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Civil Aviation Bill

Volume 413: debated on Thursday 23 October 1980

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3.40 p.m.

Report received.

Clause 3 [ Vesting of property, etc., of British Airways Board in a company nominated by the Secretary of State]:

Page 2, line 36, at end insert—

("and in the appointment of the directors of which the Secretary of State shall exercise fully his responsibilities as a substantial shareholder.").

The noble Lord said: My Lords, if I may have the attention of the House, I should like to move the amendment standing in my name on the Order Paper. The general thinking behind this amendment has been advanced before. I believe it is well understood, and it has been supported from all sides of the House. We believe that a major, and certainly the majority, shareholder of a company should accept responsibility for the composition of the board of that company. Ministers have said, in language which was—I say this with the utmost respect—more forceful than logical or sensible, that they do not intend to take any part in the process of appointments. They cover up their anomalous position with emotive arguments about leaving the new company free to get on with its job. They seem unable to understand the simple doctrine of delegated responsibility.

There is nothing at all between us in regard to the need for this company, if and when it is established, to be able to get on with its job free from unnecessary intervention or interference from Her Majesty's Government. But that does not mean to say that the major shareholder in the company should not be seen to have the responsibility for the composition of the board.

I am as strongly opposed as the Government, and probably more strongly opposed, to interference, but I say equally strongly that the principal shareholder should accept a proper share of responsibility for the board to which they are going to delegate the task of running the company. Very significantly, when the noble Lord spoke to my amendment on the Committee stage, he trimmed his previous objections to what is now proposed. He said the Government would ensure that there was a good team on the board. But, if they are to make sure that there is a good team on the board, then that must mean that they should accept, and should be known to accept, the responsibilities to which I refer. However, the noble Lord said at Committee stage that he could not accept my amendment because it was too restrictive. I had then referred to the desirability of appointing the board front the present board members of the British Airways Corporation. That, he said, would be too restrictive and they might wish to change a non-executive director. He said that my previous amendment could not be accepted on that account. Therefore, I have removed the particular words to which exception was taken and I hope that the noble Lord will now have no difficulty at all in accepting the amendment. I beg to move.

This amendment concerns a question which was covered exhaustively in another place and on which, as the noble Lord recognises, we have already had some discussion in your Lordships' House. Its wording would, I think, give rise to considerable difficulties in interpretation since I am not aware of any legal standard which would enable the responsibilities of a majority shareholder in relation to the appointment of directors to be determined. These are questions of discretion to be exercised by each shareholder as he thinks best. Therefore, I think we would be most unwise to accept the amendment, but I hope I can satisfy the noble Lord on the nature of the relationship which we envisage between the Government and the successor company. First, let me repeat what has been said before, and what I cannot emphasise too strongly. The Government have no intention whatsoever of controlling the activities of the successor company in the way British Airways is at present controlled as a nationalised industry. In other words, we shall no longer need to approve all the airline's aircraft and equipment purchases and other capital purchases over £5 million. We shall no longer place limits on the total amount of investment it may make, or on the money it may borrow in any one year. We shall no longer need to approve individual borrowings or set a financial target.

As the noble Lord said during our Committee stage debate, once the board are appointed they should be left to get on with running the business. I agree with that wholeheartedly. As I have also emphasised previously, the board of the successor company on the appointed day will be one to which all the members have been specifically appointed by the Secretary of State as promoter of the company. Thereafter, and when shares are sold, the procedure for appointments to the board will be governed by the company's own articles of association, in which there are the normal provisions for the retirement of directors in rotation to face re-election and for filling vacancies as they arise. This is consistent with the Government's wish that the successor company should be constituted as an ordinary private sector limited company incorporated under and governed by the Companies Acts. The Government's role in relation to that company will be like that of any other major shareholder. They will have no special rights or privileges in relation to the company. The Government will not seek to influence, or intervene in, the administration of the company as a commercial concern.

As provided for in the articles, the initiative as regards changes in board membership will be primarily with the board itself after the appointed day, but such changes will be subject to approval by the shareholders. It has already been made clear that there will be no Government directors as such, but, like any other shareholder, the Government's shares will have voting power in respect of resolutions proposed by the board relating to board membership. I do not readily foresee circumstances in which the Government would use their majority vote to veto the proposals of the board in this respect, but the Government's prime concern in relation to voting rights will be what is in the best interests of the company. The aim is for the company to be run by directors in whom the shareholders, including the Government, have confidence. That, I would suggest, is the best way in which the Government should exercise fully the responsibility of a substantial shareholder and that is the way we shall proceed. The interests of the company will be the prime consideration in our minds at all times. I hope this explanation satisfies the noble Lord, and that he will not feel inclined to press his amendment further.

My Lords, it does not satisfy me at all. With respect to the noble Lord, I think what he has read out is a whole maze of contradictions. It is much less convincing than the answer he gave me on Committee stage. He says they will act as would the major shareholders of any other company. But the major shareholders of any other company are not discharging their proper responsibilities if they do not take action which would lead to a board in which they have confidence. The noble Lord himself said that they would leave the initiative to others. But if the thing is going badly and changes are necessary, surely the noble Lord will have to consider whether the composition of the board is right. Surely they will have to express a view; surely they will use their votes. He says they will have theoretical control and they will use that theoretical control. As would be the case with any other major shareholder in any other company, they can control only through the annual general meeting.

There are other aspects of this matter. I believe that the noble Lord's right honourable friend, or some of his honourable colleagues, have given assurances to the present board members. At the moment there is nothing in the Bill which would show those board members that the Secretary of State is in a position, or intends to put himself in a position, to see that those undertakings are carried out. The undertakings will be carried out if, as a major or majority shareholder, he accepts his proper responsibilities on the composition of the board. Therefore, I hope that the House will have no difficulty in accepting the amendment, which the noble Lord himself went a long way to accept at Committee stage.

My Lords, if I may have the leave of the House to make a further observation. I will try to illustrate how we see this matter working by reference to what might be a hypothetical situation, and certainly is for the moment, when, for example, minority shareholders might seek to appoint directors thought to be unsuitable. As I said, the normal procedure is for the board of a private sector company to take the initiative in changes of directors, and I have explained our position as a shareholder in that context. However, I acknowledge that, for example, it is conceivable that a group of minority shareholders might seek to make their own unsuitable nominees for board membership. Indeed, that has been known to happen on occasion in other companies, but not very often. I could not of course say what the Government's attitude would be to any particular nomination—because we are dealing with a hypothetical situation—but generally our policy would be the same. We shall have uppermost in our minds the interests of the company itself in relation to the voting rights in such circumstances. To encapsulate that again, in the event of an unsuitable nomination coming forward we would have uppermost in our minds the interests of the company itself.

My Lords, may I ask the Minister to explain exactly how that would be exercised? The Secretary of State does not propose to take any active part, and the shareholders happen to be the State. Precisely who will make this particular move in regard to the possibility of an unsuitable nominee for the board if all the other members of the board accept that nomination? What


Airedale, L.Gladwyn, L.Mishcon, L.
Amulree, L.Gienamara, L.Monson, L.
Ardwick, L.Gordon-Walker, L.Oram, L.
Avebury, L.Gosford, E.Paget of Northampton, L.
Aylestone, L.Granville of Eye, L.Pargiter, L.
Balogh, L.Gregson, L.Peart, L.
Banks, L.Grey, E.Ponsonby of Shulbrede, L.
Beswick, L.Hale, L.Rathcreedan, L.
Birk, B.Hall, V.Rhodes, L.
Blease, L.Hampton, L.Ritchie-Calder, L.
Boston of Faversham, L.Hatch of Lusby, L.Rochester, L.
Bowden, L.Henderson, L.Ross of Marnock, L.
Briginshaw, L.Hooson, L.Rugby, L.
Buckinghamshire, E.Houghton of Sowerby, L.Segal, L.
Byers, L.Hughes, L.Shackleton, L.
Chitnis, L.Ilchester, E.Shinwell, L.
Clancarty, E.Jacobson, L.Stamp, L.
Cledwyn of Penrhos, L.Jacques, L.Stedman, B.
Cooper of Stockton Heath, L.Jeger, B.Stewart of Alvechurch, B.
Crook, L.Kilbracken, L.Stewart of Fulham, L.
Darling of Hillsborough, L.Kilmarnock, L.Stone, L.
David, B. [Teller.]Kings Norton, L.Strabolgi, L. [Teller.]
Davies of Leek, L.Kinloss, Ly.Taylor of Mansfield, L.
Davies of Penrhys, L.Leatherland, L.Thurso, V.
Donaldson of Kingsbridge, L.Listowel, E.Underhill, L.
Elwyn-Jones, L.Llewelyn-Davies of Hastoe, B.Whaddon, L.
Evans of Claughton, L.McGregor of Durris, L.White, B.
Evans of Hungershall, L.Mackie of Benshie, L.Wigoder, L.
Gaitskell, B.McNair, L.Wootton of Abinger, B.
Galpern, L.Meston, L.


Adeane, L.Boardman, L.Cottesloe, L.
Alport, L.Boyd-Carpenter, L.Crathorne, L.
Amory, V.Caithness, E.Cullen of Ashbourne, L.
Ampthill, L.Campbell of Croy, L.De Freyne, L.
Avon, E.Cathcart, E.Denham, L. [Teller.]
Barnby, L.Clitheroe, L.Derwent, L.
Bellwin, L.Clwyd, L.Drumalbyn, L.
Berkeley, B.Cockfield, L.Ebbisham, L.
Bessborough, E.Cork and Orrery, E.Effingham, E.

steps would be taken, and how? It is all very well to say that steps would be taken, but we should be told how they would be taken.

My Lords, I rise with diffidence, and I hope still with the leave of the House, to answer that specific point. All shareholders have certain rights, including, if necessary, casting their votes at an annual general meeting or an extraordinary general meeting, but I must say that the prospect of the Government using their votes is likely to conic about only in the most extraordinary circumstances.

3.53 p.m.

On Question, Whether the said amendment (No. 1) shall he agreed to?

Their Lordships divided: Contents, 89; Not-Contents, 105.

Energlyn, L.McFadzean, L.St. Germans, E.
Falkland, V.Macpherson of Drumochter, L.Salmon, L.
Ferrers, E.Mancroft, L.Sandys, L. [Teller.]
Fortescue, E.Mansfield, E.Savile, L.
Frascr of Kilmorack, L.Margadale, L.Sempill, Ly.
Garner, L.Marley, L.Soames, L. (L. President.)
Gisborough, L.Marshall of Leeds, L.Somers, L.
Gore-Booth, L.Melville, V.Spens, L.
Gowrie, E.Milverton, L.Strathclyde, L.
Gray, L.Morris, L.Strathcona and Mount Royal, L.
Gridley, L.Mowbray and Stourton, L.Sudeley, L.
Hailsham of Saint Marylebone, L. (L. Chancellor.)Murton of Lindisfarne, L.Swansea, L.
Newall, L.Swinfen, L.
Halsbury, E.Northchurch, B.Thorneycroft, L.
Hankey, L.Nugent of Guildford, L.Trefgarne, L.
Hanworth, V.Nunburnholme, L.Trenchard, V.
Hawke, L.Onslow, E.Trumpington, B.
Henley, L.Orr-Ewing, L.Vaux of Harrowden, L.
Hylton-Foster, B.Penrhyn, L.Vickers, B.
Kemsley, V.Radnor, E.Vivian, L.
Killearn, L.Reigate, L.Wakefield of Kendal, L.
Kimberley, E.Renton, L.Willoughby de Broke, L.
Kinnaird, L.Rochdale, V.Wilson of Langside, L.
Long, V.Romney, E.Windlesham, L.
Lucas of Chilworth, L.St. Aldwyn, E.Wise, L.
Lyell, L.St. Davids, V.Wynford, L.
McAlpine of Moffat, L.

Resolved in the negative, and amendment disagreed to accordingly.

Clause 12 [ General objectives of Civil Aviation Authority]:

4.2 p.m.

Page 14, line 24, at end insert—

("( ) After subsection (6) of section 26 of the Act of 1971 there shall be inserted:—
"Provided that the power granted to the Secretary of State to allow in whole or in part an appeal from any decision of the Authority with respect to an application for a licence shall be exercised only in circumstances which are in his opinion exceptional or of substantial public interest; and in the event of his exercise of such power he shall lay before both Houses of Parliament the reasons for his decision."").

The noble Lord said: My Lords, I said at Committee stage that I would return to this question of licensing. I have since had the advantage of considering the reasons which the Government advanced when they turned down the amendment tabled at Committee stage by the noble Lord, Lord Boyd-Carpenter, as well as the one which I had also ventured to table and which suffered a similar fate. The noble Lord, Lord Trefgarne, said then that a fixed time limit for considering appeals was impracticable. I have therefore now tabled the amendment moved in Committee by the noble Lord, Lord Boyd-Carpenter, but without the time limit, and that removes the understandable objection which the noble Lord, Lord Trefgarne, advanced at Committee stage. Having taken that obstacle away, I hope we can now have agreement.

The noble Lord was also briefed, however, to raise other, less understandable objections, and perhaps we might briefly consider them. He said that there could be occasions when there was a very minor matter which would lead the Secretary of State to override the Civil Aviation Authority. I leave your Lordships to judge the validity of this objection. I doubt very much whether any noble Lord can make the case for setting up another licensing body, another body of opinion, simply to consider what the noble Lord described as "some minor matter." That is especially difficult to accept because such a minor matter, even if there were one, would have needed to come up on the original appeal; otherwise, according to the procedures, it was not to be taken into account later on by anyone—the Secretary of State or the Civil Aviation Authority.

Then someone in the department thought up another objection: that it was unreasonable to have to report appeal decisions to Parliament. Having put that reason very forcefully before the House, within less than a week he was reporting to us why they had overridden certain other decisions of the Civil Aviation Authority. At any rate, he demonstrated that the objection he had held so strongly a week before was scarcely as tenable as he tried to make out. I doubt whether he will advance that argument again today.

Then the noble Lord, Lord Trefgarne, said that the Secretary of State would in any case use his powers only in what he described as "exceptional cases". Yet again, extraordinarily, within a week we were told that the Secretary of State had reversed another decision of the Civil Aviation Authority because, he said, of "a balance of advantages"; that is to say, apparently the judgment of the Secretary of State or of his advisers in the department tilted one way while the considered judgment of the authority tilted another way. It is not for me to say which judgment was correct in that particular case, but I do say that there is no point in having a Civil Aviation Authority if there is a superior body of opinion in the Secretary of State's department. I thought we were now agreed that there should be one authority. There is a case for having it in the Department of the Environment; there is a case for setting up an independent authority; but there is not a case—there cannot be a case—for having a decision taken by the properly constituted authority and then the balance of advantages being weighed again by someone else and a different view taken.

My Lords, that brings me to the other point made by the noble Lord, Lord Trefgarne, last week against the amendments moved by the noble Lord opposite and myself. Last week the noble Lord made much play of the fact that within the past nine years the Secretary of State, under the appeal procedure to himself, had overturned the authority's decisions on "very few occasions." Yet again, within days the Secretary of State thought it necessary to summon press conferences and to have statements made in the House about another batch of four decisions, two of which he had overturned.

The noble Lord accused me of being flippant when I asked whether the quota for the next nine years had now been exhausted. My Lords, I was not flippant; I was rather sad. It grieves me, the Government having made out such a strong case, as undoubtedly they had, for the authority of the Civil Aviation Authority to be developed; when they had said in such strong terms in the other place, and again here, that the Secretary of State would not intervene and that, following the time-honoured precedent, having appointed a dog they were not proposing to bark themselves—having done all that—there was first the Hong Kong case and then the other cases we have had this week. I hope that the noble Lord will drop his charge of flippancy, because I feel that this is something which ought very seriously to be considered.

I had accepted what had been said by Ministers earlier, that they would enhance the standing of the Civil Aviation Authority. I thought that there was something in their view that true economy of administration in the country meant that responsibility was delegated and that people were left to discharge that responsibility. With the cases that we now have before us, I hope that the amendment (which was drafted very carefully and from which has been cut the offending words regarding the time limit) will now be acceptable to Her Majesty's Government and to the House. I beg to move.

4.9 p.m.

My Lords, many of your Lordships are aware of' the fact that from 1972 to 1977 I was the first chairman of the Civil Aviation Authority. I mention that now only in case any of your Lordships should think that in what I say this afternoon I am affected by unconscious bias arising from that experience. I try to address myself to this objectively, but none of us can be a hundred per cent. sure that we succeed in such a task. I thought it right to mention that fact so that if your Lordships feel that what I say this afternoon should not be taken as seriously as it otherwise might be because of a possible bias, then your Lordships are free to do so.

I was glad that the noble Lord, Lord Beswick, admitted to plagiarism in the drafting of this amendment. It reproduces a large part of an amendment that I put down at the Committee stage, but, after all, imitation is the sincerest form of flattery, and, as I understand it, certainly there is no copyright in amendments tabled in this House. On the amendment at the Committee stage a week ago we had quite a long debate, which the noble Lord, Lord Trefgarne, dealt with with his usual patience, good humour, and reasoned argument.

However, in the course of his speech on that occasion the noble Lord used some words which I think have since gathered increased significance. He said, as reported at column 1561 of the Official Report of 16th October:
"In the nine years or so in which the Civil Aviation Act 1971 and the Civil Aviation Authority Regulations 1972 have been in operation there have been very few occasions on which the air transport licensing decisions of the authority have not been upheld on appeal to the Secretary of State. I think that this shows very clearly that the Secretary of State does not reverse or vary his decisions lightly or without the most serious consideration, and there is no reason to think that that situation will change in future."
In the week that has elapsed since then, the Secretary of State has—if I may use a colloquialism—been and gone and done it again. The decision to which I invited attention—the Hong Kong decision, which the noble Lord, Lord Beswick, has already mentioned—was the first major exercise of this power in the whole nine years' life of the authority, and therefore my noble friend on the Front Bench was in a position to argue, as he did, that this power was so infrequently and cautiously used that on the whole it was unnecessary for your Lordships to insert an amendment restricting its operation.

However, I think that my noble friend as a fair-minded man will himself have to concede that the fact that this has been done again since he spoke puts a somewhat different light on the intentions, attitude and policy of at any rate the present Secretary of State in regard to this matter. As the noble Lord, Lord Beswick, said, in the last day or two the Secretary of State allowed two appeals. One was allowed with the agreement of the authority, correcting what was undoubtedly a technical error. However, the other appeal, which concerned the case of the Laker Services from Manchester and Prestwick to Miami, involved a straight reversal of the decision of the authority; the second straight such reversal by way of an appeal decision. I do not need to go over what I said at the Committee stage, but obviously continued reversal of this kind, if unchecked, must inevitably undermine the status of the authority, its standing with the industry that it is supposed to regulate, and indeed the confidence which airlines can place in air transport licences when granted them by the authority.

It has certainly been the case over the years—it was certainly so during my tenure of the chairmanship—that although a right of appeal existed, and could be exercised for a limited period, airlines, when granted a licence by the authority, went ahead, bought aircraft, incurred expenditure, went into route proving and all the preliminaries (with which my noble friend from his own previous capacity is very familiar), on the basis that they had obtained a licence and that it was extraordinarily unlikely that the Secretary of State would vary the matter.

However, all that has now been changed, and in all seriousness I suggest to my noble friend that, unless Parliament now marks its feelings on this matter, not by eliminating the appeal, but by restricting its operation in some measure, then both the standing of the authority—which I think has established a good record in its nine years' life—and the confidence of the industry in its licences will be quite seriously undermined. That must be a matter of concern to the Government, in particular at a time when, I hardly need add, the whole civil aviation industry is going through a very difficult period indeed.

I should like to add a word of praise to my noble friend. I was very glad that upon the Secretary of State deciding to take this action, my noble friend came to the Dispatch Box the day before yesterday and, in accordance with what was suggested in the previous amendment and in this amendment, made a Statement to that part of Parliament which is sitting at the moment. I was very glad that my noble friend did that and thereby, very sensibly, appeared to accept that this part of both of these amendments was sound and that when the Secretary of State made decisions of this kind he should announce them publicly to Parliament and stand up to any criticism that there might be.

I wonder whether your Lordships will allow me—because I think it is relevant to this matter; and I promise to be as brief as possible—to sketch in what is involved in these appeals. On a licensing application the authority sits in public, and hears evidence, and the parties are, or can be, represented either by lawyers or by their officials. Each is in a position to cross-examine the other's witnesses. The procedure is quasi-judicial. Every point of view is aired in public, and every piece of evidence can be challenged. As I say, the procedure is quasi-judicial, and it is supervised by the Council on Tribunals. Indeed I understand that should the authority commit a serious error in conducting its quasi-judicial proceedings, the Divisional Court could intervene by way of what used to be called the old prerogative writs. So there is really every safeguard.

The appeal, on the other hand, is dealt with by the Secretary of State in private. He deals with it on the basis of the documentation that appeared at the original hearing, plus the documents submitted by the appellants and the other parties; and he does this sitting in private. From many points of view, on issues that sometimes are of very great importance to the airlines concerned, I think it is important to look at the two procedures and to see which of them, in terms of the general public mind, the general sense of justice of the public and of this House, is perhaps the better method of deciding these questions.

At this stage I should mention a matter that arose not on my amendment, but in connection with it during discussion of a later amendment. I think that it was on the amendment moved by the noble Earl, Lord Kinnoull. It involved the question of whether in the case that we were then discussing—the Hong Kong case—the Secretary of State had taken account of matters not before the parties at the original hearing or on the appeal; that is to say, any representations that might have been made by the Government of Hong Kong, who were of course extremely interested in the success of an application, which the authority had rejected, by Cathay Pacific Airways, who were appellants in the case.

My noble friend, with his habitual courtesy, offered to write to me, and to the noble Lord, Lord George-Brown, (whom I do not think is in his place) a letter explaining what happened. The letter is not marked "confidential". As I understand it, my noble friend is perfectly happy that it should be quoted to the House, though he did not, I think, feel very enthusiastic about my request that he would include it in the Official Report. As I say, the letter is not marked "confidential", and if my noble friend is content, I should like to read the relevant passage from it, and of course my noble friend can add any comments he may wish to add when he replies.

I leave out the preliminary, opening paragraph. For fairness I must read the whole of the following paragraph, though I apologise to your Lordships if it is a trifle long. The letter states:
"I can confirm that no communication from the Government of Hong Kong was taken into account in the appeal procedure which was not available to other parties. However, as the Secretary of State said in his statement in the House of Commons on 17th June, he received representations from the Government of Hong Kong that under the powers conferred on him by Section 4(3) of the Civil Aviation Act 1971 he should direct the authority to licence Cathay Pacific in the interests of the United Kingdom's relations with Hong Kong. In the event, the Secretary of State decided that he should not issue a section 4 direction. The Hong Kong representations on this matter were put firmly on one side and not taken into account since the appeal was dealt with in accordance with tile normal appeal criteria. The Hong Kong Government was of course itself a party to the original case and a party to the appeal. It made representations to the Secretary of State as part of the appeal procedure. These representations were taken into account by the Secretary of State and were of course copied to the other parties."
Let me say at once that knowing as I do the Secretary of State as a man of the highest honour, if he says that he put aside the earlier representations made to him by the Hong Kong Government, I accept that without qualification. But the fact that he had to do so—and when you are dealing with a matter of this sort, it is extraordinarily difficult to know which of the factors finally influenced you—having received very strong representations from an influential part of the colonial empire, indicates some of the disadvantages of this procedure.

All the decisions of the Civil Aviation Authority are taken on the basis of public argument and publicly-given evidence. Here is the Secretary of State, a man of the most scrupulous conscientiousness in this matter—and I repeat that—none the less put in a position of having to disregard representations (which, in his ministerial capacity and as a member of the Administration, he may have thought had some serious import) in order to decide an appeal in respect of which those representations of which the other parties were not aware were in their substance, material. It indicates the difficulty into which this Secretary of State, or any Secretary of State, is put in exercising this jurisdiction.

That leads me to this conclusion. I think that Parliament probably will feel—although some noble Lords have suggested that there should be a totally different appeal procedure to an independent panel—that Ministers in their ultimate responsibility to Parliament should not be entirely cut off from these decisions of very substantial economic and sometimes international importance. But I think, equally, that opinion generally will feel that both for the reasons I have given in respect of the standing and effectiveness of the authority, as also from the point of view of the difficulties of the appeals procedure for those who have to operate it, the actual grant of these appeals and therefore the encouragement of more parties to appeal ought really to be kept to a minimum. It is my understanding in the very short time which has elapsed since this recent hatch of decisions was announced at the Box by the noble Lord a couple of days ago that quite considerable disturbance has been caused in the industry about the attitude which the present Secretary of State is taking to the exercise of his functions, which he is legally fully entitled to exercise, in the frequency with which he will not only consider but allow appeals.

Therefore, I say to the noble Lord that I think that even at this stage, at the Report stage, it is up to him and his colleagues to consider whether some reassurance should not be given. I am a little biased as to the terms of this amendment because its parentage has been disclosed. I would not say it was perfect wording, and possibly something can be done at Third Reading. But I think that some mark of Parliament's view that the Secretary of State's jurisdiction in these matters should be exercised only in the most infrequent circumstances of major public importance, and then automatically reported to Parliament as my noble friend did two days ago, would help to give reassurance in a position which is—and I ask my noble friend to take this from me —causing concern in an already harassed industry.

My Lords, when the noble Lord, Lord Beswick, comes to reply to this short debate, I wonder whether he will be kind enough to remove the only slight anxiety I feel about this amendment, which is this. It emerged in the course of the debate on the Statement the day before yesterday that when the authority is sitting in order to decide whether to grant an application for a licence—a matter which might have the most grave commercial as well as political implications—the tribunal consists simply of one member of the authority. This would appear on the face of it to be not a satisfactory situation. So long as that situation persists and is allowed to continue, the only question that I would venture to ask the noble Lord, Lord Beswick, is this. Is it wise in those circumstances to attempt to restrict the discretion of the Secretary of State in dealing with an appeal?

My Lords, this amendment is similar in form and substance to the amendments tabled and spoken to by my noble friend Lord Boyd-Carpenter and the noble Lord, Lord Beswick, at the Committee stage; and the intention is broadly the same even though there are some minor variations in the wording. Again, as at Committee stage, there is, I am afraid, the mistaken reference to Section 26 instead of Section 24 of the 1971 Act which, arising out of the conversations which have taken place this afternoon, I imagine that my noble friend Lord Boyd-Carpenter now knows about. But I will address myself to what is the substance of the amendment.

It appears to have two objectives: One, to restrict the Secretary of State in reversing or varying the authority's decisions to circumstances which are in his opinion exceptional or of substantial public interest; and the other to require the Secretary of State whenever he reverses or varies an authority decision to lay before both Houses of Parliament the reasons for his decision.

The purpose of the amendment, as has been made clear, is to impose upon the Secretary of State severe constraints in the exercise of his judgment. While I understand the reasons behind this desire, I must say that in the Government's view such an intention is neither necessary nor desirable. It is unnecessary because in all the time since the Civil Aviation Authority has been set up there have been only three occasions on which the Secretary of State has reversed or varied its decisions in a licensing case. One was in connection with the London/Hong Kong route and that decision has been very thoroughly discussed and, I hope, justified; although not, I fear, to my noble friend. The other two, as your Lordships know, were announced earlier this week. The Secretary of State's reversal of the authority's decision not to grant the application of British Caledonian for the revocation of certain British Airways' licences to operate out of Gatwick does not really represent an upset in the normal sense since the authority indicated that it had acted inconsistently and that it was ready for its decision to be reversed.

This leaves only the decision that Laker should be able to operate on the Manchester and Prestwick to Miami route as well as London to Miami. I accept that this is a matter of judgment, but I am satisfied that my right honourable friend has provided a convincing case for this decision. May I ask noble Lords with a particular interest in the Miami appeal to study the announcement which my right honourable friend made on this case and the formal decision letter explaining why the authority's original decision to allow flights from Gatwick but not from Prestwick or Manchester was reviewed? My right honourable friend, while appreciating the authority's reluctance to allow development of services from Manchester and Prestwick which might prejudice the development of the London services, believed that the appellant and its potential passengers should not be denied the benefit of operating from the other two airports. My right honourable friend also considered—and this is very important—that the authority paid insufficient attention to the very important evidence of the airports policy implications of the case. It is worth mentioning that the advisory committee on airports policy, of which the authority is a member, recommended that the authority should license as many services between regional airports and foreign destinations as is consistent with its statutory obligations.

The authority's original decision hardly touched upon the airport implications. Incidentally, it dealt with them in a single paragraph in its submission to my right honourable friend at the appeal stage. Clearly, however, the airport implications are most important and a great many air travellers living outside London will benefit from my right honourable friend's decision, as at least one noble Lord commented when I informed your Lordships of the outcome of this case earlier this week. In effect, therefore, there have been only two reversals of authority decisions in some nine years. In parenthesis, may I say that I think that, prior to the Hong Kong decision, there were two directions to the Civil Aviation Authority to re-hear applications?

Even given that these two have occurred in the past few months, this is surely little enough of a foundation upon which to build a case for emasculating the Secretary of State's powers, which are never likely to be used frequently and will certainly never be used indiscriminately or without the most careful and thorough consideration. The amendment would, as is obvious, also remove the Secretary of State's ability to attend to a minor matter such as British Caledonian's application for revocation of certain British Airways licences to operate out of Gatwick even when the CAA was in agreement. I accept that my right honourable friend could have referred this case back to the authority for a re-hearing, but that would be an expensive and cumbersome exercise in the circumstances. It is surely better that he should rectify an error by a simple decision on appeal; and to remove his power to do so would therefore be undesirable. May I also add that my right honourable friend will be announcing today that he is upholding two further decisions of the Civil Aviation Authority relating to applications by Air UK?

On the second part of the amendment, requiring the Secretary of State to report to Parliament each reversal or variation, I feel bound to suggest that goes too far. It is already the practice for the Secretary of State, in giving his appeal decisions, to set out in his decision letter those considerations to which he had special regard in reaching his decision. In important cases, as your Lordships will be aware, my right honourable friend has taken appropriate steps to report to Parliament, and it would surely be sensible to leave him with a reasonable measure of discretion. There may occasionally he circumstances—perhaps like those in the British Caledonian appeal to which I have already referred—where a minor case would not justify a report to Parliament as a matter of routine.

If your Lordships or members in another place felt there was a need for Parliamentary discussion in a particular case, there are always ways of bringing that about. I hope that I have said enough to set the minds of most of your Lordships at rest and that the noble Lord will therefore not press the amendment.

4.34 p.m.

I rise on Report stage to reply to the debate. The noble Lord has made a very convincing case, but not about my amendment. There was the minor point about Section 26 as against Section 24; but if we agree with the substance of the amendment it is not beyond the possibilities that we can have a further amendment on Third Reading along the lines suggested, making it Section 24 instead of Section 26. That is no reason why we should not accept this amendment.

The noble Lord went into some detail about the three cases that we have had. He said again—and he makes a strong point of it—"There have been only three cases". It is extraordinary that there have been those three cases since they made the great declaration that they were not going to interfere. There have been three cases in the past six or seven weeks. I am not saying that on occasions there should be decisions by the Secretary of State which are contrary to those of the Civil Aviation Authority. The noble Lord made a good point about the need to have the national interest well in mind; and he made a great point about the airports policy. I agree with him that it is conceivable that the authority may not have taken into account the national policy with regard to the development of airports outside the London area. In that case, my amendment would enable the Secretary of State to exercise his powers. That would be a matter of substantial public interest, and he could exercise his powers.

If it be a matter of Hong Kong and some national interest there, I listened with great interest to what was said by the noble Lord, Lord Boyd-Carpenter. I can well imagine that there were some public interest matters at the back of the Secretary of State's mind, but he did not allow himself to be directly influenced by them. Nevertheless, they were there. If he seriously thought that it was in the public interest to vary the decision so far as Hong Kong was concerned on the grounds of public interest, he would be perfectly entitled to do so even if this amendment were accepted. There is no question of emasculating, as the noble Lord said.

I admire Lord Boyd-Carpenter's Parliamentary skill so much that I used his words in this amendment. He was suggesting that there might be something on Third Reading, and he referred to the infrequent and automatic use of the powers. I say "quite exceptional", which are the words he originally used; and, in the case of reporting to Parliament, that there shall be this automatic laying before Parliament. With respect, his original words were better than the words he produced this afternoon.

There was the point made about the constitution of the tribunal, which is a fair and proper one to make. It is suggested that the tribunal might not be properly constituted. I have never heard before that any decision of the tribunal resulted because it was inadequately manned. There may well be a need for ensuring that when they have before them significant appeals or applications there should be more than one person on the tribunal. As I understand it, it is now a matter for the judgment of the chairman of the tribunal, and there is seldom only one person I may be corrected on that.

My Lords, would the noble Lord allow me to speak by way of intervention in his speech? I do not think I need the leave of the House. May I tell him that during my own tenure of office as chairman (and I do not think there has been any change) in cases of substance we generally sat three to a tribunal—perhaps, on occasion, two. There is under the regulations power for one member of the authority to exercise the jurisdiction. It is very convenient when some minor correction of a licence arises, a technical point, to do it. It saves money and time. I do not believe that there has been a departure from the general practice, although I cannot give evidence of it, that three people sit on a tribunal on any major issue, which is likely to go to the Secretary of State anyhow.

I am very grateful to the noble Lord. I hope that satisfies the point. I agree with what the noble Lord, Lord Trefgarne, said as to how these matters should be handled. I do


Ampthill, L.Gisborough, L.Pargiter, L.
Ardwick, L.Gordon-Walker, L.Peart, L.
Aylestone, L.Gosford, E.Phillips, B.
Balogh, L.Granville of Eye, L.Ponsonby of Shulbrede, L.
Beswick, L.Gregson, L.Rhodes, L.
Birk, B.Hale, L.Ritchie-Calder, L.
Blease, L.Hankey, L.Ross of Marnock, L.
Blyton, L.Hatch of Lusby, L.Rugby, L.
Boston of Faversham, L.Hayter, L.Shackleton, L.
Bowden, L.Henderson, L.Shinwell, L.
Boyd-Carpenter, L.Houghton of Sowerby, L.Somers, L.
Briginshaw, L.Ilchester, E.Southwell, Bp.
Brockway, L.Jacobson, L.Stamp, L.
Clancarty, E.Jacques, L.Stedman, B.
Collison, L.Jeger, B.Stewart of Alvechurch, B.
Cooper of Stockton Heath, L.Kilbracken, L.Stewart of Fulham, L.
Crowther-Hunt, L.Kilmarnock, L.Stone, L.
David, B. [Teller.]Kinnoull, E.Strabolgi, L. [Teller.]
Davies of Leek, L.Leatherland, L.Strathcarron, L.
Davies of Penrhys, L.Listowel, E.Strauss, L.
De Freyne, L.Llewelyn-Davies of Hastoe, B.Taylor of Mansfield, L.
Donaldson of Kingsbridge, L.Lovell-Davis, L.Underhill, L.
Elwyn-Jones, L.Mishcon, L.Whaddon, L.
Ferrier, L.Morris, L.White, B.
Gaitskell, B.Oram, L.Wootton of Abinger, B.
Galpern, L.Orr-Ewing, L.Wynne-Jones, L.
Garner, L.


Alport, L.Duncan-Sandys, L.Kinloss, Ly.
Amory, V.Ebbisham, L.Kinnaird, L.
Auckland, L.Elliot of Harwood, B.Long, V.
Avon, E.Falkland, V.Lyell, L.
Beliwin, L.Ferrers, E.McAlpine of Moffat, L.
Berkeley, B.Fortescue, E.McFadzean, L.
Bessborough, E.Fraser of Kilmorack, L.Mancroft, L.
Boardman, L.Freyberg, L.Mansfield, E.
Boothby, L.Gowrie, E.Margadale, L.
Caithness, E.Gray, L.Marley, L.
Campbell of Croy, L.Gridley, L.Melville, V.
Cathcart, E.Grimston of Westbury, L.Milverton, L.
Chelwood, L.Hailsham of Saint Marylebone, L. (L. Chancellor.)Monson, L.
Clwyd, L.Mowbray and Stourton, L.
Cockfield, L.Hanworth, V.Murton of Lindisfarne, L.
Cork and Orrery, E.Hawke, L.Netherthorpe, L.
Cottesloe, L.Henley, L.Newall, L.
Craigton, L.Hill of Luton, L.Northchurch, B.
Crathorne, L.Hylton-Foster, B.Nugent of Guildford, L.
Cullen of Ashbourne, L.Inchyra, L.Onslow, E.
de Clifford, L.Inglewood, L.Orkney, E.
Denham, L. [Teller.]Kemsley, V.Penrhyn, L.
Derwent, L.Killearn, L.Radnor, E.
Drumalbyn, L.Kimberley, E.Reigate, L.

not agree that what he said in any way argues against the amendment which I venture to put before your Lordships' House.

4.38 p.m.

On Question, Whether the said amendment (No. 2) shall be agreed to?

Their Lordships divided: Contents, 80; Not-Contents, 98.

Renton, L.Sempill, Ly.Trenchard, V.
Rochdale, V.Soames, L. (L. President.)Trumpington, B.
Romney, E.Spens, L.Tweedsmuir, L.
St. Davids, V.Strathclyde, L.Vaux of Harrowden, L.
St. Germans, E.Strathcona and Mount Royal, L.Vickers, B.
Saint Oswald, L.Swansea, L.Vivian, L.
Sandford, L.Swinfen, L.Willoughby de Broke, L.
Sandys, L. [Teller.]Teviot, L.Windlesham, L.
Savile, L.Trefgarne, L.Wynford, L.

Resolved in the negative, and amendment disagreed to accordingly.

moved Amendment No. 3:

After Clause 16, insert the following new clause:
(". The following words shall be inserted at the end of section 34(1)(a) of the Act of 1971—"and this shall include information relating to any appeal against a licence granted by the Authority where the Secretary of State is satisfied that the question of control by United Kingdom nationals is relevant to the determination of that appeal.".").

The noble Earl said: My Lords, I beg to move Amendment No. 3. This is a small, less contentious, narrow and short amendment. My noble friend already knows my arguments, since I have expressed them during the Committee stage, but this is really an attempt to put into the Bill a power that the Minister at present lacks on appeal.

I will not go into a long and boring description of the issue. The issue is very simple: It is that where an applicant makes an application to the Civil Aviation Authority for a licence he can submit information which is sensitive to his company and, understandably, the authority regards that as confidential. If someone appeals against that licence, if it is granted, the Minister for some reason—and this is the gap—cannot call for that sensitive information which may have a bearing on a particular issue (the issue which I have put into this amendment) concerning the control of the company which has applied for the licence and, in particular, the influence on that control by foreign interests.

My noble friend on a past occasion suggested that the Government would amend this by regulation. I would suggest to my noble friend that it is far better to amend it in this way in the Bill, and indeed perhaps by regulation as well, because regulations tend to deal with precise details and the Bill represents principles. I hope that my noble friend can accept this amendment, if not in its present state then perhaps in principle, so that it can be polished up, if necessary, before the next occasion. I beg to move.

My Lords, I am happy to be able to assure my noble friend that the Government are fully alive to the deficiency in existing procedures which was revealed by the recent appeal case to which he has referred. It is indeed unsatisfactory that confidential information which is, or may be, highly relevant to a decision taken by the Civil Aviation Authority should not then be available to the Secretary of State on appeal. Such information, where it is pertinent to the decision of an appeal, ought to be available to the Secretary of State, subject of course to appropriate safeguards as to the continued confidentiality of that information. This applies, whatever may be the issue at stake in the appeal, including the one to which my noble friend refers in his amendment.

However, I should point out that there is no need for a change in the primary legislation to put this matter right. The procedures at CAA licence hearings and in appeals to the Secretary of State are governed by the Civil Aviation Authority Regulations 1972, as amended, these are made under powers conferred on the Secretary of State by various provisions of the Civil Aviation Act 1971. An appropriate amendment to these regulations to rectify the deficiency to which my noble friend has drawn attention is currently being prepared and I expect that a statutory instrument will shortly be laid before Parliament. The Council on Tribunals is being consulted on the terms of the order at present in preparation. I hope that, in view of this assurance, my noble friend will feel able to withdraw his amendment.

My Lords, I am indeed grateful for my noble friend's positive assurance. I am sorry that he feels there is no need to put this into primary legislation. I feel that it would have been helpful to those who read the Acts of Parliament. Nevertheless, I entirely accept his assurance and beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

4.52 p.m.

moved Amendment No. 4:

After Clause 22, insert the following new clause:

( "Aviation Security Fund

.—(1) Section 1 of the Civil Aviation Act 1978 shall be amended in accordance with the provisions of this section.

(2) In subsection (2) after the word "shall" there shall be inserted the words "subject to subsection 2B below, and".

(3) The following subsections shall he inserted after subsection (2):—

"(2B) The Secretary of State shall ensure that
  • (a) expenses due to be reimbursed under paragraphs (a) and (b) of subsection (2) above by payments from the Fund have been properly and directly incurred for the purposes provided in those paragraphs: and
  • (b) aircraft operators, aerodrome authorities and managers and others whose expenses are to be so reimbursed by payments from the Fund secure at all times that the protection and policing operations for which they are responsible are carried out with economy and efficiency.".").
  • "The noble Lord said: My Lords, last week at Committee stage I moved an amendment to establish review committees at each aerodrome to keep under constant review the efficiency and economy of research and security operations. That amendment did not find favour with the noble Lord, and the amendment that I have tabled today seeks to allay the criticisms by users of the system in a different way; that is, by the provisions of information and by establishing a duty to see that the protection and policing operations are carried out with economy and efficiency. I shall not weary your Lordships again with the details of how the security charges have increased by 80 per cent. in the past two years. However, I should like to deal with the two principal criticisms made by users of the existing fund system, and its expense.

    First, are the costs properly allocated'? This year, some £6.3 million will be paid out of the fund as reimbursement of police costs, but unless the users are aware of the total police costs at airports, and of the proportion of those costs which are directly attributable to security and antiterrorism measures the suspicion will linger that other police work—the prevention and detection of theft and more general police duties—are being substantially underwritten by the fund. Then the Customs and immigration services benefit hugely from the airside security measures undertaken by British Airports Authority's staff and, indeed take advantage of them in carrying out their own duties, yet, so far as can be deduced, make no contribution to the costs involved. Finally, there is the cost of special protection measures in respect of British Airways' Belfast and Concorde services, at around three-quarters of a million pounds this year. Is it right that other airlines and passengers from other countries should be paying for these special measures, and, if so, for what proportion?

    Secondly, is the searching and security efficient and economic? At British Airports Authority airports, the manpower involved is now very considerable—some 2,222, according to the authority's last annual report. Nearly two years ago, on 6th February 1979, the noble Lord, Lord Trefgarne, himself expressed concern about this. He said, to quote Hansard:

    "… I therefore view with some trepidation the creation of this vast army of personnel to see to these tasks",

    and looked forward to its eventual reduction. He went on:

    "I wonder … whether it would be possible to run down this huge private army … as and when the time comes … It may not be this year or next year, or even the year after, but I would not hope that it would go on much longer than that".—[Col. 676.]

    As we enter the "year after what has happened? This private army has grown from 1,500 to over 2,200—an increase of nearly 50 per cent. and the noble Lord, Lord Trefgarne, is indeed adjutant of that army.

    The size of the army and its £20 million cost this year should put an increasing responsibility on the department to seek economies and greater efficiency, wherever possible, so long as standards of security are not affected. The move to centralised screening in Terminal 3 is to be welcomed, though it is long overdue. But the changeover itself will have been in vain, unless it is accompanied by the economies that were found to justify it. Will there be a reduction in Terminal 3 searching staff of around 100, saving £1 million a year, as the British Airport Authority's report prescribed?

    There is also a need to ensure that manning levels at centralised searching points in all three terminals are strictly tailored to demand. If the immigration service can adjust its staff throughout the day to cope with peak flows, and throughout the year to cope with high and low season levels, there is no reason why the British Airports Authority's staff cannot be similarly managed.

    Expenditure of some £38 million of public money is a matter of legitimate public concern. Earlier this year, the noble Lord, Lord Trefgarne, said that the Government were,

    "not satisfied that the present system gives airports and airlines adequate incentive to contain security expenditure".—[Official Report, 17/1/80;Col. 309.]

    At Committee stage last week, he recognised,

    "the need to ensure that aviation security measures are implemented as cost efficiently as possible".

    He said that when rejecting my amendment and added:

    "These are matters which are … better handled administratively".— [Official Report, 16/10/80; Cols. 1599–1600.]

    If that is so, the Secretary of State and his department must take fuller responsibility and play a more effective part in providing the necessary incentives to economy and efficiency. If review committees are thought to be too burdensome, then the Secretary of State's duties should be made clearer and more explicit. That is the purpose of this amendment to the 1978 Act. He is, in any case, responsible for defraying expenses out of the fund, and my paragraph ( a) attempts to put a greater responsibility on him to ensure that these expenses are proper. Paragraph ( b) writes into the Act a more general duty to secure efficiency and economy, and to make clear the line of responsibility from airport authorities to the Government. The aim of the amendment is simply to make the Secretary of

    State more clearly responsible to the taxpayer and to the travelling consumer, for the effective and economical use of these very substantial sums of public money. My Lords, I beg to move.

    4.59 p.m.

    My Lords, this amendment, as the noble Lord has explained, is similar in purpose to one which he put forward at Committee stage. Let me first acknowledge that the noble Lord has gone some way in this latest proposal to meet the objections which I saw in his earlier one. But I am sorry to say that I still cannot accept what he proposes.

    The amendment aims to put an express obligation on the Secretary of State to ensure two things: first, that expenses due for reimbursement from the Aviation Security Fund have been "properly and directly incurred" for the purposes laid down in the legislation; and, secondly, that those who receive reimbursement from the fund see to it that their protection and policing operations are, as he said, "carried out with economy and efficiency". Let me make clear at the outset that of course I entirely share the noble Lord's zeal for propriety and efficiency in these matters, but I submit none the less that the amendment is unnecessary.

    In the first place it is unnecessary because the Secretary of State is clearly obliged to see that expenses due for reimbursement from the fund have been "properly" incurred for the purposes stipulated in the legislation. The Secretary of State has no power to make reimbursements from the fund unless the expenditure was properly incurred in the first place for those purposes. I can assure your Lordships that the department are assiduous in seeing that money is only paid out from the fund in respect of expenditure that is so properly incurred. And to the extent that any further safeguard is required, it is provided by Section 1(3) of the Civil Aviation Act 1978 which obliges the Department of Trade to prepare accounts of the fund and to have them audited by the Comptroller and Auditor General, who is in turn required to "examine and certify" every account. The amendment is equally unnecesssary in respect of the "economy and efficiency" of the protection and policing operations.

    May I refer at this juncture to the noble Lord's point about cross-subsidisation of the security fund. It is true that some cross-subsidisation occurs between different airports and between different types of operation, but I suggest that security in these matters is indivisible and that breaches of security in one area would endanger people and operations elsewhere. If, for example, security were lax at Belfast and a terrorist got on board an aircraft there, he could wreak havoc at London Airport when he got there. Thus, it is very difficult to distinguish between one airport and another in the way that the fund is distributed or collected.

    I am not sure what mechanism the noble Lord has in mind for ensuring this economy and efficiency. If he has in mind an inspection system under which vast numbers of civil servants would troop around the country verifying the economy and efficiency with which protection and policing are carried out at various airports, then the cure, your Lordships may think, might well be worse than the disease, if disease there be.

    I am sure that the right way to maintain economy and efficiency is through regular discussions between aerodrome authorities and airlines, with the Department of Trade playing its part, too. As I explained at Committee stage, airport security committees already exist at every airport, where airlines can seek information from the airport managements regarding security operations and discuss their efficiency; and, at Government level, the Department of Trade chair the Working Group on the Aviation Security Fund, which includes user representatives and which spends a great deal of time discussing the efficient administration of the fund. The tripartite reviews—including the recent review of Heathrow Terminal 3 which I said to your Lordships during the Committee stage my honourable friend Mr. Tebbit has accepted—have already emerged out of these discussions. I can assure your Lordships that the department continue to regard it as an important part of their role to promote economy and efficiency in this field, wherever they can. Reimbursements from the fund are at the department's discretion, and they are not obliged to reimburse expenditure which they have reason to believe has been incurred extravagantly or without due regard for efficiency. Further statutory obligations are therefore, I suggest, unnecessary.

    To sum up, I submit that this amendment is quite unnecessary in imposing duties on the Secretary of State that he already recognises. Unnecessary legislation is something that we should do all we can to avoid. I hope therefore that the noble Lord will not press this amendment.

    My Lords, I thank the noble Lord for his reply. I felt that it was rather unsatisfactory but I shall study it with interest. There was a particular area of concern which the noble Lord did not recognise in his reply. He said that the fund only had the duty to pay out expenses which had been properly incurred. As the noble Lord knows and as all noble Lords know, when one is trying to apportion costs there are, very often, many different ways in which particular costs can be apportioned. If the airlines had more information made available to them as to how these amounts were arrived at, I think that an element of the dissatisfaction could be cured.

    In moving the amendment I quoted some items about police costs and items about other costs. Nobody can know, without fuller information, whether these costs have been properly apportioned, and I had hoped that the noble Lord would be seized of this concern. However, I do not intend to press the amendment to a Division this afternoon, although I shall reserve my right to return to it, if necessary, at Third Reading.

    Amendment, by leave, withdrawn.

    5.6 p.m.

    moved Amendment No. 5:

    After Clause 23, insert the following new clause:

    ( "The Authority's harrowing powers

    . At the end of subsection (2) of section 5 of the Airports Authority Act 1975 the following words shall be inserted "but the consent of the Secretary of State, or the approval of the Treasury, shall not be withheld under paragraph ( c) of this subsection if the Authority is thereby unable to carry out its duty under section 3(1) of this Act without levying charges upon users of its services and facilities that unreasonably exceed, or are disproportionate to, the cost of providing each such service and facility.".").

    The noble Lord said: My Lords, last week the Committee stage of this Bill coincided with the start of an action between a number of airlines and the Secretary of State for Trade and the British Airports Authority on the legality of the British Airports Authority's current financial target in consequence of its charging policy. My amendment on landing charges themselves was not discussed last week during the Committee stage, as the question was raised whether the remarks I should make in moving it would be sub judice. It has now been clarified that such remarks would not have been sub judice as the sub judice rules do not apply to Bills. The rules go on to say that the House itself will of course recognise that it is often undesirable for Parliament to intervene in the settlement of matters upon which the decision has been delegated to others by Parliament itself. In view of this, I have decided not to press forward with the amendment on landing charges, which would have effectively required the authority to alter its charging policies. That might be thought by your Lordships to be sailing rather close to an intervention in this matter. I have decided, however, to go ahead with the amendment on the borrowing powers of the authority.

    The amendment has been redrafted from the amendment which was on the Marshalled List last week and now relates solely to this matter. The borrowing powers are set out in Section 5 of the 1975 Act and may be exercised only with the consent of the Secretary of State and the approval of the Treasury. The amendment provides that in the case of borrowing on the commercial markets only, consent and approval shall not be withheld if certain undesirable circumstances are to result. I regret that the amendment is deficient as it stands. It should have been accompanied by a related amendment to remove from paragraph ( c) the words

    "other than sterling".

    The point at issue is the future of airport development. On 17th December 1979, in his Statement on airports policy in another place the Secretary of State made it clear that the entire cost of developing Stansted would be borne by the British Airports Authority and not by the taxpayer. When this policy was debated in another place, the Minister declared

    that it is a requirement that the British Airports Authority should finance the development of the airport without the cost falling on the taxpayer. When asked why he thought that the users of today should pay for the airports of tomorrow, the Minister was only able to reply that it is right that the airport and airline industries and the passengers should pay for what they use.

    In conjunction with its financial target—an average annual rate of return on net assets of 6 per cent. over the years 1981 to 1983, which is now the subject of legal action—the authority was also refused permission to borrow on the capital markets. It is this restriction, which may be repeated for the next financial year, which is the real cause of the present situation and one which is wholly the responsibility of the Government and their economic policies, especially those towards the nationalised industries. When applied to a basically successful and profitable nationalised industry like the British Airports Authority, this veto on borrowing shows an extraordinary inconsistency. If the British Airports Authority is to remain part of the public sector, then it should not be required to make commercial profits, but, if it is to be regarded as a commercial enterprise, then it should be allowed to act commercially and to borrow on the commercial markets. Future airport development is a sound and attractive proposition for these markets.

    The 1978 White Paper on the nationalised industries put forward four principal arguments against dierct access to the markets: that the industries would have to pay slightly more than the Government would; that they might absorb funds already earmarked for the public sector debt instead of new risk capital; that borrowing in the form of stock issues would complicate the management of the gilt-edged market and that medium-term bank loans might deprive the private sector of funds. It is difficult to see how any of those arguments, other than the second, is directly relevant to the British Airports Authority case. The argument that medium-term borrowing would simply replace at greater cost a corresponding amount of pubic sector debt of a similar maturitiy is powerful so long as one assumes that the two debts would be of a similar quality. In fact, as the authority enters a period of very substantial capital expenditure at all three London Airports, what is required is the sort of imaginative blend of public and private finance to which similar developments in the United States of America have pointed the way. One wonders, for example, whether the Government have explored the possibility of seeking guarantees for such a scheme from other quarters, such as the European Communities.

    The double imposition of a financial target and a veto on borrowing means that, whatever savings are made by the authority, the cost of this major programme of capital expenditure will fall on present users in the form of ever-rising charges. It cannot be right that the independence of the authority in matters of financial policy can be endlessly chipped away in this fashion. If developed logically, the policy could quickly result in the authority being forced to risk losing its own customers as London becomes more and more expensive than other European capitals.

    The amendment is therefore designed to protect the authority from such interference. It introduces into the Airports Authority Act 1975 a clear link between the provisions on borrowing and those on charging. If the authority was being pushed into a position where it was likely to have to increase its charges to a level which seemed to be questionable in terms of its obligations under the 1975 Act or the United Kingdom's international commitments, this amendment would at least allow it unhindered access to the private markets in order to find the additional monies required.

    Unless some safety valve of this sort is devised, there would be at least two undesirable effects. First, London will price itself out of the European market, with serious consequences for tourism revenue, especially from chartered tours originating in the United States. Secondly, the principle that the user of today must pay for a service which he may never use tomorrow has alarming implications for international aviation. The United Kingdom has enormous influence in world aviation affairs. If this can be allowed in an industrialised, relatively prosperous country, how much greater will be the temptation for less prosperous countries in Asia and Africa to finance their future development by transferring the cost to the present traveller. I beg to move.

    My Lords, I wish first to recognise the statesmanship (if that is the right word) of the noble Lord, Lord Ponsonby, in not pursuing his amendments at an earlier stage, when a doubt was raised about the sub judice position. I promised then that, if he would withdraw them at that moment, I would deal with them as fully as I could at a later stage and in honouring that undertaking I hope your Lordships will bear with me if I deal with this amendment at rather greater length than I would normally do.

    The amendment is not, as might at first appear, directly concerned with the level, reasonableness or structure of the charges imposed by the BAA at its airports. It is, rather, concerned with the exercise of the powers granted to the Secretary of State and the Treasury under Section 5(2) of the Airports Authority Act to control the borrowings, other than by way of temporary overdraft, of this nationalised industry. As drafted, it would require the Secretary of State to give his consent to any request for borrowing by the authority if that borrowing were necessary to enable the authority to carry out its duties under Section 3(1) of the Act without producing charges which, and I quote, "unreasonably exceed or are disproportionate to, the cost of providing each such service and facility". Your Lordships will note, therefore, that the amendment places no obligation on the authority itself as to the charging policies it should adopt; the question of whether charges are unreasonable or disproportionate would only arise in the context of the exercise of the Government's statutory powers to control the BAA's borrowings.

    The reasoning behind the amendment is therefore based on two assumptions: first that, in the exercise of his powers over the BAA's borrowings, the Secretary of State has at some stage in the past, or is likely at some stage in the future, to force the BAA to charge airlines at rates which are unreasonable, excessive, or do not reflect the true costs of the services and facilities which are provided. That assumption I am afraid I must reject. Secondly, the amendment seeks to define a reasonable charge as one which is not disproportionate to the cost of providing each service and facility offered. Let us examine these propositions more closely.

    The first assumption rests, if I may say so, on a fallacy. It is based on an allegation by some airlines that the Government, in the exercise of their powers over the BAA's external borrowing, are adopting a policy of self-financing: that is that the BAA is being forced to raise, through its charges and profits, the full cost of its current and prospective investment programme, thus forcing present users of BAA's airports to pay for future investment entirely out of revenue. My Lords, that is not the case. The Government's policy in respect of the BAA is not one of self-financing. In considering the need for external financing, the Government must take account of a number of different factors, but in particular they must form a view of how well a nationalised industry is using its total assets, and whether the prices it charges are set at a proper economic level which reflects the full costs of supply. Subject to the overriding need to contain the PSBR, we have always recognised that there will be occasions when the authority will need to borrow to smooth out the peaks in its capital expenditure programme and we shall make appropriate provision for such borrowings in the future. Thus in the current year, the BAA has been given an external financing limit of £20 million and we are presently considering an appropriate provision for borrowings in the next financial year.

    In the early 1970s the BAA achieved CCA (that is current cost accounting) rates of return of about 6 per cent. per annum, but in their last financial year this return was only 2·1 per cent. Over this same period, landing and parking fees per passenger have fallen steadily and, even after the increases on 1st April, are still in real terms lower than they were a decade ago. Thus, in their last financial year, the BAA actually made a trading loss on its traffic operations of over £25 million on a current accounting basis. I might add that this loss on traffic operations was incurred at all BAA airports, including Heathrow, and was only recovered by the very substantial commercial profits which were earned at four of the seven BAA airports.

    The situation was clarified earlier this year when the authority adopted a financial target to achieve an average return of 6 per cent. on net assets revalued at current cost over the three financial years 1980–81 to 1982–83. This target was formulated so as to be consistent with the principles set out in the White Paper on Nationalised Industries (Cmnd. 7131) produced by the previous Administration in 1978, to which the noble Lord referred. This White Paper set out clearly the factors which should be taken into account in agreeing financial targets, including the expected return from effective cost conscious management of existing and new assets. The policy that nationalised industries should earn a proper return on the assets they employ is one which has been shared by successive Governments, and is itself based on the principle that the prices of public sector goods and services should reflect the full economic costs of supply. I am sure that the noble Lord is not suggesting that this Government, any more than their predecessors, should encourage a situation in which a nationalised industry is automatically able to add to public sector borrowing regardless of its overall performance, but that is the implication of his amendment.

    Let us turn, therefore, to the second proposition which underlies this amendment; that is, the inclusion in the definition of what constitutes reasonable charges of the suggestion that they should reflect the cost of providing each service and facility which is offered. On the face of it, that sounds reasonable, but the intention of those air carriers who make such a suggestion is to prevent what was explicitly endorsed by both the 1967 and 1978 White Papers on Nationalised Industries; that is, that nationalised industries should price to cover their long-run marginal costs. I apologise to your Lordships for introducing this economists' jargon, but it really is very important to understand the implications of this concept.

    I can perhaps best illustrate the difference by pointing to the differential in current charges between Heathrow and Gatwick which is so bitterly criticised by those operators who currently use Heathrow at peak periods. The authority's present policy is to treat its three airports in the South-East as a single system for pricing purposes. The charges at Heathrow are substantially above those at Gatwick, particularly during peak periods in the summer, because by using the airport at those times the airlines are contributing to growing congestion which can only be met by providing new facilities at Heathrow or elsewhere to meet these peak levels of demand. At a time when there is available capacity elsewhere in the system, the only rational pricing policy is one which is designed to ensure that operators using the airports system at its most congested point should pay the true economic costs of doing so if they wish to continue to exercise that choice. This is not so very different from the pricing policies the airlines themselves often use in filling their own aircraft.

    The alternative to such a policy—and it is the alternative implied by the wording of this amendment—is that prices should be lowest for those using Heathrow in those periods of the year when it is most congested, since average direct costs per unit will be lowest at such times, and should be highest for those airlines using other airport facilities at times when there is the greatest spare capacity. A moments reflection will, I am sure, demonstrate that such a pricing policy would be neither reasonable nor based on sound economic principles.

    My Lords, the issues raised by the noble Lord are both important and complex, and I have tried to answer some of them. Meanwhile, I would suggest that to alter the Airports Authority Act in the manner suggested would neither clarify matters nor be in accordance with the policies which have been endorsed by successive Governments. I hope the noble Lord will see fit to withdraw this amendment.

    My Lords, I thank the noble Lord for his very full reply to the moving of this amendment. I will need to study his reply in detail, but for the present I beg leave to withdraw the amendment.

    Amendment, by leave, withdrawn.

    Clause 25 [ Acquisition of land by agreement by British Airports Authority]:

    5.23 p.m.

    moved Amendment No. 6:

    Page 25, line 10, leave out ("subsection") and insert ("subsections").

    The noble Earl said: My Lords, I beg to move Amendment No. 6 and speak to Amendment No. 7. On the last occasion when we considered this Bill I raised the plight of the Stansted farmers who have been caught in the blight net under the proposals for the expansion of Stansted airport but who at present do not have any blight protection in law. They are the farmers in the second phase of these proposals, the farmers in the 2,500 acres. Their position at the moment is that although they have received an assurance, as set out in the Minister's Statement last December, that they would not suffer blight, and although the British Airports Authority have announced that they are prepared to purchase by agreement, in technical compensation terms their compensation could fall far short of that of their brethren in phase 1.

    I am sure Her Majesty's Government do not wish this. I am sure the British Airports Authority do not wish this. But I really feel this could happen. I think there is a danger that the British Airports Authority valuers could well say that they can go no further under their present terms of reference to cover what they would by law have to offer the farmers in Phase 1. It would be clearly unfair, unjust, and could cause hardship.

    I move these two amendments to give my noble friend an opportunity to reassure the farmers in this plight that they will be treated fairly, that the British Airports Authority will discuss with the National Farmers' Union the guidelines on compensation for these farmers, that the farmers will receive no less than under normal compensation law, and that a proper system of arbitration will apply to resolve questions of valuation between themselves and the British Airports Authority. On the last occasion the noble Lord, Lord Beswick, threw his considerable weight behind this amendment and suggested very helpfully that we should have talks before this next occasion. I am glad to tell him that talks did take place, and I await my noble friend's reply to see how fruitful they were. I beg to move.

    My Lords, my noble friend raised this matter at the Committee stage on 16th October, and I undertook to look again at the arrangements for the purchase of land in the "outer" area at Stansted. I am glad to say that my noble friend and representatives of the National Farmers' Union were able to discuss the matter in some detail with my honourable friend the Parliamentary Under-Secretary of State for Trade, Mr. Tebbit, and I believe this has helped to clarify a number of points which had concerned my noble friend. As I said the other day, the purpose of Clause 25 is to enable the BAA, in order to relieve hardship, to buy land which may at some stage in the future be required for further airport development. Such sales must be on a voluntary basis. Since there is no formal planning application for development of this area, there is therefore no question of statutory blight arising at this stage. These powers will allow the BAA to deal with cases of hardship arising from uncertainty about the future.

    I can confirm that it is the Government's intention that anyone in the outer area who sells his property to the authority should receive its full unblighted value; that is, the value they would have obtained on the open market if there were no plans for the development of the airport. If a decision were made to allow the proposed development of the "15 million passengers per annum" terminal to go ahead on the inner 1,500 acres, it would then be open to the Secretary of State for the Environment to introduce statutory blight arrangements in the wider area by virtue of an Article 10 direction or similar measure for safeguarding the area.

    Any problems therefore arise only in the interim period before final decisions are made on the airport development, and I understand that the BAA are willing to discuss with the NFU the arrangements for the purchase of properties during this period, the guidelines they propose to use, and the possibility of mediation of any difficulties over price in the case of disagreement. I understand that the NFU will now be approaching the BAA to discuss these matters, and I hope that in these circumstances my noble friend will feel able to withdraw his amendment.

    My Lords, I was hoping that the noble Lord, Lord Beswick, might take part in this discussion. I am very grateful to my noble friend for that helpful assurance and I am sure it will be considered a satisfactory reply. I beg leave to withdraw the amendment.

    Amendment, by leave, withdrawn.

    [ Amendment No. 7 not moved.]