§ 3.7 p.m.
§ The Minister of State, Department of the Environment, Transport and the Regions (Lord Macdonald of Tradeston) rose to move, That the draft order laid before the House on 1st February be approved [6th Report from the Joint Committee].
§ The noble Lord said: My Lords, we are here today to consider a draft order that it is proposed to make under Section 51(2) of the Transport Act 2000. Under Section 103(6), a draft of the order must be laid before and approved by resolution of both Houses of Parliament. As your Lordships will no doubt be aware, the draft has already been approved in another place.
§ Those of your Lordships who took part in the many debates on Part I of the Transport Act 2000 will no doubt recall that Parliament took some time to persuade itself of the benefits of the provisions that it contains, which relate to air traffic services. However, Parliament did give its approval and in doing so gave government the authority in principle to proceed with the establishment of the public private partnership (PPP) for National Air Traffic Services Limited.
§ Noble Lords will also recall that the Government accepted amendments to defer the final stages of the preparations for the PPP for a period of three months after Royal Assent. We agreed to use that period for further discussion with stakeholders, not to re-open the principle of the PPP but to ensure that progress was as smooth as possible and addressed the many legitimate concerns that have been expressed. I undertook that at the end of that period I would come back to your Lordships' House and provide a further opportunity for debating the issues. I am happy to confirm that we shall honour that commitment in due course.
§ That debate will no doubt provide the opportunity for noble Lords to raise many aspects of this subject. Today's business is much narrower and more technical. In passing the Transport Act, Parliament was clear that it wanted the PPP to proceed hand in hand with a number of safeguards. The instrument that we are considering today is intended to give effect to those protections.
§ The draft order itself is a relatively simple document. It seeks to designate, for the purposes of Section 51 of the Act, a company named National Air Traffic Services (No 2) Ltd, which, for convenience, I shall call "NATS No 2". This company is a government-owned company that has been established for the purposes of holding the Secretary of State's shares in National Air Traffic Services Limited (NATS). It will be the vehicle for the NATS Public 1076 Private Partnership (PPP)—in other words, 46 per cent of the company's shareholding will be sold to the strategic partner; 5 per cent will be made available to employees and the Government will retain a 49 per cent stake.
§ For a company to be designated under this section, it must be in receipt of assets under a transfer scheme made under Section 43 of the Act. The shares in NATS, which are currently owned by the Civil Aviation Authority, are to be transferred to NATS No. 2 under a transfer scheme to be made on 31st March, the date on which it is proposed this order will come into effect.
§ A further requirement relates to public ownership of the transferee company. NATS No. 2 will meet this requirement, as at the time of the transfer it will continue to be wholly owned by the Government. I hope that that provides your Lordships with an explanation of the technical side of the order. I will now deal in a little more detail with its effects.
§ The designation of the company will apply the various protections in Section 51 to NATS No. 2, and I will look at each of these in turn. The first protection is one that was widely welcomed when it was first proposed. The Secretary of State must ensure that he does not dispose of any shares in NATS No. 2 unless he is satisfied that a scheme is in place to ensure the completion of major projects relating to the provision of air traffic services. The projects falling within this category are the New Scottish Centre at Prestwick and the New En Route Centre at Swanwick. Designation of the company will ensure that the Government's commitment to complete these projects will be honoured.
§ There are also further protections relating to the limits of the Government's shareholding in the PPP. They come in two forms—one relates to the Government's ability to sell shares and the other to what the Government may allow to happen to their shareholding in a situation where new shares are being issued, for example to fund a capital investment.
§ I will start with the Government's ability to sell shares. Any sale of shares in the designated company must not reduce the Crown's shareholding in that company below 49 per cent. As I have already explained, the Government do indeed intend to retain a 49 per cent stake. This level of government shareholding reflects the ongoing public interest in NATS, which we believe is essential for the future of the provision of air traffic services in this country. It will ensure that the taxpayer gets value for money, and the taxpayer will share in any dividends. Again, the introduction of these protections was widely welcomed in Parliament.
§ The second type of protection (enshrined in subsection (5) of Section 51) relates to a situation where, for whatever reason, the Government agreed with the chosen strategic partner that new shares should be issued, for example so as to allow a major capital investment or project to go ahead. In that case, there is a protection as to the minimum level of government shareholding; namely, that the Secretary 1077 of State is required to hold at least 25 per cent of the designated company's share capital at any given time. This limit has given rise to much discussion in previous debates. I am aware that concerns have been expressed that this limit gives the Government a free hand to reduce their shareholding, and consequently is a stepping stone to full privatisation. We dealt fully with those matters when the Bill was being considered, but I can again reassure your Lordships that this is not the case. The protections we have allow the Government only to sell 51 per cent of the shares in NATS—with the fall-back that if, at some time in the future, the Government were to agree to new shares being issued, they must not allow the effect of this to be that the Crown owns less than 25 per cent of the larger pool of shares. These are important protections and reassurances of the continuing role for the Government in this PPP.
§ The next protection contained in this order is that the Secretary of State must continue to hold a special share in the designated company. That requirement will be entrenched in the company's articles of association and will, along with the shareholders' agreement, be used to protect the Government's rights in certain key areas such as the issue of new shares and the company's dividend policy. In essence, it will enable the Government to maintain the public interest while allowing the private sector the freedom to run the business.
§ Noble Lords on the Benches opposite attached importance to the special share during our debates on the Bill for the protection it would afford for national security. They were quite right to do so. They also suggested that the European Commission might challenge the special share. However, the Government remain firmly of the view that our powers to hold such a share are robust in this case.
§ The final protection is that the company's articles of association must not be amended without the Secretary of State's consent. However, the Secretary of State cannot consent to any such alteration unless a statement of the proposed consent is approved by both Houses of Parliament. This is intended as a safeguard to ensure that the Secretary of State would not be able to consent, without parliamentary approval, to a reduction in the rights attaching to the special share.
§ I hope that I have explained to your Lordships with sufficient clarity the protections that this very short order will introduce. In passing the Transport Act, Parliament has given its approval to the Government's proposal to establish the PPP, subject to certain safeguards. I trust that your Lordships will now endorse this technical measure to give them effect. I beg to move.
§ Moved, That the draft order laid before the House on 1st February be approved [6th Report from the Joint Committee].—(Lord Macdonald of Tradeston.)
§ 3.15 p.m.
§ Lord Brabazon of Tara
My Lords, I am grateful to the Minister for his explanation of the order, which, as he said, is not in itself controversial, dealing, as he 1078 explained, with the setting up of NATS No. 2 Ltd, as I suppose we must now get used to calling it. Indeed, I welcome the protections that the order gives to the special share and other measures. However, it also gives us the opportunity to question the Minister on the selection of the strategic partner for NATS No. 2.
Like no doubt other noble Lords, I have seen press reports of the progress, or rather lack of it, of choosing the preferred bidder for the PPP. Last week it was reported in the press that the Government had abandoned plans to select a preferred bidder. What does that mean? Originally the timetable was for the preferred bidder to be announced by the end of February; that is, tomorrow. What does it mean that there is now to be no preferred bidder? Further, press reports yesterday stated that one of the key partners of SERCO, one of the bidders, had pulled out under pressure from members of the airline group, another bidder. I hope that the Minister can clarify exactly what is going on and what now is the timetable for a decision and, indeed, how many runners are still in the frame.
I remind the Minister—the Minister has already referred to this—of the amendment that we made in this House that called for a three-month delay to any transfer and the undertaking from the Minister to make a report at the end of that time. Those three months were supposed to give the Government, among other things, time to select the strategic partner and announce it. That clearly will not now happen.
Whoever the bidder is, it is clear that safety must come first. I am sure that we are all agreed upon that. Can the Minister say what the views of the aviation safety group of the Civil Aviation Authority are? Is it true that it has serious doubts about at least one of the potential bidders? If that is so, will the Government not hesitate to take a lower bid for the sake of a safer bidder? Does the Minister want to take the opportunity now to revise downward the likely proceeds of the part sale from the figure of £350 million which was originally announced? Is it true that the Secretary of State only agreed to the PPP on the promise from the Chancellor that he could spend the proceeds on transport? Does the Minister now wonder whether that was in fact a worthwhile trade-off?
There are two other matters. First, when NATS No. 2 goes into the PPP will there be any mechanism for a clawback of any excess profits made by the strategic partner? In previous privatisations the Government were criticised for not having made such an arrangement. Secondly, I am puzzled as to the status of the employees' 5 per cent shareholding. When this order was discussed in another place the Minister stated that,When people retire, they will have to put their shares back into the pot so as to maintain the availability of the 5 per cent pot for the employee share issue".—[Official Report, Commons, Standing Committee on Delegated Legislation, 12/2/01; col. 20.]If the employees cannot trade their shares and have to return them when they retire, and if they do not receive any dividends, which I presume would be the case if the not-for-profit partner was chosen, then what 1079 value is there to the employees' shareholding at all? I hope that the Minister can answer some of these questions today and that he can tell us when the fuller statement and report will be made and the form that it will take. The Minister has already referred to this and he said "in due course". Can the Minister be a little more specific it than that?
§ Baroness Thomas of Walliswood
My Lords, I believe that everyone agrees with the Minister that this order is not of itself of any great debatable value, but simply implements the Bill. I do not propose to go back on all the arguments that we have had. Neither do I believe that it would be very profitable to try to seek a great deal of detailed information about each of the bids. Efforts were made in Standing Committee in the other place, but achieved very little result. I shall not follow that line.
However, I support and add my queries to the questions put by the noble Lord, Lord Brabazon of Tara. They are extremely relevant and pertinent questions. We all look forward to a full answer from the Minister.
As the noble Lord said, there have been suggestions in the press that one or other of the three bidders left is no longer a favoured bidder. However, reports vary as to who that might be. Can the Minister tell the House whether they are still three, two or only one bidder? In the final resort I do not expect the Minister to tell us who it is because he has already said that when matters reach that stage he will return to the House. If there are only two bidders left perhaps he will be able to tell us their names. That will also help to concentrate our minds.
There is the question of the timetable. There is the mythical or magical date of 31st March. At some point there will be a debate in this House, which the Minister has confirmed. At the same time we are expecting the announcement of a preferred bidder. So at what point in the subsequent process will we have the debate? Shall we have it between the announcement of the name of the preferred bidder and the final signing of the contract or shall we not be able to discuss the matter until the contract has been signed?
As the noble Lord, Lord Brabazon, said, there are legitimate concerns about the safety aspects of the bid. I am sure that I do not need to remind the Minister of the amendment to the Bill which gave priority to the Secretary of State's duty to maintain a high standard of safety and the identical provision relating to the CAA and everything that it does as regards NATS. I do not in the least doubt the Secretary of State's commitment, but I would like to be assured that the Treasury is also under the same limitation, or is there a conflict between the requirement on the Secretary of State to put safety first in everything that he does and the natural tendency of the Treasury in these circumstances to wish to allocate the contract to the lowest bidder?
I hope that we shall receive a little more clarification about employee shares. As I understand it, any current employee of NATS will have to sell back, give back or 1080 get rid of their allocation of shares on leaving the company. However, that 5 per cent was a percentage of the total shareholding. One can appreciate that if each new employee were given a shareholding its amount would increase. But what if the number of shares in the company is increased? Does that automatically result in an increase in the number of shares allocated to the employees? At that point which employees are we talking about; those who were engaged at the beginning of the company or those in current employment?
Finally, as regards the special share, in this House and in another place we have received frequent reassurances, almost in the same words, that the share is robust. I ask the Minister to tell the House on what evidence the assurance of robustness is based? Have the Government been to the Commission and actually discussed the validity and the sound legal basis for the share before coming to this House and to the other place to reassure Parliament about the robustness of the share?
§ Lord Macdonald of Tradeston
My Lords, once again, the NATS PPP has provided us with a topical and interesting debate. I am grateful for the contributions that have been made, which have ensured that these very important matters relating to the PPP have been aired once more. Following this debate, I am sure that your Lordships will be aware of the importance of the issues that this order raises. The Government continue to believe that it provides some essential protection that will contribute to the success of the PPP.
I now deal with some of the particular points that have been made. As regards the identity of the bidders, the Government have received and evaluated three bids for the NATS PPP, as scheduled. The Government's objective remains to implement the PPP in the spring. The Government have not selected one preferred bidder at this stage, but they are in continuing discussions with the Nimbus consortium and the Airline Group. The third bidder, Novares, has not been eliminated from the process, but is being held in reserve. We expect the preferred bidder to be selected within the next month. We shall try to ensure that we drive that timetable through on time and that the PPP will come into effect as soon as possible thereafter.
The noble Lord, Lord Brabazon of Tara, asked about the agenda that we are working to as regards the delay period when we promised to hold discussions with the trade unions, the users, pension trustees and other stakeholders about the process for establishing the PPP. We have been doing that. Recently, we had the latest in a series of constructive meeting with the unions. We met representatives of the users, including General Aviation interests, last month, and we are in continuing dialogue with the pension trustees. We have received written comments from a range of other interested parties. My honourable friend, the Parliamentary Secretary in another place, and his predecessor, have both been to see the NATS operation at the London Centre at West Drayton at 1081 first hand. He and I have been to Swanwick to see the new en-route centre. At both locations we took the opportunity to have discussions with staff as well as with managers. I believe, therefore, that the discussion process is constructive. It will help, as has been suggested by noble Lords opposite, to ensure a smooth transition to the PPP. As promised, I shall make a full report to the House in due course. Noble Lords may recall that I said that we will report back by the end of February or early March.
As regards other questions which were raised and the clawback arrangements, the noble Lord, Lord Brabazon inquired whether the Government would be introducing such arrangements and how they would be consistent with the partner's incentive to increase NATS business. The PPP is structured to protect the taxpayer against an early sale of the assets leading to excessive profits, first, by retaining a 49 per cent equity stake in NATS. The taxpayer will share in the potential upside benefits created through the introduction of a strategic partner. Secondly, the strategic partnership agreement does not allow the partner to exit until the new Scottish centre is complete. That is presently scheduled to be around the year 2007. That would prevent a quick and profitable sale.
One of the Government's primary objective for the PPP has been to select a partner who will be committed to NATS for the long term. The Government believe that the PPP's structure will provide the right incentives for the partner to grow and develop NATS business while providing the appropriate protection for the taxpayer against excessive profits and windfall gains.
Another question was raised about the status of the opinion supposedly expressed by safety experts. I understand that the safety experts cited in one newspaper article were acting in an advisory capacity to the chairman of NATS and were not formally connected with the Civil Aviation Authority. I am sure that any concerns will be fed into the bidding process through the office of the chairman of NATS.
I was also asked about the relative priorities of the Treasury and the Department of the Environment, Transport and the Regions. I assure noble Lords that those imperatives are in close alignment and there is no threat that different priorities might put safety at risk. As your Lordships ensured in your amendment to the Transport Bill in its final stages, safety is paramount. That now has the force of legislation.
We are still in discussions about the arrangements for the 5 per cent of equity that will go to employees. It will depend on the nature of the equity structures of the successful bidder, whoever that is. If other relevant details emerge, I shall write to the noble Baroness, Lady Thomas, and to the noble Lord, Lord Brabazon, as soon as possible.
We believe that the special share is robust. It is only one part of a comprehensive range of safeguards. We believe that we have taken appropriate advice and that the special share proposals are consistent with the UK's obligations under the Treaty of Rome. Should 1082 any different interpretation emerge—although none has in all our discussions—I shall tell the noble Baroness.
I hope that I have responded to the most important points made in the debate. The debate has not been about the principle of the PPP. Parliament has already given its blessing to the Government's proposals to create a PPP by approving the necessary powers in the Transport Act 2000. The real subject of the debate is the activation of the safeguards that Parliament wanted. I invite your Lordships to approve the order.
§ Lord Oakeshott of Seagrove Bay
My Lords, the Minister did not answer the point made by my noble friend Lady Thomas on what stage will be reached before he reports back to the House. Can we have a clear undertaking that he will report back to the House before entering into any binding commitment with a so-called preferred bidder—a commitment that could lay the taxpayer open to substantial damages? If he is not prepared to give that commitment, surely at makes a mockery of the reporting back process. Can we have a clear answer on that, please?
§ Lord Macdonald of Tradeston
My Lords, let me be clear. The relationship of the report back was never for an approval of the bidder. If the noble Lord checks what I said in the debate, he will find that that is clear. We said that we would undertake the process that the noble Lord, Lord Brabazon of Tara, strongly encouraged to try to spread a broader understanding of what we were trying to achieve and to give the Government time to listen and make any amendments that might be beneficial to the operation of the PPP as we went forward. We are doing that. Were the timing to be such that the selection of a preferred bidder came before my report back, of course I would welcome that, but it has never been conditional.
§ On Question, Motion agreed to.