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Lord Smith of Clifton: I rise to support the amendment. I welcome the observations of the noble Lord, Lord Brett. The advantage of the public trust model is that it is a not-for-profit body and thus can concentrate on safety. It can also involve the parties who are most concerned: airlines, employees and government representatives. It has been suggested that there is a need for the injection of private sector management skills. Frankly, as it stands NATS has been proved to be replete with such skills in the discharge of its duties. If something more is necessary, it can be out-sourced, which is often a better solution than in-house provision, particularly in the case of project management.
If we follow the trust model, NATS can raise funds more cheaply and easily. NavCanada's initial bond offer was three times over-subscribed. At Second Reading in another place the Secretary of State said that NATS would require £1.3 billion of investment over the next 10 years. The simplest and cheapest way to fund this proposal is for the Treasury to borrow the money long term on behalf of NATS. At present, the interest rate on 30-year gilts is 4½ per cent. Mr Prescott put it very clearly:
If, however, the Chancellor is not prepared to relax his grip, the second best option is to restructure NATS into an independent publicly-owned trust on the lines of the new Post Office or, even more appropriately, the Canadian model, as amended to suit UK needs, either with no outside shareholding or a modest shareholding made available to employees, such as the 5 per cent currently proposed in the Bill.
No substantial shareholding in NATS would be sold off, but the borrowing of NATS would no longer be subject to Treasury control because such borrowing would be "without recourse" to the Government. Borrowing in this way would cost more than issuing gilts--initial City estimates are that it would cost between ½ per cent and 1 per cent a year more; that is to say, 5 per cent to 5½ per cent per annum--but would be much cheaper than selling almost half the equity shares in a privatised NATS to investors who, quite naturally, would expect annual returns of between 10 per cent and 15 per cent.
No other country in Europe has privatised its air traffic control system. Holland, Germany and Austria have all set up new state-owned limited liability companies or trusts in the past few years and successfully raised long-term funds for capital investment at very favourable rates which reflect the high credit rating awarded by the markets to air traffic control revenues because they are guaranteed. NATS is not a competitive, commercial operation like British Airways where profit maximisation in an intensely competitive world market is the target. Air traffic control is essentially a service where safety and efficiency are paramount and where the key requirement is to deliver that service at the lowest long-term cost. High equity-type returns to outside investors are neither necessary nor appropriate because the risks of financial failure are so low.
Further, if the Government wish NATS to repay its existing debt of some £300 million to the National Loans Fund, there should be no problem in funding it by the issue of long-term bonds by the new NATS once it has been established as an independent publicly-owned trust.
The Minister confuses ends with means. We all agree on the need to tap into the capital markets to fund investment, but an independent publicly-owned trust will be able to do just that as cheaply and reliably without giving away operational control and high returns to outside private investors.
The Government's plans for NATS are simply bad value for taxpayers' money. It is time to break the whole privatisation and PFI culture which pervades this Government and to examine proposals like this coolly, rigorously and on their economic merits. This was not in the Government's manifesto, and it is a part-privatisation too far. That was also the conclusion of the Select Committee of another place. Its report concluded:
During an earlier intervention I pointed out that the consultation document, which has already been discussed, warned that under these proposals investment might decrease rather than increase. My noble friend Lord Brett also gave that warning to the Minister.
It has been suggested that the trust model means that the organisation is unaccountable to anyone. It is also said that it will not be efficient because, not being responsible to anyone, it will not run the service efficiently or cut costs. However, the representatives on the board of the trust are the Government, the airlines which use it, the unions and consumers. All of those interests will bring pressure to bear to ensure that NATS is an efficient, modern, outward-looking body that is at the leading edge of technology. So far, such pressures have been applied; and not only have costs been reduced but investment has taken place.
Lord Faulkner of Worcester: Unlike every previous speaker, including two of my noble friends on this side of the Chamber, I ask the Government to resist the amendment. I do not believe that the Canadian trust model is appropriate or workable for the future of air traffic control in this country. It would fall foul of European rules and make it impossible for us to play any part in the expansion of air traffic control services in the European Union or elsewhere in the world.
The trust model would not bring into the running of the organisation the world class strategic partner which NATS in future will need to complement the operational skills which our air traffic service has at present. There would not be sufficient incentives in a NavCanada type model for the organisation to improve its performance. For example, no shareholder scrutiny would be brought to bear on the operational efficiency or business development. The trust would have only debt; it would have no equity and no shareholders. They would not be putting their own money at risk.
Lord Faulkner of Worcester: The circumstances in Canada are very different from those which apply in Europe. The scale of operation which NATS in Europe is required to take on is larger. Shareholders put their own money at risk and want to see efficiency improved through participation in a PPP of the kind the Government propose in the Bill. That is likely to produce greater investment and opportunities for expansion in the future.
Baroness Thomas of Walliswood: Does the noble Lord consider that the accountability by the trust to the existing economic and safety regulatory systems--we are not interfering with them in any way--and its responsibilities to the board, its owners--it involves, users, airlines and so forth--are sufficient?
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