Plan to impose new airline levy sparks row with UK Treasury

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The Independent Online

A plan to impose a £1 levy on all 50 million passengers travelling by air every year from Britain has sparked a massive row within the Government.

A plan to impose a £1 levy on all 50 million passengers travelling by air every year from Britain has sparked a massive row within the Government.

While the Department for Transport is understood to be in favour of the supplement, which would cover travellers when an airline went bust, the Treasury is making a last-ditch effort to block the initiative.

Supporters of the scheme are seeking to ensure its inclusion in the Aviation Bill which is receiving its second reading on Monday.

The Treasury is arguing that it is a superfluous piece of regulation and that customers themselves should ensure they are covered.

The Department for Transport is understood to back the plan on the grounds that it would replace existing regulatory law which is unsatisfactory because it only covers a proportion of passengers.

Those who book their flights through tour operators are repatriated free of charge under the statutory Air Travel Organisers Licence (ATOL), but passengers who book direct with airlines could find themselves without cover.

The plan was proposed by the Civil Aviation Authority, the industry's regulator, and has attracted the backing of much of the travel industry and the House of Commons Transport Committee.

Supporters of a blanket scheme point out that after the terrorist attacks on 11 September 2001, which caused virtually unprecedented financial problems for the airline industry, there is a need for more comprehensive cover. Rising oil prices are causing severe problems for airlines and industry leaders believe a major financial collapse could be imminent.

The Treasury's opposition to the plan is backed by an unholy alliance involving British Airways and Ryanair, although Virgin is understood to have sent a letter to ministers in support of the policy. A spokesman for Virgin said the airline believed the present system was "antiquated" and supported the CAA's proposal because it would be an industry-wide arrangement replacing ATOL.

Proponents of the scheme point out that some 98 per cent of passengers were covered by ATOL in 1997, but that this has declined to nearer 60 per cent because of the growth of direct booking with airlines and "DIY" holidays. If passengers pay through credit cards they enjoy a degree of protection. Debit card payments and travel insurance offer no cover.

Tour operators believe the present system is haphazard and leads to widespread confusion about whether customers are protected. They also calculate that the ATOL system costs them £100m a year.

The Federation of Tour Operators (FTO) argues that a system funded by the whole of the industry would mean reduced prices for package holidays.

A Mori survey commissioned by the association of British Travel Agents and the FTO last autumn found that 81 per cent of respondents would be willing to pay between 50p and £2 for comprehensive financial protection.

The Trading Standards Institute believes the law has failed to keep up with changes in the way people arrange holidays.

A BA spokesman said: "We are a well established airline and it is unfair that our customers should have to fund compensation for those who choose to travel on less established airlines. Due to our passenger volumes, we would have to provide the lion's share of the funding to provide protection against other airlines' bankruptcy."

A spokeswoman for Ryanair said it was wrong for passengers booking on successful airlines to be asked to subsidise passengers booking on "financially flaky" airlines.

"It is like asking Chelsea to give points to relegated teams at the end of every season or like asking Labour to give seats to the Tories after every election win. This proposal is stupidity personified and we totally oppose it," she said.