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Lord Faulkner of Worcester: I do not think that that is sufficient accountability. However, that argument is

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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

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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

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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".

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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.

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