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Airports: Economic Regulation

Volume 715: debated on Thursday 10 December 2009

Statement

In March, the Government consulted on a number of proposals designed to modernise the framework for the airport economic regulatory regime and put passengers at its heart. The review primarily seeks to ensure that economic regulation improves the passenger experience and encourages timely and appropriate investment.

Having considered responses to the consultation, I intend to introduce as soon as parliamentary time will allow a package of reforms that:

modernise the statutory duties of the Civil Aviation Authority (CAA) in this area. The Government will replace the CAA’s existing duties with a single primary duty to promote the interests of end consumers of passenger and freight services at airports. In order to provide clarity about the additional factors the CAA needs to take into account when making decision, the Government will also be introducing new subordinate duties;

introduce a new licensing regime that is flexible and targeted. The new regime gives the regulator sanctions and enforcement powers to incentivise licensee compliance;

introduce a new framework of merit-based appeals to ensure the regulator is accountable for the decisions it makes;

enhance passenger representation within the aviation sector. To ensure that passengers have an independent and influential advocate with an end-to-end journey perspective, the Government will introduce legislation to make passenger focus the passenger representative body for aviation. Passenger focus will build on the firm foundations established by the Air Transport Users Council; and

promote the financial resilience of major airports. In October, this year I brought forward the announcement on financial resilience in order to provide as much certainty as possible for the industry and its investors, and support sustained investment. In this announcement I said that the Government intend to consult on two further financial aspects and this consultation is published today.

A few responses to the consultation raised the importance of connecting regional economies to London airports and international destinations. The Government recognise this issue and will commission research to gather further evidence.

This package of reforms is intended to provide a modern and flexible economic regulatory framework for airports which I believe reflects best practice in other regulated regimes and promotes the interests of passengers, investment, as well as the principles of better regulation.

I also intend to consult on further proposals to update the regulatory framework for aviation.

The Government commissioned Sir Joseph Pilling to carry out a strategic review of the Civil Aviation Authority to ensure that it remained able to meet current and future challenges. He described the CAA as a highly successful organisation and concluded that it remained appropriate to have a specialist aviation regulator, with a broad range of functions from safety to economic regulation. But he also identified that changes were needed to modernise the CAA’s legislative and governance framework. In particular, he considered it important that the CAA’s role should be to safeguard the public interest, and he recommended that we make it absolutely clear in the legislation that the CAA’s primary responsibility is to the public rather than the aviation industry.

I am consulting on proposals giving the CAA a clear statutory focus, consistent with our international obligations and aligned with better regulation principles, by assigning new objectives to the organisation. These will apply to most of the CAA’s functions and will ensure that the CAA focuses its attention on pursuing the interests of consumers and seeking environmental improvements while maintaining a high standard of safety.

To support the CAA in delivering its objectives, I am also proposing to give powers to enable it to obtain relevant information and make arrangements for that information to be made publicly available where this is in the interests of consumers or those affected by aviation. The CAA would be able to use this power only where it could demonstrate that the benefits of publishing information outweighed the costs.

I also want to see the CAA’s governance and enforcement arrangements aligned with modern regulatory practice. I am proposing to give the CAA access to a range of civil sanctions, which will address concerns previously expressed about the disproportionate and inappropriate nature of criminal sanctions for certain offences.

We have looked at financial protection for air passengers following the failure of the XL Leisure Group in 2008. This highlighted the need to reform the ATOL scheme which provides reimbursement and repatriation in the event of insolvency.

We are committed by European legislation to provide financial protection for passengers on package holidays. We decided in 2005 not to extend this to all flights. Although that remains the right decision, the concept of a package holiday has become blurred by the way many holidays are sold through mix-and-match components. Consumers must be able to make informed choices. My objective now is to create a clear boundary of protection, and this objective is shared by the travel trade. The consultation puts forward several options for this.

I am also consulting on a number of measures to rationalise the process for making airport by-laws. The main aims are to modernise and streamline the existing airport by-law-making process and increase the level of consultation with interested parties during the preparation of airport by-laws.

The proposals in this consultation will provide strategic direction for the CAA and help it to regulate the aviation industry in tune with modern needs.

Copies of the decision document, both consultation documents and associated publications have been placed in the Libraries of both Houses.