Clause 9 - Operators of areas

Civil Aviation Bill – in a Public Bill Committee at 9:30 am on 1st March 2012.

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Question (28 February) again proposed, That the clause stand part of the Bill.

Photo of Jim Fitzpatrick Jim Fitzpatrick Shadow Minister (Transport)

Thank you, Mrs Riordan, and welcome back. As you said, when we finished on Tuesday we had begun a discussion on clause 9, and you helpfully allowed the debate to cover clauses 10 to 12. My hon. Friend the Member for Blackley and Broughton, who opened the debate, described them as “sneaky clauses”. I am not sure how sneaky they are, but his comments and those of my hon. Friend the Member for Bolton West certainly raised some interesting and significant points. I will not quote extensively from their speeches, because we were all there and I do not want to provoke the hon. Member for Amber Valley, who might be tempted to comment if I did.

My hon. Friend the Member for Blackley and Broughton raised some important and fundamental questions. He asked where the proposals came from and why they are in the Bill. He asked about the potential of secondary legislation for such an important initiative and about the efficient operation of airports, particularly in Manchester, in respect of the clauses. He also asked about costs, flexibility and the duplication of bureaucracy.

I will cover those points in a moment, but I also want to add two of my own: investor confidence and the gold-plating of legislation, of which we hear quite a lot from the Government side of the House, and sometimes rightly so. None the less, the regulations are being brought in by the Government—apologies to the hon. Member for Cambridge; I meant “by the coalition”—and they therefore warrant further examination.

As my hon. Friend the Member for Blackley and Broughton said, it is unclear where the regulations have come from. No one in the evidence sessions came  forward demanding that they be introduced because of the urgent need for the break-up of British airports or for terminal operations to be broken down into different ownerships. Why are the regulations being brought forward? Where is the demand coming from? Notwithstanding that there has been no domestic request, it was mentioned in the evidence sessions and by my hon. Friend on Tuesday that the one international example is JFK in New York, which is regarded as quite inefficient and expensive and does not set a standard that we would want our airports to follow.

On secondary legislation, we are discussing a potentially significant change in how airports are operated and run in the UK. In future, it may well be that the proposals would be appropriate were the market to change and were there to be an appetite for them within the aviation industry. However, for the Department at this point to produce regulations that say that, if that happens at some point in the future the proposals could be introduced by secondary legislation, seems somewhat superficial. It would be interesting to hear the Minister’s comments, because one would expect a full consultation and the Government and the Civil Aviation Authority to have to go through hoops to determine that it was appropriate. Secondary legislation does not appear to be an appropriate vehicle.

On efficiency, my hon. Friend the Member for Bolton West, in particular, raised the question of capacity at the different terminals at Manchester and the ability for incoming aircraft to be switched between terminals, which could be more difficult if those terminals were operated by different companies. There would certainly need to be an element of capacity headroom at each terminal, if that were the case.

There is an interesting and lengthy article on Heathrow in today’s Financial Times. I recommend it to colleagues who have not seen it, as it gives a good international comparison between the operation of Heathrow and other airports. It demonstrates that, with Heathrow operating at 97% capacity, the ability to accommodate any hiccup in operation—whether fog, snow or whatever—has a massive knock-on effect on the efficient operation of the airport. There is a comparison with our European competitors and the additional runway capacity, mentioned by my hon. Friend the Member for Blackley and Broughton on Tuesday, that has been built in the past few decades. It makes particular reference to Doha, Abu Dhabi and Dubai.

Dubai, with its efficient six-runway operation in direct competition to northern Europe, is saying to India, China or Australia, “Fly here to go to the States. There is no need to go to northern Europe. If you want to come to northern Europe, why would you want to come to Heathrow, with its potential delays?” My hon. Friend the Member for Bolton West articulated the capacity issues at Manchester and the ability to move between terminals because there is a single airport owner. If we break down the terminals, the potential for the flexibility seen at Manchester is brought into sharp focus.

My hon. Friend the Member for Blackley and Broughton raised the question of costs and the significant implications for investment for airports with regard to the transfer of ownership. My hon. Friend the Member for Bolton West raised questions of the duplication of bureaucracy. I cannot say that I was entirely comfortable with her description of some professional workers as “bean  counters”; perhaps that was not the most complimentary way to describe some significant and highly regarded professionals. However, I take her point about the kind of operation that we want at our airports. Do we want an efficient operation, with maximum capacity and usefulness, or do we want in the short term to create a climate in which people can work out the transfer of ownership into different companies? In that instance, she made a valid point about the bureaucracy required to take the matter further.

I have two further brief points to make: one on investor confidence and the other on the gold-plating of regulations. I cannot remember whether the invitation to a number of us to attend the topping-out ceremony at terminal 2 at Heathrow was for yesterday or next Wednesday. It is certainly happening about now. My hon. Friend the Member for Blackley and Broughton referred to the cost of terminal 5 at Heathrow, which took 20 years to get through the planning inquiry and into operation. Terminal 3 in Beijing, China, took four and a half years. There was significant investment; my hon. Friend the Member for Blackley and Broughton struggled to remember how many billions. I defer to the quote from his contribution, but we are talking about billions.

I am not a business man; colleagues know that. However, suppose a business person or company was looking to make that significant investment of billions of pounds, and someone said, “We are just about to pass regulations to say that at some point in future not only will we be able to strip you of that asset and the return on your investment, but we can do it through secondary legislation, and your ability to influence the outcome of the decision by the regulator or Government will be extremely limited.”

As I said earlier, that might not mean that the regulations would not be appropriate at some point in future, but to implement them through secondary legislation, at a time when we are struggling with capacity and looking at how to get investment into the aviation sector, looks like a disincentive to international companies when it comes to investing in terminals at our airports.

My hon. Friend the Member for Blackley and Broughton, whom the Minister correctly commended for his experience of the sector—my hon. Friend was chairman of Manchester Airports Group—clearly has a better grasp of these issues than I do.

Photo of Nicholas Dakin Nicholas Dakin Opposition Whip (Commons)

My hon. Friend is spelling things out clearly. I am concerned by his comment that, perversely, this might not only create a disincentive when it comes to investing in airport development, but subsequently put the UK in a non-competitive position compared with other European or global players in the aviation market.

Photo of Jim Fitzpatrick Jim Fitzpatrick Shadow Minister (Transport)

My hon. Friend makes an important point. The Government are struggling with their growth strategy because of international conditions and a whole range of things.

Photo of Theresa Villiers Theresa Villiers The Minister of State, Department for Transport

The shadow Minister is adamant in his disapproval of the possible introduction of inter-terminal competition, so why did the Government of whom he  was a member decide that it was appropriate to vest that power, which is based on the Enterprise Act 2002 that they enacted, in the Competition Commission?

Photo of Jim Fitzpatrick Jim Fitzpatrick Shadow Minister (Transport)

I am happy to accept that we made mistakes in government—happy even to go so far as to say that, until my hon. Friends raised their opposition to these clauses on Tuesday, we were agnostic on this issue. One of the benefits of a two-day gap between Tuesday’s sitting and this morning’s sitting is the lobbying, discussions, re-reading of speeches and consideration of issues that it has allowed, because, to be honest, we were not going to oppose the clauses, for the reasons set out by the right hon. Lady.

Having listened to my hon. Friend the Member for Blackley and Broughton, and having further considered the issues, I think he has a very good argument. Obviously, we are keen to listen to the Minister’s argument that the clauses are appropriate, but we are inclined to support our hon. Friend in voting against them because we do not think that they are appropriate at this time.

Photo of Nigel Mills Nigel Mills Conservative, Amber Valley

I follow the hon. Gentleman’s argument, but I do not think the clauses enable the Civil Aviation Authority to force inter-terminal competition. The clauses merely introduce a regime to address such competition if it happens, either because an operator chooses it or because the Competition Commission forces it. That view is supported by paragraph 53 of the Select Committee report. Does he not think it sensible that, if, say, Ryanair bought a terminal at East Midlands airport and ran it itself, we would have a framework if it needed to be regulated, rather than having to pass new rules pretty quickly to manage such airports?

Photo of Jim Fitzpatrick Jim Fitzpatrick Shadow Minister (Transport)

I shall come to the gold-plating issue in a moment, but the hon. Gentleman raises a fair point that is central to the questions we are asking. At some point such regulation might be sensible, but why are we doing it now? Where is the demand? Why are the Government asking for it now? We do not think it is necessarily appropriate at the moment.

As I said earlier, we are talking about introducing regulation when there is criticism from both sides of the House that Governments sometimes gold-plate legislation. The Government are introducing additional regulation in case someone thinks it appropriate or wants to go down this track in future. We do not believe an argument has been made for the introduction of the regulations set out in the clauses.

My hon. Friends from the north-west have effectively and articulately explained why they believe the regulations to be wholly inappropriate. They have clearly had a strong look at this from the perspective of Manchester Airports Group, but, equally, nobody else in the British aviation industry has come forward to say that such regulation is appropriate. The question is, why are we gold-plating the regulations at this time?

Photo of Nigel Mills Nigel Mills Conservative, Amber Valley

The hon. Gentleman will have closely read the record of Tuesday’s debates, and he will have read a lot of talk about the need to ensure that the regulations are future-proof and can handle any situation in the coming decades. Is it not sensible to include  regulations that address a scenario that might happen, but probably will not happen, so that we do not need to come back and re-legislate?

Photo of Jim Fitzpatrick Jim Fitzpatrick Shadow Minister (Transport) 9:45 am, 1st March 2012

“Future-proofing” is a much more generous term than gold-plating—I will give the hon. Gentleman that. But basically we are future-proofing against an eventuality that might not happen. Going back to the earlier point about the potential disincentive for people looking for a long-term return to invest in UK airports if something might happen in the future to strip them of the asset, I am not sure that that is good business. There are much more competent colleagues on the Government side of the room, with much better experience of business than I have, who can tell me whether they think that is a disincentive or not. Certainly, as a lay person, I do not think it encourages people to invest in the UK economy if at some time in the future, the regulator might think this is a good idea and the Government can push it through in secondary legislation. For something as significant as this, secondary legislation is not an appropriate vehicle.

Photo of Theresa Villiers Theresa Villiers The Minister of State, Department for Transport

I want to reassure the shadow Minister by clarifying that nothing in the Bill would give the Secretary of State power to introduce secondary legislation to break up the ownership of airports or introduce inter-terminal competition. The power to introduce intra-airport or inter-terminal competition is already vested in the Competition Commission under the Enterprise Act 2002. It is simply wrong to keep talking to the Committee about secondary legislation when there are no powers to introduce such secondary legislation in the Bill.

Photo of Jim Fitzpatrick Jim Fitzpatrick Shadow Minister (Transport)

I stand corrected by the Minister. Obviously, these concerns were being raised and that was the interpretation of the regulations we have looked at. We feel that that is an accurate interpretation. The Minister’s reassurance is welcome and we look forward to hearing her explain how those protections are there. I will finish by briefly quoting my hon. Friend the Member for Blackley and Broughton:

“This is a particularly ill-thought-out proposal. I do not know where it came from. There is not a problem; if there were a problem, this would not be the solution.”––[Official Report, Civil Aviation Public Bill Committee, 28 February 2012; c. 163.]

We agree with him.

Photo of Theresa Villiers Theresa Villiers The Minister of State, Department for Transport

I am grateful to the shadow Minister for his contribution and to all hon. Members who raised points on this important issue. First, I will correct something that I said on the first day of the Committee. I mentioned Gatwick Express. It is not currently part of Gatwick airport’s regulatory asset base. Decisions about whether investments in Gatwick station improvements made by the airport should be included in the RAB will continue on a similar basis as at present. That includes the current proposals for Gatwick contributing £7.6 million to Network Rail’s £53 million project to extend the station concourse and construct a seventh platform. The CAA, as part of its next price review for Gatwick, will decide whether this goes into the RAB.

Photo of Graham Stringer Graham Stringer Labour, Blackley and Broughton

We had a debate on clauses 1 and 2 about how the CAA may change its regulatory asset base. The Minister quite reasonably said that that was up to the CAA. However, can she provide the Committee with any information about how the process of determining a regulatory asset base will change if the Bill becomes law?

Photo of Theresa Villiers Theresa Villiers The Minister of State, Department for Transport

In many ways, the process will be fairly similar but the job of the CAA will be made easier and the transparency, clarity and certainty for the industry will be improved because the criteria will be based on the primary duty for which there is widespread support, rather the four, sometimes conflicting, duties in the current system.

Photo of Jim Fitzpatrick Jim Fitzpatrick Shadow Minister (Transport)

I seek clarification on what the Minister said about Gatwick Express not being part of Gatwick’s RAB. That is extremely helpful. Gatwick is engaged with the Department in respect of the future franchise which runs all the way to Brighton at the moment. That is one of the complaints. As I mentioned on Tuesday, additional international links have recently been built from Vietnam, Hong Kong and China, and passengers coming off these aircraft regularly get to the platforms and find the trains are already very busy. Not being able to get a seat when they travel into London, with all their baggage, is not the best way for international visitors to be welcomed.

Photo of Jim Fitzpatrick Jim Fitzpatrick Shadow Minister (Transport)

I am intervening on the Minister, and the Chair would probably not allow a secondary intervention, or even a supplementary intervention.

I know I am asking the Minister to crystal-ball gaze, and I certainly do not want to compromise the negotiations, but given that the franchise for the line is up for renewal next year and discussions are already taking place, would one option be a separate franchise for Gatwick to become an RAB—in line with the question from my hon. Friend the Member for Blackley and Broughton—rather than being part of an extended franchise down to the south coast?

Photo of Theresa Villiers Theresa Villiers The Minister of State, Department for Transport

I fear I would incur the wrath of the Chair if I were to talk in detail about the refranchising process for the services covered by the Gatwick Express. I reassure the shadow Minister, however, that in the decisions we take on the rail franchise that serves Gatwick airport, we will always have in mind the importance of high-quality surface access to airports. It would not be appropriate for me to prejudge the decisions on the refranchising process, because they can be taken only after a consultation. We will of course be engaging not only with Gatwick and the businesses that use it, but with all the customers who are served along the line.

Photo of Henry Smith Henry Smith Conservative, Crawley

Was it not under the previous Government and the Office of the Rail Regulator that the dedicated Gatwick Express service ended and became fragmented? We need to bear in mind that the Gatwick Express has  been reduced as a dedicated airport service because of the Department for Transport’s actions under the previous Government.

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Henry Smith is right to point out that the dedicated Gatwick Express service was amalgamated into a wider franchise awarded to Southern under the previous government. Since then the quality of the...

Submitted by John Byng Continue reading

Photo of Theresa Villiers Theresa Villiers The Minister of State, Department for Transport

Changes were made in relation to the Gatwick Express a few years ago, but I still believe it is a very high-quality service. We have to appreciate that there are different interests to balance here. It is important to ensure that we have high-quality surface access to one of our most important international airports, but that line also serves some heavily used commuter services, so we need to take into account the interests of both.

Jim Fitzpatrick rose—

Photo of Theresa Villiers Theresa Villiers The Minister of State, Department for Transport

I fear we may be slightly straying from the subject of clause 9.

Photo of Jim Fitzpatrick Jim Fitzpatrick Shadow Minister (Transport)

I apologise for another intervention, Mrs Riordan, and I hope we are not straying from the clause. I accept that we are talking about future franchising but, as my hon. Friend the Member for Blackley and Broughton just mentioned, we discussed the RAB under clauses 1 and 2. The Minister’s helpful clarification regarding how that relates to the Gatwick Express has prompted my questions. Given that it is potentially a regulatory asset base for Gatwick airport but that the franchise is due for renegotiation next year, can the Minister give us an assurance that when the CAA’s new powers are introduced, which might not happen fully until 2014, it will be possible to amend or adjust the RAB, and that the franchise may be affected as a result of the Bill’s help for Gatwick and for international passengers?

Photo of Theresa Villiers Theresa Villiers The Minister of State, Department for Transport

As I sought to reassure the Committee on the first day, the Government firmly believe that a primary duty to protect the interests of end users can embrace authorisation of investment in surface access. It would not be appropriate for me to try to prejudge the CAA’s decision about the proposed investment at Gatwick station, but the Government are on record as emphasising the importance of good-quality public transport access to our airports. That is one of the reasons why Thameslink will deliver important improvements to access at Gatwick; it is why Crossrail and HS2 in the future will deliver important improvements at Heathrow; and it is why the upgrade of the London underground will further enhance and improve access to Heathrow.

If I may, I will return to clause 9, which ensures that there is no dual regulation over an airport area, so that two or more persons do not require a licence in respect of the same area. Picking up on one or two of the points made on day one of our deliberations, my hon. Friend the Member for Amber Valley asked how the measures will apply if a group of companies own multiple airports in a market area and, in particular, where one wants to test whether the combined effect of the ownership leads to dominance or market control, whereas ownership of an individual airport perhaps would not. Clause 6(3) contains provisions that address corporate group structures. It allows the CAA, in conducting test A of the market power test, to aggregate the operator with others.

My hon. Friend the Member for Finchley and Golders Green asked whether the reference in clause 9(1) to “all of the area” means the perimeter of the airport or all of  the operational areas within an airport. Subsection (1) refers to the airport area for which the person in question has overall management responsibility—that is, the area for which they are the operator according to the criteria set out in clauses 9 and 10.

The shadow Minister and the hon. Members for Blackley and Broughton and for Bolton West spoke extensively about their concerns over the possible future move to inter-terminal competition. In truth, there needs to be a means to determine who the operator is for the purposes of economic regulation, even in the absence of inter-terminal competition. The need to determine who has overall control is relevant, whether one is talking about the whole of the airport with substantial market power or only part of an airport. We would still need the clause, therefore, even in the absence of any prospect of or attempt at future-proofing for intra-airport competition.

Given the steer that was given by the Chair, I am happy to respond to the wider points. Reference to inter-terminal competition is a useful shorthand, but intra-airport competition is a slightly broader concept. There are various forms of competition within a single airport, but for shorthand purposes I will tend to refer to inter-terminal competition as it is possibly the leading variant of that form of regulatory activity. The hon. Members for Blackley and Broughton and for Bolton West expressed concerns about the cost impact of such an approach, and the shadow Minister followed that by expressing his concerns about the impact on future investment in our airports.

I reiterate that nothing in the Bill mandates the introduction of inter-terminal competition or any other form of competition within a single airport. All we seek to do is to enable the framework for economic regulation to deal with that scenario if it were to occur. I recall that the shadow Minister said twice this morning that it might be appropriate for that to happen in future. If he himself acknowledges that we cannot rule out that possibility, it makes sense and is cost-effective to ensure that the regulatory system we adopt is future-proofed and able to deal with that scenario, should a decision be made in future to move in that direction. That could, in theory, occur if an operator chose to separate the ownership and operation of parts of its airport or, as I said, if a market investigation by the Competition Commission concluded that divestment should take place to enable inter-terminal competition.

As I made clear, neither the clause nor the Bill introduces any powers for the Government to introduce intra-airport competition. Such powers are already vested in the Competition Commission by the Enterprise Act 2002, which the previous Government adopted. Is it likely that that would happen in practice?

Photo of Graham Stringer Graham Stringer Labour, Blackley and Broughton

The Minister is being very clear so far, but will she clarify whether an order to introduce competition between terminals would be made by the Competition Commission or the Government?

Photo of Theresa Villiers Theresa Villiers The Minister of State, Department for Transport 10:00 am, 1st March 2012

The Competition Commission has that power, so the Bill does not give the Government the power to introduce such secondary legislation; it is the Competition Commission that is able to order divestment.

The Competition Commission considered introducing competition as part of its investigation into BAA in 2009. As we know, that option was rejected, but the Competition Commission has expressed the view that it would be useful for the regulatory system to be able to deal with the option of inter-terminal competition, should the need arise in future. It is indeed the case that certain airlines support it.

The hon. Members for Bolton West and for Blackley and Broughton expressed anxiety about the potential impact on Manchester airport. The reality is that Manchester airport is not regulated under the existing rules. There is no indication that that will change under the new rules, and as nothing in the Bill mandates the introduction of inter-terminal competition, perhaps I can reassure the hon. Members that this is not an imminent threat coming round the corner to hit Manchester airport. It is not correct to say that the clause—or indeed, clauses 10 or 11—introduce a dramatic new cost burden. As I said, the Government believe that the Bill would deliver a net reduction in cost to industry, with a present value of about £150 million over 20 years.

Simply ensuring that the legislation can cope with a different variant of regulation in future is not an attempt to gold-plate it; we want to make it flexible and able to adapt to the changing circumstances of the aviation market. I emphasise that before the Competition Commission could take the step of requiring such competition, it would have to undertake a detailed economic analysis, which I expect would include an assessment of the cost impact of such a change.

I also agree with a number of comments suggesting that challenging practical issues might arise if a proposal were made to introduce inter-terminal competition to the UK, and that is one reason, no doubt, why the Competition Commission decided that that was not appropriate when it looked at the matter in 2009. The hon. Member for Blackley and Broughton has referred to some of those issues, including the challenges associated with the duration of the planning process for new terminals.

We cannot predict with certainty what the appropriate regulatory solutions will be over the 20-plus years, at least, that we expect the legislation to last. It therefore makes sense to keep our options open on inter-terminal competition, in case the Competition Commission, in future, comes to the view that it is the best way to deal with economic regulation in the airport sector.

Photo of Theresa Villiers Theresa Villiers The Minister of State, Department for Transport

Certainly, although I was about to sit down.

Photo of Julie Hilling Julie Hilling Labour, Bolton West

I am still not clear about something. If the Minister is saying that the Competition Commission can order inter-terminal competition to be introduced and it is already a possibility, why does it need to be in the Bill?

Photo of Theresa Villiers Theresa Villiers The Minister of State, Department for Transport

If the Competition Commission thought it appropriate for such competition to happen, and we had failed to include the potential for it in the Bill,  we would have to come back to Parliament for primary legislation to adapt the regulatory framework so that it was able to deal in an efficient way with the Competition Commission’s decision.

Photo of Julie Hilling Julie Hilling Labour, Bolton West

I am just seeking clarity, and I thank the Minister for giving way again. I am confused because although, on one hand, she is saying that the Competition Commission can introduce inter-terminal competition, she is also saying that the Competition Commission cannot, because the matter would have to come back to Parliament first. I am not clear whether the Competition Commission can do it at the moment, because she seems to be indicating that it cannot.

Photo of Theresa Villiers Theresa Villiers The Minister of State, Department for Transport

It has the power to order a divestment to facilitate inter-terminal competition. However, to ensure that the regulatory system worked effectively, we would need to adapt the general system of economic regulation so that it could cope with the changes required by the Competition Commission.

Photo of Linda Riordan Linda Riordan Labour, Halifax

The question is that the clause

Photo of Graham Stringer Graham Stringer Labour, Blackley and Broughton

May I respond to the Minister’s points, Mrs Riordan?

Question put, That the clause stand part of the Bill.

The Committee divided: Ayes 14, Noes 8.

Division number 6 Decision Time — Clause 9 - Operators of areas

Aye: 14 MPs

No: 8 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly agreed to.

Clause 9 ordered to stand part of the Bill.

Clauses 10 and 11 ordered to stand part of the Bill.