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Lord Brabazon of Tara: I am grateful to the Minister for his reply. I shall read carefully what the Minister had to say on the detail of my amendments. I really do take issue with the noble Lord, Lord Clinton-Davis, when he argues that they are of no importance or significance. I believe that national security, the golden share and foreign ownership are matters of great importance. Indeed, they are issues which are covered in the Bill, so they must be important.

Lord Clinton-Davis: I was referring to Amendment No. 107. The noble Lord seeks to do something which is incompatible with European law. He should not put forward that argument before this Committee.

Lord Brabazon of Tara: I have put forward that argument. I have listened to the reply given by the Minister. To that extent, it is a useful exercise. We must be allowed to put forward amendments. The noble Lord, Lord Clinton-Davis, also accused the previous Conservative government of not doing anything about national air traffic services. A great deal of money was invested in that during the period of the previous government. As we all know, a great deal of money still needs to be invested. The problem has arisen, of course, of persuading the Treasury to let that money be borrowed from the PSBR. That affects this Government just as it affected the previous one. So we appreciate that something needs to be done to allow NATS to receive capital investment. I was encouraged to hear the Minister repeat the fact that we are still looking at a figure of around £1.4 billion over the next 10 years.

As I said, I am grateful to the Minister for his responses to my individual amendments. But I turn now to our main amendment, which is a proposal for complete privatisation. Of course, it would involve selling 51 per cent of the company. I see no harm in doing that. It was exactly what happened in privatisations such as British Telecom, which were slated by the party then in opposition and which turn out to have been a great success. That success has been repeated throughout the world. The Minister is right

6 Jul 2000 : Column 1659

to say that there will be potential for overseas involvement by the new company when more liberalised air traffic control systems are introduced throughout the world. That would be so in a fully privatised company. So there is no difference in that respect.

I do not like the proposal that the Government have now put before us--for different reasons from those put forward in the previous debate on the Canadian trust model. I should like to promote the idea of total privatisation and therefore seek the Committee's opinion on Amendment No. 20.

7.1 p.m.

On Question, Whether the said amendment (No. 20) shall be agreed to?

Their Lordships divided: Contents, 31; Not-Contents, 127.

Division No. 1


Astor of Hever, L.
Attlee, E.
Brabazon of Tara, L.
Burnham, L. [Teller]
Cope of Berkeley, L.
Denham, L.
Dixon-Smith, L.
Fookes, B.
Geddes, L.
Glentoran, L.
Hanham, B.
Henley, L. [Teller]
Kingsland, L.
Lyell, L.
Mackay of Ardbrecknish, L.
Marlesford, L.
Moynihan, L.
Murton of Lindisfarne, L.
Northbrook, L.
Norton of Louth, L.
O'Cathain, B.
Onslow, E.
Park of Monmouth, B.
Peel, E.
Renton, L.
Seccombe, B.
Skelmersdale, L.
Soulsby of Swaffham Prior, L.
Swinfen, L.
Weatherill, L.
Wilcox, B.


Acton, L.
Addington, L.
Alderdice, L.
Alli, L.
Amos, B.
Andrews, B.
Archer of Sandwell, L.
Ashton of Upholland, B.
Bach, L. [Teller]
Barker, B.
Bassam of Brighton, L.
Beaumont of Whitley, L.
Berkeley, L.
Bernstein of Craigweil, L.
Blackstone, B.
Borrie, L.
Bradshaw, L.
Bragg, L.
Brennan, L.
Brett, L.
Brooke of Alverthorpe, L.
Brooks of Tremorfa, L.
Burlison, L.
Carter, L.
Chandos, V.
Christopher, L.
Clarke of Hampstead, L.
Clinton-Davis, L.
Cocks of Hartcliffe, L.
Crawley, B.
Currie of Marylebone, L.
Dahrendorf, L.
Davies of Oldham, L.
Desai, L.
Donoughue, L.
Dormand of Easington, L.
Dubs, L.
Elder, L.
Falconer of Thoroton, L.
Farrington of Ribbleton, B.
Faulkner of Worcester, L.
Filkin, L.
Gale, B.
Gavron, L.
Gibson of Market Rasen, B.
Gilbert, L.
Gordon of Strathblane, L.
Goudie, B.
Gould of Potternewton, B.
Graham of Edmonton, L.
Greaves, L.
Grenfell, L.
Hamwee, B.
Harris of Greenwich, L.
Harris of Haringey, L.
Harrison, L.
Hayman, B.
Hogg of Cumbernauld, L.
Hollick, L.
Hollis of Heigham, B.
Howells of St. Davids, B.
Howie of Troon, L.
Hoyle, L.
Hughes of Woodside, L.
Hunt of Chesterton, L.
Hunt of Kings Heath, L.
Irvine of Lairg, L. (Lord Chancellor)
Islwyn, L.
Janner of Braunstone, L.
Jay of Paddington, B. (Lord Privy Seal)
Jenkins of Putney, L.
Layard, L.
Lea of Crondall, L.
Linklater of Butterstone, B.
Lipsey, L.
Macdonald of Tradeston, L.
McIntosh of Haringey, L. [Teller]
MacKenzie of Culkein, L.
Massey of Darwen, B.
Merlyn-Rees, L.
Mitchell, L.
Molloy, L.
Morris of Castle Morris, L.
Nicol, B.
Oakeshott of Seagrove Bay, L.
Parekh, L.
Phillips of Sudbury, L.
Pitkeathley, B.
Ponsonby of Shulbrede, L.
Prys-Davies, L.
Puttnam, L.
Ramsay of Cartvale, B.
Redesdale, L.
Rendell of Babergh, B.
Rennard, L.
Renwick of Clifton, L.
Richard, L.
Rodgers of Quarry Bank, L.
Sainsbury of Turville, L.
Sawyer, L.
Scotland of Asthal, B.
Serota, B.
Simon, V.
Smith of Clifton, L.
Smith of Gilmorehill, B.
Stoddart of Swindon, L.
Stone of Blackheath, L.
Symons of Vernham Dean, B.
Thomas of Gresford, L.
Thomas of Walliswood, B.
Tomlinson, L.
Tugendhat, L.
Turnberg, L.
Turner of Camden, B.
Uddin, B.
Walker of Doncaster, L.
Warner, L.
Warwick of Undercliffe, B.
Wedderburn of Charlton, L.
Whitaker, B.
Whitty, L.
Wilkins, B.
Williams of Crosby, B.
Williams of Mostyn, L.
Winston, L.
Woolmer of Leeds, L.
Young of Old Scone, B.

Resolved in the negative, and amendment disagreed to accordingly.

6 Jul 2000 : Column 1660

7.11 p.m.

[Amendment No. 21 not moved.]

Clause 5 agreed to.

Baroness Farrington of Ribbleton: This may be a convenient moment for the Committee (on Re-commitment) to adjourn during pleasure. Perhaps I may suggest that these proceedings begin again not before ten minutes past eight.

[The Sitting was suspended from 7.12 until 8.10 p.m.]

Clause 6 [Licences: grant]:

[Amendments Nos. 22 to 29 not moved.]

Clause 6 agreed to.

Clause 7 [Licences: provisions]:

[Amendment No. 30 not moved.]

Lord Brabazon of Tara moved Amendment No. 31:

    Page 6, line 8, at end insert--

("(5A) A licence shall include provisions requiring the holder to indemnify operators and owners of aircraft, owners and managers of aerodromes, persons travelling in aircraft and persons with rights in property carried in them against, and to pay compensation in respect of, economic loss occasioned by air traffic control delays attributable to the holder.
(5B) For the purposes of subsection (5A), a licence shall set out the circumstances in which air traffic control delays shall be regarded as attributable to the holder; or shall make provision for an arbitration system, other than through the Civil Aviation Authority, to determine attribution of air traffic control delays.").

6 Jul 2000 : Column 1661

The noble Lord said: In moving Amendment No. 31, I wish to speak also to Amendment No. 34.

It is understood that the licence will incorporate performance targets designed to improve the service to airlines and other users by establishing an incentive to reduce air traffic control delays and other inefficiencies which cause annoyance among the travelling public, cost airlines significant sums and have significant environmental disbenefits. For example, Eurocontrol estimates that between a quarter and half a million tonnes of fuel are unnecessarily burned each year because of poor ATC. That is mostly over Europe; our performance is considerably better than that.

The question is: what happens if NATS fails to meet its targets? One option, which we understand is currently preferred by the Government, is to adjust the price cap on an annual basis. A better alternative, we believe, would be to expose NATS to the discipline of the market by placing it under the same obligation as most suppliers of services through a requirement to provide an indemnity against economic loss in circumstances where the loss can reasonably be attributed to NATS--recent computer failures are an obvious example of that--and to require that compensation be paid if performance targets are not met over a defined period. As we have said, this is established commercial practice and it works well. The Government's proposal would mean that carriers might have to wait a year for their losses to be offset by reduced charges and passengers would have no established right to be compensated. The alternative I propose would be faster and fairer.

It might be suggested that NATS is unlike a commercial organisation in that it is a regulated monopoly. However, this principle of combining the giving of incentives through a variable charging formula with financial penalties is not novel as the Government already endorse it in respect of another transport infrastructure provider; namely, Railtrack. The only difference between this model and that applying to Railtrack is that the scope for personality clashes between the regulator and NATS would be avoided by setting out the compensation criteria in the licence exactly as they would be in a commercial contract, for example, if an outside organisation were to run NATS' systems for it. Indeed, NATS has been proud of the fact that the existence of such clauses in its contract with Lockheed Martin has avoided additional burdens on the taxpayer by requiring the company to pay its share of the overrun cost of the new Swanwick centre. If it is considered acceptable for NATS to place its suppliers under this requirement, I submit that there is no reason why NATS itself should not face such an obligation as a supplier of services.

Furthermore, new EU proposals on passenger rights propose that airlines should have to pay compensation for delays. If airlines have to compensate passengers for factors which are often beyond their control, why should NATS not have to compensate for controllable errors? We ask the Government at least to sit down again with users to

6 Jul 2000 : Column 1662

discuss this option. This is what NATS' customers believe to be in their best interests. It must be remembered that the service is provided for them.

I turn to Amendment No. 34. The relationship between NATS and its customers has not always been a happy one, largely because NATS has never had to bother about its market. It is a natural monopoly; there is nowhere else to go. It has the statutory right to levy charges. Under the circumstances it is always tempting for a public sector body to regard its sponsoring department as its number one priority and its customers as a distant second. However, NATS' operating costs are as a result funded by airlines, not the general taxpayer, to the tune of several hundred million pounds a year. As NATS has been keen to gain airlines' support for its desire to gain greater commercial freedom, it might be expected that it would have sought greater involvement on the part of its customers because Ministers, after all, act only in loco parentis in this respect, and the child is perfectly capable of looking after itself.

Yet, to date, NATS has never sought to consult airlines on the service they want. Regular "consultation" meetings are held but these are largely PR exercises designed to tell the industry what NATS has done rather than genuine attempts to find out what the customer needs. The real planning takes place between NATS and DETR. Users are "consulted" after decisions have effectively been made. For example, the first the airlines knew of the plan for a second en route centre was when they received a press release from the Transport Select Committee in another place announcing that it was holding an inquiry on the subject!

The proposal to create a stakeholder council in my view does not fully address that shortcoming as the council will have no locus in relation to economic issues and it is currently proposed in the draft licence that NATS should have sole responsibility to prepare and implement plans it believes are necessary to provide a safe and efficient service. In that connection, NATS has referred in its recent response to the CAA's critical comments on the proposed regulatory structure that it has been developing one, five and 10-year plans. We note that no attempt was made to involve its customers in the development process. A truly market-driven service provider would have sought customers' views at the outset, not once the plan had been completed. This amendment is designed to make NATS into such a service by requiring it to sit down with users at the outset and to prepare its plans in partnership with them. We would be concerned if NATS were to oppose this and we would question any response that suggests that safety must take priority over users' needs, as airlines and their passengers know all too well that if anything goes wrong with the system the impact falls on them. I beg to move.

8.15 p.m.

Lord McIntosh of Haringey: I thought that the noble Lord's description of the separation of responsibility between the airlines and NATS came rather well from a former member of a government which privatised the

6 Jul 2000 : Column 1663

railways and distinguished between Railtrack and the train operating companies. Perhaps the noble Lord spoke from bitter experience. However, I was grateful that he did not refer--as I thought he might--to the problems with the LATCC systems failure the other weekend. He was right not to refer to that as problems on that scale are rare. NATS believes that the changes made to the system that failed will return it to its previous level of 99.99 per cent service.

The problem of delays--to which Amendment No. 31 refers--is an international one and can be addressed comprehensively only at international level. Through the PPP we intend to take steps to encourage NATS to raise its game. The licence will provide a direct financial incentive for NATS to keep delays down. We shall be setting a cap on NATS' charges for the first five years. If delays increase, the charge control conditions in the licence provide for the charge cap to be tightened, so that NATS will be penalised by being obliged to reduce charges. This will provide recompense for operators affected by delays attributable to NATS. This squeeze on charges through the licence will provide an incentive for NATS to minimise delays. A reduction in charges and costs does not mean a reduction in safety as some people might like us to believe. The financial regimeunder which NATS has operated until now has offered no incentives whatsoever for it to make cost efficiencies on most of its business. We shall be remedying that, and if delays occur NATS will feel the pain, but the pressure will not be such as to encourage it to take shortcuts to reduce delays.

The licence will also require NATS to consult its customers on an ongoing basis--I shall come back to that issue when I respond to Amendment No. 34--and to establish performance measures, performance indicators, and service standards which the CAA will be able to enforce through the licence. These measures, indicators and standards will be reviewed annually and will be subject to the approval of the CAA. If this approval is withheld or withdrawn, the licensee would be in breach of the licence and open to enforcement action by the CAA and ultimately in the courts by third parties.

The measures and service standards will be set with regard to the importance that NATS' customers attach to this issue. But they must also reflect the relatively immature nature of the systems for attributing delay to one party or another. That is why I referred to Railtrack and the train operating companies. Crucially, the standards can be set at a level which will provide an incentive to NATS to perform well, but not so high that there would be a risk of their creating, or of being seen to create, pressure to cut corners.

For a number of reasons I am nervous of introducing compensation and indemnities, as Amendment No. 31 would have us do. First, they would create an unbalanced requirement on NATS. NATS will be under an obligation, as it is now, to accept and handle all flights entering UK airspace. As a matter of preserving safety, it cannot refuse. But if it must accept the business, and on occasion can do so safely only by imposing delays. Therefore, it is

6 Jul 2000 : Column 1664

unreasonable to impose a direct penalty for each and every delay, which this amendment would do. Pressure on the charge cap, which is pressure to reduce the scale of delays overall, is more appropriate. Secondly, we are still developing ways to attribute delays with precision to one cause or another. We need greater refinement in that process before it would be reasonable to apply direct penalties. Thirdly, this is a safety service, and pressure to cut out individual delays--pressure backed by the possibility of considerable financial jeopardy--could provide pressure to cut corners, even in an outfit as safety conscious as NATS. I am not arguing that NATS should not be liable for any failures, but I believe that what I have outlined will encourage NATS to improve its performance without encouraging it to cut corners.

I turn now to Amendment No. 34. I fully support what the amendment is seeking to achieve. NATS must consult its customers, and it must do so properly through informed consultation with a view to reaching consensus. I listened very carefully to what the noble Lord, Lord Brabazon, said about what has happened in the past and his allegation that airlines have never been consulted. Without making any judgment on what happened in the past, perhaps I may say that an integral part of the PPP structure will be a stakeholder council, which will bring together all the stakeholders in the partnership, including airline and passenger representatives, in a forum for full and open consultation on the policy and strategies of the company in addressing the issues and challenges it faces. Meeting demand for air traffic control capacity will be at the top of that agenda.

The noble Lord, Lord Brabazon, cast doubt on whether that was an adequate solution. He said that NATS would still have sole responsibility. The operating licence--a draft of which is in the Library of your Lordships' House--includes a condition requiring the licensee to prepare a capacity and investment plan which takes into account the views of users. That is in condition 10 of the draft licence. Condition 16 requires the licensee to draw up and obtain the CAA's approval of a code of practice setting out how the licensee is to consult its customers and handle complaints.

I believe that the thrust of both these amendments is provided for already in the Bill and that it is unnecessary to have them on the face of the legislation.

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