Select Committee on Transport Minutes of Evidence

Examination of Witnesses (Questions 1-19)


11 JANUARY 2006

  Chairman: Good afternoon gentlemen. You are most warmly welcome. We have one piece of housekeeping before we begin and that is members having an interest to declare.

  Mr Clelland: I am a member of AMICUS.

  Clive Efford: I am a member of the Transport and General Workers Union.

  Chairman: I am a member of ASLEF.

  Mrs Ellman: I am a member of the Transport and General Workers Union.

  Mr Wilshire: I do not have union membership but I do have parts of Heathrow in my constituency which might be relevant.

  Graham Stringer: I am a member of AMICUS.

  Q1  Chairman: Thank you very much. Perhaps it would be helpful for those of you who have not been with us before to say before we start that the microphones in front of you record your words, they do not project them and so I am afraid you are going to have to speak up. I should also point out to you that we have just recently concluded an inquiry into the financial protection of air passengers so I do not think we will be questioning any of you on that matter today. May I begin by wishing everybody a long, peaceful and happy new year. Sir Roy, I am going to ask you first to identify yourself for the record and also your colleagues.

  Sir Roy McNulty: I am Roy McNulty, the Chairman of the Civil Aviation Authority. On my far left is John Arscott who is the Group Director of Airspace Policy, next to him is Harry Bush who is the Group Director of Economic Regulation, and on my right is Mike Bell who is the Group Director of Safety Regulation.

  Q2  Chairman: Did you have something you wanted to say to the Committee before we begin the questions?

  Sir Roy McNulty: I have some brief opening remarks if I may. The CAA is the independent regulator of UK civil aviation and we believe it is also regarded by many other regulators as a leader in most aspects of aviation regulation. We are also in a somewhat unique position as the only aviation regulator in Europe tasked by its government with recovering all of its costs including a return on capital employed from the regulation industry it regulates, a matter which no doubt some of our regulatees" may have commented to you on in their submissions. Secondly, I would like to emphasise that safety will always remain paramount for the CAA. Although, having recently re-looked at it all, our statutory framework perhaps does not make that very clear, the paramount importance of safety is very clear in the guidance that we get from the Government, in all of our Board's policies and in the day-to-day work of the Authority. We have, as we were requested, set out in our submission our understanding of the CAA's remit, structure and powers together with our assessments of what we do in pursuance of those statutory objectives and functions, our view on the effectiveness of the regulatory framework and the effectiveness of the CAA in discharging its duties. We hope we have been able to make all of that clear, although the fact that we are only one of the players in a fairly complicated regulatory scene is a factor in understanding it all. We have also commented on the effect of growing European involvement in aviation regulatory matters. Clearly an increasingly important part of our job is trying to keep track of, and trying to influence, regulatory developments in Europe. We hope that the four people we have present can answer most of your questions. However, if we do not have the information to hand we would like to have the opportunity to provide supplementary information at a later stage. Finally, I would like to emphasise that we genuinely welcome this inquiry. We believe that the CAA does a good job. The UK has a safety record that is second to none and that is not only due to what we do, but also obviously the considerable efforts that the Department for Transport makes, and the efforts that the industry makes in working with us. We are recognised in Europe as the leaders in economic regulation and in airspace policy, and our consumer protection regime is the best developed in Europe, although, as you well know, we feel this could be even better. However, our statutory framework has evolved over some 30 years or so and we recognise there are areas where it could be clearer or perhaps better adapted to today's world. We also recognise that, although we believe the CAA does its job well, we are by no means perfect and we are not complacent and we will welcome any ideas that come out of this inquiry that can help us further improve the job we do.

  Q3  Chairman: Sir Roy, it comes as a great shock to me to know you are not perfect but I will try and overcome that.

  Sir Roy McNulty: I thought we should make full disclosure to the Committee!

  Q4  Chairman: Very wise. You are not just unique in the way that you get your money but you are unique in other ways as well. How do you think the Civil Aviation Authority is going to look in 20 years' time?

  Sir Roy McNulty: I think some of its roles will be different, particularly in relation to Europe. Obviously we are embarked on some significant changes in relation to the Single European Sky, in relation to EASA and other regulatory matters that the Commission has embarked on or is likely to embark on. All of those impinge in one way or another on the Civil Aviation Authority. I would expect that in 20 years' time there will still be a significant role to play in the implementation of a lot of that rule making, and there will still be a role for a national authority such as us.

  Q5  Chairman: When did you last undertake an in-depth review of what you do?

  Sir Roy McNulty: We review what we do annually. As part of the normal planning process we sit down in June of each year and start from what are the basic main objectives we are trying to pursue, what are the strategies we follow for that, what are the plans we have got and what are the resources we need, but I would accept that we start that planning process within the existing statutory framework, we do not sit down and try to invent a different one.

  Q6  Chairman: I understand that. Various people have commented, as you would expect, on the conflicting demands of four different areas of regulation. As you yourself said, you have both the economic and the safety without the other aspects of regulation. Do you think that causes you any difficulty?

  Sir Roy McNulty: No. Sometimes it gives us issues that need to be addressed or managed, but they are issues which would need to be addressed in some other way even if we did not have all four aspects of regulation under our umbrella.

  Q7  Chairman: Would it be a good idea to transfer some of your economic and commercial activities to a single transport economic regulator for everyone?

  Sir Roy McNulty: We do not think that that is a good idea.

  Q8  Chairman: Why not?

  Sir Roy McNulty: It has been said to us and to you on many occasions that the industry sees advantages in having a one-stop shop for all of its regulation. In a number of respects the various regulatory activities need to work together, for example airspace policy and the Single European Sky, and some economic aspects of that and in our opinion it will work much better in one place rather than if it was split up in several places.

  Q9  Mr Wilshire: Presumably you would accept that judgments on economic regulation would require the people regulated to make decisions based upon what they can charge and what they cannot charge, so in making economic judgments you are in the commercial business of what can be afforded and yet at the same time you are setting safety standards which, I would have thought, cannot or should not be subjected to economic regulation. How can you possibly do both of those activities at the same time?

  Sir Roy McNulty: If you accept, as I hope you would, that both of those activities should be done, I think it is best that they are done in one place where judgments can be made as to what is done in economic regulatory terms while at the same time never crossing the line that they would adversely impinge on safety.

  Q10  Mr Wilshire: Would it not be better done by two independent bodies so that there was no risk whatsoever of those two activities being confused?

  Sir Roy McNulty: I do not think we confuse them. As I said in my opening remarks, it is very clear in our minds that safety is paramount. In the legislation for the NATS PPP that was written into the legislation safety is paramount, but it is implicit in all of the other things we do as well. We will always ensure that we do not do anything either in economic regulation or in airspace policy that cuts across the safety objectives that we see as paramount.

  Q11  Mrs Ellman: Sir Roy, you said that you are unique in having to recover your costs from the industry plus your return in capital. Does that not make you over-dependent on that industry at the expense of environmental concerns or passenger interests?

  Sir Roy McNulty: In some respects we are completely dependent in that all of our income comes from that industry. The record shows that it does not influence the CAA in taking decisions. The decisions we take are without fear or favour. We seek to make the right safety judgments and the safety record shows that we have been reasonably successful at that. We make economic regulation judgments which often the regulatees do not like at all. I do not think there is a history of the CAA being unduly influenced or influenced at all by who pays the charges.

  Dr Bush: It is also worth adding that in the economic regulation context it is not unusual for economic regulators to charge the people in the industry. I think the uniqueness relates to aviation in Europe.

  Q12  Mrs Ellman: What about the position of general aviation? You have been criticised for not paying enough attention to that sector.

  Sir Roy McNulty: I do not understand. In what sense related to general aviation?

  Q13  Mrs Ellman: We have received some evidence criticising you and saying that you are more interested in the major commercial airlines than any other civil aviation.

  Sir Roy McNulty: I have heard that criticism many times. It is probably true that the CAA pays more attention to the airlines than it does to general aviation. I would guess that that can be traced back to the original legislation which has the airline aspect of our activities front and centre and does not mention general aviation. We are conscious of the fact that perhaps we should pay more attention to general aviation, which is why in the middle of last year we embarked on a joint review together with the GA sector of all the strategic issues that relate to GA. Perhaps it has not had as much attention in the past as it should. We are intent on trying to rectify that.

  Q14  Mrs Ellman: Why are regulatory costs in the UK higher than in other countries?

  Sir Roy McNulty: As I said at the beginning, we are the only regulator who has to charge fully all of its costs. A lot of the activities that we do are done in France, for example, and no charge is made, they are met from general taxation. So I do not think you can say that we are more expensive than the others when we are comparing two completely different economic systems.

  Q15  Chairman: Is that because they will do more things through the Armee de l'Air in France?

  Sir Roy McNulty: They do some of those things, but even the DGAC, the civil part, does not charge. As of 1 January they are beginning to introduce some charging mechanisms, but this is their first step in that direction. In many of the other countries there are no charges whatsoever. We are certainly more expensive. If you charge fully all of your costs you are going to be a lot more expensive than people who do not charge at all.

  Q16  Mrs Ellman: Would you prefer a different method of funding?

  Sir Roy McNulty: There are days when I could heartily wish it because at times it causes a degree of disagreement with our charge payers, but I would have to say, standing back from it, that I think it is for the better because what it does is place a clear obligation on us to try to deliver decent value for money. There are a number of consultations and reviews not least by the Safety Regulation Finance Advisory Committee which are completely unheard of in other countries. When we have benchmarked what the CAA does in each of our regulatory activities it keeps telling us that the CAA as a regulator is relatively efficient compared to other regulators. That may not be the summit of one's ambition, but compared to other regulators the CAA does its job quite efficiently.

  Q17  Mrs Ellman: How do we know whether you deliver value for money? The National Audit Office cannot scrutinise your finances, can it?

  Sir Roy McNulty: The assurance we have comes from several sources. We review the budgets very carefully. The majority of the board are non-executive people, they come mostly from the private sector and have a business background and we review the budgets very thoroughly every year. We do benchmarking quite frequently both the regulatory activities and our support activities and where we find areas that we can improve against a benchmark population, we go after those things and that is why our costs for the last four or five years have come down consistently.

  Q18  Mrs Ellman: Do you have any proposals to improve scrutiny to your customers and also to Parliament?

  Sir Roy McNulty: I think some of the lessons we have learned over the last 18 months to two years from the costs and charges review suggest that the scrutiny review, consultation, transparency and so on could be improved further and we will work at those things. Obviously with the general government drive for better regulation and more transparency and whatever, we may address other issues whilst working together with the Department.

  Q19  Mrs Ellman: Do you have any specific proposals for improving scrutiny?

  Sir Roy McNulty: Not right now. What was apparent from the joint review team that we ran for the past two years was that things that we thought everybody understood were not well understood by a lot of people. That suggests that the work, for example, of the Finance Advisory Committee can be improved and we will be looking at that.

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