Ms Karen Buck MP, Parliamentary Under-Secretary,
Department for Transport—Statement to Parliament 31 October
2005
FINANCIAL PROTECTION
FOR AIR
TRAVELLERS
The Parliamentary Under Secretary of State (Ms
Karen Buck): The Government has decided not to implement the Civil
Aviation Authority's recommendation for a £1 levy on all
air passengers departing the UK.
The Government wishes to thank the CAA for the
enormous effort it has put into its analysis. But the attractions
of the CAA scheme are outweighed by the disadvantages.
First, the levy would be compulsory. The Government
does not believe that it should compel citizens to protect themselves
against the failure of an airline. The Government does not require
citizens to take out medical insurance or an E111, although it
is wise to do so. We do not require people to insure their house
contents, although most people choose to do so. Even in car insurance,
the legal requirement is limited to third party liabilities.
Second, there is no logical reason why the State
should organise refunds for this one group of consumers. The Government
does not have schemes to refund those who order furniture from
a store which goes bankrupt, or lose money to cowboy workmen,
or make unfortunate stock-market investments.
That is why, on balance, we do not think it
right to extend ATOL beyond the requirements of European law although
we do wish to reduce its bureaucracy.
ATOL stems from the early 1970s when a family
holiday abroad tended to be organised as a package and travel
abroad was infrequent. It involved putting at risk a significant
proportion of family income in advance of the holiday being taken.
These days overseas travel is a lot more routine. UK residents
made a record 41 million holiday trips abroad in 2003 compared
with fewer than 7 million in 1971.
Next, the levy would reduce but not eliminate
the difference in protection given to package and independent
travellers. There would still be a 2-tier system, as people who
assemble their own packages would have cover for their flight
but not for loss of accommodation or car hire.
The Government appreciates that the Package
Travel Regulations impose costs on tour operators which they see
as an unfair competitive advantage for scheduled airlines. But
the levy would replace this imbalance with another. The same £1
would purchase cover for the traveller who buys a low-cost flight
to Europe for under £30 and for the traveller (perhaps the
more affluent person) who books a 2-week package in the Far East
or the Caribbean. The budget traveller pays a much higher percentage
of his outlay to ensure there is enough money in the pot to refund
to the long-haul package passenger should his tour operator fail.
The Government wishes to respond to the two
arguments it has heard why airline passengers should be given
special protection compared to other consumers in the economy.
First, some travellers think they are protected
when they are not, especially as the distinction between a package
and independent travel is not always clear. The Government has
committed itself to reduce regulatory burdens on business and
only regulate where necessary in a light touch manner. A levy
is a heavy-handed instrument to solve the problem of informing
a population which has easy access to a multitude of information
sources. Travellers are showing increasing sophistication in shopping
around on the internet; and 170,000 households now have a holiday
home abroad, about double over 10 years. Travel in Europe has
become particularly familiar since we have been part of the European
community—whether for school trips, sports events, weekends,
holidays or business.
The Government has already been working with
the CAA and the airline industry to improve consumer information
about insurance cover when booking flights. UK airlines have helped
us develop a basic message for passengers making online bookings,
and some have told us of plans to offer specific insurance as
well as posting a message.
This is in addition to the information that
is already available from the Air Transport Users Council, the
CAA and other sources including the Foreign & Commonwealth
Office. The FCO is going to update its website shortly to explain
the protection available under the Consumer Credit Act 1974 if
flight tickets are paid for by credit card. And some tour operators
"sell" the protective benefits of a package more vigorously
than others.
The second reason why air passengers are said
to need special protection is that they may become stranded abroad
in large numbers. The Government realises that not all travel
insurance covers insolvency, but some does. The CAA's assessment
and the example of EUjet this summer show that people will generally
find their way home by other routes. Of course, they may incur
some expense and inconvenience, particularly if they are not insured,
but it is not fair to impose a levy on all air passengers just
to provide cover for this. In the case of EUjet other low-cost
airlines stepped in to help and have told the Government they
intend to learn lessons from the experience to improve the effectiveness
of future voluntary rescue efforts. Similarly, when Swissair and
Sabena failed, other full-service airlines honoured the homeward
tickets of passengers abroad.
The Government has been encouraged by the willingness
expressed by airlines to put in place improvements to ensure travellers
are able to make informed decisions about the need for insurance,
and by airlines' assurances that they would continue to take voluntary
action on repatriation. The Government will be talking further
to airlines in the coming weeks to ensure that effective voluntary
measures are put in place as quickly as possible.
Nevertheless we recognise that the current bonding
system for tour operators can be a barrier to market entry and
tie up capital. The Government is therefore asking the CAA to
review whether the system of ATOL bonds could be replaced with
a less burdensome means of meeting tour operators' obligations
to package holiday-makers under the Package Travel Directive,
while at the same time replenishing the Air Travel Trust Fund
following the passage of the Civil Aviation Bill.
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