Package Travel and Linked Travel Arrangements (Amendment) (EU Exit) Regulations 2018

Baroness Vere of Norbiton Excerpts

Wednesday 28th November 2018 Lords Chamber

Moved by

[Baroness Vere of Norbiton]

That the draft Regulations laid before the House on 29 October be approved.

[Baroness Vere of Norbiton (Con)]

My Lords, the regulations will be made under powers conferred by the European Union (Withdrawal) Act 2018. They form part of the work being done to adjust our existing legislative framework in readiness for leaving the European Union next year.

The best outcome for the UK is, of course, to leave with a good deal. If a withdrawal agreement is reached between the UK and the EU, the implementation date of the instrument could be changed by a subsequent Bill that the Government introduced to implement the withdrawal agreement into UK law.

However, it is sensible to prepare for all scenarios, and that is what we are doing in bringing this instrument before your Lordships’ House today.

The Package Travel and Linked Travel Arrangements Regulations 2018 were debated in your Lordships’ House in May this year and came into force in the UK on 1 July. They implemented the European Union’s 2015 package travel directive. The 2018 regulations expanded the definition of a package to ensure that it encompassed modern methods of purchasing package holidays, particularly online. It also created the new concept of linked travel arrangements, which are a looser combination of travel services, and introduced a limited level of protection for consumers who purchase them.

The 2018 regulations include the provision of information to travellers, so that travellers have clear information about their package holiday or linked travel arrangement and their statutory rights. They also require organisers to put in place adequate insolvency protection to cover the refund of payments made by or on behalf of passengers and, if necessary, their repatriation. If approved, this instrument will make amendments to deal with deficiencies that arise from a possible UK withdrawal from the EU on a no-deal basis. I will now explain the effects of the instrument.

The 2018 regulations implemented the mutual recognition requirement of the EU directive, which requires that member states must recognise the insolvency protection put in place by traders under the law of the member state in which they are established. In consequence, the 2018 regulations exempted traders established in other member states from having to comply with UK insolvency protection laws, which are ATOL protection, insurance, a trust fund, or a combination of several of them. On EU exit, the UK will no longer benefit from the mutual recognition provisions of the directive and, in consequence, the remaining member states will no longer recognise the UK’s insolvency protection under the 2018 regulations. This instrument will remove the exemption for traders established in member states, so that if they sell or offer for sale package holidays or linked travel arrangements in the UK, they will be required to comply with the UK insolvency protection rules on the same basis as UK traders, or indeed traders established elsewhere in the world.

I consider this change necessary, first to ensure that UK travellers are fully protected by the 2018 regulations if they purchase a package holiday or a linked travel arrangement from EU traders that choose to trade within the UK market; and, secondly, to ensure fairness for UK-based traders, whose EU-based competitors should not have the advantage of an exemption under the UK rules no longer available to UK traders under the EU rules.

The 2018 regulations also require member states to establish central contact points, the main purpose of which is to facilitate administrative co-operation between member states in relation to insolvency protection and, in particular, the exchange of information concerning national insolvency protection requirements. The Civil Aviation Authority is the lead central contact point in the UK. Should the UK leave the EU without a deal, the role of the central contact point would become redundant. This instrument revokes the function of the central contact point to reflect this. This does not affect the CAA’s other, broader enforcement functions in relation to the 2018 regulations.

This instrument also makes changes to the obligations on UK retailers when they sell a package that has been put together by a non-UK organiser. Currently, Regulation 27 of the 2018 regulations requires that a UK-established trader selling a package put together by an organiser established outside the EEA will be responsible for the performance of the package and must meet the insolvency protection obligations of the 2018 regulations, unless that retailer can provide evidence that the organiser complies with these requirements. This instrument changes Regulation 27 so that this responsibility is placed on a UK-established retailer alone when selling a package put together by any organiser established outside the UK, including organisers established in the EEA. This change is important to ensure that, when purchasing packages combined by EEA-established organisers, UK travellers can continue to be confident that they would be protected by adequate insolvency cover in the event of the organiser’s insolvency.

Finally, this instrument makes other technical changes to deal with references to EU legislation. For instance, it replaces references to EU directives with references to the relevant retained EU-derived domestic legislation. It is important that the exit regulations do not otherwise change the 2018 regulations, so that, after EU exit, travellers will continue to benefit from all protections in the 2018 regulations.

This instrument is a sensible and necessary use of the powers of the withdrawal Act, which will ensure that our consumer law continues to function effectively on exit day. I commend these regulations to the House.

--- Later in debate ---

[Lord McNicol of West Kilbride (Lab)]

I thank the Minister for her introduction to this regulation. As I was going through it, I started a note saying that this appeared to be one of the more straightforward regulations but the noble Baroness, Lady Randerson, and the noble Lord, Lord Deben, raised a number of questions and I have a few more. At this stage, there is not a lot to disagree with. It is just sad that we find ourselves in a situation where we are having to rebuild legislation and pieces of text that work well already. I am sure some of my shadow BEIS colleagues will have some points to raise when this is discussed in the other place.

If the Minister is not able to answer my questions, I am more than happy for her to write to me with a fuller explanation. In reading the Explanatory Memorandum accompanying the draft SI, she will be aware—this has been touched on already—that her department has recognised that there will be an additional financial cost for UK businesses arising from this instrument. On that basis, does the Minister not agree that an impact assessment should have been prepared before this debate? Can she inform us what the costs, as stated in the Explanatory Memorandum, will be for businesses?

As a result of these regulations, the mutual recognition of insolvency protection with EU member states will end. As part of the withdrawal negotiations, did the Government attempt to negotiate continued mutual recognition of this? If not, do they intend to try in future? If those mutual recognitions were in place, it would be far simpler than having to move forward as the instrument outlines. This instrument confirms that UK individuals and businesses will no longer benefit from mutual recognition of insolvency protection, and could therefore see a reduction in their consumer rights. In October 2017, the Prime Minister told the Commons that she wanted a new partnership with the European Union based on strong consumer rights. Can the Minister reassure us that, in light of the removal of mutual recognition, we will not see a reduction in consumer rights and protections?

Paragraph 2.3 of the Explanatory Memorandum states that these regulations are being changed to make them work for the protection of travellers after exit. This draft SI covers both package holidays and linked travel arrangements, and I have a specific question about LTAs. As we touched on earlier, an LTA is a holiday that includes two or more travel services, but the protection applies only when the services are booked from one website, shop or call centre, including through travel agents. Many of us now book our holidays online and build our own package holidays using more than one website or operator to arrange flights, hotels, care hire, tourist excursions or travel services. Crucially, these are often paid for separately. As I am sure the Minister will know, these holidays that we build ourselves are therefore not covered. Did she or her department consider extending the definition of LTAs to cover that wider definition, by removing the need for it all to be from a single website or shop, thus giving added protection?

As we all know, if one part of our holiday fails the whole holiday could be ruined. If the definition was expanded slightly to cover this style of holiday, it would offer far more protection for holidaymakers; surely that would be a good thing. I reiterate a point made by the noble Baroness, Lady Randerson, which was also touched upon by the noble Lord, Lord Deben. That is the question of who will check—and where the checks will be made—on the insolvency protection that needs to be offered by EU businesses providing services within the UK. Will this sit with individuals, the travel agent, or the providers, and how will it be monitored?

[Baroness Vere of Norbiton]

I thank noble Lords for their contributions and, once again, I hope to answer as many questions as I can. On the point made by the noble Lord, Lord Deben, I am a little worried that he thinks the world is coming to an end with these regulations. I assure him that it is not, and that this is actually quite a minor change. He talked about why we are removing ourselves from mutual recognition—well, that is only in the context of no deal. If we have a deal, mutual recognition may well remain on the table in the future and, as part of the negotiations for the future economic partnership, we will have mutual recognition. Even without mutual recognition, we must understand that a lot of people go on holiday outside the EU where there is no mutual recognition. This concept is not entirely unknown to the providers of travel services and to consumers.

Nobel Lords have raised a number of issues. I hope to put their minds at rest as to what the different impacts will be; it is clear that there might be some impacts and it is important that we set out exactly what they are. The first issue I address is the impact on UK retailers—this was raised by the noble Baroness, Lady Randerson; indeed many noble Lords have spoken on it—and what they will have to do to make sure they have coverage. The first thing they can do is look at the contracts they have with their suppliers across the EU, providing all sorts of different services. They can look at their contracts and they might adjust them to say that insolvency protection up to a certain standard is suitable for the travel agency and needs to be in place.

The impact assessment assumes that this can be achieved. Given that many traders will have experience of this in non-EU countries, it assumes that a person would need maybe three hours of training and advice to get to that stage. After a couple of hours of legal advice, the contracts could be amended for all participants within the travel arrangement. Some noble Lords may be thinking that surely there will be some providers who cannot provide the appropriate level of insolvency protection—that is indeed the case and our impact assessment looked at that. In such cases, it is possible to buy insurance; this is done with a fair amount of frequency within the sector—it is not unknown. Our impact assessment, which is a little higher than it should be, assumes that all 1,695 travel agents will be impacted by this; of course, that is clearly not the case. We assumed that insurance would be needed in 20% to 25% of cases and that, on average, it would cost £4,200 per business. That is how we got to the figure of between £1.4 million and £1.8 million—

[Lord McNicol of West Kilbride]

The Explanatory Memorandum says that there is no associated impact assessment for this legislation. Will the Minister please clarify?

[Baroness Vere of Norbiton]

In circumstances such as this, the impact assessment would not usually be published. There is an impact assessment but, because it falls below the £5 million threshold, it is not published in detail. I thought noble Lords might be interested to hear how we got to these figures because it is important to understand that. Within the context of the revenue as a whole for this sector, clearly it is not a large amount. I would expect the trade associations to get involved in this area and to help their members to sort it out in a sensible and swift fashion.

[Lord McNicol of West Kilbride]

The point about trade associations was one that I scrubbed out. The Explanatory Memorandum says that there was no consultation. Can the Minister clarify whether there was consultation with the individual companies or trade associations?

[Baroness Vere of Norbiton]

I am afraid that I am not currently able to clarify that but I will write to the noble Lord if anything comes to light. However, from my experience of running a trade association in the past, albeit not one relating to holidays, I can say that this is exactly the sort of thing that trade associations would get involved in. If I were a member, I would expect them to be right on top of this and getting to grips with it.

[Lord Deben]

I still do not understand. According to what my noble friend has said, there will be a cost because people will have to do a series of things and they might have to take out insurance, yet paragraph 13 of the Explanatory Memorandum says that there has been no special arrangement for small businesses because no extra burden is placed on them. However, she has just told us that there will be an extra burden. It might not be huge but it is an extra burden, although the Explanatory Memorandum says that there is no extra burden. I do not understand.

[Baroness Vere of Norbiton]

My noble friend is quite right to pick that up. What I have just outlined—in a sufficient amount of detail, I hope—is a de minimis burden. It is a very small, almost negligible amount spread across the entire industry. That is why this is structured as it is. We are talking about £1.4 million to £1.8 million a year for the whole industry, and that is at the highest level because we have assumed a cost for every single one of 1,695 travel agents.

[Lord Fox (LD)]

It is certainly de minimis for the nation but is it de minimis for a small travel agent? What does the Minister regard to be de minimis in terms of margin for an already low-margin business? This is an increased cost for a low-margin business. It may indeed be de minimis for the United Kingdom but the cost for those travel agents that have to take it on board might mean the difference between success and failure.

[Baroness Vere of Norbiton]

I take the noble Lord’s point that there might be certain businesses for which an additional cost of between £3,000 and £5,000 will be very difficult, but I believe that the number affected will be very limited. We will look at whether any implications arise from this, although my view is that they will not. When the system is eventually in place—if indeed it needs to be in place—I think that consumers will take added comfort from the fact that it is all in place and that they are covered.

[Lord Deben]

Perhaps my noble friend will be kind enough to remove from the Explanatory Memorandum the paragraph that specifically says that there is no additional weight. As someone who runs a small business that has nothing to do with travel—so I am not declaring an interest—I am just saying that that £3,000 or £4,000 comes straight off the bottom line, and that is really serious for a small business. My noble friend says that in the end the customer will pay, but I come back to the point that there is nothing in this document about the customer and I am really concerned about the way in which we are railroading this stuff through without telling customers about the cost.

[Baroness Vere of Norbiton]

My Lords, the figure of £4,200 that I quoted is an average. As we know, travel agents range from ginormous to very, very small. I am sure that all noble Lords who have ever purchased insurance will know that it depends on the size of the business being insured. It is very unlikely that the cost of this insurance will get anywhere close to £4,000 for a small business with a very small amount of revenue.

[Lord Stevenson of Balmacara (Lab)]

It might be helpful if the noble Baroness could take away from this that we are struggling here a bit with figures, which might or might not be correct, on a spreadsheet that I can see on the Dispatch Box opposite to which we have not had access. If there are impact assessment figures and a calculation that will give some comfort to the noble Lord, Lord Deben, will she write to us explaining them? Otherwise, I do not think that we can say to the House with any degree of sincerity that we have done a proper job of scrutinising this legislation.

[Baroness Vere of Norbiton]

I will certainly endeavour to set out everything that I have said in a letter, although I do not believe that there is any more information to give. The spreadsheet actually consists of my notes, which the noble Lord will definitely not see. However, I will indeed write to noble Lords.

--- Later in debate ---

[Baroness Randerson]

What are the Government doing to advertise these new arrangements to people and indeed to the industry as a whole? She is quite right that many travel agents will belong to trade associations, but not all of them necessarily will. Nowadays, people buy their goods online, including from abroad, and they might think they will continue to have the protections they had in the past.

[Baroness Vere of Norbiton]

The noble Baroness is quite right, but that is a consequence of regulations that have already been through your Lordships’ House. Significant guidance was published at the same time and goes into some detail about LTAs and what would and would not constitute an LTA. We will work with the trade associations and make sure that the guidance is kept up to date as we move to the next phase.

I thank the noble Lord, Lord McNicol, for his balanced assessment of this legislation. He mentioned building one’s own holiday, which I am sure many noble Lords do. It is slightly beyond the scope of the discussions today, but if I can get any further information, I would be happy to write to him. I believe that takes me to the end of the questions, and I beg to move.

Motion agreed.