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Investigation into government’s response to the collapse of Thomas Cook

The estimated total bill to taxpayers for responding to the collapse of Thomas Cook is at least £156 million, with some costs not yet known, a new National Audit Office (NAO) report has found.

Thomas Cook collapsed on 23 September 2019 and all flight and holiday bookings were cancelled, leaving an estimated 150,000 customers potentially stranded in 18 countries. 9,000 UK staff employed by the company lost their jobs. At least 14 organisations, including at least nine government departments, responded to support Thomas Cook passengers and staff.

The Department for Transport (DfT) instructed the Civil Aviation Authority (CAA)1 to repatriate all 150,000 Thomas Cook passengers and is reimbursing the CAA for the cost of repatriating those passengers not covered by the ATOL scheme.2 At that time an estimated 40% of Thomas Cook passengers were thought not to have ATOL protection, although in February 2020 this proportion was revised upwards to 55%, increasing the costs to government by £22 million.

The Department for Transport’s decision to intervene was based on its assessment that Thomas Cook customers were at risk of significant disruption and cost in returning to the UK. Between 23 September and 7 October 2019, 746 repatriation flights from 54 airports were completed, which the Department for Transport and the CAA estimate brought 94% of passengers back to the UK on their original scheduled date. The remaining customers may have chosen not to return to the UK at that time or organised their own travel back. As well as repatriating Thomas Cook passengers, the government agreed to repatriate some Thomas Cook staff, if there were spare seats on flights.

The Department has agreed to pay an estimated £83 million towards the total cost of repatriation. This includes the cost of keeping some parts of Thomas Cook running to assist with the repatriation. But the final cost to government of the repatriation may not be known for some time as, for example, the CAA will continue to receive for some months invoices for leasing planes, ground handling charges, and other services, with a proportion of these costs falling to government.

In addition to the costs associated with repatriating passengers, other parts of government are expected to face costs of at least £73 million as a consequence of the insolvency of Thomas Cook. These costs include at least £58 million of redundancy and related payments to Thomas Cook’s former employees and at least £15 million for the costs of liquidating Thomas Cook, although the total costs of liquidation will not be known until the Official Receiver finishes his work.

In November 2019, the government announced that it will also set up a scheme to make ex-gratia payments to Thomas Cook personal injury claimants facing the most serious hardship as a result of injuries or illness while on their holiday. The estimated cost of this is still uncertain. At the time of its collapse, Thomas Cook was managing many personal injury claims from customers. Thomas Cook had not insured itself for these claims and it is unlikely that the sale of Thomas Cook assets will raise enough to cover the cost of these claims.3

The government could face further costs if another travel company collapses in the near future. The CAA estimates the total exposure of the Thomas Cook repatriation and refunds to the fund that covers ATOL-protected passengers (the ATTF2) will be £481 million. The scale of the collapse of Thomas Cook represents a substantially larger draw on the ATTF’s resources than any previous case. The CAA told us that it is likely that after all costs arising from the collapse of Thomas Cook have been met, there will be relatively limited resources left in the ATTF. Should another ATOL-licensed company collapse and costs cannot be met from the fund, the government has agreed to stand behind the ATTF.

In December 2019 the government announced plans for new legislation to address airline insolvency, which amongst other things, aims to introduce a special administration regime for airlines to support passengers’ needs post-insolvency and to keep their aircraft fleet flying long enough for passengers to be repatriated. The legislation also aims to improve protection for consumers and protect the interests of the taxpayer.

Notes for Editors

  1. The CAA is the UK’s aviation regulator.
  2. The Air Travel Organiser’s Licence (ATOL) scheme, set up in 1973, protects UK consumers when they buy a holiday including a flight. The ATOL scheme protects over 20 million holidaymakers each year and ensures consumers receive a refund or can return to the UK if their holiday company collapses. Travel companies pay £2.50 a passenger into the Air Travel Trust Fund (ATTF), which is used to finance assistance to ATOL-protected customers. The Civil Aviation Authority (CAA) administers the ATOL scheme and the ATTF. If an ATOL holder fails, the ATOL scheme assists protected customers, but not those without ATOL protection.
  3. The Department for Business, Energy, & Industrial Strategy says that costs of the scheme are uncertain and will depend on the criteria of the scheme, which will be delivered subject to primary legislation to be passed by Parliament. However, in 2016, Thomas Cook had recorded exposure of £83 million to illness claims and made provisions of £19.9 million for such claims. In 2017 and 2018, the company made provisions for illness claims of £24.4 million and £18 million respectively, although did not record its exposure to such claims.
  4. Press notices and reports are available from the date of publication on the NAO website. Hard copies can be obtained by using the relevant links on our website.
  5. The National Audit Office (NAO) helps Parliament hold government to account for the way it spends public money. It is independent of government and the civil service. The Comptroller and Auditor General (C&AG), Gareth Davies, is an Officer of the House of Commons and leads the NAO. The C&AG certifies the accounts of all government departments and many other public sector bodies. He has statutory authority to examine and report to Parliament on whether government is delivering value for money on behalf of the public, concluding on whether resources have been used efficiently, effectively and with economy. The NAO identifies ways that government can make better use of public money to improve people's lives. It measures this impact annually. In 2018 the NAO's work led to a positive financial impact through reduced costs, improved service delivery, or other benefits to citizens, of £539 million.

Contact

NAO Press Office
+44 (0)20 7798 7400 or email pressoffice@nao.org.uk

 

Channel website: https://www.nao.org.uk/

Original article link: https://www.nao.org.uk/press-release/investigation-into-governments-response-to-the-collapse-of-thomas-cook/

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