HL Deb 16 July 1987 vol 488 cc1166-72

3.54

Lord Young of Graffham

My Lords, with the leave of the House, I shall now repeat the Answer which has been given to a Private Notice Question in another place. It is as follows:

"None. The offer was announced only this morning. The Director General of Fair Trading will advise my right honourable and noble friend the Secretary of State on the question of a reference to the Monopolies and Mergers Commission as soon as reasonably practicable".

Lord Williams of Elvel

My Lords, the House will be grateful to the Secretary of State for repeating an Answer made by his colleague in another place to a Question which perhaps should have been addressed to him. We accept that there are certain procedures which have to be gone through before the Secretary of State can make up his mind whether to refer this merger to the Monopolies and Mergers Commission. Nevertheless, even at this stage, I should like to ask the noble Lord a series of questions.

Was there contact between the director general and the two companies in question during the course of the negotiations leading up to the announcement which was made? As your Lordships will know, it is quite common when major transactions—and this, by any standard is a major transaction—are envisaged that informal approaches are made to the Office of Fair Trading to try to elicit a view as to what the likely reaction of the director general, advised by the Merger Panel, might be, and the director general has in a number of cases informally given advice. Was such advice sought and was it given?

Secondly, is it the intention that the proposed merger be made conditional on non-referral or do the two companies accept that a referral is almost certain? I would refer in that instance to the case where United Newspapers proposed an acquisition where under the Fair Trading Act, as the noble Lord explained to us the other day, it is quite normal for the Secretary of State to take a decision to refer; and it said, "We wish to make this acquisition. We accept that there may be a referral. When there is a referral we will debate it in front of the Monopolies and Mergers Commission and then we will come back and set the terms". Was this proposed merger a case of that sort or was it a case where the merger was proposed on the basis that it will not go forward if there is a referral to the Monopolies and Mergers Commission?

Thirdly, would the Government accept even now that this is something of an exceptional merger; that it involves a reversal of government policy of trying to promote a second force British airline, with I think a Scottish flavour, when British Airways was in public ownership and there was a substantial discussion about allocation of routes between British Caledonian and British Airways which led to a certain amount of rather acrimonious discussion between the two companies but was justified by the Government on the basis of increased competition? Is this policy now reversed?

Fourthly, whatever the director general says, we must accept that it is the Secretary of State's decision at the end of the day whether to make a referral of this proposed merger to the Monopolies and Mergers Commission. Does the noble Lord accept that such a referral would be an excellent opportunity for an independent general review of the public interest and of the extent to which the international climate, which I understand is the justification for the proposed operation, has changed since the Government's policy of promoting a second force British airline? Finally, would the Secretary of State accept that if there is no referral, then we on this side cannot but believe that the present competition policy has largely broken down?

4 p.m.

Baroness Burton of Coventry

My Lords, I in my ignorance had thought that we would be told what the Private Notice Question that had been asked was, instead of which we only got the answer. But I should like to ask the Minister—I am probably echoing what the noble Lord, Lord Williams of Elvel, has just said—whether this matter came as a complete surprise to the Director General of Fair Trading, as it did to everyone else, or whether he was aware that this was about to be referred to him for a decision.

I should also like to know about another important matter. When do the Government expect a decision from the Director General of Fair Trading? If that decision is made when Parliament is in recess do the Government propose that the way in which they receive the recommendation from the director general will not be decided until Parliament has had an opportunity of discussing the matter? I ask that because these decisions are so often made when the House has either just gone into recess or when it is in recess and it is obvious to everybody that there should be a full discussion on the matter.

The next point that I wish to put to the Secretary of State is that obviously, whatever the decision, such a merger would have very grave repercussions on industry both internationally and in Europe and in this country. What would the Government's reaction be to the policy on competition which they support if we do have the merger of two such very large organisations?

My last question is: is the Director General of Fair Trading going to propose to the Government either that the merger be accepted or that the merger be referred to the Monopolies and Mergers Commission? I am quite convinced that we on these Benches would wish such a proposed merger to be referred.

Lord Young of Graffham

My Lords, I am grateful to the noble Lord, Lord Williams of Elvel. As regards the parties to the merger and the Director General of Fair Trading, advice may or may not have been given and contact may or may not have been made between the parties. Those matters remain confidential between the Director General of Fair Trading and the parties to the merger and I am afraid that I am not in a position to know what has happened. The noble Lord asked whether referral to the Monopolies and Mergers Commission would be a condition upon which the offer would be withdrawn. My understanding is that that is a condition which is imposed by the Takeover Panel and is a normal condition in this kind of matter.

As regards the whole question of airline policy and what I might or might not do in those circumstances, I am in a quasi-judicial position. The strict position is that I wait to hear from the director general and he will advise me on whether or not a merger should be referred to the Monopolies and Mergers Commission. If he advises me to do that I shall then consider whether I should or should not do so at that time. These matters must follow an orderly progression.

I am grateful to the noble Baroness, Lady Burton. I am sure that the director general will as usual advise me as expeditiously as possible. However, all in your Lordships' House would agree that this is not an easy matter. There are complex issues at stake and therefore the director general will have to take a reasonable amount of time to come to a decision. Whatever happens, we can only assume that he will make his decision some time after the House rises because that is only a matter of some 10 days' time. I shall have to see what happens at that time. I cannot possibly give an undertaking that this whole matter can wait until October, until your Lordships' House returns. These are commercial matters and great issues are at stake. I shall have to wait to see what the director general says.

Lord Williams of Elvel

My Lords, I wish to clarify one point with the Secretary of State. He said that it was a requirement of the Takeover Panel that the merger should lapse if there were a referral. I believe I am right in saying that it is a requirement of the Takeover Panel that the particular terms of the offer should lapse but not the intention to merge. That is the point I was getting at.

Lord Young of Graffham

My Lords, I am as ever grateful for the noble Lord's greater knowledge of the minutiae of takeover law.

Lord Beswick

My Lords, I wish to express a note of sadness that British Caledonian should have come to this. How does the Civil Aviation Authority come into this matter? It has allocated routes to British Caledonian on the basis of competition with other companies. That competition will now go. What then happens to the route allocation?

Lord Young of Graffham

My Lords, the effect of the merger on the airline competition policy and on routes is really a matter which is more properly the responsibility of my right honourable friend the Secretary of State for Transport. That is a matter which would normally fall to him and I am sure it is one that he will consider should that come to pass.

Lord Boyd-Carpenter

My Lords, is my noble friend aware—I am sure he is—that if the merger takes effect it will involve a complete reversal of the civil aviation policy which has been pursued by successive governments at any rate since 1971? Is he aware therefore that there is a great deal more to this issue than even the important matters that concern the Director General of Fair Trading and the Monopolies and Mergers Commission?

Is my noble friend also aware of the fact that has already been mentioned that the Civil Aviation Authority has for years carefully allocated routes to one or other of these airlines with a view to maintaining, in accordance with government policy, two large and viable international airlines in this country? Whatever the outcome of this particular referral, will my noble friend ask the Secretary of State for Transport to make a statement to this House at the earliest possible moment as to the changes which the Government intend to make in the civil aviation policy which has been pursued for years by their predecessors?

Lord Young of Graffham

My Lords, I am grateful to my noble friend but I hope that all in your Lordships' House will appreciate that we are dealing now with two private sector companies which only this morning have decided on a particular course of action. There is a procedure to follow. As a result of that procedure this merger may or may not take place. If it does take place that may or may not have an effect on aviation policy. There is a whole series of matters involved, some of which are more properly dealt with by me. I must correct an incorrect answer which I inadvertently gave earlier. The matter of routes is of course very much a matter for the Civil Aviation Authority but many other matters are the responsibility of my right honourable friend the Secretary of State for Transport.

We should look at all these matters in an orderly manner. The first thing that will happen is that the Director General of Fair Trading will report to me. At that stage I may or may not refer the merger to the Monopolies and Mergers Commission. All parties will have a very good opportunity then to give evidence to the Monopolies and Mergers Commission. When we see the result of that and the outcome, if it should come to that, and the outcome of all those procedures we can then look upon the effect, if any, upon airline policy. But I suggest that we look upon this in an orderly manner.

Lord Marsh

My Lords, I am not sure whether the noble Lord will want to answer my question. Does he agree that competition in this particular area is international rather than national? Does he agree that these are two independent commercial private companies, that the merger would appear to many outside observers to make commercial sense and that it is certainly good for the British airline industry?

Lord Young of Graffham

My Lords, that may or may not be so. At the moment I should rather wait to hear from the Director General of Fair Trading. If I can, I shall keep my powder very dry.

Lord Kimball

My Lords, is my noble friend aware that there could well be some concern about the verification documents that have been issued with the British Airports Authority's new share issue if the shaky state of British Caledonian's finances were known, particularly in view of the fact that it represents a major part of the prosperity of Gatwick Airport?

Lord Young of Graffham

My Lords, that is an entirely different matter but I should have thought that the amount of traffic going through Gatwick would not be affected by what happens now. We shall just have to see.

Lord Cledwyn of Penrhos

My Lords, if the noble Lord decides not to refer this matter will that enable him to make a statement to this House before we rise?

Lord Young of Graffham

My Lords, I do not anticipate that the Director General of Fair Trading will be in a position to report to me until after the House rises. It is only then that I can begin to consider the position.

Lord Tordoff

My Lords, in reply to an earlier question the noble Lord suggested that the matter of Gatwick may not have total relevance today. However, we on these Benches would suggest that the future of Gatwick is important because that is the main base of British Caledonian and any change in ownership of it could shift the balance of usage between Heathrow and Gatwick quite drastically.

While I understand that it is difficult for the noble Lord to respond specifically to these questions today, will he please convey to his right honourable friend the worry which is felt on all sides of the House about these matters of civil aviation policy? It cannot be simply a matter of two companies merging; it goes far beyond that. As the noble Lord, Lord Boyd-Carpenter, said, it goes to the whole question of civil aviation policy throughout the country.

Lord Young of Graffham

My Lords, yes.

Baroness Burton of Coventry

My Lords, I made two points with which the Minister did not deal: first, competition and the likely effect of this merger, and, secondly, the international repercussions. I also asked him whether the Government would refrain from taking a decision until the House had had an opportunity to debate the matter. Reverting to what the noble Lord, Lord Boyd-Carpenter, said, can the Minister give us a definite assurance that if it was proposed to alter the arrangements under which air transport has been working in this country through the CAA, at least that would not be done until the matter had been debated in Parliament?

Lord Young of Graffham

My Lords, I am in a difficult position in this matter. I ask all in your Lordships' House to bear with me.

It would not be right or proper for me to comment on particular matters. I must wait to hear the report of the director general and then make up my mind at that time. I am in a quasi-judicial position in this. It may well be that in the fullness of time there will be an opportunity to debate the matter, should one course of action pertain, should another course of action pertain there may not be.

I cannot give an undertaking. This is a commercial matter and there are other procedures. I should very much prefer there to be an opportunity to debate it, but it may be that as a result of events the matter will be out of my hands.

Lord Ferrier

My Lords, would my noble friend agree that the convenience and choice of passengers will be affected by the merger? I am a regular traveller on British Caledonian. I prefer to go via Gatwick, and there is the convenience offered to passengers by the train service between Victoria and Gatwick.

Lord Young of Graffham

I am quite certain that the Director General of Fair Trading or, should it come to that, the Monopolies and Mergers Commission, would take all these points into account. I very much doubt—I have no means of knowing at present—whether it would affect the use of Gatwick and/or Heathrow. These are matters that have to be looked into by other people before they come to me.

Lord Williams of Elvel

My Lords, in the light of comments made on all sides of the House, will not the Secretary of State recognise that the timetable is set by him and the director general can report to him in the fullness of time or tomorrow, as the case may be? It would be no problem for the Secretary of State to announce now—he can correct me if I am wrong—under the Fair Trading Act that, whatever the recommendation of the Director General of Fair Trading may be, he, the Secretary of State, intends to refer this to the Monopolies and Mergers Commission. That will allow a proper debate on the issues at the right time.

Lord Young of Graffham

My Lords, I cannot give such an undertaking. The director general must look at the position. It is a very complex matter. I shall be relying upon his advice. As soon as I receive it, I shall then decide.