Air Travel Organisers’ Licensing

Simon Burns Excerpts

Thursday 22nd November 2012 Westminster Hall

[The Minister of State, Department for Transport (Mr Simon Burns)]

It is a pleasure to serve under your chairmanship, Mr Williams, and I am pleased that the Transport Committee has secured this debate on a very important subject.

Before I get to the detail of the points that have been raised and of the Government’s approach, both to the Committee’s report and in terms of our response to the recommendations, I must make an abject apology—not only to you, Mr Williams, but to the hon. Member for Liverpool, Riverside (Mrs Ellman); to the shadow Minister, the hon. Member for Poplar and Limehouse (Jim Fitzpatrick); and to others who have come to the debate—for the fact that I turned up late.

I was under the impression—totally wrongly, as it happens—that the debate would start at half-past 2, and I had planned on that basis. What had not been taken into account was the fact that we have, of course, modernised our hours since the middle of October and that debate starts at 1.30.

I am very, very sorry about that. I am furious with myself that I have been discourteous to the Transport Committee and to the Chamber. I can guarantee you, Mr Williams, that this will never happen again, as it affects me, and I hope that, in that spirit, you and hon. Members will accept my apology. There is no excuse whatever.

[Mrs Ellman]

I completely accept the Minister’s apology. At times, we all get caught out by changes in the timetable. Until relatively recently, I thought the debate was at 2.30, then I discovered that it was to start at 1.30. It is perfectly understandable.

[Mr Burns]

I am extremely grateful to the hon. Lady, who is being remarkably generous in the circumstances. Although I appreciate her kindness, there is no excuse for what has happened. I should have been here at 1.30, but I do thank her.

It is clear that the hon. Lady’s Committee has taken a keen interest in ATOL reform and I am glad to have the opportunity to discuss it further following the Committee’s report, which was published in April. Since the Committee reported on ATOL reform, significant changes to the scheme have come into effect that have greatly improved its functioning. Reform of the ATOL scheme is necessary to increase consumer clarity, ensure its efficient functioning and, in the longer term, put it on a self-sustaining financial basis.

On 30 April, the same day as the Committee’s report was published, the Civil Aviation (Air Travel Organisers’ Licensing) Regulations 2012 came into force, bringing flight-plus holidays into the scope of the ATOL scheme. A flight-plus holiday is one where the consumer requests to book a flight and accommodation or car hire within a two-day period. That change gives consumers greater clarity and covers many more people. It means that, essentially, if one buys something from a travel agent or tour operator that looks like a package holiday, including a flight, one should be protected by ATOL.

The Civil Aviation Authority has reported that in 2012-13, 2.5 million more holidaymakers can be covered, thanks to that single change. The flight-plus reform has enjoyed broad support from industry, consumer groups and other stakeholders. As the Committee and our analysis have suggested, it is critical that consumers are aware of their coverage. Flight-plus has gone a long way towards clarifying the ATOL scheme and reducing the chances of consumers mistakenly thinking that they are covered, but further to address that, on 1 October, we introduced the ATOL certificate, which is a standardised document given to every person booking an ATOL-covered holiday. It sets out the coverage and says what to do if things go wrong.

The introduction of the ATOL certificate has been widely welcomed by the travel industry and consumer groups alike. On its launch, it received favourable coverage in the travel industry and national press. The travel trade has worked hard to get ready for all the ATOL reforms, and I applaud its efforts to do so. The CAA has also done a very good job in supporting the travel trade in its preparations. Receiving the ATOL certificate shows that holidaymakers and travellers are covered; equally, not receiving an ATOL certificate with a booking indicates that people are not covered. It removes any uncertainty and gives holidaymakers and travellers peace of mind.

To make the changes effective, the holiday-buying public must be aware of them. To that end, the CAA is preparing for a publicity campaign in the next few months to increase awareness of the changes. Fortunately, that will coincide with a significant period when people are preparing for and buying their summer holidays, immediately after Christmas. That is a relevant and appropriate time to start getting the message across.

We are pleased with what we have achieved with the ATOL scheme thus far. It goes a long way towards addressing a number of the points in the report. We intend to address some of the remaining issues in the ATOL scheme using new powers in the Civil Aviation Bill, which completed its progress through Parliament earlier this week and will receive Royal Assent in due course.

[Jim Fitzpatrick]

I hope that the Minister will forgive me if I have missed this point in his comments, and if he has not covered it, perhaps he will do so.

We referred to the fact that the percentage of holidays covered by ATOL is falling because of the different ways in which people book their holidays. The figure was 98% in 1992, but it is down to below 40%. Will the Minister tell us the percentage of holidays covered by the current scheme and the estimate of the number that will be covered following the reforms that he has introduced and the amendments made to the Bill? How much of a gap will there be?

Will the Minister be looking to address that gap, which we need to close, when he undertakes consultation in the spring, although we will never get to 100%, because some people will always book their own holiday and do their own thing? Will he give us those answers at some point?

[Mr Burns]

I am extremely grateful to the hon. Gentleman, and I will certainly come back to him because I also want to deal with a number of points raised by the hon. Member for Liverpool, Riverside.

Before the hon. Gentleman’s valid intervention, I was about to say that we are pleased with the achievements that the ATOL scheme has so far realised. We believe that they go a long way to addressing a number of the points in the report. We intend to address some of the remaining issues in the ATOL scheme using the new powers in the Bill. For example, holidays sold by airlines are not required to be ATOL protected. That creates a regulatory inequality and potential confusion for holidaymakers. It is important to have a consistent regulatory framework for businesses selling holidays, including a flight, as far as is consistent with EU law.

Further, some consumers are not protected when buying a holiday because that holiday was procured on an “agent for the consumer” basis. That means that, rather than selling a holiday to the consumer, the travel agent technically buys one on the consumer’s behalf, as we discussed on Tuesday in the main Chamber, which means that it is outside the scope of the current ATOL scheme. The powers in the Bill will allow that method of avoiding the scheme to be removed.

Some companies might claim that they are merely facilitating a purchase of a flight, but neither buy on the consumer’s behalf nor make available or sell flight accommodation to them. Thus, they might argue that they are outside the scope of the ATOL scheme. That business practice is a potential avoidance approach. The Bill will give my right hon. Friend the Secretary of State powers to require such businesses to hold an ATOL licence.

The Bill is awaiting Royal Assent. Our intention is to create a level competitive playing field and to avoid holidaymakers mistakenly thinking that they have protection when they do not. Holidays including a flight that look like package holidays should be protected like package holidays under the ATOL scheme. These further reforms will go a long way towards ensuring that.

Of course, before taking further steps, we will consult widely. Subject to parliamentary processes, we expect to produce an impact assessment and launch a consultation on draft regulations in 2013. Our decisions will be based on the outcome of that consultation.

[Mrs Ellman]

I am reassured by the information that the right hon. Gentleman is now giving us, but can he say when he anticipates that a new scheme or the new regulations will be operational?

[Mr Burns]

I would very much like to do so, but that would give too many hostages to fortune at this stage, because, as I said, we are going to base our decisions on the outcome of consultations. The consultations will be on draft regulations. Obviously, that is a due process, with time scales. Once we have had a consultation, we will have to consider fully the responses to it and any lessons that we may learn from it—any points that arise. Therefore, I hesitate to give a precise timetable that I could be held to, because often, for the best reasons and intentions, one does not keep to a precise timetable, which then leads to further problems. However, I can assure the hon. Lady that we are determined to do this because we want to get protection for those who deserve and should have protection. We want to get it right, effective and appropriate, and we will do it without cutting corners as soon as it is practically possible to do so.

Let me return to the intervention from the hon. Member for Poplar and Limehouse about the figures. This information may be helpful to him. As I understand it, ATOL coverage is now at about 50% for leisure trips abroad by air. We expect flight-plus reforms to increase that to 55%. No estimate has been made at this stage of further increases from reforms that will be made by the Civil Aviation Bill. However, we expect that to be included in the consultations next year, so that when we move forward with our precise proposals to tackle these problems, we may be in a better position to upgrade the second of the figures that I gave the hon. Gentleman and anticipate the increase in the coverage percentage as a result of the proposals that we will bring forward. I hope that that was of some help to the hon. Gentleman.

[Jim Fitzpatrick]

I appreciate the statistics that the Minister has just cited. I confess to being a little surprised that, with the advent of flight-plus, the protection goes only to 55% of people travelling abroad on holiday. I am not pointing the finger at anyone and saying that they are responsible for that, but it shows the size of the problem facing the Government, because the other 45% of travellers are the ones the Government will have to pick up the tab for if they need emergency flights to get them home. Those are the people the taxpayer wants to ensure are paying some insurance cover for themselves.

[Mr Burns]

I can understand the hon. Gentleman’s point. I think, though, that, up to a point the relatively small increase in the coverage reflects the fact that the number of people who buy a package holiday in the conventional sense is far greater than the number of people who will buy a flight-plus plan. I think that that is one of the main reasons for the relatively small increase in the percentage.

On ATOL and our proposals, our aim—from the actions that we have already taken and those that will flow from the Civil Aviation Bill—is to provide clarity about coverage rather than to protect everyone. The ATOL certificate will help to show consumers when they are or are not covered. They can then decide what level of protection they purchase through insurance or by paying by credit card, which is an element of the protection in the scheme. The scheme will give greater clarity to individuals before they decide what to purchase.

[Jim Fitzpatrick]

One point referred to earlier is the consumer’s awareness of whether what they purchase is ATOL-protected. That is a huge issue, because the more that people realise they are uninsured or unprotected, the more likely they are to think about that and to decide that it is worth the £2.50, as it currently is, to protect their family and themselves against anything that might happen, and with which they may not be familiar.

The Minister may not be able to respond on this now, but in due course, when the CAA launches the extended scheme, will it seek the biggest possible buy-in, particularly from the companies that offer protection, to have as much publicity as possible? That would raise the awareness of consumers, and allow companies engaged in the scheme to point the finger at those that are not, and say to people, “If you go with them, you are not covered; if you come with us, you are.”

[Mr Burns]

The hon. Gentleman makes an extremely valid point. For any scheme, a crucial element, apart from its effectiveness, is people’s understanding and knowledge of what they may—or, more importantly, may not—have protection against.

I have every confidence that companies, whether tour operators or airlines, will do all they can to make potential customers aware that they are covered by the scheme, because that is a positive selling point for customers and gives them peace of mind. However, as I said earlier, the CAA will also publicise the scheme proactively to ensure that people are generally aware of their protections if they make purchases from those covered by the scheme or from those who, in due course, will be brought within its ambit through our use of the powers contained in the Civil Aviation Bill.

It will become part of people’s mindset that the protection exists, and they will want to know whether they are protected because of the possible implications if they are not. This is slightly off the subject, so I will keep the comments brief, but that is like people going abroad under their own initiative, who may not get the health card for the reciprocal health arrangements in Europe if they travel there, or private health insurance if they travel further afield—to the United States or wherever—although, if they are taken ill or have an accident and need medical treatment, they will face catastrophic bills that could, for instance, completely change their family’s financial position.

The more publicity there is and the more that people are aware of what the situation is and what protections they have, the more the consumer will be interested and concerned to find out exactly what they are buying.

[Mrs Ellman]

Does the Minister know when the CAA intends to embark on the advertising and the promotion of information? Will the CAA do that with the industry itself, and will the advertising relate to the consumer needs that we have already identified? One feature that has been constant, certainly over the many years that the Committee and people elsewhere have looked at the issue, is the confusion in the customer’s mind about whether they are insured, and about what they are covered for and when.

[Mr Burns]

I am grateful to the hon. Lady for that intervention, because it raises an important issue. As I said earlier, we expect the campaign to be launched by the CAA immediately after Christmas. That is when many people consider purchasing holidays for the summer, so it will be relevant at that time. It will seek to make people aware not only of the ATOL scheme—for those who are not aware of it, and I fear that many are not or do not fully understand what it is—but of the changes and improvements made during this year. It will also provide clarity, so that the message gets across to those who are purchasing a holiday, flights or whatever, that as well as looking for value for money and so on, they should check whether their purchase is ATOL-protected and what that protection means.

[Jim Fitzpatrick]

I was going to ask the Minister another question but, if I may, I will ask him a supplementary to the one from my hon. Friend the Member for Liverpool, Riverside.

The Minister has said that the CAA is looking to start advertising in the new year. We all know that summer holidays start being advertised on Boxing day. That is the sort of time when people are indoors and when those who work have a few days off, and they will be tempted by the adverts on the TV. That is the time for the industry to advertise. My hon. Friend asked whether the CAA will be engaged with the industry. An imprimatur on adverts—that they are CAA-approved—might be the way to co-ordinate the publicity campaign between the industry, which will have greater buy-in from the customer, and the CAA, which might have their future bills reduced.

I wanted to ask about the Minister’s earlier comment on people not taking out private health insurance, for example, when they go to the United States. Most people know that if anything happens to them there, they face a massive health bill, and I think that most people therefore take out private insurance. Are there any figures for the comparison between the number of those who travel to such difficult places and the 50% to 55%, who the Minister says are ATOL-protected against the collapse of their airline?

[Mr Burns]

On the last point, to the best of my knowledge, there are no figures, and I suspect that, by their nature, it would be difficult to find any accurate figures. However, there is one benefit. The hon. Gentleman talks about the north Atlantic route, on which the two main carriers are British Airways and Virgin. At the moment, they have both voluntarily signed up, so their passengers have the protections. They have done that simply because they want to give such protection to their customers, and I pay tribute to them for doing so voluntarily.

As the hon. Gentleman rightly says, the start of the advertising campaign is intended to coincide with the Boxing day bank holiday. He and I are familiar with the huge number of adverts that traditionally emanate immediately after breakfast on that day.

On whether the CAA will consult the industry, I have no doubt that it will. The CAA wants a focused system of advertising that gets across the message. It is open, as the Government are, to views, opinions and recommendations that will help it come up with the most informative and best advertising, and with maximum coverage for their message.

I am not sure that I altogether have the same faith as the hon. Gentleman in human nature. Although, to the best of my knowledge, no figures can prove or disprove this, I suspect that significantly more people do not bother to get health insurance to go across the Atlantic than either of us might think, particularly those who go for only a short period and try to wing it, believing that nothing will happen to them. However, that is a slightly different point.

Let me now move on to the European angle that the report covered. The Committee called for a clearer distinction between the consumer protection and the repatriation functions of ATOL. Much depends, however, on what happens at the European level with the planned reforms of the package travel directive. The ATOL scheme implements in part the PTD requirement for insolvency protection for consumers. We expect the Commission to announce its reform proposals in spring 2013, and the Government will consult on what position the UK should take. The form of the Commission’s proposals will help determine how we implement further changes to the ATOL scheme, so we will not consult on the new ATOL regulations until the Commission has announced its proposals, because, as both the hon. Lady and the hon. Member for Poplar and Limehouse will accept, it would be rather pointless to put the cart before the horse.

The scheme is financed by the air travel trust fund. For historic reasons, the ATTF has a deficit and requires a commercial borrowing facility, backed by my Department, of up to £20 million. The introduction of the ATOL protection contribution and the increased number of protected passengers have, thanks to our recent reforms, brought more money into the fund, and the deficit now is on track to being eliminated in the next year or so. That presents an opportunity to reform the finances of the ATOL scheme.

The Government will consider broader changes to the scheme and invite comments on its funding and management to ensure its continued effectiveness. Our aim is to ensure that the scheme is equitable for consumers, the travel industry and the taxpayer.

The hon. Lady raised a number of matters during her contribution. On some, for the reasons that she is aware of and that I am acutely aware of, I will have to write to her to give her the answers. She asked whether airlines and tour operators based in other countries will be covered by the scheme. All sales of package holidays in the EU are covered by the protections in the PTD, but under EU law we cannot require airlines or tour operators established in a European economic area state, other than in the UK, to have an ATOL licence to protect sales of flight plus holidays. That is why we want to examine the Commission’s proposed reforms to the PTD before consulting on any new ATOL regulations, as that might extend protection to all or some flight- plus type holidays. We want to understand the impact on UK airlines and other businesses as part of that consultation, and, as I say, we will engage in that once the Commission has published its proposals.

The hon. Lady also asked about the discussions on travel insurance between the EU and the Government. All I can say is that they are ongoing. The most appropriate time to discuss them is within the whole consultation process on the PTD in due course next year.

In conclusion, as might be clear by now, ATOL reform is not a simple process, but at each step of the way, the Government have acted to create an effective and financially self-sustaining scheme. To ensure effective protection for travellers and holidaymakers, the Government have increased the extent of coverage, improved consumer clarity and moved to bring more holidays into the scope of the ATOL scheme. We shall keep the principle of effective protection in mind as we consider further changes to the ATOL scheme in the near future.

Once again, I thank the Transport Committee for its constructive comments and I am glad to have had the opportunity to debate this important issue. Again, I offer my sincere and deepest apologies to the members of the Committee for the position that I put them in at the beginning of the debate.