HC Deb 24 July 1987 vol 120 cc609-18

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Lightbown.]

9.36 am
Mr. Dick Douglas (Dunfermline, West)

I am grateful to the House for the opportunity to raise the matter of the British Airways bid for British Caledonian on a motion to adjourn the House. The subject was raised in the House on 16 July by my hon. Friend the Member for Sedgefield (Mr. Blair), who said that trade union members first heard of the matter on their car radios. I know that the Government have made great play of giving the trade unions back to their members and have stressed that their policy of privatisation has involved many employees in direct ownership of major concerns. I shall have more to say about that in the later stages of my remarks. I shall deal with the trade unions' legitimate worries about the conditions of the merger. The workers are rightly anxious about their jobs and employment prospects.

One of the ironic aspects of the proposal is that I represent a constituency with high unemployment and I note the involvement of Lord King. He is the chairman of Babcocks, which is involved in Rosyth dockyard where, apparently, the rights and wishes of the workers were and are disregarded, first when Babcocks received the management contract for the dockyard and now when another company, FKI, has made a bid for Babcocks.

Madam Deputy Speaker, I want to consider the Civil Aviation Act 1979 and some of the remarks of the former right hon. Member for South Down, Mr. Powell, during that debate. He said: When the House passed a series of nationalisation statutes 30 years ago, on what was called the Morrison model, it initiated a constitutional innovation which took some decades to digest. Eventually, though imperfectly, the House has come to grips with the problem of exerting proper control over the old-style nationalised industry, both on capital account and on its operations, without destroying the notion of a semi-commercial operation which was embedded in the statutes that set up such industries." — [Official Report, 19 November 1979; Vol. 974, c. 66.] Over a period the Government have divested themselves of ownership and control of a number of state enterprises because of the need to finance tax cuts and reduce the public sector borrowing requirement. The list is long and the few examples that I shall give are well known to the House — the British National Oil Corporation, Cable and Wireless, Rolls-Royce, British Gas and British Telecom. We know that British Airways is involved as well. I echo Enoch Powell's remarks about the imperfect method that we adopted to control these organisations, but at least there were searchlights of public scrutiny that could he used to investigate the operations of massive publicly owned concerns, many of them being public utilities that served the nation.

Few will argue that in terms of public consumer satisfaction there have been dramatic changes for the better in the operation of British Telecom, for example, British Gas or British Airways. The Labour party has not found a satisfactory or adequate answer to its present rejection of the Morrisonian concept, but it is patent that the idea that these massive monopolies can be left entirely in the private domain to determine their market operations will not stand any detailed analysis.

During the exchanges on 16 July my hon. Friend the Member for Sedgefield quoted from the Civil Aviation Authority's report on competition policy in 1984. It is a formidable document that will be well known to all hon. Members who are interested in these matters. I accept that there have been many changes since 1984, however, and that things have moved ahead, especially interchanges in the international economy. I accept also that these developments permit modifications of such strictures as appear in the sixth paragraph of the report. Nevertheless, for a benchmark I intend, with the approval of the House, to quote that paragraph. It is rather long but it has a thrust that I consider to be germane to the debate. It reads: It is sometimes argued that a single major British airline would be stronger than a multiplicity of airlines in competing with those other countries. In the United States it is the big airlines, with strong hub systems, that seem to be coming out on top in the deregulated environment. It is typical of most foreign countries that each has only one international flag carrier. There are, however, serious risks and substantial disadvantages in the pursuit of a single airline policy. A single British international airline competing with its counterparts in Europe and in many other countries within a closely regulated framework of bilateral air services agreements would have less incentive to develop markets or to introduce new products that were of no interest to its commercial partners and would, in particular, be more likely to neglect the needs of would-be passengers with relatively limited available means, as is the case for example in Germany today and as was the case with the predecessors of British Airways, when the competition from other British airlines was much less than it is today. There would be a greater likelihood that a sole British international flag carrier would sooner or later become, again, a high-cost and high-fare operator, competing in terms of products rather than price. Such an airline, enjoying and indeed requiring a protected environment, would be exposed, as British Airways and its predecessors were in the past and as many European airlines are today, to the upward pressures of labour costs and low productivity. That is a formidable stricture. I welcome the ministerial view that there have been changes since 1984, but they are changes that do not permit the Government to stand back and let the market take its course. As I have said, there have been many changes in the international economy that compel a modification of outlook, but to the best of my knowledge the Government have adhered, in the main, to the thrust of the 1984 outlook, at least until the past few weeks.

In a stirring speech, the right hon. Member for Cirencester and Tewkesbury (Mr. Ridley), who before becoming Secretary of State for the Environment was Secretary of State for Transport—if anyone can imagine the right hon. Gentleman making a stirring speech—at the International Aviation Club at Washington DC on 14 February 1986 said: we have to maintain some safeguards in relation to domestic competition. We have got an unbalanced situation. BA represents about three quarters of our industry. We cannot be indifferent if airlines go out of business in the United Kingdom. In view of the inequalities of scale, we have to hold the ring. I do not know whether the Government have changed their policy in the past few weeks but I imagine that they have. In what direction has their policy changed? Later in his speech to the International Aviation Club the Secretary of State said: Both BA and BCal are used to competition. They thrive on it where opportunities are fair and equal, and they back me to the hilt in my campaign to maximise competition and minimise bureaucratic intervention in matters which ought to be the province of commercially orientated airline management. The thought of anyone backing the right hon. Gentleman is mind boggling, but it is probable, indeed possible, that that happened.

The Secretary of State talked about not being indifferent about airlines going out of business, and I have some questions to ask about that. On 16 July the Chancellor of the Duchy of Lancaster said: We have known within the Government about the possibility of this bid for about a week."—[Official Report, 16 July 1987; Vol. 119, c. 1278.] I am not privy to such discussions, but presumably both British Caledonian and British Airways made representations to the Government and gave some indications of their financial and trading position. I imagine that British Caledonian did that especially in terms of the short-term prospects of returning to profit if it remained independent.

We have been told that if British Caledonian remains independent, its main hope of returning to profit is likely to be largely dependent upon further continuing sales of assets and job losses. If that is the position, were the Government indifferent? If they were so informed, what was their response? Did Ministers say that the only solution was to go ahead with the merger with BA, giving, in effect, a tacit, if not clear, indication of their approval of the merger? Or did they say, in contradiction of what was said by the previous Secretary of State for Transport, the right hon. Member for Cirencester and Tewkesbury, that they were indifferent to what happened? They either had a view on the merger and expressed it to the companies or they did not. What concern did the Minister show for probable job losses? Did Sir Adam Thomson, if he was present at any of these discussions between the Minister and British Caledonian, explain what had brought about the dramatic change in British Caledonian's attitude to British Airways? As early as 9 January 1987 Sir Adam was quoted in the Financial Times as saying: British Caledonian and our political supporters will be looking towards the Government's airline competition policy and those who administer it to be the strong unassailable arbiters of true competition and fair play in a British air transport industry where all airlines are privately owned but in which one, by virtue of its historical background, is six times the size of its nearest rival. Did any Ministers or the staff calculate what the difference in size would be between the proposed merged concern and the nearest United Kingdom rival now? I suspect that when Ministers were told of the proposal they said, in effect, "We cannot do anything for you, British Caledonian. Just let the market take its course." I doubt whether the companies were even told that the Office of Fair Trading was to be asked to consider the matter.

The difficulty that we all have to face is that jobs are threatened and that the survival prospects of a major industrial concern that has enjoyed our support are pretty limited if the merger does not take place. We all know that anything that comes from the Director General of Fair Trading could be subject to ministerial veto. Anyone who has studied the Fair Trading Act, 1973 cannot but come to the conclusion that the matter should be referred to the Monopolies and Mergers Commission. However, when the director general has weighed up all the balances, the fact will remain that serious pressures have been brought about through no fault of the company, caused by changes in the world oil market and events in Libya and elsewhere. The company is in serious difficulties. The Government are therefore likely to veto any proposal from the Director General of Fair Trading that the merger be referred, and it will go ahead. However, for good reasons, I very much doubt that my suspicions will be confirmed this morning.

Real-world economics are making nonsense of the Government's so-called competition policy. The comments by the CAA to the Office of Fair Trading that I have read in today's newspapers clearly indicate that, if the merger goes ahead, all the previous views expressed about airline competition policy will be as naught. The House ought to take a stringent view and examine the concept of safeguarding consumer interests in a new environment.

I am not concerned about the consequences for my own party. Economies of scale are important, and the need to finance costly equipment and highly technical assets drive a company towards such economies. I should like to know the Minister's view on that. What assurances can he give about the ordering of equipment by British Caledonian? If the merger proceeds, will British Caledonian's orders for Airbus also proceed? Has the Minister inquired about that? Those of us with an interest in the employment position are especially anxious.

Above all, we know that markets are not free. I have never been lobbied so much on any issue that has been discussed in the House. That lobbying has come from both the companies and the trade unions, and I do not object to it. However, any idea that matters such as this are open to the free play of market forces is for the birds. These are political issues and, as such, should be subject to political ventilation in the House. The Government's privatisation measures have comprehensively removed vast monopolies, many of them providing public utilities, from the searchlight of public scrutiny. The decision not to intervene, and to veto any proposals from the Director General of Fair Trading, is a political decision.

Let me end on this note: the Government's argument was that we should give the airline back to the people—to the shareholders and the workers. A moment's examination of British Ariways' balance sheet shows how farcical that is. I may not be as good as I used to be at doing my "goesintos", as I used to say when I was at Hills Trust school in Govan, but my information is that British Airways has about 400,000 shareholders, of whom 0.2 per cent. own 50.3 per cent. of the shares. That means that 80 or 90 shareholders own half the company. Whatever decision the Government make, massive monopoly power will be given, in the United Kingdom and elsewhere, to a handful of folk. We are told that that is in the public interest. That is for the birds. No hon. Member on either side of the House who is genuinely worried about the public interest should advocate standing back and letting market forces operate without saying or doing anything about it.

As a lifelong trade unionist, I am 100 per cent. in favour of trying to preserve jobs. However, I am also a consumer, with the national interest to consider. That is especially important to my party. We cannot always yield to producer interests; sometimes we must stand back and ask ourselves, "What power are we giving to these people?" I do not know what my party's policy will be, later, but I know that to continue perpetually with privatisation, while misleading ourselves into believing that there is some aura of democracy about it because the market determines the position, cannot he justified in the Mother of Parliaments.

9.55 am
Mr. Terry Dicks (Hayes and Harlington)

I am grateful to you, Madam Deputy Speaker, and to the hon. Member for Dunfermline, West (Mr. Douglas) for this opportunity to speak. Let me first declare an interest as a shareholder of British Airways, and also as the Member of Parliament representing Heathrow.

I believe that there has been some misunderstanding over the merger. It is intended to give British Airways an opportunity to compete more effectively in the international markets, and, in that sense, the issue is not about domestic competition. However, if the merger is not allowed to go ahead, British Airways will have great difficulty in competing in world markets.

There is no need whatever to refer the merger to either the Office of Fair Trading or the Monopolies and Mergers Commission. The approach by British Airways to British Caledonian was based purely on the financial aspect. It must be borne in mind that British Caledonian was experiencing bad financial problems. It may interest the hon. Member for Dunfermline, West to know that there was some potential for the takeover of British Caledonian by a foreign airline. That would have been the worst thing that could have happened to British aviation. It is far better that the number one airline in the country, and indeed the world, whose planes fly in and out of its hub at Heathrow—the world's biggest international airport—should come together with British Caledonian, with a view to producing, as I am sure it will, a competent and highly effective international airline.

Lord King and Mr. Colin Marshall have done an excellent job at British Airways not only for the aviation industry and the airline but for the workers, many of whom are shareholders and are very happy with the turnaround that those two men have brought about. For politicians, most of whom could not organise a good booze-up in a brewery, to start interfering in a highly complex, technical matter does a great disservice to the aviation industry. The House should mind its own business when it comes to a properly organised merger such as this. We must allow British Airways to get on with the job as it is fit and competent to do.

9.58 am
Mr. Anthony Steen (South Hams)

I thank the hon. Member for Dunfermline, West (Mr. Douglas) for kindly allowing me to intervene for a few minutes in this important debate, and I congratulate him on being fortunate enough to obtain this slot today.

I am entirely opposed to the merger going ahead without reference to the Monopolies and Mergers Commission. I speak for a sizeable number of hon. Members on both sides of the House who feel that there is no point in setting up an Office of Fair Trading and a Monopolies and Mergers Commission if we do not listen to what they say and follow the machinery that we have installed to deal with matters such as that that came before the House and the country a week ago.

I am also critical of the timing of the announcement, one week before the House rises for the summer recess. I suspect that that timing was deliberate, designed to limit discussion and possible opposition. It coincides with the timetable for CAP-500 in 1984, when the debate about competition in civil aviation raged for over a week just before the House rose. The result was disastrous. The Government's decision in 1984 has resulted in this proposed merger.

British Airways has put an ultimatum before the country. It says that if it is not allowed to take over British Caledonian immediately, without reference to the public watchdog, the company will go bust and its offer will lapse. Let me examine its offer. It is three times the asset value of British Caledonian. Who pays three times the market value for any company? Only those who want a monopoly and are prepared to pay more than anyone else. British Airways wants a monopoly in the civil aviation industry.

It is not just a question of having a monopoly stake in the civil aviation industry. I am told that the chairman of British Caledonian will receive a golden handshake of between £2.5 million and £3 million and that the institutional investors stand to gain £100 million. Are we prepared to allow a merger that will benefit the chairman of British Caledonian and the institutional investors? It would be good for them, but it would be bad for the travelling public and for prices. It would also be bad for competition and for the independent airlines.

Lord King says that he welcomes competition, but with over 91 per cent. of all the international routes he knows that nobody will be able to compete with him. He says that he welcomes competition at Gatwick and Heathrow. Of course he does. He knows that he controls the critical peak hour slots at both Heathrow and Gatwick. The independent airlines can fly into Gatwick and Heathrow only outside peak times.

The European Commission has said that it is to take action to deal with anti-competition practices in aviation. If British Airways merges with British Caledonian, it will make our demands about anti-competitive practices a sick joke. It is feared that British Caledonian will be bought by a foreign airline, but that cannot happen. Because of the Civil Aviation Act 1982, only a 49 per cent interest can be bought by a foreign airline.

British Caledonian could be perfectly profitable if it were properly run, under new management. If inefficiency could be eliminated, because of the under-utilisation of aeroplanes and buildings, if trade union dominance could be brought under control and if a realistic price were to be paid for it—not £230 million but £80 million or £90 million—it could be competitive again and become a second force in this country.

The new conglomerate of British Airways and British Caledonian would dominate both international routes and domestic services. It has a stake in some of the feeder airlines, such as Brymon, it has dominance over Stolport and it dominates the computer and ramp handling networks. The civil aviation industry will go rapidly into decline if a massive conglomerate runs our civil aviation industry.

As for the mega-carrier argument, the only mega-carriers are in the United States. Cathay Pacific and Singapore Airlines, the most successful airlines, are roughly the same size as British Airways. This matter must go before the Monopolies and Mergers Commission. If it does not, our civil aviation industry will be damaged.

10.4 am

Sir Peter Emery (Honiton)

I congratulate the hon. Member for Dunfermline, West (Mr. Douglas) on introducing this debate. What he said made a great deal of sense and it ought to be considered by my hon. Friend the Minister. I have three questions to put to him. Do the Government intend to comply with the provisions of the Monopolies and Mergers Act 1965? Do they not accept that, according to the Act, an organisation that carries 90 per cent. of the passengers, over 85 per cent. of the freight and over 84 per cent. of the royal mail must be judged to be a monopoly? If he does, should not the matter go before the Monopolies and Mergers Commission?

My hon. Friend the Member for Hayes and Harlington (Mr. Dicks) said that it is not for politicians to interfere in commercial matters, but if, as the hon. Member for Dunfermline, West suggested, Lord King is about to run an omnibus through the law of the land that should not be allowed to happen. If this merger goes through, it will tear in half the Conservative party's policy on which I fought the last general election. We made it clear that our privatisation policy would continue, but if this merger is allowed to take place, that policy will be torn in half.

A large part of the argument has centred around the mega-carriers, but the mega-carrier business is nearly always internal business. Outside America or Japan, British Airways is as big as any airline and can compete effectively. It does not need British Caledonian.

I greatly admire what Sir Adam Thomson has done at British Caledonian. I hope that British Caledonian will be allowed to compete. It has made British Airways great. British Airways needs competition. Competition is what the Conservative party has always stood for. I hope that it will continue to follow that policy.

10.7 am

The Parliamentary Under-Secretary of State for Trade and Industry (Mr. John Butcher)

I congratulate the hon. Member for Dunfermline, West (Mr. Douglas) on raising such a topical matter for debate. The House should ventilate clearly its views on competition policy and the implications of the proposed merger as they affect that policy.

I am grateful to my hon. Friend the Member for Hayes and Harlington (Mr. Dicks) for his speech. He has a reputation for tenaciously defending his constituents' interests. He, with the hon. Member for Dunfermline, West, is interested in creating and preserving jobs. My hon. Friend the Member for South Hams (Mr. Steen) adopts a rigorous approach. He understands that it is excruciatingly difficult for Ministers at the Dispatch Box, faced with such a reference, either publicly to endorse or publicly to denounce the views that he has expressed. Such a discussion would be more appropriate, perhaps, in the Tea Room. My hon. Friend the Member for Honiton (Sir P. Emery) also referred to fundamental issues with which I shall try to deal.

I have listened with great interest to the variety of opinions expressed. Those who are against a merger support a reference to the Monopolies and Mergers Commission. The House will understand why I must refrain from addressing the detail of the arguments in this case. As my right hon. and learned Friend the Chancellor of the Duchy of Lancaster told the House in response to a question last Thursday from the hon. Member for Sedgefield (Mr. Blair), the Director General of Fair Trading plays an important advisory role in merger cases such as this. My right hon. and noble Friend the Secretary of State is awaiting the director general's advice on whether this case should be referred to the Monopolies and Mergers Commission for further investigation, and it would therefore not be right for me to prejudge any advice that he may give by expressing any views about the merits or otherwise of the proposed merger at this stage. I am, however, sure that the director general will take into account the views that hon. Members have expressed in the debate. Of course, any hon. Member is entirely free to make such points directly to the director general's office, but I have no doubt that the director general will closely examine the Hansard report of the debate.

Mr. Steen

Will the Minister send it to him?

Mr. Butcher

In response to my hon. Friend's sotto voce intervention, I shall indeed be the postman in that regard. I draw his attention to the comments already made.

In the time available to me it might be helpful if I outline to hon. Members the statutory procedures that are in place for considering mergers and merger proposals and the criteria that are taken into account in examining their actual or likely effect.

The Fair Trading Act 1973 established a three-stage procedure for the scrutiny of mergers. The first stage involves the Director General of Fair Trading and his office. The director general has a duty under the Act among other things to keep himself informed about merger situations qualifying for investigation and to advise my right hon. and noble Friend the Secretary of State whether they should be referred to the Monopolies and Mergers Commission. But, as hon. Members have said, my right hon. and noble Friend takes the decision whether to refer a merger and his consideration of the issues involved forms the second stage in the process. The Secretary of State is not bound by the advice that he receives from the director general; he has discretion whether to refer a merger, although clearly, in making his decision, he will attach considerable weight to the advice that he receives from the director general.

What, then, are the factors that the Director General of Fair Trading and my right hon. and noble Friend take into account in considering whether a reference to the MMC would he appropriate? I refer to the issues that have been raised by the hon. Member for Dunfermline, West and my hon. Friend the Member for Honiton. Section 84—it is still current and is still being applied in policy terms — of the Fair Trading Act stipulates that, in determining whether a merger may be expected to operate against the public interest, the Monopolies and Mergers Commission shall take into account all matters that appear to it in the particular circumstances to be relevant, including specific factors such as the desirability of maintaining and promoting competition, the interests of consumers, the effect of a merger on prices and technical and product development, the entry of new competitors into a market, employment, and export competitiveness. The public interest is more or less thus defined and its criterion is thus cast wide.

Mr. Douglas

Will the Minister assure me that he will write to me about the Airbus matter?

Mr. Butcher

I shall refer to that in a moment.

The director general therefore turns his attention to all aspects of a merger that may have a bearing on the public interest, and my right hon. and noble Friend will also take into account all relevant factors in reaching his decision.

Our policy on references to the commission, however, remains that announced by my right hon. Friend the then Secretary of State for Trade and Industry, the right hon. Member for Chingford (Mr. Tebbit), in July 1984, that merger references would be made primarily on grounds of competition, having regard to the international context. That reflects our belief that competition encourages productive efficiency, increases consumer choice and ensures that the customer—whether industry or the man in the street—gets value for money. But that does not mean that the director general and my right hon. arid noble Friend do not look at non-competition aspects of mergers or merger proposals. Nor does it mean that our policy is never to make references on grounds other than competition. Although such cases have been the exception rather than the rule, there are examples, notably Elders IXL's bid for Allied Lyons, which was referred in 1985 on grounds of the "leveraged" financing of the proposal.

There is then the question of what happens when my right hon. and noble Friend decides whether to refer a merger to the commission. If his decision is that it should not be referred——

Mr. Deputy Speaker (Miss Betty Boothroyd)

Order. I have to remind the Minister it is now 10.15. Would he bring his remarks to a very swift close?

Mr. Butcher

Without your guidance, Madam 'Deputy Speaker, I had assumed that I had a further six minutes to reply to the matters that have been raised.

Sir Peter Emery

On a point of order, Madam Deputy Speaker. We are on the Adjournment debate. In an Adjournment debate, the timing factors are agreed as a matter of convenience, not absolute. As we lost some time at the start of the debate—the matter is of national importance — I ask the House to agree that the Minister's speech should continue for another five or six minutes.

Mr. Deputy Speaker

Order. It is not for the House or for me to give away other Members' time. These Adjournment debates are strictly timed. I can be lenient to the extent of giving the Minister an extra minute to wind up. That is why I gave him a warning that I would give him precisely that minute.

Mr. Butcher

I am grateful to you, Madam Deputy Speaker. I am sure that the House welcomes your ruling on the matter.

We have not laid down any stipulation about whether the current pattern of ordering should continue. Of course, that is a downstream employment issue that will have to be considered. I reassure the House that that ostensibly side issue of major importance will be borne in mind, I assume, by the director general and my right hon. Friend.

The question——

Mr. Deputy Speaker

Order. Mr. Andrew MacKay.