Six out of 10 foreign holidays protected, but flat fee criticised as unfair to those on short breaks

MPs have criticised reforms aimed at strengthening consumer protection for holidaymakers which come into force today, warning that they don't go far enough.

The Transport Select Committee says the Civil Aviation Authority's beefed-up Air Travel Organiser's Licence (Atol) scheme to financially protect travellers does not pay attention to holidaymakers' views.

A further six million travellers will be protected under the new terms of the scheme. The original licence covered travel companies selling air holiday packages and flights in the UK. The CAA's new scheme, called Flight-Plus, aims to extend Atol protection to arrangements that look like package holidays.

The cover now applies when a flight and accommodation are requested from the same vendor on the same day, or on successive days. The government estimates the proportion of foreign holidays covered by the Atol scheme will increase from four to six out of 10.

In a report to be published today, the committee concludes that the changes do not take account of "consumer behaviour and views", and that the flat fee principle introduced by the CAA is "unfair".

Twenty years ago, before low-cost airlines such as easyJet and Ryanair transformed the travel landscape, the vast majority of British tourists took traditional package holidays, with flights and accommodation bought simultaneously through the same company. They were covered by the Atol scheme, providing repatriation and refunds if a tour operator failed.

Today, fewer than four in 10 British holidaymakers heading abroad are covered. The collapse of companies such as Goldtrail, Kiss Flights and XL have exposed the inconsistencies and customer confusion about who gets a refund when a travel firm goes bust.

The Transport Select Committee describes the previous scheme as "a mess", and welcomes the "greater cover and clarity" that the new rules should bring. But Louise Ellman, the chair of the committee, told The Independent that the government had not paid enough attention to the views of holidaymakers. "There's a gap on who represents the traveller," she said.

Affected holidaymakers will each pay a £2.50 "Atol protection contribution". In a full year, this is expected to bring in an additional £15m, helping to plug the £42m hole in the government-backed Air Travel Trust Fund, which is deeply in deficit following a succession of high-profile collapses.

The MPs' report also criticises the flat fee. "It is unfair that those consumers booking a short, low-cost package pay the same as those booking an extensive luxury holiday," it says, suggesting that the contribution should be proportionate to the value of the booking. Mrs Ellman said: "The government has to show that this is about meeting travellers' needs, not plugging the deficit."

The new rules were welcomed by Abta, the travel trade association. Mark Tanzer, Abta's chief executive, said: "It'll be clearer for the consumer, and clearer for the industry too."

Meanwhile so few companies are ready for the scheme that the CAA has said it will not take action for non-compliance during May. Plans for an "Atol certificate" are running late, and this element will not be fully operational until 1 October.

Q&A: What the changes mean

Q If it looks like a package holiday, it's protected – does that sum up the rules?

A Not quite. Flight-Plus is intended to cover trips when flights and accommodation are requested at the same time, but there are two wide loopholes. Bookings made direct with an airline are not covered, and travel firms that declare they are acting as "agent for the consumer" are not obliged to provide protection.

Q How can I tell if I'm covered?

A From October, you will get an Atol certificate to prove it. Before then, ask the vendor: "What happens to my holiday, and my money, if the airline fails or the hotel closes down?" If you're unsatisfied, take your business elsewhere or pay at least the deposit by credit card.

Q How much will It cost?

A Flight-plus costs £2.50 per person. The government hopes that the levy will soon be cut to £1.50.

Q I've already booked my holiday – do the new rules change anything?

A No. The legislation does not apply retrospectively.