Draft Transport Act 2000 (Air Traffic Services Licence Modification Appeals) (Prescribed Aerodromes) Regulations 2022
(2 years, 3 months ago)
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The Chair
Before we begin, I remind Members that they should wear face coverings when not speaking and maintain social distancing as far as possible, in line with the current guidance. Please do not forget to have a lateral flow test at least twice a week, and Hansard colleagues would be grateful if speakers could forward their notes to hansardnotes@parliament.uk.
The Parliamentary Under-Secretary of State for Transport (Robert Courts)
I beg to move,
That the Committee has considered draft Transport Act 2000 (Air Traffic Services Licence Modification Appeals) (Prescribed Aerodromes) Regulations 2022.
It is a pleasure to serve under your chairmanship, Mrs Miller. The draft regulations are to be made under the powers conferred by the Transport Act 2000, and they set out which airports may appeal licence modification decisions made by the Civil Aviation Authority in respect of the en-route air traffic services licence granted under section 6 of the Transport Act 2000. They will ensure that aerodromes that are likely to be materially affected by any such amendment are able to appeal those decisions.
I will provide a bit of background to help the Committee understand. There are two types of air traffic management services in the UK. The first are terminal air traffic services, which should be thought of as the towers of the aerodromes at individual airports. They support arrivals and departures, and they typically deal with movements up to 7,000 feet. That is a competitive market, with the service tendered and procured by organisations or perhaps provided by the airport. Air traffic management services for planes outside those areas—for example, planes at cruising altitude or going to gateways—are delivered by a monopoly provider regulated under the en-route air traffic licence. That is NERL, which stands for NATS en route licence.
The Air Traffic Management and Unmanned Aircraft Act 2021, or ATMUA Act, which we took through in the last Session, updated the Transport Act 2000 to give the CAA a more effective power to modify the conditions of the air traffic services licence. That was done because, under the previous framework, the CAA could modify the conditions of the air traffic services licence only with consent from the licence holder or via a determination by the Competition and Markets Authority. In order to modernise the licensing framework, alongside the powers to modify the licence conditions, the ATMUA Act also introduced a new appeals process into the Transport Act 2000, to give appeal rights for the reasons of transparency and fairness. It gives three categories: the NERL licence holder; the owner or operator of an aircraft whose interests are materially affected by any changes to the licence; and the owner or manager of a “prescribed aerodrome” whose interests are materially affected by the decision. It is that last category with which we are concerned in the context of this statutory instrument.
Should any of the parties wish to appeal the decision to modify a licence condition, they can appeal to the Competition and Markets Authority on the basis of one or more of the following grounds, which will be familiar to those who have worked in this sort of regulatory field before: an error of fact; the decision is wrong in law, or an error was made in the exercise of a discretion. Before we get to the stage where an appeal can be made, we need to prescribe the aerodromes in secondary legislation in order for the appeal to be operable, which is what we are looking to do today to give effect to the third appeal right.
I turn to what the SI includes. As I have said, the CAA is able to modify the conditions in a NERL licence. Those include largely operational matters, such as requirements that may have effect for safety and efficiency, or for conditions relating to charge controls, which is clearly very important in this context. It is the prices that NERL service users pay for the services provided. The CAA has to publish a notice in relation to the proposed modification, stating why it is proposing the modification, what the modification is and what its effects will be, and give a reasonable period for NERL and any other relevant stakeholders to make any representations. The Department for Transport consulted on the policy in 2017; stakeholders were broadly supportive of it, and at the time no aerodromes requested any additional appeal rights.
However, the licence conditions include control of charges for the London Approach Service. This is a different category. The Committee will remember that there are the tower air traffic control services—supporting planes up to an altitude of 7,000 feet—and there are the en-route services, which deal with travel corridors, fundamentally. However, there is a link period in between, as air traffic controllers hand over between the two. In London, because there are so many big airfields in such a small area, airports essentially club together to provide that linkage as a group. Those London airports are particularly important, and it is important that they have a say. That is what we are seeking to address.
The Government have decided that airport operators whose interests could be materially affected by the decision to modify that licence condition are likely to be airports receiving the London Approach Service from the licence holder, and that they ought to be able to appeal the decisions on the grounds of fairness. Although no aerodrome asked for this, we think it is right that there should be scope for an appeal for those airfields because of that service which they use.
Because it is important to understand what we are doing, I will recap. The London Approach Service consists of the control and sequencing of flights between the licence holders’ en-route service—including stacks, for example—and the tower services at London airports, which are provided by each individual airport. It is that linking area. Again, lower areas are served by the towers, individually procured by individual airports; NERL deals with the higher level, above 7,000 feet; and the link level in the middle is procured from NERL for those lower towers to tie it all together, because it is congested airspace. I hope that that is clear and not confusing for the Committee. The airports are Heathrow, Gatwick, Stansted, Luton and London City, and the regulations are intended to allow those airports to appeal to a change made to NERL’s licence were they to wish to do so.
The regulations have been drafted in such a way as to ensure that, should another aerodrome become part of that London Approach Service and buy into that group air-traffic control process, it too will be able to appeal modifications to licence conditions. That is what we are seeking to do today. The draft instrument applies to the whole of the UK, as aviation is reserved, but the aerodromes that it affects are, as I hope I have explained, only those in the London area. We are seeking to ensure that aerodromes that will likely be affected by a decision to modify licence conditions are able to appeal those decisions. The instrument aims to ensure that decisions made are fair, clear and transparent, and that the legislative framework operates in the way that the Transport Act 2000 intended. I hope that that is clear. I commend the regulations to the Committee.
Mike Kane (Wythenshawe and Sale East) (Lab)
It is pleasure to serve under your chairmanship, Mrs Miller. I thought that the Minister was gesticulating wildly, but it was only part of his explanation about planes over 7,000 feet—anyway, he caught my attention.
The CAA regulates the UK’s aviation sector, its primary duty being to maintain a high standard of safety in the provision of air traffic services. That is of course something that we are keen to maintain. Additional responsibilities of the CAA are to further the interests of operators and owners of aircraft, owners and managers of aerodromes, persons travelling in aircraft and persons with rights in property carried in them. It is also charged with promoting efficiency and economy, and those who hold licences must also take account of any guidance on environmental objectives given to them by the Secretary of State. The Transport Act 2000, at the start of its 384 pages, says:
“The Secretary of State must exercise his functions… to promote efficiency and economy on the part of licence holders”
and
“to secure that licence holders will not find it unduly difficult to finance activities authorised by their licences.”
The circumstances of the past two years have seen the aviation sector decimated by the covid-19 pandemic, with many job losses and the industry burning through cash reserves every day as it waits for the skies to reopen, so it is crucial that the CAA plays a role in supporting the financial efficiency of licence holders.
In addition, the CAA is the economic regulator of NERL, as the Minister said. NERL is owned by NATS, which provides en-route air traffic services in the United Kingdom. Those services are governed by a licence granted to NERL and are thus responsible for monitoring and enforcing NERL’s compliance with the conditions of the licence and with licence holder duties. As illustrated here, it plays a vital role in supporting our aviation industry.
Section 11 of the aforementioned Act enables the CAA to modify licence conditions, with a licence to provide air traffic services. The statutory instrument is being moved to ensure that owners or managers of the relevant aerodromes can appeal against modifications to licence conditions made under the Act, as any other industry operators can do.
I have a couple of comments about the process undertaken to arrive at this SI. I note that there was no consultation undertaken, although guidance was sought from the CAA. It would be interesting for us to know whether the CAA needed any assurances during those discussions. Were any points raised of which we might need to be aware? Indeed, was there any particular reason for the lack of formal consultation? Continuing on the theme of consultation, I note that no equality impact assessment seems to have been undertaken. If there was one, could the Minister agree to share its findings?
I also note that a complete impact assessment has not been undertaken, with the explanation given that the cost to business was predicted to be less than £5 million per annum. What was that prediction based on? It is noted that, by permitting prescribed aerodromes to appeal decisions, a likely result could be a greater number of appeals being launched. I observe that during the consultation phase there were no aerodromes appealing modifications to licences. However, as we know, situations develop rapidly, so to what end has that possibility been investigated and considered?
I am happy to lend the Opposition’s support to the instrument, and I look forward to the Minister’s response to my questions.
Gavin Newlands (Paisley and Renfrewshire North) (SNP)
I am grateful to the Minister for setting out the terms of the SI and, indeed, for managing to make an eight-minute speech on something that is relatively minor and unlikely to draw opposition from the SNP Benches. It would not serve the Committee well for me to read the brief that I have been given for the debate. The only thing I would like to place on the record is my agreement with the Labour Opposition about the lack of consultation and an impact assessment, so I would be grateful for the Minister’s explanation on that matter. With that being said, the SNP does not plan to oppose the motion.
Robert Courts
I apologise to the hon. Gentleman for having taken some time. This is one of those matters that I thought was a little bit complicated and was perhaps worth explaining so that everybody understood what was being proposed.
I am grateful to the hon. Members for raising the matter of consultation and the impact assessment. On consultation, the way to understand this is that we consulted in 2017 on the overall policy, and that policy was in the run-up to the Air Traffic Management and Unmanned Aircraft Act 2021, which we took through last year. That is when the consultation took place. What we are concerned with today is the effect of the regulations in the SI, and they are very limited in scope because they are likely to confer an advantage on a party that will enable it to appeal. There may be ramifications, which I will turn to in a moment.
In terms of the lack of formal consultation to which the hon. Member for Wythenshawe and Sale East rightly referred, there was formal consultation, but that was when the policy was being put together, and was what we dealt with in the Act. We are now implementing the policy established in the Act by introducing the appeal right. It is not a new policy that needs consultation.
The same point would arise with the equality impact assessment. When we speak of “people” in this context, we refer to a legal personality, meaning a body rather than individuals. It would not be appropriate, therefore, to undertake that assessment in that case. If I have misunderstood the hon. Gentleman, I am happy to give way, but hopefully that answers his question.
With regards to costs, which is where there could be an implication, the Department’s judgment is that when looking at that £5 million level, given that there was no request for such an appeal in the consultation on the matter, which does not suggest a big groundswell of requirement to use it, we think it is right, fair and proper that the appeal right is there for this limited group of airports, but that does not suggest such it is likely to be a large undertaking. That is the reason there has been no full impact assessment. It is not a big cost on industry or the public sector; it just confers a limited appeal right in a limited circumstance.
I hope that deals with the points the hon. Gentleman raised, and I am grateful to him for his contribution. This measure is designed to make sure that the airports are not unfairly disadvantaged once those licence modifications come in, which is a big power—indeed, an advantage—that comes from the ATMUA Act passed in the last session. I hope that the Committee will support the measure.
Question put and agreed to.
Draft Small Business, Enterprise and Employment Act 2015 and Pubs Code Etc. (Amendment) Regulations 2021
(2 years, 3 months ago)
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The Chair
Members of the Committee will know that the Speaker enjoins us to wear a mask and to maintain our social distancing. I congratulate the Committee on doing just that.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)
I beg to move,
That the Committee has considered the draft Small Business, Enterprise and Employment Act 2015 and Pubs Code Etc. (Amendment) Regulations 2021.
It is a pleasure to serve under your chairmanship, Mr Gray.
The Pubs Code was introduced in 2016 to regulate the relationship between large pub-owning businesses and their tied pub tenants in order to address concerns about the treatment of some tenants. Under a tied tenancy, the tenant typically agrees to purchase beer and other stock from the landlord in return for a lower rent and other benefits. That arrangement means that both landlord and tenant have a shared interest in the success of the pub, and they should work in partnership to achieve that. It also means, however, that tenants are prevented from sourcing cheaper beer and other products if they want to, even when circumstances change.
The Pubs Code was introduced to create a number of rights and protections for tied tenants including better information prior to signing a contract; no upward-rent-only reviews; no tied gaming machines; and a right, at certain points, to break their tied arrangement and opt for a free-of-tie tenancy through the market rent only, or MRO, process.
The code regulates contractual arrangements that have been entered into freely by tenants and landlords. That sort of intervention by Government is only made when Parliament finds there is a clear public policy case for doing so. In this case, the intervention was justified in the light of evidence from tenants to several Select Committees suggesting that the tied model was subjecting tenants to abuse. The Government are committed to ensuring that tied tenants under the code are treated fairly and lawfully, and that there is a system for redress where alleged breaches of the code can be raised with the Pubs Code Adjudicator, the PCA.
The tied model is not inherently bad, and in most cases it works well. I have heard from tenants who are positive about their tied arrangements and welcome the partnership with their pub-owning business. It is therefore crucial thar the code strikes the right balance between protecting the tied tenant and the right of the pub-owning businesses to realise the value of their investments. The statutory requirement to review the operation of the code every three years provides an opportunity to review that balance.
The first review concluded with the publication of the Secretary of State’s report in November 2020, which found that although there had been improvements, some tied pub tenants found it hard to exercise their rights to test the free-of-tie alternative. The restrictive timetable for the process was cited as a significant issue. The most significant changes introduced by the measure before the Committee are those designed to improve how the MRO process works in practice.
The MRO process enables the tied tenant to request a proposal from their pub-owning company setting out the terms for a free-of-tie tenancy where the tenant would pay a market rent. In most cases the rent would be higher than under a tied arrangement, but the tenant would no longer be required to buy products from the pub-owning business. The statutory instrument will improve that process by, first, requiring that the initial MRO proposal from the pub-owing business includes a rent proposal, so parties can negotiate both terms and rent at the same time. Secondly, it introduces a single resolution period of up to three months. Unlike the current process, which gives tenants only 14 days to decide whether to refer a MRO proposal to the PCA, that period allows the parties time to negotiate the proposed free-of-tie terms and the offered rent. The tenant can end that period after 21 days and refer the free-of-tie terms to the PCA or the proposed rent to an independent assessor should they feel the need.
Finally, the SI makes other changes and clarifications to the MRO process following the introduction of the resolution period. For instance, if there are procedural defects in the MRO proposal, such as omission of the rent offer, the tenant has 14 days to refer those defects to the PCA.
Harriett Baldwin (West Worcestershire) (Con)
I welcome the update that the Minister is outlining, but will the amendments cover the situation that I discovered in my constituency during the pandemic when pubs were closed? I found that it was the pub-chain owner that was pocketing all the grants that were very generously provided by the Chancellor, whereas the tenant was suffering from absolute lack of business.
Paul Scully
My hon. Friend raises an important point. I do not want to start a wider debate that stretches too much from the SI, but when a tied tenancy works properly shared prosperity should occur. The pandemic proved the success and failure of the Pubs Code in that many pub-chain companies gave a lot of market discount and rent discount over and above what might have been expected from normal negotiations. They did so because they do not want empty pubs and it is in their interests. When arrangements work in both parties’ interests, the process works, but I acknowledge that there have been cases where matters have not worked well. The SI provides expressly for re-referral to the PCA where the tenant considers that the pub-owning business’s revised response is still not MRO-compliant.
Schedule 1 to the SI uses powers in the Small Business, Enterprise and Employment Act 2015 to amend the qualification period for a business owning tied pubs to come into the scope of the Pubs Code. It would change the requirement from having owned 500 or more tied pubs for six months in the previous financial year to three months. No new pub-owning businesses have reached that threshold but hon. Members will be aware of the merger and acquisition activity that is a feature of the pub sector. By determining the qualifying period by reference to the previous financial year, the Act provides an important safeguard, reflecting the need for business planning and budgeting. However, currently tied tenants may wait for nearly 18 months after their landlord reaches the 500 tied pub threshold before gaining the rights and protections of the code. For example, if a pub company increased its tied pub estate to more than 500 such pubs through acquisitions in October 2022, it would not come under the code until April 2024. Under the proposed amendment, the maximum period would be reduced to 15 months. For example, a pub company that increased its tied estate in October 2022 would now come under the code in April 2023.
That change may also result in a pub-owning business that reduced its number of tied pubs to below 500 remining regulated by the code for a longer period. That means the minimum period of full protection for the remaining tied tenants increases from six to nine months.
The amendments in schedule 2 relate to the comparison period used to determine whether a significant price increase for a tied product or a tied service has occurred. That is one of the events that allows tied tenants to request a MRO proposal and acts as a disincentive to pub-owning businesses to raise beer and other prices significantly under the tie. The Government are cautious about changing the arrangements, but there is a case for amending how the comparison period is calculated. In effect, the code created a 56-week comparison, potentially capturing two annual price increases and that raised complications for the more traditional 12-month business planning cycle. The proposed change amends that comparison period to a 52-week period, while continuing to disincentivise price increases and providing protection for tenants.
In terms of notification in relation to extended protection, that protection applies where a tied pub is transferred to a landlord that is not a regulated pub-owning business under the code. Tenants with extended protection benefit from the provisions of the code for a limited time, with the exception of the right to a MRO proposal. Currently, the PCA has no direct knowledge of such transfers. The Government propose that a regulated pub-owning business must inform the PCA when it is transferring a tied pub in circumstances that mean that the tenant will enjoy extended protection. That will allow the PCA to contact the new owners to raise awareness of their tied tenants’ rights and protections.
The SI will make helpful and important changes to improve the operation of the Pubs Code, in particular by allowing the parties a meaningful period in which to negotiate and reach a resolution. I ask the Committee to approve the instrument.
Bill Esterson (Sefton Central) (Lab)
It is a pleasure to have you in the Chair, Mr Gray.
I am grateful for the Minister’s comprehensive explanation of the proposed amendments, and his analysis of some of the concerns. The Pubs Code was needed in the first place because of the lack of balance, and I agree with the Minister about how the industry should operate. I served on the Bill Committee and I know that there was a strong consensus on the creation of the Pubs Code. I am not going to stray from the topic of the instrument, but I remember very well the reasons why the behaviour of some of the pub-owning companies led to the need for a much more fair and balanced arrangement that gave pub tenants the opportunity to run their businesses under fair terms with pub-owning companies. The hon. Member for West Worcestershire referred to bad practice and I am afraid that there were many such examples prior to the creation of the Pubs Code.
The amendments under paragraph 5 of schedule 2 relate to the ability of the tenant to understand or analyse the cost of the market-rent-only option. That has been a cause of significant concern since the initiation of the Pubs Code. The Opposition support the move to give tenants the figures related to the MRO option. The other changes outlined by the Minister will also improve the current arrangements.
I noticed that most of the respondents to the Government’s consultation appeared to be—it was difficult to be absolutely sure—either pub-owning companies themselves or organisations that probably would be sympathetic to them. Some of those responses I therefore take with a slight pinch of salt. That brings me on to parallel rent assessment, which was referred to in the Government’s response to the consultation on amending the Pubs Code, but I do not believe the Minister referred to it today. Tenant representatives have said that having a parallel rent assessment would allow pub tenants, or their advisers, to make a judgment on the comparative costs and benefits of remaining a tied or a market-rent-only operation.
Paragraph 7 of the Government response to the consultation states the “consultation document”—I assume that means the original consultation document sent out to consultees—
“noted that such information could serve to confuse a person unfamiliar with the Code or running a tied pub”.
To me, that suggests that the Government already had a strong preference for not introducing parallel rent assessments. If we were in a court of law we might describe that as leading the witness, your honour. That concerns me. The consultation response says that the majority agreed with the assessment in paragraph 7, but, as I said, given that the majority of consultees appear to have been favourable to the pub-owning companies, that is hardly a big surprise. Perhaps the Minister can explain what is meant by
“confuse a person unfamiliar with the Code or running a tied pub”.
To put that in context, anyone who is investing in a business—precisely what a pub tenant is doing—would carry out their due diligence. They would therefore want as much information as possible when making the judgment between being a tied tenant or free of tie, or notional free of tie in terms of the market rent option. I hope that the Minister can provide an explanation. It makes sense for anyone going into business or already in business to be as informed as possible when deciding which business model would best support their investment and business future. The advantage of a parallel rent assessment is that it acts as a check to ensure that the Pubs Code meets its principle of ensuring that individual tied tenants are not worse off than they would be if free of tie. Is there a lack of information that prevents tenants or their advisers from making the necessary judgment and acting accordingly? That is my key question to the Minister.
We need to support our pubs. The pandemic has been brutally hard on pubs and pub tenants who were already struggling before it. They need as much support as possible. The local pub is a key part of our high streets and our communities, and our future prosperity, because it drives so much else in communities and brings business to fellow local businesses. Pubs are often the source of very good local activity.
The Opposition want good businesses to grow, not least our pubs. I hope that the Government will seriously consider our proposed reforms to business rates, which is a source of real concern to pubs.
Bill Esterson
Indeed. The regulations we are considering this morning offer such support. I hope that the Minister will take note of my comments and offer some good answers particularly about parallel rent assessments and how they sit with the ability of pub tenants to make the decisions crucial to their future success.
Paul Scully
I will remember to heed your words, Mr Gray, and not be tempted to drift into a wider debate—
Paul Scully
I will not tempt you to intervene.
I agree with the hon. Member for Sefton Central about the importance of pubs to our communities and the social value they offer, so it is really important that we get the balance right. I think the code was drafted in such a way that we can balance the rights and protections of tied tenants against the property rights of pub owners to ensure that they can operate the tied pub estate and secure rents on their investment while keeping the pubs in full flow for and on behalf of the community.
On parallel rent assessment, we share the aim to achieve informed decision making. I take the hon. Gentleman’s point about who actually responded to the consultation but stakeholders reinforced their concerns about additional complexity for tenants and the possible increased cost associated with providing a parallel rent assessment. Stakeholders provided valuable insight into the recruitment processes, the additional support provided particularly for tenants new to running a tied pub and the use of break clauses during the early stages of the tied agreement to enable the parties to end the commercial contract. We are working with the PCA on its tied tenants’ survey to find out more about tenants’ understanding of the terms. As the hon. Gentleman said, it is not only about people accessing the proper process in the first place, but their Pubs Code rights and what informed their decision to enter into a tied tenancy agreement in the first place.
Bill Esterson
My question about parallel rent assessments was trying to tease out how a tenant can make such a judgment call and what is the best way forward financially. What is the Minister’s answer to the question that many tenants pose about how they can make that judgment call without being given a parallel rent assessment, so that they can then compare between the tied and non-tied option?
Paul Scully
Doubts were expressed about the parallel rent assessment by tenant representatives as well, but I take the point that we must understand exactly what type of information prospective tenants need to enter into that relationship. That is why we will work with the PCA on its tenants’ survey to get to grips with that and achieve that understanding before we go further.
We believe that the amendments to the Pubs Code are proportionate in terms of improving the practical operation of the code. I appreciate the Opposition’s support for our pubs and achieving the right balance for all parties, notwithstanding the hon. Gentleman’s wish to go further on parallel rent assessments. We believe that the proposed changes improve things for tenants without placing undue constraints on pub-owning businesses, particularly at such a difficult time for the tied pubs and the hospitality sector. I am pleased to commend the measure to the Committee.
Question put and agreed to.