HL Deb 06 July 2000 vol 614 cc1605-708

3.31 p.m.

The Minister of State, Department of the Environment, Transport and the Regions (Lord Macdonald of Tradeston)

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

Moved, That the House do now resolve itself into Committee (on Recommitment).—(Lord Macdonald of Tradeston.) On Question, Motion agreed to.

House in Committee (on Recommitment) accordingly.


Clause 1 [Secretary of State's general duty]:

The Earl of Caithness moved Amendment No. Al: Page L line 10. at beginning insert ("Subject to the provisions of any international agreement on air traffic services,").

The noble Earl said: I rise to move Amendment No. A 1. I apologise to the Committee, the Minister and the Fifth Cavalry that supports him—a fine body of men and women I know well from the past—for the lateness of this amendment. There has been a total misunderstanding. It was always supposed to be an amendment but it is stated on the Marshalled List that I intend to oppose that Clause 1 stand part of the Bill. I shall not do so. I apologise to the Committee for any misunderstanding. In view of that and my desire that the Minister should understand the purport of my amendment, yesterday I telephoned his office to explain that my interest was the legal basis for the partial privatisation of NATS. That is a very different topic from the other amendments with which my amendment is now grouped. I am surprised that I was not consulted on the point by the Government Chief Whip so that the Committee's task would be easier rather than that a number of different amendments should be grouped with it.

The reason for tabling the amendment is that in 1993 when I was Minister of Aviation I looked at the possibility of introducing private finance into NATS. The advice that I received then was that it was not legally possible to bring private finance into NATS because by international conventions to which the United Kingdom was a party NATS had to be a non-profit-making organisation. Therefore, the introduction of any private finance meant that it would have to make a profit. The question that I put to the Minister is: what has changed, and why is he now allowed to do something that I wanted to do seven years ago? I beg to move.

The Chairman of Committees (Lord Boston of Faversham)

Amendments Nos. 8 and 9 are grouped with this amendment. I must point out to the Committee that if Amendment No. 8 is agreed to I cannot call Amendment No. 9.

Lord Brabazon of Tara

Amendments Nos. 8 and 16 in my name have been grouped with this amendment. As my noble friend said, they deal with a completely different subject. Therefore, it may be better if at this stage the Minister responds to the amendment moved by my noble friend Lord Caithness. We can then speak to some of the other amendments in the group.

Lord Macdonald of Tradeston

The Committee will be aware that Clauses 1 and 2 set out the general duties of the Secretary of State and the Civil Aviation Authority respectively. They require the Secretary of State and the CAA to exercise their Chapter I functions in the manner that they think is best calculated to further their duties. Amendment No. A1 in the name of the noble Earl would add a proviso to the effect that the Secretary of State's discharge of his general duties should be subject to the UK's international agreements.

There is nothing in international law which would preclude the delivery of our air traffic services through a private sector company. We have taken care to make the International Civil Aviation Organisation (ICAO)—the "keepers" of the Chicago Convention—the European Commission and Eurocontrol aware of our plans.

The Committee will be aware that the noble Earl, Lord Caithness, was at one time the Minister of Aviation. I assume that at the centre of the noble Earl's concern is the Eurocontrol charging principles which govern how charges for en route air navigation services are calculated and collected. I understand that until the 1990s the charging principles were based on full cost recovery, and no more than that, which would certainly constrain the ability of a private sector provider to make a profit. The charging principles were subsequently amended to permit a provider to recover a return on capital employed; in other words, cost pass-through plus.

The principles have been further amended as recently as last year so that it is now permissible for a provider to be regulated by the RPI-X method, which is how we intend NATS to be regulated. I can assure the noble Earl that there is no incompatibility between our proposals and the UK's international obligations and that the Government will at all times act in a manner consistent with those obligations.

Lord Brabazon of Tara

Before my noble friend responds, perhaps I may speak briefly to the two amendments in this group in my name, Amendments Nos. 8 and 16. Both amendments deal with that part of the Bill which is concerned with the duties of the Secretary of State and the Civil Aviation Authority. The same point is made in both amendments but one is concerned with the Secretary of State and the other with the Civil Aviation Authority.

Clause 1(3) allows the Secretary of State to promote competition to further the interests of the air industry and the travelling public only where he thinks it appropriate. My amendments remove that qualification of appropriateness. We do not believe that there is need for it. The benefits of competition in securing cost-effective and high quality services are well established. Securing those benefits should not be left to the whim of the Secretary of State or the CAA. If the interests of the public and others are best secured by promoting competition, this is the route the Secretary of State and the CAA should be obliged to take. The public interest is well protected by the need to promote competition only where it furthers the interests set out in the clause.

Lord Macdonald of Tradeston

The noble Lord returns, in Amendments Nos. 8 and 16, to the question of the discretion of the Secretary of State and of the CAA. Clauses 1(1)(a) and 2(1)(a) require the Secretary of State and the CAA to further the interests of users. The ways in which this may be done explicitly include promoting competition where they think it appropriate.

The Government are in favour of competition and we want to see it promoted wherever appropriate. But the provision of en route air traffic services, which is our main concern here, has many of the characteristics of a natural monopoly, and the potential for competition is further constrained by existing technology. There is competition in some parts of the air traffic services market but, for good reasons of safety, we cannot have rival providers offering services in the same airspace at the same time. With current technology, the start-up costs of providing en route services mean that competition even for that particular market is not presently feasible.

Competition will be given due weight by the Secretary of State and the CAA but "furthering the interests of users" can take many forms and there is no "one size fits all" solution to every situation.

3.45 p.m.

The Earl of Caithness

I am grateful to the Minister for the way in which he answered my amendment; and to the Committee for helpfully and constructively enabling my noble friend Lord Brabazon to speak to his amendments after the noble Lord had answered my point.

I am grateful to the Minister for his full answer. All I cart say is how pleased I am that the ideas and principles of the previous Conservative government continue to prove fruitful throughout the world. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 1 not moved.]

Lord Trefgarne moved Amendment No. 2: Page 1, line 12. after ("aircraft") insert (", whether or not operated for the purposes of hire and reward,").

The noble Lord said: In moving this amendment, I speak also to Amendment No. 13. My amendments are grouped with others. No doubt noble Lords responsible for tabling those amendments will wish to speak to them.

I declare an interest. I have been involved in general aviation and other categories of aviation for most of my working life. Today I speak about general aviation. It is my experience in that regard that I wish to represent to the Committee. I am an office bearer of the Popular Flying Association. I am the part-owner of a small aircraft involved in these regulations and rules and would not wish Members of the Committee to be unaware of those matters.

Ever since the prospect of some form of privatisation of NATS, there has been concern among the general aviation community that its interests would not be adequately represented. Until now, by and large general aviation has been able to co-exist with professional or transport aviation satisfactorily. Of course, around major aerodromes—for example, Heathrow and Gatwick—there are strict rules as to what small aeroplanes can do; and they have to comply with those rules if they are to approach those airports.

That is all well understood and accepted. Of course, there is discussion about the nature of the rules and the extent of the airspace so regulated. However, it is feared by the general aviation community, and by me, that if NATS becomes more concerned, and more required to take account of financial considerations, the first facilities to be squeezed will be those which provide for the smaller aircraft. I am sorry to say that there is some evidence that that is occurring already. I give the Committee some examples.

There are strict rules about aircraft movements around Heathrow and Gatwick. Those aerodromes are surrounded by class A airspace. Light aircraft may only approach, with permission, when the weather is suitable and in accordance with special VFR. clearances. The controllers around Heathrow and Gatwick could not be more helpful to small aeroplanes—but, of course, within the constraints imposed on them by other aircraft.

By contrast, Stansted is quite different. The airspace around Stansted is class D which is more liberally regulated than the airspaces around Heathrow and Gatwick because Stansted is a less busy airport. But the application of the rules around Stansted is onerous. For reasons quite unknown to general aviation, clearances to enter that airspace are almost always refused. I speak from personal experience in the matter.

A year or so ago I was flying from, I think, Cambridge back to an aerodrome in the south of London. I am sorry that the noble and gallant Lord, Lord Bramall, is not in his place; he was my co-pilot. The controllers around Stansted refused even to entertain application for clearance on a gloriously sunny evening. They were not busy. To this day I do not know why they could not have been more accommodating.

My experience is not unique. I am told by those who have aeroplanes operating regularly in that area that the Stansted controllers are uniquely difficult when it comes to granting clearance for small aircraft to enter their loosely regulated airspace. They repeatedly say, "No, you may not enter. Go round". In my opinion there is absolutely no reason for saying that. There may well be some reason; I suspect that it is because the number of controllers and the facilities available to them have been reduced so that they simply do not have the capability. Why that should be so when the controllers around Heathrow and Gatwick are not faced with these difficulties, I cannot imagine.

Lord Brett

Did the noble Lord raise this issue at the time with the Civil Aviation Authority or National Air Traffic Services?

Lord Trefgarne

I confess that I did not write a letter to the chairman of NATS at the time. I am not sure whether he would want to bother himself with letters from individual pilots.

Lord Clinton-Davis

The noble Lord makes a point of generality. He must not do that unless he feels that there is a case where a difference of rule is being applied at Stansted from that at Gatwick and Heathrow. If so, it is a serious matter and it is incumbent not only on the noble Lord but also on others to ensure that that point of view is made clear to NATS and to the Civil Aviation Authority.

Lord Trefgarne

I can assure both noble Lords that the point I make has been represented to NATS over and over again. In answer to the earlier intervention, I confess that it is not my representations to NATS that I wish to take into account. I believe that the problem is caused by financial considerations imposed by NATS which will be made worse by the provisions of the Bill. My amendment asks the CAA and the Secretary of State to have regard to the needs of those whose aircraft are operated other than for the purposes of hire and reward. I hope that it will address the problem.

I give Stansted as an example but no doubt there are others. NATS does not provide air traffic services for all aerodromes but it does operate in many around the country. The services at Luton, which is nearby, are not provided by NATS but those at Heathrow, Gatwick and Stansted are. Heathrow and Gatwick appear to operate entirely satisfactorily and without difficulty as regards general aviation. By contrast, Stansted does not. I do not know the reason and I hope that the Minister does.

I hope that we can impose appropriate duties on the CAA and the Secretary of State which will ensure that they have regard to the interests of the users of small aircraft. I beg to move.

Viscount Goschen

I support the amendment moved by my noble friend Lord Trefgarne. I, too, have tabled amendments in this group. They are all aimed at ensuring that the interests of general aviation are properly taken into account by the Government, by the Civil Aviation Authority and by the licensee, whoever that may be.

I must begin by declaring an interest as the holder of a private pilot's licence and the owner of a rather aged aircraft.

The points raised by my noble friend Lord Trefgarne in relation to Stansted were good examples of the concerns of the general aviation community. We should not underestimate the importance of general aviation to this country. Together with military training, GA is responsible for the new generation of pilots taking up employment with airlines and air taxi firms, becoming instructors and sometimes going on to fly for the Armed Forces.

This country has a strong reputation in the aviation industry; indeed, I believe that we are world leaders. I also believe that we are well served by the CAA and by NATS. All categories of aircraft and pilots receive good service from the air traffic controllers and NATS has a high reputation in that regard. However, the proposals in the Bill make fundamental changes to the way in which air traffic control services are delivered within this country.

My amendments and those moved by my noble friend would ensure that the Government take full account of the needs of general aviation. The issue, which may seem merely a technical one related to access to Class D airspace, can be summarised simply. All pilots recognise that, where appropriate, they must take control from air traffic controllers. They look to the controllers to offer them fair access when that is safe and appropriate. The system has always worked well within the United Kingdom.

However, responsible bodies, such as those which represent pilots of light aircraft, gliders and hang gliders and all other flying interests, are concerned that, unless strict safeguards are included in the new arrangements, their interests might be put to one side. They are concerned that the licensee might consider general aviation to be an irritation which should take second place to commercial aviation. I do not believe that there are legitimate grounds for a dispute. The Civil Aviation Authority and NATS recognise the importance of GA. With the exception of Stansted, the balance as it is currently struck seems to work well.

Under the new arrangements, the current duties of the Director of Airspace Policy will be subsumed within the Civil Aviation Authority. The licensee—the new NATS company and operator of the air traffic control services—will be obliged to perform under the licence given to it by the Civil Aviation Authority. However, if the CAA decides that a particular piece of airspace should be given a particular classification, it should be made clear that it is the duty of the licensee to administer that airspace accordingly. The CAA, having taken into account safety issues, the level of traffic and all the representations made to it, will have given a classification and the airspace should be administered accordingly.

I hope that the Minister will give the Committee and aviators at large some comfort. I also hope that he considers general aviation to be important and that it should be treated fairly. The Bill should provide the CAA with a duty to have due regard to the interests of general aviation and the power to ensure that the licensee administers the airspace in accordance with its classification.

My Amendment No. 102 ensures that, in taking those matters into account, the CAA has regard not only to the type of aircraft but also to the type of aviator. The two are not one and the same because one type of aircraft might be used for professional or private purposes or for training. Therefore, I hope that my small and modest amendment is acceptable to the Minister. No doubt my drafting is in error and his will be superior, but I hope that he can give the Committee a strong assurance.

The Viscount of Oxfuird

I support the amendment tabled by my noble friend Lord Trefgarne. I, too, have been involved in aviation; both I and my father have flown aircraft. I believe that it is vital to have as free access as possible to the air traffic control system.

I remember being short of fuel while flying over France and having to make an emergency landing at Bentwaters. That was facilitated by our good liaison with the American Air Force which owned the base. The feeling of relief when I landed, having been controlled totally throughout that period, was an endless pleasure. That was despite the fact that, having parked the aircraft, someone approached me with a machine gun and asked me who I was! That had nothing to do with the incident.

General aviation has a strong place in this country. It always has had and it must be respected and protected.

Lord Brabazon of Tara

I do not have an interest to declare in this matter, although it might be argued that I should have. However, I have received a letter from the Aircraft Owners and Pilots Association which echoes the concerns expressed by my noble friends. Until I received the letter, I was unaware that there are more than 8,500 general aviation aircraft in this country, excluding microlights and gliders. I also understand that the gliding community is concerned about some of the aspects of the Bill.

The main concern of the Aircraft Owners and Pilots Association relates to the duties of the Director of Airspace Policy. In particular, the Bill clearly sets out what the Government expect from the DAP in relation to the use of any particular airspace or of airspace generally. While it is the DAP's belief that those are sensible provisions, and it is right that they should be included in the Bill, what is missing gives cause for concern. It is my belief that the CAA and the DAP will be able to meet the Government's requirements only if they have the necessary regulatory powers. At present, there is nothing in the Bill or elsewhere which provides the CAA with such powers.

I ask the Minister to take account of those concerns and to note the position of general aviation. I also ask for an assurance from the Government that there will be continued free access to the UK airspace system for general aviation. And I ask the Minister to explain how the regulator—the DAP—can exercise his duties without regulatory powers. I also hope that the Minister can give me an assurance that the air navigation order will be amended to provide the DAP with regulatory powers in a timely manner so that it coincides with whatever happens in the future with regard to national air traffic services.

4 p.m.

Lord Macdonald of Tradeston

The noble Lord, Lord Trefgarne, made a point about Stansted which I shall certainly note. Through Amendments Nos. 2 and 13 he seeks to have it stated explicitly that the duty of the Secretary of State and the CAA is to further the interests of users of air traffic services, and that extends to leisure flyers.

We believe that the phrase, operators and owners of aircraft", is in no way limited to commercial flyers. It embraces all and any owner or operator of all and any type of aircraft, and thus encompasses both commercial and leisure flyers. However, the drafting that we have already amply covers the point on which the noble Lord seeks reassurance. Therefore, I believe that the noble Lord's amendments are unnecessary.

With regard to Amendment No. 102, to which the noble Viscount, Lord Goschen, spoke so persuasively, Clause 70(1)(b) provides that the CAA must exercise its air navigation functions in the manner it considers is best calculated to satisfy the requirements of operators and owners, again, of all classes of aircraft. Amendment No. 102 seeks to widen the description of those whose requirements the CAA must satisfy to include all classes of aircraft user.

I recognise the point that the noble Viscount makes. We appreciate that it is important that the interests of the general aviation community and, indeed, of all categories of user are taken into account. We have touched already on the importance of continuing to ensure that there is no discrimination between different classes of user of air traffic services. It is not part of our intention in the Bill to create an adverse impact for anyone involved in aviation. We expect the CAA, in the exercise of its air navigation functions, to look after general aviation alongside commercial, military and other interests.

I believe that that is the assurance which the noble Viscount seeks and I am very happy to give it. However, the point is already provided for in the Bill. In addition to Clause 70(1)(b), to which I referred just now and which deals with the requirements of operators and owners, there is also a requirement in Clause 70(1)(c) for the Civil Aviation Authority to take account of the interests of any other person in relation to the use of airspace. I am confident that the interests of all classes of user, and quite clearly those in general aviation, are protected by the duties laid on the CAA by this clause. Therefore, I feel that the noble Viscount's amendment may also be unnecessary.

Viscount Goschen

I thank the Minister for his helpful and warmly received reassurances. However, the point that I was driving at is very much the same one as was made by the Minister. It is simply that his point is not reflected in the drafting of the Bill. With my amendment, it would be. Clause 70(1)(b) states, to satisfy the requirements of operators and owners of all classes of aircraft". Therefore, it is the class of aircraft that is being used as the distinguishing factor, and, indeed, it is a valid distinguishing factor. However, if one goes to the trouble of saying "all classes of aircraft", then another distinguishing factor is "all classes of user" because the users vary in class as much as do the aircraft. Therefore, given that the Minister has in effect conceded the point (I believe appropriately), I wonder whether he will again discuss with his officials whether the drafting that I have suggested, or something like it, which makes reference not only to the class of aircraft but to the class of user, makes sense and amplifies the point that he himself was trying to make.

Lord Macdonald of Tradeston

I shall certainly reflect on what has been said. In response to questions raised regarding the enforcement of powers of the Director of Airspace Policy, we have discussed that issue with the CAA. Indeed, we recognise that under the new regime it is a crucial area of the DAP's role. However, we do not see a need to make additional powers in primary legislation.

We believe that the provisions of the Bill, together with the powers provided by Section 60 of the Civil Aviation Act 1982, which enabled provision to be made generally for regulating air navigation in an air navigation order, are adequate tools to secure the DAP's role. Indeed, at present the CAA is considering what amendments it requires to the ANO, and we expect it to consult shortly on its proposals.

The noble Lord, Lord Brabazon, raised the question of enforcement of the DAP's powers. As I said, it is an issue which has been under discussion. There are crucial areas in that regard that are of course relevant in the new regime. However, I believe that the provisions of the Bill, together with the powers already provided for by Section 60, should provide the necessary provisions for general regulation of air navigation through air navigation orders. We believe that those tools are adequate to secure the DAP's role; indeed, as I said, the CAA is at present looking at amendments that might be necessary. Therefore, I hope that that satisfies the noble Lord's concern and that he will withdraw the amendment.

Viscount Goschen

I apologise to the Committee. Before my noble friend Lord Trefgarne tells the Committee what he intends to do with his amendment, I should be grateful if the Minister could explain how that would work in practice.

I listened with great interest to the description that he gave to the Committee of the dialogue between the Civil Aviation Authority and his department on this issue. I welcome the fact that that has taken place. It seems a sensible way forward and is a recognition of a potential problem. However, if the Bill is enacted in the form in which your Lordships currently find it and a licensee is given a piece of airspace to administer—perhaps a Class D piece of airspace—and the licensee refuses to administer it in the appropriate manner in accordance with its classification, can the noble Lord explain how amendments to the ANO would take effect? Would the CAA be given the teeth that it really requires?

Lord Macdonald of Tradeston

We believe that the teeth are already in the legislation which we shall provide. I believe that it is entirely understandable that Members of the Committee wish to know how enforcement of those functions fit together. However, with regard to Clause 8 duties and licence conditions, Clauses 20 to 25 make provision for the enforcement by the CAA of the licence holder's statutory duties under the Bill and the conditions of the licence. We also believe that those clauses will provide for the CAA to make orders which will be binding on the licence holder, not only in this case where there might be a contravention, as has been suggested, but in other circumstances, too.

The kind of licence provisions which may be of particular interest to the noble Viscount, Lord Goschen, might include a general obligation on the licensee to provide services in a way which does not duly discriminate against or give preferential treatment to any class of user. We intend that there shall be no undue discrimination. Where measures are necessary in order to make the optimum use of airspace to maintain the most expeditious flow of air traffic as a whole, the CAA will decide what is and what is not appropriate. An obligation on the licence holder to obtain the CAA's consent is also important in a number of areas. We shall insert a requirement for NATS to notify the CAA before it takes any action, for example, with regard to disposal of navigational assets. I hope that some of those licence provisions are relevant to the issues that the noble Viscount had in mind.

Lord Trefgarne

Before I withdraw my amendment, which I am minded to do, I hope that the Minister will not mind if I press him a little more on the example that I gave. It was meant to be only an example, but I fear that it is a glaring example of a failure of the present system. I apologise for having to put this in plain terms, but the service provided by controllers to general aviation in the area of Stansted is below an acceptable standard, unlike the service provided around Heathrow and Gatwick. If the Minister will undertake to look into that and write to me, I shall be happy to withdraw my amendment.

Lord Macdonald of Tradeston

The CAA and director of airspace policy have been considering further particulars about access for general aviation to the Stansted airport control zone. I shall certainly consider it too, because it has been raised with my officials as part of our dialogue on how airspace policy decisions can best be enforced. It is a good example and we shall consider it carefully—all the more so in the light of what the noble Viscount, Lord Goschen, has said. As I have said, the airspace policy will continue to be applied even-handedly and with sufficient vigour to protect the interests of all users in the Stansted control zone and elsewhere. To amplify my reply to the noble Viscount, Lord Goschen, we have the powers of direction in the air navigation orders to enable the CAA to instruct the licence holders or other providers to do what is necessary to maintain services for all types of fliers.

Lord Trefgarne

The Minister says that consideration has been given to that problem. If he will undertake to write to me at the outcome of that consideration, I shall be happy to withdraw my amendment.

Lord Macdonald of Tradeston

With pleasure.

Lord Trefgarne

I am most grateful. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 3 not moved.]

4.15 p.m.

Lord Brabazon of Tara moved Amendment No. 4: Page 1, line 17, at end insert — ("( ) to prevent or minimise noise, vibration, pollution (including light pollution), disturbance or environmental damage of any nature;").

The noble Lord said: With the leave of the House, I shall also speak to Amendments Nos. 61 to 65.

The amendments are about environmental damage. Clause 1 obliges the Secretary of State to exercise his functions under Chapter I in the manner best calculated to promote the purposes set out in subsection (1). Those purposes do not include the protection of those affected by the adverse environmental consequences of air traffic. The amendment would add to those purposes the prevention or minimisation of noise, vibration, pollution, disturbance and environmental damage.

People who live near airports and under the flight path of aircraft can be as affected by the operation of air traffic services as those who fly. Their interests should not be ignored; neither should the damage done to the environment by, for example, pollution, even if no specific group of people is affected. That is partly recognised in Clause 39, which gives the Secretary of State powers to give directions on such environmental matters. But, as the Bill stands, he could not exercise that power if it were to conflict in any way with the duties set out in Clause 1. That will limit unnecessarily the Secretary of State's ability to act on environmental matters. The duties set out in Clause 1(1) should include the consideration of such environmental issues to ensure that they can be given proper weight.

The other amendments in the group are to Clause 39, which enables the Secretary of State to give directions relating to the environment. 'The amendments would make such directions subject to approval by Parliament. We welcome the addition of those powers, which are a recognition of the importance of ensuring that damage to the environment is minimised. However, they are very wide ranging and the best way to exercise them may be a matter of dispute or controversy. Parliament as a whole should have an input on issues of such importance.

Clause 39(7) provides that the Secretary of State needs to consult beforehand only if the direction affects a particular licence holder or authorised person and not if it affects them all. The amendments would require consultation when a direction affected all licence holders. It seems slightly bizarre to consult one licence holder or authorised person and the CAA when only one is affected but not to consult all licence holders or authorised persons when all are affected. The direction is likely to be more wide ranging and important and have more far-reaching effects if it affects all licence holders or authorised persons and is therefore more rather than less deserving of prior consultation. The Government should bring forward proposals to consult more widely in those circumstances than just licence holders or authorisecl persons and the CAA. I beg to move.

Baroness Thomas of Walliswood

I see the merit of the amendments. I wish that I had thought to table some of them myself. However, I am a little concerned about the implications of Amendment No. 61. Perhaps the Minister will tell us how his environmental duties are likely to be exercised—by order, by regulation, by guidance or in some other way. That might help us to understand the exact implications of the amendment for how those powers are to be exercised. However, I agree with the general point that the adverse effects of air traffic, such as noise, vibration and pollution, should be part of the Secretary of State's responsibilities.

Lord Macdonald of Tradeston

The amendments are about environmental issues. Amendment No. 4 would add an environmental limb to the Secretary of State's duty under Chapter I, the primary purpose of which is to introduce a system of economic regulation into the provision of air traffic services post-PPP. The duties of the Secretary of State, as set out in Clause 1, deal with concepts such as efficiency, economy and the financing of activities. En-route air traffic services will be regulated through an operating licence, which is an economic construct.

The amendment is unnecessary. The environmental provisions already contained in Clause 39 provide for the Secretary of State to give directions in relation to environmental matters not only to the licence holder or holders but to persons authorised by exemption to provide air traffic services. To exercise those powers properly, the Secretary of State has to consider the giving of directions to be necessary or expedient to prevent or deal with issues such as noise. The considerations under Clause 39 are not dissimilar to those proposed by the amendment.

The other five amendments would impose prerequisites on the exercise of the power to give directions. To answer a query from the noble Baroness, Lady Thomas, it is a power to give directions. Amendment No. 61 would require the Secretary of State to get the approval of Parliament before giving directions under Clause 39. That is a significant departure from the present position under Sections 6(2)(f) and 72(2) of the Civil Aviation Act 1982 which this clause largely replaces in respect of air traffic service providers. The amendment would require the affirmative resolution procedure, involving debates in both Houses.

We see no need or justification for that. The power to give environmental directions is long established and used only sparingly. In the past, Parliament has been content to leave these matters for the Secretary of State to deal with, not least because he must have the flexibility to take a wider view on when environmental matters should have priority over financial expediency for the service provider. Examples would be if the provider wished to remove a navigational aid that had residual environmental monitoring benefits; or balancing the economic benefits to the aviation industry and its customers through restraining capacity increases which brings disproportionate economic penalty.

The provisions of the Bill have not altered that position. I suggest that an unnecessary burden would be placed on Parliament if these matters had to be referred to both Houses of Parliament. It would not be open to the Secretary of State to act in an unreasonable manner. If he were to act in such a fashion, he would be rightly open to judicial challenge.

The remaining amendments concern the provision requiring the Secretary of State to consult before giving a direction under this clause. As presently drafted, the Bill provides that the Secretary of State must consult a licence holder or an authorised person only in respect of a specific direction given to that particular individual. The amendments would further require consultation, as the noble Lord, Lord Brabazon, perhaps implied, where a direction is to be issued to licence holders or authorised persons generally.

We regard the amendment as unnecessary. We do not envisage issuing specific directions to licence holders or authorised persons generally, only directions of a general character; for instance, that full account be taken of the need to minimise environmental impacts. The appropriate time for consultation will be if and when these general directions are translated into specific details requiring individual providers to do or not to do particular things. At that point there will be consultation with the provider concerned. We believe that there is no need for a requirement to consult on any general directions. In the circumstances, I invite the noble Lord opposite to withdraw the amendment.

Lord Brabazon of Tara

I am grateful to the Minister for that detailed reply. I shall certainly read carefully his words in Hansard, with regard in particular to my first amendment, in Clause 1, to add to the duties. I am grateful for the support I received from the noble Baroness.

I confess that I am obviously not as familiar with the 1982 Act as I should have been. That is my oversight. I had not realised that these measures largely replicate what is in the 1982 Act. If that has worked reasonably well, perhaps there is no need for the amendments to Clause 39. However, I shall read carefully what the Minister said. I was particularly encouraged to hear him say that the Secretary of State would not act in an unreasonable manner. I hope we can be assured that he will always act in that way, not just in this respect. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 5 not moved.]

Baroness Thomas of Walliswood moved Amendment No. 6: Page 1, line 25, at end insert— ("( ) The safety of aircraft must at all times take precedence over other considerations when the Secretary of State exercises his functions under subsections (1)(b), (c) and (d).").

The noble Baroness said: In moving Amendment No. 6 I shall speak also to the other amendments in the group. No doubt the noble Lord, Lord Brett, will speak to his amendment, which is also in this group. I shall start by putting the argument and then go through the amendments, which I think will be easier.

I do not think anyone would doubt that the safety of the air traffic control system after PPP has been a matter of contention ever since the Bill was drafted and put before Parliament. There has been much discussion, for example, about the so-called safety locks; that is, the powers of the Safety Regulation Group of the CAA to inspect, insist upon high criteria for licensing air traffic controllers, approve procedures and equipment, specify working hours and so forth.

The answer that one is given is that much of the inspection is done by NATS, as is much of the approval of procedures and equipment; that the SRG is under-resourced for the work that it is supposed to do; and that in general the standards of hours of work, for example, which are preserved in NATS, are higher than the minimum standards required by the CAA. Another problem is that there is no air traffic control model similar to the one proposed in the Bill, either in structure, international relationships or the complexity of the airspace covered in this country. Private providers in the UK are said to vary in their devotion to safety first and may be influenced by the need to generate income or profit.

Air transport is generally regarded as very safe, and so it is if measured in passenger miles travelled. It is less safe, however, than cars or rail per number of passenger journeys undertaken. That is the measure used by Boeing. The argument is that private companies need to generate profit. Safety can be high on the priority list but not always top of the list. Companies that depend on the stock market can be particularly vulnerable in terms of stock value movements and market confidence. During the course of such argument it is often said that airlines always put safety first and they are private organisations; therefore, what is the difference between an airline and NAT'S? The obvious difference, of course, is that airlines are in competition. As one Member said in another place, one can choose one's airline but not one's airspace.

However, even within the airline industry there are indications of the effect of the need to provide low cost and higher profits. The airline industry is reluctant to adopt the safer, rear-facing seat configuration. Long staff working hours are currently excluded from EU working time regulations. Finally, there is a danger of the loss of the safety-first approach because of pressure to reduce costs. An example which is often put forward is that of Railtrack where decisions not to proceed with safety work on the grounds of costs have now been openly admitted and publicly criticised.

One cannot restructure a Bill—especially a complicated Bill such as this—in such a way that every one of these provisos, doubts and worries is satisfied. However, our amendments try to put the safety-first aspect into the Bill wherever possible. Amendments Nos. 6 and 14 insist that safety should be the overriding concern in the exercise of functions by the Secretary of State and the CAA respectively in Clauses 1 and 2.

Amendment No. 35 is an amendment to Clause 8(4). That subsection refers back to subsection (1)(a) which requires the licence holder to ensure the provision, development and maintenance of a safe system by defining "safe". That is what the existing clause does. Our amendment adds to the existing requirement to comply with air navigation orders but the system has to have been licensed by the CAA. That forms part of another series of amendments, to which we shall come later, in which the CAA, rather than the CAA or the Secretary of State, is the licence granter.

Amendment No. 36 omits subsection (1) in Clause 10 which gives immunity from legal action to the licence holder if it fails in its duties under Clause 8 and the licence conditions and substitutes a requirement upon the CAA to take remedial action in respect of any failure under Clause 8.

Amendment No. 48, which adds a subsection to Clause 20, goes a little further. The clause deals with orders to secure compliance with the licence and our new subsection requires the Secretary of State to make an immediate order of compliance if the licence holder is in breach of Section 8(1)(a), which is the duty of safety.

Amendment No. 51 inserts the same provision as does Amendment No. 48, but into Clause 22, cutting across the procedures involved in issuing enforcement orders. Amendment No. 54 inserts a new clause which would ensure that, regardless of the provisions of Clauses 20 to 30, which are concerned with enforcement, the CAA or the Secretary of State must suspend the licence if the licence holder is found to be in breach of Section 8(1)(a).

Amendment No. 55 inserts a new clause after Clause 34 which says that the Secretary of State must order the CAA to take over the administration of the UK air navigation system if he becomes aware that the financial state of the licence holder endangers its ability to comply with Section 8(1)(a). Amendments Nos. 56 to 59 amend Clause 35 and make it clear that it is the CAA—that is, the safety regulator—which issues the licence. Amendment No. 60 also amends Clause 35 by placing a backstop duty upon the Secretary of State to ensure the overriding importance of the duty of safety. Finally, Amendment No. 108 amends Schedule 9 to add information about any matter which has an adverse effect on safety to the list of permitted disclosures of information in that schedule. I beg to move.

4.30 p.m.

Lord Brett

It may be appropriate for me to speak to Amendments Nos. 7 and 15, which are grouped with Amendment No. 6, and support the thrust of the contribution of the noble Baroness, Lady Thomas of Walliswood. However, before doing so I should declare an interest. Until one year and three months ago I was the General Secretary of the Institution of Professionals, Managers and Specialists, the union to which the air traffic controllers and engineers of the Civil Aviation Authority, NATS, the SRG and the inspectorate belong.

Amendments Nos. 7 and 15, in the name of myself and my noble friends who put their name to them, seek to underline the primacy of safety. I say immediately that I accept entirely that Ministers both in this House and in the other place share that objective. The objective is not in question. The question is how best to guarantee it.

Over the past couple of days I have taken the opportunity to read again the proceedings of the passage of the Bill in another place and the Second Reading debate in this House on 5th June which, unfortunately, I could not attend. Much of the debate in the other place surrounded public versus private as a means of provision, or indeed the role of the CAA on safety compared with that of NATS. But the real concern of controllers, engineers and pilots has been lost in both of those arguments.

The real concern is one of conflict of interest in the new form of organisation, rather than whether it is publicly or privately owned. First, it is true that the CAA set, through SRG, ATC standards for NATS and the rest of the industry. The problem is that, as has been said by the noble Baroness, because of greater traffic densities, because en route control is rather more complicated than approach and airport control, we have had higher standards applied and self-regulated by NATS. The whole culture of NATS has been one of safety without any commercial pressures being applied to bend the whim of specific airlines or airports or indeed senior management in the Civil Aviation Authority itself. An air traffic controller is licensed to control the aircraft. It is those higher, more strict standards of safety about which we are concerned. That is what the controllers, the engineers and, more importantly, the pilots fear could be compromised.

The compromising of those safety standards will come from the private sector controlling interest. We are told in the Bill that the private sector strategic partner will have day-to-day control. The fear is that that day-to-day control and management could lead to the erosion of those higher standards and the Civil Aviation Authority would have no power to intervene until such standards had been eroded to the level that the CAA applies to the rest of the sector—that which handles 13 per cent of commercial air traffic rather than the 87 per cent handled by NATS.

The Secretary of State in another place—my noble friend Lord Whitty echoed this in winding up for the Government at the end of Second Reading in your Lordships' House—said that the NATS higher standards will be maintained through the NATS safety management system (Official Report, Commons, 9/5/00; col. 713). But unfortunately there is no explicit reference on the face of the Bill as to how that might be achieved. Including it in a safety management system, which, in turn, may be considered to be controlled by strategic management agreement, does not mean that in the fullness of time that agreement could not be changed by negotiation between partners coming in (when dilution takes place) and the Ministers sitting in positions of power. That is our fear, and that fear can only be expunged by having the primacy of safety on the face of the Bill.

Our fear is enhanced by the fact that the Government are ensuring that the executive directors in the new PPP will be appointed by the strategic controlling private sector partner. Staff remain fearful that commercial considerations are bound to make some impact because those directors, as part of their remit, will have to meet commercial considerations. That sets up a conflict between operational efficiency and safety. At the end of the day, when something is going wrong, we cannot wait until the resultant tragedy occurs; we must have the power to intervene. If the Secretary of State has safety as a prime responsibility on the face of the Bill, the matter can be raised by Members of this Chamber, another place or directly by those in the industry.

A second important feature is that, while National Air Traffic Services is largely self-regulating—it employees 5,000 people, with 1,700 controllers—and ensures the higher standards, the SRG (as mentioned by the noble Baroness) has only a complement of 17 inspectors to inspect the air traffic control system in the United Kingdom. That is because of the self-regulating aspect of NATS. So at the minimum there needs to be considerable expansion in that part of the inspectorate to ensure that the standards are maintained.

As I say, we have no quarrel with ministerial will. We are anxious to ensure that we have, on the face of the Bill, a clause which will guarantee that Ministers in the future will not only understand what the intention of Parliament was in the passing of such legislation as we are now discussing but also have a responsibility to ensure that they maintain, as a primacy, safety over all other considerations.

Lord Clinton-Davis

I support my noble friend Lord Brett. I speak as President of the British Air Line Pilots Association and as a former aviation Minister. Frankly, as aviation Minister, I would not have allowed—if I were overruled I would resign—a situation where safety was not mentioned as a primordial position. Our members—I speak here for the pilots of the association—feel that safety is a paramount consideration. This amendment would write it into the Bill and it is important that it should be written in. There should be no room for doubt about the issue. That is the point made by my noble friend Lord Brett.

Safety should not be a controversial matter. If a civilised discussion were to take place between the Minister and ourselves, I do not believe there would be room for doubt. Unfortunately, it is not that simple. We are judged by what is in the Bill; and what is in the Bill is inadequate. Therefore, we are trying to insert some wording into the legislation. It is possible that what we have suggested is not correct and the Minister may wish to change that wording in some way. But we could have a civilised debate about safety.

I do not believe that there is anything more important to the travelling public, to our members the pilots—or for that matter to those who are involved in NATS than safety. Until the issue of safety became paramount at the Paddington inquiry, the outcome of which I do not wish to anticipate, it had not been mentioned. Why not? Safety is just as important in the air as it is on the railways.

I speak as a former holder of the office that the Minister now occupies. I do not believe that anything we have suggested in this amendment would in any way affect or prejudice the Government. Why should we be the only country that does not recognise safety in the way explained by the noble Lord? Why should we be making an exception internationally to our duties, which the Minister surely recognises as such?

I believe that it was the Minister's job to consult widely with the airline pilots on this issue, as was the case with NATS. I have no doubt that the Minister will say that he did talk to them; indeed, he did. But there was no meeting of minds. If there had been, the noble Lord who tabled this amendment would not have felt obliged to do so on behalf of those whom he once represented. Similarly, I would not feel obliged to do so on behalf of the pilots.

I suggest that we may perhaps have missed the point. In that case, the Minister will put us right in that respect. However, if we have not missed the point—I submit that we have not—then I and the other three noble Lords who have attached their names to this amendment will be happy to discuss the matter further with the Minister. It is possible that we have not explored all the possibilities. But if that is right, I believe it is incumbent upon the Minister to ensure that he tells us in emphatic terms that we are right to put safety first and that he has an alternative that he can put forward tonight. There is still room for compromise: compromise is important as far as we are concerned.

Finally, as Minister responsible for aviation I would not at any time have enabled discussion to be closed down on the issue of safety. I made it an important matter when I held office, and I believe that I was right to do so. It is also right for the noble Lord who currently holds this important office to do so.

4.45 p.m.

Lord Lea of Crondall

I, too, support this series of amendments. However, I acknowledge that there is a certain awkwardness in debating safety because some people do not perhaps give it as much priority as others. That is a very unsatisfactory way of approaching the matter. Nevertheless, there are some important areas where clarification is needed before such safety concerns are satisfied.

We are told that basically there is no change in the role of the CAA as safety regulator, but it seems to be a matter of "all change" as regards many other aspects of air traffic control. As my noble friend Lord Brett said, there should be no scintilla of suspicion or perception that there is any conflict of interest between the commercial interests of the PPP licensee and the CAA as the safety regulator. Here one may speculate about who the PPP licensee might be. We have received letters from the Airline Consortium, and that is food for thought. It is a consortium of British airlines. What would their interest be and their perception of it?

My main question for my noble friend the Minister is as follows. How is safety to be factored into the financial bench-marks? During the past few days we have seen a remarkable exchange of documents in the public arena between the CAA and the NATS about the next few years. As regards the CAA's twin responsibilities of safety regulator and economic regulator, it is interesting to note that "never the twain shall meet". There is a document that has posed some financial targets upon which NATS was asked to comment, such as, cost reductions of up to 36 per cent following the sell off. One may wonder about the standing of the CAA at the moment when it is consulting on a five-year plan, as it were. However, perhaps my noble friend the Minister will comment on the position.

I do not wish to paraphrase the NATS reply, but the CAA document does not seem to be couched in terms that show a full understanding of the cost factors in the safety culture of NATS. There seems to be a lack of joined-up thinking in the CAA, so to speak. That prompts me to ask: is it all change or no change at all in the CAA in this regard? When this Bill becomes an Act it will certainly change the commercial context in which NATS operates; indeed, that will be the subject of some of our later discussions dealing with the role of the Crown directors, and so on. In the main, we should like clarification on whether there will be some reconciliation of the role of the safety regulator and commercial freedom and the new, tougher arm's-length relationship with the CAA as the economic regulator.

Lord Hoyle

I rise to express my support for my noble friends who have spoken in favour of Amendments Nos. 7 and 15. We say that safety is all important; indeed, it is paramount. The reason we want safety to be paramount is that once you bring in the private shareholders of a PPP there must be a return. There is a difference in the privatisation that is taking place in relation to NATS as against the privatisation of, say, the airlines or of the British Airports Authority. That difference is the fact that the only service being offered is one of safety. That is why we are concerned that the issue of safety is not on the face of the Bill. I hope that my noble friend the Minister will agree to consider the amendments that have been tabled in this respect to ascertain whether he can include the issue of safety in the legislation.

I turn to the point raised by my noble friend Lord Lea, who mentioned not just the press reports but the response of NATS to the second consultation paper. I hope that my noble friend the Minister will address those points. NATS sought savings of up to 17.5 per cent. However, the Economic Regulation Group seeks far greater savings of 21 to 35 per cent over a five-year period.

We have been told that under a PPP there will be greater investment. However, the ERG seeks investment that is 16 to 29 per cent lower than that of NATS. Where will the savings come from? Will they be achieved at the expense of safety? Everyone knows that in this computer age efficiencies can be achieved. However, air traffic is increasing. Will the savings be achieved by cutting the number of controllers? That question is central to the whole matter and to the doubts that some of us feel about the partial privatisation.

As my noble friend Lord Brett has said, we appreciate that safety is a priority, but are we talking now about minimum or maximum safety standards? The present high safety standards result from the actions of controllers, pilots and engineers in reporting incidents that have occurred. Will the staff of a partially privatised company feel as free to report those incidents, or will there be a tendency to cover them up as the company's reputation may be at stake? What guarantee is there that maximum safety standards will be maintained?

NATS and ERG already have different opinions as regards what can be achieved in this regard. Will there be a conflict in this regard between the new company and the regulator or between it and the airlines? Where do the Government stand in relation to safety? I hope that my noble friend the Minister will give us some assurances on this matter. What we do not want to see is a situation developing similar to that at Railtrack. I hope that my noble friend will accept that not only should safety be paramount but that it should be included on the face of the Bill.

Lord Brabazon of Tara

I am grateful to the noble Baroness for explaining her amendment and to the noble Lord, Lord Brett, and his noble friends for explaining theirs. Safety is absolutely the most important thing that National Air Traffic Services provides. I agree with those who have said that up to now—I hope that this will be the case in the future—NATS has had an outstanding culture of safety in its operations. Nothing must be done which could adversely affect that. Its business is to provide safety.

Up to now I have not been concerned that the part privatisation of NATS would have an adverse effect on safety because, as I say, the business of NATS is to provide safety and it has a safety culture. At Second Reading I said that I welcomed the aspect of the Bill which separates NATS from the CAA. At present the CAA is the owner and the regulator of NATS. It must be desirable to separate the regulator and the owner.

I hear what has been said about the Safety Regulation Group in the CAA. However, like the noble Lords, Lord Lea of Crondall and Lord Hoyle, I was extremely concerned and surprised to note the comments of the Economic Regulation Group to National Air Traffic Services. I shall return to that matter on a later amendment. I thought that the whole point of the measure we are discussing is to have increased investment in NATS and not a proposed reduction in investment.

I also thought that, as aviation continues to grow by 6 or 7 per cent a year, we would need more controllers rather than fewer. Therefore, I was surprised at the document of the Economic Regulation Group. As I say, I shall return to that issue which gives me cause for concern.

I hope that the Minister can expand on a detail of the Bill. Clause 1(2) states: These interests are the only ones to be considered under subsection (1)(a) — (a) interests regarding safety". I hope that the Minister will explain where that measure fits into the debate. The same wording is repeated in Clause 2(2) with regard to the Civil Aviation Authority.

I shall listen with great interest to what the Minister has to say in response to the points made by so many of his noble friends.

5 p.m.

Lord Macdonald of Tradeston

The amendments in this group are all related in some way to safety, a subject to which we have given a great deal of thought in drafting Part I of the Bill. In so doing we have listened to a wide range of views from interested parties—I have been involved in discussion with the relevant trade unions for over six months now—not least the views of noble Lords, as expressed at Second Reading and today.

I say straightaway that we are convinced that our proposals for a PPP will preserve and enhance safety. We have looked closely at these amendments. I believe that most of them are not necessary, for reasons which I shall explain. However, there are a number of amendments where I believe that at least the underlying principles are worthy of further thought. As I shall indicate in more detail in a moment, I shall be happy to take these amendments away and consider them.

I trust that it is clear that the intention underlying the proposed Amendment No. 35 is an admirable one. We all take safety extremely seriously. I make no apology for repeating that safety must be the first and foremost consideration. NATS has rightly made the point that its sole business is safety. There can be no question of allowing that to be compromised.

This amendment is not, however, necessary. Clause 8 already requires holders of licences to secure that they provide, develop and maintain a safe system for the provision of authorised air traffic services in their licensed areas. That duty is not qualified and there are no "ifs" or "buts". A safe system is defined, for purposes of clarity, as one which complies with the pre-existing safety regime; namely, the requirements of the Air Navigation Order. Those requirements include obtaining a range of safety approvals from the CAA covering the service provider's systems, practices and personnel. A safe system is, therefore, a licensed one.

Amendments Nos. 36, 48, 51, 54 and 55 all deal with what should happen in the event that a licence holder fails to comply with its statutory duty to provide a safe service. The Bill contains a comprehensive enforcement regime in respect of that statutory duty which the CAA can apply through a series of provisional and final orders. If necessary—that is, if the breach is serious enough to make it inappropriate for the company to continue to hold its licence—application may be made to the court for an air traffic administration order. Such an order will remove the licence holder's activities from the hands of those who have allowed the breach to occur.

These are important procedures and perhaps it would be helpful if at this point I explained their application in some detail.

If a licence condition or Clause 8 duty is contravened or is likely to be contravened, Clause 20 makes clear that the CAA must issue an enforcement order designed to secure compliance by the licence holder. If the CAA is not satisfied that a contravention has taken place, but it still appears to it that a licence holder is contravening, or likely to contravene a Clause 8 duty, the CAA must, if it thinks a provisional order is needed to prevent loss or damage to a third party, issue a provisional order containing the provision it believes is needed to secure compliance with the Clause 8 duty or licence condition. The only exceptions to this obligation on the CAA to take enforcement action are where its statutory duty precludes it from doing so; where it is more appropriate to use its powers under competition legislation; where the licence holder is already taking appropriate steps to remedy the situation; or where the contravention is trivial or will not affect anyone. None of these exceptions is likely to apply where there is a serious safety breach.

All breaches or possible breaches of licence conditions or Clause 8 duties are subject to enforcement, regardless of whether or not they are a result of the financial state of the licence company. I hope that the noble Baroness, Lady Thomas, will agree that this process of enforcement provides an appropriate mechanism by which to enforce less serious breaches, which should be promptly and effectively corrected by the licence company. These procedures also avoid the need to use a sledgehammer to crack a nut for what may only be a technical breach. However, it is clearly important that any breach requiring an enforcement order must be complied with promptly and effectively. The consequences, therefore, of a failure to comply with an enforcement order would be extremely serious for a licence company, as is made clear by Clause 28.

If the licence company fails to comply with an enforcement order, the Secretary of State and the CAA may petition for an air traffic administration order to be made under Clause 28 to transfer control of the licence company to an administrator nominated by the Secretary of State and the CAA. To the licence holder that would effectively mean loss of control of the company and its assets without any guarantee of reimbursement of its investment.

I have just explained the enforcement order process. However, I can understand that Members of the Committee will say that the enforcement process takes time, allows for representation and appeal by the licence holder, and therefore may not be suitable where the contravention or breach is of such significance that it is clearly inappropriate for the licence holder to continue to hold that licence. In such cases it is clear there would be a need for the CAA and the Secretary of State to be able to move swiftly to take control away from the licence company.

Such a fast-track provision for serious breaches is, as I have already mentioned, provided in the air traffic administration provisions, and particularly in Clause 28, which allows the Secretary of State and the CAA to petition for an air traffic administration order where it is clearly inappropriate for the company to continue to hold a licence because there has been, or is likely to be, a serious contravention by the licence company of a Clause 8 duty—it should be noted that there is not even a requirement for a breach to have occurred, just that it is likely—or the company is insolvent; or the licence company is in breach of an enforcement order. In most cases, the provisions of the licence would allow for revocation of the licence at the same time.

The consequences of an air traffic administration order being made are, as I have previously mentioned, to transfer control and management of the air traffic control assets and business to an air traffic administrator nominated by the CAA and the Secretary of State. In this way the Secretary of State and the CAA will be able to ensure that safe services may be maintained at all times.

I apologise for that somewhat lengthy explanation of the control and enforcement mechanisms relating to safety and the licence. Some Members of the Committees may already be familiar with them, but I felt that it was important to go through them in some detail again in order to explain why we consider these amendments would not add to the safety regime.

Lord Shore of Stepney

I am grateful to the noble Lord for giving way and for that explanation. However, can he address the question that, if the partnership company to be set up falls into non-governmental majority hands, the order which the noble Lord has described would be operative and override their rights as shareholders?

Lord Macdonald of Tradesman

As we go through today's business we shall make clear that the question of a company falling into other hands, as the noble Lord, Lord Shore, puts it, is one of the issues that we shall try very hard to avoid and, we hope, successfully. We shall be going into more detail about that later on.

Turning now to Amendment No. 56, Clause 35 lays a duty on the CAA to compile and maintain a register which is to be available for public scrutiny of matters relating to licences and exemptions. It includes provision for the CAA to exclude matters relating to a person which might seriously and prejudicially affect that person's interests. It makes provision for the Secretary of State to direct the CAA to exclude anything which would be against the public interest or any person's commercial interest.

This is not a new provision, it is a feature of other utility licensing regimes—for example, Sections 72 and 73 of the Railways Act 1993. It is the Secretary of State's practice to start from the strongest possible presumption that he should not direct material to be excised unless it is clear either that a person would suffer real commercial prejudice from its inclusion, or that its inclusion would be contrary to the wider public interest. It is possible, for example, that an operating agreement between NATS and the MoD, made pursuant to the licence, might contain sensitive material, the disclosure of which might be undesirable for security reasons. The safeguards seem to us to be reasonable and appropriate. I can assure the Committee that the Secretary of State will not be prodigal in his use of the powers of Clause 35(6).

On a similar line, Amendment No. 108 seeks to remove the restriction on disclosure of information, except between regulators, related to safety in Schedule 9. I find it a little difficult to see why that should be necessary as the CAA will have access to all safety related information and, as safety regulator, will be in a position to take any action necessary.

I now turn to Amendments Nos. 57, 58, 59 and 60. Clause 38 provides a power for the Secretary of State to give directions of a general character to a licence holder or licence holders generally, when it is necessary to do so in the interests of national security or in the interests of encouraging or maintaining the UK's relations with other countries. It also gives the Secretary of State the ability to direct a licence holder requiring it to do, or not do, a particular thing in the interests of national security and to secure that a particular thing is done in connection with the licensed activities, if that is necessary, in order to discharge an international obligation.

Amendments Nos. 57, 58 and 59 all seek to constrain this clause to one licence holder; that is, not to allow the Secretary of State to give directions of a general character to licence holders generally. It is true to say that we envisage only one licence holder for the foreseeable future. It would not be appropriate for Part I to drafted on such rigid a basis since there may be more than one licence holder at some point in the future. Were there to be more than one licence holder, this amendment would mean that any directions of a general character would have to be given separately to each and every licence holder. That does seem to be imposing an unnecessarily laborious requirement in the case of directions of a general character.

I said that I was going to express enthusiasm for some of these amendments. Amendment No. 60 seeks to ensure that when the Secretary of State gives a direction under this clause he must assess the impact of the direction on the licence holder and require that steps be taken to ensure that the duty of the licence holder under Clause 8(1) to secure a safe system for the provision of authorised air traffic services is not in any way compromised. Effectively, the amendment is putting safety as the prime consideration. Again, we do not disagree with the sentiments behind this amendment. In all our discussions about the PPP proposals we have made it clear time and again that safety is, and must be, the first and foremost consideration.

The amendment is not strictly necessary. Clause 38(6) already specifically requires the Secretary of State to consult the particular licenceholder before giving a direction. It is at this stage that the licenceholder will be able to advise the Secretary of State of any difficulties in relation to safety arising from that particular direction which the latter has not already considered. If there are safety implications in any direction, the Secretary of State will not wish to compromise safety in any way.

Nevertheless, I recognise that there is a case for spelling out quite explicitly that safety remains a relevant consideration, even where directions are being considered on grounds of national security. I recognise the legitimate wish of those involved in aviation to be given the comfort of such a statement on the face of the legislation. I am therefore prepared to undertake to consider before Report stage what amendments might be appropriate to meet these concerns.

In the same spirit, I turn also to Amendments Nos. 6 and 14 and to Amendments Nos. 7 and 15. I want to make it clear that I recognise the underlying concerns about safety raised by both sides of the Committee. I hope that noble Lords will find what I have said reassuring and that they can appreciate the Government's commitment to the protection and enhancement of safety standards. As has been said by noble Lords opposite, safety is the very essence of air traffic control. Neither the Secretary of State, the regulator nor the licensee can ever afford to forget that.

The issue of safety is emphasised in Clauses 1(2) and 2(2), where the Secretary of State and the CAA are required to consider the safety of users in exercising their functions under Chapter I of Part I of the Bill. It is also emphasised in Clause 8, which requires the licenceholder to provide, develop and maintain a safe system for the provision of air traffic services in his licensed area.

However, I must point out that legislation which required the promotion of safety above all else would place an unsurpassable obstacle before the efficient and economic operation of the aviation industry. Obviously, taken to its extreme, the safest way would be to prevent aircraft flying at all. The public want an air traffic system which balances safety appropriately with other interests; a system which gives safety a very heavy weighting but still ensures that traffic is able to move around our skies. That is why there is a specific safety regime.

Lord Clinton-Davis

Before the noble Lord leaves that point, with great respect, what the ordinary passenger requires is that safety should be given an important priority over other considerations. If that is not done, the ordinary passenger will seemingly be prejudiced. Surely the noble Lord sees that point.

While I am on my feet, one of the points made by the air traffic controllers who came into possession of the document referred to in the Daily Telegraph on Tuesday concerned manning levels. Does the noble Lord acknowledge that manning levels are absolutely critical to safety and service delivery?

5.15 p.m.

Lord Macdonald of Tradeston

I am very happy to assure the Committee and the noble Lord, Lord Clinton-Davis, that safety is paramount. I shall go on to cover the question of the report that he mentioned, which was referred to in the Daily Telegraph and other newspapers.

We have a specific safety regime which will be unchanged by this Bill. The Bill is creating a regime for the economic regulation of providers of certain air traffic services which currently enjoy a monopoly position in the market-place. Safety regulation is dealt with at length in the Civil Aviation Act 1982, the air navigation order which is subordinate to it, and by the safety regulatory regime. That, along with a commitment to safety which is very firmly fixed throughout the aviation industry, has resulted in the UK having one of the best air traffic safety records in the world. We intend to maintain that record under this legislation.

As I have said, the Bill lays a duty on both the Secretary of State and the regulator to have regard to safety and on the licenceholder to provide a safe system. Taken together with the existing safety regulatory regime, we believe that the noble Baroness's concerns are already well addressed. I do not believe that with the Bill as it stands there is any actual risk that safety will be compromised in any way. As we have said repeatedly, regulation will be separated from operation. I am grateful for the support of the noble Lord, Lord Brabazon, for that intention.

All existing safety arrangements will continue; existing legislation concerning safety will be unchanged; and it will of course apply to the NATS PPP. There will also be safeguards in the partnership agreement to secure NATS existing standards of safety. The reason why the Bill needs to say relatively little about safety is that those powers are already in place and remain unchanged.

Perhaps I may address the question which has been raised by a number of noble Lords about the exchange between the Economic Regulation Group of the CAA and NATS. The Committee should be aware that the articles were, to my mind, somewhat misleading. The true position is this: that under the PPP, NATS charges will be regulated using the RPI minus X formula, with which the Committee will be familiar from earlier utilities legislation. The Economic Regulation Group of the CAA has the task of advising the Secretary of State about the initial value of X. The CAA document referred to in the newspaper articles is part only of a process of consultation designed to help it to prepare that advice.

It does indeed suggest that there might be scope to set quite a high value for X—in other words, to reduce the costs of the service—but that is not the end of the story. It has not been made clear that the kind of value for X discussed in the paper depends on a number of factors concerning NATS future operations. The ongoing consultation is as much about drawing out views on these factors as about what X itself should be. The response from NATS and from others will guide the Economic Regulation Group in preparing its final advice, which we expect to receive in the next few weeks.

I believe that we are seeing an exploratory process—as we have seen before—between regulators and utilities. The noble Lord, Lord Hoyle, asks why then the emphasis on perhaps cutting back on capital expenditure. I should explain that the challenging exploratory process would be a regulator perhaps saying, "You have not had as much success as you might have had in the past in your plans for investment; therefore how can we trust that you will be able to spend all the money that you claim you would like to spend in future?"; and perhaps also in the sub-text suggesting that, were it under a different kind of ownership, it might behave in a more managerially effective and efficient way than in the past. These are the kind of exchanges that go on between regulators and utilities, and I suggest that that is what we are hearing at the moment.

Lord Brett

I thank my noble friend for giving way. Could I make the point that was made by NATS in its response to ERG—that is, that NATS is not like any other utility? Therefore, the fact that ERG is using formulae that produce very considerable economies in both operational and capital costs and, at the same time, the Government are giving this Commit tee and another place well-meaning assurances that safety Is absolutely paramount and that there is no risk whatever, creates a problem given that the advice is public from an ERG which is part of the same Civil Aviation Authority that will regulate safety. At the end of the day, when the Minister makes his decision, can he assure the Committee that there will be no "RPI minus" formula which will put safety at risk?

Lord Bradshaw

Perhaps I may add to that point. I accept the Minister's assurances, but does the legislation ensure that when it is time to reset the formula a future Secretary of State will still be in a position to intervene if the view is that setting RPI minus X at a large figure may actually so prejudice the operation or the capital investment in air traffic control that safety may be prejudiced? In a number of other regulated utilities we have seen the screws now being turned very tightly in the interests of economy. One is concerned about quality in several other utilities.

Lord Macdonald of Tradeston

I can give the Committee a complete assurance that the value which the Secretary of State will set on the factor X will be such as to enable NATS to preserve existing safety standards in full. We shall not contemplate anything else. The final decision is not for the Economic Regulation Group; it is for the Secretary of State.

Lord Hoyle

I thank my noble friend for giving way. He made the point that, as NATS is still in the public: sector, perhaps it might not take the management decisions that might be taken in the private sector. That alarms me greatly. In the public sector, safety is paramount and all decisions are taken in relation to safety. Will my noble friend comment on NATS' response to the ERG? In paragraph 1.4 of the response, NATS states: NATS recognises that ERG has not had sufficient time to evaluate NATS' own plans in detail". But it goes on to say: The cuts in cost and investment currently being proposed by ERG have little foundation in the reality of NATS' business and licence obligations, and so pose very serious risks to the delivery of services to NATS' customers. NATS could neither accept nor implement these proposals". I hope that my noble friend is not suggesting that once NATS becomes a PPP, the cuts will then be implemented.

Lord Macdonald of Tradeston

Not for a moment. I hope that I have been assuring Members of the Committee that the final decision on the value of the X factor and the cost equation will be taken by Ministers. I can assure Members of the Committee yet again that we shall do nothing to compromise or undermine NATS' ability to provide safe air traffic control services for all users. Existing standards will be entrenched in legislation and regulation.

What one is seeing here are exchanges inside a consultative process which is an exploratory one. We believe that Clause 8(4) in no way allows degradation of NATS' internal safety standards. NATS is currently only required to meet safety standards established by the Air Navigation Order. Internal safety standards are a matter for its management and, after the PPP, for its owners as well. One of the owners will be the Government. Although NATS' current standards are above mandatory levels, any change from those standards—I say this in reply to a number of Members of the Committee—would require approval from the CAA as the safety regulator.

I am conscious of the time that I have already taken up. Therefore, I shall not go into the eight safety locks with which I know some Members of the Committee are familiar; neither shall I go into the enhancements which the Government have proposed to include to try to give extra assurance to those concerned that safety remains paramount. Having said that, the strength of view on these matters is clear.

As I indicated earlier, there is a case for additional reassurance on the face of the Bill about a leading role for safety to reflect the genuine concerns of people in the industry, air travellers and Members of the Committee present today. Therefore, I am happy to offer to consider that question with a view to seeing whether suitable amendments can be made at a later stage. I should also be happy to have a meeting with the noble Baroness and indeed with other noble Lords to discuss these matters if that would be helpful. With that commitment, I respectfully ask the noble Baroness to withdraw the amendment.

Baroness Thomas of Walliswood

We have been fortunate to hear some splendid speeches from Members of the Committee opposite who have enormous experience in this field. I feel rather a tiro by comparison. The effect of our efforts has been to stimulate an interesting response from the Minister. Perhaps I may be "picky" for just a moment. We have tabled Amendment No. 108—the amendment to Schedule 9—which the noble Lord dismissed rather airily, because we consider that information regarding dangerous incidents, or whatever it may be—I refer to matters which affect safety—should be public. The public have a right to know what is going on in the field of safety. That was our motivation for tabling the amendment. However, with the final words of the Minister still ringing in my ears, with his offer to consider how the concerns expressed from all around the Committee can be satisfied, and with his very kind offer to meet those who have spoken today and no doubt other people who are interested in this matter, and bearing in mind that it was a very long answer which was not immediately understandable to my non-legal ear, I beg leave to withdraw my amendment.

Amendment, by leave, withdrawn.

Lord Brett had given notice of his intention to move Amendment No. 7: Page 1. line 25, at end insert— ("( ) The effects on the safety of aircraft by the application of subsections (1)(b), (c) and (d) must at all times take precedence over all other considerations.").

The noble Lord said: I appreciate the length of the Minister's response and the commitment given by him. I, too, should like to read Hansard with some care. It was a long and somewhat interrupted response, but I am grateful to him for his offer of a further meeting.

[Amendment No. 7 not moved.]

The Deputy Chairman of Committees (Lord Strabolgi)

I have to point out that if Amendment No. 8 is agreed to, I cannot call Amendment No. 9.

[Amendments Nos. 8 to 11 not moved.]

Clause 1 agreed to.

Clause 2 [CAA's general duty]: [Amendments Nos. 12 to 16 not moved.]

Clause 2 agreed to.

Clause 3 [Restrictions on providing services]:

Lord Brabazon of Tara moved Amendment No. 17: Page 2, line 41, after ("provides") insert ("en route").

The noble Lord said: In moving Amendment No. 17, I should like to speak also to Amendment No. 18 and to the Question whether Clause 4 shall stand part of the Bill. I shall be extremely brief on this group of amendments. Clause 3 brings all air traffic services together, whether or not en route within the licensing system, Clause 4 allows the Secretary of State to grant exemptions. This set of amendments takes air traffic services that are not en route air traffic services outside the licensing system. The Explanatory Notes to the Bill indicate that the Government propose to grant exemptions to providers of services that are not en route air traffic services. If that is the case, and exemptions are given, it is difficult to see why they have been brought within the system in the first place. Who is to be subject to regulation is a fundamental issue and should be dealt with in appropriate detail in primary legislation. It is not a matter that should be left entirely to the discretion of the Secretary of State. I beg to move.

5.30 p.m.

Lord Macdonald of Tradeston

The Government yield to no one in their desire to keep bureaucracy to a minimum. I can assure noble Lords that it is our intention to license only those air traffic services which are provided on a monopoly basis. Where such services are provided by contestable commercial con tract—as they are, for example, at airports—there should be no need for licensing. For that reason, we intend that only en route services should be licensed, but it is not, unfortunately, a simple matter of inserting the words "en route" into the provisions of the Bill, as might be suggested by Amendments Nos. 17 and 18. Perhaps I may explain why.

There are two reasons why the Bill does not confine itself to the provision of en route air traffic services. The first of them is driven by considerations of safety and operational necessity. Everyone in the aviation sector knows what "en route" means: it is the portion of a flight which lies between the end of the take off and initial climb phase to the beginning of the approach and landing phase. However, that is only a partial description rather than a definition. It does not tell us where the take off and initial climb end or where the approach begins, nor can it in any meaningful way because the point at which "initial climb" ends and "en route" begins, and the point at which "en route" ends and "approach" begins are not fixed. They vary from airport to airport and, at any one airport, they can vary on a daily or even on an aircraft to aircraft basis, depending on factors such as traffic mix and weather conditions.

For good reasons of safety, this flexibility is absolutely essential operationally, but it does lead us to the approach which is adopted in the Bill; namely, a wide power to issue licences with scope for an exemption to cover services which do not need the economic rigour of a licensing regime.

Amendment No. 18 would mean that only the provision of en route air traffic services could be licensed and, ill understand correctly the intentions of the noble Lord, Lord Brabazon of Tara, that no provision for exemption would be needed. That brings me to the second reason why we have settled for a wide definition of air traffic services in Clause 97, along with he power to make exemptions.

We appreciate the concern which may exist over the extent of licensing and, as I have said, it is our intention to license only those services which are provided on a monopoly basis. However, we must recognise that the nature of the air traffic services market may change. Over time, it is possible that the boundary we propose—the current one—could be rolled back somewhat if a further element of air traffic service provision became contestable. Equally, if a component emerged which called for economic regulation, then again the scope and nature of licensing and exemption could need to change in the long term.

Members of the Committee do not need to be reminded that air traffic services provision is a dynamic activity. The Government believe that the regulatory framework which this Bill seeks to establish must recognise that dynamism and be capable of responding to it. As the Bill is drafted it provides the necessary flexibility and I ask noble Lords to preserve it. I hope that the noble Lord will not pursue his amendment.

Lord Brabazon of Tara

I do not intend to pursue this amendment. I am very interested in what the noble Lord said in his response. I appreciate that "en route" does not necessarily have a fixed beginning and end, and I accept too the explanation why the noble Lord wishes to retain the wording as set out in the Bill. However, that slightly begs the question of how an exemption could be given within the licensing system, if that is the case. As I have said, I do not wish to pursue the amendment and I beg leave to withdraw it.

Amendment, by leave, withdrawn.

Clause 3 agreed to.

Clause 4 agreed to.

Clause 5 [Licences: general]:

[Amendment No. 18 not moved.]

Baroness Thomas of Walliswood moved Amendment No. 19: Page 4, line 8, leave out from beginning to second ("the") in line 11 and insert ("a not for profit company, formed and registered as a company limited by guarantee under the Companies Act 1985 or").

The noble Baroness said: I beg to move Amendment No. 19 and speak at the same time to the other amendments that we have tabled in this grouping. It may be convenient to the Committee if I refer also to our reasons for opposing that Clauses 49 to 51, 55 and 56 should stand part of the Bill because these proposals all fit together.

Amendment No. 19 removes some categories of permitted licence holder from Clause 5 and substitutes, a not for profit company covered by company law in Great Britain and Northern Ireland. Here we have reached what, so far as concerns these Benches, is the meat of Part I of the Bill; namely, the kind of company into which NATS should be transferred.

Amendment No. 66 amends Clause 41, covering the meaning of a transfer scheme, to ensure that a transfer from the CAA, or a wholly owned subsidiary of the CAA, may be to a not for profit company. Amendment No. 68 introduces a new clause covering provisions for a transfer to be to a not for profit company and defines what is meant by the term, 'not for profit company". It provides that such a company shall not issue shares or pay profits or dividends to its members, and that those members shall represent the providers, employees and users of air traffic services. Amendment No. 69 adds a further new clause covering parliamentary approval of a transfer scheme. It states that such a transfer shall require the resolution of both Houses, following the laying before Parliament of a report which, first, should set out the progress being made on Swanwick, Prestwick and other pre-transfer projects and, secondly, should confirm Treasury approval of the transfer.

Amendments Nos. 70 to 78 are textual amendments to link the trust proposal into Clauses 44 to 48 which deal with the detail of transfer schemes. Amendment No. 86 in Clause 52, Amendments Nos. 87 and 88 in Clause 53 and Amendment No. 90 in Clause 54 all substitute new for existing wording. The effect will be to enable the Secretary of State to make loans to, guarantee the discharge of financial obligations of and make grants to a not for profit company to whom a transfer has been made. Our intentions to oppose the Questions that Clauses 49, 50, 51, 55 and 56 stand part are therefore consequential on our proposed trustee option.

Equally, Amendments Nos. 93 and 94 are consequential on the loss of Clauses 49 and 50. Amendments Nos. 97 and 98 insert new wording into Clause 65 covering interpretation. That, too, would be a consequence of a change to the trust option.

On Second Reading, I said that we accept, albeit with reluctance, the Government's decision to offload NATS into the private sector so as to avoid the public sector borrowing requirement consequences of the required capital investment. Perhaps I should point out, in view of what was said during our discussions on the previous amendment, that no one on these Benches is in any way opposed to the separation of NATS from the CAA. I hope that that proposal can now be laid to rest. I believe that it is now universally accepted that it will be a "good thing".

However, along with many of my colleagues, I should have instinctively preferred to see NATS remain in the public sector. Although it is difficult to press such an argument in the modern world, it is the kind of operation which, conceivably, sits better in the public sector—perhaps one should not be too mealy-mouthed about making that kind of comment. On the other hand, it is not possible to change the mind of a Chancellor of the Exchequer—I believe that he is the driving force behind this proposal—by amending a Bill from the Department of the Environment, Transport and the Regions. Trying to put down amendments in opposition would be nonsensical.

Having said that, and given the support expressed for the trust option by both the select committee and Members in another place, we have decided to propose amendments to support that option in this House. Perhaps I may say that this decision has appeared to be even more justified as we have learnt more about the potential of the trust option since our debates on Second Reading.

An argument can be put forward that the trust option is important because of considerations of safety. I think that we covered that matter thoroughly when considering the first group of amendments. However, I should like to put forward additional arguments which derive from the special characteristics of the trust model. A trust would not have shareholders and would therefore not have to return a profit for their benefit. That could conceivably make a "safety first" culture easier to create and maintain. Interestingly, one of the possible bidders for the PPP, Air 2000, envisages keeping what is now NATS core business as a not-for-profit part of a future PPP business. There is support for this approach.

Unfortunately, private businesses and/or shares in them can be bought. Who can say who might successfully take over the privatised NATS? The noble Lord, Lord Brabazon, has tabled amendments seeking to ensure that NATS remains a British company. I do not believe that that is a feasible option either. I shall not comment on the noble Lord's proposal now; I simply make the point. The Government's share in a privatised NATS could fall as low as 25 per cent, and who can say who would be the purchaser of the other 75 per cent? Secondly, the board of the trust will be constructed in such a way as to keep the public interest in balance with other interests, rather than in a permanent voting minority as envisaged in the PPP solution.

Those two characteristics—the not-for-profit aspect and the character of the board—could help the trust to face up to what lies ahead in terms of changes in air traffic technology and the international relationships within which the changes are taking place and will continue to do so. I refer to the way in which air traffic control will increasingly have to change in order to provide more air space and fewer delays as growth in air traffic clogs up the existing flight corridors. These changes are referred to as "free-flight" and "free-routing". It is conceivable that a trust would be more effective in dealing with those difficulties. It might command the required capital at a lower rate. It might be more acceptable to its partners. Free-flight and free-routing, and indeed air traffic control in general, require a co-operative international approach, and all the other international partners are currently government-owned or government-controlled operators; none is yet in the private sector.

In short, the trust model proposed in the amendments would enable the Government to get what they want—that is to say, to pass the cost of financing investment to the private sector—while retaining many of the benefits of NATS remaining in the public sector. I beg to move.

5.45 p.m.

Lord Brett

I rise to express considerable sympathy with the proposals in this group of amendments. I apologised earlier for not being present at Second Reading. I did, however, set out my views on the proposals for privatisation or part-privatisation of NATS in my maiden speech last October, so my views at that stage were known to the Minister. I believe that the vast majority of the staff employed within NATS also have great sympathy with the proposal for a trust.

My noble friend Lord Whitty did a disservice to the trade unions in his reply at Second Reading. He said: The Liberal Democrats want to put it in a trust. The trade unions by and large want to keep it in state ownership. The Conservatives want it totally privatised".—[Official Report, 5/6/00; col. 1026.] My noble friend may be doing justice to the position of Liberal Democrats and the Conservatives, but the trade unions had said to the Government as early as February that there were two alternatives acceptable to them: one was the IPOC (Independently Publicly Owned Company) and the second was a trust. The trade unions provided a model—not one to be applied absolutely but one to be examined; namely, the system employed in Canada, where there has been a successful move to a trust. It has been the subject of correspondence and also of debate in another place. It remains a proposal with greater resonance than the Government's proposals with the staff of NATS.

The rationale behind the Government's decisions has moved swiftly, starting from a position of needing to plug a gap in expenditure plans of £500 million, inherited from the previous administration and applied by the present Government. The reasoning moved on to the need to raise the £100 million a year required for investment over the next 10 years, and to do so outside the PSBR. It then mutated into a desire to have a strategic partner to ensure that the UK would be a major player in Europe and the world as countries moved away from state provision of ATC, to fewer ATC centres and with much greater private sector involvement. In the latter stages the idea was of a UK NATS with a strategic partner, bidding successfully for air space and air traffic control systems abroad. The Dutch were mentioned by the Minister; and we are told that other European countries are preparing to move in a similar direction. Some time ago, we heard that foreign ownership within any strategic partner would be limited to a minority shareholding. Accordingly, the British flag would fly abroad and the growth of the PPP would bring treasure to the United Kingdom and to the Treasury itself.

Unfortunately, as we debate the Bill the reality looks rather different. The shortest odds that one will get now is that NATS in a PPP will become a subsidiary of a foreign-dominated consortium. Ironically, it may be a consortium involving the publicly-owned German air traffic control provider, DFS, or indeed perhaps the Irish air traffic control provider, Aircom, or it could be a multinational American provider of ATC equipment. It may even be the same supplier that has supplied Swanwick so unsuccessfully for the past three or four years. It could be a state-dominated company from Europe such as Thompson CSF. We do not know, but we can be sure that that is why the staff are not particularly enamoured of the Government's proposals and why they would prefer to see a trust model. This they believe would meet, without any risk, the Government's objectives as stated in the Queen's Speech. It said simply that their programme would: include measures for National Air Traffic Services to separate safety regulation from operational matters"— with which we all agree— and deliver major investment in the next generation of technology". That, it seems, is where we have begun to move away from what would be a perfectly adequate way of dealing with the matter, outside the PSBR, without the constraints of the public sector and in a way that could raise the capital less expensively than in other ways—possibly possibly by using bonds.

The Canadian model bears examination. But that model has been traduced. We were told in another place that it is not accountable. That is not true. It is accountable to the Canadian Minister who is responsible for transport. Indeed, the point was made obliquely by the Deputy Prime Minister when he said that the Canadian Minister could issue instructions for safety and such; but that is the whole purpose of having direct accountability.

My worry is that, with a 70 per cent stakeholding of a private sector partner, in four or five years' time—in a PPP with 5 per cent in the hands of staff and 25 per cent, even with a golden share, in the hands of government—there will be less confidence among staff and users than there is at present. It is interesting that the airlines consortium, while approving the move away from the current NATS proposal, favours a not-for-profit organisation. The question is whether, even at this late stage, the Government can reconsider the proposal for a trust model. It is not true that it is without accountability. In Canada, the largest number of directors are appointed by government and follow government dictate. It was said in another place that there is no control over profits. But in the Canadian model there are no profits as the money is re-invested for the future investment and goes towards reducing costs to the traveller and the airlines. The record of the Canadian model since its introduction has been just that: increased investment and reduced cost.

One of the reasons why I very much favour the trust model is that it is hard to find a smaller group of people than those who favour the Government's PPP. There is a small group of people who want Connex SouthWest to have its franchise renewed. However, even the number in that group exceeds the number of those who want to see the PPP that is proposed for the privatisation of air traffic control services.

I believe that even at this late stage it is worth reconsidering the Canadian model to see how it can be applied, with suitable amendment, to the UK situation. It can provide everything that we need without the risks inherent in the Government's proposals. For that reason, I have much sympathy with this group of amendments.

Lord Smith of Clifton

I rise to support the amendment. I welcome the observations of the noble Lord, Lord Brett. The advantage of the public trust model is that it is a not-for-profit body and thus can concentrate on safety. It can also involve the parties who are most concerned: airlines, employees and government representatives. It has been suggested that there is a need for the injection of private sector management skills. Frankly, as it stands NATS has been proved to be replete with such skills in the discharge of its duties. If something more is necessary, it can be out-sourced, which is often a better solution than in-house provision, particularly in the case of project management.

If we follow the trust model, NATS can raise funds more cheaply and easily. NavCanada's initial bond offer was three times over-subscribed. At Second Reading in another place the Secretary of State said that NATS would require £1.3 billion of investment over the next 10 years. The simplest and cheapest way to fund this proposal is for the Treasury to borrow the money long term on behalf of NATS. At present, the interest rate on 30-year gilts is 4½ per cent. Mr Prescott put it very clearly: NATS is denied access by restrictive Treasury rules to new forms of financing to fund the … investment required".—[Official Report, Commons, 20/12/99; col. 534.] If, however, the Chancellor is not prepared to relax his grip, the second best option is to restructure NATS into an independent publicly-owned trust on the lines of the new Post Office or, even more appropriately, the Canadian model, as amended to suit UK needs, either with no outside shareholding or a modest shareholding made available to employees, such as the 5 per cent currently proposed in the Bill.

No substantial shareholding in NATS would be sold off, but the borrowing of NATS would no longer be subject to Treasury control because such borrowing would be "without recourse" to the Government. Borrowing in this way would cost more than issuing gilts—initial City estimates are that it would cost between ½ per cent and 1 per cent a year more; that is to say, 5 per cent to 5½ per cent per annum—but would be much cheaper than selling almost half the equity shares in a privatised NATS to investors who, quite naturally, would expect annual returns of between 10 per cent and 15 per cent.

No other country in Europe has privatised its air traffic control system. Holland, Germany and Austria have all set up new state-owned limited liability companies or trusts in the past few years and successfully raised long-term funds for capital investment at very favourable rates which reflect the high credit rating awarded by the markets to air traffic control revenues because they are guaranteed. NATS is not a competitive, commercial operation like British Airways where profit maximisation in an intensely competitive world market is the target. Air traffic control is essentially a service where safety and efficiency are paramount and where the key requirement is to deliver that service at the lowest long-term cost. High equity-type returns to outside investors are neither necessary nor appropriate because the risks of financial failure are so low.

Further, if the Government wish NATS to repay its existing debt of some £300 million to the National Loans Fund, there should be no problem in funding it by the issue of long-term bonds by the new NATS once it has been established as an independent publicly-owned trust.

At Second Reading in this House, the noble Lord, Lord Whitty, said: Our solution [partial privatisation] will mobilise private capital, not primarily through the sale, but through the ability to tap into capital markets over time, for huge investments are needed … It will provide a stable framework, which air traffic control has not had, because of variable funding, over the years".—[Official Report, 5/6/00; col. 1026.] The Minister confuses ends with means. We all agree on the need to tap into the capital markets to fund investment, but an independent publicly-owned trust will be able to do just that as cheaply and reliably without giving away operational control and high returns to outside private investors.

The Government's plans for NATS are simply bad value for taxpayers' money. It is time to break the whole privatisation and PFI culture which pervades this Government and to examine proposals like this coolly, rigorously and on their economic merits. This was not in the Government's manifesto, and it is a part-privatisation too far. That was also the conclusion of the Select Committee of another place. Its report concluded: In one particularly striking way, the NavCanada model meets and exceeds another of the Government's objectives for the public-private partnership, because the Government would accrue revenue from the sale of 100 per cent of NATS. The IPMS and PCS suggested that the sale of NATS to a non-share capital corporation might generate £1 billion: if the company's debts are to be written off, and the fees payable to advisers are similar to those under the PPP, the Government would receive £670 million, considerably more than the [mere] £20 million it seems likely to receive under the PPP".

Lord Hoyle

Like other Members of the Committee, I would prefer that NATS remains completely in the public sector. I am still not persuaded that there is any good reason why the present situation cannot continue. However, if it is not to be in the public sector I believe that it should be a public company flotation very much along the lines of the Post Office. It would have freedom to borrow and would remain under public control. The third option is the trust model which is not about making profits. With such an organisation safety is paramount and no shareholder has to be satisfied. As my noble friend said, that model puts money back in, not only to reduce the cost to those who use the service but also to enable investment to take place.

During an earlier intervention I pointed out that the consultation document, which has already been discussed, warned that under these proposals investment might decrease rather than increase. My noble friend Lord Brett also gave that warning to the Minister.

It has been suggested that the trust model means that the organisation is unaccountable to anyone. It is also said that it will not be efficient because, not being responsible to anyone, it will not run the service efficiently or cut costs. However, the representatives on the board of the trust are the Government, the airlines which use it, the unions and consumers. All of those interests will bring pressure to bear to ensure that NATS is an efficient, modern, outward-looking body that is at the leading edge of technology. So far, such pressures have been applied; and not only have costs been reduced but investment has taken place.

Having said that I have a great deal of sympathy for the trust model, which I hope the Government will reconsider, I should add that I prefer a PPP to all-out privatisation. As I understand it, that is the position of the Conservatives opposite. I agree with the trust model. The Conservatives, who believe in complete privatisation, go along with the Liberal Democrats in what I termed a marriage made in hell. I cannot support them. That agreement is not made on the basis that the trust model is a better solution but as a result of seeking political advantage. If I thought that they believed in the trust model, I might agree with them. However, I cannot support their opportunism in getting rid of any principles they may have had in supporting the trust model. I shall abstain. However, I appeal to the Minister to consider the issue again. I ask him not to rule out the trust model but to consider whether we can adopt it.

6 p.m.

Lord Faulkner of Worcester

Unlike every previous speaker, including two of my noble friends on this side of the Chamber, I ask the Government to resist the amendment. I do not believe that the Canadian trust model is appropriate or workable for the future of air traffic control in this country. It would fall foul of European rules and make it impossible for us to play any part in the expansion of air traffic control services in the European Union or elsewhere in the world.

The trust model would not bring into the running of the organisation the world class strategic partner which NATS in future will need to complement the operational skills which our air traffic service has at present. There would not be sufficient incentives in a NavCanada type model for the organisation to improve its performance. For example, no shareholder scrutiny would be brought to bear on the operational efficiency or business development. The trust would have only debt; it would have no equity and no shareholders. They would not be putting their own money at risk.

Lord Brett

I apologise for interrupting my noble friend. Can he explain how the NavCanada model has produced greater investment and lower costs if the argument he puts forward are sustained?

Lord Faulkner of Worcester

The circumstances in Canada are very different from those which apply in Europe. The scale of operation which NATS in Europe is required to take on is larger. Shareholders put their own money at risk and want to see efficiency improved through participation in a PPP of the kind the Government propose in the Bill. That is likely to produce greater investment and opportunities for expansion in the future.

Baroness Thomas of Walliswood

Does the noble Lord consider that the accountability by the trust to the existing economic and safety regulatory systems—we are not interfering with them in any way—and its responsibilities to the board, its owners—it involves, users, airlines and so forth—are sufficient?

Lord Faulkner of Worcester

I do not think that that is sufficient accountability. However, that argument is not as important as the fact that the organisation will not attract the necessary private capital. The formula the Government propose will free NATS from Treasury financial control. Noble Lords on all sides of the Chamber agree with that.

Lord Hoyle

I am sorry to interrupt my noble friend; I know that it is somewhat unfair. He said that this model would not fit in with the European model. We would be the first partially to privatise air traffic control. How does my noble friend square that against the German model which is totally publicly owned?

Lord Faulkner of Worcester

My noble friend is brave to forecast the shape of air traffic control in Europe in five years' time with the introduction of the open skies policy. The circumstances then will be very different from now.

I support what the Government are doing because it will give NATS new commercial opportunities.

Lord Clinton-Davis

Before the noble Lord sits down, perhaps I may ask him this. He said that in five years' time the situation may be very different. It may; it may not. We are dealing with the current situation. Will the noble Lord indicate to the Committee his current beliefs?

Lord Faulkner of Worcester

I am delighted to do so. I am grateful for the intervention. In that argument, my noble friend omits an understanding of the scale of investment that will be required in air traffic control in future years.

I am happy to support the Government's proposal. They are cracking the problem of under-investment in the past. They are opening up air traffic control to a world class strategic partner. It will give the taxpayer the opportunity to share in some of the successes which will result from this new venture.

Lord Shutt of Greetland

I have difficulty following the noble Lord. Only the week before last, he was a most vigorous promoter of mutuality. That related to financial services. We seem to be in a different trade today. However, what he said the week before last and today seems to be at opposite ends of the spectrum. It is not a straight position to hold.

Lord Macdonald of Tradeston

New Clause 68 and its associated amendments seek to restrict the strategic partner to a not-for-profit company. The new clause would also require the Secretary of State to satisfy himself that the company includes representatives of employees and users of aviation, air travel, air navigation and related services.

I assume that one purpose of this new clause is to establish that profit will not be put before safety. Let me again assure noble Lords now that whatever type of strategic partner we select, whatever his nationality, whoever it is, profits will never be put before safety. This PPP will not jeopardise safety: rather it is designed to enhance the safety regime for air traffic control. Safety regulation will stay firmly in the public sector in a reformed CAA. The robust public sector regulatory regime will ensure that whatever the status or ownership arrangements for NATS, the company will remain one of the safest air traffic service providers in the world. In short I do not accept the "profit before safety" argument—and nor should other noble Lords. Perhaps I may respond to the context set by the noble Lord, Lord Brett.

Lord Smith of Clifton

I thank the Minister for giving way. In an earlier contribution he said that safety should be balanced with other priorities. One cannot balance one priority with another. One can only list priorities. Does he now say that safety remains the paramount priority and that the balancing act to which he referred would be a somewhat subordinate activity?

Lord Macdonald of Tradeston

As I thought I had said clearly, safety is paramount. I also said that if one is looking for absolutism in that kind of semantics, one will not find it in aviation or any other mode of transport.

I should like to offer a context, as did the noble Lord, Lord Brett, as to how we see the future developing in air traffic control. At present there are 49 centres in air traffic control in Europe. The skies over Europe are increasingly congested. We heard earlier suggestions of the growth rate which seems almost inexorable, whether the figure is 5 per cent or 6 per cent a year. It has been continuing for decades and there is no sign that it is about to stop.

We are told, too, that the technology would allow those skies over Europe to be controlled not by 49 centres but by around half a dozen. In the face of this economic imperative related to congestion—it is causing great difficulty for users, airlines and others—the advance of technology that is in prospect and the high cost of future investment of systems which might be beyond the reach of some smaller states, do noble Lords consider that the status of 49 air traffic centres across Europe is sustainable indefinitely? If they do not, I ask them to contemplate what process will take place to give us the rationalisation which seems inevitable.

Lord Clinton-Davis

I thank the Minister for giving way. I want to ask him a question because he is in charge of this matter. Can he indicate where, apart from the United Kingdom, governments are contemplating a scheme similar to that which he envisages?

Lord Macdonald of Tradeston

I can indeed. I would point the noble Lord to Holland. I have had conversations with the Dutch, who were minded to privatise their service but who are now interested in the variant of part-privatisation with which we are involved.

I believe that we have the potential to export the expertise that has been so well represented by my noble friend Lord Brett and his colleagues in air safety. If there were to be an end-game in which there might be half a dozen big players in a globalising industry, I should like to think that a British-based company would be a major player.

I want to stress again to the Committee that there is nothing in the legislation, or elsewhere, which would prevent a viable not-for-profit company from becoming our strategic partner. If such a company could pass all the eligibility criteria, if it could otherwise be made compatible with our proposals for the PPP—for instance, shareholdings—and if it put in a good bid, then a not-for-profit group could be the right partner for the Government.

However, in order for us to take a view on that, and for a not-for-profit group to prove that it offers the best future for NATS, there needs to be a competitive process which allows a rational assessment of all the bids we receive. Any not-for-profit bid needs to stand up and be assessed alongside other bids. Limiting the selection criteria to a not-for-profit group would knock out potential candidates who might at the end of the day be a better partner.

The second change which the new clause would make would be to require the involvement of representatives of employees and users of aviation in the ownership of a company. It is right to assert that such people have a crucial interest in the future of NATS. That is why we have devised the innovative stakeholders council. Although not part of the decision-making structure of the company, it will certainly be an influential body whose views will carry considerable weight. And the employees of NATS will, apart from their participation in that council, have a 5 per cent stake in our PPP.

The proposed amendment suggests that some Members of the Committee believe that a trust model, such as the NavCanada model, is appropriate for NATS. Such a model does indeed comprise representatives of government, airlines, unions and "independents" on its board but it is not itself accountable to anyone. Unlike the PPP, it is accountable only to the Canadian Government on safety matters. Transport Canada acts as safety regulator. But there is no other form of accountability. Nor is there any other form of economic regulation to encourage efficiency and market responsiveness. I also find it interesting that such a model is proposed by Members opposite when NavCanada itself refers to the setting up of the trust, which was followed by a massive re-organisation during the past three years, as "privatisation".

Yesterday I received the NavCanada annual report containing a message from its president and CEO. He stated: First came the privatization itself … to rebaseline our costs as a private sector company. This is a tough thing to do even at the best of times, particularly given the fact that it saw about 1,000 people leave the company over the last two years. On top of these enormous changes, we all had to deal with the process of renegotiating all of the collective agreements". He confesses that he has much to do to improve the employee climate and that morale has suffered.

Lord Brett

The Minister addressed the privatisation point. If in four or five years' time NATS has a 70 per cent private ownership, with 25 per cent held by the Government and 5 per cent held by the employees, it would be difficult for anyone in the City to see it as other than a privatised organisation. Day-to-day control would be given to the private sector on day one and the majority shareholding would be in the private sector.

I am prepared to accept that it is a part privatisation now, but if we are being challenged on the meaning of "privatisation", I have difficulty with a 70 per cent privatised public body.

6.15 p.m.

Lord Macdonald of Tradeston

We have said throughout that the most important issue is regulation, particularly in relation to safety. But in the construction of the PPP, and in the context of the global industry which I have described as consolidating inexorably, we have put in place a mechanism which will allow the public sector, the taxpayers, to share in what I believe will be the commercial success of such a company. I believe that opportunities will open up across Europe and around the world. I say to my noble friend Lord Brett that if there is dilution of equity and the Government end up with 25 per cent, that amount will give them no less influence than the 49 per cent which they had at the beginning. Furthermore, if they had 49 per cent of a company valued at £1 billion, in the years ahead they would be in a better position with 25 per cent of a company worth £5 or £10 billion. That is the purpose of what we are trying to construct.

At a distance, NavCanada may seem a neat, off-the-shelf alternative, but as my noble friend Lord Faulkner said, the circumstances there are very different and the process has been difficult for the employees involved.

Lord Williams of Elvel

I am sorry to intervene, but my noble friend earlier stated that security and safety was paramount. Later, in response to a challenge from the noble Lord, Lord Smith, he said that security was paramount subject to other issues. If the Minister can assure us that "paramount" means "paramount" as understood in the English language, I should be happier with the Government's proposal.

Lord Macdonald of Tradeston

I have tried on a number of occasions to make it clear that I do indeed mean that safety is paramount; that it comes before any other priorities which would face a commercial company of this kind.

I do not believe that the trust or NavCanada model would provide the platform to bring in a committed world-class strategic partner to inject the kind of expertise into NATS' operational skills that we require. The noble Lord, Lord Smith, stated that it had a fine record of management. It has an excellent record of management on the safety side and that is a tribute to the employees. Unfortunately, I do not believe that we have the same record of success as regards the control of major projects such as Swanwick and the new Scottish centre. I believe that we could have done much better with the kind of private sector expertise which would be introduced under our PPP proposal.

We do not believe that the NavCanada model would bring shareholder scrutiny to bear on NATS' operational efficiency or business development because it has no equity, only debt. Without shareholders who would have put their own money at risk, the incentive would be lacking and all costs, irrespective of the level of inefficiency that caused them to be incurred, would be passed on to users in the form of higher charges than would otherwise be the case.

A final area of doubt relates to the ability of the trust model to compete effectively in the liberalised world market for air traffic control which I believe will soon confront us. Therefore, I believe that the new clause and its associated amendments are unnecessary and I invite the noble Baroness to withdraw her amendment.

The purpose of new Clause 69 and its associated amendments would be to require Parliament to pass further secondary legislation before any transfer schemes could be put into effect. It would also require the Secretary of State to produce a progress report on the development of NATS facilities before any secondary legislation could be considered. The new clause and its associated amendments would result in a time-consuming and cumbersome mechanism. The proposed schemes would be subject to consultation with those concerned, and would be designed to achieve the complete separation of regulation from service provision. Parliamentary approval to each scheme is entirely unprecedented and could jeopardise the PPP timetable.

The requirement for the Secretary of State to produce a report on the development of facilities connected with National Air Traffic Services is also entirely unnecessary. I assume that that has been inserted in order to place on the face of the legislation some commitment to the Prestwick centre. That commitment will of course be contained in the strategic partnership agreement and it will also be a licence condition. In addition, the Government accepted an amendment in another place which will reinforce these commitments on the face of the legislation. That amendment is now Clause 51 (3).

I have dealt at length with a number of proposals for new clauses and for other amendments to the Bill. For the reasons that I have given, I urge your Lordships to reject the amendments proposed.

Baroness Thomas of Walliswood

The noble has Lord made a spirited defence of his proposals, or, perhaps it is more correct to say, an attack on my proposals. As a result of listening to him, I am more and more convinced of the truth of what the noble Lord, Lord Brett, said. He made the point that the motivation for this whole scheme seems to have transmogrified from a simple effort to evade the limits of the public sector borrowing requirement to become a kind of banner-carrying imperialist company which will march around the air traffic control systems, not only of Europe but of the entire world, and bring in revenue for shareholders and the Government alike.

The Minister then challenged us to imagine what the process of air traffic control would be and how we would arrive at the smaller number of air traffic centres that are supposed to be forecast for the future. I am unable to do that. If the noble Lord can do so, he should have explained it to us. I believe that with the resources at his command he is in a better position to make a forecast on such a matter than are we on these Benches. However, I know that the first step in achieving any kind of rationalisation of air traffic control on the continent of Europe has hardly been taken. We have hardly begun to co-operate with the existing air traffic organisations. That surely is the first desirable step in enabling us to make a better fist of air traffic control in Europe.

After the ability to co-operate has been established, matters will be decided not only by this country but by air traffic control organisations and governments in every country. I invite Members of the Committee to consider the likelihood of, let us say, the French allowing a British company to take over air traffic control in la belle France. The French are very happy to come and buy our water, and our post-privatisation process allows them—one might say rightly or wrongly, according to one's point of view—to do that, but I doubt that such an arrangement will be reciprocal.

I shall not go through—

Lord Clinton-Davis

Before the noble Baroness sits down, we have heard from the Minister only that he has had discussions with the Dutch. That is all. It does not mean to say that the Dutch will do precisely what the Government propose—not at all. Therefore, apart from discussions which the Minister has had, what kind of evidence is there that any other system is available anywhere in the world?

Baroness Thomas of Walliswood

I am grateful for that interruption from the noble Lord, Lord Clinton-Davis, who speaks with all the experience of years in government and on your Lordships' Benches. In the context of what he says, it is perhaps worth pointing out once again that the United States, arguably the country most devoted to the private competitive system—capitalism—is the country in which every single air movement, made by no matter whom and by whatever size of aeroplane on whatever business, whether commercial or otherwise, is regulated by a federal organisation funded entirely from taxation—and not as is NATS, by the charges raised from the operators of airlines. Therefore, I believe that the noble Lord's point is well made and I thank him for interrupting me for that purpose.

I believe that no useful purpose will be served by taking this discussion further. We shall retire this evening to consider our next best action. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Brabazon of Tara moved Amendment No. 20: Page 4, line 12, at end insert ("and the legal and beneficial ownership of a majority of shares carrying voting rights in such a company, and the control of such a company, is vested in a person who is a British citizen. ( ) For the purposes of this section references to "control" shall be interpreted in accordance with section 840 of the Income and Corporation Taxes Act 1988 and the expression "controlled" shall be construed accordingly.").

The noble Lord said: In moving Amendment No. 20, I should like to speak also to Amendments Nos. 21, 79 to 84, 91, and 105 to 107. The main amendment in this group, if I may express it that way, is Amendment No. 84. I did not want to disappoint the Committee, and Amendment No. 84 proposes a full-scale privatisation of National Air Traffic Services with an offer for sale and all that goes with it.

I was fascinated by the debate on the previous amendment. However, as I believe that the noble Lord, Lord Hoyle, said, our preferred option is a full-scale privatisation. As I said, I did not want to disappoint your Lordships by not moving the amendment or sticking to my guns. Also grouped with that main amendment are a number of other, perhaps more detailed, amendments to the Government's proposals, particularly with regard to the issues of national security, foreign ownership, the golden share and so on. I have grouped them together in order to save us a little time.

As I said at Second Reading, we believe that the partial privatisation, or public/private partnership, or however the Government like to describe it, proposed in the Bill is an under-valued and convoluted compromise. Instead of a simple flotation of the company with a golden share to provide for permanent UK control, the Government public/private partnership is, as I say, a somewhat convoluted compromise. They plan to sell a 46 per cent interest to a trade bidder—as has been said, possibly a foreign bidder—who will be given control of the business at what we believe to be a knock-down price. Foreign control could have serious national security implications.

We have heard mentioned a number of names as possibilities for the strategic partner, including the Airline Group and some companies which—again, this gives me something of a problem—appear to be large-scale suppliers of equipment to National Air Traffic Services. Therefore, one could end up with a situation where the strategic partner is one of the main suppliers to National Air Traffic Services. Presumably that would have competition implications for whomever NATS buys its equipment from in the future.

There is also the question of giving 5 per cent of the shares to the staff. I do not know how that will work. As the company will not be quoted, the staff will not be able to buy or sell their shares and they will not feel that they have any ownership of them. The artificial voting arrangements to protect the controlling minority stake are bound to be problematic, because the three-way split will inevitably lead to confusion over who is in day-to-day control.

The Government are underselling NATS. The explanatory notes say that they will sell it off for just £15 million, against a valuation of around £800 million. In Amendment No. 84 we propose a straightforward flotation, with a golden share to protect the Government's position. That will have the benefit of giving employees a market for their shares and therefore real value. We want the shares to be sold at the best price reasonably obtainable, not for the paltry sum that the Government envisage. We also want share ownership to be as wide as possible, not the exclusive partnership that the Government have opted for.

We also propose a delay in the sale, as we believe that it would be much better to wait until Swanwick is up and running. I think that 2002 is the latest estimate. The Government would then have a much better idea of the value of the company.

Above all, in the interests of national security, we want control of the company to remain firmly in British hands.

6.30 p.m.

Lord Clinton-Davis

Amendment No. 107 says: Nothing arising from the European Communities Act 1972 shall limit the powers of the Secretary of State to give directions under this section". Has the noble Lord consulted the European Union about that? Does he believe that he can advance that amendment?

Lord Brabazon of Tara

I have not consulted the European Commission. I am proposing amendments to a government Bill. It is not necessarily for me to give details about how the amendments might work. It is for the Government to respond to the points that I make.

Lord Clinton-Davis

That really will not do. The noble Lord is putting forward ideas for amending the Bill. Those ideas must be in line with European law. Whatever his views about the European Union, his idea must be viable. If it is not viable under international law, he should not advance it to the Committee.

Lord Brabazon of Tara

I shall come to those amendments and explain why we feel that they are necessary to cover a certain eventuality.

I shall be as brief as I can. Clause 5(4) provides for the licence holder to be a British-registered company. But a British-registered company can be in the hands of an overseas national, possibly one from an unfriendly state. In the interests of national security, the amendments would require that the licence holder be British-controlled and that the licence be forfeit if that ceases to be the case.

The noble Lord, Lord Clinton-Davis, may have been referring to the amendments that deal with the golden share. The European Commission has recently challenged the Government's ownership of golden shares in other companies, particularly BAA, claiming that the Government are infringing EU law on the free movement of capital. We believe that it should be made clear in the Bill that the crucial provisions on the golden share stand, regardless of anything in European law.

Lord Clinton-Davis


Lord Brabazon of Tara

I have given way enough to the noble Lord and I shall press on if I may.

Clause 51 relates to the ownership of the public/private partnership. I cannot see the logic of subsections (4) and (5), which provide for the Government to retain 49 per cent of the issued shares initially, and thereafter not less than 25 per cent. The initial 49 per cent can apparently be diluted by subsequent issues, so what is the point of it? It does not leave the Government with overall control of the company—for that they would need 51 per cent. With 5 per cent going to employees, there will he two big blocks of shares, neither of which gives control of the company. That is a recipe for confusion and rudderless management.

The provision for the retention of 25 per cent is even more baffling. It would make more sense to retain 26 per cent, because that would at least give the Government the right to block any measure that required a special resolution, whereas 25 per cent gives no rights. If proper provision is made in the articles of association to protect the Government's position, there should be no need for the retention of a block of shares.

Amendment No. 83 would delete Clause 51(12). Clause 51 is the key to this part of the Bill, containing vital provisions for national security and establishing the future framework of the country's air traffic service. It has rightly been subjected to intense scrutiny by Parliament and is a subject of considerable controversy, yet the Secretary of State wants to give himself the power to change or scrap it at will. That is unacceptable. Any changes deserve the same parliamentary scrutiny as the original clause.

That describes the general thrust of our amendments, which relate particularly to national security and what happens during times of emergency or international tension. They also deal with the golden share and the central issue of foreign ownership.

I am particularly concerned about the Government's proposals in the light of the report from NATS and the CAA Economic Regulation Group. I have assumed that the point of the exercise was to increase investment, not to reduce it. I do know whether all noble Lords have seen a copy of the document. I hope that the Minister will be good enough to make sure that a copy of it is placed in the Library.

I am greatly concerned about the savings of between 16 and 29 per cent in capital expenditure in the first quinquennium that the document considers, in addition to the 7.5 per cent efficiency gain. I have a number of questions for the Minister on that. What assessment has he made of the safety implications of cost reductions in the operations of NATS, as recommended by the Economic Regulation Group? Secondly, what representations have the Government received from the management of NATS, the Institution of Professionals, Managers and Specialists—the controllers' union—and the Guild of Air Traffic Control Officers about the cost reductions in the operation of NATS, as recommended by the ERG? I do not know whether the noble Lord has seen the press releases from both IPMS and the Guild of Air Traffic Control Officers but I think he must agree that they make quite damaging reading.

Thirdly, will the Minister say what is the forecast for capital spending by NATS in the current year and for the next five years and what increases in capital spending are anticipated as a result of the proposed public/private partnership? Can he tell us something about the companies or organisations which have expressed an interest in becoming a strategic partner in NATS and whether he has received any representations from them about forecast capital spending in NATS over the next period of time. I feel that we really deserve an answer to those questions.

Lord Brooke of Alverthorpe

I am grateful to the noble Lord for giving way. I am becoming confused. I understood that the noble Lord was moving an amendment for full privatisation. I listened carefully to the noble Lord earlier when he expressed concerns about the documents that have emerged which are on the Internet in relation to the Economic Regulation Group of CAA looking for cuts in capital expenditure and in running costs. I ask the noble Lord to clarify how he can advocate privatisation while at the same time expressing concerns about cuts of that nature being effected because privatisation would be required to effect efficiency savings in some way or another to pay dividends to shareholders.

Lord Brabazon of Tara

I said that I was moving the amendment on pure privatisation as well as speaking to other amendments to improve this particular PPP.

At the moment, the Government are not offering pure privatisation. Therefore, it is not what the ERG of the CAA is looking at for the time being. Our amendment provides that there should be a delay until such time as Swanwick is open. But the noble Lord makes the point that a privatised air traffic service will have to make profits and pay a dividend to its shareholders. Therefore, the noble Lord can make exactly the same point to the Minister on the public/private partnership because, as was said earlier, that is, in effect, a privatisation. If the shareholding falls, as it can do, down to a mere 25 per cent holding by the Government, then the noble Lord will find himself in exactly the same boat.

I look forward to receiving the Minister's response on these matters. I beg to move.

Lord Clinton-Davis

I sympathise with the former Minister for Aviation, the noble Lord, Lord Brabazon. At the moment, he does not know whether he is arguing for privatisation or not. So we have every possible sympathy with him.

This is a nonsensical series of amendments which has nothing to do with reality. I share the noble Lord's appreciation of what the Minister will do with it: he will kick the idea into the long grass, and that is where it deserves to be.

The Conservative Party has had 18 years to get the situation right and it chose not to do that. The Conservative government made a mess of NATS because they did not know what to do. I do not believe in the prescription of my noble friend, but what is being advanced now is of no consequence whatever.

6.45 p.m.

Lord Macdonald of Tradeston

Earlier in your Lordships' House, I saw the noble Baroness, Lady Thatcher, who would be dismayed to hear the halfhearted way in which privatisation was advocated by the noble Lord, but I can quite understand his embarrassment in this context and why he has not pursued it as full-bloodedly as one might have expected.

I deal first with a question which I thought we had despatched some time ago. I am grateful to my noble friend Lord Brooke for pointing out that the document which the noble Lord asked me to put into the Library has been available publicly on the Internet for many weeks now. As I stressed earlier, it is a consultative document.

Indeed, I have spoken to the management of NATS about it. Its chairman assured me that it was part of the robust consultative exchange that one would expect between the regulator and regulated in this period. We have received no direct representations from NATS or IPMS in relation to it. I repeat that it is still a process of consultation.

The noble Lord raised the question of capital spending. I do not have the schedule for the year-by-year intentions and capital investment. He will be aware that because of the confusion and incompetence of the PFI plans which we inherited from the previous government, we have had to redo the programme for investment, certainly for the new Scottish centre, and we had to take measures elsewhere to rephase that capital investment. But I assure him that we still expect to invest £1.4 billion over the next 10 years, as we have continually stated, and whatever more is needed to secure the necessary improvements in air safety.

I turn now to this wide-ranging group of amendments which I shall deal with in three tranches. The first tranche concerns Clause 5. The purpose of Clause 5(4) is to underpin the special administration regime in Clauses 26 to 33. If we have a licence holder which is not a company formed and registered under the Companies Act 1985, or predecessor Acts, or the equivalent in Northern Ireland, we should not be able to ensure the effective enforcement of the special administration regime.

The noble Lord's amendment seeks to introduce a nationality qualification into the ownership of the PPP. The Government do not see the nationality of a potential strategic partner as the sole consideration—or even the most important one. The Government would certainly rule out any prospective bidder, British or otherwise, who was not acceptable on grounds of national security or whom we did not consider a fit and proper person to have charge of our air traffic control system. We are developing stringent and objective selection criteria which will enable us to find the best strategic partner for the job. And that is an issue of quality, not nationality.

The noble Lord, Lord Brabazon of Tara, also seeks to set some parameters to what should constitute control of the company. I hope I can reassure the Committee on this matter. The licence holder will be obliged by his licence to notify the Secretary of State of any change to shareholdings which would result in an individual shareholding exceeding any one of a series of threshold levels—15 per cent or 30 per cent or 50 per cent—where it had not previously done so. If notification did not occur, or if the change went ahead despite an objection from the Secretary of State, the licence could be revoked under its own terms if the Secretary of State objected to that change because it was against the interests of national security and the objection was ignored.

The threshold of 15 per cent is important as it is the level at which a shareholder is able materially to influence the operation of a company. I should say in passing that from my business background I should not have accepted the discrimination which the noble Lord made between 25 per cent and 26 per cent. But perhaps we can look at that later. The safeguards we are building into the licensing framework, therefore, offer far greater protection for national security than would the amendment.

The second tranche of amendments in this group focuses on Clauses 51 and 56. Amendment No. 79 introduces for the first time the inter-relationship of community and national law. That relationship has already been raised extensively in another place. However, I shall touch on that point in more detail when I come to address the amendments in respect of Clause 93.

The Government are convinced that the outright privatisation of NATS, which noble Lords opposite advocate, would be a mistake. At least 51 per cent of the company would have to be sold and there would be no requirement for the Government to retain any shares. Yet, air traffic control is an area where the benefits of a partnership between the public and private sectors are very apparent. The proposed new clause would dispense with those benefits and deprive the people of this country of a voice in the management of air traffic control, which will increasingly be an international activity. Furthermore, as I said earlier, our aim is to facilitate the development of a major British-based company, successfully going out and working in air traffic control in countries around the world, not in any imperialistic sense, as the noble Baroness opposite suggested, but trying to deliver greater safety for those countries and for all the airlines, including British airlines, which serve them.

I note the suggestion in the amendments that British interests must control the company. I have already explained why I believe that to be wrong. Moreover, in the case of European Union nationals, it would not be compatible with our EU obligations.

As I have said, we expect air traffic control markets to liberalise over time. I do not think that we are alone in that. Our Dutch and other European colleagues are looking at those options. We want NATS to be at the forefront of the changes that we expect to see. We therefore want to be able to enter into co-operative arrangements, joint ventures and the like that will almost certainly figure in the markets of the future. In those circumstances, it makes no sense to adopt too insular an approach.

Amendments Nos. 81 and 91 seek to make provision for the special shareholder to he able to prevent a transfer of securities in NATS, other than the special share, on the grounds of national security. The first point to consider is when such a right might take effect. During the PPP there will be a strategic partnership agreement in force which will require the consent of the Secretary of State for each and every transfer of shares in NATS.

It seems, therefore, that the right proposed by noble Lords would be of use only following a flotation of NATS. The Government have no present intention of permitting such a flotation. However, even if a flotation was permitted, NATS' articles of association have been drafted in such a way that there would be a 15 per cent limitation on individual shareholdings in the floated company. That limitation would prevent anyone other than the Crown from obtaining an influential stake in a floated NATS. In addition, NATS would remain subject to its relevant licence obligations, which I have described.

Amendment No. 82 seeks to prevent any successful challenge to the special share under any European law which the European Community may make. As noble Lords will understand, this is not an amendment which can be accepted as the United Kingdom has signed and agreed to be bound by the Treaty of Rome, as amended. Furthermore, the European Commission has a legitimate interest in ensuring compliance with the fundamental community freedoms of movement of capital and right of establishment.

The legal advice we have is that the NATS special share scheme arrangements are compatible with those freedoms. I have to say that the apparent intention of the amendment to entrench the special share rights as a state measure rather than reinforcing provisions of private company law, as we intend, might well be unwise in this context. Given the strength of the Government's position, if the Commission were to institute proceedings against the UK on NATS, the Government are prepared to defend their position on the special share.

I turn to Amendment No. 83. I consider that the proposal to remove the right of the Secretary of State to amend or repeal the section is unnecessary. The exercise of this power is subject to the approval of both Houses of Parliament under the provisions of Clause 102(6) of the Bill. Moreover, in its report on the Bill the Select Committee on Delegated Powers and Deregulation commented that it did not see this power as inappropriate, and saw the affirmative procedure as providing appropriate control over its use.

I turn to the third tranche of amendments in this group concerning Clause 93. Amendment No. 105 seeks to provide a power for the Secretary of State to direct the CAA or a licence holder regarding the performance of its functions if thought appropriate to do so in the interests of national security. We already have such a power by virtue of Clause 38 of the Bill and Section 6 of the Civil Aviation Act 1982. The latter provision is not being repealed.

Clause 38 provides that a licence holder may be given directions, either of a general character or specifically to do or not to do a particular thing if the Secretary of State thinks it necessary or expedient to do so in the interests of national security.

Section 6 of the Civil Aviation Act 1982 gives the Secretary of State similar powers of direction in respect of the CAA. It is against that background that the Government take the view that adequate and comprehensive powers are already provided for in the Bill. It is our view that the amendment is simply unnecessary.

Amendment No. 106 seeks to allow the Secretary of State to give directions to a person following an air traffic administration order. We think that that amendment too is superfluous. My advice is that the reference to a person who provides air traffic services, in the list of those to whom a direction may be given, clearly includes someone who does so under an air traffic administration order.

Amendment No. 107 endeavours to ensure that the direction-giving power in Clause 93 may be exercised even if the directions so given were inconsistent with the European Communities Act 1972. I should perhaps restate the obvious. We have signed and agreed to the Treaty of Rome, as amended.

I hope that I have demonstrated that, while we share the very reasonable concerns of the party opposite about national security, the amendments are either unnecessary or inappropriate. Perhaps I may say to the noble Lord, Lord Brabazon of Tara, that we have tried repeatedly to make clear that the arithmetic he used to arrive at £15 million net for NATS was not correct. We have tried to explain that detail in a number of places and, indeed, in the Explanatory Notes. The noble Lord has not taken account of how the debt will be treated inside that sum.

The £15 million quoted arises from confusion around the treatment of the £300 million debt that NATS owes to the National Loans Fund. That has to be extinguished prior to the PPP as private sector bodies cannot borrow from the NLF. The estimated figure of £350 million stated in the Explanatory Notes for the proceeds from NATS from PPP is net of that debt. Consequently, taking account of current estimates of the cost of the sale, that would give potential final receipts of over £300 million plus the benefit of another £300 million debt repayment. It would probably be of more use to have used the concept of enterprise value to find a total. However, this is an estimate. The final proceeds could well be higher, depending on the level of bid received from potential strategic partners. We have no intention of letting NATS go at a knock-down price, as the noble Lord suggests. Accordingly, I invite the noble Lord opposite to withdraw his amendment.

Lord Brabazon of Tara

I am grateful to the Minister for his reply. I shall read carefully what the Minister had to say on the detail of my amendments. I really do take issue with the noble Lord, Lord Clinton-Davis, when he argues that they are of no importance or significance. I believe that national security, the golden share and foreign ownership are matters of great importance. Indeed, they are issues which are covered in the Bill, so they must be important.

Lord Clinton-Davis

I was referring to Amendment No. 107. The noble Lord seeks to do something which is incompatible with European law. He should not put forward that argument before this Committee.

Lord Brabazon of Tara

I have put forward that argument. I have listened to the reply given by the Minister. To that extent, it is a useful exercise. We must be allowed to put forward amendments. The noble Lord, Lord Clinton-Davis, also accused the previous Conservative government of not doing anything about national air traffic services. A great deal of money was invested in that during the period of the previous government. As we all know, a great deal of money still needs to be invested. The problem has arisen, of course, of persuading the Treasury to let that money be borrowed from the PSBR. That affects this Government just as it affected the previous one. So we appreciate that something needs to be done to allow NATS to receive capital investment. I was encouraged to hear the Minister repeat the fact that we are still looking at a figure of around £1.4 billion over the next 10 years.

As I said, I am grateful to the Minister for his responses to my individual amendments. But I turn now to our main amendment, which is a proposal for complete privatisation. Of course, it would involve selling 51 per cent of the company. I see no harm in doing that. It was exactly what happened in privatisations such as British Telecom, which were slated by the party then in opposition and which turn out to have been a great success. That success has been repeated throughout the world. The Minister is right to say that there will be potential for overseas involvement by the new company when more liberalised air traffic control systems are introduced throughout the world. That would be so in a fully privatised company. So there is no difference in that respect.

I do not like the proposal that the Government have now put before us—for different reasons from those put forward in the previous debate on the Canadian trust model. I should like to promote the idea of total privatisation and therefore seek the Committee's opinion on Amendment No. 20.

7.1 p.m.

On Question, Whether the said amendment (No. 20) shall be agreed to?

Their Lordships divided: Contents, 31; Not-Contents, 127.

Division No. 1
Astor of Hever, L. Marlesford, L.
Attlee, E. Moynihan, L.
Brabazon, of Tara, L. Murton of Lindisfarne, L.
Burnham, L. [Teller] Northbrook, L.
Cope of Berkeley, L. Norton of Louth, L.
Denham, L. O'Cathain, B.
Dixon-Smith, L. Onslow, E.
Park of Monmouth, B.
Fookes. B. Peel, E.
Geddes, L. Renton, L.
Glentoran. L. Seccombe, B.
Hanham, B. Skelmersdale, L.
Henley, L.[Teller] Soulsby of Swaffham Prior, L.
Kingsland, L. Swinfen, L.
Lyell, L. Weatherill, L.
Mackay of Ardbrecknish, L. Wilcox, B.
Acton, L. Currie of Marylebone, L.
Addington, L. Dahrendorf, L.
Alderdice, L. Davies of Oldham, L.
Alii, L. Desai, L.
Amos, B. Donoughue, L.
Andrews, B. Dormand of Easington, L.
Archer of Sandwell, L. Dubs, L.
Ashton of Upholland, B. Elder, L.
Bach. L. [Teller] Falconer of Thoroton, L.
Barker. B. Farrington of Ribbleton, B.
Bassam of Brighton, L. Faulkner of Worcester, L.
Beaumont of Whitley, L. Filkin, L.
Berkeley, L. Gale, B.
Bernstein of Craigweil, L. Gavron, L.
Blackstone, B. Gibson of Market Rasen, B.
Borrie, L. Gilbert, L.
Bradshaw, L. Gordon of Strathblane, L.
Bragg, L. Goudie, B.
Brennan, L. Gould of Potternewton, B.
Brett, L. Graham of Edmonton, L.
Brooke of Alverthorpe, L. Greaves, L.
Brooks of Tremorfa, L. Grenfell, L.
Burlison, L. Hamwee, B.
Carter, L. Harris of Greenwich, L.
Chandos, V. Harris of Haringey, L.
Christopher, L. Harrison, L.
Clarke of Hampstead. L. Hayman, B.
Clinton-Davis, L. Hogg of Cumbernauld, L.
Cocks of Hartcliffe, L. Hollick, L.
Crawley, B. Hollisof Heigham, B.
Howells of St. Davids, B. Redesdale, L.
Howie of Troon, L. Rendell of Babergh, B.
Hoyle, L. Rennard, L.
Hughes of Woodside, L. Renwick of Clifton, L.
Hunt of Chesterton, L. Richard, L.
Hunt of Kings Heath, L. Rodgers of Quarry Bank. L.
Irvine of Lairg, L. {Lord Chancellor) Sainsbury of Turville, L.
Sawyer, L.
Islwyn, L. Scotland of Asthal, B.
Janner of Braunstone, L. Serota, B.
Jay of Paddington, B. (Lord Privy Seal) Simon, V.
Smith of Clifton, L.
Jenkins of Putney, L. Smith of Gilmorehill, B.
Layard, L. Stoddart of Swindon, L.
Lea of Crondall, L. Stone of Blackheath, L.
Linklater of Butterstone, B. Symons of Vernham Dean, B
Lipsey, L. Thomas of Gresford, L.
Macdonald of Tradeston, L. Thomas of Walliswood, B.
McIntosh of Haringey, L. [Teller] Tomlinson, L.
Tugendhat, L.
Mackenzie of Culkein. L. Turnberg, L.
Massey of Darwen, B. Turner of Camden, B.
Merlyn-Rees, L. Uddin, B.
Mitchell, L. Walker of Doncaster, L.
Molloy, L. Warner, L.
Morris of Castle Morris, L. Warwick of Undercliffe, B.
Nicol, B. Wedderburn of Charlton, L.
Oakeshott of Seagrove Bay, L. Whitaker.B.
Parekh, L. Whitty, L.
Phillips of Sudbury, L. Wilkins, B.
Pitkeathley, B. Williams of Crosby, B.
Ponsonby of Shulbrede, L. Williams of Mostyn, L.
Prys-Davies, L. Winston, L.
Puttnam, L. Woolmer of Leeds, L.
Ramsay of Cartvale, B. Young of Old Scone, B.

Resolved in the negative, and amendment disagreed to accordingly.

7.11 p.m.

[Amendment No. 21 not moved.]

Clause 5 agreed to.

Baroness Farrington of Ribbleton

This may be a convenient moment for the Committee (on Recommitment) to adjourn during pleasure. Perhaps I may suggest that these proceedings begin again not before ten minutes past eight.

[The Sitting was suspended from 7.12 until 8.10 p.m.]

Clause 6 [Licences: grant]:

[Amendments Nos. 22 to 29 not moved.]

Clause 6 agreed to.

Clause 7 [Licences: provisions]:

[Amendment No. 30 not moved.]

Lord Brabazon of Tara moved Amendment No. 31: Page 6, line 8, at end insert— ("(5A) A licence shall include provisions requiring the holder to indemnify operators and owners of aircraft, owners and managers of aerodromes, persons travelling in aircraft and persons with rights in property carried in them against, and to pay compensation in respect of, economic loss occasioned by air traffic control delays attributable to the holder. (5B) For the purposes of subsection (5A), a licence shall set out the circumstances in which air traffic control delays shall be regarded as attributable to the holder: or shall make provision for an arbitration system, other than through the Civil Aviation Authority, to determine attribution of air traffic control delays.").

The noble Lord said: In moving Amendment No. 31, I wish to speak also to Amendment No. 34.

It is understood that the licence will incorporate performance targets designed to improve the service to airlines and other users by establishing an incentive to reduce air traffic control delays and other inefficiencies which cause annoyance among the travelling public, cost airlines significant sums and have significant environmental disbenefits. For example, Eurocontrol estimates that between a quarter and half a million tonnes of fuel are unnecessarily burned each year because of poor ATC. That is mostly over Europe; our performance is considerably better than that.

The question is: what happens if NATS fails to meet its targets? One option, which we understand is currently preferred by the Government, is to adjust the price cap on an annual basis. A better alternative, we believe, would be to expose NATS to the discipline of the market by placing it under the same obligation as most suppliers of services through a requirement to provide an indemnity against economic loss in circumstances where the loss can reasonably be attributed to NATS—recent computer failures are an obvious example of that—and to require that compensation be paid if performance targets are not met over a defined period. As we have said, this is established commercial practice and it works well. The Government's proposal would mean that carriers might have to wait a year for their losses to be offset by reduced charges and passengers would have no established right to be compensated. The alternative I propose would be faster and fairer.

It might be suggested that NATS is unlike a commercial organisation in that it is a regulated monopoly. However, this principle of combining the giving of incentives through a variable charging formula with financial penalties is not novel as the Government already endorse it in respect of another transport infrastructure provider; namely, Railtrack. The only difference between this model and that applying to Railtrack is that the scope for personality clashes between the regulator and NATS would be avoided by setting out the compensation criteria in the licence exactly as they would be in a commercial contract, for example, if an outside organisation were to run NATS' systems for it. Indeed, NATS has been proud of the fact that the existence of such clauses in its contract with Lockheed Martin has avoided additional burdens on the taxpayer by requiring the company to pay its share of the overrun cost of the new Swanwick centre. If it is considered acceptable for NATS to place its suppliers under this requirement, I submit that there is no reason why NATS itself should not face such an obligation as a supplier of services.

Furthermore, new EU proposals on passenger rights propose that airlines should have to pay compensation for delays. If airlines have to compensate passengers for factors which are often beyond their control, why should NATS not have to compensate for controllable errors? We ask the Government at least to sit down again with users to discuss this option. This is what NATS' customers believe to be in their best interests. It must be remembered that the service is provided for them.

I turn to Amendment No. 34. The relationship between NATS and its customers has not always been a happy one, largely because NATS has never had to bother about its market. It is a natural monopoly; there is nowhere else to go. It has the statutory right to levy charges. Under the circumstances it is always tempting for a public sector body to regard its sponsoring department as its number one priority and its customers as a distant second. However, NATS' operating costs are as a result funded by airlines, not the general taxpayer, to the tune of several hundred million pounds a year. As NATS has been keen to gain airlines' support for its desire to gain greater commercial freedom, it might be expected that it would have sought greater involvement on the part of its customers because Ministers, after all, act only in loco parentis in this respect, and the child is perfectly capable of looking after itself.

Yet, to date, NATS has never sought to consult airlines on the service they want. Regular "consultation" meetings are held but these are largely PR exercises designed to tell the industry what NATS has done rather than genuine attempts to find out what the customer needs. The real planning takes place between NATS and DETR. Users are "consulted" after decisions have effectively been made. For example, the first the airlines knew of the plan for a second en route centre was when they received a press release from the Transport Select Committee in another place announcing that it was holding an inquiry on the subject!

The proposal to create a stakeholder council in my view does not fully address that shortcoming as the council will have no locus in relation to economic issues and it is currently proposed in the draft licence that NATS should have sole responsibility to prepare and implement plans it believes are necessary to provide a safe and efficient service. In that connection, NATS has referred in its recent response to the CAA's critical comments on the proposed regulatory structure that it has been developing one, five and 10-year plans. We note that no attempt was made to involve its customers in the development process. A truly market-driven service provider would have sought customers' views at the outset, not once the plan had been completed. This amendment is designed to make NATS into such a service by requiring it to sit down with users at the outset and to prepare its plans in partnership with them. We would be concerned if NATS were to oppose this and we would question any response that suggests that safety must take priority over users' needs, as airlines and their passengers know all too well that if anything goes wrong with the system the impact falls on them. I beg to move.

8.15 p.m.

Lord McIntosh of Haringey

I thought that the noble Lord's description of the separation of responsibility between the airlines and NATS came rather well from a former member of a government which privatised the railways and distinguished between Railtrack and the train operating companies. Perhaps the noble Lord spoke from bitter experience. However, I was grateful that he did not refer—as I thought he might—to the problems with the LATCC systems failure the other weekend. He was right not to refer to that as problems on that scale are rare. NATS believes that the changes made to the system that failed will return it to its previous level of 99.99 per cent service.

The problem of delays—to which Amendment No. 31 refers—is an international one and can be addressed comprehensively only at international level. Through the PPP we intend to take steps to encourage NATS to raise its game. The licence will provide a direct financial incentive for NATS to keep delays down. We shall be setting a cap on NATS' charges for the first five years. If delays increase, the charge control conditions in the licence provide for the charge cap to be tightened, so that NATS will be penalised by being obliged to reduce charges. This will provide recompense for operators affected by delays attributable to NATS. This squeeze on charges through the licence will provide an incentive for NATS to minimise delays. A reduction in charges and costs does not mean a reduction in safety as some people might like us to believe. The financial regimeunder which NATS has operated until now has offered no incentives whatsoever for it to make cost efficiencies on most of its business. We shall be remedying that, and if delays occur NATS will feel the pain, but the pressure will not be such as to encourage it to take shortcuts to reduce delays.

The licence will also require NATS to consult its customers on an ongoing basis—I shall come back to that issue when I respond to Amendment No. 34—and to establish performance measures, performance indicators, and service standards which the CAA will be able to enforce through the licence. These measures, indicators and standards will be reviewed annually and will be subject to the approval of the CAA. If this approval is withheld or withdrawn, the licensee would be in breach of the licence and open to enforcement action by the CAA and ultimately in the courts by third parties.

The measures and service standards will be set with regard to the importance that NATS' customers attach to this issue. But they must also reflect the relatively immature nature of the systems for attributing delay to one party or another. That is why I referred to Railtrack and the train operating companies. Crucially, the standards can be set at a level which will provide an incentive to NATS to perform well, but not so high that there would be a risk of their creating, or of being seen to create, pressure to cut corners.

For a number of reasons I am nervous of introducing compensation and indemnities, as Amendment No. 31 would have us do. First, they would create an unbalanced requirement on NATS. NATS will be under an obligation, as it is now, to accept and handle all flights entering UK airspace. As a matter of preserving safety, it cannot refuse. But if it must accept the business, and on occasion can do so safely only by imposing delays. Therefore, it is unreasonable to impose a direct penalty for each and every delay, which this amendment would do. Pressure on the charge cap, which is pressure to reduce the scale of delays overall, is more appropriate. Secondly, we are still developing ways to attribute delays with precision to one cause or another. We need greater refinement in that process before it would be reasonable to apply direct penalties. Thirdly, this is a safety service, and pressure to cut out individual delays—pressure backed by the possibility of considerable financial jeopardy—could provide pressure to cut corners, even in an outfit as safety conscious as NATS. I am not arguing that NAT'S should not be liable for any failures, but I believe that what I have outlined will encourage NATS to improve its performance without encouraging it to cut corners.

I turn now to Amendment No. 34. I fully support what the amendment is seeking to achieve. NAT'S must consult its customers, and it must do so properly through informed consultation with a view to reaching consensus. I listened very carefully to what the noble Lord, Lord Brabazon, said about what has happened in the past and his allegation that airlines have never been consulted. Without making any judgment on what happened in the past, perhaps I may say that an integral part of the PPP structure will be a stakeholder council, which will bring together all the stakeholders in the partnership, including airline and passenger representatives, in a forum for full and open consultation on the policy and strategies of the company in addressing the issues and challenges it faces. Meeting demand for air traffic control capacity will be at the top of that agenda.

The noble Lord, Lord Brabazon, cast doubt on whether that was an adequate solution. He said that NATS would still have sole responsibility. The operating licence—a draft of which is in the Library of your Lordships' House—includes a condition requiring the licensee to prepare a capacity an d investment plan which takes into account the views of users. That is in condition 10 of the draft licence. Condition 16 requires the licensee to draw up and obtain the CAA's approval of a code of practice setting out how the licensee is to consult its customers and handle complaints.

I believe that the thrust of both these amendments is provided for already in the Bill and that it is unnecessary to have them on the face of the legislation.

Lord Berkeley

Before my noble friend sits down, both he and the noble Lord, Lord Brabazon, mentioned Railtrack. My perception of Railtrack's compensation regime is that it works very well. The train operators and Railtrack have a system of compensating each other if there is a delay. Railtrack is penalised by the regulator if it causes too many delays. If one train operator causes another to be delayed, there is a kind of clearing house.

Railtrack has responsibility for safety in the same manner as NATS. Whereas I believe that Amendment No. 31 goes much too far, I wonder whether there is a case for looking at some kind of system for compensating those airlines which are delayed by what I shall call "equipment failure"—we have had a few of those recently—I am referring to the inability of NATS to provide for the capacity to which it is contracted. That is a much narrower definition than that proposed in Amendment No. 31. On the basis of how the matter works on the railways, would the Minister consider it worth looking at in a little more detail?

Lord McIntosh of Haringey

I take responsibility for referring to Railtrack. I do not believe that the noble Lord, Lord Brabazon, did, which was very wise on his part. I was interested to hear what the noble Lord, Lord Berkeley, said about Railtrack and our ability to allocate responsibility for delays. The system has been operating for some years, but we are talking here about something which we have to introduce. Our argument is that the system has to settle down.

I suggest to the noble Lord, Lord Berkeley, that there is a fundamental difference in the relationship between Railtrack and the train operating companies from that between NATS and the airlines. The difference is that NATS has to accept any traffic that comes into United Kingdom airspace even if it cannot be anticipated. Therefore, in order to preserve the paramount requirement for safety, it has to accept additional traffic which may cause delays. I do not believe that that is the case with Railtrack because my understanding is that it is in a position to agree with the train operating companies what traffic there should be on the rails.

Lord Berkeley

My noble friend is mainly right. I was not suggesting that NATS should somehow have to compensate airlines when they are delayed by too much traffic. However, I suggested that it might be useful if it had an incentive not to have a major computer failure, such that it reduced normal capacity by 100 per cent or 50 per cent because of its own equipment failure.

Lord McIntosh of Haringey

From such a transport expert as my noble friend Lord Berkeley, "mainly right" will do quite well for me. The issues that he has raised can be discussed by the stakeholder council.

Lord Brabazon of Tara

I am grateful for the Minister's response. I am also grateful for the intervention of the noble Lord, Lord Berkeley. The Minister clearly did not listen to my speech as closely as he does normally. I mentioned Railtrack, which was very foolish, as the noble Lord said. However, there is a comparison to be made because both are providers of infrastructure: in the one case, aircraft use it, and, in the other, trains. I am encouraged by the Minister's response to my Amendment No. 34 on the subject of consultation. I hope that that is right and that the stakeholder council will be a live issue and not just a waste of time, if I may put it that way.

Nothing in my amendments is intended in any way to affect the overriding requirement to put safety as the top priority. I take the noble Lord's point that NATS is liable to receive air traffic coming into United Kingdom airspace. But there are problems where it could be accused of not having maintained its equipment sufficiently well and where it could be responsible for causing delays through its own fault and not through over-demand, if I may put it that way.

Lord McIntosh of Haringey

Surely, those would be delays which would apply to a number of airlines over a period of time. They are the overall delays to which I referred and which can be dealt with by the conditions in the licence. The amendment proposes compensation for individual delays, which is a different thing.

Lord Brabazon of Tara

I was going to say that I was also pleased with what the noble Lord said about the draft licence conditions. I shall read with care what the noble Lord said. I may wish to come back to this matter at the next stage. I hope that when everything goes through it all works well. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 32 and 33 not moved.]

Clause 7 agreed to.

Clause 8 [Duties of licence holders]:

[Amendments Nos. 34 and 35 not moved.]

Clause 8 agreed to.

Clause 9 agreed to.

Clause 10 [Breach of duties or conditions]:

[Amendment No. 36 not moved.]

Clause 10 agreed to.

Clause 11 [Modification by agreement]:

[Amendment No. 37 not moved.]

8.30 p.m.

Lord Brabazon of Tara moved Amendment No. 38: Page 7, line 26, leave out subsection (4).

The noble Lord said: In moving Amendment No. 38 I shall speak also to Amendments Nos. 40 to 47, 49 and 50.

This group of amendments deals with modification of licences. Subsection (4) of Clause 11 enables the Secretary of State to overrule a decision of the CAA to modify a licence with the consent of the licence holder. Amendment No. 38 seeks to remove that power. The CAA has been entrusted with the power to modify licences and should be left to get on with it without interference from the Secretary of State. The CAA is best placed to judge properly the matters in issue without being swayed by what may be irrelevant political considerations.

The interests of the public are already protected in law by the requirement that the CAA complies with its duties as set out in Clause 2. Compliance with a direction of the Secretary of State may put the CAA in conflict with its duties as it sees them under Clause 2, which would be a completely untenable position for the CAA. If the Secretary of State has good reason to resist the modification, he can make representations which the CAA is obliged to consider under subsection (2)(d) and to which the CAA will no doubt give considerable weight. This is sufficient protection for the Secretary of State without his having to take this arbitrary and unwarranted power.

Turning to Amendment No. 40, Clause 12 enables the CAA to refer anti-competitive behaviour to the Competition Commission if it is damaging to the public interest. Subsection (5) gives the Secretary of State power to put a stop to such reference. This amendment seeks to remove this power from the Secretary of State and to leave such decisions where they belong, in the hands of the CAA. The CAA is best placed to judge whether anti-competitive behaviour damaging to the public interest may be occurring without being swayed by political considerations. There is no legitimate reason to give the Secretary of State power to override such a decision by the CAA. The exercise of such power by the Secretary of State would not only substitute his judgment for that of the CAA but also for that of the Competition Commission, which would be deprived of the opportunity to rule on any issue raised by the CAA.

Genuine competition has a big part to play in delivering cost-effective quality services and there should be no obstacles to ensuring that it operates fully. It would be difficult to find anyone other than the Secretary of State who did not believe that the CAA and the Competition Commission were better able than the Secretary of State to decide such issues, especially when the Secretary of State may not always be in favour of the concept of competition.

Turning briefly to Amendments Nos. 41 and 43, subsection (3)(d) of Clause 14 obliges the CAA to take into account representations made in response to any notice of proposed modifications issued under this subsection. However, such notice follows the relevant report by the Competition Commission, which the CAA is obliged to publish. This amendment seeks to oblige the CAA to take into account any representations made in response to the published report. The purpose of publishing the report under Clause 12 is presumably to enable interested parties to make representations. Any representations made in response to the report should be considered as well as the suggested modifications.

Turning to Amendment No. 42, subsection (2) gives the CAA the right to suggest modifications from those proposed by the Competition Commission following a reference. The amendment seeks to require the CAA to explain why it has proposed changes. If the CAA disagrees with the Competition Commission, it should be obliged to say why in order to ensure that consultation is indeed a meaningful exercise. That is the purpose of that amendment.

Clause 14(5)(b) obliges the CAA to forward representations received to the Competition Commission. There is, however, no obligation on the Competition Commission to take account of such representations, as it plainly should. Amendment No. 44 seeks to place a positive obligation on the competition commission to do so.

Subsection (2) of Clause 16 gives the Competition Commission the right to suggest different modifications from those originally proposed by the Competition Commission following a reference. Amendment No. 45 requires the Competition Commission to explain why it has proposed changes. If the Competition Commission has changed its mind as regards modifications, it should be obliged to say why in order to ensure that consultation again is a meaningful exercise.

Amendments Nos. 46 and 47 concern Clause 20, which gives the CAA power to require a licence holder to do just about anything in order to secure compliance with the duty under Clause 8 or a licence condition. It is limited only by what it thinks is needed to secure compliance. The amendments seek to replace the subjective test of what "it thinks is" needed with the objective test of what is "reasonably" needed. The power invested in the CAA is wide-ranging and comprehensive and it should be reasonable—and seen to be reasonable—in exercising it.

Turning to Amendment No. 49, Clause 21(3) of the Bill provides the circumstances in which the CAA must not make a final order or confirm a provisional order against a licence holder. In brief, those circumstances are that the licence holder has taken the steps he has been told to by the CAA to remedy a breach of his licence; the breach in question is trivial; the breach will not affect other interested parties, most importantly the travelling public; or the Secretary of State has applied for an air traffic administration order in relation to the licence holder.

Clause 21(2) gives the CAA discretion to determine whether any of these circumstances exists. However, it then goes on to state that even if it determines that any of the circumstances exist, it may nevertheless go ahead and make a final order or confirm a provisional order. With the exception of Clause 21(3)(d), which deals with the air traffic administration order, this looks a little curious. Why should the CAA be able to make a final order or confirm a provisional order against the licence holder if, for example, it has already determined that the licence holder is doing all he can to remedy a breach? While we can see the arguments to allow the CAA to do this, we feel it would give reassurance to licence holders if it were made clear that the CAA's ability to make a final order or confirm a provisional order, notwithstanding the existence of the conditions in Clause 21(3), was subject to the CAA's overriding policy objectives set out in Clause 2. That is what the amendment seeks to do.

Finally, Amendment No. 50 deals with Clause 22. Subsection (4) provides that the CAA must consider any representations made by a licence holder notified of any modifications to be made to an order. Subsection (5) exempts the CAA from that obligation where the modifications are trivial. This amendment seeks to remove that exemption. What appears trivial to the CAA may not look so trivial to a licence holder. If it really is trivial, the licence holder is unlikely to make representations and nothing is lost. But we believe that the licence holder needs the protection of being able to make representations if it considers the matter is not as trivial as the CAA thinks. Members of the Committee will be pleased to know that that was the final amendment in this group. I admit that they are technical amendments. I look forward to the Minister explaining the Government's thinking on this issue. I beg to move.

Lord McIntosh of Haringey

If ever I have heard an invitation for a long speech in response, that is it. I shall do my best to answer all the points raised by the noble Lord, but I shall do it as quickly as I can.

Amendments Nos. 38 to 45 address the process by which licences are modified. The modification process, and the checks and balances which underpin it, is long established in other utility legislation, although the Government are seeking to introduce some further safeguards. Amendments Nos. 38 and 40 would remove one of those safeguards: the Secretary of State's powers to veto modifications which have been agreed between the regulator and the licensee, and a reference to the Competition Commission.

The power of veto is no more than a backstop provision. It dates back to the dawn of utility legislation in the 1980s—Sections 12(5) and 13(5) of the Telecommunications Act 1984; Sections 11(4) and 12(5) of the Electricity Act 1989—and, as far as I am aware, it has never been used. But it is important because it protects against the possibility—albeit a remote one—of there being a sound public policy reason, which would almost certainly have to be stated and justified, why an agreed modification, or a reference to the commission—Amendment No. 40—should not go ahead. For example, the Secretary of State could use the power under Clause 11(4) if he thought that a modification agreed between the regulator and the licensee ran contrary to the interest of NATS' customers.

As far as concerns reference to the Competition Commission—Amendment No. 40—the situation might arise where the CAA was contemplating asking the Competition Commission to make a public interest finding in an area which also engaged the Secretary of State's wider public interest. As I say, that provision has appeared in utility legislation for most of the past 20 years and, as far as I am aware, the power has never been used. So we are not talking about the Secretary of State routinely thwarting the proper process of licence modification. But the Secretary of State's power of veto is a safety net, and the Government believe that it should stay in place.

Amendments Nos. 41 to 45 seek to introduce greater transparency into the licence modification process. But in fact the requirements they would introduce are already in place. The process is somewhat convoluted, but it is structured so as to ensure that at any point interested parties are made aware not only of what is going on, but why. For example, Clause 14 requires the CAA to suggest to the commission such modifications as it thinks are needed to remedy the adverse effects identified in the report. Before doing so, however, it must publish a notice setting out its proposals and its reasons for making them. Clause 15(5)(c) requires the commission to give its reasons for rejecting the CAA's proposals. Clause 16(5)(a) requires the commission to give reasons behind its own proposed modifications.

The common thread running through the whole modification process is that at each stage any person likely to be affected is kept informed by notice, is told what is being proposed, the effect of the proposals and why they are being made, and is able to make representations to the CAA or the commission, as the case may be. I believe that that answers the noble Lord's point. I think that would obviate the need to set out any differences, as that would be clear simply from comparing the notices.

I turn to Amendments Nos. 46 to 50. These all concern the enforcement process. Amendments Nos. 46 and 47 import the concept of reasonableness into the making of enforcement orders. I am certainly all in favour of reasonableness: administrative law is based on that very concept. When the CAA makes an enforcement order, Clause 20 requires that order to contain the provisions the CAA thinks are needed to secure the licence holder's compliance with the duty or condition which is being contravened. These orders are open to challenge by the licensee—which is right and proper—and if an order were challenged, then the court would consider the reasonableness not only of the order being made at all but also of its content. I believe that that is better than introducing reasonableness onto the face of the Bill as Amendments Nos. 46 and 47 seek to do.

The facts are these. The CAA will have to make a judgment as to what needs to go into an enforcement order. It will make that judgment in the knowledge that it may be challenged. If it were challenged, the court would determine whether it was reasonable. The effect of all this is to encourage, if not require, the CAA to come to a rational—or even reasonable—conclusion about the matter. It is not necessary to say on the face of the Bill that it must act reasonably, because the law assumes that anyone discharging a function under statute is under a duty to act reasonably. The courts will tolerate nothing less.

I do not believe that Amendment No. 49 is necessary. The duties laid on the CAA by Clause 2 are already explicitly applied to the exercise of all the CAA's functions in Chapter I of Part I of the Bill. Clause 2 opens with the very clear statement that: The CAA must exercise its functions under this Chapter in the manner it thinks best calculated … to", and so on. Clause 21 and the enforcement provisions appear in Chapter I of Part I, and the Clause 2 duty therefore applies.

I believe that Amendment No. 50 over-eggs the pudding. The enforcement procedure must be fair, but Clause 22 requires the CAA to go through a number of hoops in order to satisfy itself that there has been a breach of a Clause 8 duty or a licence condition. The main purpose of these hoops—a very right and proper one—is to ensure that all interested parties are made properly aware of the enforcement process.

If the CAA proposes to modify an enforcement order, it must first seek the licensee's consent to its proposed modifications, whether or not those modifications are trivial. The noble Lord, Lord Brabazon, made a point about the word "trivial". So the licensee will in all cases be made aware of the modifications that the CAA is proposing to make. If the modifications are trivial, the CAA does not need the licensee's consent and need not give the licensee further opportunity to make representations. We need to keep a sense of proportion here.

The earlier discussions between the CAA and the licensee about the order might have shown that it contained a minor error of fact, or an incorrect date, or just typing errors, and the modification might be intended to do no more than correct them. If the licensee objects to some of the modifications and does not consider them to be trivial, he can say so to the CAA. He could challenge the validity of the order under Clause 23(1). The noble Lord, Lord Brabazon, said that the licensee needs protection. I do not think that the licensee is in a weak position here.

I know that hypothetical examples are dangerous, but let us suppose that the CAA considered that a service provided by NATS under the authority of its licence had become contestable and therefore wished to remove it from the licence. NATS—for understandable reasons—did not wish to relinquish that service and resisted the proposed modification. If that were to happen, the CAA would wish to refer the matter to the Competition Commission for a public interest judgment. In such a case, one might expect the commission to come up with a ruling broadly supportive of the CAA. But what if the service was one where effective integration with military air traffic control was crucial and the Secretary of State believed that that integration would be best preserved by leaving the service with NATS or with it continuing to be provided under the authority of a licence? In these circumstances, the Secretary of State might think it best to veto the reference at the outset, and the Committee might consider it reasonable on national security grounds for him to do so. Perhaps that example is far-fetched. That is why I said that these powers are unlikely to be used. But that combination of circumstances—or something similar—might just happen. That is why the safety net of Clause 12(5) needs to be left in place.

I believe that we can rely on the CAA to be evenhanded and to engage in a rational dialogue with the licensee. It would be disproportionate to require the CAA to take representations from the licensee on trivial modifications to a proposed order. The licensee's rights under Clause 23 will ensure that the CAA does not abuse the position.

I am sorry to have taken so long. I probably took just as long as the noble Lord, Lord Brabazon of Tara. I hope that I have answered the points raised by these amendments.

Lord Brabazon of Tara

I am most grateful to the Minister for that detailed reply. Somewhere in those remarks he said that the structure of this was somewhat convoluted. For that reason, I feel no shame in having tabled the amendments in order to probe a little more deeply into how the whole process is going to work.

I am also grateful to the noble Lord for explaining the history of the earlier utilities legislation and the fact that provisions were in place but in the event had never been used. It is helpful to know that. As the noble Lord said, in any case this could be subject to legal challenge if people do not think that they are being treated fairly.

I shall need to read carefully the noble Lord's detailed responses to individual amendments. However, we have had a most helpful debate on the subject and we now have a far clearer picture of how this might work. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 39 not moved.]

Clause 11 agreed to.

Clause 12 [References to Competition Commission]:

[Amendment No. 40 not moved.]

Clause 12 agreed to.

Clause 13 agreed to.

Clause 14 [Modification following report]:

[Amendments Nos. 41 to 43 not moved.]

Clause 14 agreed to.

Clause 15 [Commission's power to give direction]:

[Amendment No. 44 not moved.]

Clause 15 agreed to.

Clause 16 [Position where Commission gives direction]:

[Amendment No. 45 not moved.]

Clause 16 agreed to.

Clauses 17 to 19 agreed to.

Clause 20 [Orders for securing compliance]:

[Amendments Nos. 46 to 48 not moved.]

Clause 20 agreed to.

Clause 21 [Exceptions]:

[Amendment No. 49 not moved.]

Clause 21 agreed to.

Clause 22 [Procedural requirements]:

[Amendments Nos. 50 and 51 not moved.]

Clause 22 agreed to.

Clauses 23 to 26 agreed to.

Clause 27 [Duty to make order]:

Lord Brabazon of Tara moved Amendment No. 52: Page 20, line 4, leave out ("Secretary of State and the").

The noble Lord said: In moving Amendment No. 52 I should like to speak briefly to Amendment No. 53. We have reached the subject of the administrator.

Amendment No. 52 seeks to leave out the words "Secretary of State". As drafted, the clause allows the Secretary of State to make his choice of an administrator rather than leave it to the court. The amendment would restrict such a power to the CAA. Perhaps the Minister could explain why he feels that it is necessary for the Secretary of State to be in a position to appoint the administrator and why the CAA, which is, after all, the regulator in respect of licence holders, should not be allowed to exercise its powers without interference from the Secretary of State.

Amendment No. 53 seeks to ensure that any person managing the affairs, business and property of a licensee during the currency of an air traffic administration order is a competent person. The making of an air traffic administration order is a serious step and one which I hope never occurs. However, if one looks at the circumstances under which a court would have to make such an order under Clause 28, the licence company in question would either be in extreme financial difficulties or would have failed to carry out a Clause 8 duty. The duties under that clause include, of course, securing a safe air traffic control system.

The amendment is designed to ensure that the choice of person made to manage such a company's business and property would not be the decision of the Secretary of State and the CAA alone but that the court would be given power to satisfy itself of the suitability of the person proposed. In a case of insolvency, the most obvious choice would be an insolvency practitioner. However, it is questionable whether any insolvency practitioner would have the necessary day-to-day experience of running part of an air traffic system. Equally, a person with such experience might not be the most appropriate person to carry on the financial aspects of a licensed company's business. A combination of persons might be required.

The amendment would allow the court to be the ultimate safeguard of the public's interests in this area and ensure that the executive had considered the best solution in all the circumstances. I beg to move.

Lord McIntosh of Haringey

The noble Lord, Lord Brabazon, is of course right to say that these clauses deal with extreme circumstances. I join with the noble Lord in saying that I hope they never occur. Here the Bill addresses what would happen after the hearing of a winding-up petition and an air traffic administrator needed to be appointed.

Amendment No. 52 seeks to remove the right of the Secretary of State to nominate an air traffic administrator and leave the matter entirely to the CAA. It is inconceivable, if we reached such a dreadful point where it became necessary to make an administration order, that the Secretary of State and the CAA would not be involved in detailed discussions.

Part of those discussions would of course include who would be best suited to take over the running of NATS for the duration of the order. Both the CAA and the Secretary of State would have a contribution to make to that decision. For that reason, the clause is drafted to provide for the nomination to be made jointly. It recognises and reflects the process of consultation that the Secretary of State and the CAA will inevitably go through in those circumstances.

These would be matters of very great public concern. I cannot imagine a Secretary of State appearing before Parliament and saying, "It's got nothing to do with me, guy". Clearly the Secretary of State would have a legitimate interest in the identity of the administrator. The administrator would effectively stand in the shoes of the licence holder's management; it is analogous to the granting of a licence. The Secretary of State is the person to grant licences, after consultation with the CAA, or who consents or gives an authority to the CAA to grant licences. It therefore makes sense that he should be involved in the decision to nominate the administrator.

I was interested to listen to the arguments advanced by the noble Lord, Lord Brabazon, in support of Amendment No. 53. One of the reasons why the Bill provides for the Secretary of State and the CAA to nominate the administrator is that it is essential for a suitable person to be identified and appointed. I take entirely the point made by the noble Lord about the need to appoint someone who would be competent to run the business rather than being necessarily an insolvency practitioner. I shall quote what the noble Lord said in that regard when we reach the later stages of the Insolvency Bill. His colleagues have been arguing the opposite case.

Clearly, the nominee must be a person that the CAA and the Secretary of State are confident is perfectly capable of discharging the air traffic administration order. Frankly, the court would turn back such a challenge. It would say, "It is up to you to find the right person". This is not a matter for the court. It has no capabilities as regards undertaking the vetting process implied by the amendment.

Baroness Thomas of Walliswood

Before the noble Lord, Lord Brabazon, replies to the remarks made by the Minister, can he tell me whether he will take on board the suggestion made by the noble Lord, Lord Brabazon, that two people might need to be appointed? I understand that a person with specialist skills would be needed to run such a particular business. However, the business of insolvency is also complicated. The Secretary of State might find it difficult to locate all that expertise combined in one person.

Lord McIntosh of Haringey

I should have thought that it would be not only two people but that it could very well be a team. Under certain circumstances, it could even be a company.

Lord Brabazon of Tara

I am grateful for the Minister's reply and also for the intervention of the noble Baroness, Lady Thomas. Having listened to the Minister's remarks, I presume therefore that the word "person" used in the phraseology of the Bill denotes more than one person.

Lord McIntosh of Haringey

A "person" used in this sense is not restricted to a natural person.

Lord Brabazon of Tara

I shall take the word of the noble Lord on that point. However, I am now a little worried about the amendments. The Minister has threatened to quote me in other proceedings that are due to come to your Lordships' House. I shall have to ensure that I am not in the House on that day. Nevertheless, the exchange has been helpful. I hope that such an event never takes place. I think it unlikely, given the safeguards that will be in place. However, in case it does, it is useful to have clarification on what might happen. I beg leave to withdraw the amendment.

Amendment, by leave withdrawn.

Amendment No. 53 not moved.]

Clause 27 agreed to.

Clauses 28 to 30 agreed to.

[Amendment No. 54 not moved.]

Schedules 1 and 2 agreed to.

Clauses 31 to 33 agreed to.

Schedule 3 agreed to.

[Amendment No. 55 not moved.]

Clause 34 agreed to.

Clause 35 [Register]:

[Amendment No. 56 not moved.]

Clause 35 agreed to.

Clause 36 agreed to.

Schedule 4 agreed to.

Clause 37 agreed to.

Schedule 5 agreed to.

Clause 38 [Directions in interests of national security etc.]:

[Amendments Nos. 57 to 60 not moved.]

Clause 38 agreed to.

Clause 39 [Directions relating to the environment]:

[Amendments Nos. 61 to 65 not moved.]

Clause 39 agreed to.

Clause 40 agreed to.

Clause 41 [Meaning of transfer scheme]:

[Amendment No. 66 not moved.]

Clause 41 agreed to

Clause 42 [Transfer schemes: supplementary]:

9 p.m.

Lord Brabazon of Tara moved Amendment No. 67: Page 28, line 12, at end insert ("provided that the rights of arty third party are not adversely affected by any such transfer or assignment or such third party consents to the transfer or assignment").

The noble Lord said: In moving this amendment, perhaps I may speak also to Amendments Nos. 89 and 92. The amendments deal with transfers.

Clause 42(1)(a) creates a power to transfer anything, including a liability, which would not otherwise be capable of being transferred or assigned. The amendment requires the consent of any third party adversely affected by such transfer.

A third party may have entered into a contract with the CAA as an arm of government in good faith, expecting and entitled to expect that contract to remain with the CAA unless consent was given to a transfer. A contract with a private/public partnership company might have been made on different terms.

A statute should not be used to override any private law right of a third party. It is not good enough to have the Government or the CAA dictate how such rights are to be dealt with; third parties should not be forced to relinquish any rights against their wishes. That is t he purpose of Amendment No. 67.

Amendment No. 89 relates to Clause 53. It is right that Parliament should be informed of any default under a guarantee given by the Treasury or the Secretary of State, but information alone is not sufficient. This amendment requires the reasons for the default and the steps to be taken to recover the sums outstanding to be included in that statement.

Government carry the responsibility for giving the guarantee in the first place. Proper risk assessment and monitoring of the financial position of the guarantor should ensure that a default is avoided. If government allow a default to occur, none the less it is not good enough for Parliament just to be told of it; Parliament needs to know what government will be doing to rectify the situation.

The last amendment in this group, Amendment No. 92, relates to Clause 57. It seeks to delete subsection (4). The subsection enables the Secretary of State to give a direction to the CAA in connection with a transfer scheme even if complying with that direction would put the CAA in conflict with its duties under the Act. This amendment removes the power of the Secretary of State in those circumstances.

The duties of the CAA under the Act, especially in Clause 2, provide the fundamental framework within which it must act. It should not be possible for the Secretary of State to override it on the arbitrary basis allowed by the provision in subsection (4). The duties of the CAA anyway reflect the duties of the Secretary of State as set out in Clause 1 and the Secretary of State should not find himself in the position of being able, within his own powers, to give a direction which overrides the duties of the CAA. If the clause is designed to meet a specific problem, that should be spelt out and specific provision should be made in the Bill. I beg to move.

Lord McIntosh of Haringey

The admirable aim of Amendment No. 67 is to ensure that transfer schemes do not ignore third party rights. The transfer process is intended to ensure that transfers of property, rights and liabilities required to achieve the necessary reorganisation can occur within the desired timetable and without the delay that transfers under private law may entail, particularly when third parties are involved.

If we were to adopt the amendment, any third party which perceived, rightly or wrongly, its rights to be threatened would be able to hold the Government and NATS to ransom. The situation could jeopardise the PPP timetable and so prejudice the delivery of major projects such as Swanwick and the NSC.

However, that does not mean that the position of third parties has been forgotten. Protection has been provided in paragraphs 19 to 23 of Schedule 6. These paragraphs contain safeguards if there is a reduction in value of any property or right of a third party arising as a consequence of a transfer scheme. There is provision for the payment of compensation to an aggrieved party, and for the appointment of an arbitrator if there is a dispute about how much compensation is payable. A third party has protection—in the context of court proceedings—where the issues in those proceedings depend on the correct identification or definition of any property rights or liabilities which are the subject of a transfer scheme. Where an agreement or instrument made under the schedule might operate unfairly, the Secretary of State has power to intervene. I hope that the noble Lord, Lord Brabazon, agrees that the position of third parties is adequately safeguarded in the Bill.

Amendment No. 89 would enshrine within legislation the information which should be included in a statement to be laid before each House of Parliament by the Secretary of State or the Treasury, as appropriate, in the event that repayment of a sum in fulfilment of a guarantee previously given was not made. I appreciate the desire to make special legislative provision for these details to be included, but I do not believe that it is necessary to make these changes. There are two reasons for the calling of a guarantee: the body in question may be either unwilling or unable to discharge its obligations. In either case the Government expect to be reimbursed in accordance with arrangements made under subsection (8) of this clause.

The amendment seeks to require the Government to lay a statement before the House citing the reasons for the calling of the guarantee. The problem is that as guarantor the Government are not necessarily in a position either to know the reasons for the default or, if they do know, for reasons of commercial confidentiality, to disclose them. The only information that the Government are sure to have is the fact that the guarantee is being called and the amount being claimed. It is not possible for the Government to state to Parliament the reasons for the default.

Amendment No. 92 proposes the deletion of Clause 57(4). This subsection seeks to ensure that the CAA has the power to comply with a direction issued to it to release NATS from its indebtedness. In complying with that direction, the CAA is not to be regarded as having failed to comply with its other duties; that is, the general obligation under Clause 2. The subsection is purely technical and is designed to prevent frivolous or vexatious claims that may be made that the CAA is failing in its duties by complying with the direction. There is nothing in it which in any way overrides or prejudices the CAA's responsibilities for safety and other matters. I hope that the noble Lord, Lord Brabazon, will not pursue these amendments.

Lord Brabazon of Tara

I hoped that it was clear that these amendments, like others, are probing amendments to flesh out in a little more detail how the Government might view matters in the event of a transfer. I am grateful for the response of the Minister, which I shall read with great care. In the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 42 agreed to.

[Amendments Nos. 68 and 69 not moved.]

Clause 43 agreed to.

Clause 44 [Effect of scheme made by CAA]:

[Amendments Nos. 70 to 74 not moved.]

Clause 44 agreed to.

Clause 45 [Transfer schemes made by Secretary of State]:

[Amendments Nos. 75 and 76 not moved.]

Clause 45 agreed to.

Clause 46 agreed to.

Clause 47 [Accounting provisions]:

[Amendment No. 77 not moved.]

Clause 47 agreed to.

Clause 48 [Accounting provisions: interpretation]:

[Amendment No. 78 not moved.]

Clause 48 agreed to.

Clauses 49 and 50 agreed to.

Clause 51 [Crown shareholding]:

[Amendments Nos. 79 to 83 not moved.]

Clause 51 agreed to.

[Amendment No. 84 not moved.]

Lord Brett moved Amendment No. 85:

Before Clause 52, insert the following new clause—


(" .—(1) This section applies if any property, rights or liabilities are transferred under a transfer scheme to a transferee which at the time of the transfer is—

  1. (a) a company which is wholly owned by the Crown;
  2. (b) a company which is wholly owned by the CAA;
  3. (c) a company which is a wholly owned subsidiary of a company falling within paragraph (a) or (b).

(2) The Secretary of State may by order designate such a transferee for the purposes of this section.

(3) The Secretary of State must ensure that, in relation to members' resolutions of the designated company, the proportion of votes exercised by the Crown shareholder, as a proportion of the total votes available to all shareholders, shall be in direct proportion to the proportion of shares in issue held by the Crown shareholder.

(4) The Secretary of State must ensure that the Crown shareholder must appoint a number of Directors to the Board of the designated Company, so that the proportion of its appointees on the Board is equal to the proportion of shares in issue held by the Crown shareholder.

(5) The Secretary of State must ensure that at least 5% of the designated company's issued ordinary share capital shall be held by an Employee Share Trust on behalf of employees.

(6) The Secretary of State must ensure that a representative of the Employee Share Trust is appointed to the Board of Directors of the designated company.").

The noble Lord said: I rise to move Amendment No. 85 which deals with both Crown shareholder responsibility and strength and board representation by employees. It was noteworthy that in winding up at Second Reading my noble friend Lord Whitty paid tribute to the staff of NATS. He said that the success of a NATS PPP depended on staff commitment and involvement. Earlier I spoke in favour of the trust model. However, if there is to be a PPP on the basis of the model described today by Ministers, it is better to have an understanding of the role of the government shareholder nominees and possibly representation by the staff.

In the proposal for the PPP, the Government have stated that 46 per cent of the shares are to be held by a strategic partner in the private sector; 49 per cent will be retained by the Government; and 5 per cent will be made available to employees. The precise method of the distribution of the latter has not yet been agreed. It is clear from the draft strategic partnership agreement that the Government will not vote their 49 per cent share and that operational control will pass to the strategic partner who will appoint all executive directors. If this is to be a true partnership between the public and private sectors, I believe that it must be different from a normal commercial organisation. The partnership must be embedded in a way that clearly indicates that that is the case.

If we have to have this partnership, the Government should not be voting at less than their voting strength—in other words, having one director less than that provided by the strategic partner. We are also concerned that the Bill, as drafted, allows the government interest to be diluted down to 25 per cent without any reference back to Parliament. That also underlines the need for the Government to vote their full proportion of shares.

Therefore the amendment proposes that no restriction shall be placed on the voting rights of shares held by the Crown in any PPP; and that voting rights and board representation should be in proportion to shares held. It also ensures that the Crown will appoint as many shareholders to its board as is commensurate with its shareholding. We believe that that is true partnership.

On the employee side, there is already a general understanding that the employees' shares will be gifted and available for purchase and that the 5 per cent collectively will be held in an employee share trust (EST) on behalf of the employees.

We have proposed, so far without success, that a representative of the board of trustees should have a seat on the board of NATS. That would reassure employees that their interests and wider safety concerns would be given serious consideration by the board. We also believe in participation by employees, albeit indirectly. We do not propose that a current employee should be a board member but rather that, in conjunction with government, there should be someone in whom the staff could have confidence. We believe that that is in keeping with the Government's policy on partnership at work.

In tabling an amendment which stipulates that the employees' share should be held in a trust for employees and that a representative of the trust board should have a place on the board of directors we hope to regain the confidence of employees. It has been somewhat undermined by the lack of enthusiasm for the current PPP and preference for a trust model. The Minister's refusal to accept a representative of the staff interest on the board involves the normal commercial problem that on a 10 per cent shareholding one does not find oneself offered a seat on the board. This is not a normal commercial company. We think that it would cement the partnership if at this stage the Government proposed that, despite the shareholding by staff being only 5 per cent, there would be a nominee of the staff on the board. It would be understandable to a strategic partner. It would in no way undermine the Government's responsibility or interests. But it would cement the idea of partnership and that this PPP was different from any privatisation that has gone before. I beg to move.

9.15 p.m.

Lord Lea of Crondall

It is a difficulty that some of these matters are not on the face of the Bill. However, having considered the strategic partnership agreement placed in the Library, it is worth quoting a couple of points in order to achieve some perspective on the subject. That agreement states: The private sector shareholders shall use all reasonable endeavours to ensure that the Directors appointed pursuant to clause 7 constitute a majority of the Directors at all times. If, notwithstanding such reasonable endeavours, such directors do not constitute a majority of the directors at any Lime, the Private Sector Shareholders shall, as soon as reasonably practicable, appoint such number as is necessary to restore that majority". This is a somewhat strange PPP. My noble friend Lord Brett referred to the figures. The Government, with a 49 per cent share, will not be voting their 49 per cent share. Operational control will pass to the strategic partner, which has 46 per cent. This should be a majority of the directors at all times.

The second leg of the amendment gives constructive thought to the third element of the equation; namely, the employees whose interest is self-evidently not necessarily identical with that of the private shareholders. The formula for shareholders is set out in a somewhat singular way, with a 10 per cent threshold before there is any entitlement to appoint a director. The strategic partner with more than 10 per cent will appoint the chairman as long as there is no blackball from the Crown shareholder.

We begin with the position of the Government selling 46 per cent and retaining 49 per cent. The amendment states that no restriction should be placed on the voting rights of shares held by the Crown in this PPP and that both voting rights and board representation should be in proportion to the shares held. It would also ensure that the Crown will appoint as many directors to the board as is commensurate with its shareholding.

As regards the specific employee representation aspect, mentioned by my noble friend, there is an understanding that the employees' shares will be gifted and held in trust on behalf of the employees. Therefore, we propose that the representative of the board of trustees should have a seat on the board of NATS. We believe that that would assure employees that their interests were being taken into consideration together with the wider safety concerns mentioned in an earlier debate.

Perhaps I may conclude on a broader consideration. My noble friend Lord Faulkner of Worcester made what may well be an accurate prediction about the shape of things to come in the single European sky. In the next two or three years there may be massive structural changes in European air traffic control. But, surely, the moral of that is that we must do all we can to reassure all the stakeholders, not least the air traffic controllers, that we can make a soft landing in this brave new world.

If 49 centres in Europe are to be reduced to about six, as my noble friend the Minister speculated in an important intervention, imperialist or otherwise—and there is nothing wrong with a bit of imperialism as it solves the European problem—it will be extremely tricky to sustain trust and confidence.

I accept the prima facie case for structural change in Europe—indeed, I have tabled a Question on that issue which will be debated on 18th July—but we must set out the fences systematically. We must not try to jump the third fence before we have jumped the first because that will only confuse the horse! An important new agenda is emerging. I hope that the Minister will accept that this is a challenging period for all concerned not only in terms of board structure but of the stakeholder council and collective negotiation with the trade unions at every level, including the social dialogue associated with the high-level group in Brussels.

Lord Clinton-Davis

I support the observations made by my noble friend Lord Brett. I also support the observations made by my noble friend Lord Lea about Europe, but that is a feast yet to savour. I want to comment briefly on why the Government do not support the amendment. It seems to me self-evident that they should encourage employees to assert themselves to play a full participatory role on the board following the design which they have created.

There should be an employee representing the employee share trust on the board of NATS. That is the view of the IPMS and it is a view which I share. I do so because of my previous interest as an aviation Minister. I want to encourage the widest possible involvement in the decisions which are taken by the new board and the amendment is a way of doing so.

I do not say that we have necessarily achieved the wording that is most acceptable to the Government but the principle is clear. It should be acceptable to the Government because they ought to be involved on the board not only as regards their position but also that of the employees. They should be anxious to ensure that employees have a voice on the board. I believe that the amendment does that.

It is very important that employees' wider safety concerns are considered at the highest level. No one but the board member who represents the employees is in a position to understand that from a day-to-day point of view. It seems to me that no one else could, without a conflict of interest, fulfil that role in a way that is acceptable to the employees.

I believe that, along with the TUC, a trustee board member who is independent of government would represent the employees' interests most satisfactorily. However, that is a matter of detail; it is a matter with which we can come to terms only when the Government have accepted the idea in principle. I plead with my noble friend to accept the need for this role. He should ensure that the idea which he represents is understood by the workforce. That is the only way of doing it. There is no other avenue that he can explore satisfactorily. Therefore, I support my noble friends in what they propose. I shall happily ensure that my noble friend who is the chairman of our party follows me.

Lord Hoyle

My noble friends have said nearly all that can be said on this matter. We are concerned that the Government seem to have passed over all operational control to the private partner; indeed, the private partner will appoint all the executive directors. That is an attempt to get the Government to punch their weight in relation to the shareholding that they have in the company. We believe that directors should be appointed, in accordance with the shareholding, by the Government to the board. In that way, there would be a real public/private partnership and that is what we want to see.

There should be an employee representative; that is, someone in whom the employees have full confidence. There have been, and still are, many misgivings about the setting up of the PPP. One way of overcoming those misgivings would be, as my noble friends have said, to enable the employees to feel that they have direct representation on the board through their nominee. I am sure that that would ease many of the difficulties that may arise or suspicions that may linger within the workforce. As my noble friend said, an employee representative—not a representative of the employers or of government, but someone who represents employees—would be extremely beneficial. I ask the Minister to accept what we are trying to achieve with Amendment No. 85.

Baroness Thomas of Walliswood

I rise to say briefly that I find the amendments very interesting. I do not know whether the 5 per cent or 10 per cent threshold is an immutable obstacle to what noble Lords are trying to achieve. I believe it is the case that under some company constitutions there can be special categories of voters who vote a particular employee on to a board. Perhaps that is the type of approach that one would be able to take in this case. In any event, I look forward to hearing the Minister's response and I hope that he will treat this idea with some sympathy.

Lord Brabazon of Tara

I, too, look forward to the Minister's response. I am curious as to how employees will benefit from their 5 per cent shareholding in the company. As I understand it, the shares will not be traded. Will there be a dividend? If so, how will that work? Will it be divided up among all the employees?

9.30 p.m.

Lord Macdonald of Tradeston

I am grateful for the contributions that we have heard, particularly from my noble friend Lord Brett, who has unmatched experience on the subject, as well as the constructive contribution of my noble friend Lord Lea of Crondall, who set the debate in the European context and referred to the changes that we anticipate.

I shall deal with the four objectives of the new clause in turn. The first is on voting rights. The Government have always made it clear that the strategic partner will have voting and operational control of NATS, except in relation to certain key areas where the approval of the government-appointed directors or in some cases the Secretary of State will be required. Obliging the Government to retain voting rights equivalent to their proportionate shareholding in NATS would effectively deprive the strategic partner of voting control of NATS, as its share of votes would be less than that of the Government. That would jeopardise NATS' private sector classification, which would ultimately deny it access to private sector capital, which is one of the key objectives of the PPP. In addition, the inability to give the strategic partner voting control would undermine its confidence in its investment. That could dissuade potential strategic partners from participating in the PPP process and eliminate some potentially attractive candidates, thereby reducing what the Government, and ultimately the taxpayer, receive for the NATS shares that we sell.

The second objective is to ensure the Government can always appoint a proportionate number of directors to the NATS board. That would deprive the strategic partner of board control, thereby again placing NATS' private sector classification at risk and rendering an investment in NATS unattractive to potential strategic partners. Furthermore, it would most likely result in the Government and the strategic partner having an equal number of directors, creating the potential for deadlocks at board level. That would jeopardise not only NATS' commercial future but its ability to put in place the systems and procedures that we think are necessary to guarantee the ongoing provision of safe air traffic services.

The third objective is to ensure that 5 per cent of NATS' share capital is held by an employee share trust. I hear what the noble Baroness, Lady Thomas of Walliswood, says. We are too far down the road to change the 5 per cent total. However, we are in discussion with trade unions about how that 5 per cent might be deployed and what the conditions might be. The noble Lord, Lord Brabazon of Tara, asked how it will be valued. Normally in such cases an internal market can be set up to allow values to be ascribed to the shares. The starting value will depend on the price that we get for the 46 per cent that we sell. The final details will have to be worked out in consultation with the strategic partner.

The Government have always made it clear that employees will be entitled to participate in NATS through that holding of the ordinary share capital. That policy has not changed. It is inappropriate to attempt to prescribe the details of a complex employee share participation arrangement in primary legislation. The amendment would require the shares to be owned, both legally and beneficially, by the employee share trust. That might deprive employees of the full benefit of the shares.

Finally, this new clause seeks to secure employee representation on the board of NATS. That is going a step too far. It would be highly unusual for a major UK company to have employee representation on its board, particularly in the case of a company which is intended to be operated along the lines of a listed company.

I speak as someone who has been a shop steward of two trade unions and a chairman of two public limited companies. In neither of those roles should I have been at all happy with the conflicts of interest which may arise: a board member has fiduciary duties in that capacity and yet there are the expectations of colleagues who have elected him into that position.

Lord Clinton-Davis

There are companies, are there not, in which the workers are represented not by an individual who is a member of the trade union concerned but independently? That being so, all I ask is that there should be an independent voice to represent the workforce.

Lord Macdonald of Tradeston

As ever, my noble friend is ahead of me. Both he and my noble friend Lord Hoyle are moving me in a direction in which I am extremely pleased to go. I believe that an employee representative would face a conflict of interest between the protection of the rights of employees and the best interests of the company. That might create tensions at both levels and would hamper the effect of management of the company and increase the risk of deadlock.

If the Government and the strategic partner had an equal number of directors, the employee representative would hold the balance of power, which would give employees an undue influence in the company with a share of only 5 per cent.

But we have not forgotten the position of employees. A stakeholder council is to be created which will be an influential body. Its views will carry considerable weight. More important, it will allow representatives of NATS' employees and users of aviation—

Lord Hoyle

Surely, that will only be a consultative body, will it not? How often will it meet? As I remember, on Second Reading I described it as a watchdog which not only did not bite but which hardly barked.

Lord Macdonald of Tradeston

I do not share my noble friend's cynicism on that point. It will be an effective body which will meet about twice a year. It will have a broad membership. It will carry weight because it will be made up of representatives of NATS' employees and users of aviation. It will provide access to direct involvement in the company. It will offer a forum for discussion and will influence NATS' plans and arrangements for the provision of air traffic services. It will offer the opportunity for any member of the council to raise an issue regarding the provision of those services by NATS and its subsidiary or for those issues to come to resolution.

The council will pay particular attention to areas such as major investment projects, safety issues, standards of service provision, long-term investment plans and the development of new technology. Those are all on the agenda for the stakeholders council.

However, we recognise that the area of employee representation is important. Having listened to what has been said, the Government are prepared to strengthen their arrangements. The Government will have the right to appoint two, or perhaps three, partnership directors to the board of the PPP company. They will have the right also to appoint a trustee to the employees share trust. So we are proposing that we should consult staff representatives about the criteria that we shall use in selecting those appointees so that the staff can feel comfortable about those appointments. We propose also that the government trustee be appointed as one of the partnership directors. That person, although bound by the rules of both appointments, would be uniquely informed on matters of interest to staff.

I hope that noble Lords will agree that these measures, together with staff representation on the stakeholder council, as already referred to, will provide sensible working arrangements that will be of benefit to all parties involved.

These matters are essentially for the partnership documentation, and that is where I undertake to place them. They would, however, be out of place on the face of the Bill. In view of the reassurances I have given, I hope that the noble Lord will withdraw his amendment.

Lord Clinton-Davis

Will we have the amendments, not only with regard to the stakeholder committee but with regard to the board, before Third Reading?

Lord Macdonald of Tradeston

I suggested that they should be put within the partnership documentation, and that is where I shall endeavour to place them. We shall try to ensure that our partnership directors have direct roles. I refer not only to the trustee and employees' share scheme, but to direct involvement in the stakeholder council and, indeed, the safety committees that we propose them to attend.

Lord Brett

I thank the Minister for his response, which, in some ways, is a curate's egg. He demurs at a representation on the board and says that that is highly unusual in a joint stock or public company. The truth is that this will be a highly unusual company. It is not normal to sell off 46 per cent of shares and give controlling interest to the person who buys them.

I am slightly confused as to how the private sector status could be in jeopardy if the majority of shares, the 46 per cent plus the five per cent of staff shares, are clearly not owned by a public body, namely, the Government. We shall look carefully at that aspect when we read Hansard tomorrow and perhaps return to it at a later stage.

I am pleased to hear the Minister's contribution as regards the second point; that is, how better to represent the interests of staff at board level in whatever form. I am prepared to accept that if an agreement can be reached which is satisfactory to the staff representatives in the discussion that he indicated will take place, and they are content with the proposed format, I certainly would be content. My only immediate response is that having someone who is a trustee and on the board might involve a potential conflict of interest. However, that can be discussed in detail. I welcome the movement the Minister has made in that regard.

I refer to the question of whether the provision is on the face of the Bill or in the strategic partnership agreement. I believe that it is more important to have a form of representation in which the staff will have confidence. I would have no great objection if that happens and the provision appears in the strategic partnership agreement. With those caveats, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 52 [Loans]:

[Amendment No. 86 not moved.]

Clause 52 agreed to.

Clause 53 [Guarantees]:

[Amendments Nos. 87 to 89 not moved.]

Clause 53 agreed to.

Clause 54 [Grants]:

[Amendment No. 90 not moved.]

Clause 54 agreed to.

Clause 55 agreed to.

Clause 56 [Shadow directors]:

[Amendment No. 91 not moved.]

Clause 56 agreed to.

Clause 57 [Extinguishment of liabilities]:

[Amendment No. 92 not moved.]

Clause 57 agreed to.

Clauses 58 to 61 agreed to.

Clause 62 [Exercise of functions through nominees]:

[Amendments Nos. 93 and 94 not moved.]

Clause 62 agreed to.

Clause 63 agreed to.

Schedule 6 agreed to.

Clause 64 agreed to.

9.45 p.m.

Baroness Thomas of Walliswood moved Amendment No. 95: After Clause 64, insert the following new clause—


(" .—(1) NATS or any transferee company will be a non-associate member of the Civil Aviation Authority Pension Scheme (CAAPS).

(2) Payments by NATS or any tranferee company into CAAPS will be at the rate agreed between the participating employers, the CAA, Highlands and Islands Airports Ltd (HIAL), NATS and the CAAPS trustees following advice from the scheme actuary.

(3) The strategic partner shall make provision for increases in pensions and capital sums to which this section applies to each increase in official pensions under the Pensions (Increase) Act 1971 and section 59 of the Social Security Pensions Act 1975 ("an official pensions increase").

(4) This section applies to a pension or capital sum at any time if—

  1. (a) at that time it is a pension in payment, a deferred pension or capital sum or a pension or capital sum to which a person's future entitlement is contingent on the death of another person, and
  2. (b) the CAA either made provision for an increase in it broadly corresponding to an official pensions increase or would have done so if it had been within paragraph (a) at a time when the CAA made provision for increases broadly corresponding to an official pensions increase.

(5) But where it was the practice of the CAA, when making increases broadly corresponding to an official pensions increase, in any circumstances—

  1. (a) not to make provision for an increase, or
  2. (b) to make provision for an increase of a reduced amount,
subsection (1) does not require NATS to make in similar circumstances provision for an increase in excess of any for which the CAA would have made provision.").

The noble Baroness said: Amendment No. 95 seeks to protect the pension rights of NATS employees. Since we tabled this amendment, a more detailed amendment with a slightly different emphasis has been tabled by the noble Lord, Lord Brett, and his noble friends. To be perfectly frank, I am not prepared to argue my amendment against theirs. We felt that this was the right way to go about this. On the other hand, there may be better ways.

The principle in the detail is probably more important than either amendment; and the principle is that those people who transfer to the new company should retain the same pension rights as they would have had if they had remained with NATS. That is such a simple principle to express that I shall leave the matter there and allow the noble Lord, Lord Brett, to give a more lengthy exposition of his much longer amendment. I beg to move.

Lord Brett

It may be appropriate for me to speak now to Amendment No. 96 in my name and that of my noble friends. I am at one with the noble Baroness, Lady Thomas, in believing that the wording of amendments concerning pensions issues are fraught. The advice that we received did not come without some expense; it was prepared by experts in the field.

Essentially, I am sure that Amendments Nos. 95 and 96 aim at precisely the same end. I believe also that Ministers aim for the same target. The question is whether there are sufficient guarantees in the verbal assurances so far given to sustain us over the years when the debate is long forgotten, when the PPP has long prospered, and we have entered what I may call "Faulkner's world"—the ever-changing situation in Europe which could be quite different in five years' time with quite a different growth of air traffic control centres. They may then be fewer in number, greater in size and scope but with a smaller number of employers.

Basically, the one thing above everything else about which the staff of NATS are concerned is the potential impact of privatisation on their pensions. Employees of NATS are currently members of the CAA scheme. The Government have assured us that if the PPP goes ahead, the NATS PPP could continue to participate in the scheme as a "non-associate" employer. Existing employees of NATS could then remain in the CAA pension scheme. However, many of the obligations to finance the scheme will pass to the strategic partner and we do not believe that the Government's assurances, however well meant, are sufficient. They do not offer sufficient protection and that is why we believe—this is a fundamental confidence-builder for staff—that such protection should be on the face of the Bill.

We obtained expert advice on this matter. That is why the amendment is long and detailed. But it is designed to deal with several simple tasks. When NATS becomes a PPP, it is important to ensure that sufficient funds are segregated within the Civil Aviation Authority pension scheme to reflect liabilities—new subsection (3). Incidentally, the trustees of the new pension scheme are so anxious to have that provision included in the Bill that, if it is not, they will test the position at law. We also want to ensure that NATS employees can remain in the CAA scheme even after the subsequent transfer—new subsection (4).

At least one representative from the employees and one from the employers should be represented on the board of the CAA pension scheme, in accordance with new subsection (8). But the new NATS PPP employer, or anyone thereafter, must contribute to the scheme to a level to protect the accrued rights and guaranteed benefits on winding up; not simply at the level required by the minimum funding requirements, as specified in new subsections (9) to (11).

The new NATS employer, or any future employer—we know dilution is on the cards and there could be, if not a change of ownership, certainly a spread of ownership with perhaps new participating shareholders with different ideas from those in the shareholders' minds at the start of the PPP—shall provide future benefits at least as good as those available in the CAA pension scheme at the transfer date, in accordance with new subsection (12). Finally, new subsection (13) seeks to ensure that no amendment may be made to the scheme which would result in a reduction of the accrued or future rights of protected beneficiaries.

We have tested with the same legal advice the assurances given to the trade unions by the Minister. They believe that it will not be sufficient to rely on those assurances, not through lack of good will, but simply because we cannot guarantee the future.

It is true that the amendments to the CAA pension scheme—the protectors—are quite strong. However, this is not the case when you consider the contribution rate payable. Contributions are covered under the relevant clause where reference is made to the schedule of contribution as it is expressly stated (as it has to be legally), as agreed between the trustees and the company". Therefore, the trustees do not have unilateral rights to set the contribution rate. Of course, you could take it to the extreme, as I mentioned earlier. You could find an attempt to push the funding rate down to the minimum requirement rather than, as we would like to see, a level of funding that would cover the full buy-out of any benefits if the scheme were to be wound up tomorrow. Further, even if it is contained within a strategic partnership agreement, we do not know how long that agreement would remain inviolate when there is a fair chance of dilution. Therefore, we do not know how relevant that agreement will be in a number of years time.

There has recently been correspondence with the trustees of the CAA pension scheme. They are very concerned to ensure that anything covering pensions should be included in the Bill. Any agreement that imposes a contractual commitment on the PPP would not bind the trustees because they are not party to it. Therefore, provision in the Bill would make it far easier for the trustees to ensure that the necessary safeguards were observed.

What we propose is not revolutionary; it is not without precedent; and, indeed, it is not new. In fact, it may be familiar to noble Lords on the opposite side of the Committee. It has been taken from the privatisation of electricity supply, which took place a decade ago. It is not even new or a precedent within this piece of legislation, because it has been found possible, necessary and agreeable to include the London Underground on the face of the Bill. I return to the comment of my noble friend Lord Whitty that the staff are crucial to the future of NATS, with which we agree.

It would not be possible to explain to NATS staff why the Government say that it is unnecessary to have on the face of the Bill protection of their pensions, despite the fact that the legal advice and the trustees of the pension schemes to which they currently belong wish to see it. It would be difficult to explain to them why it is possible to put in the same Bill the protection of the pensions of London Underground staff. There may be slight differences in that respect, but they are not sufficient to suggest different treatment. I hope, therefore, that Members of the Committee will feel able to support this amendment and that the Minister will be able to accept our proposal to protect the pensions of staff transferring to the PPP. I beg to move.

Lord Brabazon of Tara

Perhaps I may presume to give the Minister a little advice on the matter. I sat through the proceedings on many privatisation Bills during the time of the previous government. As the noble Lord, Lord Brett, said, pensions were an issue in every one of them. We always had to give way on pensions at the end of the day. Moreover, I believe that we nearly always had to do so in this Chamber. Therefore, in order to save the Minister and the Committee a lot of time, I urge the noble Lord to take that advice.

Lord Brooke of Alverthorpe

I shall be brief at this time of night. On behalf of noble Lords on this side of the Committee, I was most grateful to hear those few words of support from the noble Lord, Lord Brabazon. In my previous incarnation as General Secretary of a Civil Service union, I had some experience of dealing with strategic partnerships, and forms of privatisation. Now we have PPPs. Invariably we run into two major issues. This is understandable with the transfer of staff. The first issue is that of job security. It is difficult to get the kind of long-term guarantees and security that staff want when they are being moved in that way.

The second major issue is invariably pensions. Public servants enter into employment with the public service with an expectation of what their pensions will be. They contribute indirectly towards their pension during the course of their careers and, no matter what happens, they expect—and they have a right to do so— that that will go with them throughout the rest of their working lives.

Every time that we have a privatisation, or a PPP, we run into this kind of difficulty. Although there are clearly problems as regards job security and certainly on pensions, I hope that the Labour Government will listen sympathetically to these proposals. I join my noble friend Lord Brett and the noble Lord, Lord Brabazon, in urging the Government to seek a more sensible and civilised way forward. If the Treasury constitutes the obstacle, it should have been required to propose an alternative mechanism which avoids this conflict which always arises when such partnerships are proposed. I again urge that the Treasury should be asked to propose a measure which is novel, innovative and which protects pensions without the need for an argument about whether it should be on the face of the Bill or in the partnership documents. I hope that the Minister will consider that point.

In the meantime, a group of staff are extremely concerned about their future. I am sure that the Government will say that there is no difference between what they are offering and what the staff want. There are alternative and innovative proposals to be explored but, if there is not time for that, the appropriate measure should be included on the face of the Bill. I hope that this matter will be addressed in a sensible way. In the words of the noble Lord, Lord Brett, a confidence builder is needed so that staff work together to make a success of the change that is proposed.

Lord Hoyle

It is not often that I urge my noble friend to take the advice that has been proffered from the Benches opposite. However, in this case I hope that he will. As has been rightly said, the staff are extremely concerned about job security and about their pensions. An appropriate pensions measure would build up their confidence. Ministers have given verbal assurances on this matter which have pleased the unions. However, we are trying to put some rock solid foundations into those verbal assurances. Reference has been made to the electricity privatisation. We ask that similar provision be made for NATS employees in this regard. That has been done with regard to London Transport staff. It may be inconvenient but I urge my noble friends to resubmit the matter to the Treasury and include an appropriate measure on the face of the Bill.

Lord Clinton-Davis

I support what my noble friends have said. I do not want there to be a disparity of any real strength between the pilots and NATS employees. I speak uncharacteristically briefly but that is all I want to say.

Lord McIntosh of Haringey

The noble Lord, Lord Brabazon, invites me to give way gracefully and quickly for fear that I may have to give way less gracefully and less quickly later. However, I do not see that as my role. I do not see myself, in responding to the amendment, as resisting or giving way, nor do I do see myself as giving verbal assurances, according to the phrase that has been used. In responding to the amendment I seek to show that the concerns which my noble friends have about the pension scheme are not justified. I seek to show that not through verbal assurances but through detailed exposition of the position in which we find ourselves.

At present, pensions for NATS employees, and also Civil Aviation Authority employees, are provided by the Civil Aviation Authority Pension Scheme (CAAPS). After the PPP, CAAPS will remain the source of pensions for staff employed by NATS at the time of the PPP, but there will need to be some amendment to CAAPS to reflect the requirements of the Pension Scheme Office of the Inland Revenue. The Pension Scheme Office permits groups of companies to participate within the same pension scheme on either an associated or non-associated basis. At the moment the CAA and NATS are associated employers, while Highlands and Islands Airports Ltd is a non-associated employer within CAAPS.

In technical terms, all that will happen is that the principle of non-association is to be extended to NATS to comply with the requirements of the Inland Revenue. What does that mean in practice? Where the Inland Revenue requires the relationship to be one of non-association, cross-subsidy is not permitted—in other words, the concerns of the noble Lord, Lord Brett, about sufficient funds are met. The assets must be separately identifiable. Employer contribution rates must be set by reference to the characteristics of each of the non-associated employers considered separately. No other changes are required by the change of status of NATS from associated to non-associated employer. In particular, nothing about that change of status requires any change to the benefit structures of what, following public/private partnership, will be the separate CAA and NATS sections of CAAPS.

The mechanics to achieve non-association can be dealt with within the existing trust deed and rules of CAAPS and therefore without the requirement for legislation. I shall refer to that in detail as I deal with each of the parts of Amendment No. 96. If that were not so, it would not have been possible to change the status of the Highlands and Islands Airports Ltd. from associated to non-associated employer some years ago.

It also follows from this that the current obligation under the CAAPS trust deed and rules to increase pensions in line with the Retail Prices Index will continue to apply to both the CAA and NATS sections. Furthermore, the deed contains a very restrictive power of amendment. There is, therefore, no realistic prospect of the benefits, including index-linked pension increases, being reduced after PPP for staff in employment with NATS at the time of the PPP.

Therefore, I can assure the Committee that current NATS employees will remain members of the Civil Aviation Authority Pension Scheme and the new private sector partnership will be obliged to continue as a continuing condition of the partnership. That condition is an essential part of the deal and will be written into the strategic partnership agreement.

Amendment No. 96 is based on a misunderstanding of the current and proposed arrangements relating to CAAPS. To accept the amended clause as proposed would be unnecessarily to burden the PPP with a bureaucratic framework duplicating existing and proposed protective arrangements which are achieved by the existing trust deed and rules with its unusually restrictive power of amendment; the general protection provided by the statutory pension framework, especially the Pensions Act 1995, and the relevant provisions in the strategic partnership agreement.

Perhaps I may turn to the details of Amendment No. 96. The noble Baroness, Lady Thomas, will forgive me but I shall not spend any time on Amendment No. 95 because of the manner in which she moved that amendment. I turn to the definition in the proposed new subsection (1) of protected beneficiary. Paragraph (b) could be thought to be overly protective given the use of the class. Paragraph (c) is implied in any event and (d) and (e) are unaffected by the PPP and remain in the CAA section of CAAPS.

The proposed new subsection (2) is not required because that will happen in any event and requires no special provision. Subsection (3) is also unnecessary: the trust deeds of CAAPS have a fiduciary duty when considering the allocation of assets between the various sections of CAAPS or on the transfer to another scheme. Subsection (4) will become unnecessary once CAAPS becomes a non-associated scheme. There is no doubt that non-association can be achieved. CAAPS is already non-associated in respect of Highlands and Islands Airports Ltd.

A company described in subsection (5) under non-association should be able to participate in the NATS section or, if necessary, a separate section within that. What I said about subsection (3) also applies to subsection (6). As regards subsection (7), once the scheme is non-associated, an employer with no connection with the NATS business could become a participating employer. The protection should not extend to somebody who moves to a quite different job. Under subsection (8) a provision of this kind may sit uneasily with the statutory provisions for member nominated trustees as required by the Pensions Act 1995.

On subsection (9), a very prescriptive contribution rate may well prove inappropriate in practice. Subsection (10) would impose on the relevant NATS employer a greater obligation than the existing sophisticated statutory framework relating to the preservation of pensions or under the existing trust deed of CAAPS. With regard to subsection (11), a provision of this type would fetter the discretion of the trustees of CAAPS to an unacceptable degree. On subsection (12), the CAAPS deed already provides for this; and subsection (13) simply duplicates the existing terms of the CAAPS trust deed.

I am not expecting my noble friends to be content with every part of that explanation, but I hope it is clear that we have considered every single issue in these complicated amendments.

I have been asked about the comparison with the railways or London Underground. The position in regard to London Underground and the railways is much more complex. The Government made provision for statutory protection of London Underground staff because we expected a restructuring of the business. We expected it then— and we still expect it—to be much more complex than will be the case with NATS. Experience of Railtrack privatisation suggests that many of the staff transferring to the PPP Infracos will be subcontracted early on—possibly several times—and be subject to mergers within the "mainstream" railway industry.

It might have been possible to have ensured that London Underground staff were adequately protected using a contractual mechanism of the kind proposed for NATS, but since the employers on whom the obligation to participate in the pension scheme would be laid might be at several levels of remove following this multiple subcontracting and reorganisation, we felt that such a contractual obligation would be difficult to enforce. That is certainly not the case here.

Noble Lords on all sides of the Committee regard pension provision as an important issue. The Government have not taken any of these decisions lightly. If my noble friends still have concerns, I have a duty to reflect further on the points made and to discuss the issues with them between now and a later stage. On the perceived need for legislative protection for NATS staff, if after discussion it is agreed between us that there is a case for coming back to the issue at a later stage of the Bill, I am of course prepared to do that.

Lord Brett

I thank the Minister for his detailed response. He is better at "Treasuryspeak" than anyone else I know. But it is "Treasuryspeak". I am grateful only for his final two sentences; they at least offer the opportunity for further consideration. The difficulty is that even if everything the Minister said is absolutely true, it is not believed by those most affected. They are not prepared to accept that a Minister in the year 2000–01 will give assurances which in 2006 may see a strategic partnership agreement torn up, changed; Faulkner's world will have arrived and we will have a whole different series of ownerships—not only within London Transport but, with dilution, we could have it within the strategic partnership.

Lord McIntosh of Haringey

I have not made myself clear. I am not talking about assurances that I have given; I am talking about a trust deed which is the responsibility of the Civil Aviation Authority pension scheme. It is not open to any new management of NATS to change it; it is up to the Civil Aviation Authority pension scheme trustees—and they will be in the future as they are now. These are not assurances; these are facts.

Lord Swinfen

Surely the noble Lord is aware that trust deeds can be changed.

Lord McIntosh of Haringey

The trust deed will be in the same hands as it is now.

Lord Swinfen

But that does not mean that it cannot be changed.

Lord Brett

There are two points: one is the contributions that will be made by the strategic partner; the second point—which is of greater substance—is that the very trustees in whom we are placing faith because of the facts presented by the Minister are the people who want to see it on the face of the Bill. That somewhat undermines the verbal assurances—facts or otherwise—in the minds of the 5,000 people that we need to make a success of a novel PPP. I shall happily take the opportunity, first, to read Hansard; secondly, to consult my ex-colleagues in the NATS area; and, thirdly, to take up discussions on this issue with the Minister before Report stage. However, on the basis of the robust answers this evening, I feel that, unless the issue can be resolved in the meantime, it will have to be put to a Division at Report stage.

Baroness Thomas of Walliswood

I was extremely interested to hear the most recent intervention of the noble Lord, Lord Brett, because it embodied, in great detail and with great fervour, some of the doubts that were creeping into my mind as I listened to the Minister. I understood what he was saying—at least I think I understood it—about the trust deed. I still do not see why that prohibits any mention on the face of the Bill of employees' pension rights. I shall withdraw my amendment for the time being, but I shall be extremely interested to see the results of the conferencing between the Minister and his colleagues.

Lord McIntosh of Haringey

The noble Baroness, Lady Thomas, will be very welcome.

Baroness Thomas of Walliswood

I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 96 not moved.]

Schedule 7 agreed to.

Clause 65 [Interpretation]:

[Amendments Nos. 97 and 98 not moved.]

Clause 65 agreed to.

Clause 66 [Air navigation: directions]:

Lord Brabazon of Tara moved Amendment No. 99: Page 44, line 6, leave out subsection (2).

The noble Lord said: In moving Amendment No. 99, I should like to speak also to Amendments Nos. 100 and 103. Amendment No. 99 seeks to leave out subsection (2) of Clause 66. Subsection (2) deprives anyone injured by the CAA's failure to carry out any duty imposed on it by the Secretary of State of any right of action against the CAA. The amendment seeks to restore such a right of action. It is a basic right that those injured by the failures of a public body should be compensated. If the Secretary of State considers a matter important enough to give a direction, it is important enough for those injured by the CAA's failure to comply to have a remedy. It is in any event difficult to see the difference between failure to carry out a duty and an act of omission in the course of performing navigation functions.

Amendment No. 100 seeks to amend Clause 68. Clause 67 already gives the Secretary of State power to give directions to the CAA in relation to its air navigation functions. Subsections (2)(a) and (b) go further in allowing him to require in those directions that the CAA comes back to the Secretary of State for further directions. The amendment removes that further right. These additional powers give too much control. Once the Secretary of State has told the CAA how it is to exercise its air navigation functions, he should leave the CAA to get on with it and not give himself—the Secretary of State—the power to interfere in this way.

The final amendment in this group, Amendment No. 103, seeks to amend Clause 71. Clause 67 gives the CAA a wide-ranging power to require production of information and documents from those providing air traffic services, whether they are licence holders and therefore subject to regulation by the CAA or not. The amendment exempts commercially confidential or price-sensitive information. Providers of services should not be forced to provide information which could afford competitors an unfair advantage if it fell into their hands. The exemptions in subsection (3) do not give sufficient protection. It will sometimes be fair to compel production of information or documents in the context of legal action, which in most cases will either have been instituted by the provider or against it as a result of default by the provider, but it would not be fair to do so at the instance of a public body where there has been no default by the provider. I beg to move.

10.15 p.m.

Lord Macdonald of Tradeston

Amendment No. 99 seeks to remove Clause 66(2) which provides that, should the CAA fail to perform a duty placed on it by a direction issued under Clause 66(1), it is not liable to suit. This reflects the current provision in Section 72(3) of the Civil Aviation Act 1982.

While a direction may place a duty on the CAA, and Clause 103(1) requires that the CAA must give effect. to that direction, it will remain with the CAA to decide how best to implement that duty. In such circumstances, it is not too hard to imagine a situation where the CAA could take a course of action which, while satisfactory to the Secretary of State, could be perceived by an individual or organisation as failing to meet that duty. Clearly it would be undesirable for the CAA to be at risk of legal action each time it took policy decisions in response to directions it has received from the Secretary of State.

Amendment No. 100 seeks to remove the ability of the Secretary of State to require the CAA to seek the approval of the Secretary of State on any specified matters or in any specified circumstances.

We are uncomfortable with the idea of removing lines 4 to 9 of Clause 68. We do expect to replace the current directions to the CAA in respect of airspace policy. These require that in certain specific circumstances the CAA must consult with, and obtain the approval of, the Secretary of State. We do foresee a continuing requirement for the involvement of the Secretary of State.

It is clearly essential that the CAA should have access to the information it requires to enable it properly to carry out its air navigation functions. Amendment No. 103 would prevent the CAA requiring the supply of information for this important purpose where such information is commercially confidential or price sensitive.

The clause as drafted means that no one can be compelled to produce documents or to supply information which he could not be compelled to produce in civil court proceedings. I am sure that the Committee will agree that that is as it should be. However, aside from that, the CAA should have access to the information it needs, which may well include information falling within the two categories specified in this amendment. We do not believe that it should be unnecessarily hampered in its exercise of statutory functions and duties. It is for this reason that we do not believe the amendment to be appropriate or acceptable.

In the circumstances, I invite the noble Lord to withdraw his amendment.

Lord Brabazon of Tara

Once again I am grateful for the Minister's response to what are in essence fairly detailed amendments to the Bill. He has given me some reassurance. As always, I shall look forward to reading what he has said. In the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 66 agreed to.

Clause 67 agreed to.

Clause 68 [Directions: further provision]:

[Amendment No. 100 not moved.]

Clause 68 agreed to.

Clause 69 agreed to.

Lord Brabazon of Tara moved Amendment No. 101:

After Clause 69, insert the following new clause—


(" . The Secretary of State may make regulations allowing an airport operator to apply penalties to the operators of air services when those services deviate from approved corridors or routes for take-off or landing.").

The noble Lord said: I beg to move Amendment No. 101. I begin my remarks with a quotation: We propose to take powers to enable airports to enforce mitigation measures, for example by taking action against noncompliant airlines, and to enable local authorities to enforce noise mitigation agreements". The quotation continues: This will require legislation and we will consult on the details. In the interim, there is nothing to stop airports from entering into noise mitigation agreements with their local authorities". That is a quotation from paragraph 4.221 of the government White Paper A New Deal for Transport: Better For Everyone published in 1998. Two years later, I believe that we now have the legislative opportunity in the Bill before us to do something about this matter.

This amendment was proposed in another place by my honourable friend Mr Graham Brady MP and a number of other Members of Parliament from all sides of the House with constituencies in the Manchester area. They have held discussions with Ministers. I believe that those Ministers were reasonably in favour of the proposal, but again were looking for an opportunity for legislative time.

When aircraft take off from busy airports, they are expected to follow noise-preferential routes until they reach a certain altitude, and then to go in the direction of their destination. The purpose of that is to mitigate noise problems and to attempt to minimise the area affected by noise.

Section 38(1) of the Civil Aviation Act 1982 provides that, an aerodrome authority may for, the purpose of encouraging the use of quieter aircraft and of diminishing inconvenience from aircraft noise, fix its charges by reference, among other things, to any fact or matter relevant to … the extent or nature of any inconvenience resulting from such noise". The problem is that there is some legal doubt as to whether that allows for the type of measure that I propose.

Perhaps I may again draw on the experience of Manchester airport. Some airlines are very good, and some are very bad. I shall not name names; suffice it to say that over 20 per cent of the aircraft of one airline on the list that I received from Manchester deviate from the NPR. Other examples are given of 15, 16 or 17 per cent deviation from the NPR. That is unacceptable. I sympathise particularly with the airports. Although the aeroplanes make the noise, it is always the airport that gets the blame.

So airports want the power—I do not believe that any responsible airline would object—as was recognised in the White Paper, to enforce some kind of fining mechanism or penalty for airliners that deviate too often from the NPRs.

I have deliberately framed the amendment so as to give the Secretary of State a great deal of flexibility in framing the regulations. I am sure I shall be told that it is incorrectly drafted. I shall probably be told also that I am attempting to insert it at the wrong place in the Bill.

However, this Transport Bill has been a long time coming, and I do not know when there will be another. This idea has been around for over two years, since the White Paper was published. It offers an ideal opportunity to include the power in the new clause. As I said, my proposal would provide the Secretary of State with a good deal of flexibility. I believe it would be welcomed by airports, and not least by those who are resident around them.

Baroness Thomas of Walliswood

We on these Benches view the amendment with a great deal of sympathy. It is extremely difficult for people living near an airport—I take Gatwick as an example—to find the right person to whom to complain, and to remember all the necessary details, such as the exact time the aircraft was overhead and the type of aircraft, in order to make a complaint acceptable and effective. It is difficult for the ordinary citizen to get past first base in this matter. If it is not possible for airport operators who know exactly which aircraft has moved where (because it is all recorded) to fine a company or in some other way to express their displeasure with aircraft that do not keep to the correct corridors, the addition of the new clause would do everyone living around an airport an immense amount of good. People who live in my part of the world, with Gatwick at one end and Heathrow at the other, would be delighted to know that the Government had taken advantage of the passage of the Bill to incorporate this small but valuable reform.

Later in the proceedings on this Bill I shall use the same technique as that adopted by the noble Lord, Lord Brabazon, to try to persuade the Government to implement their own policies. I am delighted to support the noble Lord in his particular endeavour.

Lord Swinfen

I admire the ability of the noble Baroness, Lady Thomas of Walliswood, to identify aircraft. I cannot. I have considerable difficulty in identifying even different makes of cars which are much closer to me than aircraft which make noise. I also have a good deal of sympathy with the amendment moved by my noble friend, not so much because I am particularly troubled by noise but because Manston is becoming an increasingly busy airport. Some of the aircraft that land at that airport are extremely large and heavy and occasionally fly over my house. I admit that it makes a change from the quietness.

I wonder whether my noble friend's amendment should have a little more in it. My noble friend seeks to protect the public from excessive aircraft noise. I appreciate that use of the proper air corridors is a matter of safety. However, aircraft should have a get-out clause if they must deviate because of an emergency, for example the need to take avoiding action because a light aircraft flies into their path and creates a danger or because the presence of a drunken passenger means that they must return in a hurry and land. The aircraft operators must have some get-out clause; otherwise, I applaud my noble friend for tabling the amendment.

Lord Berkeley

I also have a good deal of sympathy for the amendment. I intended to refer to the Government's White Paper in connection with a future amendment, but the noble Lord, Lord Brabazon, has beaten me to it. The White Paper makes a good effort to change the policy of the previous government, which was to predict and provide for the roads, until they decided that they could not do any more, and predict but not provide for the railways. However, we are still in the business of predicting and providing for airlines because, somehow, it is economically necessary for London, Manchester or wherever. We must move on a little further, and we shall probably do so in a few years.

I agree that perhaps the amendment should be slightly widened to include those aircraft that make too much noise and otherwise produce undesirable effects, including those times when they deviate. It is up to governments to ensure that airports are seen to be on the side of residents as well as their customers. That will not be possible without some legislation. After all, the amendment is all about whether aircraft obey the law and go where they are told to go. If we disobey the law on the road we are penalised if the police catch us. There is no reason why the same rules should not apply to air travel. I believe it is time that airports, NATS, or whoever is to do it, ensure that airlines which take easy short-cuts—obviously, only one or two do so—obey the law. If they do not comply with the law they should be penalised. It may he necessary for government to introduce some legislation to ensure that that happens.

Lord Macdonald of Tradeston

The Government are committed to ensuring that the environmental effects of aviation, in particular noise nuisance, are properly mitigated. There are already powers for airports to modulate their charges to airlines in relation to noise. Section 38(1) of the Civil Aviation Act 1982 provides that an airport may fix its charges by reference to the amount of noise an aircraft makes or the inconvenience caused by such noise. The Committee will be gratified to hear that many airports levy differential landing charges according to, for example, the comparative noisiness of aircraft types. Airlines and their pilots rarely wilfully stray from the specified routes. Safety, as well as environmental considerations, mean that at major airports, they should follow the stipulated routes and procedures, and the directions of air traffic controllers.

Let me assure all noble Lords who have spoken that the Government are committed in our White Paper on integrated transport to introducing legislation clarifying and enhancing the powers of aerodromes to enforce noise mitigation measures. That commitment stands. We shall be consulting shortly on the details of that legislation and I think that that would be the appropriate time to look at the issue that the noble Lord's amendment raises. In those circumstances I ask noble Lords opposite to withdraw their amendment.

10.30 p.m.

Lord Brabazon of Tara

I am grateful to all noble Lords, including the noble Baroness, Lady Thomas of Walliswood, who took part in the debate and supported what the amendment seeks to provide. My noble friend Lord Swinfen thought that there should be some provision in the amendment to take care of emergency situations. That is why I drafted the amendment flexibly so that the Secretary of State can make regulations and could take into account all the factors to which my noble friend referred.

The noble Lord, Lord Berkeley, said that predict and provide were still the mode of the aviation world. I do not think that many in the industry will agree with him when one considers the length of time the inquiry into a possible terminal 5 at Heathrow is taking, and the never-ending saga of the possible requirement of a new runway somewhere in the South East. I do not intend to enter into that debate today. I do not think that anyone will agree with the noble Lord that predict and provide still continues in the aviation world.

However, I agree with him that airports need to make themselves as environmentally friendly as they can. The amendment is a modest help to them. The Minister is right that airports can and do have differential charges for different categories of aircraft. But that does not directly answer the point I seek to make through the amendment as regards the deviation from the noise preferential route and the possibility of a fine, penalty or some such thing for those who deviate from that route. Some airlines are particularly bad; some are good. There is no reason why those who are bad should not improve their ways and seek to become as good as the best. It is unacceptable that just over one in five flights deviates when other airlines—presumably they operate the same kind of equipment—do so less than 4 per cent to 5 per cent of the time.

The Minister was kind enough to say that the Government still have the issue very much in their minds and referred to consultation and so on. Before withdrawing the amendment, perhaps the Minister can say whether there is any possibility that such consultation might be complete by the time we finish with the Bill in this House—no doubt some time in the spill-over period.

If legislation of the type I have outlined in my amendment is required, when shall we have an opportunity to deal with it? When will the next Transport Bill come along? I do not want the Government to produce another one just for the sake of it, but this has taken three years to arrive. The White Paper was published two years ago. We need to know from the Minister what kind of legislation is required to bring such a measure into force and whether there is time to do so between now and the end of the passage of this Bill through the House.

Lord Macdonald of Tradeston

To be frank, while my information is that we shall be consulting soon on the details of the legislation, I cannot offer a timetable to the noble Lord. However, he has our assurance that the commitment to introduce legislation clarifying the powers of aerodromes is on our agenda and we shall consider it at the earliest appropriate time.

Lord Brabazon of Tara

I am disappointed with that reply; it does not get me all that far. I shall not press the amendment tonight but I shall want to return to it at the next stage. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 70 [General duty]:

[Amendment No. 102 not moved.]

Clause 70 agreed to.

Clause 71 [Information for purposes of Chapter III]:

[Amendment No. 103 not moved.]

Clause 71 agreed to.

Clause 72 agreed to.

Clause 73 [Charges for services]:

On Question, Whether Clause 73 shall stand part of the Bill?

Viscount Goschen

My intention in opposing the Question, That Clause 73 shall stand part of the Bill is simple. It is to draw further explanation from the Minister as to how the charging regime will work.

Charges are probably the second most important issue for the customers of NATS. Airlines, the predominant customer base, require two things from their service provider. The first is an efficient, high and safe level of service such as that provided by NATS. NATS has an international reputation as being a high service provider. The second is that those services should be provided at a reasonable cost to the airline industry.

Historically, charges have been recovered from airlines on a clearly understood basis; that of full cost recovery. A brief glance at the report and accounts of the CAA and NATS will show that the intention has been to leave a zero at the bottom line after all the charges have been called in.

That has worked relatively uncontentiously with the airline sector, although I am sure that airlines will always clamour for lower charges. However, they will always want high levels of service, too. We know that the air traffic control industry is capital intensive and that it requires a great deal of technology. I suggest that the Government's continuing experience with the bringing into force of the new air traffic control centre bears witness to that, as does the increasing cost of that centre. However, the arrangements will change with the introduction of this important Bill. It has inevitably raised considerable levels of concern from those who are the customer base of NATS.

When my noble friend Lord Caithness spoke to, I believe, Amendment No. 1, he asked the Minister why he had been advised that he would be unable to sell NATS whereas the Minister, with fast shuffling of feet, had been able to achieve that. The Minister gave the reply that the Eurocontrol convention permitted the utilisation of an RPI minus X-type formula approach. I presume that there has been a clarification of or an amendment to the Eurocontrol convention.

None the less, so far as I understand it—and I am open to correction by the Minister—the other signatories still pursue their cost recovery basis. That is not satisfactory under all circumstances because clearly it is up to the service providers themselves to determine what their cost level is, and some would argue that that leads to a degree of inefficiency.

The RPI minus X formulaic approach is of course very well understood. The noble Lord, Lord McIntosh of Haringey, who is charting up his 78th Bill of the year, clearly is well aware, with his handling of the Utilities Bill, of the intricacies of the utility charging process. However, because this is brand new to the air traffic control industry, I should be interested to hear a full explanation from the Minister as to exactly how it will work.

Clause 73 starts with the words, The [Civil Aviation Authority] may specify … the amounts of, or methods of calculating, the charges which are to be paid by virtue of this section". That does not give a great deal of information about how the charging regime will work. I have no doubt that the Minister will refer me to other parts of the Bill that may give further information on the matter. None the less, it is very new to this sector, and I should like to know what guidance the Secretary of State will give to the Civil Aviation Authority as the regulator and what will be the starting points for developing a charging regime.

I also raise the question as to whether there will be benchmarking with other air traffic control authorities within Europe and an assessment of the competitiveness of the new NATS. Therefore, what criteria will be used to establish the charging regime? Will there be a focus on the impact of such charges on national competitiveness? For example, clearly the aviation industry is of considerable importance to the United Kingdom. It is a hub. I believe that the UK handles approximately 40 per cent of trans-Atlantic traffic. Therefore, clearly this is extremely important. It is also probably the case that half of the concerns voiced by the airline industry have been in connection with the charging regime.

Perhaps I may also ask the Minister one or two more specific questions about this clause. Can he give the Committee an assurance that the basis for charging—the understanding of chargeable services—will remain much the same as it is under the existing arrangements?

I turn to Clause 77. I apologise to the Committee and to the Minister for diverging for a moment from Clause 73, but I believe that it is a related point. Clause 77 describes chargeable air services as those services which are not excepted, as in subsection (3). The excepted air services are those which are, provided by the owner or manager of an aerodrome or by his employee", or, air traffic services provided on behalf of the owner or manager of an aerodrome". In connection with my previous question, I should like to ask the Minister whether the services provided by the military fall under any of those definitions or whether they are understood to be excepted services. A great deal of air traffic control service is provided to aircraft which are in uncontrolled airspace and that service is provided by military air traffic controllers. Aircraft that are not flying in controlled airspace are not currently charged for that service. Will that continue to be the case and will the definitions of what aircraft are charged remain in line with the current arrangements?

In answering my next question, I am sure that the Minister would be entirely correct to tell me to get lost and oppose Clause 80 standing part of the Bill, because the issue appears in that clause, but given the generosity for which he is known, I would appreciate it if he would accept that these are related points. I do not understand Clause 80(1) and (2). They seem to be wishful thinking, although I am sure that the Minister or his advisers will be able to rustle up a clear explanation in seconds.

Clause 80(1) says: If information is given to the Secretary of State by the CAA concerning the charges the CAA would like to be paid", and then goes on to describe them. Subsection (2) says: If information is given to the Secretary of State by a licence holder concerning the charges it would like to be paid". I do not understand what that means. Will the CAA magic up a figure and say, "Ooh, we'd, like to be paid X", while the licence holders say, "Oh no, we'd like to be paid Y"—presumably when Y is a larger figure than X? Perhaps my copy of the Bill is missing something.

That is probably quite enough on charging. I should like the Minister to give the House a full explanation of those important points.

10.45 p.m.

Lord Macdonald of Tradeston

The Bill proposes the minimum necessary changes to the existing arrangements post-PPP. In response to that full set of questions from the noble Viscount, I shall outline the guiding considerations. The legal basis on which NATS charges and recovers for en route Eurocontrol and Shanwick air navigation services should continue to be clear and unambiguous. The UK's international obligations should continue to be met. The existing powers of detention and sale, which enable debts to be enforced and recovered, must remain robust. The Government and the CAA will each retain the appropriate functions, but only those that are required to be carried out in the public sector.

The charging, recovery and enforcement mechanisms will be underpinned by a new obligation in primary legislation in Clause 73 for users to pay the relevant charges. Given such an obligation, it is no longer necessary for the Secretary of State to make regulations specifying the charges payable, as is the case under the 1982 Act. In future, it will be the responsibility of the CAA as regulator to specify all charges, subject to their being within the parameters set by Eurocontrol, following proposals made by the licence holder and the CAA, and, where necessary, consistent with the proposed new price controls.

In response to some of the questions that occurred to the noble Viscount late in his speech, I assure him that the military will be exempt and the Bill will not affect the charging position in respect of general aviation. The Secretary of State will set the initial value of X in the RPI-minus-X formula and the CAA will set it in future. The CAA will also set charges. The formula is about the cost and the weight of return from NATS underlying the setting of charges. It will affect the amount of charges for those who have to pay, not the basis on which they are set, who has to pay or factors such as weight, which are currently used. There are no plans for any current exemptions from charges for general aviation to change. The charging arrangements follow Eurocontrol regulations.

The aim of Clause 80(1) and (2) is to put the Secretary of State under an obligation to pass charge notifications to Eurocontrol. It is a protection for the CAA and NATS so that they can be assured of receiving payment.

I assure those Members of the Committee who are committed leisure flyers that the general aviation community is currently exempt from most air traffic control charges. The Bill does not seek to change that. There will be full consultation with air users and other interested parties if at any time in the future there are proposals to remove those exemptions.

Viscount Goschen

I thank the Minister for his response. He clearly has a much better and more economical use of words than I do because he managed to answer my questions in approximately one-third of the time that I took to ask them. He is obviously very skilled in this.

I enjoyed the Minister's explanation of the provisions in Clause 80. I understand what they are there for but I do not understand the reference to what, the CAA would like to be paid". That is an extremely unusual phrase to find a Bill. I do not recall ever seeing any reference to what the Secretary of State would like to be paid or something of that nature.

In the following subsection there is a reference to what the licence holder would like to be paid. Why is there a difference between the two? I do not understand that. I do not expect the noble Lord to answer at this moment but perhaps he will write to me about it.

I was substantially reassured by the various assurances which the Minister gave as regards the subsidiary point of general aviation until the last sentence, when he said that he did not have plans to make any changes at the moment but if he did, he would consult. I found slightly disturbing the admission that he thought about how he would do it, if he wanted to do it, although he does not want to do it. We may need to return to that issue.

I do not quite understand how the parameters with regard to Eurocontrol would work. There are different systems within Eurocontrol for the charging of different types of service—for example, I understand the French model to be based on full-cost recovery while the UK model is based on RPI-minus-X. Are there one set of parameters for all the air traffic control authorities which are bound by the convention or is a specific set of parameters agreed for each individual service provider? Perhaps the Minister will give me a little more information on that or, if he cannot, perhaps he will write to me. This debate has been extremely useful in clarifying the charging regime. I should be grateful to the Minister if he will respond to those points.

Lord Macdonald of Tradeston

I was not sure whether the noble Viscount was asking a rhetorical question. I shall write to him when I have had the opportunity to read in Hansard the detail of his various questions.

Viscount Goschen

I am grateful to the Minister for that reassurance. In no way were they rhetorical questions. When the Minister and his officials study what I have said, they will see that these are important issues which go to the very heart of the Bill.

On the understanding that the Minister will be taking this matter further, I shall not press my objection.

Clause 73 agreed to.

Clause 74 agreed to.

Clause 75 [Specifications: supplementary]:

Lord Brabazon of Tara moved Amendment No. 104: Page 49, line 16, leave out subsection (7).

The noble Lord said: This amendment is somewhat in the same vein as the question being asked by my noble friend on the Motion that Clause 73 shall stand part of the Bill. I promise not to take more than one minute to move the amendment.

Subsection (7), which we propose to be omitted from the Bill, gives the CAA the power to charge an operator for services that it does not want and does not use, even if, indeed, its aircraft cannot use them. This amendment removes that power. The CAA already has untrammelled power to fix charges. It is not required to limit them to the costs incurred in providing the service or to consult those affected by them before fixing them. Surely it is going too far to charge for services not used, especially where the operators of aircraft are not equipped to use these services. This is neither just nor fair. I propose that this subsection be struck out of the Bill. I beg to move.

Lord Macdonald of Tradeston

The amendment seeks to remove Clause 71(7) which allows the CIA—I am sorry; the CAA—to specify under Clause 73(1), for the purposes of charging, operators and owners of aircraft which do not or could not use the chargeable air traffic services concerned. That reflects the current provision in Section 73(3) of the Civil Aviation Act 1982, which is being repealed.

The provision seeks to cover the scenario where an aircraft fails to make contact with air traffic control but still enjoys the benefits of services, which are provided in the interests of safety. An example of that is the maintenance of minimum separation distances from other aircraft. This provision also prevents less scrupulous operators obtaining "free rides".

In the circumstances, I hope that noble Lords opposite will understand the purpose of subsection (7). Accordingly, I invite the noble Lord to withdraw the amendment.

Lord Brabazon of Tara

I am grateful to the Minister for his reply. However, I am slightly puzzled as to how, if the aircraft does not identify itself to air traffic control, the charge is levied on it. How do they find out who it was?

A noble Lord

The CIA!

Lord Macdonald of Tradeston

It is a legal requirement for each commercial aircraft to carry a transponder, which is an electronic device that identifies the aircraft automatically to the relevant air traffic controllers. Aircraft of that kind are also required to file flight plans which provide the full range of information required to identify the aircraft.

Lord Brabazon of Tara

I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 75 agreed to.

Clauses 76 to 92 agreed to.

Clause 93 [control in time of hostilities etc.]

[Amendments Nos. 105 to 107 not moved.]

Clause 93 agreed to.

Clauses 94 to 96 agreed to.

Schedule 8 agreed to.

Clauses 97 to 101 agreed to.

Schedule 9 [Air traffic: information.]

[Amendment No. 108 not moved.]

Schedule 9 agreed to.

Clauses 102 to 106 agreed to.

Lord Berkeley had given notice of his intention to move Amendment No. 109: Before Clause 107, insert the following new clause—