Airports Bill

HL Deb 22 May 1986 vol 475 cc408-79

12.21 p.m.

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

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

Moved, That the House do now again resolve itself into Committee.—(The Earl of Caithness.)

On Question, Motion agreed to.

House in Committee accordingly.

[The EARL OF LISTOWEL in the Chair.]

Clause 14 [Transfer schemes]:

The Earl of Dudley moved Amendment No. 34:

Page 13, line 5, at end insert— ("( ) When a company formed in accordance with section 12 and operated in accordance with a transfer scheme approved by the Secretary of State, in accordance with section 14, imposes additional costs to be met by the principal councils, the Secretary of State shall take whatever steps are necessary to ensure that the net costs to be met from the councils' rate funds are offset by government grant.")

The noble Earl said: I should like to thank the noble Earl, Lord Caithness, for drawing my attention to the printing error in Hansard which wrongly reported that my amendment had not been moved last week. I understand that this error will be put right in the next edition. The noble Earl also established with the authorities who regulate these matters that my amendment had not been scuppered. I am extremely grateful to him for this, because I hope to persuade your Lordships that this amendment is a necessary and important one. I am grateful to the noble Earl for having been more vigilant than I.

The amendment is to Clause 14, in that part of the Bill where the Government intend that local authority airports with an annual turnover in excess of £1 million should become company law companies, with the shares held (initially at least) by their local authority owners. The Government have enough support for the broad objectives of the Bill to enable it to become law. There is no concerted opposition and there is some support from those who are most affected by it, if the seven West Midlands district councils and Birmingham airport, with whose encouragement I move this amendment, hold representative views.

However, there are strong objections to some methods proposed by the Government to bring about changes in airport status and there are very real fears about their consequences. One of the major areas of disagreement concerns what should be done about existing airport liabilities, including, for Birmingham and other airports, debt incurred to fund development schemes with monies borrowed from banks and other institutions and guaranteed by local authorities. Airport debt is a charge on annual airport revenue, and where that is inadequate the charge becomes a charge on the rates, for want of any other source of funds.

There are also annual and accumulated losses at airports which have been operating well below capacity. The noble Earl, Lord Caithness, said on 15th May 1986, at col. 1356: 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. That remark would not look well on an airport company prospectus. We must recognise, as I am sure the Minister now recognises, that for most local authority airports, to privatise is not a commercial proposition. The facts speak for themselves. Of the 17, or maybe 18, local authority airports caught by the Bill, only six (or one-third) are profitable. Led by Manchester, they earn a combined annual profit of about £18 million on a capital investment of almost exactly £150 million. And while some may say, given future growth, that a return of 12 per cent. is not unsatisfactory, those figures should be viewed with caution. Airport assets transferred to the new companies at a true and fair valuation may prove more valuable and the return lower. Also, depreciation will be charged against profits in the future.

Although I cannot, as can some noble Lords on the opposite Benches, speak for Manchester, I think your Lordships may be interested to know that I understand that at Manchester, where in the last few days the corporation have pre-empted the Government by turning the airport into a company, the valuation on transfer has turned out to be some 50 per cent. higher than the previous figure. As a result of this and the effect of depreciation, a substantial profit is likely to be turned into a small loss. Birmingham and Southend are at break-even, and the remaining nine or ten airports make a combined loss of £4,500,000, of which Liverpool contributes £3 million.

Your Lordships may now be thinking: what has all this got to do with my amendment? The answer is that it has a very great deal to do with it. But for the incongruous nature of local authority airports, compelling the Secretary of State to apply cosmetics as if he were a cross between @Estee Lauder or Helena Rubenstein, my amendment would be unnecessary. The noble Earl, Lord Caithness, also said that it is the Government's intention, when the local authority airport companies are set up, that they will be viable enterprises. He said at col. 1356: We do not foresee the situation where we are creating an entity purely for it to go down. The Minister's problem can be very simply expressed: how to convert an airport burdened with debt, operating below capacity and requiring for some time a subsidy from its parent authority into a viable entity? The Minister need not yet be concerned with the Stock Exchange, but he must have regard to the Companies Act and to the need for the company to conform to company law.

His preferred solution, as expressed in another place, is to leave debt of a loss-making airport with local authorities. By transferring assets to the company and liabilities to the local authority, he will give the company a rosier complexion though not necessarily a more assured future. The noble Earl, Lord Caithness, confirmed this last week when he said at col. 1375: … 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. When 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 noble Earl justified this policy by adding: The present level of debt attributable to airport undertakings reflects past decisions of the controlling authorities.

12.30 p.m.

I am sure the noble Earl did not mean it, but his remarks could have been construed as dissociating the Government from airport history and implying that local authorities took wrong decisions to invest in regional airports. As regards Birmingham Airport, investment in new terminal buildings was properly made by the late West Midlands County Council, with Government assistance, to take care of foreseeable passenger growth and future airline requirements. This was the justifiable cause of the present level of debt of about £30 million, in the national as well as the regional interest, and serviced until now by the airport from revenue or reserves. None of that debt has fallen as yet on local authorities.

Local authorities have expressed their concern to the Minister about his intentions, but the fact is they do not yet know how much of the debt will be transferred to the company and how much to themselves. They explained to the Minister that to transfer assets to the company without liabilities will deprive them of revenue previously available to service debt. Credited to the company's account, it will be subject to depreciation and may be subject to taxation. Dividends are an unknown and unquantifiable factor. If all debt were tranferred it would add from 1.64 pence in the pound for West Midlands ratepayers up to 15 pence in the pound, I understand, for Luton ratepayers—an increase in the latter case of 60 per cent.

The Minister is not obliged by the Bill to reveal his intentions before the Bill becomes law, so if my amendment were accepted it would protect councils and ratepayers from a hypothetical situation. It deals with a situation where the Secretary of State, after consultations with the council, chooses to disregard the council's scheme and substitutes his own, transferring, as allowed by Clause 14 (4)(b), property and rights to the company and leaving liabilities with the council. Whether or not the liabilities and their cost arise from past decisions of councils—and I believe that in most instances those decisions were quite properly taken—they will now fall on ratepayers as a consequence of the Government's policy to take steps towards privatisation of local authority airports and from the Minister's decision to leave part or all of the debt with the local authority. I think he who calls the tune should at least part pay the piper.

My amendment would require the Secretary of State to consult with his right honourable colleague at the Department of the Environment to determine ways and means whereby the cost to councils of servicing airport debt might qualify and be assessed as grant related expenditure. There ought to be a factor in the assessment that picks up these debt charges. The effect of accepting my amendment would be that about 34 per cent. of the cost to Birmingham and other West Midlands councils would be met by Government grant.

As I have said, these regional airports bring benefits to the whole nation by affording easier and more rapid access to exporting regions or popular tourist areas. It is right and equitable that some part of their cost should be borne nationally by the taxpayer as well as locally by the ratepayer. I beg to move.

Lord Underhill

On behalf of the Labour Opposition, may I indicate our support for the amendment moved by the noble Earl, Lord Dudley. I can be very brief because I think the noble Earl has delivered a formidable case which the Government should accept and on which they should act accordingly, bearing in mind the points that have been emphasised.

First, it is the Secretary of State who directs the local authority to form a plc. He will direct it under Clause 12, to which reference is made in the amendment. It is the Secretary of State who has full authority as to the nature of the scheme. He can approve the scheme; he can change it; he can modify it just as he thinks fit. The noble Earl has indicated that if, as a result of the scheme, additional costs fall upon the principal councils concerned, common sense suggests that the position of the rate support grant ought to be dealt with at the appropriate time. There should be no difficulty in that case because the former Secretary is now at the Deparment of the Environment and he can talk to himself, because he made these proposals; he knows what is in them. They aim to ensure that any expenses, any additional costs that the councils have to incur, particularly as a result of servicing debts and the other matters to which the noble Earl referred, should be taken into consideration when the Secretary of State for the Environment makes his next rate support orders.

If I may make one final point in addition to the very strong points made by the noble Earl, other examples were given in the debate on the Second Reading. Therefore, this is not just dealing with Birmingham Airport, as the noble Earl has stressed; it deals with the problems of quite a number of local authority airports transfer schemes which will be set up as a result of directives of the Secretary of State. Therefore we give the amendment our full support.

Lord Tordoff

May I, too, join in supporting this amendment and congratulating the noble Earl on the way in which he has presented it to your Lordships' Committee. I was slightly rebuked by him at an earlier stage, I thought, for raising some of the matters which he has raised on this amendment, when I mentioned matters relating to Luton on some of the earlier amendments. Of course, he was quite right. Nevertheless, I am unrepentant on that because I think it has given the noble Earl, Lord Caithness, an opportunity to think a little more about the general problem which is now so well focused in this particular amendment.

If I may reiterate a few points without going into detail on the Luton case which I made at the last sitting of your Lordships' Committee, as the noble Earl, Lord Dudley, rightly said, those past decisions were very properly made. They were made in many cases with the support of the Government, and they were made with the intention of investing in the infrastructure of the local regions.

I was tempted this morning to bid fond farewell to the Secretary of State for Transport but, as the noble Lord, Lord Underhill, has reminded us, he is not quite out of our hair yet so far as transport matters are concerned in relation to this particular amendment, so I suppose it is "Be nice to Secretary Ridley day" again, and I hope he is listening more in his new job than he was in the last one. Nevertheless, let us welcome the new Secretary of State for Transport and hope he will do better.

This is a serious matter for all local authorities who are caught in a sort of Morton's Fork here. Under financial pressure from the Bill they are being asked to make certain decisions; but at the same time, if they take that step, they will find themselves saddled with debts which were properly assumed in earlier stages but without any of the benefits that accrue from that investment. In view of the fact that some of the points that we are now discussing were discussed at an earlier stage, I hope that the Minister can give us some assurance today that the department is able to indicate some changes, if not now perhaps at a later stage of the Bill.

I have to say at this stage that, regrettably, I cannot be present when the House receives the report of this Committee because I shall be out of the country on a visit by the Science and Technology Select Committee of your Lordships' House looking at transport matters. It is unfortunate that these two things clash, but I think it is important that the Select Committee members take evidence, and in this case we have to go to Germany to look at evidence provided on research and development in service transport in that country. So I am afraid that, the usual channels having failed to take account of it, I shall regrettably be absent, but I hope that this will not be seen as any discourtesy. Once again, I commend this amendment to your Lordships' Committee.

Lord Dean of Beswick

I wish to speak only very briefly on this amendment, because in moving it the noble Earl, Lord Dudley, made an absolutely first-class case of the reasons for it. But the clause and the amendment are really about the impact of the financial consequences of this Bill on local authorities. I think your Lordships will recall—and I hope the Minister does—that during the last proceedings in your Lordships' Committee on this Bill I made a rather pre-emptive point that is relevant today.

If local authorities have to bear the full financial consequences of this Bill—a Bill that is not of their making and that has been forced on them—without any consideration whatsoever, it may well be, though I have not seen the figures, that some of them, if they have to find the money from their rate or block support grant, will be put into a position where they could be rate surcharged. The ratepayers of those areas will then suffer a financial penalty through no fault of their own and through no fault of the people whom they have elected.

Finally, I fully realise that the Bill before us was started by the right honourable Nicholas Ridley, who was then Secretary of State for Transport and who in the last 24 hours has taken the new portfolio of Secretary of State for the Environment. I shall be gladly surprised if he is sympathetic to the local authorities in this matter, bearing in mind his past performances as Secretary of State for Transport, because he is an out-and-out dedicated apostle and disciple of cutting public expenditure. But, having taken that into account, I hope, when he sees the full consequences of this Bill to the finances of the local authorities concerned, that he may on this occasion have a change of heart and decide to find the money, or ask the Government to find the money, for a decision which is of his making and not of the making of the people who are having to accept it. Having said that, I fully support the amendment.

The Earl of Caithness

Our discussion today continues somewhat that of last Thursday and, in particular, our debates on Amendments Nos. 23, 24 and 28. During our discussion on those amendments, I explained to the Committee why I believed it would not be appropriate for the Government to compensate authorities for the costs that were under discussion at the time. I recognise, however, the very sincere argument put so ably by my noble friend Lord Dudley, that some local authorities would face financial problems if we left all of the outstanding airport debt with local authorities, rather than transferring it to the airport company. I believe that this debt will be short-term but, none the less, a real problem. But in the long-term our aim, and the philosophy behind this Bill, is to improve the lot of the ratepayer and to improve the lot of the local airports. I am happy to give an assurance to the Committee that in considering local authorities' proposals for the transfer of property rights and liabilities, we will adopt a very flexible approach.

While wishing if possible to establish airport companies which are viable, or which have every prospect of early viability—an objective which I believe is fully understood by the Committee—we will certainly take account of the financial implications for transferor authorities, if debt is left with local authorities. This may not be a problem with some airports, but I recognise that there is a problem with others; notably, Birmingham, about which my noble friend Lord Dudley has talked, and Luton, which was mentioned on the previous day in Committee by the noble Lord, Lord Tordoff.

It is a sadness to the House that the noble Lord, Lord Tordoff, will not be here on Report. I was particularly grateful to him for his contribution to our discussion, and his arguments put forward at cols. 1372–74 of Hansard for 15th May have been read with great care by the department. We have already discussed this matter within the department. I discussed it with my right honourable friend the then Secretary of State for Transport, and I think it is a long time since a Secretary of State for the Environment will have known so much about airports at such a crucial time. I also talked at length yesterday with my honourable friend the Minister for Aviation and the officials concerning the whole of Part 11 of this Bill.

We realise the problems that may be entailed and we are looking at these seriously. We are taking account of what all noble Lords throughout the Committee have said and are saying today. The arguments put forward by my noble friend Lord Dudley will be of enormous benefit to us in our discussions. I would therefore ask him on this amendment and on future amendments please not to press them because we are discussing them very seriously within the department. We should like to take all the arguments into consideration in the discussions, and I can assure my noble friend that we will consider very carefully what has been said. In fact, I can go further and say that the Government's advisers have already been up to Birmingham Airport to discuss with the local authorities the particular problems of Birmingham. They have come back alive and well and fully understand the problems of Birmingham, so we are making progress. I hope that I have given sufficient reassurance to my noble friend that this matter is under serious consideration.

12.45 p.m.

Lord Tordoff

Before the noble Earl responds to that appeal, may I first thank the Minister for what he said and, secondly, say how grateful people on all sides of the Committee will be for the clear signs of movement that are now emerging from the Government on this point? I hope that it will not be seen as carping if I merely say at this stage that this is a big step forward, but, obviously local authorities need fairly quick reassurance in order to look to their future finances. The sooner that the Government are able to give clear guidelines as to the steps they intend to take in this direction the more helpful it will be to those local authorities who are having difficulties in balancing their budgets anyway.

The Earl of Caithness

I apologise to your Lordships. I meant to say that we will be sending out guidance in the not too distant future. We have delayed sending out that guidance particularly to take account of what was said in Committee last week and will be said today. It will go out. I hope to have something to report to the House at Report stage as I gave a commitment on Part I of the Bill. I hope that that is helpful to the noble Lord, Lord Tordoff.

The Earl of Dudley

I should like to take up one point that the noble Earl made. I am a little puzzled at his claim that if the debt were left with the local authority it would be short-term. I cannot understand how he works that out. If it was transferred to the airport company, I could well understand that with possible growth in passenger terminal throughout and with other prospects of improved capacity which face the airports, the debt might be recoverable. But if it is left with the local authority it is there for ever and their chances of getting it back from the airport are, as I see it, very slender. This is another reason why I think that to contemplate leaving a large part of the debt with a local authority is totally inequitable. There is no chance of recovery. Dividends may be payable but this cannot be sure, and it is not sure to what extent they will be payable, or to what extent they would help towards removing the considerable burden of existing debt.

That said, I must say that we are receiving encouraging noises from the noble Earl and I hope that the very valid points that have been made on all sides of the Committee in support of the arguments that have been put forward, both on this and on other amendments, are striking home and that we may expect some response, if not during the Committee stage then at least on Report. In those circumstances, I am sure that it would be the wish of the Committee for me not to press the amendment further. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 14 agreed to.

Clause 15 [Public airport companies and their controlling authorities]:

Lord Williams of Elvel moved Amendment No. 35:

Page 13, line 25, at end insert— ("(4) For the purposes of the Local Government Superannuation Regulations 1986 the status of a company which has been a public airport company shall not be affected by any change in ownership by virtue of which the company ceases to be a subsidiary or an associated company of a principal council or principal councils.")

The noble Lord said: In rising to move this amendment, I recognise that to some extent I am going to anticipate a discussion that may take place on Clause 26 but it is important that we establish now the ground rules for that discussion. This amendment is by way of a probing amendment to see what are the Government's intentions. We are dealing here with employees of airports who will, as the Bill is enacted and as vesting day comes, become employees of a public airport company. They will therefore transfer from being local authority employees to being employees of a company. The question that arises in our minds, quite apart from their other status and the other conditions of employment that they may have, concerns particularly the superannuation provisions that are to be made for those employees.

There is a substantial difference between local government superannuation provisions and those provisions which are normal in a public limited company. The problem falls into two sections. The first—and I refer briefly to Clause 26(1)(a)—is where there is, any transfer of property, rights and liabilities under Section 14(7)"— that is to say, when there is vesting of the airport in a public company. The second part of the problem occurs when there is a disposal of the shares in that public airport company to third parties. It is normal practice in the Inland Revenue to recognise that a subsidiary will be part of a group for the purposes of a superannuation scheme. We would hope that at least at the first stage the employees of the now public airport company would remain within the local authority superannuation scheme, given that the public airport company at that point is a subsidiary.

The second part of the problem is more serious because it is normally Inland Revenue practice not to allow companies that are associated—not controlled; not subsidiaries—to be part of the same pension group as another company. In other words, if company X owns only 30 per cent. of company Y, it is not practice in the Revenue to allow company Y to be part of company X's group for the purpose of the pension scheme. Our worry is that in transferring employees on vesting the Government are proposing not only to transfer them to subsidiaries where it will be legitimate for the pension scheme to form part of the local government pension scheme of which they are already members, but that on disposal of the majority interest in the public airport company that arrangement will cease.

I recognise that in Clause 26 as presently drafted the Secretary of State is to be given a power. I shall not read out the whole of the clause; I simply skip a line or two if I may, and read as follows: The Secretary of State may provide by regulations for the payment … of pensions". There is of course a major difference between the Secretary of State's providing for compensation for pension entitlements and the Secretary of State paying pensions. There are two major differences. The first is in tax terms. Compensation for pension entitlements is normally regarded by the Revenue as a taxable item in the hands of the recipient. In other words, if I were to leave the employment of company X I might get compensation for my lost pension rights but that would be taxable in my hands, whereas the continuing pension when it came would be taxable only at the point it was paid under Schedule E.

The second problem is that the compensation the Secretary of State may wish to provide to the employees is bound to be something in the nature of a guess about what their eventual pension entitlements might have been had they remained members of the local authority scheme. We are asking the noble Earl, Lord Caithness, to give us an assurance that when the Secretary of State exercises his powers under Clause 26 he will not simply give compensation of a taxable nature to those people who are outside the grouping for revenue purposes of the local authority but will undertake to continue the pension arrangements just as though those employees had remained members of the local government superannuation scheme which they formerly enjoyed.

This is in the nature of a probing amendment. It is, I am afraid, somewhat technical. I have had to trespass on discussions that your Lordships will no doubt wish to have on Clause 26, but this is for us an extremely important point because we do not wish to see local authority employees deprived of what they would normally expect to be their pension rights just because they have been transferred to a public airport company. I beg to move.

Lord Tordoff

Although my name was not put to this amendment by some inadvertence, nevertheless the principle lying behind it has my support. Those noble Lords who were around for the Transport Bill will remember that I spent a considerable amount of time on precisely the problem relating to the transfer of people from existing public authorities into private companies.

The Government must recognise that although they keep on saying that they are not in any way forcing local authorities to put their airports into the private sector, there is nevertheless considerable financial pressure for them to do so in relation to whether they own 51 per cent., or less, of the company. Since that pressure is there and is being exerted by the Government, it seems to me that once again the Government have a moral responsibility to ensure that the pension rights of people who are being transferred from one position to another as a result of the Government's will should not be the ones to suffer.

Whether this amendment is technically correct, or whether it absolutely achieves the purpose that it is intended to achieve, I would not know. The Government will doubtless advise us, and they will doubtless advise us that it does not. Nevertheless, the principle lying behind it is an important one. People need an assurance that their expectations, to which they have had every right to look forward, in terms of future pensions are not going to be undermined by a decision of Parliament. There is once again a strong moral responsibility on the Government to ensure the safety of the pensions of existing employees.

1 p.m.

The Earl of Caithness

The proposed amendment, which would effectively require that employees of airport companies remain within the local government superannuation scheme even if the local authority concerned sells it to a private sector buyer, is, I have to tell the Committee, fraught with problems. Perhaps the best example is that the LGSS receives favourable tax treatment on its investment income from the US tax authorities—that is, on such investment in the US. If it were to be a requirement of our legislation that an airport company should remain within the LGSS even if and when it becomes a private sector company, then we could expect the privileged status of the LGSS in relation to its US investments to be prejudiced.

It is also very likely that the requirement would be prejudicial to the interests of the local authority vendor. That point was raised by the noble Lord, Lord Tordoff. Either the authority would need to remain responsible for the pensions increase element of airport company superannuation—that is, the index-linked element—with consequent continued commitments, or the company would have to contract to take on such commitments, with a consequent effect on the sale price.

We have already made provision in Clause 26, as noble Lords will realise, for regulations to be made for compensation to be paid to employees in the event of any loss or diminution of pension rights consequent, inter alia, upon a disposal of a principal council's interest. We believe that that provides ample protection for the rights of employees.

To answer specifically a point made by the noble Lord, Lord Williams, if more than 50 per cent. of a public airport company is sold by its local authority owners then it would be a matter for negotiation with the LGSS as to whether the company already enjoying admitted status could continue. We understand that there would be no bar on that happening. The noble Lord asked also about Clause 26. It adopts the provision already made in the Transport Act in relation to pensions for staff transferred to bus companies. Again, that was a point made by the noble Lord, Lord Tordoff. I remember well discussing pensions with him a year back. We are not aware of any tax problems that will arise out of the way in which that provision is drafted in the Bill, but we shall of course happily look at that point.

Having thought about this matter quite a lot, I may be happy to accept the amendment on condition that the Labour Party will proudly proclaim that it was at its instigation that the ensuing difficulties arose and that it was because of its actions that not only will local authority pensioners suffer but all the other members of the LGSS will suffer losses. On the other hand, this Government have a duty to protect their interests, and I should like to carry that duty forward by resisting this amendment.

Lord Williams of Elvel

I have to be grateful to the noble Earl, Lord Caithness, for his response, even though it seemed to turn slightly into a party political exchange at the end. We will leave that aside. I wonder whether the noble Earl would address himself to the point that I was trying to make, although perhaps not very clearly, that under Clause 26, if it is accepted as drafted, the Secretary of State will have the right to grant not just compensation but also pensions. That is an important part of the text.

Will the noble Earl reply to the point I made: that if the Government were to accept that the Secretary of State has an ongoing duty to provide pensions not dissimilar to those that local authority employees are at present enjoying, then that would serve the purpose of our amendment? I acknowledge all that the noble Earl has said about the amendment, but, as was said by the noble Lord, Lord Tordoff, we are not claiming that it is Holy Writ. However, there is a very important principle here, and I should like the Committee to spend a little more time on it. I wonder whether the noble Earl would respond.

Lord Tordoff

Before the noble Earl does respond, I may say that his opening remark was a curious one, when he commented that the amendment was fraught with difficulties. It is not the duty of the Opposition to sort out the Government's difficulties. The difficulties are a consequence of the Bill, and it is up to the Government to sort them out. We on this side of the Committee try our best, but the Government have much more expertise at their fingertips. If the Government accept that there is a real problem here, then it is largely in their hands to find a way of getting round it.

The Earl of Caithness

I believe that I have heard that argument before from the noble Lord, Lord Tordoff.

Lord Boyd-Carpenter

And my noble friend will hear it again!

The Earl of Caithness

In response to the noble Lord, Lord Williams of Elvel, I may say that the flexibility created by Clause 26 is better than the rather stricter regime of his amendment. I believe that it might be better if I were to seek a little more advice on this matter and were to return to it when we come to discuss Clause 26. If the noble Lord is happy that I should make a further comment when we reach Clause 26, then that might be the best way of dealing with the matter.

Lord Underhill

Before my noble friend responds to that suggestion, perhaps I may ask the noble Earl to seek advice also on two further points: first, the deeming option that was discussed during our consideration of the Transport Bill; secondly, the question of the admitted body status, to which I shall be referring when we reach Clause 26.

The Earl of Caithness

I hope I shall be fully prepared to counter the arguments of the noble Lord.

Lord Williams of Elvel

I am very grateful to the noble Earl for spending more time on this matter. In the light of what he has said, I am happy to withdraw the amendment on the understanding that when we come to discuss Clause 26 the noble Earl will be fully briefed about the full consequences, including the taxation consequences, to the individual of compensation payments that may be made under Clause 26 and the Secretary of State's powers therein. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 15 agreed to.

Clause 16 [Control over constitution and activities of public airport companies.]:

Lord Carmichael of Kelvingrove moved Amendment No. 36: Page 13, line 28, after ("ensure") insert (" (a) ")

The noble Lord said: This is a relatively simple amendment. Under Clause 16 at least three directors of the company, or at least one-quarter of their number, whichever may be less, shall be full-time employees of the company, suitably qualified to be directors of the company by virtue of their experience in airport management. That provision is intended to ensure that the company has access to adequate operational and financial expertise and to other areas of expertise.

The amendment is intended to ensure that in addition to those directors there will be a director who is able to act as a representative of the employees in the airport. It expresses our view that the presence of such a person on the board would bring to the board relevant and useful experience, and would assist in maintaining good labour relations. A link with those who have a very important investment in the success of the airport is something to which we look forward, and we hope that the Government will do so, too.

Those who are working in the airport and who are employed there directly have an investment in it that is not purely a cash investment that can be moved if the rate of return is low. Their investment is their whole income and their whole future security. To the employees, the success of the airport means security for themselves, for their families, and in many cases for the entire community in which they live. If there could be an arrangement so that employees could be represented in the same way as management is represented—and we are asking for only one such employee representative—then we believe that would greatly increase the efficient functioning of the airport. We believe also that it would lead to an acceptance by those employed there that their future is closely, understandably and sympathetically acknowledged by management to be wrapped up in the success of the airport. I beg to move.

Lord Boyd-Carpenter

Although the noble Lord, Lord Carmichael, did not say so, I take it that he was speaking also to Amendment No. 37, which is the substantive amendment. The noble Lord did not say that, but we should have it on the record. In speaking to the amendment, I believe that he blurred a little the precise meaning of it. He said that it would be useful to have on the board of these companies an individual with experience of the problems of the employees. That is indeed such an obvious statement that I do not think one needs to waste any time on it. I think your Lordships would all agree with that.

But that is not what the amendment says; it says he should be on as a representative of the employees. We therefore come back to the point we discussed earlier on this Bill and other Bills about the whole doctrine of directors who are representative of one section or one interest. I have never yet myself heard the answer to the objection to that—that once someone is a director of a company he has, under the Companies Act, a general responsibility for the wellbeing of the company, a general responsibility for all concerned in it which can be enforced upon him by law: indeed, by a great deal of law under the almost annual Companies Acts that, for some reason or other, we have been passing in recent years.

Here you come straight up against the problem that if one director is a representative of one particular interest, however important, what is he to do if there is a clash between that interest which he is said to represent and the other interests and the general wellbeing of the company? This, I think, is the snag in the amendment.

Lord Williams of Elvel

The noble Lord, Lord Boyd- Carpenter, is quite right that we had this discussion at an earlier stage in Committee, and I agree fully with what the noble Lord has said about the responsibility of directors.There is no question of trying to change the companies legislation or in any way to obviate it.

Nevertheless, it is true that in many public companies today there are directors who are representative of certain interests, not necessarily the employees. Some of the financial institutions, for instance, who have large shareholdings, require a director to go on the board of a public company in order to represent their interests. That does not seem to me to be necessarily very wicked or difficult. Indeed, the directors who represent those interests accept fully their responsibilities as directors of public companies under the companies legislation. Nevertheless, they are entitled in board meetings to put forward a view which is that of a special interest. If the financial institutions, banks, pension funds and others can do that, it does not seem to me that it will be a problem if employees do it. But maybe the noble Lord has different views.

Lord Boyd-Carpenter

I think that uncharacteristically the noble Lord, Lord Willaims of Elvel, has not thought this out. Of course he is right in saying that on the board of large companies there are people who are concerned with other interests, particularly those of large investors in the company, and they can be said colloquially to represent the interests of that company on that board. Of course that is so. But the difference is that here it is proposed that there should be directors with a statutory responsibility for the representation of one particular interest. There is no such statutory provision in respect of the kind of representation to which he was referring.

The difficulty here is that, as he said, those who sit on the boards of large companies and are concerned with other interests have to, and do, attempt to discharge their duties without qualification, without limitation as directors of that company and perform their duties under the Companies Act.

What is proposed here is quite different. It is proposed that there should be a director with a statutory responsibility for one particular interest and if it is a statutory responsibility it might be one day for somebody to seek to enforce on that man the law, the conflicting law I would guess, between the Companies Acts and this particular measure. I hope therefore that the noble Lord will not persist in this amendment, which is totally different from the kind of representation he was talking about.

1.15 p.m.

The Earl of Caithness

I have to come down on the side of my noble friend Lord Boyd-Carpenter. I think he is absolutely right in this matter. Indeed, if it is a consolation to the noble Lord, Lord Carmichael of Kelvingrove and Lord Williams of Elvel, there is nothing in the legislation that would inhibit the appointment of employee representatives or indeed financial interest representatives.

However, we believe that the decision whether or not to do so would be taken by the local authority shareholders with their detailed knowledge of the circumstances of the airport and with the potential value of the appointment for the best interests of the company in consideration. The noble Lord, Lord Williams of Elvel, knows better than I do why some of the financial directors are appointed. It is for the benefit of the company at the time. It should not, we believe, be written onto the face of the Bill, because in that way it conflicts, as my noble friend Lord Boyd-Carpenter says, with the Companies Act. Therefore I feel that we must oppose this amendment.

Lord Carmichael of Kelvingrove

Obviously I am disappointed, though I remember the discussion which took place some time ago on this very point of representation. What I think people find difficult to understand is that of all the people who may be appointed to a board or selected for a board, only those representing the workers may have difficulty in genuinely representing the prosperity of the company.

I just do not believe, with great respect to the noble Lord, Lord Boyd-Carpenter, nor does the great British public believe that when a bank has members appointed to a board of a company they are all solely concerned with the profits of that company. Obviously that is a very important part of their interest, but whenever matters become difficult and whenever there is a conflict of interest I would very much doubt (and I do not think those who are perhaps much less knowledgeable than the noble Lord, Lord Boyd-Carpenter, really believe either) that the banks go in without a great deal of concern about protecting their own rights.

I agree that the wording of this amendment is very difficult. The Minister said that there was nothing to prevent an employee being appointed to the board of the company. I wonder whether he would give consideration, when we come to the Report stage to a slightly amended amendment. If we cut it off at the third line of the amendment, at "company", Amendment 37 would read: that at least one of the directors of the company is a full-time employee of the company who is suitably qualified to act as a director of the company". That would leave out the question of a representative of the company. If that were on the face of the Bill it would give encouragement. It would still leave the board the freedom to decide who would be there and who would not be directly a representative, and I think that would perhaps answer to some extent the noble Lord, Lord Boyd-Carpenter.

I am quite sure that a company does not say to Barclays Bank or to Nat-West, "Yes, we will have somebody on the board but it must be so-and-so". I am sure the person is sent along as a representative—or perhaps it is done in another way. But it is as a direct representative. We are not asking for that. We are merely asking whether, if I withdraw this amendment, the Minister will agree at least to look at the possibility of having on the face of the Bill that there should be an employee of the company.

Lord Tordoff

Before the noble Lord sits down, I think I must say at this stage that on these Benches we have considerable sympathy for the underlying feeling behind this amendment and the need to encourage employees to take part in the overall strategy of the companies for which they work. Certainly my party has a long history of thought and policy in this area. But I believe that trying to amend this Bill in a piecemeal fashion is not really the way to come at it. I think that the noble Lord, even with the suggestion he has just made, is not really getting away from what is an important objection raised by the noble Lord, Lord Boyd-Carpenter. I think we have to await a proper Bill dealing with employee participation, employee shareholding and all the rest of the matters which can only come some time after the next election.

Lord Harris of Greenwich

I too, having listened to the discussion, share the scepticism of my noble friend Lord Tordoff. I speak as a non-enthusiast for this Bill, which is another piece of doctrinaire legislation which in my view has very little merit. However, on the actual proposal now before us it seemed to me that the noble Lord, Lord Carmichael, did not deal with the point of substance made by the noble Lord, Lord Boyd-Carpenter, which is this: it is perfectly right to say that banks are sometimes represented on the boards of companies, as are many other investment institutions, but they do not have a statutory position. The problem would appear to be that on the basis of the amended amendment, if I may so describe it, suggested by the noble Lord, Lord Carmichael, it is as objectionable in reality as the first form of words because it still leads to the creation of a special situation for the employees in this small area of economic activity.

If it is thought right at some stage in the future to do this I do not think that the most sensible way of proceeding is to say that there will be a special arrangement entirely peculiar to airports and for no apparent or philosophical reason. Therefore, although I have great sympathy with the idea of close relationships between employees and management it does not seem to me that in this area it is right to make a special legislative provision which I believe raises a number of substantial problems.

The Earl of Caithness

It would be quite wrong of me to say to the Committee that I will not look at this matter again. Of course I will if the noble Lord, Lord Carmichael, wishes me to do so. However, I fear that my answer will be exactly the same as I have already given, and encapsulated by the noble Lord, Lord Harris, that it will be as objectionable to us in its amended form as it is now. I cannot, therefore, hold out any hope to the noble Lord. I will look at it, but my argument will be exactly the same and we shall be in the same position on Report as we are now.

Lord Carmichael of Kelvingrove

I thank the noble Earl at least for his honesty on the way he will approach this matter. I do not think it is a good message to go from such a gathering as this to people employed in the airports industry that they, of all people, will have no right on the face of the Bill to be represented. It is fine to say that we must wait until there is major legislation that will do the whole job, but I do not believe that it would be too difficult to make a slight start in this Bill.

We already have on the face of the Bill that there must be management representatives on the board. We are merely asking that there should be some allowance for employee representatives. As I said, I do not think it is a good message to go out from this Committee on such a Bill at a time when the airport industry is, I hope, ready to "take off" even more than it has been in the past. However, with those remarks and assuring the Minister that we will almost certainly return to the issue on Report, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 37 not moved.]

Clause 16 agreed to.

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

The Deputy Chairman of Committees (Lord Murton of Lindisfarne)

We now come to Amendment No. 38. Perhaps I should mention to your Lordships that if this were to be agreed to I would not be able to call Amendment No. 39.

Lord Underhill moved Amendment No. 38: Page 14, line 32, leave out subsection (2).

The noble Lord said: I had intended to speak not only to Amendment No. 38 but to Amendments Nos. 39 and 40 as I believe they all go together. This is a very important series of amendments which deals with the position of local authority members who become directors of an airport company.

Clause 17(2) imposes on elected members who are directors of an airport company constraints in the consideration of airport matters at council meetings. From my reading of the clause and of the notes on clauses it seems to me that these constraints apply equally to paid directors and unpaid directors. If I am wrong no doubt the noble Earl will correct me. The subsection prevents an elected member-director from taking part in discussions or voting upon any matter relating to a contract, or proposed contract, with the local authority, but the Bill enables such a member to take part in other airport matters.

There are similar provisions in Section 74 of the Transport Act 1985 but that Act imposes even more severe restraints. It prevents an elected member-director from discussing or voting on any matter relating to a public transport company. But, having said that the Transport Act is more severe, I think there is one essential difference between that Act and this Bill. The 1985 Transport Act enables the Secretary of State to issue dispensations from the provisions to which I have referred. In fact, I understand that the Secretary of State has issued a dispensation which enables elected member-directors of public transport companies to take part in discussions, although voting is still debarred.

I see no reason why, as the Secretary of State has power to give dispensation under the Transport Act, it should be excluded from this present Bill. Both measures relate to companies set up by a local authority. One happens to relate to transport undertakings and the other relates to an airport undertaking. Circular 4/85, issued by the department, relating to the provisions of the Transport Act explains: Members wishing in exceptional circumstances to vote on any matter or speak on a matter excluded from dispensation … may apply to the Secretary of State for Transport, or in Wales, to the Secretary of State for Wales, for a particular dispensation". It is permissive. It goes on to say how the application should be made. However, there is absolutely no provision for a similar dispensation in the Airports Bill. I must ask the Minister: why is there this difference? Why is this provision not in the Bill?

In Standing Committee in the other place the Under-Secretary of State for Scotland, Mr. Michael Ancram, said on 6th March—I am paraphrasing from cols. 411 and 412—that he had listened carefully to the arguments put forward and should like an opportunity to consider them to see whether the Government could move some way in the direction suggested. That seems to suggest that an amendment on these lines made the government representative feel that there was something that needed to be looked at. Unfortunately, on Report in the other place, on 9th April—and I quote from col. 293—the same Minister, Mr. Michael Ancram, said: I appreciate that I undertook in Committee that the Government would consider whether we could move towards providing a path for the Secretary of State to issue exemptions from the provisions of Clause 17(2). We gave very careful consideration to that matter. Having listened carefully to the arguments in Committee and to the arguments put forward by the hon. Gentleman tonight, I do not think, on balance, that the potential benefits outweigh the dangers of enhanced liability to conflicts of interest. It is for that reason that we do not propose to amend the clause.

I must ask the obvious question: why are there conflicts of interest where an airport company is concerned but no conflicts of interest where a local authority transport undertaking is concerned? I ask the Minister to bear in mind that the amendment that I propose is not at all mandatory; it still leaves it permissive for the Secretary of State but he has the power to issue a dispensation should he so desire. I beg to move.

The Earl of Caithness

As the noble Lord, Lord Underhill, said, Clause 17 will provide a rather more liberal regime than its counterpart in the Transport Act 1985. It is for that reason I have dubbed this amendment the "Oliver" amendment—having given the Labour Party something they say "Please, sir, can we have some more?"

The clause will allow members of principal councils who are also airport directors to take part in consideration or discussions of matters relating to their airports other than matters of contracts, or proposed contracts, between the airport company and the council. This was done quite deliberately to allow the maximum informed discussion on airport matters. Amendment No. 38 would remove any restriction on councillor-directors discussing or voting on any airport matter, including contracts between council and airport.

Amendment No. 40 would allow the discretion of the Secretary of State to extend this liberal régime further in specific cases, or indeed more generally if he were persuaded that this would be justified. Amendment No. 39 would remove the prohibition on a councillor director voting on matters relating to the airport other than matters concerning contracts between the airport company and a principal council. The overwhelming consideration, of course, must be that conflicts of interest of airport directors who are councillors should be avoided, and the highest standards in the conduct of public business must be maintained.

1.30 p.m.

Perhaps I may give an example of where such a conflict of interest can arise. It may arise when discussion is taking place as to whether the airport company should continue to obtain services from local authority shareholders or go out to tender. What would a person who is caught in this position do? I believe that that question was answered for us by the noble Lord, Lord Dean of Beswick. Referring to a different but analogous situation, he said: I had to protect what I saw as my priority, the interests of the ratepayers".[Official Report, 15/5/86; col. 1327.] The noble Lord might have been right or he might have been wrong, and I am not commenting on that. I am commenting on the clear principle that it must be at arm's length. In this situation faced with the ratepayers and the council on one side and the future of the airport, the airport staff, the passengers and the region on the other, we believe that it is better to avoid a potential conflict such as I have mentioned.

There is a balance between maintaining such standards and the potential benefits which could stem from further relaxation for which the noble Lord, Lord Underhill, has argued. We believe that we have gone as far as is prudent and consistent with establishing as far as possible an arm's length relationship between the new public airports company and the local authorities.

Replying to the noble Lord, Lord Underhill, on a point of detail, I can tell him that subsection (1), referring to disqualification, applies only to paid directors, and that subsection (2), which concerns the prohibition on voting or speaking, applies to both paid and unpaid directors.

Lord Tordoff

Is it not a strange argument to say that one set of directors who presumably are representing outside private shareholding, do not have a conflict of interest, whereas directors who are operating on behalf of the other shareholding, namely, the municipal sector in many cases, are deemed to have a conflict of interest? Why should that be so? Is it simply that people who work for local authorities are less trustworthy than people who work in the private sector? If not, where does the distinction lie?

The Earl of Caithness

The distinction lies in our belief that it is better for the airports and the future of the airport industry to be at arm's length from the council. Therefore, with the local authorities still retaining a majority or a 100 per cent. shareholding, the more arm's length it is the better, because there will be conflicts of interest and it is best to avoid any possibility of that by the Bill as it now stands.

Lord Tordoff

Do not the directors who are operating on behalf of the local authority have a duty to their shareholders? Their shareholders in this case are the ratepayers.

The Earl of Caithness

Yes, but they also have the other duty of the council, and that is the conflict that we are trying to avoid.

Lord Underhill

I just cannot understand the argument put forward by the noble Earl. At least, I can understand what he is saying, but I cannot understand why he adopts that point of view. He referred to the position in going to tender. What about the local authority transport undertaking which, under the Act, is compelled to go to tender? Yet there is a dispensation which the Secretary of State can give in the case of transport. Frankly, it is nonsense for the Government to say that what is good under the Transport Bill—which does just the same thing as is suggested under the Airports Bill, with the arm's length position and, the conflict of interest—should be viewed entirely differently in this Bill. I know that it is Thursday and 1.30 p.m. but why are the Government not prepared to look at this matter again? I believe there is a conflict between the two Bills and it is a conflict of principle that I cannot understand. So unless the Minister will give an assurance that he will look carefully at this point and possibly ensure that something is brought forward which may reconcile the two Bills, I shall seek the opinion of the Committee.

Lord Boyd-Carpenter

Before my noble friend replies, with respect I should like to remind the noble Lord, Lord Underhill, that we are not here concerned with whether the Transport Bill is right or wrong; we are concerned with getting this Bill right. If the noble Lord is still convinced of the validity of his amendment, he must really go so far as to suggest that in the situation that is contemplated under the clause it would be proper or permissible for directors who are members of the council to take part. That is the issue. With great respect, I believe it is quite irrelevant as to whether the Government have got it right or wrong in a previous Bill.

Lord Harris of Greenwich

With great respect to the noble Lord, Lord Boyd-Carpenter, with whom I agreed in his last speech, I am afraid that on this occasion I must part company with him. If the same administration is responsible for two pieces of legislation, then in those two pieces of legislation they can treat such a matter entirely differently, but they must satisfy your Lordships that there are rational grounds for dealing with the matter wholly differently.

The noble Earl has not even begun to satisfy that test. I very much hope that he will look at this matter again. There is no great issue of privatisation or anything of that sort involved. Most of us, indeed all of us, I am sure, want to ensure the highest standard of conduct in local government. Having said that, I think that the noble Earl really must do rather better than he has done so far.

The Earl of Caithness

I am sorry I have not come up to the high standards that the noble Lord, Lord Harris, requires of me. I think that we have looked at this matter very seriously in the past. Indeed, as the noble Lord, Lord Underhill, said, my honourable friend Mr. Ancram in another place took it away and looked at it at that stage. I think it would be wrong to mislead the Committee and say that I could come back with something at Report stage. As I said to the noble Lord, Lord Carmichael, I shall of course look at this point, as I look at every amendment and every discussion that we have; but the reason that the Bill is phrased in its present terms is because we took on board the points that the noble Lords, Lord Underhill and Lord Tordoff, made on the Transport Bill and therefore we extended the provision to make it more liberal than the Transport Act, and, as a consequence, deleted the dispensation. I do not think that I can go any further at this stage.

Lord Underhill

I am grateful to the noble Earl for his honest account of how he would treat this matter if we were to withdraw the amendment. Obviously we shall not get any further if we withdraw the amendment. Bearing in mind that this measure applies equally to unpaid directors—people who are serving as a public duty, and the Government will not even say that they will withdraw this provision regarding unpaid directors—and that at the end of the day it is permissive whether the Secretary of State gives a dispensation or not, I must ask the Committee to give its view on this matter.

1.39 p.m.

On Question, Whether the said amendment (No. 38) shall be agreed to?

Their Lordships divided: Contents, 60; Not-Contents, 66.

DIVISION NO. 1
CONTENTS
Amherst, E.	John-Mackie, L.
Beswick, L.	Kagan, L.
Boston of Faversham, L.	Kearton, L.
Bottomley, L.	Kilmarnock, L.
Bruce of Donington, L.	Lovell-Davis, L.
Caradon, L.	McNair, L.
Carmichael of Kelvingrove, L.	Mais, L.
David, B.	Masham of Ilton, B.
Dean of Beswick, L.	Monkswell, L.
Donaldson of Kingsbridge, L.	Nicol, B.
Elwyn-Jones, L.	Ponsonby of Shulbrede, L.
Ennals, L.	Ritchie of Dundee, L.
Ewart-Biggs, B.	Roberthall, L.
Falkland, V.	Rochester, L.
Foot, L.	Russell of Liverpool, L.
Gallacher, L.	Seear, B.
Galpern, L.	Sefton of Garston, L.
Graham of Edmonton, L. [Teller.]	Serota, B.
	Shepherd, L.
Grey, E.	Stedman, B.
Hanworth, V.	Stewart of Fulham, L.
Harris of Greenwich, L. [Teller.]	Stoddart of Swindon, L.
	Tordoff, L.
Hatch of Lusby, L.	Underhill, L.
Hill of Luton, L.	Wells-Pestell, L.
Houghton of Sowerby, L.	White, B.
Howie of Troon, L.	Wigoder, L.
Hughes, L.	Williams of Elvel, L.
Irving of Dartford, L.	Winchilsea and Nottingham, E.
Jacques, L.
Jeger, B.	Winterbottom, L.
Jenkins of Putney, L.

NOT-CONTENTS
Auckland, L.	Hylton-Foster, B.
Belhaven and Stenton, L.	Inglewood, L.
Belstead, L.	Ironside, L.
Bessborough, E.	Kimball, L.
Boyd-Carpenter, L.	Lane-Fox, B.
Brabazon of Tara, L.	Lauderdale, E.
Brougham and Vaux, L.	Layton, L.
Butterworth, L.	Lindsey and Abingdon, E.
Caithness, E.	Liverpool, E.
Campbell of Alloway, L.	Long, V. [Teller.]
Chelwood, L.	Lothian, M.
Cork and Orrery, E.	Mancroft, L.
Cottesloe, L.	Marley, L.
Craigavon, V.	Mersey, V.
Cromartie, E.	Milverton, L.
Davidson, V.	Monk Bretton, L.
De Freyne, L.	Morris, L.
Drumalbyn, L.	Mountevans, L.
Dudley, E.	Murton of Lindisfarne, L.
Elton, L.	Napier and Ettrick, L.
Fortescue, E.	Orkney, E.
Gainford, L.	Portland, D.
Glanusk, L.	Renwick, L.
Glenarthur, L.	Rodney, L.
Gray of Contin, L.	Rugby, L.
Hailsham of Saint Marylebone, L.	Saint Brides, L.
	St. Davids, V.
Hooper, B.	Shaughnessy, L.

Skelmersdale, L.	Vivian, L.
Swansea, L.	Whitelaw, V.
Swinton, E. [Teller.]	Wise, L.
Teviot, L.	Young, B.
Trefgarne, L.	Young of Graffham, L.
Vaux of Harrowden, L.

Resolved in the negative, and amendment disagreed to accordingly.

[Amendment No. 41 not moved.]

Clause 17 agreed to.

1.47 p.m.

Clause 18 [Prohibition on employment by public airport company of officers etc. of controlling authority]:

Lord Tordoff moved Amendment No. 42: Page 15, line 40, after ("as") insert ("company secretary or as").

The noble Lord said: With all due respect to the Chair, should we not go on record as not moving Amendments Nos. 39 and 40?

The Deputy Chairman of Committees (Lord Murton of Lindisfarne)

I think that it is correct that they fall automatically because the Division on Amendment No. 38 was lost. I presumed that they would not be moved.

[Amendments Nos. 39 and 40 not moved.]

Lord Tordoff

I think that that is the way we normally proceed. The clause to which Amendment No. 42 relates is a curious one. It states: No person who is a full-time officer or employee of a principal council shall hold any office or employment under an associated company except as a director. The amendment seeks to put in the words: "company secretary or as". That has been described in certain quarters as a "Roger Taylor" amendment because it seems to be directed at the Manchester Town Clerk who has just become secretary of the new Manchester Airport PLC. Under the clause, he would be in a somewhat difficult position.

In Standing Committee in another place, it appeared that the Government justified the clause merely on the basis of the concern felt by Ministers that full-time officers of the local authority would experience a conflict of interest between the company and the local authority. Despite repeated requests for evidence of that, no evidence was adduced to support that proposition. If there is a conflict with local authority officers' existing responsibilities when being, for example, company secretary (which does not entitle any vote at board meetings) why is there thought to be no conflict when that officer can become a director of the company and vote? It is accepted that a director has legal duties to observe, but those are not fundamentally different from those owed by a company secretary, nor those associated with an officer's profession where it is an already well-established rule that an officer cannot act for more than one party if a conflict is apparent. The department has consistently expressed disquiet at what has happened in Manchester but it has failed to produce any real evidence to justify this concern. Indeed, the evidence surely shows to the contrary. Moreover, there are structures involving officers with dual responsibilities that have been created with the full support of other departments of state, the Department of the Environment, the Department of Trade and Industry, and others. Perhaps the Government should be asked to say why the Department of Transport and its former Secretary of State take a different line. It would be interesting to see, now that the right honourable gentleman has moved to the Department of the Environment, whether he still takes the same view that he took yesterday.

The Government cannot have it both ways. They cannot pretend that they are establishing independent airport companies under Clause 16 and at the same time insist on controlling those activities as if they were an integral part of local government. The most damaging consequences of the Bill will fall upon smaller airports. Expertise developed over many years in town halls up and down the country will be lost, to the detriment of airport companies. For many airport companies, it is difficult to see how such a loss can be made good in a cost-effective manner. To have to employ such expertise from outside would be very difficult for them. The local authorities strongly support the amendment and believe that officers should be allowed to be appointed as secretaries as well as directors of the companies. I beg to move.

The Earl of Caithness

We have tried to establish a clear arm's length relationship between the public airport companies and their local authority shareholders, as the noble Lord, Lord Tordoff, has acknowledged. Various provisions in the Bill are directed towards this important objective. We have recognised that a company's interests and those of the local authority owners may not always coincide; for example, on the provision of services to public airport companies by local authorities. We believe that the company secretary and, indeed, any of the other employees of the airport companies should always put the company's interest first. They should not be subject to conflicts of interest or put in a position where, however honourably they act, they would be open to suspicion that they had favoured one particular authority against another or against an outside interest, not because of the company's interest but because of the interest of the local authority that employs them. That is the situation that we are trying to avoid. It comes back to the argument that I have just made: we want to create an arm's length independent company with the minimum of conflict of interest.

Lord Dean of Beswick

Does the Minister not understand that his reply is not very convincing to those of us who have seen the development of these airports over the years? I speak specifically about Manchester. Historically, the airport has been run by a committee of Manchester corporation. Although there was an airport director, the person who serviced the airport was the town clerk or an officer appointed by him. The local authorities will, in my opinion, wish to retain the majority shares in any of the companies that are formed. I see nothing odd in the majority of the shareholders in a company wishing to say who should act on behalf of that company as the company secretary.

To illustrate further the Manchester situation, I recall saying last week that the airport became a partnership between the county and the city council. I believe that I was right in saying that the chairmanship fluctuated on a 12-month basis. It is also right, I believe, that the joint airport committee was serviced on an alternative basis by an officer of the city council or an officer from the now defunct Greater Manchester council. I believe that the Minister and the Government are frightened of something that is not really there. They should accept the amendment or certainly look at it in close detail before rejecting it.

Lord Carmichael of Kelvingrove

The noble Lord, Lord Tordoff, said that this had become known as the Roger Taylor amendment. While, undoubtedly, Mr. Taylor has been a great driving force in the development of Manchester airport, there is a big principle involved here. The principle, as I see it, is that the Government are speaking with two voices when they say that they want to establish an arm's length relationship between the local authorities and the airports. This is explained in Clause 16. However, we shall soon be discussing Clause 20 where the Government are treating airports as part of local authorities, especially in terms of finance. They are making very difficult any separation, when the activities of the companies formed to run the airports will be treated as an absolutely integral part of local government in terms of financial liability and of capital expenditure. It seems that there is a great inconsistency here. It is not just a question of Manchester airport, which is perhaps an outstanding example. There is a principle involving airports not so large as Manchester. I hope that the Minister will take on board this contradiction and give the matter more consideration.

The Earl of Caithness

With regard to the last point made by the noble Lord, Lord Carmichael, I do not believe that there is any difference in our thought. I do not wish to pre-empt discussion on Clause 20, but as soon as a local authority has sold 51 per cent. or more, the airport will not be subject to local government finance. We shall, however, be going into that matter in detail. The consistency is there to create an arm's length company. Should the local authority shareholders then decide to sell 51 per cent. or more, the airport comes outside local government finance control. That is an entirely logical sequence.

Lord Dean of Beswick

The Government are not being consistent in their approach on the basis that 51 per cent. of the holding shall literally determine who the secretary will be. There are some spin-offs from local government reorganisation and the dissolution of counties which mean that 51 per cent. of some substantial financial holdings have become the responsibility of chairmen of residuary bodies. That 51 per cent. formerly held by counties is now held by the districts. But no such condition is being applied at present by the outgoing Secretary of State. He is allowing the private sector that has 49 per cent. almost to determine what happens. I believe that there should be some consistency. I do not wish to name a particular case, but it is an outstanding one. It is a case that will become, in the near future. I believe, a focal point of disagreement between the Government and a major local authority.

Lord Tordoff

I am grateful for the support given to the amendment. It does not seem to me that the Minister has answered the point, particularly the point concerning smaller airports. We have this curious situation where full-time officers can be directors but cannot be company secretaries. We are talking about professional people. We are talking about people who are used to handling conflicts of interest. The town clerks of our great cities are constantly faced with conflicts of interest as councils move from one form of political control to another. They are highly professional people who, more than anyone else, are capable of handling the sort of conflict of interest that the Government are worried about. As I said before, the Government produce no evidence whatsoever of the problems that might accrue under this. I do not feel that I can do other than ask the House to decide.

2 p.m.

On Question, Whether the said amendment (No. 42) shall be agreed to?

Their Lordships divided: Contents, 57; Not-Contents, 67.

DIVISION NO. 2
CONTENTS
Amherst, E.	John-Mackie, L.
Banks, L.	Kagan, L.
Beswick, L.	Kearton, L.
Bottomley, L.	Kilmarnock, L.
Caradon, L.	Llewelyn-Davies of Hastoe, B.
Carmichael of Kelvingrove, L.	Lloyd of Hampstead, L.
David, B.	Lovell-Davis, L.
Dean of Beswick, L.	McNair, L.
Donaldson of Kingsbridge, L.	Mais, L.
Elwyn-Jones, L.	Monkswell, L.
Ennals, L.	Nicol, B.
Ewart-Biggs, B.	Paget of Northampton, L.
Foot, L.	Ponsonby of Shulbrede, L.
Gallacher, L.	Roberthall, L.
Galpern, L.	Rochester, L.
Graham of Edmonton, L. [Teller.]	Seear, B.
	Sefton of Garston, L.
Hacking, L.	Serota, B.
Hanworth, V.	Shepherd, L.
Harris of Greenwich, L.	Stedman, B.
Hatch of Lusby, L.	Stewart of Fulham, L.
Hill of Luton, L.	Stoddart of Swindon, L.
Howie of Troon, L.	Tordoff, L. [Teller.]
Hughes, L.	Underhill, L.
Hunt, L.	Wells-Pestell, L.
Irving of Dartford, L.	White, B.
Jacques, L.	Wigoder, L.
Jeger, B.	Williams of Elvel, L.
Jenkins of Putney, L.	Ypres, E.
NOT-CONTENTS
Auckland, L.	Buckmaster, V.
Belhaven and Stenton, L.	Butterworth, L.
Belstead, L.	Caithness, E.
Bessborough, E.	Campbell of Alloway, L.
Boyd-Carpenter, L.	Chelwood, L.
Brabazon of Tara, L.	Cork and Orrery, E.
Brougham and Vaux, L.	Cottesloe, L.

Cromartie, E.	Mancroft, L.
Cullen of Ashbourne, L.	Marley, L.
Davidson, V.	Masham of Ilton, B.
De Freyne, L.	Mersey, V.
Drumalbyn, L.	Milverton, L.
Dudley, E.	Monk Bretton, L.
Elliot of Harwood, B.	Morris, L.
Elton, L.	Mountevans, L.
Fortescue, E.	Murton of Lindisfarne, L.
Gainford, L.	Napier and Ettrick, L.
Glanusk, L.	O'Brien of Lothbury, L.
Glenarthur, L.	Orkney, E.
Gray of Contin, L.	Pender, L.
Grey of Naunton, L.	Renwick, L.
Hailsham of Saint Marylebone, L.	Rodney, L.
	Rugby, L.
Hooper, B.	St. Davids, V.
Hylton-Foster, B.	Skelmersdale, L.
Ironside, L.	Somers, L.
Kimball, L.	Swinton, E. [Teller.]
Lane-Fox, B.	Teviot, L.
Lauderdale, E.	Trefgarne, L.
Layton, L.	Vaux of Harrowden, L.
Lindsey and Abingdon, E.	Vivian, L.
Liverpool, E.	Whitelaw, V.
Long, V. [Teller.]	Young, B.
Lothian, M.	Young of Graffham, L.

Resolved in the negative, and amendment disagreed to accordingly.

2.9 p.m.

Clause 18 agreed to.

Clause 19 agreed to.

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

Lord Williams of Elvel moved Amendment No. 43:

Page 16, line 44, leave out from beginning to end of line 13 on page 17 and insert—

1. ("(a) any amount—
1. (i) being an advance of a capital nature made to a public airport company or a subsidiary of a public airport company by the controlling authority of that company, or
2. (ii) raised by the issue of any securities by a public airport company or a subsidiary of a public airport company to the controlling authority of that company shall be treated as prescribed expenditure of the controlling authority of that company, and
2. (b) any amount repaid by a public airport company or a subsidiary of the public airport company in respect of any such advance as is mentioned in paragraph (a)(i) shall be treated as a capital receipt of the controlling authority of that company in accordance with subsection (2), but
3. (c) no expenditure incurred or amount received by the authority for the purposes of or in connection with a public airport company other than such expenditure or receipts as are mentioned in paragraphs (a) and (b) shall be treated as prescribed expenditure or capital receipts of the authority:

Provided that a public airport company shall not borrow or raise any amounts other than as mentioned in paragraph (a) without the consent of the Secretary of State who shall exercise the power of giving consent to any borrowing in the national interest.")

The noble Lord said: Clause 20 of this Bill goes to the very heart of the local authorities concerned with the Government's proposals. As has been pointed out in discussion on the previous amendment, we are dealing with companies which are still majority owned by the parent local authority. Obviously, if and when such a company becomes minority owned then Clause 20 no longer applies. As at present drafted the clause provides for the imposition of detailed capital expenditure controls over the investment programmes of airport companies. These controls, which will be in effect similar to those employed throughout local government, will subsist as long as that majority shareholding is held by the local authority.

The clause as at present drafted raises three major issues. The first is the impact of the clause on the activities of airport companies. The second is the general principle of central government control over the activities of local authority-owned airport companies. The third is the question or responsibilities of outside directors of those airport companies, should there be any.

At the present time it is open to local authorities to establish corporate structures outside the expenditure controls imposed by Government. The Department of Environment recently issued a consultation document on capital expenditure confirming that position, and I quote from it: Such companies have freedom, subject to their Articles of Association, to borrow from the financial market without any offsetting reduction in the block grant approval of their controlling authority, even where that authority guarantees the borrowing of such companies.

Clause 20(1)(a) now provides for advances to airport companies, whether originating from the public or the private sector, to be regarded as prescribed expenditure of the controlling authority. This represents a very significant shift in Government thinking. The Government, in the recent consultation paper, made it clear how such control would be exercised. While there will be no control over the extent to which airport companies may draw on their own resources to finance investment, there will be strict control over external finance. The Government will issue to the controlling authority—not the airport company—approvals for borrowings, and the airport allocation will be within a single transport allocation. The Government will decide on the total resources available for capital allocations in respect of external capital finance for airport companies and that decision will be taken in the light of local authority bids and a general assessment of the industry's prospects for generating investment funds at a reasonable level of dividends. The practical effects of what the Government propose are that airport capital expenditure will be subsumed in the overall local authority capital expenditure process.

The transport block within which airport allocations will be subsumed has been substantially reduced in the last few years. There is nothing to suggest that airport allocations will be given more favourable treatment in the future. Furthermore, the Government will be able to use their powers to restrict capital expenditure approvals to force the divestment by local authorities of airport companies. If they are in need of funds and the only way they can get funds is to sell new shares on to the market, that is what they would have to do and the consultation document is, I think, quite clear on that.

The Government, I am sure, will justify the case for controlling expenditure in this manner on the grounds that so long as these airport companies are controlled by local authorities expenditure will rank against the public sector borrowing requirement and therefore must be controlled. It is not my intention today to enter into a debate with the noble Earl about the accounting procedures of the public sector borrowing requirement, although at another time and another place perhaps we can get into that. The point is that no such control is exercised over the appropriate corporate structures now, so the control proposed under the present Clause 20 as drafted is stronger than anything that happens now.

2.15 p.m.

Our amendments are designed to achieve the following objectives. We wish to introduce some realistic dimension to the Government's thinking. We wish to ease significantly the level of controls which Clause 20 represents, and unless major companies have almost complete freedom to compete on the open market for funds then company formation really has no relevance at all, for airport companies must be freed from the straitjacket of central government control on their borrowing.

The third objective is that we wish to give the directors of airport companies, exercising their proper responsibilities under the companies legislation which we have been discussing earlier, the power to perform those duties of making sure that their own company, of which they are directors, remains solvent; and surely it must be the duty of directors—and indeed it is laid down in the companies legislation that it is the duty of directors—to ensure that that is the case. If the borrowing of the company of which a person is a director is controlled by an outside force, like central Government, it may be that this distracts from the possibility of the director himself fulfilling his statutory duties under the legislation.

The Secretary of State, we recognise, will not wish to give up all control over the activities of airport companies when they are still majority controlled by local authorities, so in these circumstances we propose that for advances made to companies other than by a local authority, which we accept is prescribed expenditure and should be subject to control in the usual manner, then the Secretary of State should be asked for his consent to such expenditure. He could then exercise his powers to consent to such borrowings in the national interest in exactly the same way as is provided for in Clause 9(1) in connection with the BAA company when it is wholly owned by the Government. We believe this would ensure consistency in approach.

The amendment we propose would not affect other clauses in Part II. The Government would be able to insist on what it regards as contentious issues of company formation, including executive directors, officer appointments and disposal of shares.et cetera. The amendments to Clause 20 which we are putting forward are designed to do no more than assist the employment of private capital in airports in the interests of their future development and to allow the directors of airport companies to fulfil their obligations under statute. I beg to move.

Lord Dean of Beswick

I beg to support the amendment so well moved by my friend and colleague on the Front Bench, Lord Williams, because I think this is one of the most important clauses of the Bill. In fact, it is a clause which, if it goes through unamended, will severely restrict the capacity of those airports to develop as free-standing organisations. It is, in fact, a blatant attempt to force local authorities eventually to come to the point where they will have to divest themselves of 51 per cent. of the shares that they own. In other words, I think it is a backdoor and rather blatant attempt to force privatisation on the local authority airports. so I wish to support this Amendment No. 43.

Clause 20 goes right to the very heart of my concern with Part II of the Bill. It demonstrates just how confused the Government's position is in relation to the regional airports. On the one hand the Government advocate the creation of independent airport companies in order to free day-to-day management of airports from, as the Government say, local politics. Yet on the other, through provisions like Clause 20, they wish to create mechanisms enabling absolute control to be exercised by central government over the companies. Nothing highlights this confusion more than the Government's attitude to Manchester Airport plc.

On 22nd June 1984 the then Secretary of State for Transport made a statement in the other place about the future structures of regional airports. He said that the Government favoured the creation of company structures to assume responsibility for the control, management and operation of airports. The Secretary of State identified a number of advantages arising from this policy. For instance: the introduction of private capital … sharper management … transparency of subsidy … Company Act accounts". He hoped that: … local authorities will come to recognise these advantages and introduce schemes for involving private capital voluntarily". The Secretary of State confirmed that share ownership could rest with local authorities. He also expressed the hope that those authorities affected by the then proposed abolition of the metropolitan county councils would take the opportunity of: "establishing an airport company at this stage"; in other words, before any legislation was introduced.

This statement was examined in detail by all the local authorites in the Greater Manchester area. They had to come to terms with the abolition of the Greater Manchester Council, which had owned and controlled Manchester Airport jointly with the City of Manchester. The local authorities—controlled by all parties—took the view that change should be swift. They did not favour two massive reorganisations in a period of 12 months—one because of abolition and the other because of the likely introduction of legislation. They also agreed that the change should be effective. They acknowledged that the airport, the region's most prized asset, was going to make enormous demands for resources over the next few years. As Europe's fastest growing airport, it is clear that another terminal and other projects costing at that time upwards of £250 million could not easily be funded through traditional local and central government structures. The need for the employment of increasing sums of private capital was therefore recognised and vital.

The Secretary of State's invitation appealed to the local authorities. They saw the advantages of creating an independent company structure bringing all the advantages the Secretary of State identified in his statement to the other place in June 1984, to which I have already referred. They therefore began work in the summer of 1985. Finally, they agreed the proposals which came into effect on 1st April this year. Manchester Airport plc is now in existence.

The company is an independent one. It satisfied the test of law. Indeed in this respect it satisfies the Department of Transport. On 16th April 1986 the department wrote to the company secretary indicating that: The transfer of the airport to a limited company means that the airport's capital expenditure is no longer subject to control under Part VIII of the Local Government, Planning and Land Act 1980. This statement confirmed what the local authorities always knew of course: it was perfectly possible in law to establish independent company structures with all the shares held by local authorities. The local authorities did not find a loophole in the law; the Department of the Environment have always accepted that it was possible and indeed proper for this to be done. As the department's recent consultation paper on capital expenditure points out: Companies have freedom subject to their Articles of Association to borrow from the open market without any offsetting in the block grant approval of their controlling authority, even where that authority guarantees the borrowing of such companies. Clause 20 moves the goalposts. The effect of the provisions is to control absolutely the expenditure of the airport company as though it was a local authority, or more specifically treat the expenditure of the airport company as though it was the expenditure of the controlling authority. The Government maintain that Clause 20 already reflects concessions. No longer will any control be exercised over the application of funds generated by trading organisations. That may well be true for local government structures, but for independent company structures it is abundently clear that the clause represents a new and additional control. Its effect will be to control the expenditure of Manchester Airport plc which, on the Department of Transport's own admission, is now operating with complete freedom on the money market.

Noble Lords should ask themselves how a Conservative Government, given their commitment to enterprise and private capital and a reduction in central government control, can rationalise these principles with a desire to control the expenditure of corporate structures like Manchester. I personally find the position unbelievable, as are the Government's arguments justifying the controls. If control is necessary because of the public sector borrowing requirement why is no control exercised now? It is not as though the Government's concern with the PSBR is a recent phenomenon—it has been an absolute pre-occupation of the Government since 1979. I think the answers are simple. Up to now the Government have adopted a logical position and accepted that an independent corporate structure should not be constrained. The more private resources such a structure obtains, the better. Now, however, the Government have changed their mind. They have decided that privatisation may not be achieved as quickly as they would like if Clause 20 did not exist in its present form. As a result, and notwithstanding the Government's commitments about share ownership, they have decided to change the rules so that the employment of private capital should now relate to who owns the shares.

I maintain that the Government's position is untenable. Indeed it becomes ludicrous when one compares the controls outlined in Clause 20, to the ones outlined in Clause 9, when the BAA holding company is wholly owned by the Government. Control for the BAA simply consists of a "nod and a wink" from the Secretary of State, depending on his view at the time. That is my practical interpretation of the Secretary of State's duty to exercise his power of consent in the national interest. For the regional airports control takes something of a different form. As previous speakers have explained, their allocations will be subsumed in the transport block grant. They will need to compete with highway authorities for funds. As the Government have ominously pointed out: Airport allocations will be a reflection on the total amount of resources available". It is vital that Clause 20 is amended to introduce some degree of realism into the Government's proposals. Many of us may differ about particular clauses in the Bill, and indeed Members of the Committee may have some reservations about some aspects of the Manchester company, But I cannot conceive that we should oppose the principle of an independent structure having complete freedom to operate on the open market. If that is to be denied to the regional airports, I think that we should all ask ourselves why we are being asked to establish companies at all.

The amendment, while not going all the way in which I and certain other people should like (it still gives the Secretary of State control, but in the same way as control will be exercised over the BAA) is nonetheless a major improvement. I sincerely hope that noble Lords, with their tradition of objective assessment, may consider supporting it.

In my opening remarks I said that this was one of the most vital clauses in the Airports Bill. A short time ago there was a discussion involving the noble and learned Lord, Lord Denning, as to what a "free-standing company" meant, and I think that the noble Lord, Lord Boyd-Carpenter, was involved in that discussion. What we are asking for in this amendment is that the new companies to be set up by the local authorities to run the airports that were originally owned by them should be allowed to operate in a free and appropriate manner to attract capital where they can, on the basis of how they run their business. Any attempt to enforce this type of legislation on them would certainly be detrimental to the future of those airports and give them an uncertainty in the future that is not advantageous to anybody.

2.30 p.m.

Viscount Hanworth

This amendment is a little difficult to understand on the face of it, but we have had two speakers who have explained it at some length, and I should like to do so more briefly. The main point is that local airports that could obtain private capital from outside are, by the Bill, prevented from doing so. This is because such capital will be counted against the local authority's budget. Why are the Government trying to do this? The answer is simple. They want such airports to be independent, but this is an underhand way of trying to do that and I do not think it is in anyone's interests. It was said of a sportsman, "He shoots anything that moves", and I fear that this Government have got into a state where they try to privatise anything which trades.

Not long ago the Government talked about greater delegation to local authorities. In view of the present situation I agree with them that this is undesirable, but I have in mind to try to put forward a Motion eventually to see what we can do to reform our local government so that it represents the people's wishes, and so that it can be given the greater authority that it rightly should have.

This amendment seeks to prevent the Government from once again trying, by underhand means, to prevent the local airports until they are much larger—which is provided for in the Bill—from getting capital from outside.

The Earl of Caithness

The main purpose of this amendment, as so ably put by the noble Lord, Lord Williams of Elvel, is to allow public airport companies to obtain private capital without that financing counting against the controlling authority's capital allocation. Instead, the company would have to obtain specific borrowing consent from the Secretary of State.

I think it would be helpful if I explained the way that the controls on local authority capital expenditure will affect public airport companies. In doing so I hope that I shall not enter into the debate that the noble Lord, Lord Williams of Elvel, rightly refused to enter into at this stage of our proceedings. First, there will be no control over capital expenditure by the companies themselves. The only controls will be over external finance for capital expenditure. Capital finance from the controlling authorities will be subject to control under existing legislation, the Local Government, Planning and Land Act 1980.

Clause 20 of the present Bill brings private capital within the same controls. There will, however, be no control over the extent to which airport companies finance capital expenditure from their own resources. The overall regime, therefore, will resemble that which applies to public corporations, with which the companies are classed in the national accounts.

Some of your Lordships have asked why private capital for airport companies should count as expenditure by the controlling authority. If I can, I shall try to explain this reasoning. So long as the companies are subject to local authority control, then capital finance from any external source, whether from the authority itself or from private sources, counts against the public sector borrowing requirement. Local authorities enjoy the same creditworthiness as central government because of their taxing powers and government controls on their borrowing. An investor in an airport company controlled by a local authority will know that the authority stands behind it in the same way as the Government stand behind a public corporation. Therefore, the present clause provides that private capital counts against the controlling authority's capital allocation in the same way as any loan which it might make to the company.

The amendment would replace an overall constraint on external capital finance for the company bearing on the controlling authority, with a requirement on the company itself to obtain specific approval every time it wishes to raise private capital for investment. In my view that would be a much heavier constraint than that envisaged in the Bill. I cannot see that it would bring any advantage to the companies. The Government, as they have done before, will certainly take account of the needs of the airport companies when setting capital allocations for the controlling authorities. The way for an authority to enable a company to escape the controls on local authority capital expenditure—what the noble Lord, Lord Williams, called the "straitjacket" in his terms—is to remove the need by transferring control to the private sector. The way we have specifically devised in this Bill is to sell 51 per cent., so that the local authority can retain a minority interest if and when it, at its discretion, wishes to sell some shares.

The amendment would also enable controlling authorities to incur capital expenditure in connection with airport companies without that expenditure counting against their capital expenditure allocations. I am not sure what sort of expenditure is envisaged, but I can see no reason why, if an authority chooses to incur capital expenditure in connection with an airport company, it should receive special treatment.

The noble Lord, Lord Williams of Elvel, referred to the Review of Local Authority Capital Expenditure Control Systems in England and Wales, the consultation document of February of this year. He rightly pointed the Committee in the direction of paragraphs 28 and 29, which encapsulate some of the points referring to companies having freedom. But the review document also goes on to say: Authorities should not have an incentive to set up companies simply as a means of circumventing public expenditure control. The present exclusion of expenditure by companies from capital controls does not sit well with the way in which it is treated under public expenditure definitions. Companies owned and controlled by local authorities affect public expenditure in two ways. For non-trading companies capital spending undertaken by the company counts as public expenditure. For trading companies like airports it is total external finance that counts. The new control system will need to reflect this". Clause 20 reflects that aim. It will establish control over the total external capital finance of public airport companies.

The noble Lord, 'Lord Dean of Beswick, said that Manchester did not set up a company in order to thwart the Government's proposals and the Government's control on total finance. I recognise that; it was not their aim. But it highlights the fact that this is a possibility that we must seek to restrict in future, because it seems to me entirely logical when you are setting up a public airport company, which will be of a similar status to something like a nationalised industry or a corporation, that it should be under this same financial control. I see no discrepancy whatsoever in the Government's thinking on this matter. In fact, I see quite the opposite; I see it as totally illogical.

Lord Dean of Beswick

May I raise one point with the Minister before we go any further with the amendment? The Minister will recall that during my previous speech on this amendment I referred to the fact that it must be quantified if Manchester airport is to develop on behalf of the region and is accepted as the major regional airport outside the South-East. The figure quoted for the third terminal and all the support services for that at this time is £225 million. The city of Manchester holds just over half the shares in the airport and the other districts have the other half. I think it is fair to assume that Manchester would need to raise capital of about £115 million to develop that facet at the airport, based on today's prices. It must be borne in mind that since 1979 the city of Manchester, which is a very deprived area and is accepted as such by everybody, has lost £400 million in rate support grant.

When the Minister opened his address on this amendment he referred to the fact that local authorities will be given the opportunity to make use of their own resources. Does he really believe that a city such as Manchester, with all the problems it has and the massive cuts in finances it has had, could find this type of money out of the Government's allocations without some other things being affected? In other words it would be putting a stranglehold on further development unless—as has already been said by the two previous speakers from the Benches on this side in support of the amendment—it is a deliberate attempt by the Government to force on local authorities privatisation that they do not want.

The Earl of Caithness

I think the noble Lord, Lord Dean of Beswick, in that recent additional short speech has highlighted what a good thing this Bill is. We are making public airport companies so that they can go to the market to seek private finance. He has quoted figures from Manchester. The fact that the company will still be local-authority owned does not in any way prevent it from seeking private capital. But it is entirely illogical, for the reasons I stated earlier, that so long as the local authority retains a controlling interest in a public airport company such finance should be taken in the overall context of local government finance which, as the noble Lord, Lord Williams, and other Members of the Committee know better than I, is a complicated minefield in its own right.

Lord Dean of Beswick

I am sorry to rise again, but does the Minister really expect local authorities to accept that guarantee in view of the fact that when another policy was implemented by this present Government (the sale of council houses) local authorities were given a guarantee that the resources from the sales would be made available to them? In fact, the overwhelming majority of the money is being withheld. Does the Minister really expect the local authorities to believe the undertakings that the Government are giving on this issue?

The Earl of Caithness

It would be wrong for me to go wider than discussing airports. I know that under this Government and the financial restraints that were needed when we came into office in 1979 (and are still needed) Manchester has become the fastest growing airport in Europe without restrictions on funds: in fact, with positive encouragement from central government. The noble Lord's argument just does not bear this out.

Lord Williams of Elvel

We have had a fairly extensive debate on this amendment. The noble Earl, Lord Caithness, has explained to us in considerable detail and with a certain elegance the meaning of Clause 20 as it is at present drafted and the meaning of the amendment I have moved. What I am afraid he has failed to do, if I may say so with the greatest respect, is to address himself to the arguments that I put forward, particularly in respect of the straitjacket and of including borrowing, which at present is not part of the PSBR, into the PSBR and putting a control on that; and also the argument that the directors of the companies concerned will have to ensure that the company is solvent and if their borrowing powers are to be subjected to outside interference then they may have difficulty in living up to that.

I do not think that I want to engage in a lengthy debate because I feel there is a serious division of opinion between the two sides. I think that the noble Earl—I see him nodding—agrees with me on that and I therefore ask the Committee to express its opinion in the usual manner.

2.45 p.m.

On Question, Whether the said amendment (No. 43) shall be agreed to?

Their Lordships divided: Contents, 59; Not-Contents, 81.

DIVISION NO. 3
CONTENTS
Amherst, E.	Kagan, L.
Banks, L.	Kearton, L.
Bottomley, L.	Kilmarnock, L.
Briginshaw, L.	Llewelyn-Davies of Hastoe, B.
Brockway, L.	Lovell-Davis, L.
Caradon, L.	McCarthy, L.
Carmichael of Kelvingrove, L.	McIntosh of Haringey, L.
David, B.	McNair, L.
Dean of Beswick, L.	Mais, L.
Donaldson of Kingsbridge, L.	Monkswell, L.
Elwyn-Jones, L.	Murray of Epping Forest, L.
Ennals, L.	Nicol, B.
Ewart-Biggs, B.	Ponsonby of Shulbrede, L. [Teller.]
Ezra, L.
Falkender, B.	Rochester, L.
Foot, L.	Seear, B.
Gallacher, L.	Sefton of Garston, L.
Gladwyn, L.	Shepherd, L.
Graham of Edmonton, L.	Stallard, L.
Hanworth, V.	Stedman, B.
Harris of Greenwich, L.	Stewart of Fulham, L.
Hatch of Lusby, L.	Stoddart of Swindon, L.
Houghton of Sowerby, L.	Tordoff, L. [Teller.]
Howie of Troon, L.	Underhill, L.
Hughes, L.	Wells-Pestell, L.
Hunt, L.	White, B.
Irving of Dartford, L.	Wigoder, L.
Jeger, B.	Williams of Elvel, L.
Jenkins of Putney, L.	Winstanley, L.
John-Mackie, L.	Ypres, E.

NOT-CONTENTS
Auckland, L.	Layton, L.
Belhaven and Stenton, L.	Lindsey and Abingdon, E.
Belstead, L.	Liverpool, E.
Bessborough, E.	Lloyd of Hampstead, L.
Boyd-Carpenter, L.	Long, V.
Brabazon of Tara, L. [Teller.]	Lothian, M.
Brougham and Vaux, L.	Mancroft, L.
Bruce-Gardyne, L.	Margadale, L.
Butterworth, L.	Marley, L.
Caithness, E.	Merrivale, L.
Campbell of Alloway, L.	Mersey, V.
Cork and Orrery, E.	Milverton, L.
Cottesloe, L.	Molson, L.
Cromartie, E.	Monk Bretton, L.
Cullen of Ashbourne, L.	Morris, L.
Davidson, V.	Mountevans, L.
De Freyne, L.	Moyne, L.
Drumalbyn, L.	Murton of Lindisfarne, L.
Dudley, E.	Napier and Ettrick, L.
Dundee, E.	O'Brien of Lothbury, L.
Elliot of Harwood, B.	Orkney, E.
Elton, L.	Orr-Ewing, L.
Fortescue, E.	Pender, L.
Gardner of Parkes, B.	Portland, D.
Geddes, L.	Renwick, L.
Glanusk, L.	Rodney, L.
Glenarthur, L.	Rugby, L.
Gray of Contin, L.	St. Davids, V.
Grey of Naunton, L.	Skelmersdale, L.
Gridley, L.	Somers, L.
Hacking, L.	Stamp, L.
Hailsham of Saint Marylebone, L.	Swinton, E. [Teller.]
	Teviot, L.
Harvington, L.	Thurlow, L.
Hooper, B.	Trefgarne, L.
Hylton-Foster, B.	Trumpington, B.
Ironside, L.	Vaux of Harrowden, L.
Kimball, L.	Vickers, B.
Lane-Fox, B.	Vivian, L.
Lauderdale, E.	Whitelaw, V.
Lawrence, L.	Young, B.

Resolved in the negative, and amendment disagreed to accordingly.

2.54 p.m.

Clause 20 agreed to.

Clause 21 agreed to.

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

The Earl of Dundee moved Amendment No. 43ZA:

Page 18, line 21, at end insert— ("(3) Where a principal council have entered into an agreement under this section, the accounts of that council shall include a separate account in respect of that agreement and—

1. (a) In England and Wales, section 24 of the Local Government Finance Act 1982 (rights of inspection) shall apply in relation to any such separate account as it applies to any statement of accounts prepared by the council pursuant to regulations under section 23 of that Act; and
2. (b) in Scotland, sections 101 and 105 of the Local Government (Scotland) Act 1973 (rights of inspection and regulations as to accounts) shall have effect as if any reference to an abstract of the accounts of an authority included a reference to any such separate account.").

The noble Earl said: Clause 22 of the Bill sensibly empowers principal councils to provide a limited range of specialised functions, administrative, professional or technical, to their associated public airport companies. Such services, if provided, have to be on payment of proper commercial charges. This arrangement must be sensible because it may well be more economic and effective, particularly in the case of smaller airports, for these services (for example, computer services, legal and architectural services) to continue to be provided by the parent body in the initial stages of an airport company's establishment. This flexibility, however, is limited to the services specified and will be a matter for the management of the company to decide.

But it is surely desirable that the details of any agreement between a principal council and the associated company for the provision of services should be transparent and open for all to see. In that way, it will become clear to a potential competitor for the provision of such services that an opportunity could arise to tender itself for that service when next the contract came round for renewal. This not only keeps on its toes the local authority department providing the service, but also helps to ensure that the public and the ratepayer get good value for money.

The matter was attended to in another place and the Government then indicated that they would be prepared to accept an amendment along these lines. The amendment I am proposing simply requires a principal council to include in its accounts a separate account relating to any service agreed to be provided under the provisions of Clause 22 and ensures that the public have a right to inspect any such account. I commend it to your Lordships. I beg to move.

The Earl of Caithness

My noble friend is absolutely right in saying that we considered the possibility of putting down an amendment on this matter. I think that he has raised a very valid point and I am grateful to him for putting down this amendment. I am happy to accept it on behalf of the Government and would recommend it to the Committee as being a sensible and logical amendment. I should like to say, having accepted the principle of it and the amendment, that I shall look closely at the wording to check that it agrees with parliamentary counsel which, as, the noble Lord, Lord Underhill, will understand, is the ruling voice on matters such as this.

On Question, amendment agreed to.

Clause 22, as amended, agreed to.

Clause 23 [Financial backing for establishment and operations of public airport companies]:

The Earl of Dudley moved Amendment No. 43A:

Page 19, line 15, at end insert— ("( ) If as a result of the operation of a public airport company established in accordance with section 14, the principal councils incur additional expenditure as a consequence of servicing debt related to airport assets transferred to the public airport company, or as a consequence of the provision of financial assistance under subsection (6), the Secretary of State shall ensure that those principal councils do not suffer any loss of rate support grant as a result of this additional expenditure.")

The noble Earl said: I have been so impressed by the reception given by the noble Earl to the amendment of the noble Earl, Lord Dundee, that I hope that his benevolence and good humour will extend to my Amendment. No. 43A, which differs in two important respects from my previous Amendment, No. 34. While the amendment that I withdrew required that additional expenditure incurred by a local authority to service airport debt should qualify for central government grant, this amendment requires only that such expenditure be not counted at all, thereby excluding it from categories of expenditure which suffer penalty of loss of grant by their effect in lowering the level of grant.

There are precedents for such an excluded category in the Transport Act 1985. For the purpose of supplying working capital for transport companies, the Secretary of State excluded that category of expenditure from those suffering grant loss. I ask that this procedure be adopted in this Bill. Secondly, my amendment requires that where a council incurs additional expenditure under Clause 23(6)—providing financial assistance by way of grants, loans or guarantees for a loss-making company in which it is a shareholder—this expenditure be also excluded from grant assessment and should not attract the penalty of grant loss.

3 p.m.

Let me make it clear that in both instances the council will be required to service the debt in full. No grant will be forthcoming. All the amendment requires is that this additional expenditure, whether past or future, consequent upon the Secretary of State's decision to make the council responsible for servicing the airport debt should not have the effect of penalising the council by lowering the overall level of grant.

I cannot exaggerate how great a store the West Midlands local authorities set by the success of this amendment, and I am convinced that other local authorities share their views. They feel—I think with some justification—that the financial effect upon them of Clauses 14 and 23 of this Bill was not shown in proper perspective in another place. There the Minister said that if none of the debt is put on to the airport company the present situation will not be changed. With the passage of time and the consultations that have taken place since March, the noble Earl might now be invited to express the point the Minister was making in a different way. It is true that where a council is responsible for servicing debt today, whether directly or by way of guarantee, legal responsibility remains unchanged if the Secretary of State leaves debt with the local authority; but the practical effects will be very different.

The airport has achieved company status. It is, in conformity with the Government's wishes, at arm's length from the council. It has a chairman and board of directors; it has articles of association. It is subject to company law and raises depreciation charges in the accounts; it is subject to company taxation and may or may not pay dividends. The council has no legal claim on revenues to offset debt charges. It has no recourse but to recover them in the rates, and the cost of so doing over the West Midlands alone would be over £6 million, if they suffer grant loss as a result of the Bill. It seems to me wholly unjust that, faced with this new and wholly unprecedented situation, councils and ratepayers must suffer the added burden of loss of grant, boosting the rates still further in the West Midlands by three quarters of a penny in the pound.

If your Lordships are satisfied that this is a proper and equitable consequence of this Bill, clearly you will find the noble Earl's arguments in reply to my amendment wholly convincing. But if not, I would invite your Lordships to support my amendment and provide council and ratepayers with its protection. It does not seem unreasonable that I ask the noble Earl to give to the Committee today meaningful assurances in respect of this amendment and in respect of the specific point of grant-related expenditure. I beg to move.

The Earl of Caithness

I am grateful to my noble friend Lord Dudley for continuing our discussion on the philosophy of finances in regard to Part 11 of this Bill and also for his very clear exposition of the reasons behind the amendment.

This amendment would require the Government to guarantee authorities against any loss of rate support as a result of the establishment of public airport companies. That could be done by altering the definition of total expenditure for rate support grant purposes so that a particular category was excluded in calculating an authority's grant entitlement. The difficulty would be in identifying the extra expenditure resulting from the establishment of the new companies. To do that, we would need to know what the authorities would have spent in the quite hypothetical circumstances of continuing to operate the airports directly. That seems to me very difficult, if not impossible, and there is therefore a fundamental practical objection to this amendment.

Even if the amount could be identified there would be other overriding objections. The decision to subsidise a loss-making airport company is a matter for the controlling authority or authorities. That decision should be made on the basis of the cost of sustaining that company as a going concern, which is reflected in the amount set aside for depreciation. For profitable companies the need to provide for depreciation might reduce the scope for drawing a dividend, but it would also reduce the need to borrow in the future. It would increase the amount available for distribution in the longer term and will add to the value of the authority's equity stake. Therefore, even if it were possible it would still be undesirable to exclude additional expenditure resulting from the creation of airport companies from the definition used in calculating authorities' rate support grant entitlement. It is still public expenditure and, as the Committee will know, in our view it should definitely be subject to control.

Having said that, I should like to remind my noble friend and the Committee of the assurances that I gave to your Lordships in respect of Amendment No. 34: we are looking at the whole of the financial aspects of Part II again. I thought it wise to state the Government's view at this stage so that it may be recorded in the Official Report. I will, however, take my noble friend's amendment away and look at it again, along with the rest of the points that I am looking at with regard to Part II.

Lord Carmichael of Kelvingrove

I think we should be grateful that the Minister has promised to take this away and look at it. Every time I hear more discussion on this part of the Bill, I get more and more confused. As I read the amendment of the noble Earl, Lord Dudley, it seemed to me he was merely talking about servicing debt related to airport assets already transferred to the public airport company. Therefore I found it difficult to understand exactly what was behind the Minister's saying it would need to be part of rate support grant expenditure and how it would be difficult to separate it out. I think it is very important that the Minister should take this away and look at it again. I believe there is great confusion between the use of the words, "arm's length" and yet "keeping such control all the time" and so on. This becomes very confusing and therefore we must look carefully at this again at Report stage to see whether the Minister has been able to effect any improvement in this section.

Lord Tordoff

Before the noble Earl replies, I, like the noble Lord, Lord Carmichael, was a little worried about what the noble Earl said in respect of the inability of the Government to separate the amount out. It seems to me that there is a distinguishable amount, which will be there on vesting day, or whatever the term may be, and the servicing of that debt will go on for some considerable time. Therefore it is possible to calculate what the cost of servicing that debt will be. It is not, I should have thought, a debt which will increase beyond that moment. That seemed to me to be inherent not only in the amendment but in the way it was moved by the noble Earl.

I am glad that the noble Earl the Minister added his paragraph at the end, because I thought he had gone back to his pre-Committee-stage stance here. I am glad that he said what he did in regard to this point and certainly I think it is very proper that it should be subsumed within the considerations of all the other matters he referred to earlier. On the question of the inability to distinguish what the debt is, I should have thought it was quite simple.

The Earl of Caithness

I am grateful for the contributions made by the noble Lords, Lord Carmichael and Lord Tordoff. I think that it serves to highlight that we are doing the right thing by listening and then taking away matters for further consideration. On this particular matter I do not think there could be found any fault on our part. I thought it was wise to put our thoughts on the record at this stage.

The Earl of Dudley

I am sorry if I did not make it clear enough for the noble Lord, Lord Carmichael, to appreciate that of course the concession I was asking for in this amendment would apply to the cost of the powers given to councils under Clause 23, and in tact would relate to the future as well as to the past.

However, having said that, I find it difficult to understand why, if it was possible to create a mechanism to distinguish the working capital required for transport undertakings from other expenditure of the council, it should not be possible to create a similar mechanism in respect of airports. I feel that it is a reasonable request to ask the noble Earl to say something on that matter because, after all, I have said in my speech on the amendment that there is a precedent here, and if there is a precedent it should be possible for it to be repeated.

The Earl of Caithness

I should like to take this away and look at it because of the relationship and interplay in the whole thing. I do not think that it would be useful for me to comment on a precedent without going back and looking at it in the office. I am sorry if that is not as helpful as my noble friend would like, but I think it is the right thing to do at this stage.

The Earl of Dudley

In view of those assurances from the noble Earl—and I will ask him to follow them up, because the matter is one of very great interest and concern to the councils who have encouraged me to speak to this amendment—I feel that it is the wish of the Committee that we should ask him to look again at this amendment. In those circumstances, I beg leave to withdraw it.

Amendment, by leave, withdrawn.

Clause 23 agreed to.

The Earl of Caithness moved Amendment No. 44: After Clause 23, insert the following new clause:

("Avoidance of restrictions on transfer of securities of public airport company.

.—(1) Any provision to which this section applies shall be void in so far as it operates—

1. (a) to preclude the holder of any securities of a public airport company from disposing of those securities, or
2. (b) to require the holder of any such securities to dispose of those securities to particular persons or to particular classes of persons, or
3. (c) to preclude the holder of any such securities from disposing of those securities except at a particular time or at particular times.

(2) This section applies to any provision relating to any securities of a public airport company and contained in—

1. (a) the memorandum or articles of association of the company or any other instrument purporting to regulate to any extent the respective rights and liabilities of the members of the company.
2. (b) any resolution of the company, or
3. (c) any instrument issued by the company and embodying terms and conditions on which any such securities are to be held by persons for the time being holding them.").

The noble Earl said: I beg to move Amendment No. 44. Perhaps it might be for the convenience of the Committee if we discussed Amendments Nos. 45 and 46 at the same time, because they are all interrelated. At this stage, and in order to avoid confusion, may I make it clear that this amendment is intended to replace the existing Clause 24 in the Bill. Clause 24 (which would make void any restrictions on the transfer of public airport company securities) was designed to ensure that the government's policy that local authority shareholders or any other shareholders in a public airport company should be free, if they so wished, to dispose of their securities to the private sector would not be frustrated.

As I explained in our discussions on 15th May on Amendments Nos. 3 and 4, and the related group, the Government are considering the need for and the feasibility of imposing certain restrictions on the ownership of shares in the BAA. I can assure the Committee that discussions have already taken place since our debate on 15th May, and I can confirm to the Committee that I will be able to come back before Report stage, or my right honourable friend the Secretary of State will certainly let our thoughts be known. The type of restrictions which have been put forward for consideration are, for instance, a restriction on the number of shares which may be held by any one airline or by any one shareholder. Restrictions of this sort do not prevent or impede the disposal to the private sector of shares and do not run counter to the policy I have described.

As your Lordships know, and as I have just said, we have not finalised our thoughts yet on whether to impose share ownership restrictions in respect of the BAA or, if so, what sort of restrictions. But it would clearly be wrong if such restrictions were permissible for BAA airports but because of Clause 24 could not be imposed in respect of airports owned by local authorities. We therefore propose the new clause standing in my name. The effect is to define specifically the restrictions which cannot be introduced into articles of association or agreements. The amendment would render void any provision, however expressed, which has the effect of preventing the holder of public airport company securities from disposing of these securities; any restriction which would require the holder of such securities to dispose of them to particular persons or class of persons; and any restriction as to the time at which those securities may be disposed of.

However, it is not our aim to invalidate restrictions or requirements that could well arise in a normal contract for sale of securities, for example, an agreement binding the seller to transfer the securities to the buyer on a certain date if certain obligations are satisfied. Therefore the second subsection provides that restriction and requirements such as I have described shall be void only if they are imposed as a term or condition of the holding of security, or by the memorandum or articles of association of the company, or otherwise by members of the company. I hope I have made our thoughts clear to the Committee, and I beg to move the amendment.

3.15 p.m.

Lord Williams of Elvel

The new clause which has been moved by the noble Earl, Lord Caithness, seems in some rather interesting respects to be weaker than the original Clause 24 which I believe it is going to replace. If I may quote from Notes on Clauses on the original Clause 24, they say: It is possible that some principal councils will seek to retain ownership of a related public airport company within its own control or within the control of the other principal councils within a composite authority. It may seek to do this by restrictions written into the Company's Articles or Memorandum, or by agreements within the composite authority or in other ways. The expression "or in other ways", which is a very wide expression, seems to have been left out of the new clause that the noble Earl is now putting foward.

The effect of this new clause—and I am not talking at all controversially; I am trying to help the noble Earl to achieve what he wants—could, it seems to me, be avoided quite simply by a local authority that wished to act in the manner that Notes on Clauses suggest some local authorities might act. The mechanism would be perfectly simple. It arranges for a bank to lend it some money and it gives the securities that it has in the airport company as security on charge to that bank. The beneficial ownership of those shares remains with the local authority, but the local authority cannot dispose of those shares because they serve as collateral to the bank loan. That is all normal banking practice. But the nominal ownership of those shares in the company register would be in the name of the bank, thus preventing the local authority in all cases from getting rid of those shares.

It seems to me that that is a loophole in this clause which the noble Earl might wish to look at, because if it is true that certain local authorities are going to behave in the manner that Notes on Clauses suggest, then I believe that the effect of the new Clause 24 could be easily avoided by that method. But I would be glad to be told by the noble Earl that I am wrong.

If I may speak to our Amendments Nos. 45 and 46, we believe that in the disposal of the shares of a public airport company preference should be given to those who have made sacrifices over the years to build up the assets of the airport in question. We believe that the ratepayers are the people who have made those sacrifices and it is they, if airports need or want to sell shares, who should be given the opportunity of continuing to share in that success. I believe it would fit in with the Government's vision of a share-owning democracy and would in principle be no different from the sort of mechanisms that the Government have introduced in other flotations.

It seems to me that there is a matter of some importance here. In our view, it would be a great mistake to dissociate public airport companies from the locality and the local interests where airports are. We believe that that local interest, the identification with a region or a town, could best be preserved if the ratepayers were given a chance to invest in the public airport company if the local authority decides it wishes to dispose of its shares. That is the thrust of the two amendments that we are putting forward, and I hope very much that the noble Earl will recognise the force of the points and have a look at them.

Lord Boyd-Carpenter

My noble friend made an oblique reference in his remarks a moment ago to the statement which he has promised to make to noble Lords about the Government's proposals for securing that, in the case of the BAA, control does not pass either to foreign interests or excessively to airline interests. I wonder whether he could take that statement a little further. It would help some of us if he could give some indication now as to when he is likely to be in a position to make that statement. It obviously cannot be before the Recess, but perhaps he can give us at least some broad indication of when it is likely to be made.

Secondly, and at the same time—this is very relevant to the amendment—I was not at all clear whether it was the Government's intention that that protection to be provided in respect of shares in the BAA should also be applied to the airports covered by this amendment—the ex-local authority ones.

The Earl of Caithness

If I may first reply to my noble friend Lord Boyd-Carpenter, I hope that my right honourable friend the Secretary of State will make this statement in the week prior to Report. I understand that Report is to be on 10th June and therefore the statement will be made in the week commencing 2nd June; I hope in the early part of the week. The second point of my noble friend was that the whole purpose of the amendment is to permit the same restrictions on share ownership that we propose to impose on the BAA to be imposed on the local authority. That is the whole thrust of the amendment because, as the Bill is currently drafted, there would be an inequitable situation.

I have some sympathy with the amendments of the noble Lord, Lord Williams, Nos. 45 and 46; in fact, I thoroughly approve of them. But why stop at the ratepayers?

Lord Williams of Elvel

Because they made the sacrifices.

The Earl of Caithness

The noble Lord said that they made the sacrifices. They will receive the benefit and they have received the benefit. Manchester is the fastest growing airport in Europe, thanks to this Government, and our help to other regional airports such as Newcastle has been well received. I should not like to limit it to the ratepayer. I should dearly like the ratepayer to take up shares, but I think it should be made much wider. I believe that the Government's thrust on that is not so different from that of noble Lords opposite. But I am glad that they are coming along with our way of thinking on wider public share ownership. If they can come all the way with us and open the whole thing up, I am sure it will be to the benefit of everybody.

Lord Williams of Elvel

Every hour or so we get a party political blast from the noble Earl, Lord Caithness. It would very much help the Committee if the noble Earl could just take time out when the hour comes round. We could then get on with discussing the clauses in detail. I wonder whether the noble Earl has a response to what I hope were some very helpful comments that I made on his new clause. On our amendments, if the noble Earl cannot come with us on these we shall not move them.

The Earl of Caithness

May I just answer the noble Lord, Lord Williams? I shall in future try to resist the odd dig, but I think it just helps to encourage noble Lords along. With regard to the specific point, I understand that his concern is taken care of under subsection (2)(a). But I shall look at it, because I think he made an important point. I shall take a special interest in what he said and see whether there is any loophole here that needs to be blocked.

On Question, amendment agreed to.

[Amendments Nos. 45 and 46 not moved.]

Clause 24 disagreed to.

Clause 25 agreed to.

Clause 26 [Compensation for loss or diminution of pension rights]:

Lord Underhill moved Amendment No. 46A: Page 19, line 33, leave out ("may") and insert ("shall").

The noble Lord said: It may be for the convenience of the Committee if I also discuss Amendments Nos. 46B, 46C, 46D, 46E, 46F, 46G and 46H as they all deal with the same matter. Clause 26 as it stands in the Bill was inserted by the Government at Report stage in the Commons. I have read carefully the report of that debate and it seems that most attention was given to the BAA and very little to the position of local authority airport employees. But even Clause 26 as now inserted does no more than enable the Secretary of State to pay compensation to those who suffer loss or diminution of pension rights in consequence of this Bill.

The clause does not provide enabling power whereby existing employees could remain subject to local government superannuation after privatisation, nor does it provide the necessary framework for a pension scheme which might be applied to new employees. All the clause does is enable the Secretary of State to pay compensation if he is so minded. There is no provision for that to be mandatory. There are considerable advantages in the present local government superannuation scheme and personnel involved should not suffer because of the transfer to a plc. We have repeatedly made the point that it is a great tragedy if parliamentary action should lead to hardship being suffered by the employees concerned.

I raised two points when we were dealing with an earlier amendment, and ideally the Government should be seeking to ensure that the airport plc employees be given admitted body status for the purpose of the local government superannuation scheme. If that were done, it would allow not only transferred employees but also new employees to be within that scheme. Admitted body status must be agreed by the airport company, it must be agreed by the local authority in control of the airport and it must also be agreed by the local authority in control of the superannuation scheme.

That is much preferable, as noble Lords will see, to the deeming option to which reference was made during the debates on the Transport Act 1985, but there is no provision at all in the Bill for either scheme. All we have is the scheme for compensation. Therefore, dealing with the Bill as it stands, this group of amendments seeks to make sure that the Secretary of State provides regulations and removes the discretion for him to do so. At the same time, it attempts to improve upon the compensation provisions.

The deletion of paragraph (b) of subsection (2) is in order to remove the powers of the Secretary of State to make exceptions or to apply conditions as to who is entitled to compensation. The new subsection to replace the existing subsection (4) seeks to ensure that if compensation is to be paid then it should be no less favourable than the compensation rights which currently apply in local government, including the updating of those rights. The changes to subsection (5) seek to fix the date from which these rights will apply—that is, at Royal Assent—and remove the Secretary of State's discretion in this area.

While this group of amendments seeks to improve the present Bill considerably, we should like to know whether the Government will give serious consideration to the admitted body status, or failing that, even to the deeming option, though obviously the admitted body status is most desirable. I beg to move.

3.30 p.m.

Lord Tordoff

Perhaps I may offer my support to this series of amendments. When we were talking about Amendment No. 35 and the question of pensions was being discussed, the noble Earl the Minister relied rather heavily on this amendment and said that the Government had chosen this mechanism to carry out their responsibilities and to carry out the responsibilities of Parliament and of the country towards those people who were put in a position in which they might suffer diminution of pension rights.

We have made the case many times now for the need to do that. If the Government then rely on this clause in the Bill to carry out that obligation, not only on their own behalf but on behalf of all of us as ratepayers and taxpayers in this country, then it must be an obligation on the Secretary of State and should not be permissive.

The Earl of Caithness

I am grateful to the noble Lord, Lord Underhill, for explaining his amendments to the Committee. Perhaps it will be helpful if I start by offering a little background to Clause 26. The clause was added to the Bill at Report stage in another place largely in response to requests from Opposition Members in Committee. It follows very closely the corresponding Section 74 of the Transport Act. It deals with compensation for loss or diminution of pension rights, a sensitive issue to which the Government have given much thought, but, I am glad to say, one which we believe is unlikely to be an issue of substance. Nevertheless we have prepared for it.

Most if not all principal councils will, we believe, make arrangements for the continued membership by their employees of the local government superannuation scheme. The noble Lord, Lord Underhill, mentioned the two methods by which membership could be continued. First, the employees could be deemed to belong; and, secondly, the company may negotiate full membership, which is admission agreement or admitted body status, the words used by the noble Lord, Lord Underhill.

The noble Lord rightly pointed out to the Committee that if the admission agreement is negotiated a new employee will be able to benefit from the advantages of the scheme but he would not be able to benefit if the deeming option was chosen. As we understand the situation at the moment, most councils will favour the admission agreement, but it must be a matter for them, the companies and the trustees of the scheme themselves to finalise their thoughts on that.

It is unlikely therefore that the pension compensation regulations need to be made by virtue of schemes for the transfer of assets to airport companies. However, it is just possible—though I very much doubt it—that some authority or company will decide that it would not be in its interests for employees to remain in membership of the LGSS. If an airport company passed out of public ownership following a disposal of shares under Clause 19(2), its employees could no longer continue membership. It is for those circumstances that we decided to include Clause 26.

I now turn to the proposed amendments. Their combined effect would extend unacceptably the provisions of the clause. First, they would make it mandatory on my right honourable friend the Secretary of State to make regulations. As I have pointed out, that may well not be necessary. My right honourable friend made clear in another place that he would not hesitate to use the power if necessary. However, I am sure noble Lords will agree with me that it would be wasteful to make them if they are not necessary. Then the amendments would remove my right honourable friend's ability to tailor the regulations to classes of persons or circumstances. That would reduce flexibility. That is hardly conducive to the most effective use of public money and is possibly detrimental to the interests of some of the people the clause is designed to help.

The amendment to remove the options in subsection (3) is unnecessary because my right honourable friend is able to include both options if he deems it appropriate, and in the draft regulations prepared and circulated under the Transport Act he has indeed done so. The proposed Amendment No. 46F, which would require that compensation under any regulations should be at least as favourable as that under the Compensation for Premature Retirement Regulations 1982, is, I have to tell the noble Lord, Lord Underhill, quite unacceptable. The 1982 regulations, which deal with compensation for persons who retire early and thus lose their earnings earlier than expected, are quite irrelevant to the benefits that should be paid under any regulations to compensate for loss or diminution of pension rights. The underlying concepts are quite different, as I think the Committee will understand.

Likewise, the deletion of subsection (4)—Amendment No. 46G—is unacceptable. The Government believe it would be totally wrong for employees to be eligible for more than one form of statutory compensation out of the public purse. Any regulation under Clause 26 would be designed to secure adequate compensation from these provisions alone, so their particular problem is already catered for.

Finally, there is the proposal in subsection (5) to substitute the date of the Act for the date specified by my right honourable friend. I was rather surprised by this amendment. I cannot believe that noble Lords opposite are serious on this matter. That proposal would be detrimental to the interests of the employees themselves because the date they propose would be earlier than the date the Secretary of State will specify. Therefore some of them could suffer real harm under this amendment.

I have to tell the noble Lord, Lord Underhill, and the noble Lord, Lord Tordoff, that none of the amendments, some of which could be directly detrimental to employee interests, can be accepted by the Government, and I hope that with the explanation I have given the noble Lord, Lord Underhill, will be able to withdraw this set of amendments.

Lord Tordoff

Just before the noble Earl decides to do what he may well decide to do, perhaps I may say this. It seems to me that in the first subsection of Clause 26 there are two remaining "mays". I should have thought that that would give the Secretary of State quite a lot of flexibility even if the first "may" is changed to "shall". It certainly does not make it a very rigid clause, even if you change the first "may" to "shall".

The Earl of Caithness

That may be the case; I shall look into it.

Lord Underhill

I am grateful to the noble Earl for the first part of his remarks, in which he expressed the view that most local authorities would be prepared to adopt the admitted body status. I hope that means that the department will be sending out guidance notes which will put favourably the position on admitted body status and in effect recommend it to the local authorities. It would be extremely helpful if that were done. I am grateful that the noble Earl is nodding his head vigorously. I am very pleased to note that that will be in the official record.

On the question of Clause 26(4), the noble Earl says that the provision is for adequate compensation, whereas we say that the compensation should be no less favourable than that which applies in local government at present. There can be a lot of legal arguments as to what is adequate. The Secretary of State could determine what he thinks is adequate, whereas the amendment which I propose says that we should be no less favourable than the compensation rights which currently apply in local government. Therefore there was a great principle in that amendment.

On the question of the date on which this should come into effect, the noble Earl says that some persons could suffer real harm. That would not be the case if the Government accepted my amendments. There would be real harm done only if the Government were to leave it entirely to the Secretary of State to determine what he shall do on the question of adequate compensation and not adopt the type of compensation that we have in mind.

In this Bill, and in this clause in particular, far too much is left to the Secretary of State. I am grateful for the point that was made by the noble Lord, Lord Tordoff. In the first amendment we were seeking that the Secretary of State shall provide regulations. It is not good enough for the noble Earl to say that the problem may never arise and so there is no need to make compensation. We ought to have a regulation made in case the situation does arise. That is why we wanted to make it compulsory on the Secretary of State.

However, as I have said, the first part of the noble Lord's response was extremely helpful. At this hour I do not propose to seek the view of the Committee, but I shall seek further advice because the position of the employees is of outstanding importance. We shall also read very carefully what the noble Earl has said. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 46B to 46H not moved.]

Clause 26 agreed to.

Clause 27 agreed to.

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

3.45 p.m.

The Earl of Caithness moved Amendment No. 47:

Page 22, line 11, leave out from ("security") to end of line 13 and insert—

("(2A) The Secretary of State may give to the appropriate person in relation to any airport a direction requiring that person (according to the circumstances of the case)—

1. (a) to do, or not to do, in connection with any operational activities relating to the airport a particular thing specified in the direction, or
2. (b) to secure that a particular thing specified in the direction is done or not done in connection with any such activities,

if the Secretary of State considers it necessary or expedient to give such a direction in order to discharge or facilitate the discharge of any international obligation of the United Kingdom.

(2B) In subsection (2A)—

"the appropriate person", in relation to an airport, means—

1. (a) the airport operator; or
2. (b) an associated company of the airport operator; and

"operational activities", in relation to an airport, means any activities—

1. (a) which are carried on wholly or mainly for the benefit of users of the airport, or
2. (b) the revenues from which are wholly or mainly attributable to payments by such users;

but the Secretary of State may by order make such modifications of the definition of "operational activities" as he thinks necessary or expedient having regard to any international obligation of the United Kingdom.")

The noble Earl said: In moving this amendment I should like to speak at the same time, with the leave of the Committee, to Amendments Nos. 48,49, 50 and 101. This set of amendments expands that part of Clause 28(2) that deals with directions to airport operators to discharge or facilitate the discharge of the United Kingdom's international obligations. The problem that the amendments are designed to resolve appears in Part IV of the Bill. So while I apologise at this stage for having to explain the amendment at some length now, I assure noble Lords that what they are about to suffer will ease their burden when the Committee later reaches Amendments Nos. 89, 103 and 105. I can also assure noble Lords that the amendments are not as formidable as they look.

The Committee will know that there are several international agreements relating to airports to which the United Kingdom is a party, and I am sure that no one here would argue with the need for the Government to have some means of ensuring the discharge of their responsibilities under those agreements. Perhaps the best-known of our obligations is that an airport's commercial activities should contribute towards meeting airport costs. One of the potential uses of the power of direction would be to ensure that that practice continued to the extent required.

It is conceivable that in the future the structure of airport business may change so that separate companies operate the aeronautical and commercial sides of the business. In a case where an airport operator who was managing only the aeronautical side of the business, such as runways, had no control over the operator of the commercial activities—for example, if the commercial operator was a separate subsidiary of a common holding company—then clearly a power of direction over just the airport operator might be insufficient to secure the discharge of our international obligations. It would be wrong for an airport group to continue to receive all the benefits of those commercial activities without being bound by the obligations that go with the whole business of operating international airports.

I should stress that there is nothing intrinsically wrong with the type of restructuring of an airport's business that I have described. If such a restructuring did occur, then I expect that appropriate arrangements would be made to ensure that the obligations on charges would be met. But if the power of direction is to be an effective long stop, which is indeed what it is intended to be, and if we are to be certain that the Government can fulfil their responsibilities even in extreme cases, then the mechanism to achieve that must be in place.

The amendment therefore extends the power of direction to an airport operator's associated company—defined in another Government amendment to which we will come later—to include a holding company, a subsidiary of the airport operator, or a subsidiary of a common holding company. That means that the direction can be given at the most appropriate level and to the most appropriate person.

However, without anything further, that would make the powers extremely and unacceptably wide. A holding company or an associate of the airport operator might carry on activities totally unrelated to the airport in question or to airports generally. A power of direction relating to international obligations in the civil aviation field that could extend to unconnected business activities cannot be justified. The amendment therefore limits the power to "operational activities"; that is, to those activities provided wholly or mainly for the benefit of airlines and their passengers, and whose revenues are wholly or mainly attributable to payments by airlines and their passengers.

That means that if an associated company runs a wine bar at the airport for the use of air passengers, it would be covered by the direction-making power, but the wine bar the associated company might run in Leicester Square would not be. Nor would it be right—as I am sure the noble Lord, Lord Carmichael, would agree—to take a direction-making power over a wine bar run by the associated company on Sauchiehall Street. Nor would the noble Lord, Lord Tordoff, like such a power over the Piccadilly Plaza at Manchester. The limitation seems to the Government to be both reasonable and right.

The third main feature of the substantive amendment in this group is the power to amend the definition by order, subject to negative resolution of both Houses of Parliament. Again, because we cannot foresee the future, there must be some way of catering for possible changes in our international obligations. The power to amend the definition, either to encompass more within its scope, or less, means that the power of direction can always extend as far as our international obligations require, whatever the future might bring.

I apologise for having spoken at some length about the problem that this amendment is designed to solve. The same problem—that is, a situation where the airport operator does not manage the whole of an airport's business—arises again in Part IV of the Bill. There are further rather lengthy amendments to deal with it, to which we will come later. But so far as Clause 28 is concerned, I am sure that the Committee will agree, first, that the Government must be able to fulfil their international responsibilities, whatever the operational and management structure of an airport, and, secondly, that their powers of direction should be wide enough, but no wider than is absolutely necessary, to achieve that aim both now and in the future. The amendment does all those things and I commend it to the Committee. I beg to move.

Lord Underhill

We were quite prepared to accept the general principle in the original Clause 28. Obviously we would give support to any steps that were required to ensure security at airports. I am pleased that the Government have brought forward this amendment and am grateful for the explanation that the noble Earl has given to justify it. Frankly, this matter is something that the Opposition should themselves have noticed, and I am pleased for once to commend the noble Earl for having made this differentiation between operational activities and commercial activities that are outside the airport's control.

The Committee may have noticed that we shall be raising the whole question of payment of compensation for the steps to be taken when we reach Amendment No. 95. Therefore, I shall say nothing about that matter at this stage. However, I have one question to ask the noble Earl. I understand that at present security is arranged in-house by the BAA with their own security strength. Will the noble Earl give an assurance that, in the event of privatisation, there will be no question whatsoever of engaging private security companies to do that work but that it will be left to the BAA's in-house security force, working closely with the police, as it does at the present moment?

The Earl of Caithness

In regard to that direct question I cannot give the assurance the noble Lord requires because security is so important that it must be done in the most efficient and the best way, and I think it is something which should be left to the airports concerned. I fully take the noble Lord's point about it, but I believe that this is a matter in regard to which they must use their best resources or the best powers which they have available to make certain that this is carried out. For that reason, I cannot give the assurance the noble Lord would like.

Lord Underhill

While I appreciate why the noble Earl cannot give an assurance at this stage, it is not just a matter for the airport authority. Surely the question of security is a matter for the Government. The Government ought to ensure that this job is carried out effectively, and if they are satisfied that the BAA inside personnel do the job effectively now, working with the local police, surely that situation should continue. It is not just a matter to be left to the new company to decide whether or not they will engage outside security companies. Surely, it is a Government responsibility to ensure that security is adequate, and proper, safeguarding every possible eventuality.

Lord Boyd-Carpenter

I do not think there is anything in what my noble friend on the Front Bench has said that is inconsistent with the suggestion of the noble Lord, Lord Underhill, that this is a Government responsibility. But if the Government are to exercise that responsibility, it seems quite wrong to tie it in advance as to the particular method, or indeed particular personnel by which that responsibility might be discharged. I would have thought that my noble friend is right to say that he must keep a free hand. The Government would accept their responsibility, but the mechanism or personnel through whom it is discharged are a matter for their decision at the time on the merits of that particular matter.

I rose, however, to ask a totally different question about my noble friend's amendment. Does the power which the Government are taking under this amendment or under the clause as amended extend to enabling them to direct that slots be found in the schedule of arrivals or departures at the airport of any particular aircraft or the aircraft of any particular company or any particular nationality? Is it intended that the Government should say that, in accordance with our international obligations, Spanish or, if you like, Libyan aircraft should be allowed in? If so, is it intended to have the power sufficiently detailed to be able not only to demand that a slot be found for them, but to direct that a slot be found at a particular time? As my noble friend knows very well, commercially, arrival and take-off times are of very great importance to airlines. I would be interested to know whether the Government feel it necessary to take the power to intervene or to be able to intervene to dictate that to the airport concerned.

The Earl of Caithness

I am grateful to my noble friend for his comments, particularly the first part to his speech relating to security. As the Committee will know, the airports are acting under the Aviation Security Act 1982 which was, not so long ago, discussed in terms by your Lordships' House.

With regard to my noble friend's second point, as he knows, we shall be discussing slot allocation at a later stage of the Bill, not far distant now. I understand that he is theoretically right; it has to be in accordance with our international obligations. But I might be able to give my noble friend a more detailed reply when we come to discuss slot allocations.

Lord Boyd-Carpenter

My noble friend says "theoretically right". Which way? What I asked was whether the Government, under this amendment—I am not talking about what we come to later—are or are not taking power to lay down what slots should be allocated.

The Earl of Caithness

Could I write to my noble friend on that detailed point?

Lord Maude of Stratford-upon-Avon

I do not wish to appear to niggle or be unduly pedantic, but I am not very happy about this word "thing" in paragraphs (a) and (b). "Doing a thing" is not a phrase that I have met before in legislation and it seems to me to be particularly vague. Would it not be better if it were amended to read "to take, or not to take … a particular action"? That is quite clear and seems fairly conventional. "Doing a thing" seems to me a very odd legislative phrase.

The Earl of Caithness

I think at this stage I shall have to rush to Parliamentary Counsel for advice. I think the point which my noble friend makes is well taken.

Lord Tordoff

I believe the "thing" used to be the Viking equivalent of a "moot".

On Question, amendment agreed to.

The Earl of Caithness moved Amendment No. 48: Page 22, line 15, leave out ("or (2)") and insert (", (2) or (2A)").

On Question, amendment agreed to.

The Earl of Caithness moved Amendment No. 49: Page 22, line 20, leave out ("(2)(b)") and insert ("(2A)").

On Question, amendment agreed to.

The Earl of Caithness moved Amendment No. 50: Page 22, line 43, leave out ("airport operator") and insert ("person").

On Question, amendment agreed to.

Clause 28, as amended, agreed to.

Clause 29 [Traffic distribution rules]:

Lord Underhill moved Amendment No. 51: Page 23, line 38, after first ("operators") insert ("and the bodies representing staff employed at such locations who appear to be likely to be affected by the rules").

The noble Lord said: It might be convenient to the Committee to take Amendment No. 61 with Amendment No. 51. Speaking first to Amendment No. 51, it is self-explanatory.

In this clause and in subsection (4)(a), we have airport operators who appear to be likely to be affected by the rules. Then, in subsection (4)(b) we have operators of aircraft who appear to be likely to be affected by the rules. We are suggeting in the amendment that the traffic distribution rules should at the same time be made available to those members of staff who are likely to be affected by these rules.

I should mention that in Amendment No. 61 we are suggesting that the staff at the airports should also be made aware of the changes in the rules since the users of air transport services will be notified. We feel that it is only correct that the operators whose lives could be very considerably affected by the change of the air traffic distribution rules should also be notified; not consulted but notified. I beg to move.

The Earl of Caithness

The first of these amendments would give the CAA a duty to consult employees' representative organisations at airports before advising the Secretary of State on traffic distribution rules. The second, as the noble Lord, Lord Carmichael, has just pointed out to us, would require the CAA to have regard to airport staff interests in giving advice under Clauses 29 to 31 or in preparing a scheme to allocate capacity under Clause 31.

These are two of four amendments—the others are Amendments Nos. 52 and 58—to Part III which seek to write wider consultation onto the face of the Bill. I genuinely appreciate the motives which have prompted these amendments: Part III contains important powers to regulate, where necessary, the use of airports. It would be unthinkable for those powers to be exercised wihout prior consultation among those most directly involved. But while I appreciate the good intentions which underlie these amendments I nonetheless hope to convince noble Lords opposite that there is no need for them. I am sure that the CAA, before carrying out its duties under Part III, will wish to consult a variety of interests. It would not be constrained by the lists of those who may be consulted in those clauses because neither list is exhaustive. Indeed, I would fully expect the CAA to consult many bodies not provided for in the Bill. But to list them all on the face of the Bill would overburden the legislation quite unnecessarily.

4 p.m.

The lists of bodies and organisations whom the CAA may consult under Clauses 29 and 31, and whom my right honourable friend may consult under Clause 30, are not exhaustive; neither are they intended to be. On the contrary, the lists of possible consultees in Part III can perhaps best be viewed as indicating a minimum level of consultation. The scale of consultation which we have in mind here is perhaps best evidenced by the CAA's current review of air traffic distribution in the London area, where the CAA consulted over 300 bodies covering a wide range of interests. Included among consultees were the TUC and the National Joint Council for Civil Air Transport: a joint management/union forum. That consultation was undertaken without legislative direction but still provided for the sort of trade union involvement which Amendment No. 51 seeks.

Turning specifically to Amendment No. 61 I do understand the noble Lords' concern to ensure that the interests of airport employees are taken into account by the CAA. I think they will agree, however, that those interests are best served by creating the conditions within which the airports industry can flourish. It is, of course, the whole purpose of the Bill to secure just those conditions. That purpose is made manifest in Part III by Clause 32(3)(a) which requires the CAA to have regard to, the need to secure the sound development of civil aviation in the United Kingdom in exercising its Part III functions. Through that sound development, explicitly mentioned on the face of the Bill, the interests of airport employees will best be served.

So while I genuinely appreciate the motives which have given rise to the amendments, as I have made clear, I feel that the ends they seek to achieve are already catered for in the Bill. I hope that with that explanation the noble Lord, Lord Carmichael, will see fit not to press the amendment.

Lord Carmichael of Kelvingrove

I thank the Minister for his explanation. I am always concerned when a Minister tells me that a list is not exhaustive. I have always understood, in parliamentary terms, that when names were given and organisations were named in an Act it meant that anyone not named was not likely to be consulted or that there was no imposition on the Minister to consult them. Therefore, while I accept that any wise Minister will consult widely it seems to me that such an important body as the employees at an airport could be completely ignored. There is no obligation at all, whereas many other groups of people, such as the airport operators and aircraft operators, must be consulted.

I should have thought that it would be only a very small step to include the staff. Everyone else involved in the actual physical organisation and running of the airport is going to be involved except the staff. It is unfortunate that the Minister does not see this. However, I hope that his good words will at least make it likely that future Ministers will ensure that the CAA, whether by nudges, winks or whatever, will definitely look at the role of the workers' representatives at airports and inform them of any changes, or likely changes.

Lord Boyd-Carpenter

Before the amendment is withdrawn I should like, from some past experience of the CAA, to say to the noble Lord, Lord Carmichael. that he need have no apprehensions. The CAA is regularly in the closest touch with the whole of the industry, airline and airports together, and takes the closest account of the views of the different sections. There is no need for any alarm.

While I am on my feet may I say to my noble friend, with great humility, that I was horrified to hear him using the horrible expression "consultee" I suppose it is now the Whitehall word.

The Earl of Caithness

The world moves on, and even Whitehall is affected by it.

Lord Carmichael of Kelvingrove

I should, of course, have noticed and remembered that the noble Lord, Lord Boyd-Carpenter, was a distinguished chairman of the CAA. I am sure that under his guidance there would be no question as to the width of consultation. However, everyone is not as punctilious as the noble Lord, Lord Boyd-Carpenter, and that is one of the reasons why we wished to have this on the face of the Bill. With that I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Underhill moved Amendment No. 52:

Page 23, line 39, at end insert— (" (d) any local authority or authorities who appear to the Secretary of State to be affected by operations at the airports, and (e) the relevant Airport Consultative Committee.").

The noble Lord said: In replying to the previous amendment the noble Earl referred to Amendments Nos. 52 and 58 as if they were unnecessary. Amendment No. 52 relates to the traffic distribution rules and, here again, I accept entirely what the noble Lord, Lord Boyd-Carpenter, says about the way the CAA usually carries out its consultation. But the Secretary of State is given power to make the relevant traffic distribution rules, and the Bill actually provides that he shall consult the CAA. The Bill then provides that the CAA, in turn, must consult airport operators who appear likely to be affected, operators of aircraft who are likely to be affected and organisations representing airport or aircraft operators. If I accepted exactly what we have been told it is sheer common sense that the CAA would consult those bodies, yet it is in the Bill because it is felt that it should be in statute.

Amendment No. 52 seeks to add to that "any local authority" which might be affected by the traffic distribution rules and also "the relevant Airport Consultative Committee". It is strange that there is no reference in the Bill, as far as I can see, to airport consultative committees. I presume that there is no suggestion that they will no longer continue to be in existence, because they are important organisations representing a wide variety of people involved in airport matters.

While I am on my feet, perhaps I should speak to Amendment No. 58, because this deals with the Secretary of State's power to limit aircraft movements at certain airports. Again, it is laid down that before making such an order he shall consult the CAA. However, it is also provided in the Bill that he must consult the airport operator affected, the operators of aircraft and organisations representing such operators. That is laid down in the Bill, and also that "any local authority" must be consulted. Yet, strangely enough, in Clause 29, covering traffic distribution rules, there is no reference to consulting the local authorities that may be affected. Therefore, in one clause it is considered desirable to write that into the Bill but in another clause there is no reference to local authorities being consulted by the CAA. There must be some Government reason why it is mandatory on the CAA to consult local authorities under Clause 30 but not mandatory to do so under Clause 29.

Moreover, in neither Clause 29 nor Clause 30 is there any reference to consultation with the airport consultative committee; nor is there any reference throughout the Bill, as far as I can see—and I am open to correction—to the position of airport consultative committees. It will not be sufficient to be told that, of course, they will still continue. If they are still continuing, why not say in the Bill that they shall be consulted by the CAA? It is as much common sense that they should be consulted as it is to write into the Bill that airport operators and airline operators shall be consulted. It is surely common sense that they must be consulted, regarding both traffic distribution rules and the limitation of traffic movement. Therefore the proposal to include these other bodies seems as much common sense as to consult the Government bodies, and in one way it makes even more sense because in the one case they provide for the local authority to be consulted by the CAA and in the other case there is no reference at all to the local authority. I beg to move.

Lord Monk Bretton

I feel that this is not really a party political matter and I should like to say a few words in support of Amendments Nos. 52 and 58, to which I put my name.

First, I see consultation with local interests as a most important aspect of the task of taking account of environmental matters. In fact I think it is very difficult to fulfil this objective without consulting local authorities. Amendments Nos. 52 and 58 were sponsored originally by the local authorities around Gatwick and Heathrow and they are now supported more widely by the Association of County Councils.

This amendment provides that, preparatory to advising the Secretary of State on making traffic distribution rules, the CAA should consult local authorities and airport consultative committees. The Bill leaves out these bodies, though it provides very fully for consultation with the airport and airline interests only. The making of traffic distribution rules appears as a very important part of policy making.

Perhaps I may say a word first about the local authorities. I emphasise that it is they who represent local residents, and it is the local residents who suffer the environmental consequences of airports, particularly noise, which are such a big factor when airports are developed. It is they also who have to cope with such matters as housebuilding and infrastructure problems, road traffic generation and so forth. There is no doubt that at the moment their feeling is that they very much want to reinforce their contacts on these matters with the CAA and, through the CAA, with the Secretary of State. They feel that the Bill is leaving them out. They want in particular to emphasise that in their view being on an airport consultative committee is not a substitute for being able to have direct consultation.

I know that the local authorities have very much welcomed recognition of the value of consultation in connection with air traffic movement limits at Stansted, and the Government amendment to Clause 30 in another place which gave effect to this. They are therefore very anxious that the principle that this established should be extended to discussion of traffic distribution rules which appear to them as such an important instrument of development policy.

As this is a double-barrelled amendment and concerns the consultative committees too, I should like to say something about the Gatwick committee, about which I know a little. I understand that it is quite definite that the British Airports Authority at Gatwick infinitely prefers to have an airport consultative committee than to attempt to do without one. It has found this body to be a very valuable and useful sounding board in the past and it has helped to resolve a considerable number of difficult questions. Nevertheless, at the moment it appears that it is the British Airports Authority who appoints this committee.

This raises the question of whether there should be any mandatory appointees in the future because at the moment it is entirely up to the British Airports Authority, or that part of the set-up that will be denationalised. It may be that my noble friend can comment on this aspect. I believe that the Secretary of State should preserve some powers in that area and I should like to throw in that thought at this stage.

I understand that the repeal of the Airports Authority Act 1975 constitutes a change in the formal position of these consultative committees. They will continue to operate only under Section 35 of the Civil Aviation Act 1982. As I understand it, that means that consultation in the future will only be about organisation and administration at the airport of the committee and not about policy matters, including what I think are two immediately very important subjects, that is, noise and the air traffic distribution rules in the London area. There is considerable concern about these matters.

In practice the Gatwick committee is concerned about the Civil Aviation Authority's representative who has been present at meetings when policy matters such as noise have been discussed. The committee wants to be quite sure that the Civil Aviation Authority's representative continues to attend. It does not quite see under what constitutional rule he is entitled to attend and wants to ensure that he is present. It is felt to be most important that a respresentative from the CAA should continue to attend. Those are the main points that I should like to put to my noble friend.

4.15 p.m.

Lord Tordoff

Perhaps I may reinforce just a couple of points that have been made in this debate. Certainly I agree entirely on the subject of local authorities and I am considerably concerned about the consultative committees. My concern arises from the change of status of BAA. There is no doubt that the relationship between BAA and the consultative committees has been very good and that they have consulted on a wide range of matters. I do not think that any of us who know the senior management of BAA have any doubt that there will be any immediate change in that position. Nevertheless faces change and attitudes change. The fact is that we are facing a situation in which there is a nationalised industry that is moving into the public sector. Clearly there must be a difference in the relationship that exists between a nationalised industry and a consultative committee and one that exists between a public limited company and a consultative committee.

I think that this is something that needs to be written on to the face of the Bill. I hope that when he comes to take up his new seat, the Secretary of State, having listened to the discussions in this Chamber, will realise that this is not just a piece of nit-picking but a very serious belief that consultative committees should continue to give the helpful support that they have done in the past. I very much hope that the Government will accept these amendments.

The Earl of Bessborough

I should very much like to support my noble friend Lord Monk Bretton especially on his point about the consultative committees. As I understand it, consultative committees for the major international airports of Heathrow and Gatwick have effectively contributed to air policy issues in a way that is way beyond the limitations of the management or administration of their respective airports. For example, as has already been mentioned, they were consulted by the Civil Aviation Authority on air traffic distribution in the London area and are currently considering the consultation document on noise disturbance at night near both airports.

I see that the Secretary of State intends issuing guidelines on the formation and running of consultative committees. However, it seems to me that without any statutory backing that will leave the choice open to the BAA, as a limited company responsible to its shareholders, rather than to the Secretary of State or the public. It may well seek to reduce the committees to mere talking shops, which I do not think they are at present. That is why I support the amendment.

Lord Monkswell

I support the amendment. I should like to mention two things which I do not think have been highlighted so far. The first is the implications for the local authority, in terms of the local transport network which feeds the airports involved. Let us think of the consumers, in particular the business user, for example; he may want to fly from Manchester to Hamburg. He applies to his local travel agent or his firm's transport department and says, "Book me a flight to Hamburg." It will probably book him from Manchester to London and then from London on to Hamburg. The operator and the airport will accept that as good business and think no more about it. The businessman will also accept it, though he will probably bellyache about the fact that he has to transfer flights at another airport. That is the type of thing that the local authority may pick up. It can identify the amount of usage in the areas in which the businessmen are travelling and highlight the need for direct interconnecting flights between business centres. The same sort of point applies to tourism.

It may not be appreciated in London that Chester in the North-West and Stratford-upon-Avon in the Midlands are two of the places most highly visited by American tourists; I think they come second and third after one of the London attractions. For an American tourist "doing" England it makes sense to go to Manchester, progress southwards and leave from Heathrow rather than to be flown into Heathrow, do a tour and return to Heathrow to be flown out again.

Those are factors which local authorities affected can identify and highlight to the CAA and which may not be identified and highlighted by the airport operators or the companies operating the flights.

I hope that the Government will accept the amendment with the view that it will help them obtain a sensible distribution of traffic, not only locally within regions but, who knows, perhaps nationally also.

Lord Boyd-Carpenter

With great respect to the noble Lord, Lord Monkswell, I doubt whether local authorities have much of a role to play in deciding the air travellers' needs. The splendid tourist areas that he mentioned are located at considerable distances from airports. The local authorities have little direct knowledge of the air transport industry and I doubt whether they can make much of a contribution from the air travellers' point of view. The contribution that they can and do make, sometimes with great and excessive emphasis, concerns the anti-aviation approach of nearby residents—complaints about noise and so on. I accept completely that it is necessary that they should be consulted, but we are deluding ourselves if we think they have any contribution to make from the air travellers' point of view.

If there is to be consultation about air travellers, the airline users' committee is the body which is expert in these matters. It is an extremely well informed and active body. It was once presided over by my noble friend Lady Trumpington. Your Lordships may infer from that alone that it was a highly effective and highly articulate body. I am sure that is the body which will be consulted. It works closely with the CAA.

I do not share the enthusiasm of my noble friend Lord Monk Bretton for airport consultative committees. My experience is that they took a rather narrow view of problems, that their membership was restricted, obviously, to certain interests, and that the part they played was not especially helpful or influential. I imagine the fact that they are not included in the Bill means that it is not being assumed by the Government that they will continue in respect of all airports. It is a matter for the new bodies in charge of the airports to consider. If, as my noble friend said, an airport finds a consultative committee helpful, it will no doubt set one up. It is free so to do. It may be as well to follow the prudent line which the Government appear to be taking and not to assume at this stage that all of them will continue.

Lord Tordoff

While I do not dissent from what the noble Lord, Lord Boyd-Carpenter, said in response to the noble Lord, Lord Monkswell, I feel that he is, perhaps, being a little unfair on the local authorities by suggesting that their only input is likely to be negative. I agree that on questions of noise and transport problems relating to an airport it may seem to be negative, but the local authorities are also served by ratepayers who are airport employees. A wise local authority would take that into consideration when balancing the pros and cons of an airport in its area.

I was interested to hear what the noble Lord said about the consultative committees. It rather blew the whistle on the Government's attitude. We are frightened that the consultative committees will somehow wither away and will not be there in the future if they are not written on the face of the Bill.

The Earl of Caithness

We have had an extremely useful debate on these important amendments. I am grateful to all noble Lords who have taken part. I am grateful to my noble friend Lord Boyd-Carpenter, with his great experience of the CAA, for his contribution. He told the Committee—a point perhaps missed by the noble Lord, Lord Tordoff—that if a consultative committee is useful, the airport will wish to set one up. I shall return to that point later.

Clause 29(4) sets out the consultation arrangements which shall apply before my right honourable friend the Secretary of State can make traffic distribution rules. He must first consult the CAA, which may then canvass opinion from a wide variety of civil aviation interests. As I said when we considered Amendments Nos. 51 and 61, I naturally appreciate noble Lords' reasons for seeking to expand, in the Bill, the range of interests from which the CAA may seek views before giving advice under Part III. It is nice for me to have my noble friend Lord Monk Bretton speaking because about two-and-a-half years ago he and I were arguing the case on the agricultural Bill (then before your Lordships' House) on consultation when it came to rent reviews. Having sat beside him arguing the point, I know how he feels about this matter.

As I have already sought to explain, the lists of those who could potentially be consulted—I hope that by using that phraseology I have avoided upsetting my noble friend Lord Boyd-Carpenter by otherwise saying "consultee"—such as those in Clause 29(4) are not intended to be exhaustive. We envisage the CAA consulting widely, as has been the case with its consultation on its current review of air traffic distribution in the London area. The CAA has consulted 322 different bodies and organisations, including all the airport consultative committees in the London area, each of which has local authority representation, and a variety of environmental interests. That consultation has been held not once, but twice.

The Committee may well find that the ample consultation that has been undertaken by the CAA is just the example we need to show that it considers this matter very seriously and will continue to discharge its obligations with vigour. If the list of organisations which the CAA may consult under subsection (4) was to be extended in the way that the noble Lord, Lord Underhill, has argued, it would be difficult not to include in the list very many more bodies and organisations that could claim to have an interest. If we then reached agreement in this Chamber on a list of at least 322 bodies, I am sure that there would be a 323rd body that felt that it should have been included. It might just be the body that needed to be consulted. There is the requisite flexibility in the Bill as it now stands. To list for consultation all those who have a claim would be to overburden the Bill enormously. I am sure that this is not what the Committee wants.

Turning to Amendment No. 58, the lists in this part of the Bill are not exhaustive either. My right honourable friend the Secretary of State will naturally want to consult widely before setting an ATM limit. I am sure that he will want to have the considered views of the local airport consultative committee. But if all the organisations were to be listed, we would, again, have a very overburdened piece of legislation.

There is a second reason for arguing against the noble Lord, Lord Underhill, on this amendment. As spelt out in Clause 73, an ATM limit order can be made only following the affirmative resolution procedure of each House of Parliament. There will thus be ample opportunity for a variety of views to be made known to the Government before an ATM limit for an airport is set. The ATM limits are therefore essentially a planning tool and the local authorities have inter alia planning responsibilities. So it makes sense for local authorities, with their planning role, to be consulted about a planning related matter, in this case the ATM limits. But traffic distribution rules are about the use of capacity in an airport system and have minimal non-aviation planning implications.

My noble friend Lord Monk Bretton referred to the important use of consultative committees, and I said earlier that I would come back to this. The provisions of Section 35 of the Civil Aviation Act 1982, under which the BAA airports after privatisation will be under a requirement as to consultation, are virtually identical to those in the Airports Authority Act 1975 under which the BAA airports operate now. I do not see any reason why the present successful arrangements should not continue. I think that their continuation would mean great advantages for the system.

The noble Lord, Lord Monkswell, mentioned business users. As my noble friend Lord Boyd-Carpenter will know, the CAA, in giving advice—in this case under Part III of the Bill—has to have regard to the reasonable interests of users. The CAA has to advise on traffic distribution rules, ATM limits and stock allocation schemes.

I come back, however, to my principal argument. There are very many worthy bodies and interests that will be consulted, but to write them all on to the face of the Bill and to expand the Bill in these areas that we have been discussing would lead to a very overburdened Bill. It would also lead to a feeling that those who are not listed on the face of the Bill will not be consulted. That is something that we have sought to avoid—

Lord Monkswell

Before the noble Earl sits down, I am a little curious as to the attitude of the Government. Having listed three groups of people to be consulted, they then say that it would be unfair on others if the list was extended. There seems to be some divergence of view here. Either you want a list of those who should be consulted or you feel that wide consultation should take place. To circumscribe it and to refuse, effectively, the views of Members of the Committee who suggest other worthy groups that should be consulted seems to be neither flesh nor fowl. I wonder how the Government would react if one were to suggest taking a different view of the list, and that rather than listing any groups at all there should be words written into the Bill to the effect that the Secretary of State shall consult as he sees fit. That would effectively nullify any possibility of some groups being identified and others not being identified. Perhaps the Minister will respond to that point.

The Earl of Caithness

The noble Lord, Lord Monkswell, is using the argument that I used at one stage of an agriculture Bill. I was persuaded by my noble friend Lord Belsted that I was wrong to take that view. My noble friend Lord Belstead was absolutely right. There should be, on the face of the Bill, a requisite number of people to be consulted. That is the minimum consultation. However, to expand the list any further could lead us into severe difficulties.

Lord Underhill

The noble Earl is making heavy weather of this, and I cannot understand why. It is common sense that airport operators and airline operators must be consulted when you are dealing with traffic distribution rules or the allocation of air transport movements. They are written on the face of the Bill. My amendment, Amendment No. 52 to Clause 29, refers to, any local authority or authorities who appear to the Secretary of State to be affected by operations at the airports". Those are precisely the words that the Bill includes under Clause 30 dealing with air transport movements at certain airports. The Government have found it advantageous to put those exact words into Clause 30. But for some strange reason they feel that I am being very naughty for wanting to include the same words in Clause 29, which deals with the important question of traffic distribution rules.

Surely the local authority in the area would have some views about traffic distribution. It is a vitally important matter. To suggest that I want to open the field and that we might get 322 bodies applying is not even making a good political argument. It may be a debating argument, but it does not hold water. All that I have asked is that the local authorities concerned should be considered not by the Secretary of State but by the CAA when it seeks to give advice to the Secretary of State, which is what the Bill says the CAA must do.

We also want, in both Clause 29 and Clause 30, the consultative committees to be taken into consideration. I accept that the noble Lord, Lord Boyd-Carpenter, knows far more about the operation of the CAA than I do. But he was a little critical of the work of the consultative committees. Yet the GatwickAirport consultative committee tells me that the present chairman of the airports authority says that he will wish to continue with the airport consultative committee. So there must be some value in it. Why cannot we put those bodies into the Bill? We shall have to give careful consideration to what the noble Earl has said, particularly at this time of the afternoon. I hope he realises, however, that the Association of County Councils gives full support to both these amendments to Clause 29 and Clause 30. The association believes it essential that the authorities should be consulted.

We shall keep in mind what the noble Earl has said. I hope that he will consider what has been said by various noble Lords. We are not asking for a limitless list. We are asking for a commonsense list. This is accepted in part already by the Government under their own provision in Clause 30. Meanwhile. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Earl of Caithness moved Amendment No. 53:

Page 23, line 41, leave out subsection (5) and insert— ("(5) Where—

1. (a) the subject-matter of any particular rules made by the Secretary of State under this section is a matter in relation to which the CAA has given advice to the Secretary of State (whether before or after the passing of this Act), and
2. (b) those rules are so made not later than five years after the giving of that advice,

the requirements of subsection (4) shall be taken to have been satisfied with respect to those rules.").

The noble Earl said: I beg to move Amendment No. 53, which is designed to ensure that where traffic distribution rules are warranted they can be implemented with appropriate flexibility as the circumstances at the time demand. Both my right honourable friend the then Secretary of State, and my honourable friend the Minister for Aviation, in another place have stressed the Government's assurance that traffic distribution rules will not be introduced prematurely or unnecessarily. I too stressed this at Second Reading. This amendment underpins and guarantees the effectiveness of that undertaking. As Clause 29 stands, the Secretary of State would have to introduce traffic distribution rules quite soon after receipt of advice from the CAA if he were to avoid the need for unnecessary consultation anew on the same issue. Amendment No. 53 will give the CAA's advice a five-year endurance.

The clause currently provides for rules to be introduced progressively—as and when they are needed—only by reference to dates or circumstances specified in the rules at the time they are made. So my right honourable friend, following advice from the CAA could, say, make a rule in one year which was due to take effect three years later. But if, after three years, it became clear that the rule would not be needed for another couple of years, my right honourable friend would be faced with the choice of either allowing the rule to be implemented, notwithstanding that it was premature, or of revoking the rule. If the rule were to be revoked then my right honourable friend would have to seek anew the advice of the CAA on the same matter so that the rule could be made again—this time for introduction in, say, two years' time. The requirement to seek the CAA's advice anew is not only unnecessary but could be costly too, given that the CAA would have to consult the civil aviation industry again in order to discharge its own duties under the clause. I am sure that none of us here would want to condone such an unnecessary burden.

This amendment is designed to remedy the risk of inflexibility in the way in which traffic distribution rules are made. It provides for the CAA's advice to have an endurance of five years. So rules will not have to be nailed irrevocably to a particular date or circumstance, but will be available throughout the five-year endurance of the CAA's advice for implementation only as and when needed. I should add that the existence of a five-year "shelf life" for the CAA's advice will in no way preclude further consultations by the Secretary of State if he thinks they are desirable.

This amendment will allow the traffic distribution rule provisions of Clause 29 to be operated in a measured and flexible manner; I commend it to the Committee and I invite your Lordships' agreement. I beg to move.

4.45 p.m.

Lord Carmichael of Kelvingrove

While thanking the Minister for the explanation of the amendment, as I see it the effect is to give the Secretary of State even wider powers than he presently enjoys under the Bill. Under the amendment, provided that the Secretary of State makes rules under the same subject matter which has been made the subject of consultation by the CAA, then the consultation requirements will be satisfied. That may have been five years before the consultation was carried out. This means that the Secretary of State himself can determine, without reference to anyone, detailed rules in response to the CAA's current exercise.

We are concerned that after the Secretary of State has obtained recommendations from the CAA, or after he has consulted the CAA, he does not need to go back to them for a period of five years. Having regard to the concern which has been quite rightly expressed with the provisions of Clause 30 the local authorities believe that an extension of the Secretary of State's powers is both undesirable and unnecessary.

The amendment underlines the importance that we attach to the next one, Amendment No. 54. It might have been better to have taken them together. That will at least ensure some parliamentary scrutiny over the exercise of the Secretary of State's powers. The importance of that is that if one has a gap of five years circumstances may have changed considerably. Therefore there should be necessity for the Secretary of State to come back and obtain additional authority from Parliament so that there will be at least a voice explaining that the world has changed since the CAA first made the recommendations to allow the Secretary of State to make the rules.

Obviously, we do not oppose the amendment, but we hope that the Minister will give favourable consideration to the next amendment that my noble friend will be moving.

On Question, amendment agreed to.

Lord Underhill moved Amendment No. 54:

Page 24, line 14, at end insert— (" (7) The power to make rules under this section shall be exercisable by statutory instrument. (8) Any statutory instrument containing traffic distribution rules shall be subject to annulment in pursuance of a resolution of either House of Parliament.").

The noble Lord said: My noble friend referred to the fact that Amendment No. 54 was linked with the previous one. This also relates to the question of traffic distribution rules. As I said previously, it gives the Secretary of State power to make these rules.

The amendment seeks to ensure that there is adequate parliamentary scrutiny; and that the traffic distribution rules shall be by statutory instrument. We recognise that it would be going too far to suggest that these should be by affirmative resolution of both Houses. We are therefore saying that any such statutory instrument shall be subject to the negative procedure: that is, by annulment if any Member, of another place or of your Lordships' House, considers it desirable.

I notice that it was debated in Committee in the other place and the Under-Secretary of State for Scotland, Mr. Michael Ancram, on 11th March, in Standing Committee, at col. 505, said something which I thought was completely amazing. I quote: Parliament gave the White Paper its approval, and in doing so gave an implicit endorsement to the feeling that, following enactment of the Bill, traffic distribution rules could be made without further reference to Parliament". Surely this is introducing another procedure: that where one has a White Paper covering a vast number of subjects, which Parliament accepts, it does not mean that it accepts every line or proposal of the White Paper. Otherwise we are suggesting that the White Paper is a Bill. I hope that the noble Earl will not repeat that in his reply today, but that he will deal with this amendment solely on its merits; that is, that traffic distribution rules should be exercisable by statutory instrument and that they should be subject not to affirmative resolution but to the negative procedure of annulment. I beg to move.

The Earl of Caithness

I take this amendment on its merits and will deal with it as such. I hope to give the noble Lord, Lord Underhill, three very convincing reasons why I, regrettably from his point of view, cannot accept it. First, the essence of traffic distribution rules is that they should apply when and where they are needed. Although the Government have yet to make any decisions on such rules there is a clear possibility, if rules are to be effective, that they must operate at a detailed level. Clause 29 indeed provides for detailed rules in the references to "any class or description of air traffic". The quite detailed level of discernment in traffic distribution rules which Clause 29 envisages is simply, we believe, not appropriate for a statutory instrument. So that while I appreciate the motives of the noble Lord, I must tell him that a statutory instrument would be the wrong vehicle for enacting the rules made under this clause.

My second reason is that Clause 29(2) sets out that the CAA is to perform its air transport licensing functions so as to secure compliance with traffic distribution rules. In this sense, therefore, traffic distribution rules can be viewed in the context of a power of direction: the rules will provide a licensing framework for the CAA. I hope that the noble Lord, Lord Underhill, will agree that it would be inappropriate to enshrine that framework in secondary legislation, which is what his amendment would do.

My third reason lies in the very nature of the traffic distribution rule provisions. Clause 29 is quite explicit: it permits the Secretary of State to make a traffic distribution rule only where he has first sought the advice of the CAA or where the CAA have already given him appropriate advice, and when the CAA are asked for their advice they are required, by the terms of Clause 29(4), to consult such of the following as they consider appropriate: affected aircraft and airport operators, and their representative organisations. That list, wide though it is drawn, is not exhaustive, as we have discussed at length earlier this afternoon. We envisage with some confidence that the CAA will canvas views from an even broader constituency. Indeed, one need look no further than the consultation list for the CAA's current review of London area traffic distribution to see the depth and breadth of the authority's consultation. The CAA have consulted 322 different bodies including 48 UK airlines, 154 foreign airlines, the three London scheduling committees, IATA, 35 airports, the airport consultative committees, local chambers of commerce, the trade union movement, the CBI, planning organisations, a variety of environmental and noise abatement groups. The list is long and I could go on for a long time, but I shall not weary the Committee with it further. The point I am seeking to make is that the traffic distribution rules, where they are warranted, will be founded on the widely acknowledged experience and expertise of the CAA, complemented by the views expressed direct to the authority from as wide a spectrum of civil aviation interests as one might care to imagine. I have to tell the Committee that the Government would need to hear, I think, a more substantial case before they could be convinced that it would be right for Parliament to have a further, separate and overarching mechanism for consultation direct, given the searching and exhaustive consultation which would have preceded it.

I nonetheless appreciate the motives prompting the noble Lord's amendment but I hope that I have convinced him that the amendment is inappropriate and that the secondary legislation is not the appropriate vehicle for his amendment.

Lord Underhill

The noble Lord stressed the degree of consultation on London air traffic distribution. That surely is one of the difficulties. Bodies outside the South-East have complained bitterly that the consultation process has been on London air traffic distribution and not on the whole question of air traffic distribution and problems throughout the whole of the United Kingdom.

It must be recognised that when air traffic distribution rules are laid down they are going to affect quite a number of areas. That is why we wanted to use a statutory instrument and not take the time of Parliament with discussion and resolution, so that, if there is any difficulty or any problem, it could be dealt with by annulment. However, I shall read carefully what the noble Lord said, but I believe the amendment was a very sensible one for extra-parliamentary scrutiny and administration. I beg leave to withdraw the amendment at this stage.

The Earl of Caithness

Before the noble Lord begs leave to withdraw it, perhaps I may clarify one point that he mentioned when he said it was felt that the consultation which the CAA have just undertaken concerning the London distribution in the South-East did not involve the rest of the country. The reason for that was that the remit was strictly limited to London and it would have been inappropriate therefore for them to have looked at air traffic distribution throughout the country. However, notwithstanding that, they sought to consult very widely, as I have explained, and I think that all the points I have heard subsequent to the publication of the draft report only confirm that the CAA consulted everybody beforehand.

Amendment, by leave, withdrawn.

Clause 29, as amended, agreed to.

Clause 30 [Power to limit aircraft movements at certain airports]:

Lord Tordoff moved Amendment No. 55:

Page 24, leave out lines 15 to 18 and insert— ("(1) The Secretary of State shall make an order for all designated airports, which does either or both of the following things, namely—").

The noble Lord said: It may be convenient for the Committee to consider Amendment No. 56 along with Amendment No. 55. Let me say again, as the noble Lord, Lord Underhill, said earlier about another amendment, that this amendment has the support of the Association of County Councils. It is essentially a probing amendment and I have a suspicion that it will not be terribly popular in many directions, but I think it is an important amendment nevertheless.

Air transport movements have been a bone of contention for some considerable time but the purpose of this amendment is to lay a duty on the Secretary of State to make ATMs for all designated airports. In 1979, the then Mr. Ian Glidewell, in his inspector's report on Terminal 4 at Heathrow, said: I also think it most important that the number of ATMs at Heathrow should be limited … such a limitation is, in my view, vital to ensure that noise from aircraft at Heathrow should decline as BAA and Government expect". Moreover, he said: from time to time consideration should be given to reducing the limit as the increasing size of aircraft reduces the number of ATMs needed to carry [say] 38m passengers per annum". He did in fact at that stage recommend 260,000 ATMs and in December of 1979 the then Secretary of State set a limit of 275,000 in order to use the facilities of the airport efficiently. There is no doubt that at that time the purpose of setting those ATMs was to keep a check on noise and give reassurance to local residents when the question of Terminal 4 was being considered.

However, when at a later stage we come to Stansted, the ATMs were set there for reasons which were quite different in that they were to be used to facilitate the controlled expansion of the developing airport in such a way as to avoid the local infrastructure being overused, which was an indication given by Mr. Michael Spicer at the Third Reading in another place. Indeed, this was confirmed by the noble Earl, Lord Caithness, at the Second Reading in your Lordships' House when he said that the purpose of an ATM would be to control growth and usage of an airport in such a way that the local infrastructure was not swamped.

So we have two reasons that have been used in the past. Originally, ATMs were designed to reduce environmental noise pollution and they are now being used sometimes to control capacity on airports that are presently underused; in other words, to control the growth of those airports. It seems to me that the first of those is the more important, but nevertheless the second is valid as well and the Government have obviously changed their mind on what the use of ATMs should be.

They are tending to ignore the use as an environmental control now and it is my belief that that should be brought back. It is therefore in my view inconsistent only to use ATMs on those airports which are substantially underused. As I said, the people living in the vicinity of airports throughout the country have a right to have some reassurance and some idea of what the level of throughput at airports is going to be in the future. It seems to me that ATMs are the way to set those standards. I beg to move.

5 p.m.

Lord Monk Bretton

I must confess to being somewhat ambivalent about this particular amendment. However, I felt that I must say a few words because I am well aware of the interest generated around Heathrow and Gatwick. Evidently the Government now intend to regulate traffic by means of traffic distribution rules, and there is a school of thought—perhaps it is an outmoded school of thought but I think we ought to hear about it while this matter is being debated—that traffic distribution rules are not as precise a method of control as ATMs.

There is a strong feeling that you cannot adequately deal with environmental problems and injurious effects without a sufficiently effective method. Of course, it is noted by those around Heathrow in particular and also Gatwick that Stansted is nevertheless to have an air traffic movement limit, and there is a strong feeling that this air traffic limit is the most effective planning tool. They are thinking that what is sauce for the goose is sauce for the gander.

I also believe that the amendment would make it easier for the Secretary of State because it unties his hands. If he needed to apply ATM limits, it would leave him free to apply them anywhere and either to increase or reduce them. I think it is true that it would free his hands. I should be most interested in what my noble friend the Minister has to say.

Lord Boyd-Carpenter

I am not at all ambivalent as regards this amendment; I am entirely against it. With enormous respect to the noble Lord, Lord Tordoff, it seems to me to exemplify one of the approaches to civil aviation problems which has done and can still do a great deal of harm to one of our most successful and growth-potential industries. I appreciate—indeed at one time I lived with representations about it—the feelings of people living near airports about airport noise, and this is a reality which cannot be brushed aside.

However, what surprises me is the way in which environmental enthusiasts concentrate all their attack on aircraft noise and appear to be entirely insensitive to all the other forms of noise which afflict us in our civilisation. For example, many people live close alongside mainline railways. So far as I know, no one has ever suggested stopping those trains at night or limiting the number of trains that may operate. Other people sometimes live in villages through which main roads pass, and enormous lorries lumber through in the middle of the night. Apparently no one suggests stopping them, though the case for stopping them is economically—and I should have thought environmentally—a great deal stronger than that of limiting aircraft movements. It is the rather curious mental approach that some people seem to adopt to pick out aircraft noise as the one environmental hazard which must be very strictly restrained.

The other side of the medal is that civil aviation is one of our success stories. The British industry has grown and is growing. We are the second civil aviation power in the free world. We earn a great deal of money directly and even more indirectly through tourism and through attracting business traffic to our cities. In that way between them the airlines, with their own earnings from tourism and business traffic, are probably the biggest contributors to our balance of payments.

Civil aviation really does matter. I find it a little difficult to understand why some people seem so enthusiastic for restricting and restraining its growth. My own house in London is on the direct line of approach when aircraft at Heathrow are landing towards the West; but one becomes used to the noise. Of course, it is a fact which must be faced that the great majority of houses near Heathrow have been built, bought and occupied since the airport was started and the people concerned came there for, in many cases, the very good reason that they had excellent, well-paid work. Indeed I would sometimes remind some environmentalists, perhaps particularly in West Sussex, that if a major civil airport is introduced into an area, you generate more good, high-paid, regular, stable employment than by taking almost any other step. When noble Lords are concerned, as we all are, about the question of unemployment in this country, we ought to hesitate before imposing any unnecessary handicaps on civil aviation, which is one of our success stories, one of our generators of wealth and one of our givers of employment.

Therefore, I am wholly against the proposal to have further resrictions by ATMs. I admit that I do not wholly understand subsection (2), which appears to contemplate introducing an ATM in the place where I would think there is the least case for it, where the airport is not fully occupied anyhow, No doubt my noble friend the Minister will be able to explain this apparent paradox. However, I hope that he will firmly resist the pressures for increased restriction of this kind.

Perhaps I may conclude, particularly as the Minister is present, by saying how much I regret, and how much so many people who care for British civil aviation regret, the disastrous decision of the former Secretary of State to revoke the licence given by the Civil Aviation Authority for the Heathrow-Gatwick helicopter service. That will do a great deal of damage to British civil aviation and it was a wholly unnecessary action. I can only hope that the new Secretary of State will have more sense.

The Earl of Caithness

I shall not comment on the last point, and I hope that the Committee will understand the reasons why I shall not comment.

Amendments Nos. 55 and 56 would compel the Secretary of State to set ATM limits at most, if not all, our major airports. That is, I have to say, diametrically opposed to the policy intention which underlines the ATM limit provisions of the Bill. The Government see ATM limits solely in the context of a planning tool, to secure the controlled expansion of use of a developing airport in such a way as to cushion the local impact, so that local infrastructure and resources are not overstretched by uncontrolled growth. That is certainly the case for Stansted—the only airport for which my right honourable friend, the then Secretary of State, currently had plans for an ATM limit.

The Government gave careful consideration to the use of ATM limits when we were setting out our broad policy intentions in the White Paper on Airports Policy. We concluded, in the light of the recommendations made by the inspector at the airports inquiries, that it would have been wrong to have proceeded with an ATM limit for Heathrow. In fact, this was a point raised by the noble Lord, Lord Underhill, as a result of an earlier inquiry and report into Terminal 4. However, I have to tell the Committee that there was wider, more reliable and more up-to-date evidence at the inquiry on Stansted and Terminal 5, and Mr. Eyre, the inspector, said that the imposition of the limit would, in his view, have no perceptible impact on the noise climate at the airport. The Government agreed with Mr. Eyre, the independent inspector. We feel that there are better ways to control and alleviate aircraft noise.

I was interested in the remarks of my noble friend Lord Boyd-Carpenter about people who tend to castigate our airports. I have listened throughout the debate on local authority airports to the benefits that they can bring to regions and how important they are to regions. Then to put ATM limits on them would, in our view, be quite inappropriate. There are better ways of tackling such problems. One of the ways I could suggest to the Committee is at source, by having quieter aircraft and quieter take-off and landing procedures.

We have found on balance that there is no justification on environmental or other grounds for an artificial limit on movements at the country's airports. The real constraint at Heathrow is already there; it is the capacity of the runway system. I know that the scheduling committee can testify to that. As to the possibility of a second runway at Gatwick, I shall not be drawn into that, if my noble friend will excuse me on this occasion.

Lord Boyd-Carpenter

Will my noble friend allow me? I did not fall into the temptation of suggesting it on this occasion, but as he has taken it upon himself to introduce the subject, I shall say to him that that would be a sensible thing to do.

The Earl of Caithness

My noble friend Lord Trefgarne is beside me. He took part in the discussions, and so I think it would be wrong for me to comment further. The fact that passenger growth at busy airports can ultimately be limited by runway capacity is explicitly recognised in the Bill in Clause 30(2) which restricts the application of the ATM limit clause in line with the policy intention to those airports with substantially underused runways. This seems entirely logical. There can surely be no point in setting an ATM limit at an airport the runway capacity of which is already substantially saturated, unless of course the intention is to reduce rather than cap usage, and that would create chaos because services would have to be cut to meet the reduced level of usage demanded by the limit.

I was a little unclear of the reason behind the amendment of the noble Lord, Lord Tordoff, particularly as there was no definition of the word "designated". However, I am comforted in that the noble Lord, Lord Underhill, had an amendment that seemed not to be understood by the Committee. I seemed to be the only person in the Committee who did not understand the amendment of my noble friend Lord Dudley, and the noble Lord, Lord Carmichael, put his name to an amendment which changed his 1968 transport policy. Now the noble Lord, Lord Tordoff—one of the perhaps four main people taking part in the consideration of the Bill on a regular basis—has produced an amendment that I find obscure, and so we are all square on that front. To come back to the main point which has now been explained, we believe that to put an ATM limit on all the airports would be contrary to our policy and would not be beneficial.

Lord Tordoff

I thank the Minister for replying in that way in some detail. I have a vision of the noble Lord, Lord Boyd-Carpenter, making exactly that speech in the early part of the 19th century, when people were complaining about the dark, satanic mills, and saying, "But really, the people who live around them deserve all they get. And they get jobs out of it." We have moved on a little from that point, and it is a pity that he should take such a cavalier attitude to the environment.

The problem is not simply about noise. It is about the whole impact on the environment around airports in terms of road and rail capacity to deal with passenger and freight movements that will be created. It may well be in the interests of the community living around the airport that in certain cases the number of movements should be reduced, which does not necessarily mean that the number of passengers or the amount of freight will be reduced as larger and quieter aircraft come into use.

I accept the use of ATMs, as the noble Lord, Lord Boyd-Carpenter, does not, on airports which are not up to capacity. It seems to me to be a sensible way of regulating the growth of those within the needs of the local community. I cannot see why this logic does not apply to other airports as well. Nevertheless, as I said, this is a probing amendment. It has revealed the Government's attitude to the environment around airports. Bearing that in mind, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 56 not moved.]

Viscount Davidson

My Lords, I beg to move that the House be now resumed.

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

House resumed.