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Lord Clinton-Davis: My Lords, I am obliged to the noble Lord for giving way. Is he saying that British or any other airlines have opposed the Canadian experiment? The logic of that would be that together they would have announced some kind of demarche against the Canadian experiment, but, so far as I know, they have not done so.

Lord Macdonald of Tradeston: My Lords, airlines which have involved themselves in the not-for-profit bid clearly are prepared to take that risk. However, we are discussing how we believe that our PPP might be best founded. I should say that NavCanada itself refers to the setting up of its trust which, incidentally, was followed by a massive reorganisation over the past three years in the form of privatisation. As we have made clear time and time again, we consider complete privatisation to be unacceptable in a service which is as strategic and sensitive as air traffic control.

5.30 p.m.

Lord Brett: My Lords, I am slightly confused. The Minister is concerned about the airlines carrying the risk. But that concern is not only not shared by airlines in this country, which have gathered together to form a not-for-profit consortium, but in Canada the airlines seem to be extremely content with their model, in which the Minister suggests that they have all the risks and none of the controls. So if the airlines on both sides of the Atlantic, which are the main customers, are content, that seems to me to be something that we may want to consider further in terms of that model. The Minister seems to be suggesting that the airlines may be stupid in taking that risk, which they are not. They have found a way of doing this. It is interesting that no airline whatever seems to want to have a for-profit model.

Lord Macdonald of Tradeston: My Lords, I said earlier that I am ready to accept that airlines will be involved in a not-for-profit bid, and that will be judged on all-fours with all the other bids involved. I am simply saying that in the scope that we offer in the competitive processes of the PPP, it will be possible for other strongly founded bids to be brought forward.

My noble friend Lord Hoyle compared the PPP proposal for NATS with that for rail privatisation. There really is no similarity. The railways suffered

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from many years of under-investment and, by the recent admission of the party opposite, were imperfectly privatised. We are introducing a PPP precisely because we believe that it will secure the finance and management skills to maintain the position of NATS as a world leader in state-of-the-art air traffic control systems.

So it is not a privatisation as practised previously. It is a public/private partnership with a strong role for the Government.

Lord Hoyle: My Lords, I hear what my noble friend says. But is it not true that immediately afterwards the Government shareholding in the company will be diluted? Will that not bring about fresh fears? It may be very unfair, but at a time when rail safety has been put at risk because of privatisation, will not this measure be seen as a partial privatisation by the public? If any accident did occur, however unfair it may be, we should stand condemned if we go down this road.

Lord Macdonald of Tradeston: My Lords, I believe that it is misleading of my noble friend to imply that we intend instantly to dilute the Government's share. We have said that if the company in due course decides to raise more money, and in that way wishes to go out into the marketplace, then we should be prepared to see the Government's share go down from the original 49 per cent. But that would in no way undermine the controls that were exercised on the company. There would simply be a dilution of the share in what might perhaps be a much more valuable company in due course.

If we thought for one moment that there was any read across from the tragic events on the railways last week to our policy for NATS and the PPP, then we should not be asking your Lordships' House to press ahead with that policy. I assure your Lordships that there is no connection between the two.

The noble Earl, Lord Russell, asked whether the private sector has delivered safety without the benefit of competition, presumably at any time or at any place. I should have preferred more notice of that question but I should have thought that in de facto terms, if you take the British Airports Authority, which is a de facto monopoly in many areas, that has been run with conspicuous safety since its privatisation.

As regards the contribution of the noble Lord, Lord Smith of Clifton, the PPP will benefit from a very solid credit rating and will be well able to finance its business in a cost-effective manner. Of course, it comes with other benefits which I have described. I cannot speak for the National Audit Office's work programme but I believe firmly that we can demonstrate that value will be produced by this PPP for the public. I have no doubt that the NAO will make its views known in due course.

I turn now to some of the issues raised by my noble friend Lord Brett. There are some similarities between NavCanada and the PPP. Both clearly provide for a

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measure of stakeholder scrutiny. The PPP model provides for a good measure of stakeholder scrutiny; for example, through the stakeholder council, about which I spoke earlier, and through the employee shareholding. But because capital is at risk, the scrutiny of shareholders can act more powerfully than that of stakeholders.

The Government therefore believe that shareholder participation will be particularly effective in helping NATS to improve its performance in terms of safety, meeting customer demand and efficiency. Shareholders will also be more inclined to have a view as to the wider interests of the business than might some stakeholders.

In addition, the PPP accountability framework will have a number of features in common with the NavCanada model--government-appointed directors, consultation on charges, safety regulation by a public sector authority and government emergency powers of direction.

But the PPP will benefit also from a direct line of accountability to the owners of the business--the strategic partners, the employees and the government--and that accountability to the owners of the business strengthens the incentives to meet customer needs and improve the performance of the business.

Nor do we believe that the trust or NavCanada model would provide a platform to bring in a committed, world-class strategic partner to inject complementary expertise into NATS' operational skills or that it would provide sufficiently strong incentives to improve its performance.

The final area of doubt relates to the ability of that trust model to compete effectively in what we believe will be a liberalised world market for air traffic control. A trust set-up would lack the motivation, initiative, skills or credibility to compete effectively and thus would deny the United Kingdom a key role in an expanding world market.

Lord Brett: My Lords, if one looks at the four proposed strategic partners, two are major equipment suppliers, one is a management company with some considerable experience of managing swimming baths and light railways. Two of them have an international approach. Would it not be the case that if one of the multinationals were chosen to be the strategic partner and it then formed a partnership in Holland or in another part of the world, it would have precisely the same relationship with that country that it had with NATS in the PPP here? Therefore, it would not see as a priority the expansion of the British interest. We have seen that with dam construction and similar major projects, consortia are created within countries. That would include the strategic partner but it would not include the British Government or the other partners within the PPP. That is my view.

Lord Macdonald of Tradeston: My Lords, I hear what my noble friend says. I do not want to say anything which would in any way prejudice any of the

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parties which might put themselves forward to compete for the role of strategic partner in NATS. I stress again that among the companies which have come forward there clearly is complementary expertise which we believe would strengthen the company which we are moving to create.

The proposed new clause and its associated amendments are unnecessary and we invite noble Lords to withdraw them. The purpose of the proposed new Clause 36 is to require Parliament to approve a made transfer scheme before it can be put into effect, after a draft has already been approved under new Clause 35.

It also requires the Secretary of State to produce a progress report on the development of NATS' facilities before any secondary legislation can be considered. This new clause and its associated amendments would result in an extremely time-consuming and cumbersome mechanism. Proposed schemes will be subject to consultation with those concerned.

They will be designed to achieve the complete separation of regulation from service provision. Double parliamentary approval for each scheme is entirely unprecedented and could jeopardise the PPP timetable.

The requirement for the Secretary of State to produce a report on the development of the facilities connected with National Air Traffic Services is also entirely unnecessary. I assume that that has been inserted in order to place on the face of the legislation some commitment to the Prestwick centre. That commitment will be contained in the strategic partnership agreement and will also be a licence condition. In addition, the Government accepted an amendment in another place which will reinforce these commitments on the face of the legislation. The amendment is now Clause 51(3) of the Bill.

The main purpose of Clause 56 is to ensure that the Secretary of State and the Treasury are not regarded as shadow directors of NATS and its new subsidiaries for the purpose of certain provisions of the Companies Act 1985. The purpose of Amendment No. 66 is to remove that protection.

Shadow directors are persons who have not been appointed to the office of director of a company but who are treated by the Companies Act as de facto directors. The obligations imposed by the Companies Act on shadow directors fall broadly into two categories - those which are intended to reveal to the public the persons who are directing the company from behind the scenes, and those which are intended to protect shareholders from directors taking financial advantage of the company.

As the Secretary of State's interest in NATS and its subsidiaries will be public knowledge, the provisions of the Companies Act are not necessary in the context of the PPP. Removing Clause 56 would expose the Secretary of State to administrative inconvenience in complying with the Companies Act without any corresponding public benefit.

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In any event, there is precedent for a provision of this nature. Similar provisions are to be found in the Commonwealth Development Corporation Act 1999 and other legislation dealing with government assets.

I have dealt at length with a number of proposals for new clauses and for other amendments to the Bill. For the reasons I have given, I urge noble Lords to reject all the amendments proposed.

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