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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

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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

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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

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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

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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.

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