Byers changes course on bail-outs

Anthony Hilton12 April 2012

THE National Air Traffic Service has been in trouble more or less from the day it was sold last spring, but the then transport supremo John Prescott's sin was not to privatise the service but to sell it to the wrong people. He inherited a structure where the Civil Aviation Authority, which was responsible for ensuring the safety of our skies, was also the operator of the air traffic control service, the crucial element in that safety. The regulator was regulating itself. Labour was right to think that was untenable.

What Nats needed was to be sold to a strong parent with clear ideas about the business - and with the money to make up for decades of Treasury underfunding. Instead, the Government took a political decision that Nats should be sold to the airlines. It did this because when the deal was going through, the Hatfield train crash was fresh in people's minds and the perception was that part of the railways' problem came from separating wheel from track - meaning the providers of train services were not responsible for the infrastructure.

By making airlines part-owners, Prescott, and now Stephen Byers, hoped to avoid that problem, but it landed him with another. He failed to grasp that a catastrophic drop in air travel, which could bring Nats to its knees, would also so badly affect the airlines they would be in no position to bail it out.

The second mistake was also politically-driven. Labour thought it important to pretend that this was not a privatisation so it held on to half the shares. It failed to see this meant it was losing control of the business but getting rid of none of the risk. No Government can avoid being involved if air traffic control collapses - when it is half-owner it cannot even wriggle convincingly. Byers should let Nats go into administration so it can be sold to a financially sound owner. After all, if he says it is wrong to give taxpayers' money to bail out shareholders who 'speculated' in Railtrack, why should he give taxpayers' money to bail out the Government and the airlines that speculated in Nats?

Yet today we hear the Government is giving Nats £30m in emergency funding. Funny how Byers' principles have changed.

Techno limits

GRESHAM College Professor Daniel Hodson, one-time chief executive of the Liffe futures exchange, devotes a refreshing lecture tonight to reminding us of the many things technology cannot do.

Its limitations become much more apparent in times of market uncertainty, he says, when such unfashionable concepts as judgment, experience, intuition and luck rather than the deceptive sophistication of risk control systems, can spell the difference between survival and disaster.

And when it comes to predicting the future, technology's lack of usefulness in practical decision taking is underlined, he points out. Hodson also demolishes another fashionable axiom - that technology will ultimately do away with the need for middlemen. British Airways may see a short-term gain in cutting out travel agents and selling tickets direct on the web, but in the financial world Hodson thinks brokers are here to stay.

Regulators still see them as the key entry point into markets and basically rely on them to control the behaviour of market participants. Clients still look to them to provide commentary and analysis of news events. People rely on them to know where stock is placed and who is likely to be a buyer or seller under changed market conditions.

Hodson, of course, lost his job at Liffe after he failed to persuade the market that German technology was a serious threat to physical trading - but no one is perfect.

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