A scheme that brings British holidaymakers home when airlines go bust is on the verge of financial collapse. Passengers now face paying a new tax to shore it up.
The Government is considering imposing an extra levy on millions of holidaymakers after a warning from the Civil Aviation Authority (CAA) that the downturn in business since the World Trade Centre attacks on 11 September has hit the existing state-backed insurance scheme.
The CAA warns that as consumer confidence ebbs and the long-haul travel industry suffers, more holiday companies could go bust. That in turn could exhaust a special fund set up in 1975 as a back-up to the Air Travel Organisers Licensing (Atol) system, which helps stranded passenger when travel firms collapse.
CAA officials told the Commons Select Committee on Transport that it was particularly concerned about the likelihood of more frequent tour operator failure. They added there was an "urgent need" for legislation that would provide powers to impose a levy on travellers to top up the fund, which has been in deficit since 1996.
The CAA said it could not default on claims under EU law, but it would be of "serious concern to the travel industry because of the repayment implications". It would also fall on the taxpayer.
The fund pays claims using borrowings guaranteed by the Secretary of State up to £21m. The aviation authority told the MPs: "The CAA and the trustees do not regard borrowings as a satisfactory solution and powers are needed to impose a levy to recoup the costs of the fund from holidaymakers."
Such a move would require primary legislation, said the CAA. "The need for legislation has become more acute because of the difficulties facing UK tour operators in the aftermath of 11 September with the combined impact of loss of consumer confidence and cost increases."
When questioned by the select committee as to whether the Government would consider a levy, transport minister David Jamieson said: "That would be one option."
Anne McIntosh, a Conservative member of the committee, said: "Holidaymakers have to accept that if a charter company goes bust, the cost and the disruption to their family could be very high.
"They may feel that a small levy being charged to enable the fund to remain in place would be preferable to seeing the fund collapse altogether."
But she added: "It is very worrying that the CAA says the fund is in danger of collapse. Millions of families could be affected."Reuse content