Smaller airports - Transport Contents


Government Response


Introduction

The Government welcomes this opportunity to respond to the Transport Select Committee's recommendations on smaller airports.

Viability

Recommendation 1. We welcome the range of consumer choice provided by the comparatively large number of smaller airports in the UK. The Government is rightly cautious about making direct interventions in this market, which rewards enterprise and provides consumers with competitive prices and choice. There is no case for a general policy of state intervention to keep all smaller airports open. (Paragraph 9)

Response: The Government welcomes the Committee's support for the principle that the commercial aviation market is best placed to deliver a choice of air services to UK passengers.

Air Passenger Duty

Recommendation 2. We welcome the acknowledgement of the negative impact of APD on the aviation sector in the autumn statement 2014. However, exempting children from APD was a marginal change which did nothing for business travellers and little for smaller airports. (Paragraph 15)

Recommendation 3. APD prevents airports in Northern Ireland competing on a level playing field with airports in the Republic of Ireland. This has cost Northern Ireland jobs, growth and connectivity. (Paragraph 17)

Recommendation 4. If APD were scrapped in Scotland, airports in England would be subject to a similar competitive disadvantage to that currently experienced in Northern Ireland. The further devolution of APD to, for example, north-east England or Wales would ultimately serve to extend a patchwork of APD-derived market distortions across the UK and drive a race to the bottom on regional APD rates. We would prefer the Government to act strategically and in the national interest to address APD (Paragraph 18)

Recommendation 5. The way in which APD is double-charged on domestic return flights is damaging to UK smaller airports. In effect, it incentivises airlines and passengers to fly from airports located in other EU member states. It cannot be revised to allow UK airports to compete on a level playing field in the European marketplace because of the operation of EU competition law. The proposed devolution of APD to Scotland threatens to create further market distortions which could severely disadvantage airports in England. It is disappointing that the concerns we raised previously about APD in our First Report of Session 2013-14 on Aviation strategy were ignored by the Treasury. We urge Transport Ministers to pursue those recommendations and the important concerns raised by smaller airports with the Treasury. (Paragraph 20)

Response: Decisions on taxation, including APD, remain a matter for the Chancellor and the Treasury. The Treasury has confirmed that there will be a review of potential options to support regional airports and mitigate the impacts of APD devolution. As part of this review, a discussion paper will be published during the summer examining:

·  the devolution of APD rates within England

·  the variation of APD rates within England

·  the provision of aid for regional airports

Public Service Obligations

Recommendation 6. The DfT should regularly report on the number of applicants and of successful applications to the Regional Air Connectivity Fund to support new air routes and publish this information on its website. (Paragraph 24)

Response: The Department for Transport publishes details of routes that have received funding from the regional air connectivity fund to support public service obligations.

https://www.gov.uk/government/news/uk-government-funding-for-dundee-to-london-stansted-air-link

https://www.gov.uk/government/news/government-funding-secures-cornwall-to-london-air-link

The Department has also published a list of routes that have submitted initial applications bids for start-up aid funding.

https://www.gov.uk/government/news/19-new-regional-air-routes-bid-for-start-up-aid-funding

Recommendation 7. The DfT should set out a timetable for negotiations with the European Commission on its "Draft Protocol for UK start-up aid for airports handling fewer than 3 million passengers per annum" to allow smaller airports and local authorities that are considering accessing the Regional Air Connectivity Fund to plan effectively. (Paragraph 25)

Response: The Department for Transport has notified the European Commission of the UK scheme for start-up aid. We hope to receive clearance shortly and will publish the approved scheme on gov.uk.

Recommendation 8. The DfT should work with the European Commission to clarify what a "duly substantiated exceptional case" means in practice. Certainty on that point will allow UK smaller airports handling between 3 million and 5 million passengers a year to engage with the DfT's PSO policy, which could play an important role in facilitating regional air connectivity. (Paragraph 26)

Response: Public service obligations (PSO) are not limited by the size of an airport. The Government has set out how we will normally interpret the EC regulations regarding PSO with regards to protecting route to London that are in danger of being lost.

https://www.gov.uk/government/publications/public-service-obligation-regional-air-access-to-london

With regards to start-up aid, the Commission's guideline only allow financial support to be provide for routes from an airport of between 3-5 million passengers per annum in "duly substantiated exceptional case". Initial discussions with the Commission have not provided any further clarification on this point. The Department for Transport will continue to engage with the Commission on this point.

Recommendation 9. We welcome the DfT's policy of promoting PSOs both to support existing air routes and to start up new air routes. As currently implemented and given its current level of funding, however, this policy represents a marginal change to the smaller airports market rather than a strategic intervention. For example, although the maintenance of air routes from Dundee to London Stansted and from Newquay to London Gatwick may be desirable, it is unclear why those air routes should attract public subsidy while others do not. PSOs could become strategically significant if they were used to facilitate regional connectivity to an expanded hub airport in the south-east (Paragraph 27).

Response: PSOs are governed by EU regulation and provide some limited scope to protect regional air services that may become economically unviable. They can be used to protect air services to airports serving a peripheral or development region, or on low traffic routes considered vital for a region's economic and social development. The Coalition Government's Aviation Policy Framework published in March 2013 made clear that the Government would be inclined to support applications by devolved and regional bodies to establish PSOs that comply with the specific EU law, to protect vital air connections between other UK airports and London, and help economic and social development in peripheral regions.

Essentially there are three main criteria for a service to be supported with a PSO:

i) The service must be to a "peripheral region", or a "development region", or on a "thin route to any regional airport";

ii) The service must be "vital for the economic development of the region".

iii) The establishment of a PSO must be necessary to ensure the "adequate" provision of scheduled air services. In assessing the "adequacy of provision", the public interest, the availability of other forms of transport, airfares and conditions, and the combined effect of all carriers operating or intending to operate on the route must be taken into consideration.

Department for Transport guidance published in December 2013 clarified how the Government would ordinarily expect to interpret these criteria when assessing applications for PSOs to protect existing regional air services to London. The guidance stipulated that where a devolved or regional body has provided DfT with evidence that the route meets these criteria, the devolved or regional body can undertake a tender process to find an airline to operate the route. The tender process must make it clear that the PSO being considered is about serving the London region rather than a specific airport in London. For the purpose of this policy a London airport has been defined as any airport that can access London transport zone 1 within 60 minutes by rail (i.e. : Gatwick, Heathrow, London City, Luton, Southend and Stansted airports).

Government support for the Newquay-Gatwick and Dundee-Stansted services has been provided under these criteria. It is unlikely that any other existing air services to London will require PSO support.

Airports Commission

Recommendation 10. The whole country will be able to share in the economic benefits of an expanded hub airport in the south-east only if that expansion entails airlines securing sufficient slots to maintain services to smaller airports in the English regions, Scotland, Wales and Northern Ireland. The way in which new slots at an expanded hub airport in the south-east might be allocated is currently opaque. The DfT should assess (a) how new slots might be allocated; (b) whether some of those slots could be ring-fenced for domestic services to smaller airports; (c) whether the Public Service Obligation mechanism could be applied to new services using any such new slots; and (d) what proportion of new slots would need to be allocated to flights to UK smaller airports to support regional connectivity effectively. (Paragraph 35)

Response: To protect the Commission's independence, the Government will not be commenting on any issues, including slot allocation, before the Airports Commission publishes its Final Report. Once the Final report has been published, the Government will begin the process of reviewing the Airports Commission's full analysis and then decide how, and at what pace, to respond to any recommendations made on additional airport capacity. Aviation and airports provide real opportunities that will benefit the UK. We must not miss this opportunity to take a decision which is so essential to our national reputation, prosperity and quality of life.

Recommendation 11. We recognise that the Airports Commission has carefully defined the scope of its inquiry. Nevertheless, we note that it has on occasion considered the role of smaller airports. We encourage the Airports Commission to reflect on the role of smaller airports in its final report. In particular, it should consider how new slots at an expanded hub airport in the south-east might be allocated to services to smaller airports in the UK. (Paragraph 36)

Response: This is a matter for the Airports Commission.

Case study: Manston

Recommendation 12. We recommend that Ann Gloag places the joint venture agreement between herself, Chris Musgrave and Trevor Cartner to redevelop Manston in the public domain to make it clear who would benefit from the proposed redevelopment of Manston and to repudiate allegations of asset-stripping. We would be happy to publish this document on our website. (Paragraph 46)

Response: This is a matter for Ms Gloag and Messrs Musgrave and Cartner.

Recommendation 13. We expect higher-tier local government bodies to fulfil their strategic oversight functions by supporting local planning authorities in resolving one-off, complex cases involving nationally significant transport assets. (Paragraph 48)

Recommendation 14. Kent County Council has the legal and financial resources to assess complex CPO cases. Despite having agreed a motion to support Thanet District Council, it failed to deploy those assets. In failing to support Thanet District Council's scrutiny of the proposed CPO at Manston, Kent County Council also failed to fulfil its strategic oversight function as the local transport authority. (Paragraph 52)

Recommendation 15. That the DfT judged it necessary to intervene in the Manston case shows the extent to which Kent County Council failed to fulfil its strategic oversight role. (Paragraph 53)

Response: County Councils only have limited planning functions, mainly in relation to minerals, waste and planning applications for their own development. The Government does not therefore consider that a county council has a duty to provide strategic planning oversight for a district council. The primary responsibility for planning the future of strategically important assets, such as Manston Airport, rests with the local planning authority.

Recommendation 16. We welcome the DfT's decision to appoint a consultant to examine the Manston case. The uncertainty faced by the public and other interested parties could have been reduced if it had not taken three months before the DfT acted. The DfT should set out clear terms of reference for the consultant who is contracted to examine the Manston decision-making process and place them in the public domain. Those terms of reference should include (a) an explicit requirement to assess whether RiverOak is an appropriate indemnity partner for Thanet District Council; (b) a deadline for the consultant to report back to the DfT; and (c) an expeditious timescale for subsequent DfT decision making. To ensure that similar cases are handled promptly and effectively in future, the Government should clarify precisely how (a) central Government and (b) higher-tier local authorities are responsible for supporting lower-tier planning authorities in cases where a strategic transport asset is subject to a proposed compulsory purchase order. (Paragraph 55)

Response: The Government wishes to clarify the Committee's statement about the time the Department for Transport took to appoint an independent consultant to examine decisions with regard to Manston. Departmental Ministers asked the relevant parties in December to provide all the papers they held which related to the compulsory purchase due diligence process.

Following receipt of papers from the relevant parties in mid-January, the Department led detailed discussions across Government to determine the best way to take forward a review of the material. Following approval for an independent consultant's review, the Department launched a competitive tender exercise in early March, and appointed consultants PwC on 23 March.

The National Planning Policy Framework refers to local planning authorities setting out strategic priorities in local plans for the provision of various things including jobs, commercial development and infrastructure. Furthermore district and county councils have a statutory duty to cooperate with each other in the preparations of plans by a local planning authority The National Planning Policy Framework also instructs local planning authorities to work with other authorities and providers to assess the quality and capacity of infrastructure for transport. . The Government expects local authorities within an area to work together in this, as in other contexts.

Recommendation 17. We agree that there is no general case for the Government to purchase airports, including Manston. (Paragraph 56)

Response: The Government welcomes the Committee's conclusion on this point.

Recommendation 18. The DfT should review what powers it has to intervene in cases where strategic transport assets are at risk and whether those powers are fit for purpose. (Paragraph 56)

Response: As we advised the Committee, our view is that we have the powers that we need to intervene in cases where strategic aviation assets are at risk. With regard to strategic transport assets more generally, common law powers are generally available to Ministers in any department to take steps to promote and pursue government policy. These powers are always subject to any statutory and other constraints which may happen to apply in a specific context. We do not consider that there is evidence that a review of the scope and fitness of these powers is necessary.


 
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Prepared 24 July 2015