Clause 6 - Market power test

Part of Civil Aviation Bill – in a Public Bill Committee at 4:45 pm on 28 February 2012.

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Photo of Graham Stringer Graham Stringer Labour, Blackley and Broughton 4:45, 28 February 2012

The amendment is really a vehicle for testing this debate. The clause is basically saying that airports that are dominant in their market, or that are likely to acquire that market domination, should be regulated. The reason why the amendment would delete the word “acquire” is that we do not know what is happening; let us first have a look at what the market is doing.

The Bill has all the hallmarks of a Bill that the Labour Government were putting through in detail, but it has not been examined as thoroughly as it should be. Otherwise, we would not be told that parts of it are removing burdens from airports when they are clearly putting burdens on airports.

I also want to talk a little about having a free market solution and about the scarce economic resource that the two runways at Heathrow are. How the previous regulatory system worked was, in many ways, perverse. The runways at Heathrow airport are an incredibly scarce resource and, because a lot of people go through Heathrow, it is easy to achieve a return on capital expenditure, so the price over many years has been driven down. So Heathrow gets more and more crowded, even after the building of terminal 5.

In the previous review at Heathrow, the cost limit was only RPI plus 7.5%, which, given the size of terminal 5 —it was £5 billion or some such huge figure—is a small percentage increase after years and years of landing charges being forced down by a perverse formula.

Similarly, at Gatwick the cost limit is RPI plus 2%, and at Stansted there is no increase whatever. So Gatwick is below real inflation and Stansted is a good deal below inflation because the cost limit is at zero. Would it not have been more sensible, particularly at Heathrow, to allow airports to charge more? They are a scarce resource and some aeroplanes with grandfather rights have been landing there for a long time at relatively low charges, which is not the best way to determine how we run the south-east airports.

I do not want to repeat our earlier debate on whether there should be a third runway at Heathrow. Clearly, I, like other members of the Committee, think there should be, but for now there will not be one. So what does one do about trying to keep British aviation as eminent as it is in world aviation? That is difficult if we are not going to build more runways and we do not have the right to control where airlines go, but it seems to me that there are three possible reforms related to the amendment.

First, the real economic cost could be charged for landing at Heathrow. Secondly, we could consider the allocation of slots, because there are still some small planes using slots at Heathrow airport because they have grandfather rights. There is a grey market in those slots that needs to be regulated and made transparent so that the market can determine what is the best aeroplane to land at Heathrow in terms of who is willing to pay.

If that were done, the unjustified criticism levelled by Ken Livingstone and Boris Johnson that there is no need for a third runway at Heathrow would disappear. They say that there are still charter flights going out of Heathrow to Tenerife, or wherever, which is because a plane or airline that has had a slot for 10 or 20 years can keep it. It would be much easier for the country to get the best use out of Heathrow airport and the runways if we had a market solution through both regulation and the allocation of runway slots.

Even for 24 months, are passengers going to be terribly vulnerable? One has to remember that, although the Civil Aviation Authority had previously been the only economic regulator of airports, since European directive 2009/12/EC the 10 largest airports in the United Kingdom have been regulated from Europe. Even though I have argued for this amendment, which would take all the airports in the United Kingdom out of economic regulation by the CAA, there would be a more general  European level of regulation, which, if people were worried about protection for passengers and airlines, would be there.

I hope that that has given the Government something to think about, because I think—I know—that Conservative MPs go back to their constituencies and complain about gold-plating legislation and unnecessary regulation. Government Members should think hard about this Bill, because it seems that it increases the regulatory burden. There is a way through this, without very much risk—to have a free-market solution to at least some of the problems of the south-east.

This is not some wild idea; it went through an all-party Select Committee some years ago. I have had personal discussions with people from airports—not in the past 12 months, but over a number of years—about a situation where we have a surplus of runways throughout the country, but a scarcity of runways in the south-east. As we cannot direct planes as to where they will land, it would be sensible to look for a market solution, rather than more regulation.