Examination of Witnesses (700-719)|
WEDNESDAY 11 JUNE 2003
BUSH CB, MISS
700. You appear as a body independent of government?
(Dr Bush) Absolutely.
Lord Holme of Cheltenham
701. One of the preoccupations of this Committee
is accountability. It is probably the main driving force of our
investigation. I have two linked questions. You may be aware that
we have had an extremely critical appreciation of how the CAA
handles the issue of accountability from the British Air Transport
Association. Are you aware of that?
(Dr Bush) No, I do not think I am. 
702. The approach that they take, representing
some 90 per cent of the airlines and therefore the main funders
of your operation, is that your accountability is very poor. They
produce one or two examples of that which I need not go into but
rather than simply taking that criticism as a given I would be
very interested to hear how the CAA approaches the question of
accountability with all the linked issues of transparency, consultation
and so on, particularly with those who regulate. Secondly, could
I link that with the Europeanisation of the issues with which
you deal? Clearly, increasingly Europe is one airspace and issues
from safety to traffic have a European dimension as any of us
who fly can see from week to week. I wonder how you see the issue
of accountability in that increasingly European context. It obviously
depends partly on the emerging European Agency which to some extent
will duplicate or have to work in coordination with functions
you exercise but on both those scores I would be interested in
your appreciation of the accountability issue.
(Dr Bush) To deal with the question of
accountability, and what we aim to achieve, I think there is accountability
to Parliament. That comes through appearances before select committees.
Our accounts are laid here and we have a whole series of publications
that would end up here. We have to take very seriously our accountability
to what you might loosely call the stakeholders, of whom BATA
would be one. This in part derives from the functions we have,
but we also have to remember we are funded by this industry. When
we are thinking about our business planning, for instance, we
consult industry players and have sessions with them about what
our priorities should be. This is not to say that they come along
and say, "These are the things that you should be doing"
and we say, "That is fine. You pay us and we do that".
But it is trying to get some interaction with them. We will be
asking them also how we perform and whether there are things that
we could do better. We take that process pretty seriously. That
is part of our business planning. In relation to the processes
we run for regulation, there is an awful lot of consultation.
If you look at the quinquennial review, we put out a huge number
of documents. There were oral hearings and informal workshops,
a whole series of interactions with the stakeholders, both airports
and the airlines. I think you could almost argue that there is
too much. Unless you are in British Airways or the British Airports
Authority, which have the capability to assimilate all of this,
is there too much? Should we be more selective? Should we be more
focused? That is indeed a question that we are going to be asking.
We have set up an evaluation of the last quinquennial review and
one of the questions that will be asked is: can we improve that
process? Can we make the information more assimilable by the stakeholders?
That does not detract from the fact that we have taken consultation
very seriously. We also try to consult the Users' Council which
represents passengers although, in relation to our economic regulation,
we are regulating the airports and air traffic control, and the
direct users are the airlines. That is where the focus of our
relationship is. We take account, for instance, in setting service
standards of the interests of passengers and we will want to continue
consulting the Users' Council on that.
(Mr Britton) The foundations of regulating civil aviation
set down in the Chicago Convention of 1944, to which virtually
all the states belong, set out standards and recommended practice
which all states adhere to. That is the basic framework. To a
certain extent, those standards and recommended practices are
outwith the UK. They are laid down internationally. How do you
implement those on a regional basis? Since the mid-1970s the UK
has been a member of the Joint Aviation Authority which is essentially
a club of European Member States, somewhat larger than the EU
membership. That has developed codes for certification of large
and smaller aircraft. It has moved on to operations and flight
crew licensing. Being a club, it had no means of enforcing those
rules and the EU is setting up the European Aviation Safety Agency
as an EU agency and that will give enforcement of these codes
some teeth. How that is going to develop we do not know. That
is a matter for the government to try and sort out.
703. I was interested in your comment about
passengers. I think you said, "We try to consult passengers'
organisations." The primary users furthering the reasonable
interests of users of airports are the airlines. I suppose they
are but I am a user and when a travelator is bust I am jolly cross.
Why do you only try to consult them? Why do you not consult them?
(Dr Bush) We do consult them. Our consultation
process is very open. It is open to the Air Users' Council to
contribute at any point to that process. That is the main avenue
for passengers' direct interests to be taken into account. But
the airlines are representing the passenger interest as well.
They want to keep costs down, the quality up and get the investment
in because that is part of the product they have to offer. You
therefore have some strong commercial organisations looking after
the passenger interest. You have raised travelators and that is
one of the elements of the new service quality standards that
we have put in. The airlines will get rebates if BAA do not match
those standards at Gatwick and Heathrow. There is some concern.
This is very different from a lot of the other regulated industries
where you are dealing with, on the one hand, a monopoly and, on
the other hand, Mrs Jones, as it were. There is a very strong
body of commercial interests benefiting from regulation.
704. I appreciate everything you have said,
particularly the part about managing the travelators because I
travel frequently from America where I live and I find one in
two times the travelator is bust. You said that it is always open
to the Air Users' Council to come to you. You do not go to the
Air Users' Council?
(Dr Bush) I think we do. We have a consultation process
which is dealing with a lot of quite technical and regulatory
issuesthe cost of capital, the level of investment at terminal
five. There may be a whole range of issues where the Air Users'
Council, which is a fairly modest body, may not have the expertise
to play into in the way that some of the larger airlines do who
are in a sense representing passenger interests through their
own commercial interests. We do consult passengers but the extent
to which they play in is more limited than it may be in other
industries where there are much larger bodies and where you do
not have commercial bodies representing the passengers' interests
as part of their commercial perspective.
705. Would you like to see the Air Users' Council
(Dr Bush) You would have to look at what precisely
you are trying to achieve there. A lot of their role is to try
and take forward individual complaints that passengers have with
airlines or airports. That is a very valid role. If you start
to get to a position where, in effect, you are duplicating some
of the functions that we have in questioning the airlines and
the airports about what they are doing, that might be a problem.
If you look at, say, Postwatch, they spend something like ten
or fifteen times as much as the Air Users' Council and it probably
costs more than economic regulation in the CAA. We are a fairly
lean outfit and we need to think about the costs and benefits.
Lord Lang of Monkton
706. On the question of independence, I appreciate
that you predate the great burgeoning of privatisation of regulators
with their clear statutory functions, but I think you said you
regarded yourselves as independent of government. In your submission
to us you say that the Secretary of State for Transport will agree
overall priorities and objectives each year with the CAA and will
monitor performance. Does that not imply that he chooses your
activities rather than you? Does it not make you an instrument
(Ms Jesnick) No it does not. Because
of the international arena in which aviation operates, there are
some things that are only open to Her Majesty's Government. For
example, it is the government of the day taking us into Europe
with the single European sky. That is for the Department of Transport
and that is the essential reason why we have accountability to
the Secretary of State and why the Secretary of State speaks for
us in Parliament. In all other areas, we set our own agenda and
discuss that with him. It is not a case of him dictating to us
but, because of the international flavour of aviation, it has
to be that way because there are some things that the Civil Aviation
Authority is not in a position to do.
(Dr Bush) In relation to the economic regulation,
my sense is that we are in no different position than other regulators
in terms of our independence. The conduct that I have seen of
the quinquennial review and NATS shows the CAA operating as an
independent regulator with the government occasionally disagreeing
with something that we want to do and yet us going ahead and doing
(Mr Britton) We are the agent of government in certain
circumstances because it is the Secretary of State who has the
international treaty obligations. He cannot possibly deal with
certification of aircraft, granting licences etc. We are his agent
for discharging his obligations under the Chicago Convention.
707. On the question of appeals, this is a theme
that has been recurring throughout our inquiry. In many cases,
there is very little opportunity for appeal other than to the
Competition Commission or judicial review. You by contrast seem
to have a massive, elaborate structure of potential appeals but
when one looks at them in detail it is not quite so elaborate
because the first right of appeal on the refusal of the granting
of a licence is to a member of the CAA itself or in some instances
to a panel of two members of the CAA rather than an outside body.
The other appeals are on specific issues, perhaps to a county
court or the Secretary of State but then it goes straight up to
judicial review. Has anybody made representations to you that
there should be some sort of intermediate body, less Draconian
than judicial review, that might achieve some arbitrated agreement?
(Mr Britton) We certainly looked at the internal appeal
system when members of the CAA were considering the Human Rights
Act and the appeals to an independent tribunal. On the safety
side of things, we are making critical decisions affecting public
safety. The CAA is very well qualified to take those decisions
but it is very difficult for those decisions to be taken by a
non-expert body. It could go to a fully independent tribunal which
would know nothing about aviation. Would the public have confidence
in their decisions? With the CAA, they would do because it is
an expert organisation. On matters of procedure and fitness, those
are for the courts and quite right too. Then there is judicial
review to make sure that the procedures are rational.
(Dr Bush) We do have a difference in the airport area
from other economic regulators in the sense that there is not
an appeal once the CAA has made its decision. The CAA puts a remit
into the Competition Commission which then looks at the issues
again, advises the CAA and the CAA then takes the final decision
from which there is no appeal, apart from judicial review. It
has been the government's policy for some time to alter that to
the more normal process whereby there would be an appeal to the
Competition Commission which would not then get involved at the
708. I want to put a question about consumer
matters. Safety is one of your concerns. When Lord Acton questioned
you, you replied in terms of passengers having a pleasant experience
on the airlines and your responsibility is surely that passengers
come back alive.
(Dr Bush) I was very much talking there
about economic regulation. In terms of safety, that is absolutely
key and we are talking about the passenger there.
709. I was wondering how you balance the priority
between the two. Of course, safety is the primary consideration.
It is equally likely that enforcing the view that you take might
involve costs and other sources of tension. What is the balance
of conceptual priority between enabling the companies to proceed
without hindrance and ensuring that safety is the ultimate priority?
(Dr Bush) From the point of view of economic regulation,
in the case of air traffic control, it is set out in the statute
that safety is paramount. That is very clearly the way we work
as an economic regulator. In looking recently, for instance, at
changing the delay term within the price control regime for NATS,
we have very specifically addressed that issue to ensure that
changes we are making do not compromise safety. In the airports
context, we take safety as a given. The point about safety is
that a lot of this will be driven by internationally agreed standards.
(Mr Britton) The Civil Aviation Act says that we have
to exercise our functions consistent with the highest standard
of safety in operating the services. That is one of our general,
fundamental, underlying objectives. All the CAA's functions have
to be discharged with that in mind.
710. One of the points made in the rather critical
document was that in some areas you had been perhaps too rigorous,
particularly on the question of passenger safety on planes in
flight. Were you aware of that?
(Mr Britton) I was not but I am very pleased that
it is so.
711. They referred to the doors and so on.
(Mr Britton) That is a security matter. That is rather
strange because for safety reasons you would not have an armour
plated door between the flight crew and the cabin crew. For security,
unfortunately, it has to be done.
712. Are you aware of anything that you are
currently doing that you need not be doing in the way of aviation?
(Dr Bush) It is worth emphasising that
we operate as we do partly because of the way the statute is drawn
but also because of the way economic regulation in the CAA has
grown up. It is a very light touch approach. If we only have 10
people with airports and air traffic control to regulate, this
is not something where you have a huge amount of resources you
are throwing at it. In terms of airports, they are not licensed.
They are designated. Our broad approach is simply to deal with
the price cap. There is more intrusion into NATS because they
are licensed. There are more demands on them and those have increased
slightly because of the difficulty NATS had over its financial
viability to ensure its robustness. Coming new to this, I am surprised
by the slimness of the economic regulation organisation. We start
from an approach which says we do not do it unless we need to.
Sometimes we are under pressure from, for instance, airlines to
get involved in much more detail in their disputes with the airports.
We tend to take the view that these are grown up boys and that
they should, to the greatest extent possible, be dealing with
airports on a commercial basis. We try to avoid what has happened
in some other industries; where you start getting drawn into detail
it never ends. Even where, on the back of the Competition Commission's
public interest finding, we have been drawn into setting quality
standards and rebates from two London airports to airlines, we
have sought to set a base line and leave it to the individual
airports and airlines at terminals or individual airportsGatwick
and Heathrowto determine the detail of that. If they want
to change the detail, they can come to us. We have set in place
a process whereby, subject to some safeguards, we would be prepared
to make those changes fairly quickly. In effect, we are standing
there, providing a framework but saying to the parties, "You
are commercially driven. You are big boys. Get on with it as far
as you can." We hold the ring to some extent but we try to
avoid getting drawn into the detail.
713. You are aware that the British Airways
submission to us suggests, on page two at paragraph three, that
the CAA has recently removed the requirement for airlines to hold
licences for each route operated. "However, all prices must
still be filed with the CAA, a process that has become impracticable
and unnecessary given the state of competition and the dynamic
nature of pricing and distribution. In our view this function
is largely outdated and there is clear scope for further deregulation."
That is what prompted my query.
(Dr Bush) We do not regulate fares generally. Within
the competitive European market there is no need to do so. There
will be some routes where we do regulate the fares, where there
is very limited competition. We regulate one fare on those routes.
What they are saying is that there are some remaining areas in
which we do get involved which we would like to withdraw from,
in particular in relation to the United States. There is some
collection of fares data. We are arguing with the Department about
withdrawing from some of these areas. We are all the time trying
to get out of unnecessary data collection and fare regulation.
714. Can I come back to the ten people? It seems
to me an enormous field that you are regulating. Do you mean that
is the total? Have each of the 10 people staff supporting them?
(Dr Bush) The economic regulation group has 40 people.
20 of them are involved largely in statistics work which is about
numbers carried on routes and so on, which helps provide information
which makes our industry competitive. People know where the pressure
points are. They know where people can fill up planes and that
sort of thing. 20 are involved in policy and economic regulation
and around ten of those are in economic regulation. That is it.
When we come up to a price review, we augment that sometimes with
one or two extra or we bring on some consultants but it is still
not a massive number.
715. There is no large burden of enforcement
(Dr Bush) No. What we seek to do is, in relation to
the airports, to set a price cap. That is it. We do not have a
huge burden of chasing down licence conditions which I know happens
in other industries.
716. Who tells you when a regulation is broken?
(Dr Bush) In relation to the price regulated airports,
we will have, for instance on the quality standards, a self-policing
mechanism. The airports and the airlines will have information.
Rebates will be paid if BAA falls below the standards. We may
get involved if there is a dispute about a particular payment,
but we try to avoid that. There is not a great panoply of regulation
there for us to be informed about.
717. When British Airways say that all prices
must still be filed, they are referring to ticket prices, are
(Dr Bush) I guess so. I am not absolutely sure how
much data we collect on this.
(Mr Britton) It was substantially liberalised following
the third liberalisation package, the EU measures introduced in
the early 1990s. Prior to that, we used to require every fare
to be filed with us and it was an enormously bureaucratic procedure.
That really has been filleted right down to the bare minimum.
It is all automatic, I think, and done on computers. I am very
surprised that they have raised this as a problem.
(Dr Bush) There are literally a couple of people doing
it so it cannot be that much of a burden; otherwise, it would
not be able to be assimilated at our end. I am very happy for
us to see if we can fillet it down further because that is the
direction we want to move in, but we do not have a vast army of
bureaucrats doing this.
Lord Jauncey of Tullichettle
718. You do not set the individual fares of
the airlines? They do not require your consent?
(Dr Bush) There are some fares which
are on routes where there is limited competition, where changes
do require our permission.
719. In the highlands and islands of Scotland?
(Dr Bush) I do not know whether that is one. This
is much more where there are international routes, where there
is very little competition between carriers.
(Mr Britton) It is probably a fall-out from the air
service agreement between the UK and the foreign state. Some of
those are quite archaic and have been in place for quite a long
time. There is one between the UK and Iraq which was set up in
the 1950s. That sort of thing still survives and it has a lot
of bureaucratic minutiae attached to it. The filing of fares could
well be one of those.
14 See the supplementary memorandum by the Civil
Aviation Authority in response to submissions from British Airways
and the British Air Transport Association. Back