Civil Aviation Bill
The Committee consisted of the following Members:
Sarah Thatcher, Judith Boyce, Committee Clerks
† attended the Committee
‘(g) provision relating to a compensation scheme for the noise pollution arising out of licensed activities which affects persons residing or occupying business or community premises in an area designated in the licence conditions.’.
It is a privilege to serve under your chairmanship, Mrs Riordan, and I am grateful for the opportunity to introduce the amendment and to debate clause 21. I welcome the Government’s recognition of the importance of the environment to aviation and the fact that that informs important principles underlying their emerging sustainable aviation policy framework. The CAA’s recently published consultation document, “CAA and the Environment”, also states that the CAA, as the aviation industry’s regulator, has a potentially key role to play in helping the sector improve its environmental performance. The CAA’s stance is helpfully stated as follows:
We all recognise the need for aviation to support our economy and the vital importance of airports in providing local employment. However, one set of stakeholder needs that do not appear to be as well recognised or reflected in the Bill, or in the CAA’s useful environmental consultation document, are those of the residents who live around airports and who are exposed to aircraft and other noise that may arise from licensed activities and surface transport. The consultation document states that aviation noise is a local issue for neighbourhoods around airports and that any policy solutions will need to find ways for residents and airport owners to engage with each other more constructively. However, although the wording that describes the desired outcomes for the CAA’s environmental objective, as set out in its strategic plan, refers to sector ambitions, to consumers and to consumer choice, no specific reference is made to local residents.
Jim Shannon (Strangford) (DUP): Regarding the stalemates that may arise in relation to an extension to an airport and local residents concerned about noise, is some method of arbitration perhaps necessary within the legislation to ensure that, where there are two opposing points of view, somewhere in between can be found for them to agree on?
As I was saying, the CAA’s environmental objective refers to sector ambitions, to consumers and to consumer choice, but there is no specific reference to local residents, despite a reference to a clear commitment to protect the public’s interests. We support the work on noise modelling and environmental reporting that the CAA will be undertaking. Although the amendment makes specific reference to noise pollution, other vital environmental issues, including emissions, reporting and so on, are covered by other amendments and will be debated during consideration of later clauses or returned to in later stages of the Bill.
The amendment has the support of my local authority, the London borough of Hounslow, and, in essence, it seeks a provision relating to a compensation scheme for noise pollution arising from licensed activities. The measure would support local residents, businesses, and community premises being potentially insulated according to a formula based on geographic zone or noise levels that could be decided or kept under review by the Secretary of State, as a minimum level of the airport’s responsibility to the local area.
Heathrow is a vital economic asset, which provides employment to many thousands of my constituents and those of neighbouring boroughs. It is estimated that Heathrow provides more than 110,000 jobs. For Hounslow’s quarter of a million residents, however, the daily environmental impacts of Heathrow include flights overhead every 60 seconds, and the majority of the borough is located within the 55dB(A) Lden aircraft noise contour area.
We know that noise has many impacts. A recent report by Barts and the London School of Medicine and Dentistry on the effect of nocturnal noise on health documents the relationship between noise and stress levels, and the impact of aircraft noise on annoyance and irritation. The report states that recent secondary analyses of the London Heathrow sample of children from the RANCH project—the EU project on road traffic and aircraft noise exposure and children’s cognition and health—examined the effects of daytime aircraft noise exposure at home and at school, and concluded that aircraft noise exposure at school had a significant effect on children’s cognitive development and that schools needed to be an important focus for the protection of children from aircraft noise.
Although I have drawn on examples from my local area, the impact of noise is a national issue that affects any airport location. The good practice guide on noise exposure and potential health effects from the European Environment Agency states that 27% of people in the 55dB(A) Lden level areas are highly annoyed by noise, which has implications for irritation, anxiety and stress. Disturbances in the early morning have been proven to have a serious effect on people’s health and well-being. The CAA is the regulator of aviation activity in the UK, but its responsibility for the environmental impact of aviation has been the subject of much debate and will continue to be so. The amendment seeks to ensure that the CAA has some authority to help control the effects of noise and ensure the quality of insulation and mitigation schemes that each of the major UK airports operates in the interests of local residents and the local work force.
The idea is not without precedent; in the United States, airport-related noise insulation schemes are not only regulated, but administered by the Federal Aviation Administration across American airports. The UK has a voluntary system of noise insulation for communities affected by aircraft noise. In Heathrow’s case, the operator, BAA, administers a voluntary scheme that provides noise insulation grants. Good progress has been made under the scheme, and BAA consulted on a new scheme last summer, which we hope will lead to further improvements. Much of the negotiation has taken place, and will continue to do so, between airport operators and local authorities.
I welcome the reporting of environmental impacts by the CAA, which will, in time, lead to greater consistency in monitoring and a more robust evidence base to support dialogue and negotiations between local authorities and airports. However, one of the Bill’s unintended consequences—particularly as it lays open the possibility of inter-terminal competition—may be a lack of clarity about who will be responsible for negotiating with local authorities and under what formula different operators may have different levels of responsibility. Residents who live near airports will not thank us when battles begin about who should be responsible for working with local authorities to help mitigate the effect of aviation on local families.
In the amendment, the Opposition argue that, in addition to a passive reporting role, the CAA’s roles should include those of advisor and referee, and that airport operators’ responsibilities to local communities should be clearly referred to as part of the licence conditions under which they operate. That will help to provide greater clarity and consistency in the principles of noise mitigation schemes, which vary—sometimes rightly, sometimes not—across the country. Clear minimum standards should be set, and local authorities should be given the tools and support to negotiate effectively for the needs of their local communities. I am sure there will still be room for local flexibility on that, including on the specifics of any compensation scheme and on local choice of product.
I thank the Committee for the opportunity to move this amendment. I hope that enshrining such a provision in the licence conditions would enable us to lock in for the future current good practice that might otherwise be watered down or lost as the regulatory regime changes and new systems and priorities are introduced.
The Minister of State, Department for Transport (Mrs Theresa Villiers): I listened with great interest to the hon. Lady’s thoughtful contribution, and I am in no doubt of the need for all airports to consider and properly address their noise impact.
The hon. Lady and I have a great deal of common ground, but despite that there are a number of important reasons why I cannot ask the Committee to support the amendment. Clearly, her constituency is significantly impacted in a positive way by Heathrow, with all the job opportunities, but it is subject to much of Heathrow’s noise impact, too.
First, I do not feel able to support the amendment because it contains a significant technical flaw. Although the amendment seeks to insert a provision on compensation for noise pollution arising from licensed activities, it is not entirely clear on the meaning it attributes to “licensed activities”. I assume that the intention is to refer to
A more substantive reason for opposing the amendment is because, as I said in response to amendments tabled by Opposition Front Benchers and to questions during the evidence sessions, environmental protection measures should not depend on whether an airport happens to be subject to economic regulation. If there is a case for environmental regulation, this should depend on the airport’s environmental impact, regardless of whether the airport happens to have substantial market power and fall within the scope of the economic regulation framework set out in the Bill.
Of course, noise is a real concern for many people who live around airports—noise is a particular issue at Heathrow, and the Government’s concern about the noise impact was one of the major reasons for our opposition to building the third runway—but, as the Committee has heard on a number of occasions, I do not feel it is right to rely on the economic regulator to act as a policeman on environmental issues.
We want to see airports making every effort to reduce noise impact and engage constructively with local communities on that, which is why, as we have heard, the Government directly regulate noise at the nation’s three largest airports. That regulation includes restrictions on both day and night noise at Heathrow. At other airports, planning law enables local authorities to introduce restrictions to protect local communities from aircraft noise. For example, a cap may be imposed on the number of flights to and from an airport. The EU environmental noise directive 2002 requires noise action plans to be produced by all airports with more than 50,000 annual movements.
The CAA is bound to consider environmental matters in its work on airspace management, which is separate from economic regulation, including within the future airspace strategy on which it is working with NATS. The Government’s consultation on a sustainable framework for aviation will consider what more can be done to mitigate aviation’s noise impact, as well as many of the issues raised by the hon. Lady today. For those reasons, I hope that she will consider withdrawing her amendment, as it does not achieve the aim she aspires it to. I also feel, as I have said, that using the licensing system is not the best way to deal with the environmental impacts of aviation.
Seema Malhotra: I thank the Minister for her response. What is heartening is that the need to deal with the issues of noise and other impacts for local residents is understood. I also recognise her points about technical interpretation of the amendment. Under clause 68,
Although I take the Minister’s points on board, I think we need to work towards a solution that will stand up nationally. We are not there yet, but I am happy to withdraw the amendment and continue discussions, perhaps looking at introducing a further amendment at a later stage in the Bill. On that basis, I beg to ask leave to withdraw the amendment.
I sought some clarification about the CAA’s various licensing responsibilities for airports from the excellent Ms Louise Butcher, whom many colleagues will know as the transport policy specialist at the House of Commons Library in the Department of Information Services. As the Committee will remember, I referred last week to licensed airports; I was unclear about the different airports that would be covered by the licensing arrangements. After asking for clarification from the Library about the different licences, Ms Butcher advised me:
“I wonder if it might be useful to put down an amendment to the Bill changing references to ‘licence’ in Part 1 to something like ‘regulatory licence’, in order to differentiate it from the general ‘operating licence’?”
That would give greater clarity to the different airports. Perhaps the Minister will reflect on that point, because I think it would tidy up the Bill. That is not a matter on which the Opposition seek to oppose the clause; rather, we ask for clarification, either today or at some point in future.
Mrs Villiers: I am grateful to the shadow Minister for raising that point. It is important, as he says, to distinguish the kind of licences that every airport needs for the purposes of safety and operations from the licences we propose to introduce for the purposes of economic regulation, which would apply only to certain airports passing the tests we have discussed.
I am clear that the Bill provides appropriate separation of the different categories, but I am happy to reflect on what the shadow Minister has said. It is important that the Bill maintain clarity, and although I am content for the moment that clarity is achieved, I will look again in case anything further can be done.
It is a pleasure to serve under your chairmanship today, Mrs Riordan, and to contribute to the proceedings. The amendment would raise the threshold under which appeals may be made to the Competition Commission against the licence conditions imposed by the CAA in a new licence. We support the principle of the new regime allowing appeals to be brought via the Competition Commission, rather than requiring judicial review, but we wish to ensure that effective safeguards are in place against the appeals process being used in a frivolous or vexatious manner.
During pre-legislative scrutiny, a number of airport operators and their representatives argued that the appeals process should be balanced and that appeals against licence conditions by airlines should not be too numerous or effectively become a reflex reaction to every licence granted. In oral evidence to the Committee, Members will recall that Emma Gilthorpe, the director of regulation at BAA Airports Ltd, suggested that there was a risk of appeals being quite numerous under the Bill as it stands. She said that at Heathrow, with a revenue turnover of £1 billion each year through airlines, even small changes in the price control system would lead to an airline being considered as materially affected, thus potentially triggering an appeal.
“virtually all airlines operating (or potentially operating) at a particular airport could argue that they have a material interest in the airport’s licence conditions, particularly those which related to price controls”.
Gatwick also points to the Competition Commission’s own recommendation. It expressed concern that a system in which numerous unmeritorious appeals are pursued increases the burden on the regulated company and increases the risk of the Competition Commission effectively becoming the regulator of the system. As I am sure the Minister agrees, it would be deeply counter-productive to the principles of the Bill, which we support, if, because of an imperfectly specified appeals process, an attempt to shift regulatory powers to the CAA shifted power to the Competition Commission instead.
Such a scenario raises the potential for a regulatory logjam of appeals, slowing the process of investment in improving airports, to the long-term detriment of passengers
affected by the new licence conditions. The amendment would prevent vexatious or frivolous claims from operators that would be only marginally affected by licence conditions. It would prevent large numbers of airlines at a given airport from introducing co-ordinated appeals and would discourage appeals based on hypothetical air operations. The proposed wording leaves plenty of scope for genuine and warranted appeals, while limiting the potential for regulatory gridlock, so we hope the Minister will be able to accept it.
Mrs Villiers: Thank you, Mrs Riordan. I am sure that the Committee will wait with bated breath for the contribution of the hon. Member for Blackley and Broughton, who raises an important point in amendment 5 that we will be able to debate later.
I am grateful to the hon. Member for Barrow and Furness for raising the issue and for giving us a chance to debate one of the most important aspects of the Bill. If I may trespass on your patience for a little longer than usual, Mrs Riordan, I would like to explore some of the broader issues relating to the appeals process, because it is crucial.
For both technical and substantive reasons, I cannot support the amendment. At the technical level, I question why it has been tabled to clause 24(2)(b) but not clause 25(2)(b), which contains the same phrasing. Accepting the amendment would create an unjustified and irrational inconsistency between the grounds on which an appeal could be made regarding the conditions of a new licence, and those on which an appeal could be made against the modification of licence conditions.
I do not accept the heart of the argument put forward by Opposition Front Benchers, and nor do I believe that a case has been made for the concept of “materially affected”, which the amendment seeks to delete, being problematic to apply in practice. Whether someone is materially affected by a decision is a question of fact for the Competition Commission to decide. The concept of something being “material” is used in many other legal contexts without giving rise to problems of predictability and consistency. For example, under the Electricity and Gas (Internal Markets) Regulations 2011, permission to appeal may be refused by the Competition Commission where a person is not materially affected. The terms “material”, “material change”, “material circumstance”,
A further reason for the Committee to oppose amendment 21 is that it would have a negative impact on the effectiveness of the reformed system of economic regulation proposed in the Bill. It would be a significant and fundamental change. I must say that I see a surprising inconsistency in the Opposition Front-Bench team’s position. They were adamant last week that airlines were effective representatives of passengers and should have an important role in the regulatory system, and they tabled amendments to that effect. Now, however, they are seeking to dilute what is probably the most important right that the Bill grants to airlines—one that I believe airlines will be able to use effectively to defend their interests and, crucially, the interests of passengers.
As Committee members will probably be aware, the Bill draws on work going back some years, including the Pilling report, the Cave review and various consultations under the previous Government. There is no doubt that the appeals process has been the subject of lively debate throughout the deliberations that have led the Government to where we are today and the Committee to this amendment.
The shadow Minister has alluded to the dilemma that the Government faced on the kind of appeal rights to grant: on the one hand, we want a balanced and fair system that will be effective in holding the CAA to account for its decisions and the impact of those decisions on passengers; and on the other hand, it would be unwise, and it would not be right, to create such broad appeal rights that we end up with a slow and expensive two-tier decision-making system of the sort outlined by the hon. Member for Barrow and Furness.
Various options were considered, including vesting a right of appeal in airports and the Secretary of State, to ensure that we do not end up with a two-tier system. The airlines were concerned about that, but, to their credit, they took a constructive approach by proposing a number of ideas and working hard to develop an effective but constrained right of appeal that balances the competing concerns that I have outlined.
After extensive engagement with different stakeholders, including airlines, a more powerful right of appeal than the judicial review options available under the current system was included in the Bill—I welcome the shadow Minister’s supportive approach to that—but that powerful right of appeal is still limited in important ways to ensure that it cannot be used to clog up the decision-making process unreasonably. The right of appeal is available only to materially affected airlines, for example, but it is also constrained in other ways: an appeal does not suspend a licence condition, except in some limited and defined circumstances; and appeals are adjudicative, rather than investigatory.
Mrs Villiers: That is a timely intervention. Not only does constraining the right of appeal to materially affected airlines provide a safeguard, because it limits the scope of the appeal process, but we have also included a number of additional safeguards in the Bill to address exactly the sorts of concerns raised by the hon. Gentleman. I will outline those safeguards, but there will be a further opportunity later to debate those safeguards in more detail.
Appeals will be adjudicative, rather than investigatory, which is an important restriction. The process will also be subject to strict time limits, and the Competition Commission may make an order for costs following its decisions, so an appeal will not necessarily be an entirely risk-free option. As I have said, the proper place for detailed debate on such concepts is probably during our consideration of later amendments, but if the Committee adopted the amendment, it would destabilise a carefully constructed compromise package on appeals that now commands significant support.
“Virgin Atlantic has consistently supported the proposals for the Competition Commission to become an appellate body for CAA decisions, subject to the caveat that all parties with a material interest are granted the right to appeal.”
Nigel Mills (Amber Valley) (Con): I would not like to miss the Minister before she concludes her response. The Committee will not be too surprised to learn that my question is purely semantic and technical. Clause 24(1) refers to clause 15, which lists the draft licence conditions. Clause 15(2) refers to a person as being the “applicant for the licence”, whereas the reference in clause 24 is to the “holder of the licence”. Can the proposed operator hold a licence before the licence has been granted and comes into force or should we still refer to the “applicant” rather than the “holder”?
In conclusion, I would argue that there is no need to remove “materially affected” from subsection (2)(b) because a range of other important safeguards are in place to prevent abuse of the appeal right system, some of which I have set out. A further safeguard is provided by clauses 24(5) and 25(5). As the shadow Minister pointed out, those two subsections provide that the Competition Commission may refuse permission to appeal on the grounds that the appeal is trivial or vexatious, or has no reasonable prospect of success. So the Bill gives the Competition Commission the power to stop an appeal in its tracks if it has no merit and no prospect of success.
As drafted, clause 24 gives important rights to airlines to hold the regulator to account in relation to decisions that may have a significant impact on their businesses and their passengers. I do not believe that the Opposition made the case for the significant restriction in airline appeal rights, so I hope that, given this reassurance, they will withdraw the amendment—if they do not, I would have to ask my colleagues to oppose it.
John Woodcock: I thank the Minister for that response, but we remain concerned and we will need to reflect on this. I hope that she will, too, given the substantial issues that we have set out today. Although I reserve the right to come back to this later, I beg to ask leave to withdraw the amendment.
(c) that the appeal, if granted, would have effects inconsistent with the duties of the CAA under Section 1.’.
‘(ba) that the appeal, if granted, would have effects inconsistent with the duties of the CAA under section 1, or’.
I agree with the basic changes being made here. As my hon. Friend the Member for Barrow and Furness said, relying on judicial review to get decisions is not a sensible way to run an airport. It is sensible to have an understood and thought-through appeals process. I also think that in defining the appeals process in clause 24 we come to some of the problems, ambiguities and, perhaps, even contradictions that arise when the Bill switches its focus from what happened previously, when the interests of the airlines were what needed to be considered. As that has changed to the interests of the passenger and freight user, we have arrived at a half-way house, which could lead to some problems in future.
In other words, an appeal would not be allowed if it was in conflict with the duties defined in clause 1, which are effectively the interests of the passenger and the freight user. What troubles me, which is why I tabled the amendment, is what has troubled me on previous amendments. I can find no definition in the Bill—if there is one I should be grateful if the Minister could tell me—of what the passengers’ interests are.
It has been clear from previous arguments and discussions between airlines and airports that the interests of low-cost carriers—including the most aggressive low-cost carriers, such as Ryanair—are very different from those of American Airlines, British Airways, Delta or Singapore Airlines, which want to provide a quality experience. Both types of airlines are materially affected by the licensing arrangements, but they would have very different views on the definition of the interests of the passenger. Put simply, Ryanair wants things cheap and cheerful: it wants
The judicial review process was a procedural one; if an airport was taking decisions in an unreasonable way, without taking account of the facts and without consulting properly, it would lose the judicial review. These are a different set of criteria that do not define the freight user’s interest or the passenger’s interest, which lies at the very heart of this Bill. I am increasingly worried that if those interests are not defined, the Competition Commission will not have good guidelines on which to make its decisions. That is my problem, which is why I have tabled the amendment. I want to understand how the Government intend to make sure, when airlines or air users appeal, that the interests of the passenger and the freight user are paramount.
Mrs Villiers: I am grateful to the hon. Gentleman, as ever, for his remarks and for the opportunity to debate the amendments. As with many debates in Committee, I understand and sympathise with the aim of the amendments but I do not feel that they are necessary and I hope to convince the Committee that the Bill deals with the points they raise. I will deal specifically with the amendments before I touch on the broader issues that the hon. Member for Blackley and Broughton raised.
Our aim is to establish an appeals process that facilitates transparency, accountability and the timely resolution of appeals. As we have discussed this morning, clauses 24 and 25 provide that permission to appeal should be granted only where appropriate. The amendments would not change how the Bill works in practice; in effect, they would be empty provisions, because clause 30 substantially delivers the outcome that they seek.
Subsections (2), (3) and (4) of clause 30 provide that the Competition Commission be subject to the clause 1 primary duty to passengers when deciding an application for permission to appeal under clauses 24 and 25; determining such an appeal, including taking decisions and giving directions under clause 27; and deciding an application for permission to intervene. The granting of a direction to suspend a licence is governed by slightly different criteria.
I hope I can reassure the hon. Member for Blackley and Broughton that the combined effect of clause 24(5)(b), clause 25(5)(b) and clause 30 ensure that the Competition Commission is subject to the primary duty in clause 1 when deciding whether permission to appeal a licence condition or licence modification should be granted. I recognise, however, that the hon. Gentleman has raised wider issues about how the regulatory structure will address the interests of end users. I fully acknowledge that, at times, the interests of different passenger groups will contrast, and they will aspire to different outcomes as they travel through the airport.
Last week, we debated that point in relation to the interests of present and future passengers, so there is no doubt that the CAA, in its decisions, and the Competition Commission, when considering appeals, will need to think intelligently about how to balance and deal with such conflicting interests. I believe that the CAA has the capacity to balance the interests of different groups, as provided for in clause 1(5), which we debated last week.
There is no single right answer that the Committee can give as legislators about the decisions that the CAA might take, in terms of how to deal with conflicts between the interests of different passengers. It is good practice, however, to vest such decisions in an independent, expert regulator, with the maximum flexibility to ensure that we have a regulatory system that is responsive to passengers and promotes their interests, but does not impose unreasonable or unnecessary costs on our airport sector. With that, I hope the hon. Gentleman will consider withdrawing the amendment.
John Woodcock: I apologise if the order of contributions is slightly unconventional; I probably should have been quicker on my feet. Amendment 22 uses the same text as amendment 5, tabled by my hon. Friends the Members for Blackley and Broughton and for Bolton West, but for a different—although I would say complementary—reason.
Given the concerns that we have discussed about the potential for vexatious or frivolous appeals over new licences, it is right that we should look to ensure that appeals on the modification of licence conditions should be suitably regulated. In particular, we believe that there is a strong case that the appeals mechanism should reflect the primacy of the duties that the Bill and previous Bills have placed on the CAA. We strongly support the Bill’s aim to orientate the CAA’s duties towards using economic regulation to promote airport users’ interests and towards promoting competition in the provision of airport operation services, along with the secondary duties, set out in chapter 1 of the Bill, which include ensuring the licence holder’s ability to finance their operations, promoting economy and efficiency on the part of licence holders, and meeting international obligations.
Given the importance of those duties, it could be a remarkable waste of time and resources if appeals were permitted against licence conditions intended to bring the CAA within those duties. Following the Bill’s passage, new and amended duties imposed on the CAA could require a significant number of licence modifications over the coming years, to bring the CAA’s operations in line with those duties. It could be damaging to the interests of passengers and freight shippers—as well as being contrary to the will of the House—if such modifications were then subject to lengthy and repeated appeals by either airports or airlines.
The amendment seeks to provide the Competition Commission with additional grounds to refuse an appeal request, permitting it to judge that should the appeal be granted, it would place the CAA in breach of its duties, as set out in the Bill. By proposing the amendment, we are seeking not only to protect the interests of airport users, but to provide additional force to the duties rightly placed on the CAA by the Bill.
Mrs Villiers: I am grateful to the shadow Minister for his comments. I do not think that I need to add to what I have already said. Clause 30 delivers what the amendments intend, so I urge the Committee to reject them if the Opposition put them to a vote.
John Woodcock: I do not feel that that response answers my point, and I do not know whether my hon. Friend the Member for Blackley and Broughton will accept it. However, we will not push the matter to a vote at this stage; we will go away and reflect on it.
Graham Stringer: I thank the Minister for her reply. She has dealt comprehensively with my technical points by pointing me in the direction of clause 30, which defines the primary objectives. The Minister could reflect further, however, on more definition to help the Competition Commission with what the interests of freight users and passengers may be.
One obviously cannot anticipate every particular appeal and advise the Competition Commission on what it should do in each situation. On the other hand, leaving the Competition Commission without any adequate definition of what the interests of freight users or passengers might be is probably leaving it with too much work and may lead to some perverse consequences.
Mrs Villiers: I am grateful for the hon. Gentleman’s further remarks. As I have said many times, he has great expertise in these matters. However, I continue to believe that it would be wrong for us to “hard code” into the Bill a particular definition of exactly how the end user is best served. It is better to give the CAA broad discretion and to leave it up to the Competition Commission to make sensible decisions on the basis of the constraints already set out in the Bill in relation to the appeals framework.
However, there is a route for ministerial input into the process as a whole, because clause 2 provides for the Secretary of State to issue guidance to the CAA that may be of assistance when it makes decisions under the primary duty. There are non-legislative options to provide further guidance to the CAA in the future, so that may be useful when it makes decisions on the end user’s interests.
We question the basis on which the Competition Commission will decide that the “exercise of a discretion” is wrong before the appeal has been granted. To decide what was wrong in any instance would surely be a judicial process that would require evidence and representations from both sides of the argument. Will all interested parties be able to make representations to the Competition Commission before it allows an appeal to be granted under 26(c)? Will a party asking the Competition Commission for an appeal under 26(c) have to inform other interested parties of the grounds of their appeal in order to provide evidence?
Mrs Villiers: The hon. Gentleman asks some specific points about the procedure in relation to paragraph (c), but it is important to address the issues raised by the amendment he has tabled—namely, the deletion of that paragraph.
The amendments seek to reduce the grounds on which an appellant could make an appeal to the Competition Commission against licence conditions and modifications of licence conditions. Although I welcome the opportunity to debate this important issue, for reasons similar to those I set out in relation to the last group, I am concerned that the amendments would damage the carefully constructed appeals process that the Government have included in the Bill.
I welcome the acknowledgment that these are probing amendments; it was helpful and constructive of the hon. Gentleman to make that clear. Even so, there are some technical problems with them. The amendments seek to remove many references to the phrase
but they do not delete it entirely from the Bill. My concern goes beyond technical matters, important though those are in a complex area of policy. As with the previous group, the Opposition seek to reduce the effectiveness of the right of appeal. I consider that narrowing the right of appeal in this way is not necessary and might harm the ability of airlines to defend the interests of their passengers.
As we have already discussed, the Bill builds in a number of constraints on the appeals process. These include giving the Competition Commission the power to refuse permission to appeal where the grounds are trivial or vexatious or have no reasonable prospect of success. But the three grounds of appeal in clause 26(2) also play an important part in ensuring that the appeals system provides effective redress for airlines without enabling it to be used unfairly to disrupt the decision-making process or displace the CAA as the regulator.
The three grounds (a), (b) and (c) already present a relatively high test to applicants wishing to appeal. To remove paragraph (c) would make it even more difficult to appeal successfully. I appreciate that Opposition Members do not wish to see CAA decisions disturbed where there is no good reason—indeed, none of us wants to give appellate bodies powers that are too broad when it comes to overturning decisions by the CAA. However, appeals that have merit should be heard if airlines are to play an effective role in defending the interest of passengers.
The three grounds in subsection (2) are widely used in appeals procedures in much of the English legal system. They are based on civil procedure rules that govern appeals from lower courts to higher courts. It is worth noting that the third ground, which the amendment seeks to delete, will not be established merely if the appeal tribunal would have taken a different approach from that of the CAA if it had been the decision maker; rather, it would apply where the Competition Commission is satisfied that the CAA has exceeded the generous ambit within which a reasonable disagreement is possible. Put simply, if there is more than one reasonable outcome, the CAA’s decision cannot be overturned simply because the Competition Appeal Tribunal would have come to the conclusion that a different outcome was the better option.
The adjudicative nature of the appeal rights is an important means of preventing the kind of two-tier decision making that we debated in relation to the previous amendment. We have not introduced an investigative appeal process where an appeal body would in effect retake the decision, substituting its own views for those of the CAA. The purpose of limiting the scope of the Competition Commission’s powers is to prevent it from simply taking a fresh decision on the basis that it prefers a different approach. I cannot accept the amendments because I believe they would destabilise an appropriate balance between regulatory certainty and preserving the CAA as the regulator, and the need to correct injustice where errors occur.
I will take advice on the points that the hon. Member for Barrow and Furness made about the procedures to be applied and the scope of third parties to take part in the appeals process, and I will get back to him. I do not have the answers in front of me because those points are not directly relevant to the amendments, but I am happy to look into those matters and come back to him.
John Woodcock: Amendments 37 and 38 are probing amendments. In amendment 37, the Opposition seek to question the directions that the Competition Commission can give. Can it, for example, direct the CAA to ignore evidence or representations from interested parties that have been granted an appeal? I hope that the Minister will explain the full extent of the directions that the Competition Commission can give, and where that is set out. That is important, because clause 27(6) states that anyone who is given directions by the Competition Commission must comply with them.
I hope that the Minister will also be able to explain the scenarios in which the Government envisage that the directions in subsection (2)(b) will be more appropriate than those in (2)(c). For example, when an appeal is granted, when would the Competition Commission remit the matter to the CAA for reconsideration, as set out in (2)(b), and when would it substitute its own decision for that of the CAA, as set out in (2)(c)? The Competition Commission’s power to substitute its own decision for that of the CAA needs further explanation, because subsection (4)(a) gives the commission the power to give directions to the CAA even though it has already substituted its own decision for that of the CAA.
The purpose of amendment 38 is to question why the CAA will be exempted from the enforcement action that clause 27(7) allows through the courts in relation to appeals to the Competition Commission regarding licence conditions. I hope that the Minister will explain why that is the case when the Bill provides that all other parties are liable to enforcement action through the courts.
Mrs Villiers: Clause 27 sets out what the Competition Commission must do once it determines an appeal on a licence condition. We are talking about the results of the appeal. Where the appeal is allowed, in whole or in part, subsection (2) gives the Competition Commission three options: to quash the decision taken by the CAA; to remit the matter to the CAA for reconsideration; or to substitute its own decision for that of the CAA. The second of those three options—remission back to the CAA for a fresh decision—is the focus of amendment 37.
The Bill provides that when the CAA makes the decision again, it must comply with directions given by the Competition Commission. Amendment 37 proposes to remove the obligation to comply with the commission’s directions.
I have listened carefully to the arguments of the shadow Minister, but I am not persuaded to support the amendment; I am grateful for the indication that it is more of a probing amendment than one that will be pressed to a Division. I am not entirely sure that I understand exactly the rationale behind the amendment—indeed, the Opposition appear to accept that the Competition Commission should be the appellate body for appeals against decisions on licence conditions. If they did not, I would have expected a lot of amendments to delete that role.
If one accepts that the Competition Commission is an appropriate appeals body—as I have said, many stakeholders, particularly the airlines, have welcomed
I hope that sets out my response to the specific matters raised by the shadow Minister. This type of procedure works well in many other regulatory contexts, so there is no need to include in the Bill examples or specifics as to what the Competition Commission’s directions might be. The commission itself has agreed that giving it the ability to remit the matter to the CAA is important, and it is well aware that there may well be cases where it is more appropriate for the CAA to re-decide the matter in the light of the appeal to the Competition Commission. One of the key practical problems with the amendment is that without CC directions, the CAA’s reconsideration and decision could be more susceptible to another appeal.
In my view, the option to remit the matter back to the CAA, with directions to be taken into account when the CAA makes a fresh decision, provides a useful flexibility, and it would be unfortunate to remove that from the Bill. If it were deleted, that would probably lead to more instances where the Competition Commission would go for the option available in subsection (2)(c) and substitute its own decision for the CAA’s. I do not believe that is what the Opposition are intending, so I hope that the amendment remains just a probing one.
When preparing for today’s debates, I was unsure about the objective of amendment 38. It seeks to amend subsection (7), which provides that directions from the CC, given under clause 27, can be enforced in the same way as an order of the High Court or Court of Session against anyone other than the CAA. As we have heard from the shadow Minister, the amendment deletes the exemption for the CAA, which means that the CAA could be pursued through the courts as if in breach of a court order if it did not comply with a direction from the Competition Commission.
There are significant technical flaws with amendment 38. Clause 27(6) requires a person to whom a direction is given to comply with it, so if the CAA failed to comply with a lawful direction from the CC, it would be acting unlawfully. The Bill’s drafting is based on a precedent: section 175(8) of the Energy Act 2004 provides that directions, other than directions given to the Gas and Electricity Markets Authority, are enforceable as if they were orders of the High Court.
One of the reasons why an express sanction, such as that outlined in clause 27(7), is not needed for the CAA is the availability of judicial review. Judicial review, even without an express statutory remedy, could compel the CAA, as a public body discharging public functions, to comply with a lawful direction.
Where a direction is given in circumstances in which the Competition Commission substitutes its decision for that of the CAA, no further appeal is possible under chapter 1. So in this case, judicial review would be possible. Accordingly, although the obligation may not be enforceable as if it were an order of the High Court or the Court of Session, as provided for persons other than the CAA, compliance could be obtained through the appeals system or the courts, under judicial review, as appropriate.
I hope the Minister will use amendment 39 to explain why the Competition Commission is to be given 24 weeks to make a decision on an appeal, when an appellant has only six weeks to submit an appeal after the CAA makes a decision, as set out in paragraph 1(1) of schedule 2. The amendment would shorten the period given to the commission. If the Minister does not want to accept the amendment, I hope she will explain why the commission is currently slated to get quadruple the time that an applicant will receive to make a decision.
Amendment 40 probes subsection (9), which gives the Secretary of State the power by regulation to modify the time periods set out for appeals in respect of licence condition decisions by the CAA. I hope the Minister will be able to set out the steps she thinks she will be able to take to ensure that that power does not create uncertainty for all parties involved.
Mrs Villiers: As I hinted during discussions about previous amendments, the time limits have been designed to provide certainty to parties throughout the appeals process and to provide for timely determination of appeals. Again, as with other aspects of the appeals mechanisms, we have based many of our proposals on other regulatory systems.
The appeals process in the Bill is based on the Electricity and Gas (Internal Markets) Regulations 2011. Under that regime, the Competition Commission must determine an appeal against a price control decision within six months and an appeal against any other decision within four months.
We support the prompt resolution of an appeal and believe that 24 weeks is an appropriate period within which to expect the Competition Commission to determine an appeal. We want appeals to be dealt with in a timely manner, but that must be balanced against the practicalities of the time needed to ensure that justice can be done and a decision taken properly and appropriately.
If amendment 39 were accepted—I am grateful for the indication that it is a probing amendment—there is a risk that full consideration would not be possible within the shortened time period, and that we would end up with poorer-quality decision making as a result. Judicial review would be a possibility as well. The Competition Commission has confirmed to the Department for Transport that it thinks that 12 weeks would be too short a period to consider evidence from the party, test the evidence and reach a well-reasoned and robust determination. The possible impact on justice could have obvious consequences for fairness.
The shadow Minister asked about the distinction between the CC’s 24-week process and the six-week deadline placed on appellants, but we need to consider the six-week deadline in the round. He himself called for care to be taken not to make the appeals process overly complex, too long or too expensive. We think a degree of strictness is important in relation to time limits—not too long, and not too short.
Although the six-week timetable is potentially demanding for appellants, the CAA is under obligations to consult on licence conditions before making its determination, so groups that want to appeal, such as airlines and so on, have a significant amount of visibility about the terms of the licence condition well before the clock starts ticking on the six weeks. It is not as though appellants start from zero and have to put together their entire appeal in six weeks. In reality, they will have known for some time the proposed content of the licence, as a result of consultation.
If the CAA decides to make a big change to the licence condition on which it has consulted, it will often be obliged to consult again. We must consider the six-week deadline in the context of where it appears in the process overall and of the other safeguards that the Bill provides to ensure that potential appellants are treated fairly.
I return to the specific concerns about the 24 weeks. It would have practical consequences if we were significantly to constrain the time available for the CC to make its decisions. There would be a risk of further appeals and judicial review applications, protracting the process in a way that I am sure Opposition Front Benchers would agree was not attractive.
The 24 weeks is part of the package of proposals put together after extensive debate with stakeholders and designed for appropriate balance between a timely and efficient process and one that enables airlines effectively to hold the CAA to account and defend passengers’
The hon. Gentleman asked, in relation to amendment 40, what constraints or care the Government would take to ensure that the power to produce delegated legislation under the clause would not cause unnecessary uncertainty. As I said, I think that we have the right balance in the appeals process package as a whole, and I am confident that the time limits that we have proposed are workable and right. However, it makes sense to retain the option to amend them via secondary legislation, as provided for in subsection (9).
As we want this legislation to last, we feel that it would be prudent to retain some flexibility to adjust those time periods if experience proved that that would be desirable. The Competition Commission agrees that that is a useful power for the Secretary of State to have and appropriate for secondary legislation. Enabling the Secretary of State to modify the periods of time specified in the clause eliminates the need to use primary legislation should processes change and experience prove that a change to the appeal time limits is necessary.
Of course, in making such decisions, the Secretary of State would take care and would be subject to the ordinary parliamentary processes that are applicable in relation to secondary legislation, and, where necessary and appropriate, would undertake consultation as well. I do not think that that would inject unnecessary or unacceptable uncertainty into the framework set out in the Bill. I hope that the shadow Minister has received reassurance on the time limits.
This is another probing amendment. I hope that the Minister can quickly clear this matter up and provide reassurance on the wording. We are concerned that, as it stands, there could be a scenario in which the Competition Commission could, in theory, argue that it would be right to publish commercial information that could harm legitimate business interests, as set out in clause 29(5)(a). We cannot envisage any scenario in which that would be acceptable, so why is the legislation so drafted? Why not make things clearer by ruling the possibility out by using the phrase “must not publish”?
Mrs Villiers: The intention of the drafting is to enable the Competition Commission to balance the public interest in disclosure against the potential damage to the private interest if disclosure is made. It is the sort of
We believe that it is appropriate that the Competition Commission should be left with the discretion outlined in the clause. I have no reason to believe that the commission would act irresponsibly or unreasonably in exercising that discretion, whereas the inflexibility introduced by amendment 41 could prevent the disclosure of information of significant public interest.
John Woodcock: I accept what the Minister has said so far, but can she give any reassurance on what redress mechanisms would exist if the Competition Commission were to act irresponsibly and publish when there was not an overwhelming public interest? We can assume that it would be a difficult and contested matter if such an occasion were to arise.
Mrs Villiers: Ordinary judicial review would certainly be available. If the Competition Commission were proposing to publish information that the parties involved considered sensitive and confidential, so that the commission should not use its discretion under the clause to publish, they could seek judicial review of that decision. If necessary, they could presumably seek injunctive relief to prevent publication and use the court system in that way, so they would not be entirely without redress.
I am slightly surprised; Oppositions generally press for more transparency, and there is a case for leaving the discretion up to the Competition Commission. That occurs in other regulatory sectors and has not caused problems. We can be confident that the Competition Commission will exercise the discretion in a responsible way and with proper regard to the legitimate interests of third parties. With those comments, I hope that the hon. Gentleman will withdraw the amendment.
John Woodcock: I beg to move amendment 42, in schedule 2, page 69, line 22, leave out ‘could have been raised by the applicant or a relevant connected person’ and insert ‘have been raised by the applicant’.
John Woodcock: We have two more probing amendments that I hope we can deal with relatively briefly. By deleting “could” from paragraph 2(5)(b) of schedule 2, amendment 42 would have the effect of the Competition Commission being able to exclude an appeal only if the matter had already been raised in a previous appeal. If the Government want to draw exclusions wider than that, I hope they will set out why that is correct.
Amendment 43 would remove paragraph 2(6) of schedule 2 and with it the references to a “relevant connected person”, because we are concerned that the current wording is too broad and there could be a good case for its refining. For example, does that mean any person with a personal or commercial link? Does the Minister envisage that no such differentiation would be made? If she thinks that such differentiation should exist, would she consider tightening the wording of the legislation?
Mrs Villiers: I welcome the hon. Gentleman’s comments. As we have heard, amendment 42 seeks to remove the power from the Competition Commission to exclude matters that could have been heard by a previous appeal. The relevant scenario is where a first appeal results in the matter being remitted back to the CAA, under clause 27(2)(b), which then repeats the licence modification process, as under clause 22, and then another appeal is made. Amendment 42 is unnecessary and I hope that I can provide the shadow Minister with the reassurance that he wants about the rationale for the approach taken in the Bill.
In short, we want to encourage the appellant to produce the best case the first time, which is another element of our efforts to ensure that unnecessary expense is not incurred as a result of avoidable appeals, because, as the shadow Minister has acknowledged, a costly appeals process will ultimately have an impact on costs for passengers.
It is also reasonable that other stakeholders should be entitled to assume that, where it has appealed and failed, a party will not then ordinarily be able to relitigate points or to raise fresh points directly or through connected persons. Essentially, the change proposed in the amendment would allow people to have two bites of the cherry and to seek to appeal again about something that really should have been dealt with by a previous appeal. If we were to adopt the amendment, the appeal system would become longer, more costly and less efficient.
On what the shadow Minister said about connected parties, I am slightly struggling to find where they are defined in the Bill; I am sure that is in there somewhere. Certainly the concept of a connected person is used in a number of different contexts. It tends to be defined in relation to each specific context. [ Interruption. ] I am assisted by a note that mentions clause 71.
I will certainly look into the matters that the hon. Gentleman has raised. It is important to have clarity in relation to who counts as a connected person and to ensure that appellants cannot use connected parties to enable them to have a second chance at an appeal that should really have been covered by a previous one. That could prove unnecessarily costly and protracted. We should retain the restriction on pursuing appeals via connected persons. I will double-check where the definition of connected persons appears in the Bill.
This is another probing amendment, which asks the Minister why the three-person group established by the Competition Commission to consider and determine appeals would not have to reconsider any decision made or direction given by the group before one of its members had been replaced, if that needed to happen.
One of the reasons for removing a group member could be that, because of a particular interest, it would be inappropriate for that person to remain a member of the group. That is set out in paragraph 17(1)(c). That implies that someone could have been a member of the group reviewing an appeal when they had a commercial or personal interest that would lead them to have a biased judgment. I should be grateful if the Minister explained why, if the members had to be changed under those circumstances, what had gone before could still stand and the group would not necessarily have to reconsider previous decisions.
Mrs Villiers: I am confident that the provision as drafted offers a sensible and balanced approach to replacing members of the group and does not pose a threat to justice being carried out in a proper and fair way. If there were any possibility of a bias or an apparent bias, replacing the member would not of itself cure that. Paragraph 17(3)(b) provides that the mere fact that a member is replaced does not of itself affect earlier decisions. We believe that this is a sensible and practical approach to this issue that does not cause injustice. Allowing the amendment would mean that any change in the Competition Commission group determining the appeal would or could have an adverse impact on all earlier decisions by the group and might require proceedings to be restarted.
This is another instance in which I fear that if the amendment were adopted, we could end up with a slower, more costly system that ultimately would not be in passengers’ interests. Returning to the start of the decision-making process merely because of a change to the membership of the Competition Commission panel could prove expensive, and is not in line with our wish to have a smooth-running appeals process that delivers a timely resolution.
Changes to the composition of appeals panels are inevitable. For perfectly ordinary reasons, people move on to different roles or jobs. If every appeal had to start from scratch whenever a panellist left the Competition Commission, that would lead to considerable extra costs and delay, which would not be in the interests of airports, airlines, the CAA or passengers.
If a member were replaced because of the possibility of apparent bias, it would remain open to anyone with sufficient interest to seek to have the decision or the proceedings quashed by the High Court, on that basis. Equally, if replacing a member part way through the appeal would result in an incurably unjust or unfair hearing, again, the High Court could intervene. The High Court’s powers and public law remedies should
Similar provisions to those in the Bill are in operation in the regulation of electricity and gas markets, without causing problems. I hope therefore that the shadow Minister is reassured that the provision in the Bill serves an important practical purpose when, for various ordinary reasons, the composition of the panel changes. However, as it would not, in any sense, inhibit redress where there is concern about apparent bias in relation to a member of the panel taking decisions for the Competition Commission, I hope that the shadow Minister feels able to withdraw the amendment.
‘(d) any steps taken by that person which aggravates the damage caused by contravention of the condition or requirement.’.
This is another probing amendment that seeks a response from the Minister on whether penalties given by the CAA for contravention of a licence should take into consideration whether any actions taken by the person who broke the licence could be seen as having been done in an aggravating manner. I have tabled the amendment because clause 43(3)(c) obliges the CAA, when setting the penalty level, to have regard to
A penalty can be lowered if the person who broke a licence condition took action to reduce the impact of that breach, so surely it is only right for someone who did the opposite to be penalised. Why does the Bill not set out provisions to do that?
Mrs Villiers: First, I welcome the consensus that has greeted the clauses that we have just adopted. They contain important provisions and I welcome the fact that they have been adopted unanimously and without dissent—an indication of the strength of the overall framework in the Bill. The enforcement regime that it contains is echoed in a number of existing areas of economic regulation, and I welcome the support that the Committee has shown.
Amendment 45 gives us the opportunity to look more closely at the penalties regime, which is an important element of the new system for economic regulation. As the shadow Minister explained, amendment 45 would oblige the CAA to take account of any steps that a person had taken that aggravated the damage caused by their contravention of a relevant condition or requirement. I note that the amendment does not require that the
The purpose of the enforcement and penalty regime in general, and clause 43 in particular, is to bring airport licensees back into compliance as soon as possible and to discourage non-compliance. The factors set out in clause 43(3), to which the CAA must have regard in determining the amount of penalty, are mitigating factors. When the CAA determines the amount of penalty, those factors permit it to make allowance for the licence holder’s efforts to return to compliance, and they are likely to motivate the operator by providing a financial incentive to move towards compliance.
Other regulatory regimes adopt similar mitigating factors. Ofcom, for example, must have regard to the same considerations under section 97(2) of the Communications Act 2003. The addition of an aggravating factor to clause 43(3) for the purposes of penalising the licence holder would be inconsistent with the Bill’s approach to the use of penalties for encouraging compliance.
Nothing in the Bill prevents the CAA from taking the matters raised in the amendment into account in determining the amount of the penalty. I hope I can reassure the shadow Minister on that point. If the CAA wants to do so, it may set out that intention in its statement of policy on penalties, which it is required to prepare and publish under clause 58.
It is also worth noting that no one who provided evidence to this Committee or the Transport Committee requested such a change. For those reasons, the Government do not consider the amendment to be necessary, but I hope I have been able to reassure the shadow Minister that the CAA will have the option of taking into account matters such as those specified in the amendment.
John Woodcock: I thank the Minister for that helpful explanation. If the Bill does not need to confer on the CAA the power to increase a penalty, because the CAA can do so anyway, why does the Bill give it the power to lower a penalty?
Mrs Villiers: It is important to provide licensees with a financial incentive to remedy their behaviour as quickly as possible, so there is a reasonable argument for including that provision in the Bill. I have listened to what the hon. Gentleman has said about aggravating factors, but I assure him that there is nothing to prevent the CAA from taking those into account in determining the level of a penalty. For that reason, I must continue to oppose the amendment.
John Woodcock: I hear what the Minister says about the financial incentive for acting, but one could equally make the case for spelling out the deterrent effect of the approach set out in the amendment. We will not force the amendment to a vote, but we will consider returning to it further down the track, so I hope that she will reflect on it ahead of Report. I beg to ask leave to withdraw the amendment.
John Woodcock: These amendments are simply designed to try to get the Minister to spell out the reasoning behind the size of the penalty imposed on a person who breaks the licence. What is the rationale for deciding that the penalty should not be higher than 10% of a person’s turnover for the qualifying period? We have suggested a penalty of 15%, but that is an equally arbitrary figure. We have tabled the amendment so that the Minister can explain why she believes that 10% is an appropriate figure. Why should the penalty not be higher—or, indeed, lower—than that?
In a similar vein, amendment 47 increases the daily penalty to 0.15% of a person’s qualifying turnover for the qualifying period. Why was the original figure of 0.1% decided on as the maximum level of the daily penalty charged for breaking a licence? Why is that figure not higher or lower than that?
Penalties based on turnover can be burdensome for any business. If a business is operating on a low margin, a fine based on turnover can more than obliterate the entire profit made in the given period. However, we are talking about a licensed operator abusing its market power, or breaching its conditions, in such way that a penalty is appropriate. That means that a serious offence has occurred. A significant financial penalty should act as an effective deterrent to such behaviour, and I have no objection to that.
According to the regulatory accounts of Heathrow Airport Ltd for the most recent financial year to 31 March 2011, its total revenue was about £1.8 billion and its regulatory operating profit was £538 million. A 10% fine based on that total revenue would effectively account for a third of its profits. We may accept that as reasonable, and I suspect that Heathrow could probably stand that type of fine on a one-year basis.
However, if we are trying to encourage airports to invest in improving the quality of service, letting fines sneak up to 15% of turnover or higher seems to be detrimental. We all know that other airports across the country, which I accept are not currently regulated, are struggling to make any money at all. Allowing the CAA to impose ever-increasing fines, regardless of an airport’s profit or return, would not be a sensible way to encourage the investment that our airports need.
I would say that 10% seems a relatively sensible level. It would certainly be a significant cost to any business, and I do not think that any airport would engage in anti-competitive behaviours or other flagrant breaches of its licence because it thought that penalty too slight to be worth worrying about.
My real concern is exactly what we are including in the definition of turnover. In fact, subsection (7) allows the Secretary of State, by regulation, to modify the definition of qualifying turnover. I know subsection (8) suggests what those modifications might be, but there is no actual definition of what could be done. Will the Minister run through the scenarios for which she thinks she needs that power?
I accept that I may have missed this somewhere, but, from my reading, the Bill is not entirely clear whether turnover based on regulatory accounts means revenue from airport charges or from other revenue, too. Heathrow’s accounts, for example, contain revenue from retail operations, property revenue, rail revenue and other revenue. Are we talking about a fine based on total turnover that includes all those things, or are we talking about a fine that only affects the area in which a breach occurred, which may well be in the airport operations, rather than all those other things?
I am intrigued by what happens when an airport operator with retail or catering operations sells a long-term franchise for an upfront fee and therefore does not generate any annual turnover. There might be an accounting distortion in which a fine could get at the retail and catering income of some airports, whereas airports that have lost such income seven years ago for a flat fee are not accounted for in that way. Will the Minister clarify the scope of the power she is taking in subsection (7) and how we can ensure that fines are imposed on a consistent basis across all regulated airports?
Mrs Villiers: Like my hon. Friend, I am not convinced that amendments 46 and 47 seek the right changes, so I hope that they will not be pressed to a vote. I also hope I am able to provide some reassurance in response to the shadow Minister’s questions.
Like the shadow Minister, I propose to address the amendments in the round as they both seek to raise the maximum penalty for contravening a licence condition by 50%. Amendment 46 seeks to raise the annual penalty from 10% to 15% of an airport’s annual turnover and amendment 47 seeks to raise the daily fine from 0.1% to 0.15% of annual turnover.
In response to my hon. Friend the Member for Amber Valley, I should say that the qualifying turnover referred to in subsection (7) is total revenue, so it does include revenue in addition to landing charges.
Looking at airports currently subject to economic regulation is useful when considering the impact that the Bill and the amendments would have in practice. At Heathrow, amendment 46 would increase the potential maximum 10% fixed-penalty from £186 million to £278 million; at Gatwick, the maximum fine would go up from £46 million to £69 million; and at Stansted, the maximum fine would go up from £22 million to £33 million.
I listened carefully to what the shadow Minister said. I agree that there are convincing arguments in favour of setting the maximum penalties for contravening airport economic regulation at high levels. Such arguments are applicable across many spheres of competition law, where the 10% and 0.1% figures, contained in the clauses, are also employed.
The shadow Minister asked what the rationale was for selecting those figures. They are in use in other contexts—for example, in relation to important aspects of European competition law. We need high maximum
Mrs Villiers: Yes, certainly. My example is article 23 of Council regulation EC No. 1/2003 of 16 December 2002 on the implementation of the rules on competition, which applies, as I said, to maximum penalty levels of 10% return on the financial liability of businesses. That is a fundamental plank of European competition law.
The reality is that the maximums in the Bill are high; I do not see a case for raising them further. A fine of more than £180 million is tough enough to be a genuine deterrent, even for a company as large and successful as BAA. None of the witnesses who gave oral evidence to the Committee asked for that change and it was not requested, so far as I know, in written evidence. Indeed, the Airport Operators Association said to the Transport Committee, during pre-legislative scrutiny, that the proposed levels were too high.
The cap of 10% of turnover for a fixed penalty represents the maximum threshold available to other regulators, such as the Office of Fair Trading under section 36(8) of the Competition Act 1998. We have already covered the use of the same 10% threshold in European law. It is worth hon. Members recalling the points made by Iain Osborne of the CAA when these matters were raised with him. In his words, it is rare—almost unheard of—for fines to hit that high 10% figure. In many ways, we seek to provide a deterrent.
It is worth drawing the Committee’s attention to the reputational effect of having been fined at all. The reputational effect of the fine, apart from its financial impact, is an important means of ensuring that management teams change their behaviour and remedy the non-compliance. Undoubtedly, we have a tough penalties regime and we have the balance about right: it would provide an effective deterrent and I do not see the need to raise the thresholds in the way that the shadow Minister advocates. I hope that he asks to withdraw his amendment.
John Woodcock: These amendments are intended to probe, as is becoming customary this morning. Amendments 52 and 53 probe the penalties for those who fail to comply with a CAA request, by notice, to provide information or documentation. I hope that the Minister will take the opportunity to explain why the level for a fixed penalty is set at £2 million in subsection (4). We suggest, with no particular rationale, that that should change to £3 million. We also suggest that the daily penalty of £100,000 should be changed to £150,000. That gives the Minister the opportunity to explain— I am sure she is looking forward to it—why she set those levels, and the rationale behind them.
Amendment 54 also relates to penalties for those failing to comply with a CAA request to provide information or documentation. Subsection (9) gives the Secretary of State the ability, by regulations, to replace the amount at which a fixed penalty can be set, either for a daily penalty or a fixed penalty. The amendment would prevent the Secretary of State being able to undermine the CAA’s ability to penalise non-compliance with its notices, if the Secretary of State was minded to choose to reduce the level of the penalty.
If the regulating power could only increase a penalty, it would be used only if the CAA’s maximum penalty was deemed insufficient by the Secretary of State. Can the Minister envisage any situation in which she would seek to reduce the penalty? If not, why not simply accept our amendment?
Mrs Villiers: I am grateful to the shadow Minister for explaining the rationale behind the amendments and indicating that they, like the others that we have considered this morning, are probing in nature.
The hon. Gentleman’s main question concerned the rationale for selecting the figures. One rationale is that the penalties set out in clause 51 are broadly in line with those of other regulators in other systems of economic regulation. For example, they are in line with the maximum penalty provided for Ofcom in section 139(5) of the Communications Act 2003. The Government and I consider the maximum fine proposed in the clause sufficient to dissuade and have a significant deterrent impact. Indeed, in May 2011, Ofcom increased its maximum
Clause 51(9) gives the Secretary of State the power to make regulations to vary the amount that we have discussed. In amendment 54, the Opposition seek to change the Secretary of State’s power to vary those amounts so that she would be able only to increase them. The power and the flexibility provided by subsection (9) are an important element of the regulatory framework that we are setting up, ensuring that the maximum amount set in the Bill can be adjusted over time to reflect changes in monetary value. It will also ensure that the amount of the penalty remains dissuasive and a proportionate means of enforcing compliance.
I agree that it is not very likely that the power will be used to decrease the maximum penalty; if a change is made, it is far more likely to be in an upward direction. It is conceivable that there might be circumstances in which a decision is made to decrease the penalty. I do not see that a case has been made to place a further restriction on this power. Inevitably, when one talks about fines and monetary values, there is merit in ensuring that we have flexibility to respond to changing circumstances in the future. Of course, any powers given to the Secretary of State in secondary legislation are subject to the appropriate scrutiny processes in Parliament.
Gavin Shuker (Luton South) (Lab/Co-op): Did the Minister look at any other industries in setting the figures, in terms of the particular offence that she discussed under the power to obtain information?
Mrs Villiers: As I mentioned, there is a direct comparison with the regulatory regime applicable in the communications industry. I am not sure whether the same approach is taken in different sectors, but that is certainly an example of where a similar system already operates without causing problems.