HL Deb 17 March 1986 vol 472 cc845-54

6.40 p.m.

Lord Teviot rose to ask Her Majesty's Government whether they approve of a closed shop in the sale of overseas holidays where this cannot be proved to be exclusively for the benefit of the consumer.

The noble Lord said: Underlying this Question is action being taken by the Association of British Travel Agents—ABTA—to the detriment of British holidaymakers, its own travel agent members, shipping companies, coach operators and, it seems to me, the association itself. Your Lordships will hardly need reminding that the holiday industry is volatile. It sells dreams—dream holidays—and holidays are often the biggest purchase a family makes each year. As well as being the biggest purchase, it can bring the greatest pleasure, not only the holiday itself but the anticipation of it and the planning of it. Looking through those brochures in dark, miserable winter days gives one great pleasure and joy. One can see oneself on a beach in the South Seas, until of course when the bills come in you feel that what remains in your pocket would be more befitting a week in a holiday flat in Clacton. So holidays are important. They should be protected from the failure of holiday organisers.

It is to ABTA's credit that it took steps as far back as 1965, following the Fiesta failure, to put its own house in order. It launched what is called Operation Stabiliser. One has to recognise that, through ABTA's initiative, the public interest has benefited even more than self-interest. However, that element of self-interest has always been a potential danger to the efficient self-regulation of the industry. It has caused problems within the membership of the association, and from time to time some blood-letting has been necessary. An essential element in Stabiliser's protection of the public is the financial safeguard provided by a bonding system, while the need to deal with customer complaints in an objective way is also recognised. The trouble is that, as a basis for this protection, ABTA felt the need for a closed shop. When it introduced Operation Stabiliser in 1965, it required its travel agent members to sell only the holidays packaged by its so-called tour operator members. Similarly, the operators were only to sell through ABTA members. That included their own direct sales.

From the outset, it was recognised that there were certain other holiday firms that could not logically be excluded from the holiday choice made available to the public through the travel agencies. These were the coach companies providing overseas tours—at that time under statutory licences—and also the shipping companies with their cruise and ferry services. Both these classes of operations were at first given dispensations from Operation Stabiliser, and the shipping companies, members of the Passenger Shipping Association, still have such a dispensation, although it is now under threat. In the case of the Bus and Coach Council coach operators, however, ABTA decided to make them an intrinsic part of Stabiliser by enshrining their position in its own articles of association. Now it wishes unilaterally to reverse this action. The difficulty is that as Stabiliser is undoubtedly a restrictive trade practice, it was referred to the Restrictive Practices Court in 1978. The Confederation of British Road Passenger Transport, now known as the Bus and Coach Council, or BCC for short, was a party to that action. In the judgments of the court in 1982 and 1983, it is made clear that the members of the CPT licensed continental section are, along with all members of ABTA, parties to the Stabiliser agreement.

The dispensation for members of the Passenger Shipping Association was also noted. It is apparent that these sensible relaxations in the closed shop principle were major factors in the decision of the court that it should not rule that Stabiliser was against the public interest. The court specifically affirmed that ABTA should not use its closed shop in a way that would prevent any suitably protected holidays being sold to the public by its members. The court went so far as to say that in considering dispensations from Stabiliser under Article 13(7)—a procedure that was insisted upon—ABTA must not consider any tendency to weaken, or to fortify, its supervisory functions. Ironically, it seems to be on these clearly prescribed grounds that ABTA is now seeking to force coach operators and shipping companies into its membership by cancelling their present rights, although the court further adjudged that to act as a recruiting sergeant would not be a proper use of its discretion.

ABTA speaks of rescinding dispensations, but that is another flaw in its reasoning because, as already explained, the coach operators do not have a dispensation. They are in fact parties to the Stabiliser agreement. ABTA does not seem to realise that it can only be heading straight back to another hearing before the Restrictive Practices Court by making such a fundamental change in the agreement that it accepted. What is more, it is hardly likely to give a very convincing account of its stewardship when it is choosing to ignore the very specific advice given to it by the court.

Another factor which ABTA chooses to ignore is the position of Stabiliser under Article 85 of the Treaty of Rome. This article prohibits as incompatible with the Common Market: all … decisions by associations of undertakings … which may affect trade between Member States and which have as their … effect the prevention, restriction or distortion of competition within the Common Market and in particular those which there follow (a), (b) and (c); and then (d) states: apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage".

One would think that, after a few minutes studying those words, ABTA would recognise that it is placing more at risk than the loss of a relatively small number of holiday sales. It is with these factors in mind that one turns to the Government and asks them to give some clear indication of the public interest which has until now been pretty well served by the Stabiliser agreement. One can only wonder whether the custodians of the agreement have lost their way, overwhelmed by a self-imposed responsibility for protecting the public from every Tom, Dick or Harry who in any way sells an overseas holiday. They claim to believe that the public is too stupid to choose between their own bonding scheme and those of other organisations which they now see as competitors.

Since the trouble started in the 1960s, the consumer protection schemes provided by the Bus and Coach Council and the Passenger Shipping Association have never once been called into action. ABTA's is the only scheme that has ever had to rescue holidaymakers let down by its own members. Let me stress, however, that it did a very fair job of this and gained much experience. But is it not a great irony that ABTA should seek, after 20 years, for no valid reason, to evict those with a clean bill of health from the Stabiliser agreement in which they had participated in the public interest?

Finally, let me say that the fragility of ABTA's arguments may be explained by the line taken in private by certain of its members, which is clearly to protect their own sales from the success of others. As one said, self-interest has always been lurking in the wings since Stabiliser has been on stage. I can tell those of your Lordships who may ask that every effort has been made by the Bus and Coach Council and by the Passenger Shipping Association to avoid this head-on clash. Yet diplomacy seems to have been interpreted by ABTA as weakness. This has led it into ill-considered actions without stopping to weigh the consequences for itself. Fortunately, it is not too late to bring it back from the brink. I am delighted that it is my noble friend Lord Brabazon of Tara who will be replying to this debate as an Unstarred Question some 18 months ago was his first. I hope that he will be able to put matters in a perspective that will yet lead to an amicable settlement of this totally unnecessary dispute and will allow holidaymakers both protection and choice when they next visit their travel agent.

6.50 p.m.

Lord Williams of Elvel

My Lords, I hope not to detain your Lordships very long. It is quite right of the noble Lord, Lord Teviot, to raise this matter in his Unstarred Question. I have had a slight disappointment, because at one stage in his speech I had hoped that we would have a debate about the relative merits of South Sea islands and holiday packages, but I find that we now come to the rather narrow issue of the dispute between ABTA and the BCC, which is the point on which the noble Lord concentrated.

There is a very strict and slightly legalistic answer which the Government could make to the noble Lord's initial Unstarred Question which is: whether they approve of a closed shop in the sale of overseas holidays where this cannot be proved to be exclusively for the benefit of the consumer". The Government, through their legislation, are bound to take the public interest into account, and the public interest has been defined on many occasions by legislation.

However, if I may, I want to go further into the noble Lord's argument. The noble Lord is certainly right that the travel association, ABTA, has done some excellent work in what I would call the general principles, which we on this side of the House would support when it comes to overseas travel, which is the essential protection of British citizens and British residents travelling abroad—the travelling public.

Since Stabiliser was set up in 1965 there have been several occasions of travel companies going bankrupt and some quite extensive horror stories of people being stranded. If it had not been for Stabiliser and the bonding arrangements of ABTA, I think we would all agree that the situation would have been much worse than it was.

Our second principle is that the members of the BCC, the bus and coach operators, should receive fair treatment. It is in trying to draw a balance between these two general principles that the difficult area arises. Essentially, the matter arises out of a decision of the Restrictive Practices Court in 1982 which was called upon by the Director General of Fair Trading to judge on Stabiliser when, as your Lordships will remember, in 1976 the restrictive practices legislation was extended to apply to services as well as to manufactured goods.

The question to which the court addressed itself, at the request of the director general, was whether Stabiliser was in the public interest. After, I think, a six-week hearing and a great deal of argument put forward in all directions, as the noble Lord, Lord Teviot, said, the court decided in favour—if I may put it like that—of Stabiliser. However, there were certain conditions: that there should be codes of conduct, the right of appeal, and so on. The paramount interest of the Restrictive Practices Court in arriving at that decision was consideration of the public interest.

The noble Lord is certainly right in saying that Article 63 of the ABTA constitution built in dispensation to one section of the BCC members: those who were already in Stabiliser. Under that article they had—and I shall use the term in spite of what the noble Lord said—automatic dispensation from the general ruling of ABTA, the general ruling being that if you want to belong to the Stabiliser scheme and you want to sell through ABTA agents, you must be an ABTA-registered tour operator and bonded through ABTA. Therefore, dispensation which partially existed under Article 63 for some of the members—I think they are called section members—of the BCC, is now proposed to be removed.

The resolution that is being brought forward at the ABTA general meeting is Resolution 9, which is designed to rescind Article 63 and to put all the people—the operators who hitherto had enjoyed dispensation under that article—into the same category as anyone else who wishes to apply for dispensation from the ABTA rules as normally applied. I note that dispensation is still available under Article 13(7), with a right of appeal under Article 13(8). That is to say, anybody can apply for dispensation, and all ABTA appears to be doing is saying to these people who had a slightly privileged existence under Article 63, "I am very sorry, you can no longer enjoy this privilege if this resolution is passed. You must apply in the normal way for dispensation; there is a time limit imposed during which that application can be made".

I have a certain lingering sympathy for ABTA in some of these matters because, if anything goes wrong, it is always ABTA that gets blamed. When there is a failure of any sort concerning tour operators—perhaps people are stranded on whatever South Sea island it might be, however desirable that might be—it is always the chief executive of ABTA who is called upon to answer questions on television. The serious point which ABTA makes about this is that it is very difficult to accept the responsibility in the public eye for supervising and being seen to supervise tour operators when there is no power to do so. It is a general point which I think covers a wide range of organisations of this nature. It may be the fault of the tour operator; it may be the fault of ABTA; it may be the fault of the people who provided the bond in the first place. Nevertheless, in the public eye I believe that ABTA is seen to be the major supervisor of tour operators in general.

Lord Teviot

My Lords, I am most grateful to the noble Lord for giving way. I hesitate to intervene, but the noble Lord mentioned that he has sympathy with ABTA in this area because it thinks it has to carry the can. I do not know whether the noble Lord used those words but I believe that that was his meaning. I would enirely agree with what the noble Lord says, but it should be pointed out that one would have sympathy for ABTA, especially if there had been cases. However, as the BCC and the PSA have had clean bills of health for 20 years, I can see no reason, and I would ask the noble Lord to take that point into account.

Lord Williams of Elvel

My Lords, I am very grateful to the noble Lord, Lord Teviot, for his intervention. Indeed that is the case. I was talking as a matter of general principle. I think I said that if generally, across the board, there were any such failure—and I am not claiming that there was—ABTA would be the people who would be regarded, certainly by the media, as being the governing association, and, I think quite properly, the chief executive of ABTA would be required to answer the questions of newspaper and television reporters.

The question which arises, which your Lordships have to determine and which the noble Lord, Lord Brabazon, has to determine when he answers the Question, is whether this is a proper matter that can be debated in your Lordships' House. As there has been a judgment of the Restrictive Practices Court, I have no intention of commenting on that judgment and of stating whether I think it was a good or a bad judgment. I understand that the director general was rather disappointed in the judgment, but that is his problem and not mine. It would be quite improper for me to comment on that.

It is perfectly true that the passing of Resolution 9 and the recision of Article 63 could create a change of circumstances under which the Director General of Fair Trading might feel it appropriate to re-open the issue in front of the Restrictive Practices Court. That no doubt is a question which is being addressed by the director general and he will come to his own conclusions, as is his statutory obligation. He will or will not ask the Restrictive Practices Court to look at the matter again. It would be very interesting if the Minister has any views, opinions or knowledge about the attitude of the director general in this particular instance.

As the noble Lord, Lord Teviot, said, it is also true that there may be a contravention of Article 85 of the Treaty of Rome, which the noble Lord quoted in full. It may be that the Fourth Directorate General in the Commission, which looks at competition matters, will look at this and say that there is a prima facie violation of this article, that they wish to take the matter further and will take it through the appropriate procedures. It is not for me to say whether that is right or wrong; that is their business. Again, I would be very interested if in his reply the noble Lord, Lord Brabazon, has a view or information as to whether the European Commission and the Fourth Directorate General will look rather closely at this problem. That would be interesting.

The point that I really wish to make is that in our view the legislation for dealing with this type of problem is already in place. There is a Fair Trading Act—the Fair Trading Act 1973. There is an Office of Fair Trading. There is a lot of restrictive practices legislation and there is a Restrictive Practices Court. We would believe that the proper place for these matters to be fought out would be in those places and not, as one might believe, between government and Opposition in your Lordships' House.

If the legislation is to be changed, that is certainly something which we would want to look at and discuss and have a normal debate on. But while the legislation is there, whatever we may think about the legislation, it is, in my view, proper to leave the matter to those who are competent to operate that legislation in the way they have been doing up until now. I therefore would simply say to the noble Lord, Lord Brabazon of Tara, who is replying to the Question, that so far as we are concerned we are, as it were, neutral on this issue. We believe that the right place is in the Restrictive Practices Court if that is the director general's intention, or in the European Court if that is the intention of the Commission, but we would not wish to take sides because we think the legislation is there and it would be improper for us to do so.

Lord Carmichael of Kelvingrove

My Lords, I should like to speak briefly on this Question. I am most grateful to the noble Lord, Lord Teviot, for his initial explanation, and also to my noble friend Lord Williams of Elvel for his further clarification of what is quite clearly an unclear matter and a quite difficult subject. My concern is largely with whether this will affect the ordinary holidaymakers who want to go abroad by coach, where most of the problems seem to arise in terms of the failure of companies. I understand from some information I have been given that, for instance, this year there will be over 1 million people booked through the bonded holiday arrangements of the Coach Council, and they will book through ABTA travel agents. Will this cease now, or will the Bus and Coach Council require to pay some fee to take part in the ABTA arrangements for insurance purposes should anything go wrong with the holiday?

The reason I raise this matter is that from the little knowledge I have been able to glean—although I have been approached by a number of people about the subject—it seems that while the courts felt unable to rule that this scheme was against the public interest—that was the stabiliser scheme, and even more so the moving of Resolution 9 when the ABTA annual general meeting comes—they did make clear that it was important that ABTA's decisions should be based on the public interest and not on its members' own particular interests. I just wonder whether ABTA is in some way trying to build a fence around itself and give itself something that would ultimately be against the public interest.

I agree with my noble friend Lord Williams of Elvel that ultimately the machinery is there for decisions being taken by the Restrictive Practices Court or the European Court in the competition terms if they so wish. But if there is uneasiness about the working of some new regulation about to be brought in—which obviously has a certain amount of contention in it because the original decision of the Stabiliser caused a bit of confusion, and Resolution 9 seems to me as though it is going to tighten that up and make it even more of a closed shop (though I may be wrong there)—while the machinery may be there, it does not do any harm to raise this at an early stage in your Lordships' House so that, if nothing else, there can be a rethinking of the spirit of the decision as well as the actual words of the decision.

7.4 p.m.

Lord Brabazon of Tara

My Lords, as my noble friend Lord Teviot reminded us, the last time I answered an Unstarred Question of his was some 18 months ago on the Buses White Paper. Judging from my noble friend's activities during the passage of what is now the Transport Act, I regretfully have to come to the conclusion that what I said that evening may not have been to my noble friend's complete satisfaction. I hope I can do a bit better this evening.

My noble friend has by his Question brought to the attention of your Lordships' House tonight a matter which is worthy of close consideration. It is a matter of concern to those who provide holidays, to retailers who sell those holidays on their behalf and, most importantly, to the 9 million people in this country who, each year, commit considerable sums of money to the travel industry in good faith and in the reasonable expectation that the travel, accommodation and other arrangements for which they have paid will be provided in due time.

It is, I am sure, common ground that the alteration or cancellation of holiday arrangements has been an all too frequent source of frustration and disappointment to holidaymakers. The risk that a holiday company or a travel agent will collapse leaving the holidaymaker with no compensation and perhaps stranded abroad has been an even greater source of worry which consumers in a modern society should not have to bear. Let me say at the outset therefore that the Government greatly welcome the efforts made by the travel industry in recent years to provide holidaymakers with the greater certainty and security which they deserve.

The Government believe that overseas holidays are a good example of where voluntary action by the industry can, and should, achieve a high level of consumer protection. The codes of conduct developed by the Association of British Travel Agents, ABTA, in consultation with the Office of Fair Trading have done a great deal to reassure holidaymakers, as noble Lords have already mentioned.

This is not the time to recall all that the industry has done in recent years to improve "its service to consumers; but it is perhaps relevant to tonight's debate to observe in particular that the bonding arrangements to which both tour operators and retail outlets within ABTA's membership contribute now offer consumers a comprehensive and substantial measure of protection against the failure of holiday companies and travel agents. I would not wish to overlook in my remarks the parallel efforts being made in this direction by other bodies, such as the Bus and Coach Council, the BCC and the Passenger Shipping Association.

Naturally, there will always be room for improvement. I understand that there is still a substantial volume of consumer complaint to the Office of Fair Trading about package holidays. This possibly reflects the very considerable amount of foreign travel that now takes place; and consumers have quite understandably grown to expect a progressively higher standard of service from the British travel industry. There is clearly no scope for complacency. In this context, the Government particularly welcome the recent announcement by ABTA that it will further strengthen its code of conduct to provide safeguards and compensation for consumers who are inconvenienced by last minute changes to the travel or accommodation arrangements made for them.

However—and this brings me to the focus of my noble friends concern—the travel industry's laudable efforts at self-regulation have given rise to a degree of conflict between the equally desirable aims of open competition and consumer protection. On the one hand, it is clearly in the interests of consumers that there should be a wide choice of holidays and that the market should be open to new tour operators and travel agents, bringing with them fresh ideas and innovative methods.

On the other hand, the operation in the market of holiday companies or travel agents not subject to disciplines capable of giving holidaymakers adequate protection against shoddy service or financial failure is not of benefit to consumers and is bound to undermine confidence in the travel industry generally. As my noble friend reminded us, ABTA's solution to this problem was to introduce the arrangement known as Stabiliser, under which tour operators within ABTA are prohibited from selling holidays through retail agents who are not also members of ABTA, and ABTA travel agents may not sell foreign holidays which are not promoted or organised by tour-operator members of the association. This ensures that in any dealings with ABTA companies consumers can be sure of services governed by ABTA's codes of conduct. But it clearly limits the opportunities for non-ABTA holiday companies and can be fairly described as a closed shop.

The question of where the balance of public interest lies in such matters is a complex one, and under the Restrictive Trade Practices Act 1976 it is a question which must be determined by the Restrictive Practices Court. The rules and codes of conduct of ABTA were referred to the court by the Director General of Fair Trading in 1982. The court was by no means satisfied that every restriction contained in those rules and codes was in the public interest, and a number of provisions were amended or abandoned, as the noble Lord, Lord Williams, reminded us; but the court was satisfied that the Stabiliser arrangement itself was not contrary to the public interest. It took the view that without such an arrangement the commitment of ABTA members to the association's bonding arrangements and their adherence to other disciplines laid down by ABTA would decline to the obvious detriment of consumers.

Nevertheless, the powerful market position in which Stabiliser places ABTA and its members has been fully recognised. In its judgment, the court placed emphasis on the existence, under ABTA's rules, of a procedure which would permit tour operators or travel agents not in membership of ABTA but operating to similar standards, to apply for a dispensation which would enable them to market overseas holidays through or on behalf of ABTA members. The court further emphasised that the paramount criterion for the consideration of such applications should be the consumer interest and not simply the strengthening of ABTA's supervisory role. The court was quite specific about this; it stressed that the ABTA council should not be acting as a recruiting sergeant for that would be an improper use of the discretion. It was with this in mind that the Director General of Fair Trading urged ABTA to extend its fully independent appeals procedure to cover requests for dispensation, and this, too, was an important factor in the court's decision.

The Government believe that the judgment of the Restrictive Practices Court provides a basis on which a degree of competition consistent with the need to protect consumers can be maintained in the market for overseas holidays. The responsibility for ensuring that the judgment is being implemented correctly rests with the Director General of Fair Trading. If the circumstances on which the court has based its judgment change in a material way it is open to the director general to seek leave to apply to the court for a variation of its decision.

My noble friend Lord Teviot has raised a particular problem concerning the Bus and Coach Council, and has fully explained the background. I believe that the formal relationship between the BCC and ABTA is a matter which the two organisations must determine for themselves. What is important is that one way or another the BCC and those of its members who are not also ABTA members should have a timely opportunity to make a case for their continued dispensation from Stabiliser and that such a case will be considered strictly according to the consumer interest criteria emphasised by the court. If the BCC's application is unsuccessful it may of course invoke the independent appeals procedure laid down in ABTA's rules. I believe that these procedures should be sufficient to safeguard the consumer interest in this matter. However, if, having invoked all the safeguard procedures available to it, the BCC considers that Stabiliser is nevertheless having an effect not envisaged by the court when judgment was made, I am sure that the Director General of Fair Trading will take those views into account in deciding whether there has been a material change of circumstances such as to require the court's reconsideration.

My noble friend and the noble Lord, Lord Williams, both mentioned the European Commission and asked whether that would be looking at this question. I am aware from press reports that a complaint has been made to the competition directorate of the Commission, and I am sure that it will consider the matter carefully. EC competition rules are likely to apply to Stabiliser in so far as it may affect trade between member states. It is for ABTA and its members to ensure that they are not in breach of those rules, but the competition rules clearly recognise that certain agreements which affect competition cannot at the same time be of benefit to consumers. I am sure that the EC Commission, like the Restrictive Practices Court, will take that into account in considering Stabiliser.

The noble Lord, Lord Carmichael, asked me whether holidays booked this year would be affected in any way. The arrangements governing the sales of holidays during the coming season will not be affected by the current dispute between BCC and ABTA. The bonding arrangements will protect the holiday maker.

In conclusion, I should like to thank my noble friend Lord Teviot for bringing this matter to the attention of your Lordships' House, and the noble Lords, Lord Williams and Lord Carmichael, for taking part. This debate has served to underline that the balance between consumer protection and free competition in the market for overseas holidays is a delicate one, and I am confident that, in seeking to ensure that the judgment of the Restrictive Practices Court on this matter is upheld, the Director General of Fair Trading will take careful note of your Lordships' concern.

House adjourned at sixteen minutes past seven o'clock.