The Parliamentary Under Secretary of State (Ms Karen Buck): The Government has decided not to implement the Civil Aviation Authority's recommendation for a £1 levy on all air passengers departing the UK.
The Government wishes to thank the CAA for the enormous effort it has put into its analysis. But the attractions of the CAA scheme are outweighed by the disadvantages.
First, the levy would be compulsory. The Government does not believe that it should compel citizens to protect themselves against the failure of an airline. The Government does not require citizens to take out medical insurance or an E111, although it is wise to do so. We do not require people to insure their house contents, although most people choose to do so. Even in car insurance, the legal requirement is limited to third party liabilities.
Second, there is no logical reason why the State should organise refunds for this one group of consumers. The Government does not have schemes to refund those who order furniture from a store which goes bankrupt, or lose money to cowboy workmen, or make unfortunate stock-market investments.
That is why, on balance, we do not think it right to extend ATOL beyond the requirements of European law although we do wish to reduce its bureaucracy.
ATOL stems from the early 1970s when a family holiday abroad tended to be organised as a package and travel abroad was infrequent. It involved putting at risk a significant proportion of family income in advance of the holiday being taken. These days overseas travel is a lot more routine. UK residents made a record 41 million holiday trips abroad in 2003 compared with fewer than 7 million in 1971.
Next, the levy would reduce but not eliminate the difference in protection given to package and independent travellers. There would still be a 2-tier system, as people who assemble their own packages would have cover for their flight but not for loss of accommodation or car hire.
The Government appreciates that the Package Travel Regulations impose costs on tour operators which they see as an unfair competitive advantage for scheduled airlines. But the levy would replace this imbalance with another. The same £1 would purchase cover for the traveller who buys a low-cost flight to Europe for under £30 and for the traveller (perhaps the more affluent person) who books a 2-week package in the Far East or the Caribbean. The budget traveller pays a much higher percentage of his outlay to ensure there is enough money in the pot to refund to the long-haul package passenger should his tour operator fail.
The Government wishes to respond to the two arguments it has heard why airline passengers should be given special protection compared to other consumers in the economy.
First, some travellers think they are protected when they are not, especially as the distinction between a package and independent travel is not always clear. The Government has committed itself to reduce regulatory burdens on business and only regulate where necessary in a light touch manner. A levy is a heavy-handed instrument to solve the problem of informing a population which has easy access to a multitude of information sources. Travellers are showing increasing sophistication in shopping around on the internet; and 170,000 households now have a holiday home abroad, about double over 10 years. Travel in Europe has become particularly familiar since we have been part of the European community - whether for school trips, sports events, weekends, holidays or business.
The Government has already been working with the CAA and the airline industry to improve consumer information about insurance cover when booking flights. UK airlines have helped us develop a basic message for passengers making online bookings, and some have told us of plans to offer specific insurance as well as posting a message.
This is in addition to the information that is already available from the Air Transport Users Council, the CAA and other sources including the Foreign & Commonwealth Office. The FCO is going to update its website shortly to explain the protection available under the Consumer Credit Act 1974 if flight tickets are paid for by credit card. And some tour operators "sell" the protective benefits of a package more vigorously than others.
The second reason why air passengers are said to need special protection is that they may become stranded abroad in large numbers. The Government realises that not all travel insurance covers insolvency, but some does. The CAA's assessment and the example of EUjet this summer show that people will generally find their way home by other routes. Of course, they may incur some expense and inconvenience, particularly if they are not insured, but it is not fair to impose a levy on all air passengers just to provide cover for this. In the case of EUjet other low-cost airlines stepped in to help and have told the Government they intend to learn lessons from the experience to improve the effectiveness of future voluntary rescue efforts. Similarly, when Swissair and Sabena failed, other full-service airlines honoured the homeward tickets of passengers abroad.
The Government has been encouraged by the willingness expressed by airlines to put in place improvements to ensure travellers are able to make informed decisions about the need for insurance, and by airlines' assurances that they would continue to take voluntary action on repatriation. The Government will be talking further to airlines in the coming weeks to ensure that effective voluntary measures are put in place as quickly as possible.
Nevertheless we recognise that the current bonding system for tour operators can be a barrier to market entry and tie up capital. The Government is therefore asking the CAA to review whether the system of ATOL bonds could be replaced with a less burdensome means of meeting tour operators' obligations to package holiday-makers under the Package Travel Directive, while at the same time replenishing the Air Travel Trust Fund following the passage of the Civil Aviation Bill.
