Examination of Witnesses (Questions 303
- 319)
WEDNESDAY 8 DECEMBER 1999
RT HON
LORD MACDONALD,
MR CHRIS
MULLIN, MR
IAN MCBRAYNE
AND MR
DAVID MCMILLAN
Chairman
303. Good afternoon to you, Ministers, in the
plural. I apologise for keeping you waiting. Would you like to
identify yourselves for the record, please?
(Lord Macdonald of Tradeston) My name is Lord Macdonald,
I am Minister of State at the DETR and the Minister for Transport.
304. Thank you, my Lord.
(Mr Mullin) Chris Mullin, Under Secretary of State
at the DETR.
(Mr McBrayne) Ian McBrayne, Head of the Civil Aviation
Division in the DETR.
(Mr McMillan) David McMillan, Head of the Air Traffic
Division in the DETR.
305. Thank you very much. Could I ask if either
of the Ministers wish to make any general comments?
(Lord Macdonald of Tradeston) Chairman, if I may say
briefly, as the Committee is aware, the Government has just laid
before Parliament the Bill which will enable us to set up a public-private
partnership for NATS. We have listened carefully to the critical
voices but we do remain committed to the PPP. We accept, as you
have heard repeatedly today, that our air traffic system is the
best and safest in the world and safety certainly remains our
top priority. We believe that the Bill will create a proper separation
between the operation of air traffic control and safety regulation,
as you and others have been pressing us to do for some time. The
PPP will also secure substantial new investment in the region
of about £1 billion over the next ten years so that NATS
can safely handle the ever increasing air traffic in the skies.
It will guarantee the two centre strategy for NATS by ensuring
that the new Scottish centre goes ahead. We do not believe that
private sector operation will be detrimental to safety. NATS is,
and will continue to be, subject to some of the most stringent
safety regulatory standards in the world. The independent public
sector safety regulator will ensure that continues to be the case
and there will be no profits before safety as far as we are concerned.
We believe there will be a better business focus. NATS will be
a new partnership company outside the public sector and as such
it will be able to take the management and investment decisions
on commercial grounds. It will have access to commercial opportunities
denied within the public sector. The introduction of the right
strategic partner, a partner of our choice, will bring in the
investment and project management skills to make the best use
of that freedom. Some have argued for a different solution, such
as a publicly owned company or trust, these would address some
of our objectives but we believe that only a PPP can address them
all. That is why, despite opposition from people whose views we
very much respect, the Government has decided to proceed with
the PPP. We are still talking to the aviation community, particularly
to the trade unions, about the safety structures inside the new
corporate frameworks of the new company and inside its stakeholder
council. I think on the basis of that we can expect a constructive
debate over the coming weeks and months and obviously this inquiry
is central to that process. My colleagues and I stand ready to
assist in any way that we can.
Chairman: Thank you, my Lord.
Mr Donohoe
306. We heard earlier about this one billion
pounds and you have made mention of it. If there was to be front
loading, would there be a requirement for that, front loading
of the money that would come at you with revenue?
(Lord Macdonald of Tradeston) From what we have seen
of the plans for investment it is a relatively even loading over
the ten years. There had been a feeling that it might be very
lumpy, and it could be in the odd year or two, but we believe
that it is phased over the ten years in a relatively even fashion.
We have also seen the details of the one billion pounds of investment
and some of it is obviously commercially confidential but some
of it was offered to you by Mr Semple and Sir Roy earlier.
307. We heard about the fact that there was
the potential for rationalisation. Was part of the calculation
that you would be raising money from the assets that were sold?
(Lord Macdonald of Tradeston) Our understanding in
terms of the rationalisation, certainly at the operational end,
is that the requirements would be for more operators in the near
to medium term future. We have heard, as you have heard today,
that longer term at the end of perhaps a decade then new technologies
will come in which might change fundamentally the operation of
Air Traffic Services.
308. What would happen if instead of building
a second centre at Prestwick it was to be built at Swanwick, what
would be the savings then?
(Lord Macdonald of Tradeston) We have not looked at
possible savings of that kind because we have been committed to
a two centre strategy.
309. That is not necessarily the same thing.
A two centre strategy would be to build another one at Swanwick,
not one at Prestwick and you would still have your two centre
strategy.
(Lord Macdonald of Tradeston) To build another centre
at Swanwick?
310. Yes.
(Lord Macdonald of Tradeston) I think for a number
of reasons, and some of them may be related to security, if we
have two centres and they are dispersed in that fashion then we
believe it will be beneficial for the future and we believe the
capacity that is growing so rapidly, almost inexorably, at seven/eight
per cent a year obviously means the two centre strategy ensures
against that kind of growth in the future.
311. You indicated that you had looked at other
models. In the Department of Trade and Industry they have responsibility
for the Post Office. The Ministry has considered that as potentially
being able to be maintained within Government ownership. Why have
you not considered that as being the first choice as far as air
traffic is concerned?
(Lord Macdonald of Tradeston) We felt that the comparison
with the Post Office was not exact because the scale and complexity
of the investments required are quite different. The NATS investment
involves large complex state of the art systems and these require
project management skills and expertise which NATS, as the management
today, have accepted they do not have in-house. The Post Office
investment is generally much less complex and its track record
in managing its own business is better than the track record of
managing projects of a kind like Swanwick that the NATS management
have found problems with. We also believe that the nature of the
markets is very different. The Post Office is exposed to competitive
pressures in the market but NATS is not. The majority of its business,
the En-Route Air Traffic Service, is a monopoly and that is not
exposed to competitive disciplines in that way. We are not in
the overall scheme of things giving the Post Office unfettered
freedom, we will appoint its board and there will be a strategic
plan and the Post Office will be subject to Government control
and any borrowing over £75 million a year without prior Government
approval will not be allowed. The Post Office also remains under
the public sector pay constraints.
312. Part of the PPP is to maintain a Golden
Share. Have you any knowledge of when a Golden Share has ever
been used by any administration in any of the privatisations there
have been?
(Lord Macdonald of Tradeston) The Golden Shares—we
are preferring to call them Special Shares—we have a list
of them drawn up. We have got them in the case of BAA, the Government
has a Special Share there, that is one of the areas where there
has been some concern inside the EU challenging that share. There
is a list of 22 companies here with Special Shares in them ranging
from Cable & Wireless through to areas like UK Nirex, through
Rosyth Dockyard, AEE Technology, Scottish Power, PowerGen, VSEL,
Belfast International Airport and so on.
313. When has the Government ever needed to
use them to any effect?
(Lord Macdonald of Tradeston) I am not in a position
to say but perhaps if any of my colleagues want to come in on
that. Clearly in this case the Golden Share, the Special Share,
if you like, would be related to security concerns. Again, as
you heard earlier, that makes it particularly defensible against
any challenge from the EU which might challenge other companies
which seem to be more national champions rather than fundamental
security considerations.
314. There are people who are inside where there
is a Golden Share and they say that they are worthless.
(Lord Macdonald of Tradeston) I have no knowledge
that a Golden Share guaranteed before Parliament has later been
overridden and proved to be worthless.
315. Has there been an occasion when the Golden
Share has actually been used, that is the point? I have no record.
(Lord Macdonald of Tradeston) I would make the presumption
the other way around, that because the Golden Share is in place
it has been doing its work.
Chairman
316. That is a matter of opinion, my Lord. Could
you supply us with an exact list of the companies involved and
we could make a value judgment on how those companies have behaved
towards the national interest. It might make it a little clear
from our point of view and we can then take a value judgment.
(Lord Macdonald of Tradeston) Indeed.
Mr Stevenson
317. Could I just ask one more question about
the Special Share. If this Special Share, as you now call it,
is essential to maintain public accountability, why is it necessary
to hold on to 49 per cent of the shares in any case?
(Lord Macdonald of Tradeston) Because we believe that
by giving 46 per cent of the shares to a commercial partner we
can drive the business forward through their commercial expertise
and so on, that is obvious. We want Government to share in the
upside of whatever gain there is in the future. We believe that
there is a very exciting, expanding market—not just expanding
in the UK and Europe but globally—and we believe if the
right strategic partner is found for this business then it can
win an increasingly important share of a consolidating industry
and it would be good for the United Kingdom Government if it retained
its 49 per cent share in that.
318. It then begs the question, does it not,
that if that is the case, that Government wants to share in the
success by holding on to the 49 per cent, why not hold on to 100
per cent and change the status and then benefit even more?
(Lord Macdonald of Tradeston) We do not believe that
the NATS company under present management and under public control
in the future would have the commercial skills, the expertise,
the incentives, to develop in the way that we believe they can
as a new partnership company.
319. That leads me on nicely to my next question.
In your memorandum dated October 1999 you say in relation to the
IPOC model that it is untried: "All the benefits claimed
for the untried IPOC model..."—untried. Surely the
Airways Corporation of New Zealand is just that, an IPOC model,
and that surely cannot be described as "untried"?
(Lord Macdonald of Tradeston) I think you were asking
for further clarification on New Zealand and its achievements
and intentions earlier today. What I can say is that we could
achieve some of the objectives through IPOC tried or untried,
but we believe that there is not inside there the proper economic
regulation or the real efficiency drivers if it remains a public
sector body. We believe that the private sector motivation with
a strong independent regulation would provide the incentive to
keep costs as low as possible and also extend NATS operations
into new markets. We believe that with those operational skills
introduced by a strategic partner they would stand a much better
chance of success.
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