Civil Aviation Bill

Lord Soley Excerpts

Monday 9th July 2012 Grand Committee

[Lord Rosser]

The amendments in this group provide, first, for a new clause that would give the National Audit Office oversight of the Civil Aviation Authority’s accounts. It would also place on the Civil Aviation Authority a general duty of efficiency in the use of its financial resources. It is not clear why the Government have not already included those provisions in the Bill. There are significant changes in the role of the Civil Aviation Authority under the Bill in relation to aviation security functions transferred from the Department for Transport and the economic regulation of airports. The Civil Aviation Authority is likely to become a more influential and important body as a result.

Other regulatory bodies, including economic regulators which are also industry funded, are subject to National Audit Office oversight. They include Ofgem, Ofwat and Ofcom. The Office of Rail Regulation is also subject to National Audit Office oversight, and the ORR is likewise funded from within the industry. As we know, the Civil Aviation Authority is funded from the aviation industry and also receives a limited amount of money from the taxpayer. It is not, however, subject to National Audit Office oversight, although it is generally recognised that the Comptroller and Auditor-General and his staff at the National Audit Office do a highly effective job.

The activities of the regulators to which I have just referred and which are subject to NAO oversight do not involve significant public funds, but they lead to costs being incurred by the providers of essential or strategic services which are likely to be passed to consumers, which justifies NAO involvement. That is particularly the case where the need for active economic regulation has arisen from the process of privatisation, and it is therefore only right that there should likewise be National Audit Office oversight of the Civil Aviation Authority’s accounts, as provided for in the amendment. The House of Commons Transport Select Committee in its report also called on the Government to explain why the Civil Aviation Authority is apparently unique among industry regulators in being outside the remit of the National Audit Office.

The second amendment gives the Civil Aviation Authority a general duty of efficiency in the use of its financial resources. A number of those giving evidence to the House of Commons Transport Select Committee suggested that the CAA did not always operate in the most efficient way possible. For example, in its written evidence, British Airways stated that no measures to encourage efficiency had been included in the Bill and that it considered that the Civil Aviation Authority had scope to make significant improvements in efficiency in certain areas. It argued that the CAA should have a duty to operate efficiently.

In order to keep costs for airlines and passengers, as well as the taxpayer, as low as possible, it is essential that the CAA adopts efficient ways of working and modern technology where appropriate, as higher costs for airlines arising from CAA charges and any inefficient use of its financial resources have the potential to damage major UK airports’ competitiveness with alternative competing hubs. The Transport Select Committee, having taken evidence, recommended that an explicit efficiency duty for the Civil Aviation Authority should be inserted in the Bill. It is clear that it was unimpressed with arguments that other parts in the Bill already provided that explicit efficiency duty for the CAA.

I hope that the Minister will be able to give a sympathetic and helpful response to the amendments and I beg to move Amendment 67.

[Lord Soley]

I share the concern expressed by my noble friend Lord Rosser about leaving the CAA out of National Audit Office oversight. I have never understood the argument for that. It is very unusual, if not unique, for such an organisation to be left outside the remit of the NAO, and the case for its inclusion is strong. At the very least, I would like the Government to explain why; I do not understand it. The argument about efficiency follows from that, but the one that worries me most is raised by Amendment 67, which I support. I have not yet heard any argument why the CAA should be outside the remit of the NAO, because almost any other body of this type would be included. I should like an explanation for that.

--- Later in debate ---

[Earl Attlee]

My Lords, I fully agree with noble Lords on the need for the CAA to be efficient in carrying out its functions. Identical amendments to the ones now tabled by the noble Lord, Lord Rosser, were also tabled in the Commons both in Committee and on Report, and were defeated in Divisions.

I shall speak first to Amendment 67 on introducing a role for the National Audit Office. In Commons Committee the Minister announced a strengthening, outside the Bill, of the scrutiny to which the CAA is subject. Having considered this issue further myself, I remain unconvinced that there are compelling reasons to believe that NAO scrutiny of the CAA would deliver a different result from the current and new mechanisms by which the CAA’s functions are already audited and scrutinised. Moreover, the CAA is overwhelmingly funded by the aviation industry. Parliament recognised this in removing the NAO’s role from the CAA and certain other bodies in 1984. The issue was considered by Sir Joseph Pilling, in his 2008 strategic review of the CAA, who concluded that there was no need for NAO involvement. The recommendation was subsequently accepted by Ministers under the previous Government, and I have yet to be convinced that they were wrong.

It is true that other industry-funded regulators come under the scrutiny of the NAO but, unlike the CAA, they are generally either non-ministerial government departments or rely on government funding for a significant proportion of their income. The CAA’s situation is very different from regulators such as the Office of Rail Regulation. Although the ORR is funded by industry licences, it is distinct because of the high level of public funding that the rail industry receives.

I reiterate the strength of the scrutiny mechanisms already in place with the CAA. As was said on Report, the Secretary of State appoints the CAA’s external auditors. She presents the CAA’s accounts to Parliament by placing the annual report statement in the Library of the House of Commons; she is involved in the development of the corporate plan; with the Treasury’s consent, she approves the CAA’s borrowing and sets its required rate on return on capital; and she will continue to approve the remuneration of the chair and non-executive members of the CAA board. In addition, the CAA consults on its charges and fees. Clause 100 makes such consultation an explicit requirement. I therefore currently see no reasons why the NAO should audit the CAA, and ask the noble Lord to withdraw that amendment.

On Amendment 68, regarding efficiency, in practice the CAA is already subject to conditions and obligations that ensure that it is efficient. As announced by the Minister in the Commons, from 2013 onwards the Government will include in their annual accounts direction a requirement for the CAA to include an efficiency statement in its annual report. This would be subject to validation by the CAA’s external auditors, and the Secretary of State for Transport will approve the terms of reference for that work. The efficiency statement is likely to include a summary of value-for-money audits and post-project completion reviews, developments in processes and technology and a report on the remuneration and deployment of staff. The external auditors’ published statement in the annual report would contain a summary of their findings on the efficiency statement in the interests of transparency. Industry representatives on the CAA’s finance advisory group would be given an opportunity to discuss the statement before and after the external auditors had completed their activity. This establishes an annual process of scrutiny, with transparency to the industry and to Parliament, to which the Secretary of State will continue to present the CAA’s accounts.

During the past nine years, the CAA has reduced its workforce by 15%. It employed 1,057 full-time equivalents in 2003 and had reduced that number to 870 in March 2012. The CAA’s strategic plan contains the objective:

“To ensure that the CAA is an efficient and effective organisation which meets Better Regulation principles and gives value for money”.

Clause 1(3) and (4) and Clauses 83 and 84 already build in proportionality safeguards. The CAA is also required to follow the good regulation principles in the Legislative and Regulatory Reform Act 2006 and the statutory regulator’s compliance code requires that regulators,

“should be accountable for the efficiency and effectiveness of their activities, while remaining independent in the decisions they take”.

I am aware that this is very important to airlines represented by the British Air Transport Association.

I will continue to reflect on the matter and consider what further reassurances can be given to your Lordships on Report. In light of that, I hope that, at the appropriate point, the noble Lord, Lord Rosser, will consider withdrawing his amendment.

[Lord Soley]

Amendment 67 is still puzzling me, because the Minister’s argument seems to be that, because the airlines fund the CAA so heavily, there is a relatively small contribution from the taxpayer and, for that reason, the NAO need not be involved. I do not have the figures with me, but I do not think that the contribution from the taxpayer is so small as to be really insignificant. If we are saying that a public body such as this can be excluded from the NAO audit simply because it receives a fairly small amount of public money, that logic could be extended to almost any other public body of this type.

To use the Minister’s argument, if in time the railway industry was able to pay rather more for the Office of Rail Regulation, as one would hope, one would no longer need to have that looked at by the National Audit Office. The Minister seems to saying that this is purely a ministerial discretion issue; that is, “We will simply look at it. If the amount of taxpayers’ money is small enough, we won’t bother to put it under the NAO”—I do not use “won’t bother” in a dismissive sense; I mean that the Government will not bother to have the NAO look at it. However, there will come a point when we want the NAO to look it. Can the Government indicate what the trigger would be? Are we talking about £1 million or £5 million? What amount would suddenly trigger the Government saying that the CAA would be put under the National Audit Office? Alternatively, to use my example of the Office of Rail Regulation, if the railway industry suddenly started paying for most of it, would we say, “Well, they’ve reached this point. Therefore, we will no longer put it under the National Audit Office.”? I am not quite clear about what the policy is.

[Earl Attlee]

My Lords, noble Lords have advanced various arguments as to why the CAA should be audited by the NAO, but the Committee has not convinced me that the CAA would become any more efficient if we went down that route. If noble Lords want to make any progress with their argument, they will have to convince me that it would give a better outcome.

The noble Lord’s implied question was how much of the CAA’s budget comes from public funds. It is only 6%.

[Lord Soley]

Six per cent of how much? Six per cent of a large amount can be a large amount, too.

[Earl Attlee]

My Lords, I am afraid that I will have to write to the noble Lord on the CAA’s budget. As ever, I will give Members of the Committee a comprehensive answer to any of their more technical questions.

--- Later in debate ---

[Lord Rotherwick]

I am rather seduced by the amendment of the noble Lord, Lord Davies, which produces a duty to promote innovation. I very much welcome the brief from the director of airspace policy, Mark Swan, on innovation, as referred to by the noble Lord, Lord Davies, on continuous climb, and so on. Of course, that falls far short of innovation in general and business aviation. You have only to compare the UK to the US to see that we are lagging far behind. We are only a small aviation sector in general and business aviation compared to America and we need a champion to push such things.

For example, we have very few global positioning satellite approaches. They rely on a satellite, not ground-based, last century technical devices that cost a lot to administer. The answer that we are given at the moment is that it is up to the airports to ask for them, but the truth is that it is very expensive to implement. America has a GPS approach for every airport. They are wonderful. You can have dog legs on them, which means that you can fly around communities, lowering the noise, and do all sorts of things. You can have an instrument approach from both ends of your airport, not just the published plate for an NDB on one end.

More than that, the technology is now available to have WAAS approaches—wide area augmentation systems. These are ground-based devices—I believe that there are two or three in America—that up the accuracy of the GPS signal and allow the approach to be made to the accuracy that we are used to with an ILS—an instrument landing system. Again, it does away with expensive ground-based technology. They are very important. Imagine when you fly into a third world country and rely on maintenance by that country of its instrument landing systems, you are sitting in your seat wondering whether that third world country can carry that out. There is no worry if you are using a satellite-based system run by the US.

I am seduced by the duty to promote innovation but at the same time, if this is implemented or written into the Bill, it should come with a caution: “with due regard to the cost to general and business aviation”. The example is the mode S transponder that was brought in recently, for which the lower end of the industry had great difficulty grasping the need. I believe that it was necessary; there were good examples like being able to fly abroad or into certain air spaces. The industry is now beginning to grasp that and take it on. The transponder was needed but was badly sold to the industry, and it cost each and every plane owner quite a lot of money to implement the new equipment. Once again, I thank the noble Lord for his amendment; I think it is a good one.

[Lord Soley]

I do not wish to delay the Committee for very long because my noble friend Lord Davies and the noble Lord, Lord Rotherwick, have covered a number of the points that I would otherwise have made.

We sometimes think, as the noble Lord has indicated, that this must always involve a cost of some sort to the airlines or other people on the sites. In fact, in the car industry there are some recent examples that might benefit the aviation industry. For example, we have a lower car tax rate, and indeed lower insurance policies, for cars that are fuel-efficient. That policy was brought in by the previous Government but is fully supported by this one. I am not sure that we could not have a policy, or that the CAA could not at least encourage one, where our modern, quieter and more fuel-efficient aircraft could have a different landing charge. Maybe that can already be done, I am not sure.

There are other examples of that type such as the ground operations that are carried out. A number of airports have now got around to doing things like bringing in more environmentally friendly ground operations generally, particularly regarding vehicles. They were a bit slow on the uptake but now they are doing that quite fast. There ought to be awareness of encouraging that—possibly even financially, as I have indicated. I am not talking about government subsidy per se but a recognition that there may be a benefit to bringing in a more efficient system. The examples that the noble Lord, Lord Rotherwick, has just given of being able to fly around the community might be enormously beneficial.

We ought to be quite creative in trying to find ways of encouraging the people who are operating from an airport to carry out their operations in a more environmentally friendly way. That is possible and we ought to look creatively not just at methods that might increase costs but at methods that might also decrease them for some of the operators.

[Lord Trefgarne]

My Lords, being 110 years old, naturally I am resistant to innovation of all kinds, although I hope not in all branches of aviation. None the less, one needs to take care with imposing duties of this kind upon the CAA in this particular area. For example, if it were to be pressed to incorporate a new kind of material in an engine, perhaps to make it quieter, the cost of certifying a new innovation of that kind can be substantial. My noble friend Lord Rotherwick refers to the desirability of introducing GPS approaches in more airports. One has to remember that GPS systems are outside the control of the CAA, the operators and NATS, and in the past have been subject to interference from hostile agencies, which is much to be regretted. I remember an occasion some years ago when the GPS system in the UK collapsed for a couple of days because there was some technical difficulty about which the CAA and NATS knew nothing.

One needs to take a little care about these things. The ground approach facilities, for example, to which my noble friend referred, are under the maintenance and control of the airport authority and therefore, you may say, more reliable, at least when the shortcomings are more readily known. That said, I do not want to stand in the way of these worthwhile innovations, and the advantages of GPS approaches to which my noble friend referred are very real and important, but one needs to take care. The CAA has taken a careful—if that is the right word—approach to the approval of GPS systems. That was right. It is being slowly convinced of their merit, which is right, too, but it did not jump in their direction as hastily as perhaps some others did. I am not standing in the way of innovation, but I ask the Minister to explain how the costs of all this will be met. Some of them may fall on the operators—to their advantage, no doubt, so that is a good thing—but we should take a little care.