Second Standing Committee on Statutory Instruments, &c.


Wednesday 26 April 1995


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The Committee consisted of the following Members:

Chairman: MR. LAIN MILLS

Chisholm, Mr. Malcolm (Edinburgh, Leith)

Colvin, Mr. Michael (Romsey and Waterside)

Congdon, Mr. David (Croydon, North-East)

Elletson, Mr. Harold (Blackpool, North)

Fishburn, Mr. Dudley (Kensington)

Gilbert, Dr. John (Dudley, East)

Keen, Mr. Alan (Feltham and Heston)

Khabra, Mr. Piara S. (Ealing, Southall)

King, Mr. Tom (Bridgwater)

McLoughlin, Mr. Patrick (West Derbyshire)

Mitchell, Sir David (Hampshire, North-West)

Moate, Sir Roger (Faversham)

Norris, Mr. Steve(Minister for Transport in London)

Parry, Mr. Robert (Liverpool, Riverside)

Randall, Mr. Stuart (Kingston upon Hull, West)

Tyler, Mr. Paul (North Cornwall)

Walley, Ms Joan (Stoke-on-Trent, North)

Wells, Mr. Bowen (Hertford and Stortford)

Mr. R A. Evans, Committee Clerk

3 Second Standing Committee on Statutory Instruments, &c. Wednesday 26 April 1995

[MR.IAIN MILLS in the Chair]

Draft Civil Aviation Authority (Borrowing Powers) Order 1995

4.30 pm

The Minister for Transport in London (Mr. Steve Norris): I beg to move, That the Committee has considered the draft Civil Aviation Authority (Borrowing Powers) Order 1995. I know that it is extraordinarily dangerous for junior Ministers to prolong proceedings of this type and risk the wrath of their colleagues, who have kindly attended the Committee, but I cannot possibly start today's proceedings without referring to the extraordinary power house of talent assembled on the Conservative Benches—not least my hon. Friend the Member for Hampshire, North-West (Sir D. Mitchell) who is a distinguished former transport Minister. My right hon. Friend the Member for Bridgwater (Mr. King), who is also present, tells me that in 1970 he, sat in this very Room behind Christopher Chataway, the chairman of the Civil Aviation Authority, during the proceedings of a particularly difficult and tortuous Bill. I hope that in comparison with that, today's proceedings will be relatively straightforward. We are concerned with the Civil Aviation Authority (Borrowing Powers) Order. For background, the CAA is a public corporation, established in 1971. It has responsibility for maintaining air safety standards, for providing air traffic services and for economic regulation of various aspects of civil aviation. It is independent of Government although it is part of the public sector and is classified in that respect as a nationalised industry. Its duties and powers are set out in the Civil Aviation Act 1982, under which it has to ensure that its revenues, obtained through the charges it levies, are sufficient to meet its operating costs. The 1982 Act also specifies that the CAA can borrow from the Secretary of State in order to finance its capital programme. At present, the CAA is not allowed to have more than £500 million of principal outstanding on loans that it has taken out since it was formed in 1971. The order would increase the limit to £550 million and would allow the CAA to borrow the funds that it needs to support its capital investment programme. The order would be made under section 10 of the 1982 Act as amended by the Civil Aviation (Borrowing Powers) Act 1990. Section 10(6) of the 1982 Act specified the maximum aggregate of initial debt and principal on outstanding loans that could be taken out by the CAA at £200 million. That figure was increased to £500 million by the 1990 Act, with provision to raise the limit to £750 million in future by order, subject to it being laid and approved by a resolution of the House. The CAA's initial debt has been paid off, so that the limit now applies only to principal on outstanding loans. 4 The CAA receives no grant from the Government; it recovers all of its operating costs through charges that it levies on users—mainly airlines. Some 80 per cent. of its income is derived from en route air traffic control charges, subject to the constraints of the Euro-control convention which at present prevents more than a reasonable return on capital through those charges. The CAA's other activities have to generate an 8 per cent. rate of return on capital employed but that return is not big enough to cover all the capital investment programme and the shortfall must be made up in the form of loans, normally from the national loans fund. The CAA is in the middle of a major investment programme, and its outstanding borrowing is approaching the £500 million mark and is likely to exceed it in 1996. However, any type of unforeseen circumstance which led to a downturn in economic activity—that could be industrial activity in the aviation sector, although not necessarily in this country, or a major regional conflict—could affect the CAA's revenue and cause the limit to be breached earlier. To give the Committee an idea, the current level of outstanding principal is £472 million, which is likely to rise to £490 million by June this year. Hence the need for the order, as a precaution against overshooting the presecribed limit. By the 1997–98 financial year—this is important and is why the figure is pitched as it is—the CAA's investment needs will be reducing. It will be repaying more than it borrows. The total outstanding borrowing will then start to decline and it will drop below the £500 million figure again. If we did not raise the limit on outstanding borrowings, there would be serious implications for the CAA's finances. Its ability to take out loans when they were needed would be affected and would lead to unnecessary overdrafts and cash flow problems. I should stress that the order does not allow the CAA to increase the amount that it can borrow in any given year. That amount is determined by the annual public expenditure survey. The order relates only to the total of all the CAA's outstanding borrowings. Without it, however, the CAA would not be able to make best use of its annual borrowing limits. The order is a narrow one and I hope that hon. Members are clear as to why it is necessary that we should move it now.

4.36 pm

Ms Joan Walley (Stoke-on-Trent): It would be extraordinarily unwise of me to detain the Committee for any great time, given the level playing field caused by the current imbalance in the Committee. Notwithstanding that, I want to raise a couple of issues with the Minister before the instrument is passed. I should appreciate a reply, not necessarily today but in the near future. First, the statutory instrument relates back to the Civil Aviation Authority (Borrowing Powers) Act 1990. I note that during a related debate in the House, the Minister at that time pointed out that it was expected that there would be a debate at least once in every Parliament. That suggestion was proposed during a similar debate on the Northern Ireland Consolidated Fund. Given current concerns about the Civil Aviation Authority—not about its performance but about its ability to invest in its long-term future—it is important for Parliament to have the opportunity fully to debate those 5 issues. Will the Minister say whether the current, brief debate is that opportunity? I urge him to make clear to Conservative Members the importance of Parliament having a chance to debate all the issues that are associated with the funding and borrowing limits of the CAA, given its significant role in safeguarding air safety. Will the Minster also say what extra increase will result from this statutory instrument or affirmative order? I ask that because it has been brought to my attention in the strongest possible terms, by the CAA and other organisations, that the CAA faces a crisis in terms of its ability to meet its objectives, as set out by Parliament. The main concern centres on the new control centre in Scotland, which is also a matter of great concern to my Scottish hon. Friends. Another cause for concern is the flight data processing system for the oceanic control centre which regulates air space over the Atlantic. I do not intend to stray from the order's tight terms of reference but I suggest that the Government's failure to allow the capital programme of the CAA to go ahead as was originally intended, their failure to secure and ensure that there would be investment for those two projects—which are separate, but none the less related—and their insistence that it has to be part of the private finance initiative, have resulted in delays and a need for additional work. In the long term, new facilities are needed in Scotland. In other words, because of that delay over urgent investment and because of the decision to put it out to the private finance initiative, additional expenses are involved. That makes it essential for the current ceiling to be increased. I urge the Minister to have regard to the concern expressed to me by the chairman of the Civil Aviation Authority, to whom he referred in his opening remarks. If the authority's chairman were still sitting here in Committee, I am sure that he would stress the importance of the way forward being to invest in the two new Scottish facilities. Grave concern has been expressed about the piecemeal approach of the private finance initiative proposals. The Civil Aviation Authority feels strongly in favour of public finance by the Government. It believes that it should not be dependent on piecemeal, fragmented private initiatives. During the working life of these new facilities, much new work will be required to keep in touch with the best and latest technology. If the private finance initiative is applied to the new facilities that are needed in Scotland, there will not be the properly integrated system which is so urgently and desperately needed. I do not wish to detain the Committee any longer. However, I urge the Minister to address the issues that I have raised. He must explain how he envisages the proposals going forward. Will there be private financial initiative investment? Will he ensure that resources are available for it to avoid a piecemeal approach? That has an important bearing on the limits that we are debating today. Rather than debate the matter briefly in this Committee, the time has come for a proper debate on the Floor of the House.

4.43 pm

Sir David Mitchell (Hampshire, North-West): Before the Minister replies, I wish to make it clear that I shall not detain the Committee for any length of time. I seek 6 clarification and assurance. Will the Minister tell us the Civil Aviation Authority's income and its annual costs? What steps will be taken to ensure that it can service its capital expenditure programme out of borrowing that is serviced from its income? If it cannot, we are subsidising its customers, most of whom are foreign airlines.

4.44 pm

Mr. Norris: Perhaps I may deal first with the question raised by my hon. Friend the Member for Hampshire, North-West (Sir D. Mitchell). I cannot give precise figures on the Civil Aviation Authority's income and expenditure. However, the CAA derives its revenues from charges, rather than from grant, in respect of 80 per cent. of its services. The balance on which it is required to provide a given rate of return on capital is subject to the Euro-control mechanism in terms of the amount of capital it can deliver as a governmental body. That element alone may give rise to the need for the national Government to provide capital funding for improvements to the service. All other services provided by the CAA are funded on the basis of charges to airlines, domestic or international. As I say, it is in respect of services where the rate of return determined by Euro-control for application by national Governments would not provide sufficient revenue to generate capital required for enhancements that Governments—I refer here to all Euro-controlled Governments—provide capital financing. That leads on precisely to my answer to the question put by the hon. Member for Stoke-on-Trent, North (Ms Walley). Why did we take forward the two projects that she mentioned—the Scottish air traffic control centre and the flight data processing system project—as private finance initiative projects? The answer is straightforward. In respect of those services, the CAA is no different from any other nationalised industry or department; it is in a long queue at the door of my right hon. and learned Friend the Chancellor for the allocation of public funds. The private finance initiative allows the CAA to make crucial investments—nobody denies that they are important—without having to stand in that interminable and deeply frustrating queue. Every organisation liberated from the strictures of nationalisation deeply appreciates not having to do that. That is the context in which the PFI enables these two important projects to take place and to transfer risk from the public sector to the private sector, subject to the proviso on which the CAA properly insisted—that it should have adequate control to carry out its statutory responsibilities.

Mr. Tom King (Bridgwater): I do not think that my hon. Friend is being quite fair to the hon. Member for Stoke-on-Trent, North. I understood that she wanted the projects not to be left in a queue, but to be brought forward by means of public expenditure. I took her to be concerned that the PFI approach involved a piecemeal approach, and that public expenditure was the way to overcome that. She accepts that that requires an increase in public expenditure. The hon. Lady is entitled to call for that and to make clear her party's position.

Mr. Norris: My right hon. Friend, as ever, gets to the heart of the matter. The hon. Lady and her colleagues constantly insist that the burden should not, as in this case, be transferred to the private sector, but should be borne by 7 the taxpayer. It is precisely because of the application of the private funding initiative that we can contemplate the overall borrowing requirements of the CAA falling below the £500 million limit. I am grateful to my right hon. Friend. The application of the PFI concept to these two projects will allow them to go ahead and to jump the queue. Not all projects are susceptible to the PFI approach as it has developed, but I am delighted that, in the case of transport projects in particular, we are constantly seeking to finance them in that way. This is a serious answer to the hon. Lady's point. The essence of the private funding initiative is that it is dealdriven—for each proposition we put together a mechanism that transfers risk and ensures that projects do not stand in an endless queue. That does not mean that it is a piecemeal approach; far from it. It is a structured approach which ensures that we accelerate the rate at which important new developments can take place. That applies to both the Scottish air traffic control centre and the FDPS.

Ms Walley: There seems to be general agreement that because of the Government's withdrawal of money from the public sector borrowing requirement, which would have financed the two projects—the Scottish centre and the Oceanic—there has been considerable delay in getting them started, at precisely the time when the number of air services has increased and there is a greater need to reduce the delay faced by airlines wanting to use the facilities that we are discussing. The Government must take into account the effect of the delay in securing the capital investment. The Minister spoke about the safety aspect. Is he aware that the chairman of the CAA has expressed that organisation's concerns about "how to ensure the integrity and timely upgrading of complex systems which must interact together faultlessly, when we do not have ownership of the systems or full control of the design and modification processes. Without detailed system knowledge and personal accountability 'in-house', it is difficult to see how we can give our customers adequate safety guarantees"? What account has the Minister taken of the concerns expressed by the CAA?

Mr. Norris: Christopher Chataway always was, as my right hon. Friend the Member for Bridgwater will readily 8 attest, an extremely doughty fighter of his corner. If any Conservative Member were chairman of the CAA, I am sure that he would have fought as hard as Christopher Chataway undoubtedly did to keep the entire project in house, to have a steady stream of investment winging its way from the Chancellor's pocket—and from the taxpayer's pocket—and to achieve all the advantages that the hon. Lady accurately describes him as having outlined to the Select Committee. The CAA accepts that the principle on which we said that the private funding initiatives project will be taken forward will be precisely that. At no point will safety be compromised. It has never been the Government's objective to compromise safety in respect of such important projects. Both the new Scottish centre and the FDPS projects are still on target—the NSC project for the year 2000 and the flight data processing system to be in place by 1998. Both projects will be operated by National Air Traffic Services and will be fully incorporated into the very mechanism that Christopher Chataway quite properly wanted the CAA to be able to protect. The hon. Lady's most important observation was, as my right hon. Friend the Member for Bridgwater suggested, to refer to the Government's unreasonable stance in wishing to take the tough decisions that are necessary to control public expenditure. It is in response precisely to the obvious necessity to exercise that control that we devised and have developed the PFI formula, which has worked so well in many other areas. I am quite content that it will work well in this case. The hon. Lady talked about having a debate each year in Parliament on the issue. Obviously I cannot commit the House authorities to that, but I shall draw her remarks to the attention of my right hon. Friend the Secretary of State. I hope that we can speedily approve the order, which has a narrow scope.

Question put and agreed to.

Resolved, That the Committee has considered the draft Civil Aviation Authority (Borrowing Powers) Order 1995.

Committee rose at eight minutes to Five o'clock.


Mills, Mr. lain(Chairman)

Colvin, Mr.

Congdon, Mr.

Fishburn, Mr.

Khabra, Mr.

King, Mr.

Mitchell, Sir David

Moate, Sir Roger

Norris, Mr.

Walley, Ms Joan

Wells, Mr.