Clause 12 - Advance determinations

Civil Aviation Bill – in a Public Bill Committee at 10:00 am on 1st March 2012.

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

Photo of Nigel Mills Nigel Mills Conservative, Amber Valley

I will try to be brief. My only comment is about the following:

“The CAA may make a market power determination…based entirely or partly on circumstances that have not arisen at the time the determination is made.”

My concern is about the meaning of “circumstances”. Under the Competition Act 1998, we normally look at

“agreements, decisions or concerted practices” that might infringe the usual competition rules. There is clearly a legal document or something tangible for the regulator to look at and say it might cause a future problem and needs to be regulated to prevent abuse. Here we have “circumstances”, which could mean anything—the regulator could hear a rumour on the street and decide that that counted as a circumstance that required starting the regulatory process.

I can see a scenario where “Boris island” airport is built and has such market power that it needs to be regulated before it starts operating. I can see the argument about why we should not wait until the abuse actually exists before starting the process. However, the word “circumstances” is very imprecise.

Photo of Mark Reckless Mark Reckless Conservative, Rochester and Strood

My hon. Friend suggests, extraordinarily, that, were “Boris island” built, it could have such market power that the regulator would have to step in and prevent abuse of the market. Does that not imply that airlines would be rushing to use “Boris island”? In reality, they are opposed to its being built and want to stay at Heathrow.

Photo of Nigel Mills Nigel Mills Conservative, Amber Valley

I am grateful for that. I was trying not to come up with a realistic example, but to think of one situation at the moment where there might be a significantly powerful airport that does not yet exist, and where there might be a need for a power to regulate a situation that does not yet exist. I was trying to be helpful.

I suppose it is possible that a huge number of airlines could leave and go to Luton, giving Luton a power that it does not yet have—in the package holiday market or similar situation—that would mean that the regulator would have to act in advance. Even in that situation, however, legal agreements would be in place that could be triggered when airlines were going to move.

Will the Minister explain exactly what she means by “circumstances” and exactly how the CAA could justify an advance determination without there being some abuse?

Photo of Jim Fitzpatrick Jim Fitzpatrick Shadow Minister (Transport)

The hon. Gentleman raises an interesting point on the definition of “circumstances”, and I must confess that it escaped me. Forgive me if he has mentioned this, but the clause also states that the CAA

“may make a market power determination… based entirely or partly on circumstances that have not arisen”.

If the circumstances have not arisen, how can the CAA anticipate what the circumstances might be? Subsection (2) states that the CAA “must specify the circumstances”, which have not arisen, and subsection (3) states that the CAA “may make a determination”. Is the hon. Gentleman also asking for clarity on those aspects?

Photo of Nigel Mills Nigel Mills Conservative, Amber Valley

That is a fair comment. I was referring to the Competition Act 1998, where the phrase

“agreements, decisions or concerted practices” appears. If some legal agreement meant an airport suddenly having a power that it did not previously have, there would be a need to regulate. The hon. Gentleman is right that “circumstances” is so broad that it could mean things that do not yet exist, because it is an advance power. Yet there are no legal documents that  actually bring those into force. It is hard to understand exactly what would be regulated in this situation. Will the Minister clarify what “circumstances” means? Might there be a better way of defining when the power can be used?

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

I am grateful to my hon. Friend. Before responding, I should mention that I welcome the fact that the clauses that we have just agreed to were adopted with consensus.

The goal of clause 12 is to give operators and prospective owners greater certainty about whether and when they would require a licence to levy charges and whether they are likely to come within the economic regulatory system. That is why the clause empowers the CAA to make market power determinations and operator determinations in advance.

As with much of the rest of the Bill, a key goal of clause 12 is to try to retain as much flexibility for the independent expert regulator as possible. That is the golden thread that runs not only through the Bill, but through best practice across the regulatory sector in the UK.

It would not be appropriate for me to seek, through the representations that I make to the Committee, to narrow down the scope of the CAA’s discretion in the future. However, the best practical example of where the clause may be useful is when someone is contemplating buying an airport. It is important that the CAA has the option of considering determinations in advance of the relevant circumstances occurring. Someone seeking to purchase an airport may seek an advance determination to establish whether they would be subject to economic regulation if they went ahead with the purchase.

Under subsection (3), the power to make an advance determination may be used only if the CAA is satisfied that the specified circumstances are likely to arise. I hope that gives my hon. Friend the Member for Amber Valley some reassurance that wholly speculative advance determinations are shut out. We have found a pragmatic way, through how the clause has been drafted, to enable the CAA to look at such determinations in advance, but without opening the door to a flood of multiple and vexatious requests for determinations about particular airports. Under subsections (5) and (6), the advance determination does not take effect until the circumstances described in the determination arise.

The CAA is empowered by subsection (4) not to publish a notice of an advance determination, or the supporting reasons, if the circumstances have not yet arisen and doing so would involve disclosing commercially sensitive information. That essentially disapplies the publication obligation on the CAA, to enable it to deal with requests confidentially where, for example, disclosure might be sensitive. A number of circumstances could be imagined in which that might be the case, such as where an application is triggered by the pending purchase of an airport.

Question put and agreed to.

Clause 12 accordingly ordered to stand part of the Bill.

Clause 13 ordered to stand part of the Bill.

Schedule 1 agreed to.

Clause 14 ordered to stand part of the Bill.