short take-off and landing airports in our inner cities. These are the places that will act as a feeder to a lot of these short take-off and landing airports. But they would not have existed were it not that the local authority was prepared to put a grant in aid of them. This is what makes the difference.

This is where you cannot judge them simply on the basis of their turnover. Many of them are in a transitional period, and it is unfair to count into the cut-off level that we are talking about—£1 million, or whatever the level is—the sort of grant aid which has been given to provide the seed corn for these airports. I am clearly not going to press this amendment to a Division at this time of night; but I hope that the Government even at this late hour will recognise that they, from their Whitehall and Westminster perspective, are seeing things from a totally different viewpoint from that of the local authorities. They are not giving sufficient credit to the wisdom and ability of local authorities to make the financial judgments that have to he made in this situation.

They are setting criteria that are far too stringent. The elimination of the grant from the calculation would make quite a difference to a number of these airports at the cut-off point. However, there is no point in pressing it tonight. I hope that the Government will give the matter more thought, and with that I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 22 not moved.]

On Question, Whether Clause 13 shall stand part of the Bill?

Lord Sefton of Garston

May I refer the Minister to subsection (3). It says: The Secretary of State may by order substitute for the sum for the time being specified in subsection (1) such greater sum as may be specified in the order". I am puzzled. I understood the Minister to say that if any authority questioned the advisability of having to form a company and made representations to the Government, they would consider those representations. I am assuming—I invite correction if I am wrong—that the Secretary of State would do that under subsection (3). But there is another way of reading subsection (3), which is that it allows the Secretary of State to take care of the inflationary element, but it applies to all authorities. Which is right?

9 p.m.

The Earl of Caithness

It is a flexible provision which is normally written in. I think the provision under which the Secretary of State may give a direction to any principal council which controls an airport is in Clause 12(1). Clause 13(3) permits the Secretary of State for various reasons, whatever the reasons, the flexibility by order to substitute the sum.

Lord Sefton of Garston

There is no dubiety about the situation. If one of the authorities wishes to question the advisability of having to form a company, the Secretary of State has the power to say in that case that it need not.

The Earl of Caithness

I should refer the noble Lord to Clause 12(1). The first part of the sentence reads: The Secretary of State may give to any principal council". The word "may" there is precisely the flexibility to which I was referring earlier when I spoke about some of the airports which are, for example, oil related.

Lord Foot

I should like to pursue that for a moment. Is it not right that under Clause 12 (the one just quoted by the noble Lord) whether the Secretary of State decides eventually to give a direction to any council is a matter within his discretion? It does not automatically happen. He is quite entitled, is he not, because it is "may" and not "shall", to say to himself that he will exclude Exeter because there are special circumstances there even though Exeter comes within the £1 million threshold? That seems to be the defect in what the noble Lord said about the right of local authorities to make representations to the Secretary of State about why he should not make a direction or what sort of direction he ought to make.

Devon County Council has been trying for a long time to find out whether the special circumstances of Exeter might influence the Secretary of State to say that he will not make a direction in the case of Exeter airport. The council has been pressing the noble Earl's colleague in the other place as to whether or not he intends to make a direction. Not only has the request come from the Opposition parties but it has been made more than once by the Back-Bench Members of the Government party. We have not been able to learn whether the Secretary of State intends to make any direction about Exeter airport.

The Earl of Caithness

The noble Lord, Lord Foot, was absolutely right in the first part of his statement, which concerned the flexibility of the Secretary of State. As the Bill proceeds through both Houses of Parliament and it becomes clearer, it is easier for the Secretary of State to make the decision with regard to Exeter. We shall be issuing guidance shortly. We are in consultation with Devon County Council. All I can usefully add at this stage is that we hope it will not be too long before the decisions are made on this.

Clause 13 agreed to.

Clause 14 [Transfer schemes]:

The Earl of Dudley moved Amendment No. 23:

Page 11, line 36, at end insert ("in such form as").

The noble Earl said: The Committee may find it convenient to take this amendment in conjunction with the next amendment, No. 24. They stand together. Both these amendments and later amendments to which I shall be speaking in Committee have two aims. The first is to give further protection to some local authorities—I cannot arrogate championship of all local authorities, but I hope that my rationale will go right across the board—who own regional airports in respect of the Government's intention for those airports. Secondly, the aim is to provide additional powers to enable those local authorities to fulfil the obligations laid upon them by the Bill at less cost to themselves and in a manner more appropriate to the interests of the ratepayers than is provided for in the Bill.

Although I speak from this side of the Committee with the foreknowledge of seven West Midlands district councils and Birmingham airport, I do so with conviction and in pursuit of principle. I am convinced that it is wholly unfair to create charges which will place an unfair extra burden on ratepayers. I hope that after the events of last week noble Lords in front of me will be sensitive to this issue and will perhaps consider accepting my amendments rather than obliging me to consider whether I should call upon noble Lords on this side of the Committee to vote against the Government in defence of principles which I believe to be of considerable importance.

I also believe that my amendments are in the national as well as the regional interest because they are in line with the statement made in June 1985 and expressed in the Government's White Paper in Section 3.2 which stated: It also continues to be the Government's policy that air transport facilities should not in general be subsidised by the taxpayer or the ratepayer. Airports, whoever their owners, should normally operate as commercial undertakings". I share the Government's view in that respect, as I am sure do most noble Lords on this side of the Committee. Personally, I agree that privatisation of the British Airports Authority will bring substantial benefits, as will company status for the regional airports.

But there are differences in principle between these two separate proposals. Privatisation of the British Airports Authority can have the effect of helping the Chancellor in providing funds which can either be returned to the taxpayer's pocket or spent elsewhere; but Part II of this Bill, as it stands, could have precisely the opposite effect from that outlined in the White Paper. Subsidies in certain circumstances would have to be paid by the ratepayer in many districts where they have never been paid before or might lead to substantial rate increases. I shall deal with this point in more detail when I speak to later amendments, but at the moment I shall confine myself to these two amendments which deal specifically with the provision of greater flexibility to a principal council in preparing an airport scheme for submission to the Secretary of State than is now provided by Clause 14 of the Bill. Those are the specific purposes of this amendment, although they have the general objectives that I have set out already.

In order to explain this amendment I need to ask the Minister and the Committee whether they will accept my analysis of the effect of Clauses 12 and 14 in the preparation of an airport scheme. Under Clause 12(1) the Minister may give a direction to a principal council to form a company. However, Clause 13 places an obligation on the council to form a company before the Minister exercises his option to give the direction and before such date as the Secretary of State may specify when he gives that direction. Also, before that date the council is obliged under Clause 14(1) to submit a scheme providing for the transfer to the company which the Secretary of State may direct the council to form (but which, in accordance with Clause 12, it will already have formed) such assets and liabilities which it appears to the council appropriate to transfer to the company.

It does not seem to me to simplify matters that the Secretary of State in another place said that the scheme under Clause 14 could not include a provision that would create and transfer a legal right such as a leasehold after the transfer date. The scheme must provide to give the company the rights it needs by the due date. For a leasehold interest to be granted to an airport it would have to be granted (or put in a binding agreement to grant it) either before or within the scheme. It is unclear to me whether this was the Minister's intention as to the force of Clause 14 or whether it is a condition laid down by him of his acceptance of the scheme. It may be that part of the Bill follows the ministerial purpose which I have not divined and which the Minister can explain in response to my amendment.

I hope that I may be forgiven if I suggest that a riddle has emerged from the Department of Transport in regard to Clause 14, and the purpose of my amendment is to make the clause somewhat less "riddly". The question is whether these clauses are sufficiently flexible to allow the special situation such as the ownership by Solihull on behalf of the West Midlands District Council of the freehold land and buildings at Birmingham airport.

The Bill, taken in conjunction with the Minister's remarks in another place, constrains transferor or transferee in some difficulty to transfer and receive assets and/or liabilities of a newly-formed company as a pre-condition of the Minister's approval of a scheme which he has not yet approved. The councils could find themselves placed by the Secretary of State in a Catch-22 situation and unable to put forward a scheme acceptable to council and airport company because it is not a form acceptable to the Minister.

I believe that this difficulty can be overcome and the council provided with the greater flexibility, if necessary, to submit a scheme to the Minister in the appropriate form by the acceptance of my amendment. The amendment does not remove the final sanction of the Secretary of State required under subsections (2), (3) and (4) of Clause 14, but it has the effect that the scheme may be put forward, and will reach him in the form most appropriate, by the council in conjunction with the airport company. I beg to move.

The Earl of Caithness

I am afraid I am confused. I had hoped my noble friend would have elucidated the amendments for me, but I fear I am even more confused than I was before. I do not think the scenario he painted was the correct one. The direction in Clause 12(1) to form a company is before such date as specified in that direction. Clause 13 does not create the obligation: it merely defines the airports to which the direction can be applied. Clause 14, as to the company formed under Clause 12, proposes the transfer scheme. We shall shortly be consulting the local authority associations on the content of that guidance, and will certainly take into account their views in drawing up the final version. It seems best for all concerned if the authorities adopt a consistent approach that should not obscure the particular circumstances of individual airports.

I do not believe, although each airport will be different and will have to be considered on its merits, that the amendments of my noble friend are necessary. However, as I freely admit, I am confused by them. I should like to read in the cold light of day what my noble friend has said before taking this much further.

9.15 p.m.

Lord Williams of Elvel

May I help to resolve the noble Earl's confusion? It seems to me that the noble Earl, Lord Dudley, has moved a perfectly serious and sensible drafting amendment. He complains, I think rightly, that the existing clause in the Bill is too restrictive, and the expression in line 37 on page 11, "which", in fact stops local authorities from presenting a scheme which is in some circumstances going to be more flexible than the Bill would allow.

If one looks at the noble Earl's amendments—leave out "which it" and insert the words "in such form as"—they give the local authority much more flexibility to decide how it is to proceed. If I may say so, I thought the noble Earl, Lord Dudley, was entirely clear in his explanation about the Solihull ownership on behalf of certain other councils. As I understand it, the present wording of the Bill would not permit Solihull or another authority to produce a scheme of sufficient flexibility to allow its ownership to be transferred and for benefits to accrue subsequently. This seems to me to be any more than a simple drafting amendment which would widen the flexibility local authorities would have, If I may say so.

The Earl of Caithness

I am very grateful to the noble Lord, Lord Williams, and I am sorry if I appear to be stupid. I will try not to be, but I think the confusion has arisen because my advice conflicts with what the noble Lord has said and with what my noble friend has said. To our minds, the words "which it" do not restrict the local authorities. I should like to look at this again. Perhaps my noble friend would see fit to withdraw his amendment, and I will discuss it with him.

The Earl of Dudley

I apologise to the noble Earl if I have failed to cut a Gordian knot through the complexities of Clause 14. I must explain that this wording has given some concern to the district councils, who have foreknowledge of what I am speaking about today. It has caused them concern and has caused concern to their advisers. They feel, as I said, that they are in a Catch-22 situation. It may be that they are wrong and that the scenario I painted is incorrect; but I should be grateful if the noble Earl would have another look at this matter. If he feels it would be in the general interest and improve the drafting of this particular section, I would be grateful to leave matters as they stand and to withdraw the amendment.

Lord Butterworth

I wonder whether I can perhaps try to help on the drafting point. If you look at the words in the Bill, the present wording is very restrictive because the transfer to the company is, Of any property, rights or liabilities of the council or any subsidiary of theirs, which", Then if you take the Solihull example, the property belongs to other authorities and not to Solihull or a subsidiary of theirs, and therefore would fall outside this section. If you accept the amendment and put in the words, "in such form as", you get rid of the objectionable word "which" and therefore you make it easier for the local authority to present the scheme.

Amendment, by leave, withdrawn.

[Amendment No. 24 not moved.]

Lord Underhill moved Amendment No. 25:

Page 11, line 41, leave out ("as to the provisions he regards") and insert (", after he has consulted organisations representing airport operators and owners or operators of aircraft, or by independent financial advisers, as to the provisions which any of them regard").

The noble Lord said: Perhaps it will be for the convenience of the Committee if, as well as moving Amendment No. 25, I speak also to Amendment No. 29. In the light of the previous discussion it may help in the consideration of these two amendments and the next group of amendments to which we shall turn very shortly if I set out what I see as the provisions of Clause 14.

Clause 14 provides that once a "shell" company has been formed under Clause 12 it will be necessary for the Secretary of State to receive proposals for the transfer of property, rights and liabilities to the company. The Secretary of State will have the power to issue guidance and advice as to the form these proposals should take and must approve proposals before any transfer scheme can take effect. If the proposals submitted to him do not accord with the advice that he issued, the Secretary of State will be able to modify a scheme as he thinks fit. Indeed, he would have the powers to substitute a scheme of his own. The only obligation he will have is that before modifying or substituting a scheme he must consult the local authorities concerned. The various local authorities are very concerned about the lack of opportunity for appropriate organisations to be consulted on the advice to be issued by the Secretary of State and the failure to acknowledge the need for independent financial advice to be obtained.

The Secretary of State has confirmed several times that draft guidance and advice will be the subject of consultation with the local authority associations. As the president of the Association of Metropolitan Authorities I welcome that. But it is not enough because it is of great importance that the individual needs of airports are taken into account, not just the general views of the local authority associations. The issuing of general guidance does not reflect this requirement. There is concern that it will be drafted as though all airports are alike. We have on previous amendments mentioned the individual character of airports.

The approach being taken is similar to the one pursued by the Government in connection with the formation of public transport companies under the Transport Act. The concerns of the local authority under Clause 14 are not at all relieved by the present experience of PTAs under the Transport Act. The statutory right to independent advice is considered vital. As Clause 14 of the Airports Bill is at present drafted the Secretary of State will agree to transfer schemes only if they accord with his own views. We have already mentioned Manchester. I hope that I shall be forgiven if I bring up again what is called the Manchester airport saga because this indicates the kind of problems that can arise.

In July 1985 Manchester City Council issued proposals for the formation of a company to assume responsibility for the management and control of the airport and for wide consultation with the local authorities in the area, the trade unions and the Government. One of the characteristics of those proposals was the lease of the airport land and buildings to the company. This course of action was taken on the advice of independent accountants—advice which was confirmed by merchant bankers; expert advice. Their advice was based on the tax position and the overall financial profile of the company. It was in the interests of the viability of the company, these experts told the city council, to have a rental determined so that tax liability could be minimised. The Secretary of State did not understand this or seemed not to understand it. Indeed, the fact that the local authorities in Greater Manchester have established a company with a long lease is one of the matters which the Government regard as defective in the Manchester package. At no time in the several months that discussions took place did the Government attempt to question the advice obtained by the local authorities, which was explained in great depth to them. The dialogue ended with the following simple sentence taken from the final letter from the department: It remains the Minister's strong preference that the freehold of the land and building should be transferred to the airport company".

It will be appreciated from that brief account of Manchester that the need for independent advice is paramount if all the commercial factors are to be taken properly into account. We have been told time and time again that those matters must be taken into account. Those matters were raised in Standing Committee in another place. The Government accepted the right of local authorities to seek expert advice but refused to allow that to be statutorily acknowledged. The Minister for Aviation made it clear that the Secretary of State wanted to have the final word on those issues and would not wish to be bound by expert advice. That is a key issue and it is the point of the amendments.

In the view of the local authorities, the motivation behind proposals should be the interests of the companies and the local authorities, and not the political objectives of the Government. That can only result in damaging proposals. We hope that the statutory right for independent advice to be sought will be accepted by the Government. That is the purpose of the amendments.

The Earl of Caithness

I wonder whether the noble Lord, Lord Underhill, will clarify whether he would like me to speak also to Amendments Nos. 26, 30, 31, 32 and 33, and deal with all the amendments, including Amendments Nos. 25 and 29, together.

Lord Underhill

If the noble Earl prefers, I will continue, because I have not spoken to those other amendments at all. Therefore, briefly, because I shall have a lot more to say—it all deals with the process of Clause 14—I will now speak to Amendments Nos. 26, 30, 31, 32 and 33.

The local authorities contest the extraordinarily wide powers that the Secretary of State is seeking to reserve for himself to modify and substitute schemes. Those powers are a recipe for chaos and ill thought-out proposals. That is why I read, I hope carefully, exactly how I interpret the provisions of Clause 14, because there are those exceptional powers given to the Secretary of State.

The local authorities take the view that if schemes are submitted that do not accord with the advice issued by the Secretary of State and the advice received by independent advisers, then the local authorities concerned should be required to submit a further scheme in conformity with that expert advice. The local authorities are best able to respond in a way that will satisfy the Government's view, the interests of the airports and the interests of the local authorities.

The proposed powers of substitution are particularly worrying to the local authorities. They are far too wide. They would enable the Secretary of State to foist upon local authorities something that is against their particular interests. There is scepticism, underlined by virtue of the fact that the Government do not seek similar powers of substitution in relation to the British Airports Authority scheme. I hope that the Government will appreciate that in these two series of amendments we are trying to restrict the terrific powers that have been given to the Secretary of State and to substitute for some of those powers consultation with the authorities and proper consultation with expert advice.

9.30 p.m.

The Earl of Caithness

Clause 14(2) of the Bill as at present drafted requires principal councils, when preparing schemes for the transfer of aerodrome assets to airport companies, to take into account any advice given by my right honourable friend the Secretary of State as to provisions that he regards as appropriate for inclusion in transfer schemes. The purpose of this provision is to ensure that schemes properly reflect Government policy on the establishment of airport companies; and that policy is simply the setting up of companies which can operate in an efficient commercial manner.

The proposed amendments—and I refer specifically to Amendments Nos. 25 and 29—would require my right honourable friend, before giving advice, to consult organisations representing airports and those representing airlines.

Lord Underhill

Will the noble Earl continue to read the rest of the amendment, because it is very important?

The Earl of Caithness

Indeed, I shall come to it in a moment.

The proposed amendment would require my right honourable friend, before giving advice, to consult organisations representing airports and those representing airlines. We believe that this is a recipe not only for increased delay—and we all know how long consultation of this sort can take—but for utter confusion. I know that the noble Lord, Lord Underhill, will not like me saying this, but it is close to a wrecking amendment.

Lord Stoddart of Swindon

Nor I.

The Earl of Caithness

The noble Lord, Lord Stoddart, does not like it either. Principal councils would be required to take into account the provisions which any or all of these organisations regarded as appropriate. It is quite clear that the interests of airports and airlines will differ on a number of points. Indeed, it is probable that the interests and advice of individual airports will differ from each other; and likewise with airlines.

The noble Lord, Lord Underhill, asks my right honourable friend the Secretary of State to reconcile these differing and often conflicting interests. We believe that it could lead to a great deal of confusion for the airports themselves. I believe that the amendments, although I must admit that they are superficially attractive, have little that can commend them. They will lead to delay, and the inevitable conflict of interests will cause the confusion to which I have referred. There is a substantial risk that our policy, and the consequent improvement of airport company effectiveness, will not therefore be fully reflected. That will be to the detriment of the airports, airlines and ratepayers.

I move to the second group of amendments: Amendments Nos. 26, 30, 31, 32 and 33. These amendments would do two things. Amendments Nos. 31 and 32 would remove the power of my right honourable friend the Secretary of State for Transport to substitute a scheme of his own for one submitted by a principal council which had ignored my right honourable friend's advice as to the provisions which he regarded as appropriate for inclusion in it. His only recourse under the amendments would be to require the council to submit another scheme and since there would be no guarantee that the council would not continue to ignore his advice this circular process could go on indefinitely. Amendments Nos. 26, 30 and 33 would remove my right honourable friend's powers to modify any unsatisfactory scheme.

Therefore, these amendments would undermine the whole of Part II of the Bill. They would allow principal councils simply to draft their own schemes without regard to Government policies concerning airport companies. Local authorities could leave all major airport assets with the local authorities so ensunng that there could be no proper arm's length relationship between themselves and the airport company. There would be a very real risk that the viable, commercially-minded companies which we seek simply would not materialise, and that would be to the detriment of the ratepayers, the airlines and air travellers.

Are these powers that my right honourable friend seeks new? They are not. We can find the same powers in Sections 1 and 2 of the Transport Act 1981. We find them in the Oil and Gas Enterprise Act 1982; and more recently, in an Act that I remember better than the other two, in Section 67 of the Transport Act 1985. The noble Lord, Lord Underhill, and I have been through this before.

But where did these powers originate? They originated from the Transport Act 1968. The noble Lord, Lord Carmichael of Kelvingrove, will remember that Act because he was in another place as Parliamentary Under-Secretary of State for Transport at the time and brought in the powers. I have not heard the case put forward by the Opposition that the noble Lord's proposals as presented at that stage now need to be modified to any serious extent.

Lord Williams of Elvel

In responding to these amendments the noble Earl described them as "superficially attractive" and also "wrecking". If it is indeed superficially attractive to wreck the Bill, who am I to quarrel with the noble Earl the Minister? However, I think he has underestimated the force of the argument behind in particular Amendment No. 25 and the consequential amendment, No. 29. I very much hope that he will look at this again.

In the Bill as at present drafted the Secretary of State may give advice, as to the provisions he regards as appropriate for inclusion in the scheme", and the Bill goes on to define the sort of advice as, in particular any advice as to the description of property, rights and liabilities which it is in his view appropriate to transfer to the company". We are talking about a transfer from local authorities to companies. We are therefore talking about a transfer of value from a public authority into a company which no doubt in the course of time will be privatised, sold off or whatever. It is also true that we are talking about assets of very considerable value. We are not talking about 2p here and 3p there. We are talking about assets worth many millions of pounds. Is it so unusual, is it so unjust, to ask for the Secretary of State to consult organisations which have an interest in this and to take independent advice on the transfer of these major assets into companies which, through their holding company, will be floated off?

In spite of the fact that he accused my noble friend of introducing a provision in an Act which, after all, is now 18 years old, but subsequently quoted a series of Conservative Acts in support of his own case, I ask the noble Earl to look rather carefully at this matter and, if I may say so, take the plain man's view of what is actually happening. I ask him to consider whether or not he feels that independent advice—leaving aside for the moment airport operators and owners—is not right in the case of such a transfer. If he feels that he can take this amendment away, just on the question of independent advice—whether it is a merchant bank or an accountant does not matter—I think that on our side of the Committee we should be comforted.

The Earl of Caithness

I think it may be helpful at this stage if I explain briefly how we propose to consult on the guidance to be given to local authorities on transfer schemes. My department plans to issue draft guidance later this month to local authority associations and airports. We would not issue final guidance under Clause 13(2) of the Bill of course until the Bill is enacted. Meanwhile, we shall be inviting comments from the airports and the local authorities on the draft guidance and we will take these fully into account in formulating the final guidance.

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.

Lord Underhill

The only part of the statement that the noble Earl has just made which concerns me is that the Government will seek advice from the local authority associations on the type of guidance and advice that will be sent out. What will happen if the local authority associations say, "No, you should not do it this way"? Is there any assurance that the Government will say, "Right, we accept the view of the local authority associations"? I have a pretty good idea what one local authority association would say if it was asked what guidance and advice should be sent to local authorities. It would say what the amendments say.

I think that my noble friend Lord Williams has sufficiently answered the accusation about these being wrecking amendments. He has also clearly explained their purpose and the kind of advice that the Secretary of State should get before he gives a decision on transfer schemes. I think that we should look carefully at what the noble Earl has said, and I hope that he will look carefully at what has been said in support of the amendments.

I hope that the advice that the Government will get from the local authority associations once the Bill is passed will be accepted. There have been consultations on a number of government White Papers and there has been overwhelming opposition. For instance, hardly one person said that the Transport Act was a good thing, but the Government ignored the lot. It is not sufficient to say that bodies will be consulted. A lot depends on the frame of mind of the Government when they receive the advice that they have requested. In the meantime I beg leave to withdraw the amendment, but we and the Government should study carefully all that has been said this evening.

Amendment, by leave, withdrawn.

[Amendment No. 26 not moved.]

Lord Underhill moved Amendment No. 26A:

Page 12, line 6, at end insert ("provided that the Secretary of State shall not give his approval to any scheme unless this provides for existing employees of a council to be transferred to the company upon terms of employment which are no less favourable to them than those under which they are employed immediately prior to such transfer")

The noble Lord said: This amendment deals with the position of local authority staff who will be affected by the clause. Currently staff employed at local authority airports are covered by national joint employer-trade union negotiating machinery, and the majority of pay and conditions of service issues are determined within that machinery. The aim of the amendment is to ensure that when staff are transferred to the new separate airport plcs there is no possibility of their receiving lower pay and conditions, especially as they will be expected to carry out precisely the same work for the plc as they are now carrying out directly for the local authority airport.

Many of the staff have given long and loyal service to the local authority airports and it is important to ensure that they suffer no detriment as a result of changing their employer. The Bill as currently drafted provides no safeguards whatever, and we have no faith in the protection of the transfer of undertakings regulations which have failed miserably to protect staff under the Transport Act which forces local authorities to convert bus operations to plcs by October this year. Certain councils are already telling their employees that under the new company arrangements there will be adverse changes in pay and other conditions of employment, sometimes with the threat of redundancy if the changes are not accepted. Such threats arise from the question of tendering which is in the Transport Act 1985.

The inadequacy of the transfer undertakings regulations is further enforced by an article in the Law Society Gazette of 3rd July 1985. I shall not quote from that, but if the noble Earl does not have a copy in the department files, I shall readily send him one. The article confirms that the regulations do not effectively protect employees' rights, as they fall short of what was intended by the EC directive that brought them about. They are also written in a confused way and allow employers to make changes and use arguments that negate the regulations.

It is therefore essential that the Bill should contain a provision that ensures that employees do not suffer a reduction in statutory and contractual entitlement as a result of the Government's legislation. We should remember that what is being proposed is that the local authority airports shall be transferred to local companies of which the local authorities will be 100 per cent. shareholders. There is no reason why the amendment should not be considered carefully by the Government in the interests of the employees. As I have said, many of them have given long and loyal service in building up their local authority airports to the condition that they are in at the moment. I beg to move.

9.45 p.m.

The Earl of Caithness

I have taken the amendment seriously. I fully understand why the noble Lord, Lord Underhill, saw fit to table it. The Government are anxious to ensure that the conditions of employment of local authority employees who become airport company employees are not prejudiced. The conditions of the employees who would be transferred are, except for pensions, already protected under the Transfer of Undertakings (Protection of Employment) Regulations 1981, and can suffer no diminution.

I think I may therefore be excused if I say a word about pensions. We have given careful thought to pensions, which is another important aspect of the matter from the employees' point of view. We shall ensure that provision is made so that the local authorities and the new companies will be able to arrange for their employees to continue membership of the local government superannuation scheme.

In the unlikely event that that does not happen, in Clause 26 we have provided for the making of regulations which will allow appropriate compensation to be paid. In the light of that short but succinct explanation, I hope the noble Lord will feel that there is no need for his amendment because the point is already covered.

Lord Dean of Beswick

I wish to put a question about employees' conditions of transfer. As the Minister is aware, there are provisions in the Bill which mean that if local authorities want to receive Government assistance or the right to go into the open market for finance they will need to divest themselves of 51 per cent. of the shares in the company. I believe that that is correct. On privatisation the local authority will have 100 per cent. of the shares and that carries total protection for the employees. That point was highlighted by the Minister. What will happen if 51 per cent. of the shares are taken up by people in the private sector? Will they be responsible for providing the benefits guaranteed in the original scheme? Will that carry over to a company which is dominated by private investment?

The Earl of Caithness

Is the noble Lord. Lord Dean, talking about pensions?

Lord Dean of Beswick

I am talking not only about pensions but about general working conditions and rates of pay. I do not criticise the private sector, but history shows that people employed in the public sector tend to have a right written into the terms of their contract which gives them better protection for future employment, pensions and redundancy payments than are given for those employed in the private sector. The employees may be given guarantees under the scheme as it is envisaged at present, but the Government may decide, as they can as the Bill now stands, that the local authority must sell 51 per cent. of its shares to the private sector if it wants to go into the open market for investment. In other words, it will become 51 per cent. dominated by the private sector. What will then happen to the employees who were employed within the public sector? Will they lose their protection, or not?

The Earl of Caithness

I am grateful to the noble Lord for explaining his point further. I think he is mistaken. If a local authority which controls 100 per cent. of the shares of the local airport company wishes to seek private finance, it does not have to sell 51 per cent. of the shares to achieve that aim. As well as receiving money from the local authority, it can receive money from the private market.

Lord Dean of Beswick

That may be so, but does it not lose certain benefits under the Bill which would accrue to it if it sold 51 per cent. of the shares? That is part of the Bills provisions, is it not? Certain sections of the Bill are twisting the arms of the local authorities to make them divest themselves of 51 per cent. of the shares of the company. If they do not, certain financial facilities will be withheld from them. That is the point that I am trying to make.

Lord Williams of Elvel

Did the noble Earl make his last remark in the light of Clause 20, or not?

The Earl of Caithness

I made it in the light of my knowledge of the Bill. I am ready to be corrected by the noble Lord.

Lord Williams of Elvel

We shall come to this on Amendment No. 43. It is a question of Clause 20 and the restrictions on companies.

The Earl of Caithness

My understanding is that we are not forcing local authorities to sell 51 per cent. It is entirely up to them if they wish to do so. Obviously they will not have some of the benefits that they have with the backing of the local authority if the controlling interest in the airport is sold, but they will obtain a lot of the benefits of the private sector.

Lord Dean of Beswick

Is it not a fact that the Government, by pursuing this policy, are imposing a form of (to use another description) rate-capping on publicly-owned airports unless they privatise themselves 51 per cent?

The Earl of Caithness

I do not think that the situation is any different from the present one.

Lord Underhill

The noble Earl has referred to Clause 26. But that clause deals solely with "Compensation for loss or diminution of pension rights". We come to pensions on a later amendment. The amendment that I have moved does not deal solely with pensions as such. The Secretary of State has to give approval to a transfer scheme. I agree with the noble Earl that it is not a transfer scheme to private enterprise but a transfer to a plc. But while the Secretary of State is considering other things, why should he not say that he will not approve a scheme unless it provides for those persons at present employed by the local authority to be transferred to the company upon terms that are no less favourable to them? That is what the amendment says. What is wrong with the Secretary of State saying that if the scheme submitted does not provide for that he will not approve it? That is all that the amendment says

One would have thought that the Minister would grab this chance of saying that this is a good opportunity to show to local authority workers who will be transferred to the company that they will receive exactly the same conditions—not just pension compensation conditions but general conditions—and no less than they are getting at present while directly employed by the local authority. The plc will be 100 per cent. owned by the local authority. Their condition therefore should be no less. The Secretary of State should surely have the right to say that he will not approve a scheme unless that were the position.

The Earl of Caithness

I would turn it round the other way and say that my right honourable friend the Secretary of State is most unlikely to accept a scheme that excludes the employees from the Transfer of Undertakings (Protection of Employment) Regulations 1981, under which they can suffer no diminution.

Lord Underhill

I dealt with that matter sufficiently in my opening remarks. At this time of night I do not propose to continue the argument. We shall look carefully at what the noble Earl has said and take further advice ourselves. It seems to me, however, that this is one of the essential points that the Minister should consider. If the Transfer of Undertakings Regulations are a factor to which the noble Earl is tying himself, I cannot even find that in the Bill. The plc could possibly ignore some of those points, particularly in the light of the frailty of the regulations to which I have referred. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Tordoff moved Amendment No. 27:

Page 12, line 6, at end insert— ("(3A) 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. (3B) Any advice given under subsection (2) shall take account of the need to ensure, and any scheme approved under subsection (3) shall contain provision to secure, that liabilities attaching or incurred in relation to any property or rights which are transferred to a company pursuant to the scheme are transferred to the company with such property or rights.").

The noble Lord said: It may be useful for noble Lords to consider Amendment No. 28 alongside this. The amendment explains itself when it says: When formulating any advice for the purpose of subsection (2) … the Secretary of State shall take into account the financial consequences for the transferor authority". This is largely for clarification. I dare say that the noble Earl, Lord Dudley, who is to move Amendment No. 28, is seeking the same kind of clarification. A number of airports are very worried about the implications of the Bill in terms of their debt burden.

The Bill is largely modelled on the recent Transport Act. If the Secretary of State follows his advice to authorities on that occasion, he will stipulate the formula for assessing the level of airport-related debt which should be transferred to the new companies. In response to questioning in Standing Committee J, the Minister adopted what has been described as a confused position. I am sure that the Government will not agree with that but that is the view of people who were there. On the one hand he was inclined to the view that the debt should be removed from the companies and retained by the councils. However, he also went on to indicate—and we have had this indication at the earlier stage of this Bill in this Chamber—that the debt position would be unchanged on restructuring, and he suggested that if the debt was currently serviced by airports there would be every chance that it would continue to be serviced by the companies.

We therefore have a serious need of clarification from the Government on this point. Airports are extremely capital intensive. The effect of transferring debt to local authorities would be very significant indeed. It would create a charge on local authorities which they do not bear at present and, due to present rules, would generate grant penalties for incurring this additional expenditure.

Based on the latest accounts, debt outstanding in relation to the 16 airports that were mentioned before amounts to £120 million. Interest charges relating to this level of debt are estimated at £13.5 million. Not to charge this to the companies may create a favourable profit and loss account—and it may be the Minister's intention so to do—but it will create a charge on local authorities that they have not previously borne. This additional expenditure burden on local authorities will add to the problems created by the present block grant system. Some 49 local authorities will be involved in relation to the 16 airports. All of these would lose grant, I understand, if they incurred additional expenditure in 1986–87.

I do not intend to deal with Birmingham, to which I dare say the noble Earl, Lord Dudley, will be referring. However, I should like to say a word about Luton Airport, which is owned entirely by Luton Borough Council, not by a consortium. It is calculated that at 1st April 1987 there will be an existing debt relating to airport assets approaching £17 million. It may be suggested that is the fault of the Luton local authority. The fact is that it was incurred on the understanding that it was an investment from which they could draw revenue if it proved a wise investment. It was, of course, a risk but it was an investment made by them. The present servicing of that debt annually exceeds a cost of £2 million. There is no doubt that the Secretary of State will require the borough council to transfer to the plc the assets which incurred the debt—that is to say, the new terminal building. But there is still considerable doubt as to whether the liability to service the debt will also transfer to the new company or will still reside with Luton Borough Council.

If Luton Borough Council—and therefore the ratepayers—is required to continue to service the debt of £17 million the effect in the first year of transfer could be absolutely horrendous. If one assumes that the servicing of the debt requires an annual payment of £2 million in addition to the present total net expenditure of £10 million by the borough council, then the whole of Luton's £2.5 million rate support grant will be lost.

Therefore, the double effect of debt repayment and loss of grant produces an increase in the rate bill of £4.5 million or 15p in the pound, which is an increase of over 60 per cent. in the borough rate paid by Luton ratepayers. That cannot be the effect which the Secretary of State intended, but it may inadvertently happen.

The Secretary of State argues that the airport dividend available to the ratepayers will be higher if the debt does not transfer and the ratepayers retain 100 per cent. of the shares. However, he ignores the fact that the dividend will not be declared until the end of the year and will be subject to tax. So the first year's effect on the ratepayers will already have been suffered and cannot be avoided if the Secretary of State is prohibited from interfering in the transfer of existing debt liability at the discretion of the borough council, which will have much greater incentive to be concerned about the viability of the airport plc and the Luton ratepayers.

The amendment seems to be entirely reasonable. All that it seeks to do is to put a duty on the Secretary of State to consider the financial interests of transferor authorities in the way in which he issues advice and approves transfer schemes. Clearly this will vary from place to place. I have illustrated one of the most serious situations. I am sure that the noble Earl will be discussing the question of Birmingham in a moment or two. It seems that this amendment is of such importance that it cannot be ignored by the Government. I beg to move.

The Earl of Dudley

Because of the late hour it has clearly been found convenient to take Lord Tordoff's amendment in conjunction with mine. There is a fundamental difference between the amendments, in that Lord Tordoff's amendment places an inalienable obligation on councils to transfer all liabilities, together with assets, to the airports company. My amendment differs from that of the noble Lord in giving the councils power to decide how much of the debt shall be transferred to the company.

It would be more appropriate for me to deal with some of the matters that the noble Lord dealt with when it comes to the next amendment. However, as regards the present amendments, I understand that, as far as one region is concerned, there are amicable and thoroughgoing discussions taking place between the seven West Midlands district councils and the Birmingham Airport Authority to decide upon a number of matters consequent upon the Government's introduction of the Bill, including discussions on the most appropriate and cost-and tax-efficient methods of servicing the Birmingham Airport debt. As I understand it, a number of options are under discussion. It is very much as it should be—there are ongoing discussions between the management of the future airport company and its principal shareholders.

In the past Birmingham Airport has been able to service the debt arising from the development of the new terminal at the airport from its surplus or from reserves. However, when the airport becomes a plc it will have to face depreciation charges, which do not apply at present while the airport is owned by the seven district councils. Those depreciation charges will very likely have the effect of turning a marginal profit into a loss.

Another matter under discussion is that it may well be tax-effective to grant a leasehold of the airport and charge rent, in which case the councils accept that it would be equitable to offset rent receivable by them, by accepting to meet some part of the interest charges on the existing debt on the rates. I am sorry to have to say this, but if I and those whose views have been made known to me were fully confident that an agreement thrashed out between the airport management and the councils would be acceptable to the Secretary of State, there would be no need for my amendment; and probably no need for Lord Tordoff's amendment, although I cannot speak for him.

The Minister in another place said that if none of the debt is put on to the airport company, the present situation would not be changed. This is simply not so in the West Midlands, where there would be a noticeable and onerous rate increase if all the debt is allocated to the local authority, as the Secretary of State has made clear in another place is his intention.

On the other hand, it may be that for the reasons I have given it would be equitable for some part of the debt to remain with local authorities, and the local authorities foresee that this possibility might arise. In these circumstances, it seems appropriate that councils should have the last word in the matter.

The Earl of Caithness

I realise the importance of these amendments, the one in the names of the noble Lord, Lord Tordoff, Lord Underhill, and Lord Carmichael of Kelvingrove, and Amendment No. 28 in the name of my noble friend Lord Dudley. These amendments seem to have the main purpose of ensuring that the new airport companies take on the full liabilities connected to any assets which are transferred to them, or vice-versa: that any liabilities are accompanied by matching assets.

Amendment No. 27 would oblige my right honourable friend the Secretary of State to take account of the financial consequences for the transferor authority when formulating advice on, and in considering, transfer schemes. These amendments would undermine a key objective of ours, which is to set up companies with every prospect of commercial viability. I think we are all conscious in the Committee that this is something that we would wish to see. We certainly do not want to set up a new commercial company which has no viability. That will be reflected in the draft guidance on transfer schemes that we shall be circulating for comment shortly, so that the local authority associations will have a chance to comment in detail.

However, it would be no sense to establish companies with a level of debt that would make them dependent for subsidy on the controlling authorities in the long term. That would be no way to obtain the improved commercial performance that we expect from these companies, and we shall be looking at all the transfer schemes on their merits; but in some cases we believe that it will be necessary to leave a large proportion of debt with the controlling authority in order to establish a company with a chance of viability. Where there is no chance of viability, then we shall be suggesting that the companies should be set up without any burden of debt, which would only increase the requirement for subsidy.

The present level of debt attributable to airport undertakings reflects past decisions of the controlling authorities. Instead of making provision for depreciation, as my noble friend Lord Dudley said, which would have enabled the airport to finance more investment from its internal resources, some authorities have chosen to draw high dividends and to finance investment by borrowing. Authorities with loss-making airports have been able to reduce the requirement for subsidy. These policies have enabled authorities to finance higher levels of spending than otherwise would have been possible at the same charge to the ratepayers.

The new companies will have to provide for depreciation, which is necessary to secure their long-term future. Therefore, future dividends may be less than the amount needed to meet the cost of servicing the debt from past airport investment. Also any requirement for subsidy may be greater than in the past because of the need to cover depreciation.

In such circumstances, the authorities will have to make savings elsewhere if they are to avoid rate increases. But they should recall that this problem results from their own decisions in the past about the use of airport operating surpluses and the financing of investment.

However, by making provision for depreciation the new companies will be less dependent on borrowing for capital investment and will have more resources to distribute in the longer term. The value of the authorities' equity stake will be greater and therefore the demands for loans will be less.

For those reasons we cannot at the moment accept these amendments, which we believe would remove the necessary flexibility in considering a sensible capital structure for each of the new airport companies. But as it is a complex area and a very detailed technical one when it comes to Government finance, I should like to read and reconsider what the noble Lord, Lord Tordoff, and my noble friend have said. I hope they will see fit at this stage not to press their amendments.

10.15 p.m.

The Earl of Dudley

May I take this opportunity to correct one point which I believe my noble friend made? He said that the councils carried, to some extent, the responsibility for the existing situation. I should remind the Minister that in the case of the Midlands district councils they have had responsibility for only the past few weeks. Before that the airport was in the hands of the West Midlands County Council and before that it belonged to Birmingham city. I think it is wrong to attribute any fault to the existing councils who jointly own the airport.

Baroness Fisher of Rednal

I should like to ask the noble Earl why the local authorities are in a different category from the British Airports Authority. Stansted is a developing airport in the same way as are the local authority airports. However, there is a different way of dealing with the debts of the British Airport Authority. The debts will go back to the airport authorities under the plcs, and they will be repaid to the Government as and when the dates for repayment are decided. Why is there a difference because it is a local authority airport as distinct from a national airport, which is the taxpayers' airport at present under the British Airports Authority? The others are local authority airports which in the main involve part local authority money and part government money, but why should there be this difference in how the debt repayments have to be made? I cannot see why the Government make these distinctions when it is either taxpayers' money or taxpayers' and ratepayers' money.

Lord Butterworth

May I try to give an example from Birmingham, which I hope might be helpful? My noble friend the Minister said a few moments ago that the intention of the Bill was to set up companies with every prospect of commercial viability. I very much agree with him in that objective. But it would not be to the advantage of the airport companies, the local authorities or ourselves if that were done at the expense of the ratepayers.

There is some widespread concern because it was felt in another place that the Secretary of State did not seem fully to understand the position. He said: Therefore, if some of the debt is put on to the airport company, ratepayers in that area will be relieved. If none of the debt is put on to the airport company, the present situation will not be changed". —[Official Report, Commons, Standing Committee J. 4/3/86; cols. 397–8.] As I understand it, in the case of Birmingham airport while the debt is vested in the local authority the liability to repay the annual amounts at the moment remains with the airport company. Therefore, it is simply not true to say that if some of the debt is put on to the airport company, ratepayers in that area will be relieved, because under the present arrangement the annual payment is made by the airport company. If the legal liability to make the annual payment is placed upon the local authority, the ratepayer's burden will be increased. Of course it is true to say that the local authorities having the benefit of the shares would have the benefit of the dividends; and I think I am right in saying that while the local authority would have to pay the income tax, it could be reclaimed.

However, the problem really rests as to the division between the debt and the equity. When the final scheme comes to be made, it is important that either the Bill or the Secretary of State should recognise that the division as between the debt and the equity should be drawn in such a way that the liability of ratepayers, the ratepayers' burden, is not increased.

Lord Dean of Beswick

Perhaps I may put the point, following the previous noble Lord's speech, that if the debt to the ratepayers is increased in certain circumstances, could that not substantially be to put the local authorities concerned in the brackets where (as I implied a few minutes ago) they may be ratecapped for doing something that is totally unavoidable in servicing a debt that they have taken over?

The Earl of Caithness

I am grateful for the interventions of my noble friend Lord Butterworth and the noble Lord, Lord Dean of Beswick. I think that they only serve to underline that we should all take this matter away and look at it again, which I promised to do earlier when speaking directly to the amendments. I hope that we can achieve a situation that will satisfy my noble friend Lord Butterworth which coincides with our thinking that we want to set up viable companies with a continuing prospect of viability and to look at each transfer scheme on its merits and take into account the financial arguments put forward by each local authority.

The noble Baroness, Lady Fisher of Rednal, asked me about a write-off of debts between the BAA and the local authority companies. There is no difference in our treatment because we are not writing off debt in either case. I hope that the noble Baroness will remember the Clause 3 stand part debate which her noble friend Lord Carmichael initiated, and as I understood her she was wrong in her assumption that we were treating them differently.

Baroness Fisher of Rednal

I was not wrong in my assumption. I understood clearly that the debt is going to be repaid but that it is not going to be repaid by the taxpayer. It is going to be repaid by the profits which will come from the airport. The difference with the local authority airports is that the debt is being placed upon the burden of the ratepayers. What I was saying was that if one were doing the logical thing the burden of the debt of the BAA would have been transferred to the taxpayer if one had been doing it equally between local authority and BAA. I cannot understand why the ratepayer has to pick up the debt from the local authority airports. Why can you not do the same thing as you are doing with the BAA?

The Earl of Caithness

I think it will depend upon the scheme put forward by the local authority, to cover the noble Baroness's point. It will vary from scheme to scheme. However, this is another point I should like to look at in more detail tomorrow.

Lord Tordoff

Let me make it quite clear that there is no desire from these Benches to have companies set up which are not viable. If this Bill is going to go through, then let it go through in a way which produces viable airports and viable airport companies; but it seems to me that the price the Government are charging for that is resting upon the local ratepayer. I accept that the Minister has said that he wishes to take this away and look at it again. It is a highly complex matter, and I do not pretend to understand the ins and outs of it, particularly when we are involved in local government finance.

However, I am grateful to the noble Lord, Lord Butterworth, for his intervention, which was most helpful. But the key phrase seemed to me to come from the Minister, when he said, if I may paraphrase him, "The local authorities have got themselves into this mess and therefore they have to pay for it, and it has to be paid for by reducing other services if they want to keep within the rate support grant". That is how I read what he said.

Lord Dean of Beswick

I am grateful to the noble Lord for giving way. Surely, is not one matter the Government might look at that if an authority finds itself in that situation it should receive the most sympathetic consideration from the Government in its rate support grant—the block grant it receives? Otherwise, they may well find that in servicing that they are milking resources away from other services which are more important to the community.

Lord Tordoff

I am grateful to the noble Lord, Lord Dean of Beswick, because that was precisely the interpretation that I put on what the Minister said: that indeed the money would have to be found from somewhere else, and with many of these authorities that does mean a reduction in other services. It is that as much as anything that one still detects in the Government's attitude which makes one worried. We are, after all, at a fairly late stage of this Bill, although the Report stage and Third Reading are still to come; but the Bill has had a lot of time in the other place and received a lot of consideration in Committee. Yet the Government are still saying that this is very difficult and very complex, but really at the end of the day it is up to local authorities to bear the burden. It is for that reason that I have been somewhat reluctant to go away and think about it. Of course I accept what the Minister has said—that he will think about it again.

However, we must bear in mind also that the wording of this amendment, although it may not be acceptable to the noble Earl, Lord Dudley, and it may be that his amendment is a better one—I would not dispute that—seeks to ensure that the Secretary of State takes these things into account, and we have had no assurance and no clear indication from the Government at any stage in this debate, or indeed at any earlier stage, that the Government are prepared to take these things into account in any firm or detailed sort of way. That is what we were seeking. If the Minister could stand up and say, "Yes; being practical people, when it comes to it in the case of somewhere like Luton or Birmingham of course we will take this into account and we will find means of getting round this serious problem because there has to be a sharing in some sort of way", I think we would accept that.

On the one hand, we cannot have a situation where the new company is not viable at the start; but, on the other hand, we cannot have the ratepayers totally burdened with this very large burden of debt and with the cost of servicing that debt. I do not detect from the Government even now any willingness to say they will take this into account at the end of the day.

The Earl of Caithness

With due respect, I thought I had covered that when I said that when considering each individual transfer scheme we would take into account the financial arguments put forward by the local authorities; and doubtless the points advanced by the noble Lord, Lord Tordoff, would be exactly the sort of financial arguments put forward.

Lord Tordoff

I thank the Minister for that. I am not sure that it takes us very much further but perhaps it does take us a little further, and I am very grateful for that. I think we must all read what has been said in this debate tonight. In the meantime, it is getting rather late and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 28 to 33 not moved.]

Viscount Davidson

I beg to move that the House do now resume.

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

House resumed.