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National Air Traffic Services
2.57 p.m.
Baroness Scott of Needham Market asked Her Majesty's Government:
- Whether the financial and technological developments in national air traffic control have been satisfactory since its part-privatisation.
Lord Filkin: My Lords, since 11th September, the principal parties involved in the public/private partnership have regularly reviewed NATS financial position. All of these parties are making a contribution towards ensuring that NATS has a robust financial structure for the foreseeable future. Against this difficult background, NATS has successfully brought into operation the most technically advanced air traffic control centre in the world at Swanwick and, additionally, has made a capital investment of £78 million in 2001-02.
Baroness Scott of Needham Market: My Lords, does the Minister accept that the decision of easyJet to consider writing off its £7 million investment in NATS must at least call into question his use of the word "robust" in describing its financial future? Is he prepared to tell the House how much public money the Government are prepared to put into NATS—or is this the Railtrack of the skies?
Lord Filkin: My Lords, easyJet has made an intimation—it has not yet made a decision. If it did make such a decision, in many ways it would not be inconsistent with the stance of the Airline Group members. In essence, this was an identity of interest with the Government to ensure that there was an air traffic control system of the highest quality in Britain. They were happy to put in investment—as the noble Baroness will recall, they were willing bidders—and to be active partners, with the Government as a shareholder, in ensuring that those objectives were fulfilled. It was in the public's interest and their commercial interests. Therefore, in most cases, they were not particularly seeking a vigorous financial return but the long-term, high-quality air traffic control that we expect.
Viscount Astor: My Lords, does the Minister agree that the Government hold a 49 per cent share of NATS, which is, by any regulatory definition, a controlling interest? Will the Government make a further £30 million available to NATS, or will they support the proposal by NATS to increase its charges by 5 per cent?
Lord Filkin: My Lords, I am grateful, as ever, to the noble Viscount, for allowing me to answer the second part of the Question, which I failed to do. The Government have made available, along with money from the four banks, a £30 million loan—providing £60 million of short-term additional loan finance. The House will be aware of the reason for that. Some seven
weeks after NATS came into existence, it faced the biggest disaster that the airline industry across the world had ever experienced. Unavoidably and naturally, that significantly damaged its business plan and prospects.The short-term loan facility has been put in to give appropriate time for the board of NATS to arrange for an injection of additional equity, on which discussions are under way. It is well likely that if, as is expected, additional equity is put in, the Government will match-fund that as a stakeholder to preserve their 49 per cent—they do not have a majority holding; the Airline Group and the employee interest control 51 per cent.
As regards the charges imposed by NATS on its customers, the airlines, the Government do not have a free hand, as the noble Viscount well knows. That is a decision for the Civil Aviation Authority. NATS has made a proposal to the CAA that instead of the pretty tough financial targets that it had of RPI minus 4 per cent and RPI minus 5 per cent for the two subsequent years, the figure should be above RPI but not massively so. That will be a decision not for the Government but for the CAA.
Lord Berkeley: My Lords, is my noble friend aware of recent reported NATS computer failures, which caused serious air traffic control delays? Presumably, those computers are not the new ones to which he referred previously. Under the new structure, does NATS have to pay compensation to the airlines or to the passengers affected by the delays?
Lord Filkin: Yes, my Lords, I am well aware of those delays. I well recollect hearing about them on the "Today" programme and seeing the prospect of a Starred Question coming over the horizon.
For the avoidance of doubt, the computer failures were not at Swanwick, which continues to be a very successful roll-out of a large-scale and complex new system. They were in the flight data processing system at West Drayton, and were similar to problems that occurred last summer. They involved some 19 minutes and some 16 minutes of down-time on separate occasions. At one level, that is not seen as particularly disastrous, as 99.95 per cent reliability is being achieved. However, the consequences of any down-time are severe for passengers. Therefore, the management of NATS is examining the situation very seriously. It has already introduced replacement software which it believes should have cracked the problem. It has also established an internal inquiry, separate from the responsible management, in an attempt to see whether anything else could or should be done to avoid a repetition of the inconvenience. NATS is also re-appraising its investment strategy to see whether it might require reconsideration in the light of those events. I should stress that there was no safety problem for the public, although there was clearly inconvenience to the travelling public on those two days.
Lord Avebury: My Lords, the Minister hinted that NATS would pay compensation to passengers who
suffered loss as a result of the computer failures. Will he expand on that and say whether any payments are due from NATS to the airlines, which also lost substantial sums of money?
Lord Filkin: My Lords, I apologise: I missed the point about compensation. No, to my knowledge there is no liability to pay compensation, nor any intent to pay it.
The Earl of Northesk: My Lords, the Minister referred to computer glitches at West Drayton. Will he indicate how reliant on West Drayton the Swanwick system is? My understanding is—and perhaps he can confirm this point—that the West Drayton system is hopelessly obsolete and relies on computer code written in the 1970s, and that there is no prospect of its upgrade much before 2007, if then.
Lord Filkin: My Lords, the noble Earl is right: the basic software for the West Drayton system is not the most modern or recent. I do not think that it was a high priority in terms of immediate replacement. By and large, it was operational and was not a safety-critical system; therefore, it appeared to be working reasonably well. However, in the light of those events, because it is crucial that the public have confidence in the air traffic system, I am sure that the management and the board of NATS will be reconsidering the position. Whether they will consider that it justifies a change, I do not know. It might not. But they are certainly giving the matter their consideration.
Livestock Industry
3.5 p.m.
Lord Plumb rose to call attention to the state of the livestock industry; and to move for Papers.
The noble Lord said: My Lords, I welcome this opportunity to call attention to the state of the livestock industry. I declare my interest as a livestock farmer and stock breeder for many years of my life. In more recent years, my involvement has been in the food and agricultural trade, both in Europe and throughout the world. That experience was largely focused on the difficulties in such a volatile business, where disease and pestilence can determine market demand and can disrupt trade overnight.
The concern of livestock farmers is the direction which production has taken in economic terms for a substantial number of years. Government have made a great deal of effort to understand the complexities of the industry and the difference between the sectors and to try to get to grips with a fiendishly difficult set of conundrums, aggravated by BSE, by foot and mouth disease, by the increasing problem of tuberculosis, and by animal welfare problems which continually raise their heads—all of which may have caused a lack of confidence in the future on the part of many livestock producers.
If the solution to our problems were easy, then clearly it would have been found a long time ago. The fact that these problems have only got worse due to the constant turning of the financial and economic screws is significant. It suggests that the matter requires an in-depth examination, following the lessons that we have learnt—and I hope that we have learnt many over the last year in particular—bringing with it the confidence that has not yet been restored, given the refusal of a full and open inquiry into last year's problem.
Farming businesses have become fewer and larger. The very size of some of them has resulted in a dramatic change in the face of the British landscape and in the natural balance of British agriculture. However, let us not get confused about these observations and implications. One can deal with large arable farms by allowing fields to expand and by using larger machinery tied into co-operative marketing systems. In terms of efficiency, therefore, it is a natural development. However, the environmentalists prefer fields to be smaller, and the conservationists prefer to see a greater spread of bio-diversity—as was recently emphasised in the Curry report—and it changes the whole structure of village life and family farming.
However, when we look at the livestock sector, especially at extensive livestock, we are confronted with quite a different world. The so-called intensive farming areas of livestock production—mainly pig and poultry—have not been in a good state for some considerable time. The clearest possible evidence of the malaise in this sector is the vast reduction in productive capacity which has taken place over many years. Confidence in the future of the business has been considerably reduced, due to two inter-related influences. First, the pressure of controls has created more red tape. That was dealt with in the report produced a while ago by the noble Lord, Lord Haskins. I am delighted to see that he is speaking after me. Maybe he can answer that point and tell us where his report got to. We are looking for a considerable reduction in red tape.
Secondly, there is the influence of global trading and the pressures that create competition with countries that are able to trade at much lower costs. Recent figures show that the overall costs of production in the United States are 40 per cent lower, due to a smaller legislative burden. Lower costs result in higher incomes.
Moreover, methods of pig farming that involve tethering sows and using sow stalls are banned in this country, but they are still allowed in many of the countries with which we compete. Those countries have lower production costs, giving them considerable economic advantages over United Kingdom producers purely on the basis of the method of pig farming. It is not surprising that such countries are receiving an increased proportion of global business, leaving British producers with a considerably smaller slice of the overall market.
A similar situation has arisen in the poultry business. An ever-increasing percentage of the poultry that we consume is imported from many other
countries. Labelling, including country of origin, would help. Those issues are of concern to the consumer and, particularly, to the producer.The overall picture shows an extremely serious mixture of negative influences on farming in general. The likely implications for the future of our country deserve more than a passing thought, for many reasons. First, the fact that the two sectors have been under such pressure has resulted in much more of their production being transferred to other countries, with a consequent negative effect on the United Kingdom grain market. Whereas traditionally many pig and poultry units used home-grown cereals, that demand is now diminishing, which means that grain producers have to find a market in other countries. The logic—or the illogicality—of that situation seems far from clear. We are likely to export our grain to feed pigs and poultry in other countries, but once our products have been consumed, those countries send their end products back to us. That makes little sense in environmental terms. In financial and competitive terms, in the context of the transport pollution argument, it becomes total nonsense. Secondly, the foreign importer buys our grain, taking full advantage of the strength of the pound and the United Kingdom importer of finished pig and poultry meat gets a better deal when he buys products in those countries.
Either way, the United Kingdom livestock industry loses. It is not difficult to see why. We have the worst balance of payments—a massive £30 billion deficit on imports—since records began, with a deficit in food trade that has risen from £6 billion three years ago to £10 billion today. That is a third of the total negative balance of payments. The slogan that I used to use regularly, "Why import it when we can grow it?" seems to have changed into "Why grow it when we can import it?". I am told that 2,000 refrigerated containers full of food come through Dover every day, with a number of unrefrigerated containers as well. That makes it impossible to check food safety. That seems strange. We say that we cannot stop products coming in from those countries, yet there are other countries not far away from us that continually block the products that we are trying to send to them.
Thirdly, let us look at the dairy sector. Last year, in a similar debate in this House, I drew attention to the situation of a young farmer who had taken over his father's farm, with an investment in excess of £1 million. He had great difficulty keeping his head above water, despite working very long hours. At that time, he was selling his milk for approximately 20p a litre. Today, about 10 months later, he tells me that he will be lucky to sell it for 15p a litre. At the moment some people are getting only 13p or 13½p a litre for it. To break even, paying his debts to lenders and covering all his overheads, he has calculated that his farm should give a return of £45,000 this year. That would include his own salary. That is impossible when he is trying to sell milk at 15p or possibly 13p a litre. That milk is then processed, packaged and sold to the consumer at 75p a litre, which is even less than the
equivalent price for bottled water. That is bordering on economic suicide for the producer. Would any other industry face such a situation?I realise that academic economists may think, "Well, that's his problem". Does not that example justify our reasons for serious concern? A British farmer has to compete with other countries offering imports at low prices solely because the exchange rate works in their favour and no duty is payable on their aviation fuel and so on. If the young man whom I mentioned as an example goes out of business, we, as the managers of this country's economy, must consider our responsibility.
Do we say that it is none of our business, as our American friends said some time ago when they got rid of all forms of aid and subsidy? Now they have stepped back in to help farmers to survive. Many of your Lordships might be surprised to know that the subsidies that many American farmers receive are higher than those received by European farmers.
When the constant drive for cheapness at the farm gate does not allow a proper return on investment to cover the labour and expertise that are required, the livestock industry could be faced with a development of incalculable damage. The issue has to be addressed urgently, honestly and without spin or rancour. A fair deal in the marketplace is all we ask. This is not a cry for more subsidies.
Then we come to the extensive grazing livestock, the sheep and suckler cow business. I declare an interest as president of the National Sheep Association. I shall come to that section last. It is not my intention to speak of the camelid and goat sectors. I hope that the latter will be effectively dealt with by the noble Countess, Lady Mar, who is an accomplished keeper and a specialist cheesemaker.
That the beef sector has gone through an extremely difficult period does not need to be emphasised. In the context of this debate, we should reflect on issues such as the strength of the pound, which continues to put pressure on the whole sector. It is worth noting that 765,000 head of cattle were lost through a combination of anti-FMD culling and the livestock welfare disposal scheme.
The sheep sector used to be a net exporter, but the number of people involved in it has gone down by 25 per cent over the past 10 years. Today, it is something like 75 per cent self-sufficient. That still leaves approximately 70,000 people involved, but the level of confidence is extremely low, with new entrants a very rare commodity.
The state of the livestock industry paints a fairly depressing picture. We must understand the implications of that not only for livestock producers but for the entire UK economy. The grazing animal in particular has a vital part to play in the continual grooming of the countryside. We must ask what the consequences would be for flora and fauna and for the environment, ecology and general biodiversity if the grazing animal were removed.
People also need to understand that the continual pressure on family farms, and almost all livestock farms of that ilk, puts enormous pressure on individuals such as the young farmer who cannot take a holiday with his family; the older couple who must raid their nest egg and pension to keep their business running; and the wife who, having worked all day, must take on an extra job at night. Regardless of the minimum wage or the maximum number of hours worked in a week, the list of people facing such pressure is endless. Last year alone, with the more than £9 million we had collected, the Royal Agricultural Benevolent Institute helped more than 8,000 farming families. This year, many of those families are coming back for assistance. Although they were not necessarily all victims of foot and mouth disease, they are all very needy cases.
We need to examine the extent to which a well-farmed, well-groomed countryside forms the base of a healthy tourist industry. We need to examine which part of our livestock industry is relevant to the balance of payments equation. We need to question the true cost of importing from other countries, of the eco-toxicity issue, of the loss of UK jobs, and of the potential loss facing the whole of the rural economy. I noted with interest that 25,000 rural businesses are challenging the Government on the losses which their operations suffered because of foot and mouth disease.
We have a duty to care for our country and for our citizens. We have every reason to alert the public to the fact that we are thoroughly examining the causes of and solutions to a potentially considerable disaster that cannot be ignored.
One consequence has been that people in retail and catering have been forced to depend increasingly on imports from other countries. Such imports account for approximately 40 per cent of estimated UK consumption in 2002, compared with 22 per cent in 2000. Some time ago, after our debate on the Animal Health Bill, the noble Lord, Lord Whitty, sent me a letter providing those quite revealing figures. The letter also contained a table on meat imports which involved,
- "FMD susceptible species [cattle, sheep, pigs, goats and reindeer] between Oct 2000 and Sep 2001 from countries where FMD is endemic".
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