Clause 44 - Amount of penalty: fixed amount

Part of Civil Aviation Bill – in a Public Bill Committee at 12:15 pm on 6th March 2012.

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Photo of Nigel Mills Nigel Mills Conservative, Amber Valley 12:15 pm, 6th March 2012

I rise to oppose the amendment, and to pose a couple a questions about how the penalties are calculated.

Penalties based on turnover can be burdensome for any business. If a business is operating on a low margin, a fine based on turnover can more than obliterate the entire profit made in the given period. However, we are talking about a licensed operator abusing its market power, or breaching its conditions, in such way that a penalty is appropriate. That means that a serious offence has occurred. A significant financial penalty should act as an effective deterrent to such behaviour, and I have no objection to that.

According to the regulatory accounts of Heathrow Airport Ltd for the most recent financial year to 31 March 2011, its total revenue was about £1.8 billion and its regulatory operating profit was £538 million. A 10% fine based on that total revenue would effectively account for a third of its profits. We may accept that as reasonable, and I suspect that Heathrow could probably stand that type of fine on a one-year basis.

However, if we are trying to encourage airports to invest in improving the quality of service, letting fines sneak up to 15% of turnover or higher seems to be detrimental. We all know that other airports across the country, which I accept are not currently regulated, are struggling to make any money at all. Allowing the CAA to impose ever-increasing fines, regardless of an airport’s profit or return, would not be a sensible way to encourage the investment that our airports need.

I would say that 10% seems a relatively sensible level. It would certainly be a significant cost to any business, and I do not think that any airport would engage in anti-competitive behaviours or other flagrant breaches of its licence because it thought that penalty too slight to be worth worrying about.

My real concern is exactly what we are including in the definition of turnover. In fact, subsection (7) allows the Secretary of State, by regulation, to modify the definition of qualifying turnover. I know subsection (8) suggests what those modifications might be, but there is no actual definition of what could be done. Will the Minister run through the scenarios for which she thinks she needs that power?

I accept that I may have missed this somewhere, but, from my reading, the Bill is not entirely clear whether turnover based on regulatory accounts means revenue from airport charges or from other revenue, too. Heathrow’s accounts, for example, contain revenue from retail operations, property revenue, rail revenue and other revenue. Are we talking about a fine based on total turnover that includes all those things, or are we talking about a fine that only affects the area in which a breach occurred, which may well be in the airport operations, rather than all those other things?

I am intrigued by what happens when an airport operator with retail or catering operations sells a long-term franchise for an upfront fee and therefore does not generate any annual turnover. There might be an accounting distortion in which a fine could get at the retail and catering income of some airports, whereas airports that have lost such income seven years ago for a flat fee are not accounted for in that way. Will the Minister clarify the scope of the power she is taking in subsection (7) and how we can ensure that fines are imposed on a consistent basis across all regulated airports?