Earl Attlee
My Lords, we are an island nation and our access to the rest of the world—and the rest of the world’s access to us—is primarily through air travel. That is why the aviation sector is so important to our economy. In 2010, goods worth £113 billion were moved by air between the UK and non-EU countries. In the same year, UK airports served nearly 400 international destinations. That level of activity is possible because over the past 30 years the aviation industry has changed to meet the needs of the customer. The emergence of low-cost carriers is one example of how the industry has innovated and diversified. There has also been an increase in the number of people travelling by air in this country, from 59 million passengers in 1982 to 211 million in 2010.
While the sector has changed dramatically, the regulatory framework which governs it has not. Much of our aviation regulation originated in the 1980s, and needs to be brought into the 21st century. The Government are committed to bringing vital reform to our aviation regulation. In a moment I will set out this reform in more detail, but let me first make clear the important theme that runs through the Bill: putting the interests of the passenger at the heart of airport regulation. For the first time, the CAA’s primary economic regulation duty will be to users of air transport services—that is, the passengers and owners of cargo.
The Bill introduces reform in four areas: the economic regulation of airports, the legislative framework of the CAA, the Air Travel Organisers’ Licensing scheme, and aviation security. I would like to explain each of these in turn, beginning with the reform to the economic regulation of airports. In the UK, the gas, electricity, water, telecoms and post sectors all have some level of economic regulation. Economic regulation typically operates through an independent regulator capping the prices that companies with substantial market power are able to charge and specifying levels of service quality. Much of the aviation industry in this country is competitive. That is how the Government prefer it to be. Effective competition gives firms the incentives to invest and improve efficiency, choice, and service quality.
However, a small number of airports—currently Heathrow, Gatwick and Stansted—have substantial market power and are not subject to sufficient levels of competition. In order to replicate the effects of a competitive market on these airports, the CAA exercises its powers of economic regulation in the form of price caps and service quality requirements. However, there is compelling evidence that the framework for the economic regulation of airports needs updating. The Competition Commission has concluded that the regime distorts competition between airlines and should be reformed. Advice from an independent panel of experts and responses from three evidence-gathering exercises has further indicated that the current regime is not fit for purpose. I should also add that the previous Government agreed that reform is necessary—a fact that helps explain the considerable degree of cross-party support the Bill has attracted so far.
The most common criticisms of the current regime are that the regulation is disproportionate and difficult to adapt to individual airports, that the CAA is unable to respond effectively to extraordinary events such as volcanic ash or extreme weather, that the regulator is insufficiently accountable for its decisions and its priorities are unclear, and that the regulatory process is burdensome and inefficient. The Bill would remedy these problems.
Where the current legislation gives the CAA four separate and sometimes competing duties, the Bill replaces them with a primary duty to passengers and owners of cargo. Where the CAA is presently constrained by rigid rules that require it to set five-year price caps when regulating dominant airports, the Bill would give the CAA a modern licensing system. Under this new system, licence conditions could be tailored to individual airports to tackle specific challenges at particular times. This licensing system would also enable the CAA to reduce the degree of economic regulation imposed on individual airports if it believed that this would benefit passengers. For example, instead of controlling prices, it could monitor prices while regulating certain aspects of service quality. The new system would also enable the CAA to impose different regulatory time periods. For example, setting longer periods for price controls would provide greater certainty and could stimulate investment.
Currently, it is the responsibility of the Secretary of State to decide which airports should be subject to economic regulation. The Bill proposes that the CAA, as an independent and expert body, should make that decision against clearly defined criteria set out in the legislation. Another criticism of the current regime is the lack of accountability it provides for key regulatory decisions. At present, judicial review is the only way to challenge the CAA’s decisions on the price cap and service quality standards that airports must meet. Under the Bill, the licence conditions imposed will be appealable by the licence holders and materially affected airlines. These appeals will be made to the Competition Commission, thereby removing the need to go straight to judicial review. The decision on whether an airport is dominant will be also be appealable to the Competition Appeal Tribunal. To summarise, the reforms will deliver a new system of regulation that is fairer, more flexible, and more focused than the current regime.
I turn to reforming the legislative framework of the CAA itself. Measures in Part 2 of the Bill will change the way in which the CAA operates, improving transparency and accountability; removing unnecessary government involvement and funding; and cutting red tape. The Government believe that a more transparent system of providing information would be of benefit to the public. At the moment it is very difficult for passengers to compare air services—for example, to establish which airline is most likely to lose luggage, or which airport garners the most complaints from passengers. It is also difficult for consumers to find out environmental information about aviation.
In 2011, PricewaterhouseCoopers looked at the reports of 46 world airlines and found, for example, that only one-third reported on their noise levels. The Bill will create a new duty for the CAA to publish, or arrange for the aviation sector to publish, information to help users compare services. The CAA will also be given a duty to inform the public about the environmental effects of civil aviation in the UK. It is important that these duties are performed proportionately, so the CAA will have to consult on its approach and have regard to the principle that the benefits of taking action should outweigh any adverse effects.
Other measures to modernise the legislative framework of the CAA include giving the CAA new freedoms to appoint its own executive directors. Where at the moment the CAA has recourse only to slow, costly, and often disproportionate criminal sanctions in enforcing regulations, the Bill will enable the Secretary of State to give the CAA powers to enforce offences through civil sanctions. I am pleased to say that Part 2 of the Bill also brings forward a recommendation that was made by this House.
In the course of its licensing duties, the CAA collects medical data on individuals in the air transport industry. In 2007, your Lordships’ Committee on Science and Technology, as part of its inquiry into air travel and health, recommended that anonymised medical data held by the CAA should be made available for ethically approved medical research. Clause 104 meets this recommendation. Of course, we have built in safeguards to help to ensure these data are used appropriately. I urge your Lordships to read the appropriate section carefully.
I will now move on to our proposals to improve the regulation of aviation security. Keeping people safe and secure when they travel is of prime importance. At present, aviation safety is regulated by the CAA, while security regulation is carried out by the DfT. The Bill would move security regulation from the DfT to the expert regulator, the CAA. On both safety and security, the aviation industry would have to deal with only one regulator, not two. The move would have the further advantage of bringing the “user pays” principle to aviation security. The costs of the aviation industry should, as far as possible, be paid for by the people who use it. At the moment, the aviation industry pays for safety regulation, but the public purse pays for security regulation. The position under the Bill would be fairer.
The final measure in the Bill that I will mention, which accounts for just one clause, Clause 94, is the reform to the Air Travel Organisers’ Licensing scheme—ATOL for short. Over the years the ATOL scheme has given peace of mind to millions of holidaymakers who have known that because their holiday is covered by the scheme they will not be left stranded or out of pocket if their travel company becomes insolvent. However, diversification in the holiday market since the scheme was set up—in particular, the changes associated with internet booking—mean that it is no longer clear to some consumers whether their holiday is ATOL-protected or not.
Certain sorts of holiday—for example, those sold by airlines and on an agent for the consumer basis—cannot currently be required to be included in the ATOL scheme because they fall outside the relevant powers in Section 71 of the Civil Aviation Act 1982. So Clause 94 of this Bill would allow us to improve clarity for the consumer, by giving the Secretary of State powers to add more holidays to the ATOL scheme, including holidays sold by airlines and agents for the consumer. This should also mean that businesses selling holidays that include a flight will have a more coherent and consistent regulatory framework in which to operate.
The Civil Aviation Bill has undergone thorough scrutiny—
Lord Clinton-Davis
The Minister is right to stress the importance of aviation to this country. Does it not follow that the pilots are an extremely important part of that? Why did 91% of the members of the BALPA union consider the Government to be not supporting the industry sufficiently? Is that not a serious point that ought to be taken into account?
Earl Attlee
My Lords, I am sure it is a very serious point. I will be meeting representatives of BALPA shortly, certainly before the Committee stage starts.
The Transport Committee found the Bill to be clearly welcomed by the aviation industry, including airlines, airports and the CAA. It also found that the draft Bill has been,
“subject to detailed review and consultation over a lengthy period”—
and, although it raised some points which have since been picked up in the Commons, it found that the Bill—
“appears to offer a better way to regulate UK airports in the future”.
I look forward to debating the merits of the Bill with your Lordships in this Chamber. I am confident that we will maintain the high level of scrutiny that the Bill deserves and has attracted so far.
I beg to move.
Earl Attlee
My Lords, we have conducted a full and wide-ranging debate on the merits of the Bill. Many noble Lords have made the case for the continuing importance of our aviation sector. The continuing success of the industry is essential to our economic growth. The reforms in the Bill have been designed to allow competition to flourish and for our aviation industry to innovate and thrive. The Government, the Opposition, the regulator and the wider aviation industry all support the Bill.
I shall now endeavour to respond to some of the points made by noble Lords but they will understand if I have to be selective in what I reply to. I am grateful for the thoughtful and generally helpful response from the noble Lords, Lord Davies of Oldham and Lord Rosser. I am very happy to accept that the previous Administration put a lot of work into the Bill. The noble Lord, Lord Davies, complained that the Government did not accept Front Bench amendments in another place. Of course, our roles are now reversed and I am sure that the same accusation could have been levelled at the noble Lord when he was in government.
The noble Lord, Lord Davies, mentioned climate change. He and the noble Lord, Lord Rosser, will recognise that the Bill is about regulation of the aviation industry. However, I look forward to seeing the noble Lord’s amendment on carbon emissions and how they will work within the confines of the Chicago Convention. The noble Lord, Lord Rosser, offered gentle criticism of the aviation industry. He will be aware that the new generation of aircraft is much quieter and much more efficient.
My noble friend Lord Bradshaw and the noble Lord, Lord Soley, talked about the problem of stacking. The Civil Aviation Authority’s future airspace strategy deals with this problem and one or two others. The Director of Airspace Policy at the CAA recently made a presentation to your Lordships on the possibilities of the future airspace strategy. My noble friend Lord Bradshaw talked about the possibilities of other UK airports and, for his pains, he got a response from the noble Lord, Lord Soley, about hub connectivity.
The noble Lord, Lord Davies of Oldham, and many other noble Lords, raised the issue of capacity at Heathrow. They recognise, of course, that the Bill deals with regulation but I am happy to respond. The Government recognise the need to maintain the UK’s excellent connectivity now, and in the longer term. This is why we will issue a call for evidence later this summer alongside our consultation on the draft aviation policy framework to explore the options to achieve this. We remain committed to adopting the aviation policy framework by March 2013.
The coalition Government’s position regarding a third runway, mixed mode, and the planning cap on air traffic movements at Heathrow has not changed. I can assure noble Lords that we will follow a proper process in developing a long-term aviation policy which is in the UK’s best interests.
Lord Clinton-Davis
Is it still the noble Earl’s view that the Government are ruling out a third runway at Heathrow?
Earl Attlee
My Lords, I repeat: I can assure the noble Lords that we will follow a proper process in developing a long-term aviation policy which is in the UK’s best interests.
Lord Clinton-Davis
Time without number it is reiterated that a third runway is to be ruled out and several other government Ministers have said the same. What is the present policy?
Earl Attlee
The noble Lord’s comments are accurate but the words I have just repeated are very carefully thought out. I must move on.
These measures are consistent with the Government’s commitment to runway alternation at Heathrow and the trial—that is, the operational freedoms—will not increase the number of flights at the airport, which remains capped at current levels. I can assure my noble friend Lord Patten that the Bill does not interfere with the aviation policy framework. The two issues are separate; future developments will not be inhibited.
I welcome the comments on the environment—particularly from the noble Lord, Lord Davies of Oldham, and many other noble Lords. The issue was also debated at some length in another place. I have listened very carefully to the points raised today. I agree that further consideration should be given to the clarity in the Bill regarding the role of the CAA in allowing licence holders to recover the costs of taking reasonable measures to mitigate the adverse environmental effects of airports in carrying out its functions. Therefore, I look forward to further discussions in Committee. It will, however, be important to get the correct balance between conflicting interests. This will be challenging and we must get it right.
Many noble Lords raised the issue of the NAO auditing the CAA. I am still not persuaded that there are convincing reasons to believe that NAO scrutiny would deliver a better result than the current and planned mechanisms by which the CAA’s functions are audited and scrutinised. In his review of the CAA, Sir Joseph Pilling considered this and concurred that he saw no need for the NAO to be involved directly. Ministers in the previous Government subsequently accepted this recommendation. I have yet to see convincing reasons why they were wrong and nothing has happened since to suggest that this advice needs to be reviewed.
I am not convinced that NAO scrutiny would be more effective than the current system which includes the following elements: the Secretary of State appoints the CAA’s auditors; the Secretary of State places the CAA’s accounts before Parliament; the Secretary of State approves the CAA’s borrowing and sets its required rate of return on capital; the Secretary of State appoints the CAA’s chair and non-executive board members; the CAA’s audit committee is made up of non-executive members who are appointed by the Secretary of State; and the CAA consults on its fees and will be required to do so under the changes set out in Clause 100. In addition, over the period 2001 to 2011, the CAA reduced its operating costs in real terms by 20%. I note that some noble Lords suggested additional functions or capability that the CAA should acquire.
Following discussion in another place on 25 April in the Bill Committee, the Minister, my right honourable friend Theresa Villiers, announced a new non-legislative measure to increase the transparency of the CAA’s moves towards greater efficiency. On an annual basis, the Department for Transport issues a report direction and an accounts direction to the CAA specifying the matters that should be addressed in the authority’s annual report and accounts. From 2013 onwards, the Secretary of State will strengthen the scrutiny of the CAA by including in the annual directions a requirement to include an efficiency statement in the annual report.
I am grateful for the contribution from my noble friend Lord Trefgarne about general aviation. The primary duty will be capable of capturing general aviation interests where they are aligned with the interests of users of air transport services. Broadly speaking, users of transport services will be passengers and freight owners using air services to and from the UK—including future users. In so far as owners of small aircraft fall within this, they will be covered. It can also be noted that only around 0.1% of flights at regulated airports comprise general aviation.
My noble friend Lord Jenkin of Roding raised concern that an airline right of appeal touching on an airport’s financial arrangements would seriously inhibit the airport’s ability to raise finances. The noble Lord, Lord Soley, and my noble friend Lord Bradshaw raised similar concerns. The Government remain of the opinion that there are good reasons to include financial resilience licence conditions, with appropriate derogations where these cut across existing financing. We also remain of the opinion that the broad rights of appeal in the Bill provide an effective means of improving the accountability of key regulatory decisions and enable the interest of both airport operators and materially affected airlines to be taken into account in the licence process.
We believe that it is correct that the right of appeal extends to financial resilience licence conditions. Any dispute as to whether a derogation would cause a breach of the existing financial arrangements is most likely to arise from questions of law over the true construction of a loan agreement and/or licence condition. These could ultimately be resolved through judicial review and, in the mean time, an airport operator could seek an injunction to preserve the status quo. Markets should therefore be reassured that the risk of existing creditor protection in an airport operator’s funding structure being unintentionally removed, triggering an event of default, is extremely unlikely. Investors are experienced in managing regulatory uncertainty in their normal course of lending to the regulated sector and we would expect them to manage this situation as well. However, I know how strongly BAA feels about the issue and I will be meeting with it shortly.
The noble Lord, Lord Rosser, raised issues about staff in the event of the transfer of security functions from the Department for Transport to the CAA. It is important to ensure that the CAA has the skills and resources to undertake its new security functions. The Government are working to a plan that would aim for the CAA to take on the aviation security regulation function from the spring of 2014. The Government hope that existing staff will want to continue working in the security environment, but if any of them decide to move elsewhere, there will be enough time to manage this.
The noble Lord, Lord Clinton-Davis, raised the issue of aviation safety standards. The UK is a signatory to the Chicago convention and is required by the ICAO to have in place a state safety programme to achieve an acceptable level of safety in civil aviation. The Civil Aviation Bill currently before Parliament does not deal with safety issues as there is already sufficient European and international legislation in place which addresses them.
The noble Countess, Lady Mar, raised the issue of organophosphates. This is a separate matter and one of research rather than legislation. I am pleased to be able to tell the House that the last piece of research that your Lordships asked the Department for Transport to commission, under successive Governments, into allegations regarding airplane cabin air quality, has now been completed and published. All the published research studies have now been formally referred to the Committee on Toxicity, the independent adviser to the Government on matters concerning the toxicity of chemicals, for it to consider.
The Countess of Mar
My Lords, I thank the noble Earl for his comments. Does he agree that there is a serious problem in that the Civil Aviation Authority is responsible for people in an aeroplane both when it is on the ground and when it is in flight, but it does not impose health and safety regulations, as would be the case with the Health and Safety Executive? It looks after people on an airport site who are not in aeroplanes, but does not consider the COSHH regulations. Numerous Questions for Written Answer have been tabled on this issue, but no one takes responsibility for the passengers, pilots or aircrew.
Earl Attlee
My Lords, the noble Countess will recognise that these are complex matters. I will write to her on all the points she raised.
The noble Lord, Lord Soley, asked if the Bill will cover military airports and whether they could be exempted under Clause 77. In certain circumstances, military airports can be exempted from economic regulation under Chapter 1 and Clause 77.
My noble friend Lord Bradshaw was concerned about the market power test set out in Clause 6. His specific concern was that unless an airport operator has market power, it should not be regulated. I would like to reassure my noble friend that, under the Bill, where an airport does not and is unlikely to acquire substantial market power, it will not be made subject to economic regulation. It is a specific requirement of the market power test in Clause 6.
The noble Lord, Lord Rogan, talked about the aviation needs of Northern Ireland. The Government and the Civil Aviation Authority have no role in the slot allocation process. EC regulations established a mechanism for the allocation of slots at congested airports. This has been transposed into UK law under the Airports Slot Allocation Regulations 2006, which came into effect on 1 January 2007. Heathrow, Gatwick, Stansted, Manchester and London City airports are all designated by the Secretary of State for Transport as co-ordinated airports with their slot allocations managed by Airport Coordination Limited, an independent company which has powers under the UK regulations to monitor the conformity of air carriers’ operations with the slots allocated to them, and to take enforcement action against those airlines that do not operate according to the regulations, in particular by introducing sanctions for slot misuse. The ring-fencing of slots at Heathrow to protect regional services, other than where a public service obligation has been implemented, would be incompatible with EU law. The UK has highlighted the issue of regional connectivity with the European Commission in the context of the current reform of the EU slot regulations and is exploring the scope for including measures to help secure the ongoing provision of air services between UK regions and congested London airports. Beginning this summer, Commission working groups will examine the slot proposals, and I commend the work of the noble Lord, Lord Empey, who has been extremely active and effective in Brussels.
The noble Lords, Lord Davies of Oldham and Lord Davies of Stamford, commented on the UK Border Force. It is not covered by the Civil Aviation Bill and is accountable to Ministers and Parliament as a Home Office agency. Queues at airports are caused by many factors, including the border force receiving incorrect flight manifests and early or late airplane arrivals, resulting in bunching. The Minister for Immigration and Citizenship is reviewing what additional data may be published by the Home Office and shared with port operators. Meanwhile, the UK Border Force has responded to recent problems with queues in a number of ways. It is tackling short-term peaks with a pool of trained staff, and working with airports and airlines to ensure that they provide more accurate passenger manifests and flight schedules so that the force can flexibly deploy staff at the right times and in the right places. It is creating a new central control room for the UK Border Force at Heathrow that will use mobile teams for rapid deployment, and it will implement new rostering and shift patterns. It is also working with Gatwick and Heathrow airports to improve passenger flows using more specific measures such as e-gates and other biometric checks.
The noble Lord, Lord Davies, asked why there is no obligation on the CAA to require airports to develop passenger welfare plans. The indicative licence prepared by the CAA included, at the request of the Department for Transport, an example condition that would strengthen an airport’s resilience where appropriate. The proposals contained in Condition 7 require the licence holder to operate the airport efficiently and to use its “best endeavours” to minimise any detriment to passengers arising from disruption. It would also require the airport to draw up, consult on and gain the CAA’s approval for an annual resilience plan setting out how it will secure compliance with its obligations under the condition. The licence holder would be obliged to comply with the commitments it has made in its resilience plan.
The noble Lord, Lord Hunt of Chesterton, mentioned the issue of the difference in the quality of the air between first and economy class. The air is the same throughout an aircraft. First class seats and economy class seats are usually separated by a curtain, which is not an airtight medium.
Lord Hunt of Chesterton
I was talking about the volume of air. We know that there is air, but the question is how much of it is circulating. That is a very clear distinction.
Earl Attlee
My Lords, if I have anything further to add, I will write to the noble Lord.
My noble friend Lord Jenkin of Roding raised the issue of consolidation. We should strive to produce legislation that is comprehensible to those who have to operate it and to those who are affected by it, and the consolidation of statute law can make a valuable contribution to this. Consolidation can take different forms. On the one hand, there can be what we call “formal consolidation”, which reproduces a law on a particular topic without any changes. On the other hand, a Bill may reproduce existing law with amendments. In recent years, fewer formal consolidation measures have been prepared than previously. One reason for this has been the change to the way that Parliament amends legislation. Amendments are now routinely made by textual amendment; that is, by inserting, removing or replacing text in the original statute. The need to consolidate simply to take account of textual changes has therefore largely disappeared. The approach taken in the Civil Aviation Bill is sometimes to make brand new provisions, as in Part 1, and sometimes to textually amend existing legislation, as in Part 2. When drafting the Bill, the changes being made did not appear to call for the rewriting of the law relating to civil aviation or aviation security. The specific textual amendments to other Acts made by the Bill show more clearly the changes that are being made than would a provision which replaced the whole of the legislation being amended, with the changes buried somewhere in the middle.
I have endeavoured to respond to many of the valuable points made by noble Lords, but time does not allow me to respond to all the points that have been made, no matter how good they are. I will read Hansard carefully and write to those noble Lords who have asked me questions that I have not been able to answer. I will also be delighted to have meetings with noble Lords outside the Chamber to look at the detail of these matters. This is only the first opportunity to formally discuss the Civil Aviation Bill in your Lordships’ House, and I look forward to debating it with noble Lords in Committee.