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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.

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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

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    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

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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?

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