Lord Davies of Oldham
My Lords, the Minister’s worst nightmare must have been fulfilled from this opening debate—namely, because the Committee has, quite appropriately, addressed itself to what the amendment says about surface transport, and of course that then gives a wide range of exciting prospects on how we could improve surface transport. I will put my three penn’orth in if I may. Manchester Airport is very eager that the metro should be part of its facilities. It is some distance away at present. The airport is certainly prepared to face a proportion of the costs. We have heard the anxieties and proposals for the necessary improvement to surface transport to our airports expressed in very cogent terms. The danger is that that will open up a very wide-ranging discussion, as we have heard.
The Minister may have the obvious consolation, which the noble Lord, Lord Jenkin, and I identified, that most of these issues cannot possibly be covered by an extension to the remit of the CAA. We are largely talking about transport projects of the greatest significance, linking our major centres of population to our airports through improvements, which are certainly necessary to all the London airports. Apart from Birmingham, which already boasts excellent rail communication and has great expectations for HS2, all airports recognise that the ease with which people can arrive at them is absolutely critical to the experience and choice of travelling by air. However, as the noble Lord, Lord Jenkin, indicated, I doubt that this substantial range of transport issues is meant to be laid at the door of the CAA. I imagine that the Minister, while commenting constructively, as I hope he will, in response to Members of the Committee on ideas for improving connections, will say that this is not a matter with which we can directly charge the CAA.
Earl Attlee
My Lords, as we have heard today, surface transport access is a very important concern for our major airports—not just regulated ones but non-regulated airports, too. I am grateful to my noble friend Lord Bradshaw for enabling us to debate this topic today.
My noble friend is certainly correct to say that without good transport access, it will not be possible for our airports to maintain their strong position compared to their European counterparts, and that we must ensure that people using our airports have access to a range of options for getting to and from them. That is why the Government have put a heavy emphasis on the importance of high-quality public transport to our airports. It is one of the reasons why Thameslink will deliver considerable improvements to access at Gatwick. It is why HS2 and Crossrail will, in the future, deliver important improvements at Heathrow, and it is why the upgrade of London Underground will further enhance access to Heathrow.
My noble friend Lord Bradshaw touched on the problems of the Gatwick Express. When I visited Gatwick Airport, the management certainly made that point to me very strongly.
Your Lordships will also be aware that the Government are seeking to invest in improving access to non-regulated airports through regional growth funding, including, for example, by upgrading junction 10A of the M1 near Luton and through realigning and tunnelling a section of the A45 to facilitate the extension of Birmingham Airport’s runway. The Government recognise the vital contributions that regional airports make to local economies and that regional connectivity is important, as explained by my noble friend Lord Bradshaw.
The amendments seek to expand the scope of CAA’s primary duty for its airport economic regulation functions to meet this point. Specifically, the primary duty is expanded by putting the provision of surface access links on an equal footing with airport operation services. Given the importance of surface access, I sympathise with the thinking behind this amendment. It is important that regulated airports can invest in surface transport access in so far as their unregulated counterparts would be able to do so.
Lord Jenkin of Roding
I seek an explanation for this point, which my noble friend has also made to me in private. If the department is engaged in a consultation, why on earth should a Minister who is answerable for the department not meet some of the people who would have valuable advice to offer on a proposal, which they wish to put forward? How can it possibly be right for a department to conduct a consultation and shut itself off from outside expert evidence? I do not understand my noble friend’s explanation.
Earl Attlee
My noble friend makes very good points, and they are the ones put to the Permanent Secretary at the department. However, I have to accept the advice that I am given.
Lord Berkeley
How can the department consult with outside bodies if it does not meet any outside bodies?
Earl Attlee
My Lords, Ministers spend all their time consulting with outside bodies. However, at some point they are advised that it is inappropriate to meet them. I have agreed with my noble friend that I will take this up with the Permanent Secretary.
The noble Lord, Lord Davies, mentioned Manchester. The noble Lord will recognise that Manchester is not a regulated airport. If it decided to contribute to a surface access scheme, it could recover the costs from its customers if the market would bear it. However, that is of course a commercial matter for the airport.
Clause 19(6) provides that “a price control condition” may be made,
“by reference to the amount charged for particular goods or services”,
or,
“to the overall amount charged for a range of goods or services”.
Clause 19 does not specify the mechanics of setting the price control and leaves the CAA with flexibility to take whatever approach seems most appropriate within the framework provided by Clauses 1 and 18(1). Specifically, this flexibility, combined with the provision in Clause 21(1)(f) which states that licensed activities may relate,
“to activities carried on outside the airport area”,
will not prohibit the CAA from taking into account costs from outside the airport area, such as from rail links, where appropriate when setting a price control.
However, given the importance of this issue, the Government will reflect on the debate and specifically will consider further whether any extension to the primary duty to make special provision in respect of rail and road links to the airport is necessary or desirable. I hope that I have provided my noble friend with the reassurance he seeks, particularly that the Government will consider the amendment further and if appropriate bring forward an amendment on Report.
Lord Bradshaw
I just add the fact that the airport is often the primary reason why the surface links are needed but many people benefit from them. I am not suggesting that the airport should pay the whole cost but a proportion. If its regulatory asset base is linked to that, the airport needs to make sure that it can collect money from the airlines using the airport. I am most anxious that the cost of the facilities should be a charge on the airlines as well as any another beneficiaries. I am not saying that the airlines should pay the whole but a proportion of the cost of the new facilities. With that, I beg leave to withdraw the amendment.
Lord Jenkin of Roding
I am puzzled by the amendment. It is absolutely at the heart of an economic regulator’s job in the general context of government policy, as it has been under successive Governments, that you can give an organisation, perfectly properly, a duty to promote competition. Indeed, in the past, competition between the various airports has been a major feature of our airport structure. We will come later to the relationship between the CAA, the Competition Commission and the other bodies that are required by statute to promote competition. However, it does not seem in the least inappropriate that the Bill should state at the very beginning that the general duties of the CAA should include one to promote competition.
The noble Lord, Lord Rosser, asked what the meaning of the words “where appropriate” was. I give an example from the debate on the previous group of amendments. Does competition mean competition only between airports or competition between terminals in the same airport? I would have had no difficulty whatever in arguing that it should not conceivably be competition between the terminals of the same airport, which are under the same management and which one would expect to be run in such a way as to provide the best complementary service for the entire airport for the benefit of users and freight operators. Therefore, it would be quite easy to say that of course competition between terminals would not be appropriate, while competition between airports certainly should be. As I say, we will come later to how that might be applied and enforced.
However, subsection (2) as originally drafted is perfectly reasonable. When I read the amendment that noble Lords had tabled to the subsection, it aroused in me the very unworthy thought that perhaps they do not think that competition is good for users. Competition must be absolutely at the heart of the benefit to users, for the purposes of both the quality of service and keeping costs down. That is what it is about. If the noble Lord wishes to press his amendment when we get to Report stage, I have to say that I would be firmly opposed to it.
Earl Attlee
If the amendments sought to include a requirement that the CAA must promote competition only where it is consistent with the interests of passengers and owners of cargo, I would thoroughly agree with their intent. However, the presence of the words “where appropriate” in the primary duty in Clause 1(2) already achieves the intent of the noble Lord, Lord Rosser. Any further changes are therefore unnecessary. The noble Lord asked me for a definition of “where appropriate” but neither the CAA nor the appeal bodies would have any difficulty in working out what it means.
Broadly speaking, the primary duty provides for the CAA to carry out its airport economic regulation functions in a way that will further the interests of passengers and owners of cargo. The primary duty also states that the CAA must do so, where appropriate, by promoting competition in the provision of airport operation services. This means that it will not be appropriate to promote competition if it is not in the interests of passengers and owners of cargo. Clearly, the CAA will have to balance the issues listed in subsection (1)—for instance, cost and quality. There is a balance to be struck and it is the duty of the CAA to strike it on behalf of passengers and owners of cargo. As the noble Lord, Lord Rosser, recognised, these duties would also apply to the Secretary of State. Therefore, the intent of the amendment is already implicit in the primary duty and any further changes would be superfluous. I hope that this provides your Lordships with the reassurance required and that the noble Lord, Lord Rosser, will withdraw his amendment.
Lord Jenkin of Roding
My Lords, I am astonished that there is no regulation of general aviation of the sort that is covered by my noble friend’s amendment. If that is right, I cannot understand why the CAA should not have some general role. Air taxis are presumably within the definition that he encounters. There was a time when I had to fly from my home in Essex to Liverpool several times a month, and much the easiest way was to take an air taxi from Stansted Airport, which we used frequently. On one occasion, the pilot suggested that I take over the controls, which lasted for about 10 seconds because I did not have a clue. I look forward to hearing my noble friend’s response to the amendment.
Turning to the question of the noble Lord, Lord Berkeley, I, too, have had one or two very interesting trips in a hot air balloon. As Secretary of State for the Environment, I had to decide on the planning requirements for tethered balloons, which are often used for advertising. I was confronted by two very strong opposing views. Some people said, “These are perfectly horrible and should be strictly controlled”, while others said that it was a harmless form of advertising. I split the difference and said that no planning permission was needed if the balloon would be there for only 14 days or fewer. Everybody seemed satisfied with that and I have never heard any more about it.
Landing in a hot air balloon is very exciting. The important thing is not to get off too quickly or it will disappear up into the air again, which can be very disconcerting. However, it is a splendid sport and I have never forgotten the occasion when I was staying officially at Leeds Castle. Very early one still morning, there was a rally of hot air balloons. I was invited to it by American Express, which had a very large balloon. We took off and had the most marvellous flight. However, before we left, we carefully and quietly climbed up the side of Leeds Castle, where my wife was leaning out of the window in her nightgown. I was able to bid her farewell, almost touching but not quite. We had a very skilful pilot and I hugely admired how he managed the hot air balloon. Again, it seems that the CAA should have some regulatory role in this.
Lord Jenkin of Roding
I am assured that it does, so that is fine. No doubt my noble friend will explain that.
Earl Attlee
My Lords, these amendments propose the inclusion of new secondary duties that take account of the interests of general and business aviation. I accept that the Bill is limited in scope. It seeks primarily to provide for better regulation of our airports and is not designed to be a comprehensive overhaul of our legislation. Having carefully considered these amendments, I cannot accept them, as they are unlikely to yield significant benefits but could unfortunately introduce unnecessary ambiguity into the Bill.
Despite the amendments being carefully drafted, a technical difficulty arises because of the absence of any definition or description of what is meant by “general and business aviation”, so the amendment may introduce undesirable uncertainty. I am sure that all noble Lords in the Committee understand what we mean by it, but not in legislative terms. I will ensure that I am briefed on the EU declaration that my noble friend Lord Rotherwick mentioned.
There are also policy difficulties with the proposed amendment. One policy intention behind the Clause 1 duties is for the CAA to be provided with a set of clear and unambiguous duties, promoting the interests of passengers and owners of cargo in the provision of air operation services. It follows that the number of secondary duties should be as small as is reasonably practicable. The new framework for economic regulation would apply to airports with significant market power—currently, Heathrow, Gatwick and Stansted. General and business aviation interests will be covered when the flight includes passengers. For example, when a corporate flight is carrying business passengers, the primary duty will extend to the passengers as they will comprise users of transport services. It appears that the only cases where the interests of general and business aviation will not be taken into account are when the flight carries neither passengers nor cargo, other than cargo carried by the pilot. A secondary duty to take into account the reasonable interests of general and business aviation is unlikely to make a material difference, having regard to the very small percentage of such flights to regulated airports.
The Bill recognises that conflicts may arise between the interests of different users of air transport services. In such cases, the CAA has very wide discretion to decide whose interests it should further. Against this background, we do not think that it is appropriate to give specific prominence to the interests of general and business aviation or indeed any other specific sector. For all airports, when demand is higher then capacity for finite take-off and landing slots, this is generally reflected in the fees charged. In a competitive market, an airport operator is likely to prefer to receive flights with large numbers of passengers over those with fewer passengers when this enhances its profits. The Bill will not impact the mechanism for setting airport charges at airports not deemed to have substantial market power, which is the vast majority of airports and airfields used by the general aviation community. This is a further policy reason not to pay special regard to general and business aviation.
However, the Government absolutely recognise the valuable contribution of the general and business aviation sector. The CAA’s Strategic Review of General Aviation in 2006 estimated its contribution to the UK economy at £1.4 billion per annum, a little less than the PWC report referred to—probably because different tests were applied—but still a very significant sum none the less. As noble Lords have observed, it delivers important services such as search and rescue, mail delivery, life-saving organ transport, law enforcement, aerial survey and environmental protection flights, as well as underpinning the training of future pilots. It also has growing economic importance for the European manufacturing industry. I would like to take this opportunity to pay tribute to my noble friends Lord Rotherwick, Lord Trefgarne and Lord Goschen, who miss no opportunity to promote the needs of general aviation.
The noble Lord, Lord Berkeley, mentioned hot air balloons. I like seeing hot air balloons in the summer in the countryside, but my wife has declined to take a ride in one for the reasons that noble Lords have identified. The noble Lord, Lord Berkeley, will know that aviation safety is covered by other legislation but is policed by the CAA as the safety regulator.
The Government are currently developing a long-term strategy for sustainable aviation in the UK. A formal consultation document is due to be published later this summer, when the general aviation community and other aviation stakeholders will be invited to comment. However, I believe that these amendments would create unnecessary ambiguity and ask my noble friend to withdraw or not to move them at the appropriate point.
Amendment 11 seeks to introduce a new clause after Clause 1 that would place a requirement on the CAA to publish a statement of policy setting out how it plans to carry out its functions as set out in Clause 1. I understand that the intention of this amendment may be to be ensure transparency in the CAA’s exercise of its new duties. The Bill as drafted provides a clear primary duty to end-users that the CAA supports. However, there are several reasons why I do not think this amendment will work in practice. First, the amendment as drafted requires the CAA to prepare and publish the statement of its policy with respect to carrying out its functions under Clause 1. However, the CAA has no functions under Clause 1; rather, Clause 1 sets outs the way in which it must carry out its functions under Chapter 1. The amendment as drafted would appear to have no effect. In view of this, I hope the noble Lord will withdraw his amendment.
Lord Rotherwick
I thank all noble Lords who took part in this debate and I thank the Minister for his response, although it was not very helpful and rather disappointing. He was not able to offer me much comfort for my amendments. Bearing in mind what he said about consulting later on promoting and safeguarding airports, it would certainly be helpful to sit down with him and his Bill team to find out whether we could get additional comfort.
Earl Attlee
My Lords, I would be delighted to continue to work closely with my noble friend on the issue of general aviation.
Lord Rotherwick
I am very grateful for that because it has taken us a generation to have vehicle for this and we do not want to miss it. Perhaps I could talk to him a bit later. I am interested in our not giving a negative statement to the European business community, saying that the UK is not open for aviation in all its diversity. As saturation takes up the three main airports, and then the next five, there needs to be an aviation infrastructure left for the rest of the aviation community to flow into. I thank the noble Lord for all his help on this and beg leave to withdraw.
Lord Berkeley
My Lords, as my noble friend Lady Worthington said in her opening remarks, it is useful to reflect on some of the industries which are regulated in this respect and to reflect that these industries have, for their own rights and reasons and in order to comply with the regulator’s duty, made big improvements in the areas of emissions, noise, water, energy and construction. The rail industry has been required to reduce its diesel emissions, as has the road sector. I am not sure that it will be quite as easy to persuade some ship owners to change their fuel but the European Commission is intent on doing so. I am sure that it will happen one day and that it will be either voluntary or forced upon them. As my noble friend Lord Clinton-Davis said, the air industry has made significant improvements.
It would be odd if the Bill did not contain a requirement or duty on the CAA to take into account environmental matters. That does not mean that the air industry is particularly bad at doing so but there is evidence from other industries that, because of these regulatory duties, they probably try a little harder and in a way that they would not do otherwise.
I am inclined to support Amendment 69 but it is very important that we include something here so that there is commonality with some of the other regulators’ duties to consider environmental issues, and to encourage airports and the airline industry to go that little bit further.
Many noble Lords will recall the debates when the third runway was last on the agenda about the emissions from Heathrow and whether they were over the limit. Were they caused by emissions from the M4 running past on the north side or from the M25? There were many debates—I do not want to go into who was right and who was wrong—and one solution was to put the M4 in a tunnel. I cannot see the point of that because emissions will still take place in a tunnel and will have to come out somewhere. They might come out further away but, to me, that would be cheating. Again, this concerns the idea of the noble Lord, Lord Bradshaw, of including surface access, which I am sure will come up again.
However, matters have improved since then in the quality of emissions from the air and road industries. It is essential that something along the lines of the amendments is included in the Bill.
Earl Attlee
My Lords, the issue of aviation and the environment was raised by several noble Lords during Second Reading. I am pleased to return to the matter again and to give further consideration to this important subject. I have not tabled a government amendment because I am reluctant to pre-empt the Committee’s consideration of this topic. However, I hope that when we have finished the Bill the noble Baroness, Lady Worthington, will not be disappointed.
The noble Baroness almost fell into the trap of being political. She will know that we take environmental issues very seriously indeed and that that is why the coalition Government will not agree to a third runway at Heathrow. It is clearly for environmental reasons, particularly noise. This was referred to by the noble Baroness, Lady McIntosh. Perhaps the noble Baroness, Lady Worthington, will state what her party’s policy is with regard to the third runway at Heathrow. Does she or does she not support it? I can assure your Lordships that I have listened to the points raised today and that I shall carefully read Hansard.
The point was raised about the drafting of the amendment. Yes, Amendment 13A was substituted for Amendment 12 on the Marshalled List.
Many noble Lords asked why other economic regulators have an environmental duty but not the CAA. Other economic regulators apply economic regulation across most or all of their respective industries, but the CAA regulates only the three London airports, as observed by my noble friend Lord Cathcart. Why should Manchester not be subject to environmental regulation while Gatwick is? If the CAA had an environmental duty, no noble Lord has explained to me, by way of example, what it would do with it that is not already done by some other means.
My noble friend Lord Jenkin asked about the publication requirements in Clause 84. We are not quite there yet but I will write to my noble friend and, if necessary, he can table an amendment to Clause 84.
Lord Clinton-Davis
The noble Earl has referred to Clause 84, which is highly desirable apart from one feature. It would be helpful to allude to that now. Why does the CAA have to divulge environmental information only if it considers it appropriate?
Earl Attlee
My Lords, it is for the CAA to work out whether it is in the public interest to publish the information.
I recognise the value of noble Lords’ contributions, particularly those of the noble Lords, Lord Clinton-Davis and Lord Soley, and my noble friend Lord Cathcart. They made very important points and some of the technical points made by the noble Lords, Lord Clinton-Davis and Lord Soley, were very interesting. I share the concerns about the environmental impacts of airport operations and wider aviation. The coalition takes the environmental impacts of aviation very seriously, as I have explained.
Each of these amendments seeks to add to the Bill supplementary duties that relate to environmental or planning issues. Amendments 4, 5, 6, 7 and 13A seek to add supplementary duties to the CAA and the Secretary of State’s airport economic regulation functions, whereas Amendment 69 seeks to add an overarching duty for all the CAA’s functions, including airport economic regulation. This would create a tension with the CAA’s primary duty in Clause 1(1).
I turn first to the amendments that would provide the possibility of the CAA having an overarching environmental duty. The idea is not a new one. The previous Government consulted on a general environmental objective for the CAA, along with parallel proposals for a general consumer and safety objective. No clear support for a general environmental objective was evident. This flowed from Sir Joseph Pilling’s review of the CAA. The responses to the consultation were mixed and did not show clear support for a general environmental objective. For example, concern was expressed about ensuring a clear boundary between environmental policy, which was seen as the role of the Government, and the role of an expert aviation regulator, where safety was seen as the priority. After all, the Environment Agency is the body responsible for regulating environmental issues.
Lord Soley
I am looking again at Clause 84. The Minister has indicated that he wants to help the Committee on this issue. When he responds on this at a later stage, will he consider whether Clause 84(2) could apply to all airports? It states:
“The CAA may publish guidelines and advice with a view to reducing, controlling or mitigating adverse environmental effects on civil aviation in the United Kingdom”.
In a way, it refers to the whole of the UK and I am not sure why, with a bit of tweaking, Clause 84 could not cover some of the points that we have made.
Lord Jenkin of Roding
May I follow up the point that the noble Lord, Lord Soley, has just made? My noble friend invited me earlier to table amendments when we get to Clause 84. I do not wish to amend Clause 84, but I need to know the context in which the information requirements and powers that will be given by that clause will operate. If, as has been suggested by other Members of the Committee, there should be a duty on the CAA, perhaps the clause is all right. If we are to reach the next stage of the Bill without having a government amendment on the Marshalled List that says what is happening to the general power, it is quite difficult to know what to do.
My interpretation is that while my noble friend has rehearsed some of the questions and objections, he is not shutting his mind to this. The possibility remains, therefore, that there will be a government amendment before Report, in which case we can look at Clause 84 in the light of that government amendment. However, if there is no such government amendment by that time, it is very difficult to see what else you could do to Clause 84. The point I made is that these things hang together.
Earl Attlee
My Lords, I assure the Committee that I have a very well thought-out speech. I believe that the upcoming aviation policy framework, due to be adopted by March 2013, represents a more proportionate and effective way for the Government to address the environmental impacts across the aviation sector as a whole. As I have said, this Government take seriously the environmental impacts of all airports. With regard to the other amendments, several of these have been extensively debated in the other place, and the Government’s position on these remains unchanged.
First, I turn to Amendment 4. As your Lordships will be aware, the previous Government decided to include a similar duty to that contained in Amendment 10. However, in practice the supplementary duty would have no substance, so the Secretary of State decided in July 2010 to omit it. This is because the duty as drafted would appear to require the CAA, in discharging its primary duty, to take account of the licence holder’s obligation to comply with planning obligations. It is not for the CAA, as an economic regulator, to enforce planning law through licence conditions. In so far as a licence condition purported to require the licence holder to breach planning law or otherwise act in breach of planning law, it would appear to be unlawful. Regardless of whether the CAA had this explicit duty or not, the CAA will need to have proper regard to the airport’s obligation to comply with all applicable legal obligations, including planning law.
Amendment 6, in the name of the noble Baroness, Lady Worthington, covers climate change. While important, this is also unnecessary because other policies seek to achieve it. Separately, the Government have committed to producing a sustainable framework for UK aviation that supports economic growth and addresses aviation’s environmental impacts. In addition, there are other policies, such as the European Union Emissions Trading System, which was mentioned by the noble Baroness when she touched on efficiency issues. Furthermore, this amendment would appear to go beyond airport economic regulation and it is unclear how the CAA would go about fulfilling this duty—a point I made earlier.
However, the Government have some sympathy with the thinking behind the remaining amendments—that is, Amendments 5, 7 and 13A. In particular, this debate allows us to acknowledge the importance of allowing appropriate investment at airports to mitigate their environmental impacts and those of activities associated with them. Without a doubt, this Government support the idea that airport operators—whether or not they are subject to economic regulation—should be able to invest in appropriate environmental measures. This concern was frequently raised in the House of Commons. However, obligations should not be put on some airports but not others depending on their economic regulatory status.
Our position is that a licensed airport operator should not be unable to recover, through the regulatory settlements, costs arising from undertaking environmental investment where an unregulated competitive airport would choose to incur similar costs for similar purposes and be able to recover those costs. After all, the overall aim of economic regulation is often cited as delivering the outcomes that would otherwise occur in a competitive market. Therefore, it is my belief that environmental investment that is in the passengers’ interests in the provision of airport operation services should be included in an airport’s regulatory settlement. This is a point on which more clarity could be provided in the Bill.
However, I am hesitant to accept these amendments today because I believe that it would be desirable to specify some or all of the environmental effects to which the CAA must have regard. Furthermore, we need to ensure that the drafting does not have the capacity to create distorting effects by putting greater obligations on regulated airports relative to non-regulated airports. With the assurance that I will consider these matters in detail ahead of Report, I hope noble Lords will be willing to withdraw Amendment 4, and not press Amendments 6 and 69. However, I am willing to consider Amendments 5, 7 and 13A—
Lord Berkeley
The Minister gave a very interesting speech and I congratulate him. He mentioned some or all environmental issues, but is that not moving into a rather dangerous area of lists and what goes into a list? Are you going to include bats but not tadpoles, or noise and things like that? I hope that he will take into account that it is very dangerous to produce lists of these things because you might leave things out or add things in that you subsequently do not want.
Earl Attlee
The noble Lord makes a very good point, and I am sure that my officials will not let me go too far. However, I am willing to consider Amendments 5, 7 and 13A in greater detail, with a view to returning to the matter on Report. I would find further meetings with noble Lords extremely valuable.
While I appreciate the spirit in which noble Lords have proposed these amendments today, as I have said, there are a few reasons why I am hesitant to accept them now. Interested parties have made it clear that the CAA should not be the environmental regulator. If such duties were to be imposed, I also believe it would be desirable to specify some or all of the environmental effects to which the CAA must have regard. With the assurance that I will consider this matter in detail ahead of Report, I hope that the noble Baroness and other noble Lords will be able to withdraw and not to press their amendments.
Baroness Worthington
I thank the Minister for his comments. I am encouraged that he anticipates that I will not be disappointed and that he will consider further a number of the amendments. I come back to a few of the things that he mentioned. It would seem odd not to introduce such a duty because it would apply to only 55% of the market and not 100%. Clearly, 55% is better than nothing. I know that he will say that it is about competitive distortions, but let us be honest—I think that the noble Earl, Lord Cathcart, made this clear—those three airports have a distinct advantage over the others in terms of scale. They are off the scale in comparison to the other airports. There are many other environmental regulations that have this differentiation between the smaller and larger, dominant operators. There are often lots of de minimis thresholds put into regulations to account for the difference in scale. I really do not see that as a problem, and I urge the Government to go through with the 55% if they are very keen on environmental issues, which they say they are.
I wonder—and this may be something that we can meet about—whether Amendment 69 does not help to address this question by creating a more general duty that would cover all of the CAA’s operations. I can understand the question of how CAA would operationalise it, given that it does not license the other operators, but I am sure that it is not beyond our wit to be able to work through that.
The Minister talked about planning and said that he could not understand what it would be used for. I echo the noble Earl, Lord Cathcart, in saying that we are trying to prevent a legal challenge and to give the CAA cover if it chooses to apply its discretion and include discretionary spending within the regulated asset base. So it would be used as a defensive measure against being forced not to include environmental measures. There are other things that relate specifically to planning. Often planning approvals include Section 106 agreements—additional obligations to which a developer voluntarily agrees. So they might not be caught within a very strict interpretation of the law, because they are very often quite loosely worded. So there are some questions there about planning.
I pay tribute to my noble friends and other noble Lords who have contributed to the debate. It has been a good debate and I am very encouraged. We all recognise, as my noble friends Lord Clinton-Davis, Lord Soley and Lady McIntosh have accepted, that the aviation industry should not be singled out for not embracing the environment. It clearly does move forward on a voluntary basis. That is exactly what we are trying to say here: we want to enable and allow this voluntary move towards a more efficient, cleaner and more environmentally responsible industry. We do not want this Bill to stop that. That is a very important point. We are not saying the sector does not wish to move. I am sure it does, given all the pressures that it is under.
My noble friend Lord Berkeley raised the point, which we have made before, that other sectors are regulated with environmental duties. He specifically mentioned rail as an example. Rail often competes directly with the aviation sector when it comes to short-haul flights and it seems odd that rail should have an environmental duty but aviation not. The noble Lord, Lord Jenkin of Roding, raised some very important points about other elements of the Bill, in particular Clause 84 and how that relates to the duties that we hope will be created. My noble friend Lord Clinton-Davis talked about the fact that the aircraft and aviation industry wish to respond. I hope I have captured most of the contributions and I thank the noble Earl for his encouraging words. I look forward to something being brought forward by the Government and beg leave to withdraw my amendment.
Lord Empey
Does the Minister feel that these two paragraphs could leave the CAA open to judicial review by disgruntled operators? They are adding something unclear with the definition of what is and is not needed. It may be intended to prevent overzealous application of restrictions on operators, but these days, one always has to look at the potential for judicial review, and I suspect that the way this is drafted might leave the CAA open. It might be possible to amend the first paragraph to meet the needs of the Government, but I hope the Minister will address the legal issue.
Earl Attlee
My Lords, I must admit that I am puzzled by these amendments. I take it that they are merely probing amendments, but they are certainly not mundane. They seek to weaken the principles that the CAA and the Secretary of State must have regard to when discharging their economic regulation functions. Specifically, they seek to remove the need to have regard to the principle that regulatory activities should be targeted only at cases in which action is needed. To this extent, the amendment may inadvertently facilitate or encourage excessive regulation, and I am sure that the Committee will agree that that is clearly not desirable. I ask noble Lords to oppose these amendments today because they would remove provisions in the Bill that strengthen the adherence of the CAA and the Secretary of State to good economic regulation practice.
This first amendment seeks to delete one of the principles that the CAA must have regard to in performing its duties under subsections (1) and (2) of Clause 1, which sets out the CAA’s general duty. That principle is that,
“regulatory activities should be targeted only at cases in which action is needed”.
The second amendment makes the same provision for the Secretary of State’s duties.
The principles set out in Clause 1(4) and Clause 2(5) are those that the Better Regulation Task Force defined in 1997 as in keeping with good regulation. They were that good regulation should be transparent, accountable, proportionate, consistent, and targeted.
These principles are not in the Bill by accident. They are a well recognised starting point and one looks to encourage those responsible for economic regulation to apply them appropriately. Having provisions in legislation that reflect these principles is sensible and makes clear what is expected of regulators. It is not only desirable but good practice to have these provisions to encourage the CAA to discharge its Clause 1 functions in a manner that discourages unnecessary regulation.
It is known that economic regulation is an imperfect intervention. It should be used only where an unregulated market fails to deliver competitive outcomes. However, used appropriately, it can be an effective tool. The provisions in Clauses 1(4) and 2(5) ensure that this is the case in the Civil Aviation Bill. Furthermore, as an experienced regulator, the CAA is not troubled by having regard to the principles set out in Clause 1(4)(b). Indeed, it considers it sound regulatory practice, as do the Government.
Lord Clinton-Davis
It would be convenient for the Committee if the Minister would say that he will have another look at this particular provision because, notwithstanding what he has said, it is not sensible.
Lord Berkeley
Perhaps I may press the Minister a little more on the text in paragraph (b). On what basis does the CAA or the Secretary of State decide that action is needed? Surely they have to investigate before they can come to a conclusion. It seems a circular process.
Earl Attlee
Yes. However, we are talking about the principle of regulation that you do not do things that are unnecessary: you target your effort at a problem. If there is not a problem, you leave it alone.
The noble Lord, Lord Empey, asked whether the subsections could leave the CAA open to JR. These are secondary, subordinate obligations to which the CAA must have regard. Provided the CAA turns its mind to these matters and considers them, it will, prima facie, have complied with the obligation.
Lord Rosser
My Lords, I thank the Minister for his reply and other noble Lords who have taken part in this brief debate.
The Minister said that he will look at Hansard to see what point I was making. To reiterate, the question I am raising is: what is the necessity for the two paragraphs that my amendment seeks to delete? Paragraph (b) states that,
“regulatory activities should be targeted only at cases in which action is needed”.
That comes after paragraph (a), which states that,
“regulatory activities should be carried out in a way which is transparent, accountable, proportionate and consistent”.
I appreciate that the Minister has said that he will look at the question and respond but, to reiterate the question that I asked, how can something be proportionate if it is a regulatory activity targeted at a case in which action is not needed? Surely, by definition, if regulatory action is not needed and you take regulatory action, that cannot be proportionate.
I am happy to leave it in the context that the Minister will look at the point I have raised and respond to me. I would be grateful for that. I am asking a genuine question. We are all interested in making sure that there is no unnecessary verbiage in legislation, which is the point I am making about the two paragraphs that the amendment proposes should be deleted. However, in the context that the Minister will look at the issue and write to me, I am happy to withdraw the amendment.
Earl Attlee
The noble Lord mentioned slots. These are regulated by the world slot guidelines and, in Europe, by the EU slot regulations. They are implemented by Airport Coordination Limited in the UK. The Government do not and cannot have a role in slot allocation.
Lord Berkeley
If there appears to be a dominant position in slots, does that come under the CAA or the Government? Is there any competition authority, or is it completely outside?
Earl Attlee
My Lords, that is clearly a competition issue. I am not certain about it but I will write to the noble Lord.
Clause 5 defines what comprises a “dominant airport area” and a “dominant airport”. Under subsection (3), “airport area” means an area that consists of or forms part of an airport, including land and buildings. This provision is included to allow for the possibility of there being more than one operator at an individual airport. This could be the case if, for example, an airline acquired or leased a terminal building. As there can be more than one airport area at an airport, it follows that there can be more than one operator of an airport area at an airport.
Subsection (1) states that an airport area is dominant if the CAA has made a determination that the market power test is met in relation to the area and publishes a notice to that effect. Subsection (2) provides that an airport is dominant if all or part of its core area is a dominant area or part of a dominant area. Subsection (4) describes what comprises a core area. Broadly speaking, the core area includes runways and associated facilities, passenger terminals and cargo processing areas. It follows from that that non-core airport areas include car parks with pedestrian access to the terminal building, or the forecourt of a passage in the terminal, including pick-up and drop-off points. Therefore, if the only dominant airport area at airport X comprised the pick-up and drop-off points, airport X would not be a dominant airport because no part of the core area would comprise or be included in a dominant area. We should remember that the core area is the runways, associated facilities, passenger terminals and so on.
In such circumstances, no part of the airport could be subject to regulation. The underlying thinking is to ensure that no part of an airport should be subject to regulation unless some part of the core area is dominant. This construction is required to prevent unnecessary regulation where there is a problem only with peripheral areas. This distinction between core and non-core airport areas is necessary to ensure that the CAA regulates ancillary airport operation services only where some or all of the core area of the airport is dominant; it is unable to exercise regulatory control over core areas where only non-core areas are dominant.
Allowing for more than one operator at an airport differs from the approach used in the Airports Act 1986, which refers to an airport operator as,
“the person for the time being having the management of an airport, or, in relation to a particular airport, the management of that airport”.
That Act does not include provision about cases in which there is more than one operator of an airport. I make clear to the Committee that there are no powers in this clause to introduce intra-airport competition. Rather, the clause allows for the possibility that competition may be introduced within our airports—for example, inter-terminal competition. These provisions are included to keep open the option of competition within airports in future.
The Competition Commission has previously expressed interest in this concept and suggested that the,
“legislation … should allow for terminals to be developed or redeveloped and to be operated separately from runway facilities, where appropriate”.
While the Competition Commission has no present intention to impose such intra-airport competition, it is supportive of keeping the option open for the future. We therefore need to ensure that the regulatory framework is capable of operating in the event that inter-terminal competition becomes a feature of the UK airport sector. By including it in the Bill, we avoid the need for a future Government to have to return to Parliament for fresh primary legislation.
Lord Berkeley
I am grateful to the Minister for that very clear, if somewhat complex, explanation. If I have it right, a core area has to include the landing and take-off runways. I cannot see how more than one landing and take-off runway can be owned in one airport. If Heathrow separated the ownership of the north and south runways, then you would have some competition. However, if the core area has to include the landing and take-off, surely it would be impossible to have competition within any of the airports in the south-east. Have I misunderstood this? I would be grateful if the Minister could explain further.
Earl Attlee
I do not know whether or not the noble Lord has misunderstood. I suspect that he will have to read what I have said very carefully in order to understand it.
Earl Attlee
Earl Attlee
My Lords, I shall speak also to Amendments 16 and 23. These three amendments are being taken together. Collectively, they will ensure that the CAA must have regard to the extensive guidance and advice published by the EU and UK competition authorities, for example the Office of Fair Trading.
We have been reflecting on comments made in the other place regarding the definition of “substantial market power” in the Bill. In particular, during debates in Committee in the other place, points were made that there could be some uncertainty regarding how the CAA might assess “substantial market power”. Although we believe that the definitions and specific meanings of the terms relating to market power that are used in the Bill are clear, we see merit in providing more clarity that the CAA must have regard to relevant competition guidance when carrying out the market power test.
Clause 6(1) states that market power test is met in relation to the airport area only if the CAA is satisfied that tests A, B and C are all met by the operator of that airport area. These tests are designed to ensure that operators of airport areas are subject to economic regulation only if under test A,
“the … operator has, or is likely to acquire, substantial market power in a market, either alone or taken with … other persons”,
under test B, general,
“competition law does not provide sufficient protection against the risk that the … operator may engage in conduct that amounts to an abuse of substantial market power”,
and under test C,
“the benefits of regulating the … operator … are likely to outweigh”
the costs.
On a previous amendment, I was asked what the market is. A market for airport operation services could be as narrow as the baggage handling services at Heathrow Terminal 5, or as wide as airport operation services at airports in London and the south-east. Other examples of airport operation services include the provision of airport facilities for car parking, facilities for shops and ground handling services.
The term “substantial market power” in test A is the term used in the current criteria that the Secretary of State applies when making designation decisions on whether an airport should be subject to price control. It is well understood and accepted in this context. The previous Government consulted on the wording of this limb and the other limbs of the test for whether an airport should be subject to economic regulation. In light of that consultation, we see no reason to change the wording. In carrying out test A, the CAA expects to follow the guidelines published by UK competition authorities—for example the Office of Fair Trading and the European Commission—for the assessment of market power. This amendment will put that beyond doubt. These are generic guidelines for use in any industry and provide a useful starting point for assessing the degree of competition faced by an airport. I beg to move.
Lord Berkeley
I am grateful to the noble Earl for that explanation. I have a couple of very simple and quick questions. I assume that when he says there is an issue about being subject to price control, he is talking about baggage handling, car parking and things like that rather than the price of slots, which I think he said is outside everything. I would be grateful for his confirmation of that.
Lord Davies of Oldham
The Minister will, no doubt, give an answer to that in just a moment. I am grateful to him for these amendments. As he said, there was considerable anxiety in the other place when discussing the concept of the dominant market. I am still trying to get my head round the position in respect of baggage at Heathrow being a dominant market, but will take the Minister’s word for that. I certainly accept the other extreme he put forward: all the airports in the south-east. We appreciate that, with these amendments, the Minister has helped to reassure us over the anxieties that were expressed in the other place. We all appreciate that it is not easy to get to this definition and that considerable efforts have been made. At first, I thought the cross-reference to the European Commission looked a bit like overkill, but the Minister is making sure he has belt and braces with regard to this, in response to the challenges that were made in the other place. I am quite sure my colleagues there will join me in thanking him for these amendments and accepting that they go a considerable way to allaying past anxieties and help the Bill.
Earl Attlee
The noble Lord, Lord Berkeley, is right that it is not the price of slots. The price of slots has an economic value, but it is not regulated.