Select Committee on Transport Minutes of Evidence

Examination of Witnesses (Questions 280-295)


18 JANUARY 2006

  Q280  Chairman: Are you secure in the knowledge yourself that two parts of the same organisation are not giving you contradictory signals?

  Mr Hall: I am absolutely convinced about that because the permissions that we sought under the CP2 for investments in safety improvements and so forth were agreed and the costs that we put in there for increase in ATCO numbers and so forth of the CP2 were also approved under this process. I am quite satisfied it is balanced.

  Q281  Mr Donaldson: The Airport Operators Association has questioned the need for the CAA to earn a rate of return of capital of 6% arguing that this ultimately puts UK airports at a competitive disadvantage. Is your preferred solution a reduction in the rate of return or a fundamental change in the funding arrangements such that the taxpayer bears part of the cost?

  Mr Jowett: I think there is such a long history of the charging arrangements in the UK that it would be invidious to propose costs going back on to the UK taxpayer. However, we are certainly not on a level playing field with our continental peers and it needs to be recognised that aviation is an international activity and it would be ever so easy, increasingly in this day and age, for activity to relocate itself to the continent in many cases if the costs here became prohibitive. Our concern is that we are being double penalised. As well as paying all of the costs of our regulator, which is not the case on the continent, we are also being charged what essentially becomes a profit margin to the Government for that regulation. We think that is highly inappropriate and I believe that has already been brought to your attention. It represents an assumed risk on capital of about 3 and a half percent over and above inflation, and we cannot see that this business, in terms of revenue flows to the Government, has any risk at all relating to it.

  Q282  Mr Donaldson: Do any of your colleagues want to add anything to that?

  Ms Burns: No.

  Q283  Mr Donaldson: Do you think moving to a system in which the Government part funds the CAA might help alleviate perceptions amongst some that the CAA is not independent of the bodies it regulates?

  Mr Hall: I suppose an argument could be posited that way. I do not suppose it would have much credence with the industry itself particularly or with the public in general. It would be nice if that was the case but it is not something we are advocating.

  Q284  Mr Donaldson: Why do you say it would not have much credence with the public?

  Mr Hall: I believe the public perception of the CAA is that it is a highly professional regulator. Amongst all the regulators, both aviation regulators across Europe and one might argue amongst regulators here in the UK of other utilities, it is probably the best regarded in terms of its independence and professionalism of its activities. The costs of it and the potential for double regulation are matters which concern us but I do not think those would impact upon public consciousness or concern.

  Q285  Mr Donaldson: Manchester Airports Group and the Airport Operators Association have argued that the CAA's cost base must be kept under close scrutiny. We have heard from others that regulatory costs in the UK are higher than elsewhere. What view do you take of the current level of costs?

  Mr Hall: We would argue that there is opportunity for the CAA to re-examine its budgets, staffing, resources and to use them more efficiently, particularly in the growth of the continental regulator for aviation safety. That was not an argument that the Government should bear some of those costs, it was an argument that the CAA should look more carefully at its own resourcing.

  Q286  Mr Donaldson: Who do you think should perform the role of scrutinising the CAA's cost base? Should it be the CAA itself, the regulated organisations or an independent body?

  Mr Hall: I have not taken a view on that personally. I think there could be a case for the National Audit Commission to consider the matter but it should be developed through further work. Perhaps I will ask my colleagues if they have a comment to make?

  Ms Burns: Madam Chairman, only this in the case of Manchester, which is the most important thing is for transparency in the costs. A considerable amount of work has been done in recent years to improve the transparency of costs from the CAA to its regulatees. I think there is more scope to go further with this work and I would much prefer that approach than to introduce a third party into the process which in the end will merely add more costs somewhere.

  Q287  Chairman: Is that a yes or a no for the NAO?

  Mr Hall: I think it is a no.

  Q288  Chairman: Are you saying yes if the NAO is cheaper, no if it is more expensive?

  Ms Burns: No, if it is more expensive.

  Q289  Chairman: No if it is more expensive but that is the only objection. You are not saying we should not have an independent scrutiny, you are saying only if it does not cost anything?

  Ms Burns: I am certainly not saying we should not have an independent scrutineer. I think the obligation in the first instance is for the CAA to convince both its airlines and its airports that it is conducting itself in a cost-effective manner.

  Mr Jowett: I would like to concur with my colleagues on that.

  Q290  Chairman: In which case, forgive me, we are going to move on because we are running out of time. I am going to ask you finally if any other of you have got any comment on the National Audit Office and the need for it to investigate the CAA as opposed to its existing scrutiny systems?

  Mr Toms: My understanding at the moment is that the National Audit Office does not have the power to scrutinise the CAA's finances.

  Q291  Chairman: We are not suggesting it has but that does not mean to say that we could not recommend it. We write the laws, you know, we sometimes rewrite the laws, sometimes we have been known to rewrite the rewrite!

  Mr Toms: While you are contemplating rewriting of the rewriting of the rewriting, our normal predisposition is not to suggest additional layers of regulation, and what we do not want is the guards guarding the guards guarding the guards in this situation. Cost control of an organisation is normally best done by its owner, and I think there is a question which may be addressed here about in what form the DfT itself, as the sponsoring department for the CAA, wants to make sure that it is satisfied as to the cost levels in the organisation.

  Q292  Chairman: Have you looked at the CAA's Regulatory Impact Assessments?

  Mr Toms: I have not seen any.

  Q293  Chairman: Anybody else?

  Mr Jowett: No, Madam Chairman.

  Ms Burns: No.

  Q294  Chairman: You have not had occasion to look at those. Are you all in favour of the recommendations of the Hampton Report?

  Mr Jowett: In broad principle, Madam Chairman, yes.

  Q295  Chairman: In broad principle. Do you think an increasingly light touch approach to regulation might compromise the CAA's safety standards?

  Mr Jowett: The CAA talk about a light touch approach to regulation, we would not, from the industry side, always perceive it that way. Certainly in terms of standard setting and regulation compared with some of our continental neighbours or with North America it would not be deemed that way. Progress and movement towards further, as the CAA would say, light regulation, we would endorse. We do not believe that there would be a safety issue. Safety is at the forefront of our minds. It must not be compromised but we believe further moves in that direction would not so compromise it.

  Chairman: On that note, Mr Jowett, Madam, gentlemen, may I thank you for your attendance. We are very grateful.

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