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Holiday Operators (Failure)

Volume 79: debated on Wednesday 22 May 1985

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asked the Secretary of State for Transport if he will strengthen the arrangements for protecting the financial interests of air package holidaymakers against the failure of a tour operator; and if he will make a statement.

The existing arrangements of bonds lodged by tour operators backed by the air travel reserve fund have so far proved adequate. I am not aware of any immediate threat to holidaymakers from a major failure. But in view of concerns which the chairman of the air travel reserve fund agency has expressed about the potential inadequacy of the fund in the event of such a failure and Sir Peter Lane's recommendations, following an independent review, for a strengthening of the present arrangements, we are now putting forward for consideration a series of changes which should offer a substantially improved level of protection.In summary, we propose that the air travel reserve fund agency should be wound up; that the agency's functions should be transferred to the Civil Aviation Authority and that the monies in the fund should be held in trust; and —most importantly—that a further line of defence for holidaymakers should be created in the form of a top-up insurance scheme.The purpose of top-up insurance would be to provide additional cover in the unlikely event that, following a major collapse in the industry, the bonding arrangements and the fund proved insufficient to repatriate holiday-makers overseas or reimburse those who paid for, but not taken a holiday. Informal soundings of the insurance industry suggest that a level of cover, equivalent at least to the £20 million or so presently in the fund, could be obtained at reasonable cost. Such a scheme would have the effect of at least doubling the financial backing provided by the fund. The premium would normally be paid from the fund's net income and would impose no extra costs on either holidaymakers or the tour industry.The costs and benefits of such a scheme would need to be reviewed periodically and we are not proposing it should be made mandatory that the fund be covered by top-up insurance. But it is desirable that there should be power to acquire this extra form of protection. The air travel reserve fund agency's existing powers to administer the fund may not extend to the acquisition of top-up insurance. One way of ensuring the fund can be used for this purpose would be to transfer it to the CAA.This is the major reason why my right hon. Friend is proposing the winding up of the agency. But there are other reasons. The authority should also be able to deal more flexibly with claims against the fund than the agency. Further, given the authority's existing duties in licensing air travel organisers and administering the bonding system, the various strands in the arrangements for protecting holidaymakers can be more closely aligned.I understand the CAA is, in principle, willing to accept responsibility for the fund and that it would set up an advisory committee, made up of representatives of the tour industry and consumers, to advise on such matters as bonding arrangements and payments from the fund. Should it take over the fund, the CAA would in due course be empowered to replenish it, if necessary, by means of a levy on ATOL holders.Under section 6 of the Air Travel Reserve Fund Act 1975, my right hon. Friend may wind up the air travel reserve fund agency and dispose of the fund after due consultation. I have today written to the agency, the CAA and representatives of the tour industry and the consumer asking for their comments on these proposals by 12 July. We would also welcome written comments from anyone else with an interest. In the interim, I am pleased to confirm that Sir Kenneth Selby has agreed to continue as chairman of the agency during the period of consultation.I shall make a further statement once the consultations have been concluded.