Joint Committee on Statutory Instruments First Report


Memorandum by the Department of Transport


  1. The Committee considered the above instrument at its meeting on 11 March and requested a memorandum on the following point:

    "Explain why the percentage of annual turnover constituting the `relevant sum' for the purposes of calculating the annual charges has been increased from 0.2% to 2% for designated airports and from 0.2% to 1% for other airports".
  2. Under the system of economic regulation of airports established by Part IV of the 1986 Airports Act, all airports with a turnover exceeding £1m in two of the last three financial years may apply to the CAA to levy airport charges. At present some 44 airports in the UK are subject to this system of regulation. A tighter control applies to those airports which are designated by the Secretary of State for the purposes of airport charges (currently Heathrow, Gatwick, Stansted and Manchester). The designated airports have a price cap set every five years by the Civil Aviation Authority (CAA), following a detailed review by the Monopolies and Mergers Commission (MMC). Costs of the MMC in undertaking their investigation are recovered from those airports. The CAA may also undertake a review of a non-designated airport, but although this power exists it has never yet been used.

  3. In 1995 the Department reviewed the system of economic regulation of airports. The airport industry, air carriers and airport users were consulted at all stages, and the findings received general support. The Government announced its acceptance of the report findings in March 1995, and its intention to implement changes as soon as possible. Two findings are covered by this instrument. These were:

      (i)   in future each designated airport should pay the full cost incurred by the MMC in reviewing it, rather than spreading the cost in excess of 0.2% of turnover amongst all regulated airports as required by the 1986 regulations being revoked by this instrument. This was because there was considered to be no good reason for the non-designated airports to contribute to the costs of quinquennial reviews of the designated airports given that the latter are large and profitable concerns. The Airports Act requires any regulations made under it to prescribe the maximum amount of any charge: it was deemed more appropriate to express this as a percentage figure rather than as a monetary amount. Following discussion with the MMC, it was accepted that a figure of not more than 2% of turnover would never be exceeded in practice and was therefore appropriate as a cap.

      (ii)   That a limit of 1% turnover should be placed on a non-designated airport's contribution to MMC costs were it to be reviewed (with the excess being carried by the other regulated airports in shares proportionate to their annual turnovers). Full cost recovery, even with a nominal 2% ceiling as for the designated airports, would not be appropriate here, because of the costs of an MMC inquiry for a non-designated airport are likely to have the same fixed costs, and this would form a substantially higher proportion of turnover. The regulations therefore cap the cost payable by a non-designated airport at 1% of turnover; if such a review were to happen, it is likely that costs would indeed exceed 1%, and that excess would be borne by other airports. As recorded in paragraph 2 above, such investigations are expected to happen only very rarely and there has not been one since the 1986 Act came into effect.

18th March 1997

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