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Airports: Office of Fair Trading Report

Volume 691: debated on Thursday 26 April 2007

My right honourable friend the Minister of State for Trade, Investment and Foreign Affairs (Ian McCartney) has made the following Written Ministerial Statement.

We welcomed this Office of Fair Trading (OFT) report, which was published on 12 December 2006. As part of its statutory role, the OFT actively investigates markets that do not appear to be meeting the needs of consumers and publishes the results of these inquiries. Market studies are undertaken in areas where there are concerns that a particular market is not working well for consumers but where competition or consumer regulation enforcement action does not immediately appear to be the appropriate response.

Whilst we note that the focus of the report is related to the functions of the independent competition authorities, we recognise the value of an early response to the three particular issues aimed at the Government; namely:

the Government should publish criteria for de-designation of airports;

the Civil Aviation Authority (CAA) should advise the Department for Transport (DfT) whether to de-designate Manchester airport before the statutory price control reference to the Competition Commission (CC) is due; and

the Government should consider transferring decisions on designation to the CAA.

These recommendations are fully in line with government policy that regulation should be necessary only when a competitive environment cannot deliver benefits to consumers. The DfT published a consultation document on the de-designation criteria on 26 February 2007 and once the outcome of this is known, they will undertake a further consultation on the de-designation of Manchester, and Stansted, airports. However, we believe it would be premature to consider transfer of decisions on designation to the CAA in advance of a reference by OFT of the supply of airport services to the CC—which OFT also announced it proposed to do in its report. The airport services market could be significantly altered by the outcome of such a reference.

The full government action plan is attached and copies of the OFT's report will be placed in the Members' Library. In preparing this response, we have worked closely with the relevant government departments, in particular the Department for Transport, which is responsible for policy on airports in the UK.

Government response to recommendations contained in Office Of Fair Trading (OFT) Airports Market Study

The Government welcome the recommendations aimed at the Government contained in the report UK Airports: A report on the market study and proposed decision to make a market investigation reference. While the Government note that the focus of the report is related to the functions of the independent competition authorities, we recognise the value of an early response to three particular issues raised. The three recommendations are fully in line with government policy that regulation should be necessary only when a competitive environment cannot deliver benefits to customers.

The Department for Transport should determine clear criteria for de-designation of airports. These criteria should be based on an appraisal of the economic costs and benefits generated by regulation.

The Government have accepted this recommendation and on 26 February 2007 issued a consultation document setting out the preferred criteria for both designation and de-designation. A copy of the criteria contained in the consultation document is attached in the annexe and these fully reflect the importance of competition and the economic costs and benefits.

The CAA should advise the Secretary of State for Transport on whether Manchester airport should be de-designated on competition grounds.

As indicated in the consultation document on designation criteria, a formal consultation on possible de-designation of Manchester and Stansted airports will be issued in the summer following the outcome of the consultation on the criteria to be applied.

Consideration should be given as to whether it remains necessary for Ministers to have the central role in making decisions on airport designation or whether this function might be transferred to the CAA.

The airports market could be significantly altered by the outcome of any Competition Commission reference (if indeed the OFT does refer the matter to it). It would be premature to consider this recommendation in advance of this. In addition to this recommendation, the Government also note the inquiry into sectoral regulation by the House of Lords and the inquiry into the work of the CAA by the Transport Select Committee. DfT will consult, at the appropriate time, on the wider economic regulatory role of the CAA including the way in which airport regulation operates.