Airports (Amendment) Bill [HL] — Second Reading
1:07 pm

Moved by Lord Empey

That the Bill be read a second time.

1:14 pm
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Lord Empey (UUP)

My Lords, as noble Lords will recall, I raised this issue last March, in the previous Session, and we then discussed the issues surrounding regional access to hub airports. Since then, we have had the introduction of the Civil Aviation Bill, and there were further discussions when that Bill was before the House. Indeed, this week, the noble Lord, Lord Stephen, proposed an amendment to that Bill which sought to do something similar to what I am trying to do with my Bill.

The purpose is basically to ensure that the Government have power to intervene if necessary in the event that there was a failure to connect the regions of the United Kingdom to our principal hub airport at Heathrow. I do not believe in over-involvement of government in regulation or intervention if it is at all possible to steer away from it, but the reality is that there is an economic imperative for regions to have connectivity to the centre. It is a basic principle of regionalism which has operated in this country for many decades. It is a principle that is widely recognised in the European Union-we often talk of a Europe of the regions-and European regional development policy and UK regional development policy have all directed funds specifically to regions. That is to ensure meaningful economic activity in those areas.

People may say, "At present, most regions of the United Kingdom are fairly well connected". That may or may not be true. For people in the south-west or other areas-we heard from the noble Lord, Lord Stephen, this week, that some air services from the north-east of Scotland had been cut back-it is constantly in our minds. The airline sector is one of the most volatile sectors before us today. Changes are taking place almost as we speak. In my region of Northern Ireland, we currently have good connections not only to Heathrow but the wider world. Generally speaking, we are currently content.

However, the connections are only as good as the airlines that provide them. It is perfectly obvious that there can be substantial swings from profits to loss, and then there can be takeovers. One of the providers of air services to Heathrow from Belfast is Aer Lingus. A few months ago, Etihad Airways bought 3% of it. It is now trying to buy the Irish Government's 25% stake in that airline, and Mr O'Leary, of Ryanair fame, is trying to buy the airline as well. Does that send the message that there is a meaningful commitment to maintaining regional links to the hub airport at Heathrow, or do the airlines see greater profit in having access to the landing slots at Heathrow, which are where the money is? Frequently, the money is not in regional air traffic. The amount of regional air traffic, the number of passengers involved, is diminishing in the United Kingdom-largely because there is a move to rail. Rail is becoming ever more competitive and, in some areas, even Birmingham, the railways have effectively eliminated the airlines from the race.

Of course, in Northern Ireland, those options are not open to us. You cannot drive or take a train; the only meaningful connection is air. My principal objective is to protect our access to Heathrow.

The Government have frequently pointed out to me that this is not a matter for the UK alone; I fully understand that. They have pointed out that there is a significant European dimension; and I fully understand that. By coincidence, the European Union currently has a substantial document before the European Parliament. It is a regulation by the European Parliament and the Council on common rules for the allocation of slots at European Union airports and related matters. It is pure coincidence that this Bill and the activity in Europe are taking place at the same time.

However, that provides an opportunity. I have been to Brussels on a number of occasions this year and through a colleague in the European Parliament-Jim Nicholson MEP, formerly of the other place-a number of amendments were put down in the European Parliament's transport committee. Those amendments were voted on earlier this week and the committee accepted a number of them. Those amendments will now go before the European Parliament next month. Perhaps I may give your Lordships an example of what those amendments included. One states:

"In addition it is important that access to hub airports from regional airports should be maintained where such routes are essential to the economy of that region".

That is precisely the point that I want to make with this Bill. As the European Parliament's transport committee has accepted the point, a legislative report will, in response, go before the European Parliament in December. If that report is accepted it will form the co-decision position of the European Parliament-as both the Commission and the Parliament will have to agree. It will then go to negotiation at the Council of Ministers. However, if the European Parliament as a whole accept this amendment then the core point that I have been trying to make will be adopted.

On Tuesday a second amendment was also accepted which referred to the co-ordinator of airports, who we may be familiar with. This amendment added:

"This procedure shall be without prejudice to regional airports connectivity to hub airports. If such connectivity is undermined Member States shall be permitted to intervene".

It is precisely because the UK Government have no power to intervene, as they would be in contradiction of European Union regulations, that we have been pursuing this matter in the European Parliament.

A second report-an own opinion report-came before the European Parliament earlier this year. The difference between a legislative report and an own opinion report is that the latter is a bit like a take-note debate in Parliament-it has no legislative edge to it, whereas the legislative report that will be going to the Parliament next month does. Nevertheless, it gives some flavour of the opinion that is there. The report was prepared by Philip Bradbourn MEP, who represents the Birmingham area. It was drawn up in April this year and, I believe, was passed by the European Parliament in May. The report,

"considers it essential for regional airports to have access to hubs".

Again, that is exactly the point that I have been trying to make.

The Minister has correctly pointed out to me on a number of occasions that the only way to overcome the conflict between European law and what I am trying to do in this Bill is to bring the two sets of legislation together. By coincidence, the European Parliament and the European Commission are doing precisely that at the moment. I have been there a number of times and talked to members of the committee and to the cabinet of the relevant commissioner. They all understand the regional issues because many of them represent remote regions of the European Union and know what it is like to be isolated.

I also understand that there is a risk of conflict because if you intervene in the marketplace you can distort competition. At the end of the day, however, there are certain essential facts. One fact is that the state cannot be isolated or left powerless when an emergency arises. I hope that that will never happen but it is of fundamental importance for the state to ensure that its regions have adequate connectivity to the hub. It is a relatively simple point. I understand, of course, that the Minister cannot say that he supports this proposal, because the law has not changed. The question, however, is whether the Government will be prepared to support and argue for appropriate changes in Brussels when the proposals come to negotiation at the Council of Ministers, and whether they will accept that they currently do not have the powers but would like changes to take place. I would be interested to know if the Minister is able to say that to us.

The Irish Government will be holding the presidency of the European Council from January of next year and I expect that that is the point at which the negotiations will take place. I have made it my business to be in touch with them. I have spoken to a number of their MEPs and, I have to say, I have met with universal acceptance of the ideas that we are putting forward. They know what it is like to be in a remote region as they have remote regions in their own state. All that I am asking the Government to do at this stage is to indicate that they would support proposals for change in Brussels, provided that these would not lead to over-upsetting the normal commercial processes. It cannot be that you cannot upset them. Quite rightly, states and Governments throughout Europe reserve powers to interfere in the normal marketplace.

Regional policy is itself a distortion of the market. If you say that each region can be left to swing by its own tail and we will not intervene, businesses and industries might move from one region to another-and they do. But this country has maintained a regional policy since the Second World War. It has put a lot of resources into this policy, as has the European Union. I hope that Her Majesty's Government will at least indicate that, in the forthcoming negotiations in Brussels, they will undertake to encourage the European Union to make the changes that would allow them to have powers to intervene should the necessity arise. I beg to move.

1:27 pm
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The Earl of Caithness (Conservative)

My Lords, I declare my interests again. First, I live in a more remote area than the noble Lord, Lord Empey. Secondly, I was formerly Minister of Aviation.

I regret and welcome this Bill. I regret it, because I think that it is wrong for this House to debate exactly the same Bill as it debated in March, a mere seven months ago, when it did not receive the support of either Front Bench. It would have been preferable if the noble Lord, Lord Empey, had put down a Starred Question or a Question for Short Debate rather than a Bill. I welcome it, because it gives us another opportunity to discuss what we discussed in March and the House will be pleased to know that I am not going to repeat what I said then.

The noble Lord, Lord Empey, said that the raison d'être for this Bill is for the Government to have power to intervene. They have power to intervene now. They have the Public Service Obligations. My noble friend Lord Attlee spelt it out clearly in March this year. It is clear that the Government can operate, but they have to operate within the European law. The noble Lord, Lord Empey, then changed the emphasis and said that it was not really a regional hub that he wanted, but that he wanted to go to Heathrow. He wants to keep that link. If my noble friend Lord Attlee and the Government say that Northern Ireland can have a link to Heathrow, is my noble friend Lord Attlee going to reinstate the Inverness-Heathrow link, and the other 11 domestic links that have been lost to Heathrow over the last 22 years? That would be a huge interference in the market place. You cannot isolate Heathrow. You cannot isolate one airport. You have got to talk about a region. There is Heathrow. There is Gatwick. There is Stansted. There is Luton. All those airports have international flights.

That very conveniently takes me on to the hub. In Clause 1(2) the noble Lord, Lord Empey, wants to get access to hub airports. He and I are both lucky. He flies out of Belfast, and I fly out of Inverness. We can both fly to Amsterdam, and we can get just as good connections in Amsterdam, as the noble Lord, Lord Soley, said in March, as we can from the London airports. Indeed, in some instances it is cheaper to go to Amsterdam, so we cannot argue that we do not have access to hub airports.

Going further into the Bill, in subsection (3) the noble Lord wants to ensure "adequate services". That is purely subjective, not the precise wording that one should be using in legislation. In the summer months, we have three services to Inverness from Gatwick; in the winter months, we have two. I do not call that an adequate service. If my noble friend Lord Attlee has to make the decision about what is an adequate service, is it three services-one in the morning, one at lunchtime and one in the evening-or one in the morning and one in the evening, as now? If I take the morning flight, I cannot come to your Lordships' House. If I take the evening flight, I do not get home until after midnight. I do not think that is an adequate service, but if you were to ask Flybe to retain the lunchtime flight, it would put that company in jeopardy because there are not enough people taking that flight.

The real issue behind this Bill is the number of passengers who are flying. The noble Lord, Lord Empey, touched on this. Since 2001, there has been a 20% decline in UK domestic travel, not just to London airports. Does my noble friend have any comments on that when international passengers are down by 2% over the same period? Has there been an impact assessment on the effects of airport passenger duty? It has risen 160% from £5 per passenger per flight to £13 per passenger per flight. What impact has that had on tourism and on the regions? Is that a contributory factor to the decline in domestic air travel? Does my noble friend anticipate that domestic air travel will continue to decline? Does he think that airports and providers regulated by the CAA are making the right sort of return and that the CAA is therefore regulating them properly? London Gatwick, which is price-regulated, saw a 17% rise in profits in 2001-12. Is that acceptable to my noble friend? BAA saw a 15% rise in quarterly profits in the first quarter of 2012. NATS, which is a monopoly and CAA price-regulated, saw pre-tax profits rise by 119% in 2011-12. Those are costs that the airlines have to meet, and if the airlines had to meet lower costs, the price of tickets would go down, which might encourage more people to fly.

Does my noble friend Lord Attlee agree with the statement by the new owners of Gatwick that they have structured their increased charges to discriminate against smaller aircraft? Airport charges per passenger have risen from £9.72 in 2007 to £20.13 in 2012. That is a fairly crude estimate because it is a highly complicated mechanism, but there is an over 100% increase in passenger charges. Is it right that it should be on the passenger, or would my noble friend agree that it should be on the weight and size of the aircraft, which therefore does not discriminate against smaller aircraft?

These are the sort of issues that would resolve the problem that the noble Lord, Lord Empey, raised. If we are going to keep open the domestic links to London-it does not have to be to London but if that is what the noble Lord wants-we need to get more people flying and to do that we need to be able to reduce the cost. Can my noble friend therefore comment on the questions I have raised?

1:35 pm
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Lord Lexden (Conservative)

My Lords, I was among those who declared their full support for this Bill when my noble friend Lord Empey brought it before us towards the end of the last Session. The Bill continues to deserve the fullest support.

My noble friend has shown tenacity and great skill in seeking to secure acceptance of the proposals embodied in his Bill. He has made the case for them in effective and convincing terms, both here and in the institutions of the European Union. It is, as he has explained again today, the EU which holds the principal key to progress. Without the revision of existing EU law it will be impossible for our Government, well disposed though they are to my noble friend's proposals, to acquire the power they would need to give effect to them and so protect fully vital air services between Heathrow, our one major national hub, and all the regions if at any point the Government's invention should be required to prevent regional air services losing crucial landing slots at Heathrow.

Our discussions on this Bill have brought out its particular importance to Northern Ireland where satisfactory alternatives to air services simply do not exist in today's fast-moving world. Ulster's economic future depends on very substantial private sector growth and the concomitant reduction in the size of the very large public sector. If enterprising businessmen and women are to bring about that growth and the new jobs that will accompany it, they must be able to travel swiftly between the Province and our national hub at Heathrow as need arises. Those of us to whom the affairs of Ulster are especially important are bound to feel that point acutely. However, as my noble friend has emphasised, this is not a Bill for one particular region: it is a Bill for all regions and all parts of our country because it would confer on the Government, and through them the Civil Aviation Authority, the power to safeguard their slots at Heathrow if threats to them should arise.

Nothing is more important in our economic life today than preventing the emergence of impediments to the progress of the Government's growth strategy. One such impediment would be the diminution or disruption of air services between the regions and Heathrow. This Bill would provide the means to deal with any such threat to our overall economic well-being and ensure that the regions retain adequate connections to Heathrow.

Incidentally, "connection" is clear, long established and well known, so why has the new, unnecessary and unattractive "connectivity" been inflicted on us in recent years? Can we not abandon it? I am sure the grandfather of my noble friend the Minister who loved short, sharp words would have disliked it profoundly. More seriously, as my noble friend has made clear, there is increasing recognition within the European Union that its existing law which constrains our Government so severely ought to be reconsidered. As he has said, this Bill coincides most fortunately with the review of EU slot regulations. It is extremely encouraging that the European Parliament has recently adopted a report on the future of regional airports and services, to which my noble friend Lord Empey alluded, produced by the Conservative MEP, Phil Bradbourn, with whom I worked some 20 years ago in a truly august body, the Conservative Political Centre where new policy ideas are brought forward for the benefit of the Tory party. He has backed an admirable policy idea in his report. It strikes exactly the right note in stating that it is,

"essential for regional airports to have access to hubs".

Within the past few days, the issue has again come into prominence, as my noble friend Lord Empey has pointed out, with the adoption of two amendments to a Commission document moved by Jim Nicholson, a dedicated and long-standing Conservative and Unionist MEP from Northern Ireland. It is worth repeating the second, which declares that,

"it is important that access to hub airports from regional airports should be maintained where such routes are essential to the economy of that region".

These welcome developments indicate that serious interest in change is growing within the European Union. In replying to this debate, my noble friend will no doubt tell the House what the Government are doing to encourage and foster the re-examination of existing European law by the Commission as the European Parliament continues to consider the issues. Every effort should be made to secure the revision of European law in order to create the circumstances in which the provisions of this important Bill, on which my noble friend Lord Empey has worked so hard, could be put successfully into effect. The Airports (Amendment) Bill should be given all possible support.

1:40 pm
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Lord Berkeley (Labour)

My Lords, I am grateful for the opportunity to speak in the gap. I apologise for not putting my name down. I did not think that I could be here. I find this a very interesting Bill, not least because it focuses on the issues of hub and spoke. As the noble Earl, Lord Caithness, suggested, there is more than one hub in the UK. He listed Gatwick, Stansted, Luton and Heathrow, but I suggest that Birmingham is an equally important hub of the future. It certainly seems to have intentions to become one. Once the sale of Stansted by BAA is complete, we will have five different airports in five different ownerships.

It seems to me that the objective of this-if there is an objective from the Government-is for the Government to do nothing about it and let the market decide, which is a good idea. Certainly, we have seen press comments that several of these airports are looking to be a so-called hub in their own right. I believe that there is a problem of suggesting that the only hub in this country is Heathrow. I think that the Government might get into trouble if they start designating slots in Heathrow but not in some other airports.

That moves me on to the designation of slots. I wonder whether that is right to do unless there is market failure. The noble Earl, Lord Attlee, recently gave me a Written Answer in connection with transport to the Isle of Scilly, which is the other end of the spectrum from Northern Ireland. It has rather less population but is a similar distance from the mainland and I would suggest that it has an even worse transport system. For me, surely a market failure means no or too few services, high prices, probably a monopoly supplier and not servicing the population as they would expect-although perhaps they expect too much. If there is a market failure, there needs to be an argument for saying that the subsidy is necessary to keep a service going, which certainly in Scotland is called a lifeline service.

I am aware that there are quite a few offshore islands and regions in the European Union where lifeline services are provided, which I think are all subsidised. Certainly, some of them are subsidised in Scotland. Mostly they are ferries but a few air services are subsidised. They are allowed under EU law on the basis that the subsidising authority goes out to tender in the usual way.

However, I question whether Northern Ireland is an offshore island in the same definition as some of the Scottish islands or the Isles of Scilly. If there was a subsidised service to Northern Ireland to a hub, which hub would it go to? If I was running an airport in one of the five airports around the south-east and the subsidised service went to another one, I would probably reach for the Competition Commission and ask whether it was fair. It is a case that would have to be made. There are quite serious problems about allocating slots at a particular airport for these services without it being a subsidised service and going through the whole process of justification for it, and whether there is any other way. I shall be very interested to hear what the Minister says when he responds.

1:44 pm
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Lord Davies of Oldham (Labour)

My Lords, like other noble Lords, I congratulate the noble Lord, Lord Empey, on his persistence with regard to this issue, the skill with which he has mobilised degrees of support for it and the work that he has done in Europe. He is absolutely right that one of the crucial constraining forces regarding the development of aviation is clearly the European powers. We all recognise that aviation has to have a European dimension as well as the issue of world-wide connections.

The debate has focused to an extent on slots. Let us be clear about slots. Whatever happens to slots in terms of their role in the market and developments in aviation-the noble Earl, Lord Caithness, emphasised how rapidly aviation develops and other noble Lords also made that point-we are dealing with a rapidly changing environment. That is why we should be greatly concerned that critical decisions about aviation are being postponed until the report of Sir Howard Davies after the next general election. We have already built in a three-year delay to the report. Certainly, after the report has been considered and then debated and then action is taken, in crucial areas of aviation policy we will have had a built-in delay of several years. That is bound to cost us dear.

It is a fact that slots do not increase airport capacity. We can re-jig the usage of slots. I was going to say re-jig the ownership of slots. The interesting thing about slots is the concept of ownership. It is clear that one aspect of ownership revolves around national governments, who can intervene on the issue of the public service obligation-an interventional power already existing with the Secretary of State. It is also the case that airports own the runways and the landing stages that accommodate passengers getting onto and off aircraft. Therefore, that airlines own the slots is an interesting concept. They certainly go in for a limited amount of trading and it is their actions, through mergers and so on, that give rise to very great anxieties when it is thought that the slots that they obtain through mergers may be allocated to other traffic.

The noble Lord, Lord Empey, rightly identified a concern with regard to Northern Ireland but, as we heard earlier this week during proceedings on the Bill, other parts of the United Kingdom are also concerned. The concern is that services will be reduced and not increased by competition-it is difficult to see what other forms of transport are going to increase competition in Northern Ireland-as the slots controlled by the airlines may be used for more financially remunerative packages. A slot that is transferred from the region to international traffic may significantly improve the financial advantage to the airline. That is why these issues are so significant.

The Minister has had a demanding week so I will not pile too much on him on a Friday afternoon but this debate has raised acute issues with regard to aviation serving the regions. However, it is difficult to talk about Northern Ireland and its aviation needs without adding that other regions have comparable anxieties about slots. Other regions also have very real concerns about economic development. I emphasise the fact that the regions were considerably distressed by the loss of the regional development agencies which gave them some hope of attracting employers and developing employment. We all realise that in a recession the regions of the United Kingdom need help.

Northern Ireland is a very specific case as regards aviation although I accept the point made by the noble Earl, Lord Caithness, that in terms of distance and the availability of alternative forms of transport the north of Scotland also comes within this frame. What, therefore, do the Government need to do? They must address this issue urgently, not least because the amount of activity that is going on in Europe at present requires the Government to take a stance on it. As the noble Lord, Lord Empey, identified, if the European Parliament and the Commission reach a position on this issue, what happens at the Council of Ministers becomes critical. The United Kingdom is an important member of the Council of Ministers so we would expect the Minister responding today to give an indication of commitment as regards the policy to be adopted.

We all recognise that aspects of the free market with regard to air travel have produced considerable benefits. We all recognise the expansion of air travel that has occurred, as identified by the noble Lord, Lord Lexden. However, we are also aware of market failure and the necessity for the Government on occasion to act intelligently and perceptively for the good of the people. That is exactly the case which the noble Lord, Lord Empey, has identified in his Bill. I hope the Minister will appreciate that in this critical area we are getting past the stage of easily postponing decisions. Time marches on and the threat to the regions from the loss of effective links with Heathrow is mounting. Therefore, the Government need to be clear about how they are going to address this issue. If they do not accept the Bill of the noble Lord, Lord Empey-I guess that he is not totally optimistic of full endorsement from the government Front Bench at this stage-they ought at least to give some clear answers to the very real issues that have been raised in this debate. The Minister will have winced at those issues at times because he recognises that even on his own Benches there are conflicting views on what needs to be done. Therefore, let us have some clarity in his response.

1:55 pm
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Earl Attlee (Conservative)

My Lords, first, I offer sincere congratulations to the noble Lord, Lord Empey, on securing a Second Reading for his Airports (Amendment) Bill, even though I am experiencing a little sense of déjà vu.

The Bill's aims are commendable in seeking to introduce powers that would allow the Secretary of State for Transport to ring-fence take-off and landing slots at congested London airports to ensure the future protection of regional air services-in particular, to Northern Ireland and Scotland. I fully understand the noble Lord's point about the special case of Northern Ireland, where there are not alternative means of businesses easily getting to a hub airport. In the case of Scotland we will, in future, look forward to better rail connectivity, which will make a huge difference.

We recognise that airports in Northern Ireland, Scotland, Wales and the English regions make a vital contribution to local economies and that regional connectivity is very important. I also acknowledge the noble Lord's concern, expressed so well at Second Reading, that the provision of commercial air services is subject to market forces. Ultimately, airlines operate in a competitive, commercial environment and it is for them to determine the routes that they operate. I will say a little more on that later.

It remains possible, therefore, that airlines currently operating services from Northern Ireland and Scotland to Heathrow could, in future, decide to reduce or withdraw them and use the relevant Heathrow slots for alternative services. It has been suggested that some form of intervention is necessary to protect these essential services from commercial market pressures. The noble Lord, Lord Empey, was careful to use the words "in the event of" problems. He did not say that we necessarily have problems now but he is, as I understand it, worried about the future and future-proofing our processes.

At the moment, Northern Ireland and Scotland remain well connected to London by air. In 2011, there were more than 18,000 flights between the two Belfast airports and the five main London airports, around a third of these being between Belfast and Heathrow. I fully understand the importance of hub connectivity. These routes are well used, with nearly 2 million passenger journeys in 2011 between Belfast and London, of which more than 700,000 were between Belfast and Heathrow. Scotland is also well connected with more than 65,000 flights in 2011 between Scottish airports and the five main London airports, carrying over 6 million passengers. Of these, 26,000, which is 39%, were to or from Heathrow, carrying 2.7 million passengers. Many noble Lords will recall our debate on the amendment of the noble Lord, Lord Stephen, to the Civil Aviation Bill, to which the noble Lord, Lord Empey, contributed.

In the light of these high traffic levels, we do not believe that connectivity between London and airports in Northern Ireland and Scotland is under threat. The existing air services to Northern Ireland and Scotland act as important hub feeder services, which are necessary to support long-haul services from Heathrow. As the noble Lord, Lord Empey, correctly states, world slot guidelines are determined by the International Air Transport Association and are reflected in the European regulations which govern the allocation, transfer and exchange of slots at Heathrow and other slot-co-ordinated airports in the UK. In the UK these are managed by Airport Coordination Ltd. The noble Lord, Lord Davies of Oldham, touched on the issue of ownership of slots. As I understand it, the allocation of slots is based largely on historical and continuing usage.

My noble friend Lord Caithness touched on PSOs. If air services to Northern Ireland and Scotland were to become economically unviable, EU law already provides some scope to protect regional air services by allowing member states to establish a public service obligation-a PSO-to protect their services to airports serving a peripheral or development region or on low traffic routes considered vital for a region's economic and social development. It would be open to the devolved Administrations in Northern Ireland and Scotland to apply to the Secretary of State for Transport to establish a PSO on an air route should they feel that a business and legal case could be made that satisfied the EU regulation. If approved, this would permit ring-fencing of slots at a relevant London airport. There is no other mechanism for the Government to intervene in the allocation of slots at UK airports.

The noble Lord, Lord Berkeley, touched on the Isles of Scilly and Scotland. The same principle of public service obligations, and the restrictions on them, applies to maritime services as for air services.

Noble Lords will therefore appreciate that under European law the potential for ring-fencing slots at Heathrow to protect regional services is to be dealt with by reference to the PSO rules alone, and creating a parallel, more wide-ranging set of rules would be incompatible with EU law. The principal effect of the Bill is therefore contrary to EU regulation because it would override the strict criteria and process by which European Governments could intervene in route operations.

As indicated in the Explanatory Memorandum submitted to Parliament on the European Commission's Better Airports package, in the context of the proposed recast of the EU slot regulations, the UK Government have highlighted the issue of regional connectivity with the European Commission and the ongoing provision of air services between congested London airports and Scotland and Northern Ireland. However, it has proved challenging to devise a mechanism to protect well trafficked, commercially viable air routes without distorting the aviation market and competition across Europe.

I am aware that the European Parliament's Transport and Tourism Committee has been considering amendments to the recast EU slot regulation that are aimed at protecting the access of regional air services to congested EU hub airports. However, we would be concerned about any amendments that were too general in nature and which had the potential to seriously impair and distort the slot allocation system, and the secondary trading of slots, to the detriment of consumers. In particular, in the UK, the secondary trading of slots helps to ensure that they are generally put to the use which is most effective from the consumer perspective-in other words, the problem of interfering with normal commercial processes, as identified by the noble Lord, Lord Empey. We will give careful consideration to the conclusions reached and the amendments proposed by the Transport and Tourism Committee following the publication of its formal report on the slot-regulation process. I repeat my praise for the effective efforts of the noble Lord, Lord Empey, not just in this House but in the way that he conducts his operations in Brussels. He certainly shows the way ahead.

I am pleased to say that there has been some progress on this issue. Noble Lords will recall that the sale of BMI to International Airlines Group earlier this year prompted concerns about the future of the air services operated by BMI from London to Northern Ireland, and about competition issues on routes to Scotland, where BMI operated in competition with BA. Competition issues arising from the sale were subject to investigation by the European Commission competition authority, which has jurisdiction to consider whether airline acquisitions and mergers may lead to a substantial impediment to effective competition in a substantial part of the EU. That authority concluded its investigations and granted regulatory approval on 30 March for International Airlines Group's purchase of BMI from Lufthansa. The authority's approval was conditional upon IAG releasing 14 daily slot pairs at London Heathrow, of which at least seven pairs must be used by other airlines for services to Edinburgh and/or Aberdeen. The European Commission is in the process of considering the bids that it has received for these slots. IAG completed the acquisition of BMI in April 2012, since which time BA has begun the process of integrating BMI schedules into its own.

In terms of BMI's regional air services to Northern Ireland and Scotland, BA has continued to operate BMI's existing services to Belfast, and the slots released for use on services to Aberdeen and Edinburgh will serve to maintain competition with BA on those routes. This provides reassurance that the air services to Northern Ireland and Scotland are both commercially viable and commercially attractive to airlines, and it reinforces our view that connectivity between Northern Ireland and Scotland and London airports is not under threat.

The noble Lord, Lord Davies, talked about wider aviation policy issues-I would have done exactly the same thing. More generally, perhaps I may remind the House that a key part of the Government's approach to aviation is to seek to create the right conditions for UK airports to flourish, including those in Scotland and Northern Ireland. We have committed to producing a sustainable framework for UK aviation which supports economic growth and addresses aviation's environmental impacts. We consulted over the summer on a new aviation policy framework which will set out our overall aviation strategy. The consultation closed at the end of October and around 500 responses were received. We intend to publish our policy framework next March.

We believe that maintaining the UK's status as a leading global aviation hub is fundamental to our long-term international competitiveness. However, we are also mindful of the need to take full account of the social, environmental and other impacts of any expansions in airport capacity. We have therefore decided to establish an independent airports commission to gather evidence and provide analysis of the options. We are delighted that Sir Howard Davies has agreed to chair the commission. He brings a wealth of business and financial expertise that will be of great value to the commission's work. The noble Lord, Lord Davies, asked me about the timing. The commission needs to be able to take time to give appropriate consideration to all the options for maintaining UK connectivity; a rushed decision which cuts corners and does not consider all the relevant factors will not achieve the desired end state. The airports commission will provide an interim report to the Government no later than the end of 2013 and will then publish a final report by the summer of 2015 for consideration by the Government and opposition parties. Details of the commission's membership and its terms of reference were announced on 2 November.

My noble friend Lord Caithness slightly chided the noble Lord, Lord Empey, for running this debate yet again. I am at the disposal of your Lordships and I am happy to debate whatever noble Lords would like. My noble friend talked about the possibility of access from regional airports to continental hubs. That is a very important point and I shall come to it in a minute.

My noble friend also touched on the definition of an "adequate service". He talked about the dangers of interfering in what are properly commercial matters for airlines. I agree with my noble friend. He also pointed out that there has been a decline in domestic air travel since 2007. As a result of the economic downturn there has indeed been a reduction in air traffic and services across the board. Ultimately, it is a matter for airlines to determine the services that they operate and from which airport, based on their own assessment of air routes viability.

My noble friend asked about airport charges. He will know that the CAA does not have legal powers to ensure that an airport's charging structure supports wider goals such as regional policy. The CAA currently sets price caps at regulated airports and sets the maximum price per passenger that an airport operator can charge. Moreover, the structure of an airport's charges within the regulated cap is a matter for the airport operator and its stakeholders.

My noble friend suggested the possibility of excess profits. The danger for an airport such as Gatwick is in airlines flying from a regional airport direct to a continental hub, as my noble friend pointed out earlier. However, since Gatwick was taken over, I have been very impressed with the way that that airport has operated, and I suspect that many other noble Lords share the same experience.

My noble friend touched on APD and the impact assessment, and it is probably better if I write to him about that. He also asked whether charges for commercial aircraft should be based on the numbers of passengers carried or the aircraft weight. The CAA currently sets price caps at regulated airports and sets a maximum price per passenger that airport operators can charge. As I said before, the charges within that are a matter for the airport.

My noble friend asked whether there were any other mechanisms to protect access. Any mechanisms to protect regional air services at congested hub airports would have to comply with the overarching European legislation. Also, we do not believe that traffic distribution rules are of assistance, because in practice they may be used to restrict only certain forms of traffic. They cannot be used to compel airlines to operate particular services.

If I have missed any other important points or have anything significant to add, I will of course write in the usual way. While I understand the laudable motivation of the noble Lord, Lord Empey, in proposing his Bill, I must conclude that, on the basis that the Bill would ultimately be incompatible with current EU law, the Government will not be able to support the Bill into legislation.

2:12 pm
Photo of Lord Empey

Lord Empey (UUP)

I am grateful to the noble Earl and to other noble Lords who contributed to the debate. His final remark is of no surprise to me, but of course my principal point is that I am trying to remove those obstacles. I welcome the fact that he said that he would look carefully at the activities in the European Parliament. I cannot expect him to do more at this stage.

The noble Earl pointed out the wishes and interests of consumers. Consumers are important. I have here a document from the Consumer Council for Northern Ireland, which urges support for my colleague Mr Nicholson's amendments in the European Parliament. Indeed, it circulated a list supporting those amendments, which were subsequently accepted. The Consumer Council has been a stalwart in support of our proposals throughout this entire process. Indeed, the Minister in Northern Ireland, the regional development committee in Stormont, the CBI, IOD and other organisations have all given their support.

As the Minister said, it is not because there is any immediate threat. I do not detect an immediate threat. But that is not always the point of legislation. The point is to anticipate something that may or may not happen. Because of the coincidence with the activities in the European Parliament, the logical time to make changes seemed to be now, when the issues are running in parallel. If we let this opportunity pass and in a year or two something happens in the airline sector that we have not anticipated-and in view of the volatile nature of that sector who can tell what is around the corner-we would be left completely flat-footed in this country, with no power to intervene.

The noble Earl, Lord Caithness, made a point about the PSO obligation existing in law. That is correct. It is Regulation 95/93, which allows a Government to consider an application for a PSO. If there is inadequate connectivity or connections between regions, a PSO could be funded. That is not the point. The Bradbourn report calls for Regulation 95/93 to be amended because, under that regulation, an airport cannot be specified, only a region.

Despite what the noble Lord, Lord Berkeley, said, the reality is that there is one major hub airport in the United Kingdom, whether we like it or not. Other airports are aspiring to be hubs and to improve their international connections, and that is entirely understandable, but in reality, looking at it from a business point of view, trying to sell the advantages of a region around the world, business people are simply not going to go round in circles when they get to a country. As things stand in this country, Heathrow is the only significant hub airport, but it is full. As the noble Lord, Lord Davies, said, the whole driver of the current argument about air capacity in the south-east is that Heathrow is full. Many of our European partners do not suffer from that problem. They have an easy solution; they can add a slot or two, use up some spare capacity and overcome the regional disconnect in that way. We are not so lucky in this country. So, while things may change in the future, it is currently a one-horse town as far as connectivity is concerned.

I hope that this will progress. I thank my noble friend Lord Lexden for his unswerving and stalwart support, particularly of Northern Ireland's interests in this House. I very much appreciate it, but this is not a regional, Northern Ireland Bill, it is a national Bill aimed at all regions. I ask the Minister, we talked about flights to Glasgow, Edinburgh, Inverness and Aberdeen; what would happen if they became international flights attracting grossly inflated APD levies? I wonder whether some of those advocating independence have thought that through. International flights, of course, attract a huge increase in duty; those who are advocating independence need to think very carefully about what they are suggesting, because that is the implication on air services if one travels on an international flight. A lot of these questions have not been thought through by those who seek independence.

The noble Lord, Lord Davies, tried in vain to winkle out of the Minister some response on the broader aviation issues. I am sure he will keep trying; whether he succeeds or not is entirely another matter. Stonewall Jackson would have been proud of the noble Earl's performance today. I thank noble Lords for remaining at this late stage on a Friday. I beg to move that the Bill be read a second time.

Bill read a second time and committed to a Committee of the Whole House.

House adjourned at 2.19 pm.