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Lord Brabazon of Tara: I have not consulted the European Commission. I am proposing amendments to a government Bill. It is not necessarily for me to give details about how the amendments might work. It is for the Government to respond to the points that I make.

Lord Clinton-Davis: That really will not do. The noble Lord is putting forward ideas for amending the Bill. Those ideas must be in line with European law. Whatever his views about the European Union, his idea must be viable. If it is not viable under international law, he should not advance it to the Committee.

Lord Brabazon of Tara: I shall come to those amendments and explain why we feel that they are necessary to cover a certain eventuality.

I shall be as brief as I can. Clause 5(4) provides for the licence holder to be a British-registered company. But a British-registered company can be in the hands of an overseas national, possibly one from an unfriendly state. In the interests of national security,

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the amendments would require that the licence holder be British-controlled and that the licence be forfeit if that ceases to be the case.

The noble Lord, Lord Clinton-Davis, may have been referring to the amendments that deal with the golden share. The European Commission has recently challenged the Government's ownership of golden shares in other companies, particularly BAA, claiming that the Government are infringing EU law on the free movement of capital. We believe that it should be made clear in the Bill that the crucial provisions on the golden share stand, regardless of anything in European law.

Lord Clinton-Davis: But--

Lord Brabazon of Tara: I have given way enough to the noble Lord and I shall press on if I may.

Clause 51 relates to the ownership of the public/private partnership. I cannot see the logic of subsections (4) and (5), which provide for the Government to retain 49 per cent of the issued shares initially, and thereafter not less than 25 per cent. The initial 49 per cent can apparently be diluted by subsequent issues, so what is the point of it? It does not leave the Government with overall control of the company--for that they would need 51 per cent. With 5 per cent going to employees, there will be two big blocks of shares, neither of which gives control of the company. That is a recipe for confusion and rudderless management.

The provision for the retention of 25 per cent is even more baffling. It would make more sense to retain 26 per cent, because that would at least give the Government the right to block any measure that required a special resolution, whereas 25 per cent gives no rights. If proper provision is made in the articles of association to protect the Government's position, there should be no need for the retention of a block of shares.

Amendment No. 83 would delete Clause 51(12). Clause 51 is the key to this part of the Bill, containing vital provisions for national security and establishing the future framework of the country's air traffic service. It has rightly been subjected to intense scrutiny by Parliament and is a subject of considerable controversy, yet the Secretary of State wants to give himself the power to change or scrap it at will. That is unacceptable. Any changes deserve the same parliamentary scrutiny as the original clause.

That describes the general thrust of our amendments, which relate particularly to national security and what happens during times of emergency or international tension. They also deal with the golden share and the central issue of foreign ownership.

I am particularly concerned about the Government's proposals in the light of the report from NATS and the CAA Economic Regulation Group. I have assumed that the point of the exercise was to increase investment, not to reduce it. I do know whether all noble Lords have seen a copy of the

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document. I hope that the Minister will be good enough to make sure that a copy of it is placed in the Library.

I am greatly concerned about the savings of between 16 and 29 per cent in capital expenditure in the first quinquennium that the document considers, in addition to the 7.5 per cent efficiency gain. I have a number of questions for the Minister on that. What assessment has he made of the safety implications of cost reductions in the operations of NATS, as recommended by the Economic Regulation Group? Secondly, what representations have the Government received from the management of NATS, the Institution of Professionals, Managers and Specialists--the controllers' union--and the Guild of Air Traffic Control Officers about the cost reductions in the operation of NATS, as recommended by the ERG? I do not know whether the noble Lord has seen the press releases from both IPMS and the Guild of Air Traffic Control Officers but I think he must agree that they make quite damaging reading.

Thirdly, will the Minister say what is the forecast for capital spending by NATS in the current year and for the next five years and what increases in capital spending are anticipated as a result of the proposed public/private partnership? Can he tell us something about the companies or organisations which have expressed an interest in becoming a strategic partner in NATS and whether he has received any representations from them about forecast capital spending in NATS over the next period of time. I feel that we really deserve an answer to those questions.

Lord Brooke of Alverthorpe: I am grateful to the noble Lord for giving way. I am becoming confused. I understood that the noble Lord was moving an amendment for full privatisation. I listened carefully to the noble Lord earlier when he expressed concerns about the documents that have emerged which are on the Internet in relation to the Economic Regulation Group of CAA looking for cuts in capital expenditure and in running costs. I ask the noble Lord to clarify how he can advocate privatisation while at the same time expressing concerns about cuts of that nature being effected because privatisation would be required to effect efficiency savings in some way or another to pay dividends to shareholders.

Lord Brabazon of Tara: I said that I was moving the amendment on pure privatisation as well as speaking to other amendments to improve this particular PPP.

At the moment, the Government are not offering pure privatisation. Therefore, it is not what the ERG of the CAA is looking at for the time being. Our amendment provides that there should be a delay until such time as Swanwick is open. But the noble Lord makes the point that a privatised air traffic service will have to make profits and pay a dividend to its shareholders. Therefore, the noble Lord can make exactly the same point to the Minister on the public/private partnership because, as was said earlier, that is, in effect, a privatisation. If the shareholding falls, as it

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can do, down to a mere 25 per cent holding by the Government, then the noble Lord will find himself in exactly the same boat.

I look forward to receiving the Minister's response on these matters. I beg to move.

Lord Clinton-Davis: I sympathise with the former Minister for Aviation, the noble Lord, Lord Brabazon. At the moment, he does not know whether he is arguing for privatisation or not. So we have every possible sympathy with him.

This is a nonsensical series of amendments which has nothing to do with reality. I share the noble Lord's appreciation of what the Minister will do with it: he will kick the idea into the long grass, and that is where it deserves to be.

The Conservative Party has had 18 years to get the situation right and it chose not to do that. The Conservative government made a mess of NATS because they did not know what to do. I do not believe in the prescription of my noble friend, but what is being advanced now is of no consequence whatever.

6.45 p.m.

Lord Macdonald of Tradeston: Earlier in your Lordships' House, I saw the noble Baroness, Lady Thatcher, who would be dismayed to hear the half-hearted way in which privatisation was advocated by the noble Lord, but I can quite understand his embarrassment in this context and why he has not pursued it as full-bloodedly as one might have expected.

I deal first with a question which I thought we had despatched some time ago. I am grateful to my noble friend Lord Brooke for pointing out that the document which the noble Lord asked me to put into the Library has been available publicly on the Internet for many weeks now. As I stressed earlier, it is a consultative document.

Indeed, I have spoken to the management of NATS about it. Its chairman assured me that it was part of the robust consultative exchange that one would expect between the regulator and regulated in this period. We have received no direct representations from NATS or IPMS in relation to it. I repeat that it is still a process of consultation.

The noble Lord raised the question of capital spending. I do not have the schedule for the year-by-year intentions and capital investment. He will be aware that because of the confusion and incompetence of the PFI plans which we inherited from the previous government, we have had to redo the programme for investment, certainly for the new Scottish centre, and we had to take measures elsewhere to rephase that capital investment. But I assure him that we still expect to invest £1.4 billion over the next 10 years, as we have continually stated, and whatever more is needed to secure the necessary improvements in air safety.

I turn now to this wide-ranging group of amendments which I shall deal with in three tranches. The first tranche concerns Clause 5. The purpose of Clause 5(4) is to underpin the special administration

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regime in Clauses 26 to 33. If we have a licence holder which is not a company formed and registered under the Companies Act 1985, or predecessor Acts, or the equivalent in Northern Ireland, we should not be able to ensure the effective enforcement of the special administration regime.

The noble Lord's amendment seeks to introduce a nationality qualification into the ownership of the PPP. The Government do not see the nationality of a potential strategic partner as the sole consideration--or even the most important one. The Government would certainly rule out any prospective bidder, British or otherwise, who was not acceptable on grounds of national security or whom we did not consider a fit and proper person to have charge of our air traffic control system. We are developing stringent and objective selection criteria which will enable us to find the best strategic partner for the job. And that is an issue of quality, not nationality.

The noble Lord, Lord Brabazon of Tara, also seeks to set some parameters to what should constitute control of the company. I hope I can reassure the Committee on this matter. The licence holder will be obliged by his licence to notify the Secretary of State of any change to shareholdings which would result in an individual shareholding exceeding any one of a series of threshold levels--15 per cent or 30 per cent or 50 per cent--where it had not previously done so. If notification did not occur, or if the change went ahead despite an objection from the Secretary of State, the licence could be revoked under its own terms if the Secretary of State objected to that change because it was against the interests of national security and the objection was ignored.

The threshold of 15 per cent is important as it is the level at which a shareholder is able materially to influence the operation of a company. I should say in passing that from my business background I should not have accepted the discrimination which the noble Lord made between 25 per cent and 26 per cent. But perhaps we can look at that later. The safeguards we are building into the licensing framework, therefore, offer far greater protection for national security than would the amendment.

The second tranche of amendments in this group focuses on Clauses 51 and 56. Amendment No. 79 introduces for the first time the inter-relationship of community and national law. That relationship has already been raised extensively in another place. However, I shall touch on that point in more detail when I come to address the amendments in respect of Clause 93.

The Government are convinced that the outright privatisation of NATS, which noble Lords opposite advocate, would be a mistake. At least 51 per cent of the company would have to be sold and there would be no requirement for the Government to retain any shares. Yet, air traffic control is an area where the benefits of a partnership between the public and private sectors are very apparent. The proposed new clause would dispense with those benefits and deprive the people of this country of a voice in the management

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of air traffic control, which will increasingly be an international activity. Furthermore, as I said earlier, our aim is to facilitate the development of a major British-based company, successfully going out and working in air traffic control in countries around the world, not in any imperialistic sense, as the noble Baroness opposite suggested, but trying to deliver greater safety for those countries and for all the airlines, including British airlines, which serve them.

I note the suggestion in the amendments that British interests must control the company. I have already explained why I believe that to be wrong. Moreover, in the case of European Union nationals, it would not be compatible with our EU obligations.

As I have said, we expect air traffic control markets to liberalise over time. I do not think that we are alone in that. Our Dutch and other European colleagues are looking at those options. We want NATS to be at the forefront of the changes that we expect to see. We therefore want to be able to enter into co-operative arrangements, joint ventures and the like that will almost certainly figure in the markets of the future. In those circumstances, it makes no sense to adopt too insular an approach.

Amendments Nos. 81 and 91 seek to make provision for the special shareholder to be able to prevent a transfer of securities in NATS, other than the special share, on the grounds of national security. The first point to consider is when such a right might take effect. During the PPP there will be a strategic partnership agreement in force which will require the consent of the Secretary of State for each and every transfer of shares in NATS.

It seems, therefore, that the right proposed by noble Lords would be of use only following a flotation of NATS. The Government have no present intention of permitting such a flotation. However, even if a flotation was permitted, NATS' articles of association have been drafted in such a way that there would be a 15 per cent limitation on individual shareholdings in the floated company. That limitation would prevent anyone other than the Crown from obtaining an influential stake in a floated NATS. In addition, NATS would remain subject to its relevant licence obligations, which I have described.

Amendment No. 82 seeks to prevent any successful challenge to the special share under any European law which the European Community may make. As noble Lords will understand, this is not an amendment which can be accepted as the United Kingdom has signed and agreed to be bound by the Treaty of Rome, as amended. Furthermore, the European Commission has a legitimate interest in ensuring compliance with the fundamental community freedoms of movement of capital and right of establishment.

The legal advice we have is that the NATS special share scheme arrangements are compatible with those freedoms. I have to say that the apparent intention of the amendment to entrench the special share rights as a state measure rather than reinforcing provisions of private company law, as we intend, might well be unwise in this context. Given the strength of the

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Government's position, if the Commission were to institute proceedings against the UK on NATS, the Government are prepared to defend their position on the special share.

I turn to Amendment No. 83. I consider that the proposal to remove the right of the Secretary of State to amend or repeal the section is unnecessary. The exercise of this power is subject to the approval of both Houses of Parliament under the provisions of Clause 102(6) of the Bill. Moreover, in its report on the Bill the Select Committee on Delegated Powers and Deregulation commented that it did not see this power as inappropriate, and saw the affirmative procedure as providing appropriate control over its use.

I turn to the third tranche of amendments in this group concerning Clause 93. Amendment No. 105 seeks to provide a power for the Secretary of State to direct the CAA or a licence holder regarding the performance of its functions if thought appropriate to do so in the interests of national security. We already have such a power by virtue of Clause 38 of the Bill and Section 6 of the Civil Aviation Act 1982. The latter provision is not being repealed.

Clause 38 provides that a licence holder may be given directions, either of a general character or specifically to do or not to do a particular thing if the Secretary of State thinks it necessary or expedient to do so in the interests of national security.

Section 6 of the Civil Aviation Act 1982 gives the Secretary of State similar powers of direction in respect of the CAA. It is against that background that the Government take the view that adequate and comprehensive powers are already provided for in the Bill. It is our view that the amendment is simply unnecessary.

Amendment No. 106 seeks to allow the Secretary of State to give directions to a person following an air traffic administration order. We think that that amendment too is superfluous. My advice is that the reference to a person who provides air traffic services, in the list of those to whom a direction may be given, clearly includes someone who does so under an air traffic administration order.

Amendment No. 107 endeavours to ensure that the direction-giving power in Clause 93 may be exercised even if the directions so given were inconsistent with the European Communities Act 1972. I should perhaps restate the obvious. We have signed and agreed to the Treaty of Rome, as amended.

I hope that I have demonstrated that, while we share the very reasonable concerns of the party opposite about national security, the amendments are either unnecessary or inappropriate. Perhaps I may say to the noble Lord, Lord Brabazon of Tara, that we have tried repeatedly to make clear that the arithmetic he used to arrive at £15 million net for NATS was not correct. We have tried to explain that detail in a number of places and, indeed, in the Explanatory Notes. The noble Lord has not taken account of how the debt will be treated inside that sum.

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The £15 million quoted arises from confusion around the treatment of the £300 million debt that NATS owes to the National Loans Fund. That has to be extinguished prior to the PPP as private sector bodies cannot borrow from the NLF. The estimated figure of £350 million stated in the Explanatory Notes for the proceeds from NATS from PPP is net of that debt. Consequently, taking account of current estimates of the cost of the sale, that would give potential final receipts of over £300 million plus the benefit of another £300 million debt repayment. It would probably be of more use to have used the concept of enterprise value to find a total. However, this is an estimate. The final proceeds could well be higher, depending on the level of bid received from potential strategic partners. We have no intention of letting NATS go at a knock-down price, as the noble Lord suggests. Accordingly, I invite the noble Lord opposite to withdraw his amendment.


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