Select Committee on Constitution Minutes of Evidence

Examination of Witnesses (700-719)



  700. You appear as a body independent of government?
  (Dr Bush) Absolutely.

Lord Holme of Cheltenham

  701. One of the preoccupations of this Committee is accountability. It is probably the main driving force of our investigation. I have two linked questions. You may be aware that we have had an extremely critical appreciation of how the CAA handles the issue of accountability from the British Air Transport Association. Are you aware of that?

  (Dr Bush) No, I do not think I am. [14]

  702. The approach that they take, representing some 90 per cent of the airlines and therefore the main funders of your operation, is that your accountability is very poor. They produce one or two examples of that which I need not go into but rather than simply taking that criticism as a given I would be very interested to hear how the CAA approaches the question of accountability with all the linked issues of transparency, consultation and so on, particularly with those who regulate. Secondly, could I link that with the Europeanisation of the issues with which you deal? Clearly, increasingly Europe is one airspace and issues from safety to traffic have a European dimension as any of us who fly can see from week to week. I wonder how you see the issue of accountability in that increasingly European context. It obviously depends partly on the emerging European Agency which to some extent will duplicate or have to work in coordination with functions you exercise but on both those scores I would be interested in your appreciation of the accountability issue.

  (Dr Bush) To deal with the question of accountability, and what we aim to achieve, I think there is accountability to Parliament. That comes through appearances before select committees. Our accounts are laid here and we have a whole series of publications that would end up here. We have to take very seriously our accountability to what you might loosely call the stakeholders, of whom BATA would be one. This in part derives from the functions we have, but we also have to remember we are funded by this industry. When we are thinking about our business planning, for instance, we consult industry players and have sessions with them about what our priorities should be. This is not to say that they come along and say, "These are the things that you should be doing" and we say, "That is fine. You pay us and we do that". But it is trying to get some interaction with them. We will be asking them also how we perform and whether there are things that we could do better. We take that process pretty seriously. That is part of our business planning. In relation to the processes we run for regulation, there is an awful lot of consultation. If you look at the quinquennial review, we put out a huge number of documents. There were oral hearings and informal workshops, a whole series of interactions with the stakeholders, both airports and the airlines. I think you could almost argue that there is too much. Unless you are in British Airways or the British Airports Authority, which have the capability to assimilate all of this, is there too much? Should we be more selective? Should we be more focused? That is indeed a question that we are going to be asking. We have set up an evaluation of the last quinquennial review and one of the questions that will be asked is: can we improve that process? Can we make the information more assimilable by the stakeholders? That does not detract from the fact that we have taken consultation very seriously. We also try to consult the Users' Council which represents passengers although, in relation to our economic regulation, we are regulating the airports and air traffic control, and the direct users are the airlines. That is where the focus of our relationship is. We take account, for instance, in setting service standards of the interests of passengers and we will want to continue consulting the Users' Council on that.
  (Mr Britton) The foundations of regulating civil aviation set down in the Chicago Convention of 1944, to which virtually all the states belong, set out standards and recommended practice which all states adhere to. That is the basic framework. To a certain extent, those standards and recommended practices are outwith the UK. They are laid down internationally. How do you implement those on a regional basis? Since the mid-1970s the UK has been a member of the Joint Aviation Authority which is essentially a club of European Member States, somewhat larger than the EU membership. That has developed codes for certification of large and smaller aircraft. It has moved on to operations and flight crew licensing. Being a club, it had no means of enforcing those rules and the EU is setting up the European Aviation Safety Agency as an EU agency and that will give enforcement of these codes some teeth. How that is going to develop we do not know. That is a matter for the government to try and sort out.

<jf11>Lord Acton

  703. I was interested in your comment about passengers. I think you said, "We try to consult passengers' organisations." The primary users furthering the reasonable interests of users of airports are the airlines. I suppose they are but I am a user and when a travelator is bust I am jolly cross. Why do you only try to consult them? Why do you not consult them?

  (Dr Bush) We do consult them. Our consultation process is very open. It is open to the Air Users' Council to contribute at any point to that process. That is the main avenue for passengers' direct interests to be taken into account. But the airlines are representing the passenger interest as well. They want to keep costs down, the quality up and get the investment in because that is part of the product they have to offer. You therefore have some strong commercial organisations looking after the passenger interest. You have raised travelators and that is one of the elements of the new service quality standards that we have put in. The airlines will get rebates if BAA do not match those standards at Gatwick and Heathrow. There is some concern. This is very different from a lot of the other regulated industries where you are dealing with, on the one hand, a monopoly and, on the other hand, Mrs Jones, as it were. There is a very strong body of commercial interests benefiting from regulation.

  704. I appreciate everything you have said, particularly the part about managing the travelators because I travel frequently from America where I live and I find one in two times the travelator is bust. You said that it is always open to the Air Users' Council to come to you. You do not go to the Air Users' Council?
  (Dr Bush) I think we do. We have a consultation process which is dealing with a lot of quite technical and regulatory issues—the cost of capital, the level of investment at terminal five. There may be a whole range of issues where the Air Users' Council, which is a fairly modest body, may not have the expertise to play into in the way that some of the larger airlines do who are in a sense representing passenger interests through their own commercial interests. We do consult passengers but the extent to which they play in is more limited than it may be in other industries where there are much larger bodies and where you do not have commercial bodies representing the passengers' interests as part of their commercial perspective.

  705. Would you like to see the Air Users' Council beefed up?
  (Dr Bush) You would have to look at what precisely you are trying to achieve there. A lot of their role is to try and take forward individual complaints that passengers have with airlines or airports. That is a very valid role. If you start to get to a position where, in effect, you are duplicating some of the functions that we have in questioning the airlines and the airports about what they are doing, that might be a problem. If you look at, say, Postwatch, they spend something like ten or fifteen times as much as the Air Users' Council and it probably costs more than economic regulation in the CAA. We are a fairly lean outfit and we need to think about the costs and benefits.

Lord Lang of Monkton

  706. On the question of independence, I appreciate that you predate the great burgeoning of privatisation of regulators with their clear statutory functions, but I think you said you regarded yourselves as independent of government. In your submission to us you say that the Secretary of State for Transport will agree overall priorities and objectives each year with the CAA and will monitor performance. Does that not imply that he chooses your activities rather than you? Does it not make you an instrument of government?

  (Ms Jesnick) No it does not. Because of the international arena in which aviation operates, there are some things that are only open to Her Majesty's Government. For example, it is the government of the day taking us into Europe with the single European sky. That is for the Department of Transport and that is the essential reason why we have accountability to the Secretary of State and why the Secretary of State speaks for us in Parliament. In all other areas, we set our own agenda and discuss that with him. It is not a case of him dictating to us but, because of the international flavour of aviation, it has to be that way because there are some things that the Civil Aviation Authority is not in a position to do.
  (Dr Bush) In relation to the economic regulation, my sense is that we are in no different position than other regulators in terms of our independence. The conduct that I have seen of the quinquennial review and NATS shows the CAA operating as an independent regulator with the government occasionally disagreeing with something that we want to do and yet us going ahead and doing it.
  (Mr Britton) We are the agent of government in certain circumstances because it is the Secretary of State who has the international treaty obligations. He cannot possibly deal with certification of aircraft, granting licences etc. We are his agent for discharging his obligations under the Chicago Convention.

  707. On the question of appeals, this is a theme that has been recurring throughout our inquiry. In many cases, there is very little opportunity for appeal other than to the Competition Commission or judicial review. You by contrast seem to have a massive, elaborate structure of potential appeals but when one looks at them in detail it is not quite so elaborate because the first right of appeal on the refusal of the granting of a licence is to a member of the CAA itself or in some instances to a panel of two members of the CAA rather than an outside body. The other appeals are on specific issues, perhaps to a county court or the Secretary of State but then it goes straight up to judicial review. Has anybody made representations to you that there should be some sort of intermediate body, less Draconian than judicial review, that might achieve some arbitrated agreement?
  (Mr Britton) We certainly looked at the internal appeal system when members of the CAA were considering the Human Rights Act and the appeals to an independent tribunal. On the safety side of things, we are making critical decisions affecting public safety. The CAA is very well qualified to take those decisions but it is very difficult for those decisions to be taken by a non-expert body. It could go to a fully independent tribunal which would know nothing about aviation. Would the public have confidence in their decisions? With the CAA, they would do because it is an expert organisation. On matters of procedure and fitness, those are for the courts and quite right too. Then there is judicial review to make sure that the procedures are rational.
  (Dr Bush) We do have a difference in the airport area from other economic regulators in the sense that there is not an appeal once the CAA has made its decision. The CAA puts a remit into the Competition Commission which then looks at the issues again, advises the CAA and the CAA then takes the final decision from which there is no appeal, apart from judicial review. It has been the government's policy for some time to alter that to the more normal process whereby there would be an appeal to the Competition Commission which would not then get involved at the earlier stage.

Lord Morgan

  708. I want to put a question about consumer matters. Safety is one of your concerns. When Lord Acton questioned you, you replied in terms of passengers having a pleasant experience on the airlines and your responsibility is surely that passengers come back alive.

  (Dr Bush) I was very much talking there about economic regulation. In terms of safety, that is absolutely key and we are talking about the passenger there.

  709. I was wondering how you balance the priority between the two. Of course, safety is the primary consideration. It is equally likely that enforcing the view that you take might involve costs and other sources of tension. What is the balance of conceptual priority between enabling the companies to proceed without hindrance and ensuring that safety is the ultimate priority?
  (Dr Bush) From the point of view of economic regulation, in the case of air traffic control, it is set out in the statute that safety is paramount. That is very clearly the way we work as an economic regulator. In looking recently, for instance, at changing the delay term within the price control regime for NATS, we have very specifically addressed that issue to ensure that changes we are making do not compromise safety. In the airports context, we take safety as a given. The point about safety is that a lot of this will be driven by internationally agreed standards.
  (Mr Britton) The Civil Aviation Act says that we have to exercise our functions consistent with the highest standard of safety in operating the services. That is one of our general, fundamental, underlying objectives. All the CAA's functions have to be discharged with that in mind.

  710. One of the points made in the rather critical document was that in some areas you had been perhaps too rigorous, particularly on the question of passenger safety on planes in flight. Were you aware of that?
  (Mr Britton) I was not but I am very pleased that it is so.

  711. They referred to the doors and so on.
  (Mr Britton) That is a security matter. That is rather strange because for safety reasons you would not have an armour plated door between the flight crew and the cabin crew. For security, unfortunately, it has to be done.

Lord Elton

  712. Are you aware of anything that you are currently doing that you need not be doing in the way of aviation?

  (Dr Bush) It is worth emphasising that we operate as we do partly because of the way the statute is drawn but also because of the way economic regulation in the CAA has grown up. It is a very light touch approach. If we only have 10 people with airports and air traffic control to regulate, this is not something where you have a huge amount of resources you are throwing at it. In terms of airports, they are not licensed. They are designated. Our broad approach is simply to deal with the price cap. There is more intrusion into NATS because they are licensed. There are more demands on them and those have increased slightly because of the difficulty NATS had over its financial viability to ensure its robustness. Coming new to this, I am surprised by the slimness of the economic regulation organisation. We start from an approach which says we do not do it unless we need to. Sometimes we are under pressure from, for instance, airlines to get involved in much more detail in their disputes with the airports. We tend to take the view that these are grown up boys and that they should, to the greatest extent possible, be dealing with airports on a commercial basis. We try to avoid what has happened in some other industries; where you start getting drawn into detail it never ends. Even where, on the back of the Competition Commission's public interest finding, we have been drawn into setting quality standards and rebates from two London airports to airlines, we have sought to set a base line and leave it to the individual airports and airlines at terminals or individual airports—Gatwick and Heathrow—to determine the detail of that. If they want to change the detail, they can come to us. We have set in place a process whereby, subject to some safeguards, we would be prepared to make those changes fairly quickly. In effect, we are standing there, providing a framework but saying to the parties, "You are commercially driven. You are big boys. Get on with it as far as you can." We hold the ring to some extent but we try to avoid getting drawn into the detail.

  713. You are aware that the British Airways submission to us suggests, on page two at paragraph three, that the CAA has recently removed the requirement for airlines to hold licences for each route operated. "However, all prices must still be filed with the CAA, a process that has become impracticable and unnecessary given the state of competition and the dynamic nature of pricing and distribution. In our view this function is largely outdated and there is clear scope for further deregulation." That is what prompted my query.
  (Dr Bush) We do not regulate fares generally. Within the competitive European market there is no need to do so. There will be some routes where we do regulate the fares, where there is very limited competition. We regulate one fare on those routes. What they are saying is that there are some remaining areas in which we do get involved which we would like to withdraw from, in particular in relation to the United States. There is some collection of fares data. We are arguing with the Department about withdrawing from some of these areas. We are all the time trying to get out of unnecessary data collection and fare regulation.

  714. Can I come back to the ten people? It seems to me an enormous field that you are regulating. Do you mean that is the total? Have each of the 10 people staff supporting them?
  (Dr Bush) The economic regulation group has 40 people. 20 of them are involved largely in statistics work which is about numbers carried on routes and so on, which helps provide information which makes our industry competitive. People know where the pressure points are. They know where people can fill up planes and that sort of thing. 20 are involved in policy and economic regulation and around ten of those are in economic regulation. That is it. When we come up to a price review, we augment that sometimes with one or two extra or we bring on some consultants but it is still not a massive number.

  715. There is no large burden of enforcement on you?
  (Dr Bush) No. What we seek to do is, in relation to the airports, to set a price cap. That is it. We do not have a huge burden of chasing down licence conditions which I know happens in other industries.

  716. Who tells you when a regulation is broken?
  (Dr Bush) In relation to the price regulated airports, we will have, for instance on the quality standards, a self-policing mechanism. The airports and the airlines will have information. Rebates will be paid if BAA falls below the standards. We may get involved if there is a dispute about a particular payment, but we try to avoid that. There is not a great panoply of regulation there for us to be informed about.

  717. When British Airways say that all prices must still be filed, they are referring to ticket prices, are they?
  (Dr Bush) I guess so. I am not absolutely sure how much data we collect on this.
  (Mr Britton) It was substantially liberalised following the third liberalisation package, the EU measures introduced in the early 1990s. Prior to that, we used to require every fare to be filed with us and it was an enormously bureaucratic procedure. That really has been filleted right down to the bare minimum. It is all automatic, I think, and done on computers. I am very surprised that they have raised this as a problem.
  (Dr Bush) There are literally a couple of people doing it so it cannot be that much of a burden; otherwise, it would not be able to be assimilated at our end. I am very happy for us to see if we can fillet it down further because that is the direction we want to move in, but we do not have a vast army of bureaucrats doing this.

Lord Jauncey of Tullichettle

  718. You do not set the individual fares of the airlines? They do not require your consent?

  (Dr Bush) There are some fares which are on routes where there is limited competition, where changes do require our permission.

  719. In the highlands and islands of Scotland?
  (Dr Bush) I do not know whether that is one. This is much more where there are international routes, where there is very little competition between carriers.
  (Mr Britton) It is probably a fall-out from the air service agreement between the UK and the foreign state. Some of those are quite archaic and have been in place for quite a long time. There is one between the UK and Iraq which was set up in the 1950s. That sort of thing still survives and it has a lot of bureaucratic minutiae attached to it. The filing of fares could well be one of those.

14   See the supplementary memorandum by the Civil Aviation Authority in response to submissions from British Airways and the British Air Transport Association. Back

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