Air Travel Organisers’ Licensing Bill

Lord Rosser Excerpts

2nd reading (Hansard): House of Lords
Tuesday 5th September 2017 Lords Chamber

[Lord Rosser (Lab)]

My Lords, I thank the Minister for his explanation of the purpose and content of the Bill, which we support, although that does not mean that we will have no issues to pursue during the further stages of the Bill. I am not quite sure whether the numerical shortage of Back-Bench speakers is despite or because of who the Front-Bench speakers are.

In a situation where those booking holidays do so many weeks or even months in advance, and often do so by paying up front in a situation where services are frequently provided by third parties, to ensure up-to-date and effective appropriate protection for airline passengers in the event of the bankruptcy of their travel company is an objective with which I am sure all agree.

Indeed, in the light of the problems there have been at times this year at some of our airports as a result of difficulties over, for example, IT systems and the enormous adverse impact that that can have on passengers, one is tempted to feel that maybe the protection offered by statute is not as all-embracing as it might be. The consumer, we are led to believe, is king. I am not sure that air travellers always feel that that is the case.

In his letter to Members of this House in July, the Minister states that this Bill is intended to modernise the Air Travel Organisers’ Licensing consumer protection scheme for package holidays that include a flight. The ATOL scheme was introduced in the 1970s for UK holidaymakers flying overseas and, as the Minister said, was most recently updated in 2012. The ATOL scheme is also a crucial means by which UK businesses can meet their obligations to have insolvency protection under EU directives.

As the noble Baroness, Lady Randerson, said, the content of this Bill originally formed part of the Vehicle Technology and Aviation Bill, which met a sticky end as a result of the Prime Minister’s sudden desire to hold a snap election. Perhaps the Minister can tell us whether, and when, all the other parts of the Vehicle Technology and Aviation Bill are likely to reappear and whether the impact of drones and laser beams on the safety of aircraft will also then be addressed.

ATOL is a statutory financial protection scheme managed by the Civil Aviation Authority on behalf of the Government and at present applies only to flights with accommodation sold in the United Kingdom. Businesses selling air holiday packages, or flight-only sales by third parties, in the UK are required by law to hold an ATOL licence. Should an ATOL-licensed firm become insolvent, the Civil Aviation Authority can refund protected customers or, if they are already on holiday, ensure that they can get back home. As has already been said, the scheme is funded by contributions made by travel companies into the Air Travel Trust Fund at the rate of £2.50 for each person they book on a holiday. It has been estimated that the ATOL scheme protects over 20 million holidaymakers each year.

As we know, in November 2015 the European Union adopted a revised directive on package travel and linked travel arrangements, and member states—which, contrary to the belief of some, still include us—have until 1 January 2018 to implement the directive, which will apply from 1 July 2018. The Government supported the updating of the EU package travel directive as it was consistent with our own ATOL protections and should provide a consistent approach to protection, including in respect of holidays booked online.

The revised directive takes account of the major changes that have occurred over the last 20 years or so in the way that holidays are bought and sold with the growth of the internet and mobile phone technology. In particular, the internet has enabled people to mix and match the components of their holiday in a way that often falls outside the scope of ATOL and the current EU directive. One survey has estimated that about 75% of UK customers now book their holidays over the internet. This has led to a fall in ATOL sales as a share of all leisure flights from over 90% in 1998 to, I believe, around 50% more recently.

One aim of the 2015 EU directive is to bring greater clarity on what constitutes a package holiday, with a further objective being to harmonise protection within the EU. The first clause of the Bill updates ATOL to ensure that it is harmonised with the recent EU directive. Many of the changes will be covered in regulations, but a wider range of operators, including more dynamic package providers which offer a greater choice of destinations, activities and providers and enable people to tailor bespoke packages for themselves, will probably be covered under the changes, bringing protection to many more UK holidaymakers not covered under the existing ATOL provisions.

In addition, the requirement for travel companies to be in line with standards at “place of establishment” instead of at “place of sale” will mean that UK companies can sell more easily across Europe by simply adhering to the widely respected ATOL arrangements and requirements. Existing ATOL legislation applies only when the first leg of a relevant flight booking departs from a UK airport. However, will the Minister say whether this change will also mean that EU-based companies selling in the UK will have to adhere only to an ATOL-equivalent protection laid down in the member state where the business is based, which could have processes and timescales for recompense distinctly different from what many UK consumers would expect under our ATOL arrangements? Some 500,000 passengers could be affected.

The second clause relates to the Air Travel Trust, the legal vehicle used to hold the money to refund consumers under ATOL, giving the Secretary of State power to define separate trust arrangements to reflect different market models. This change is not directly relevant to the EU regulation addressed in the first clause, but is a dormant power that would enable the Government to make wholesale change to the structure and applicability of the ATOL brand, subject only to the affirmative resolution. Will the Minister say what consultation—and with whom—will take place prior to the regulations under this clause being laid by the Secretary of State, and will a full impact assessment be undertaken? What separate trust arrangements to reflect different market models are the Government contemplating under Clause 2, and why, and will they provide more, less or the same protection as is provided to consumers under the present trust arrangements?

The third clause extends the scope of the powers under which the Civil Aviation Authority is currently able to request information. Specifically, the clause would ensure that the information power would apply to any airlines established in the UK selling relevant holidays in the EEA that are not covered by the Civil Aviation Act 1982.

The last clause, Clause 4, provides for commencement of the provisions of the Bill, with Clause 3 coming into force on whatever day or days the Secretary of State decides by regulations, and the other provisions coming into force on the day on which the Bill receives Royal Assent. The comment has already been made that the travel industry is one that has to plan, and to sell holidays, up to 18 months or more ahead. Much of the detail implementing the Bill will be done through secondary legislation, the content of which at the moment is unclear. What discussions—and with whom—have taken place and are taking place on the detail of the secondary legislation and when is it expected that secondary legislation will appear, assuming that this Bill becomes an Act?

Further, what guarantees can the Government provide that departure from the EU will not result in any of the existing rights and protections for passengers provided for in EU law, including those provided for in this Bill, being weakened or diminished? Finally, what guarantees can the Government offer the airline industry on the operating environment situation following our withdrawal from the EU, bearing in mind that aviation does not even have World Trade Organization rules to fall back on?

We support the aims and objectives of the Bill, but there are a number of points on which more detail is needed from the Government. The purpose of the Bill will be somewhat diminished if our aviation industry is in trouble following withdrawal from the European Union.

[Lord Callanan]

I thank the small number of noble Lords who contributed to the debate this afternoon. I hope, like the noble Lord, Lord Rosser, that it is because of the quality of the Front-Bench contributions that other noble Lords decided not to contribute, but I suspect it probably has more to do with being the first day back after the Recess. Nevertheless, it is about the quality rather than the quantity of the contributions. It has been a good, brief debate.

The travel market has moved on significantly in the past decade, with changes to the way holidays are offered and sold. The market has diversified with the growth of the internet and smart technologies, as many Members have pointed out. Consumers now have a great many options at their fingertips to buy holidays and to put together their own packages. As the methods for selling holidays modernise, we must also update and modernise the schemes and laws that protect them. As I said in my opening remarks, this Bill is a vehicle by which the UK will implement the EU package travel directive. It will ensure that informally booked holidays will have protection similar to that for traditional package holidays, regardless of whether they are booked on the high street or online. This Bill complements the steps we took to update the ATOL scheme in 2012 and is required to ensure that consumer protection can keep pace with the changing travel market.

While it is fair to say that the Bill may not be the largest in terms of clauses, not many Bills can bring peace of mind to so many people. The scheme protects more than 20 million people each year by regulating entry into the market and acting as a fund to compensate consumers who might be caught up in a failure. It has provided robust consumer protection for more than 40 years and is held in high esteem by the travel industry and consumers alike. It has been able to do so by evolving over time and adapting to changes in the travel market. The Bill will help to align our regulatory framework with the changes coming in across the EU in 2018. The combined effect of the clauses will help to cut red tape, allowing UK-established companies to sell holidays more easily throughout Europe. They will be able to protect more holidays through the ATOL scheme, removing the need to comply with different schemes in each member state.

I shall move on to some of the question that have been asked. The noble Lord, Lord Rosser, raised the point about the future of consumer protection once the UK leaves the EU. The UK has always led the way in protecting holidaymakers. We remain committed to consumer protection and will continue to do so after Brexit. For example, we established the ATOL scheme two decades before the original package travel directive was agreed across Europe. ATOL is of course enshrined in UK legislation and will remain on the statute book until such time as these Houses decide otherwise, regardless of what happens with Brexit. We also made improvements to the scheme in 2012 which are now being echoed in the new package travel directive that was passed by the EU in 2015. So I think that I can claim some authority here when I say that we have a track record over many years of being at the forefront of consumer protection in this field and that we hope to remain so.

The Bill will extend the Civil Aviation Authority’s information powers so that it is more able to regulate the scheme and cross-border activity. It will update the ATOL powers so that they align with the scope of the directive and will provide more flexibility to set up new trust arrangements and so on to respond more effectively to an increasingly diverse pool of risks. The scheme now needs to manage a greater variety of risks and business models, and the update the Bill will make to ATOL will mean that consumer protection can extend to a broader range of holidays. This will mean that protection is provided for traditional and online package holidays as well as for the looser combinations of travel which had previously been out of scope. Of course, we must be mindful that the regulatory landscape will need to be able to adapt to future changes in our relationship with the EU, but we will also retain flexibility in the ATOL regulations to adapt to future changes in our relationship, thus ensuring that we continue to have strong consumer protections in place as we leave the European Union. These measures will ensure that the scheme remains fit for today’s world, a world in which digital technologies are offering increasing opportunities for consumers to select the way they purchase a holiday.

Moving on to some of the other questions that were asked, my noble friend Lord Flight reflected on his Burma experience. I hope that he has now recovered from his back operation and his problems with insurance. It is important to say that the ATOL scheme is not designed to replace holiday insurance and we do not want to give consumers the impression that it should or might do so. People should still take out holiday insurance, ideally before they book their holiday, which for its relatively modest cost provides the considerable protections they will need above and beyond the ATOL scheme. Arrangements for flight-only and for airlines are regulated separately, and I am sorry that my noble friend was not able to take advantage of them with his Burma experiences. I am not sure that there are any package holidays to Burma that would be covered by the ATOL regulations.

In response to the point made by the noble Baroness, Lady Randerson, no distraction is intended from any other worthy causes. She got her points in about Brexit anyway, so maybe she could cut and paste them and repeat them in the Brexit debate later this afternoon and save everyone the trouble of listening to them again, worthy though they were. She also asked about drones and lasers, a point also raised by the noble Lord, Lord Rosser. I announced just before the start of the summer vacation the measures we intend to take on drones. We are currently working on further measures to deal with the scourge of laser pens. I cannot be more specific on a timescale at the moment, but I assure the noble Lord that as soon as we can we can provide precise timings I will do so, but we recognise the threat and have published measures on what we intend to do on drones. We will act as soon as is possible.

The noble Baroness, Lady Randerson, also said she thought there was a degree of irrelevancy about the Bill. I am afraid I do not agree. We need to have protection measures in place. As I said, it will exist long after we leave the EU. We were 20 years in advance of the EU package travel directive and our protections will remain in place afterwards.

The noble Baroness raised so-called regulatory shopping. This is a concern, but we have seen no evidence of it so far. Indeed, the package travel directive in many respects implements what we already have in the UK, so it will make it less likely that companies can move to a lower-regulation environment in the rest of the EU. It will raise guarantee standards in countries such as Spain effectively to what we already have in the United Kingdom, so it will prevent the problems associated with Lowcost Holidays that I mentioned earlier.

The noble Lord, Lord Rosser, and the noble Baroness, Lady Randerson, mentioned the new trust arrangements. They are right to do so. I hope I will be able to reassure them. We have no plans to establish any other trust schemes beyond what we already have. Indeed, in response to the noble Baroness’s question, we have £175 million in the ATOL scheme, but there have been periods when it has been in deficit. I think I am right in saying that up until 2011 the scheme was in deficit and the Government needed to provide a guarantee for a loan to be taken out to refund failures at that time. Since then, we have had proportionately fewer failures and proportionately more people paying in, so the fund is now in considerable surplus.

We have no plans to change the contribution, but we propose to give ourselves the power to respond innovatively to changes in the market. As I said, we have no plans to do so but it is possible and we would not want to exclude the ability to establish new trust fund arrangements if new and innovative models were to be produced. If we did, we would consult extensively with the scheme providers in the CAA, and with package tour operators, various internet firms, et cetera. Of course, such arrangements would be subject to affirmative resolutions in both Houses.

[Lord Rosser]

To pursue the point on the purpose of Clause 2, the Minister has said the Government have no plans at present, but then goes on to refer to possible changes in the future. Will he give some examples of the changes that might take place that would necessitate using the powers under Clause 2?

[Lord Callanan]

I suppose the short answer to that question is no. If I knew what innovative solutions and changes might come up, we would allow for them now. For example, if a particularly new and what we would consider riskier form of package could be developed, we would maybe want to set up a larger contribution protection than the £2.50 that applies to other schemes. As I said, we will consult extensively with all providers and with the CAA, and the arrangements will be subject to the affirmative resolutions of this House. As I said, these models have not been developed yet, so we do not know what they might be, but we think it prudent to allow for the possibility that they may be developed in the future, even though we have no plans to do so at the moment.

I believe I have responded to all the questions I was asked—somebody will no doubt shout if I have not.

[Lord Rosser]

The Minister may feel he has answered this already, in which case he will obviously say so, but I asked about the secondary legislation, what consultations have already taken place and with whom, and what consultations are currently taking place. I also asked about the production of an impact assessment, because the concern is that there may not be proper consultation or an impact assessment, and we shall have just an affirmative resolution for what are, or could be, quite extensive powers and changes.

[Lord Callanan]

As I said, we can give an undertaking to consult extensively if we propose to do this in the future. I will write to the noble Lord with details of any consultations that have already been carried out; I hope he will consider that an adequate response. I think I have responded to the points that others put to me and I ask the House to give the Bill a Second Reading.