Clause 24 - Appeal to Competition Commission: conditions of new licences

Civil Aviation Bill – in a Public Bill Committee at 10:45 am on 6th March 2012.

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Photo of John Woodcock John Woodcock Shadow Minister (Transport) 10:45 am, 6th March 2012

I beg to move amendment 21, in clause 24, page 17, line 10, leave out from ‘whose’ to ‘affected’ and insert

‘financial interests are substantially adversely’.

It is a pleasure to serve under your chairmanship today, Mrs Riordan, and to contribute to the proceedings. The amendment would raise the threshold under which appeals may be made to the Competition Commission against the licence conditions imposed by the CAA in a new licence. We support the principle of the new regime allowing appeals to be brought via the Competition Commission, rather than requiring judicial review, but we wish to ensure that effective safeguards are in place against the appeals process being used in a frivolous or vexatious manner.

Under the Bill as it stands, an appeal may be brought under any circumstances by the holder of the licence—the airport owner—and by providers of air transport services

“whose interests are materially affected by the decision”.

During pre-legislative scrutiny, a number of airport operators and their representatives argued that the appeals process should be balanced and that appeals against licence conditions by airlines should not be too numerous or effectively become a reflex reaction to every licence granted. In oral evidence to the Committee, Members will recall that Emma Gilthorpe, the director of regulation at BAA Airports Ltd, suggested that there was a risk of appeals being quite numerous under the Bill as it stands. She said that at Heathrow, with a revenue turnover of £1 billion each year through airlines, even small changes in the price control system would lead to an airline being considered as materially affected, thus potentially triggering an appeal.

A similar point was made by Gatwick Airport Ltd in its written evidence to the Committee. It pointed out that the Bill does not define “materially affected”. It wrote:

“virtually all airlines operating (or potentially operating) at a particular airport could argue that they have a material interest in the airport’s licence conditions, particularly those which related to price controls”.

Gatwick also points to the Competition Commission’s own recommendation. It expressed concern that a system in which numerous unmeritorious appeals are pursued increases the burden on the regulated company and increases the risk of the Competition Commission effectively becoming the regulator of the system. As I am sure the Minister agrees, it would be deeply counter-productive to the principles of the Bill, which we support, if, because of an imperfectly specified appeals process, an attempt to shift regulatory powers to the CAA shifted power to the Competition Commission instead.

The Airport Operators Association also raised concerns, saying that it was unclear under the proposed system what the motivation would be not to appeal, and adding:

“it is not difficult to foresee a situation where appeals become habitual, because they represent a risk-free opportunity to secure a better commercial outcome for appellants.”

Such a scenario raises the potential for a regulatory logjam of appeals, slowing the process of investment in improving airports, to the long-term detriment of passengers  and freight shippers. The Select Committee agreed with airports’ concerns on this issue, calling on Ministers to ensure that the Competition Commission has adequate powers to strike out vexatious and frivolous appeals. In particular, it recommended that the Government should specify more clearly what constitutes a “materially affected” air transport operator. We are concerned that Ministers have chosen not to accept that recommendation. Our amendment would establish a much stronger test of which air transport operators could lodge appeals, requiring that they be operators whose

“financial interests are substantially adversely” affected by the new licence conditions. The amendment would prevent vexatious or frivolous claims from operators that would be only marginally affected by licence conditions. It would prevent large numbers of airlines at a given airport from introducing co-ordinated appeals and would discourage appeals based on hypothetical air operations. The proposed wording leaves plenty of scope for genuine and warranted appeals, while limiting the potential for regulatory gridlock, so we hope the Minister will be able to accept it.

Photo of Graham Stringer Graham Stringer Labour, Blackley and Broughton

I want to speak to amendment 5, which is in my name and that of my hon. Friend the Member for Bolton West

Photo of Linda Riordan Linda Riordan Labour, Halifax

Order. We will come to that amendment later. We are dealing purely with amendment 21.

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

Thank you, Mrs Riordan. I am sure that the Committee will wait with bated breath for the contribution of the hon. Member for Blackley and Broughton, who raises an important point in amendment 5 that we will be able to debate later.

I am grateful to the hon. Member for Barrow and Furness for raising the issue and for giving us a chance to debate one of the most important aspects of the Bill. If I may trespass on your patience for a little longer than usual, Mrs Riordan, I would like to explore some of the broader issues relating to the appeals process, because it is crucial.

For both technical and substantive reasons, I cannot support the amendment. At the technical level, I question why it has been tabled to clause 24(2)(b) but not clause 25(2)(b), which contains the same phrasing. Accepting the amendment would create an unjustified and irrational inconsistency between the grounds on which an appeal could be made regarding the conditions of a new licence, and those on which an appeal could be made against the modification of licence conditions.

I do not accept the heart of the argument put forward by Opposition Front Benchers, and nor do I believe that a case has been made for the concept of “materially affected”, which the amendment seeks to delete, being problematic to apply in practice. Whether someone is materially affected by a decision is a question of fact for the Competition Commission to decide. The concept of something being “material” is used in many other legal contexts without giving rise to problems of predictability and consistency. For example, under the Electricity and Gas (Internal Markets) Regulations 2011, permission to appeal may be refused by the Competition Commission where a person is not materially affected. The terms “material”, “material change”, “material circumstance”,  “material considerations”, and so on, have all previously been used in statutes, and the term has been used in legislation since at least 1906. A recent example can be found in section 897(2)(b)(i) of the Companies Act 2006, which refers to the

“material interests of the directors of the company”.

A further reason for the Committee to oppose amendment 21 is that it would have a negative impact on the effectiveness of the reformed system of economic regulation proposed in the Bill. It would be a significant and fundamental change. I must say that I see a surprising inconsistency in the Opposition Front-Bench team’s position. They were adamant last week that airlines were effective representatives of passengers and should have an important role in the regulatory system, and they tabled amendments to that effect. Now, however, they are seeking to dilute what is probably the most important right that the Bill grants to airlines—one that I believe airlines will be able to use effectively to defend their interests and, crucially, the interests of passengers.

As Committee members will probably be aware, the Bill draws on work going back some years, including the Pilling report, the Cave review and various consultations under the previous Government. There is no doubt that the appeals process has been the subject of lively debate throughout the deliberations that have led the Government to where we are today and the Committee to this amendment.

The shadow Minister has alluded to the dilemma that the Government faced on the kind of appeal rights to grant: on the one hand, we want a balanced and fair system that will be effective in holding the CAA to account for its decisions and the impact of those decisions on passengers; and on the other hand, it would be unwise, and it would not be right, to create such broad appeal rights that we end up with a slow and expensive two-tier decision-making system of the sort outlined by the hon. Member for Barrow and Furness.

Various options were considered, including vesting a right of appeal in airports and the Secretary of State, to ensure that we do not end up with a two-tier system. The airlines were concerned about that, but, to their credit, they took a constructive approach by proposing a number of ideas and working hard to develop an effective but constrained right of appeal that balances the competing concerns that I have outlined.

After extensive engagement with different stakeholders, including airlines, a more powerful right of appeal than the judicial review options available under the current system was included in the Bill—I welcome the shadow Minister’s supportive approach to that—but that powerful right of appeal is still limited in important ways to ensure that it cannot be used to clog up the decision-making process unreasonably. The right of appeal is available only to materially affected airlines, for example, but it is also constrained in other ways: an appeal does not suspend a licence condition, except in some limited and defined circumstances; and appeals are adjudicative, rather than investigatory.

Photo of John Woodcock John Woodcock Shadow Minister (Transport) 11:00 am, 6th March 2012

I thank the Minister for attempting to address the issues I laid out in the amendment, but what does she think of our concern about materially  affected airlines? In our example of Heathrow, a fairly minor change could materially affect every airline in the place and lead to a logjam. She needs to address that key point.

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

That is a timely intervention. Not only does constraining the right of appeal to materially affected airlines provide a safeguard, because it limits the scope of the appeal process, but we have also included a number of additional safeguards in the Bill to address exactly the sorts of concerns raised by the hon. Gentleman. I will outline those safeguards, but there will be a further opportunity later to debate those safeguards in more detail.

Appeals will be adjudicative, rather than investigatory, which is an important restriction. The process will also be subject to strict time limits, and the Competition Commission may make an order for costs following its decisions, so an appeal will not necessarily be an entirely risk-free option. As I have said, the proper place for detailed debate on such concepts is probably during our consideration of later amendments, but if the Committee adopted the amendment, it would destabilise a carefully constructed compromise package on appeals that now commands significant support.

In its written evidence to the Committee, easyJet states:

“Airlines can play a…constructive and effective role through participating in an appeal process, not just initiating one.”

Virgin’s written evidence notes:

Virgin Atlantic has consistently supported the proposals for the Competition Commission to become an appellate body for CAA decisions, subject to the caveat that all parties with a material interest are granted the right to appeal.”

Photo of Nigel Mills Nigel Mills Conservative, Amber Valley

I would not like to miss the Minister before she concludes her response. The Committee will not be too surprised to learn that my question is purely semantic and technical. Clause 24(1) refers to clause 15, which lists the draft licence conditions. Clause 15(2) refers to a person as being the “applicant for the licence”, whereas the reference in clause 24 is to the “holder of the licence”. Can the proposed operator hold a licence before the licence has been granted and comes into force or should we still refer to the “applicant” rather than the “holder”?

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

As ever, my hon. Friend’s eye for detail is second to none. I may take some advice on that and respond to him a little later, as I have to confess I am not entirely sure of the answer.

In conclusion, I would argue that there is no need to remove “materially affected” from subsection (2)(b) because a range of other important safeguards are in place to prevent abuse of the appeal right system, some of which I have set out. A further safeguard is provided by clauses 24(5) and 25(5). As the shadow Minister pointed out, those two subsections provide that the Competition Commission may refuse permission to appeal on the grounds that the appeal is trivial or vexatious, or has no reasonable prospect of success. So the Bill gives the Competition Commission the power to stop an appeal in its tracks if it has no merit and no prospect of success.

As drafted, clause 24 gives important rights to airlines to hold the regulator to account in relation to decisions that may have a significant impact on their businesses and their passengers. I do not believe that the Opposition made the case for the significant restriction in airline appeal rights, so I hope that, given this reassurance, they will withdraw the amendment—if they do not, I would have to ask my colleagues to oppose it.

Photo of John Woodcock John Woodcock Shadow Minister (Transport)

I thank the Minister for that response, but we remain concerned and we will need to reflect on this. I hope that she will, too, given the substantial issues that we have set out today. Although I reserve the right to come back to this later, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Graham Stringer Graham Stringer Labour, Blackley and Broughton

I beg to move amendment 5, in clause 24, page 17, line 19, at end add ‘, or

(c) that the appeal, if granted, would have effects inconsistent with the duties of the CAA under Section 1.’.

Photo of Linda Riordan Linda Riordan Labour, Halifax

With this it will be convenient to discuss amendment 22, in clause 25, page 17, line 34, at end insert—

‘(ba) that the appeal, if granted, would have effects inconsistent with the duties of the CAA under section 1, or’.

Photo of Graham Stringer Graham Stringer Labour, Blackley and Broughton

I apologise for jumping the gun previously; I thought we were taking these two amendments together, but I was in error.

I agree with the basic changes being made here. As my hon. Friend the Member for Barrow and Furness said, relying on judicial review to get decisions is not a sensible way to run an airport. It is sensible to have an understood and thought-through appeals process. I also think that in defining the appeals process in clause 24 we come to some of the problems, ambiguities and, perhaps, even contradictions that arise when the Bill switches its focus from what happened previously, when the interests of the airlines were what needed to be considered. As that has changed to the interests of the passenger and freight user, we have arrived at a half-way house, which could lead to some problems in future.

The amendment says that

“the appeal, if granted, would have effects inconsistent with the duties of the CAA under Section 1”.

In other words, an appeal would not be allowed if it was in conflict with the duties defined in clause 1, which are effectively the interests of the passenger and the freight user. What troubles me, which is why I tabled the amendment, is what has troubled me on previous amendments. I can find no definition in the Bill—if there is one I should be grateful if the Minister could tell me—of what the passengers’ interests are.

It has been clear from previous arguments and discussions between airlines and airports that the interests of low-cost carriers—including the most aggressive low-cost carriers, such as Ryanair—are very different from those of American Airlines, British Airways, Delta or Singapore Airlines, which want to provide a quality experience. Both types of airlines are materially affected by the licensing arrangements, but they would have very different views on the definition of the interests of the passenger. Put simply, Ryanair wants things cheap and cheerful: it wants  costs to be as low as possible, and passage through the airport and the other services to be as quick as possible. British Airways, however, may want a much more sumptuous, lavish experience for their first and business-class passengers. How is the Competition Commission expected to decide between Ryanair, which may appeal on one basis when it is materially affected, and, say, Singapore Airlines, which may be affected in a different way, where this is all leading to the same licensing conditions? I find it difficult to imagine how the Competition Commission would approach that.

The judicial review process was a procedural one; if an airport was taking decisions in an unreasonable way, without taking account of the facts and without consulting properly, it would lose the judicial review. These are a different set of criteria that do not define the freight user’s interest or the passenger’s interest, which lies at the very heart of this Bill. I am increasingly worried that if those interests are not defined, the Competition Commission will not have good guidelines on which to make its decisions. That is my problem, which is why I have tabled the amendment. I want to understand how the Government intend to make sure, when airlines or air users appeal, that the interests of the passenger and the freight user are paramount.

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

I am grateful to the hon. Gentleman, as ever, for his remarks and for the opportunity to debate the amendments. As with many debates in Committee, I understand and sympathise with the aim of the amendments but I do not feel that they are necessary and I hope to convince the Committee that the Bill deals with the points they raise. I will deal specifically with the amendments before I touch on the broader issues that the hon. Member for Blackley and Broughton raised.

Our aim is to establish an appeals process that facilitates transparency, accountability and the timely resolution of appeals. As we have discussed this morning, clauses 24 and 25 provide that permission to appeal should be granted only where appropriate. The amendments would not change how the Bill works in practice; in effect, they would be empty provisions, because clause 30 substantially delivers the outcome that they seek.

Subsections (2), (3) and (4) of clause 30 provide that the Competition Commission be subject to the clause 1 primary duty to passengers when deciding an application for permission to appeal under clauses 24 and 25; determining such an appeal, including taking decisions and giving directions under clause 27; and deciding an application for permission to intervene. The granting of a direction to suspend a licence is governed by slightly different criteria.

I hope I can reassure the hon. Member for Blackley and Broughton that the combined effect of clause 24(5)(b), clause 25(5)(b) and clause 30 ensure that the Competition Commission is subject to the primary duty in clause 1 when deciding whether permission to appeal a licence condition or licence modification should be granted. I recognise, however, that the hon. Gentleman has raised wider issues about how the regulatory structure will address the interests of end users. I fully acknowledge that, at times, the interests of different passenger groups will contrast, and they will aspire to different outcomes as they travel through the airport.

Last week, we debated that point in relation to the interests of present and future passengers, so there is no doubt that the CAA, in its decisions, and the Competition Commission, when considering appeals, will need to think intelligently about how to balance and deal with such conflicting interests. I believe that the CAA has the capacity to balance the interests of different groups, as provided for in clause 1(5), which we debated last week.

There is no single right answer that the Committee can give as legislators about the decisions that the CAA might take, in terms of how to deal with conflicts between the interests of different passengers. It is good practice, however, to vest such decisions in an independent, expert regulator, with the maximum flexibility to ensure that we have a regulatory system that is responsive to passengers and promotes their interests, but does not impose unreasonable or unnecessary costs on our airport sector. With that, I hope the hon. Gentleman will consider withdrawing the amendment.

Photo of John Woodcock John Woodcock Shadow Minister (Transport) 11:15 am, 6th March 2012

I apologise if the order of contributions is slightly unconventional; I probably should have been quicker on my feet. Amendment 22 uses the same text as amendment 5, tabled by my hon. Friends the Members for Blackley and Broughton and for Bolton West, but for a different—although I would say complementary—reason.

Given the concerns that we have discussed about the potential for vexatious or frivolous appeals over new licences, it is right that we should look to ensure that appeals on the modification of licence conditions should be suitably regulated. In particular, we believe that there is a strong case that the appeals mechanism should reflect the primacy of the duties that the Bill and previous Bills have placed on the CAA. We strongly support the Bill’s aim to orientate the CAA’s duties towards using economic regulation to promote airport users’ interests and towards promoting competition in the provision of airport operation services, along with the secondary duties, set out in chapter 1 of the Bill, which include ensuring the licence holder’s ability to finance their operations, promoting economy and efficiency on the part of licence holders, and meeting international obligations.

Given the importance of those duties, it could be a remarkable waste of time and resources if appeals were permitted against licence conditions intended to bring the CAA within those duties. Following the Bill’s passage, new and amended duties imposed on the CAA could require a significant number of licence modifications over the coming years, to bring the CAA’s operations in line with those duties. It could be damaging to the interests of passengers and freight shippers—as well as being contrary to the will of the House—if such modifications were then subject to lengthy and repeated appeals by either airports or airlines.

The amendment seeks to provide the Competition Commission with additional grounds to refuse an appeal request, permitting it to judge that should the appeal be granted, it would place the CAA in breach of its duties, as set out in the Bill. By proposing the amendment, we are seeking not only to protect the interests of airport users, but to provide additional force to the duties rightly placed on the CAA by the Bill.

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

I am grateful to the shadow Minister for his comments. I do not think that I need to add to what I have already said. Clause 30 delivers what the amendments intend, so I urge the Committee to reject them if the Opposition put them to a vote.

Photo of John Woodcock John Woodcock Shadow Minister (Transport)

I do not feel that that response answers my point, and I do not know whether my hon. Friend the Member for Blackley and Broughton will accept it. However, we will not push the matter to a vote at this stage; we will go away and reflect on it.

Photo of Graham Stringer Graham Stringer Labour, Blackley and Broughton

I thank the Minister for her reply. She has dealt comprehensively with my technical points by pointing me in the direction of clause 30, which defines the primary objectives. The Minister could reflect further, however, on more definition to help the Competition Commission with what the interests of freight users and passengers may be.

One obviously cannot anticipate every particular appeal and advise the Competition Commission on what it should do in each situation. On the other hand, leaving the Competition Commission without any adequate definition of what the interests of freight users or passengers might be is probably leaving it with too much work and may lead to some perverse consequences.

I am happy to withdraw the amendment, particularly as the technical points have been answered completely, but I ask the Minister to reflect further on whether more definitions are needed in the Bill.

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

I am grateful for the hon. Gentleman’s further remarks. As I have said many times, he has great expertise in these matters. However, I continue to believe that it would be wrong for us to “hard code” into the Bill a particular definition of exactly how the end user is best served. It is better to give the CAA broad discretion and to leave it up to the Competition Commission to make sensible decisions on the basis of the constraints already set out in the Bill in relation to the appeals framework.

However, there is a route for ministerial input into the process as a whole, because clause 2 provides for the Secretary of State to issue guidance to the CAA that may be of assistance when it makes decisions under the primary duty. There are non-legislative options to provide further guidance to the CAA in the future, so that may be useful when it makes decisions on the end user’s interests.

Photo of Linda Riordan Linda Riordan Labour, Halifax

Mr Stringer, can you confirm that you want to withdraw the amendment?

Amendment, by leave, withdrawn.

Clause 24 ordered to stand part of the Bill.

Clause 25 ordered to stand part of the Bill.