The ATOL Protection Contribution is to increase from £1 to £2.50 from October 1 2009.
In a written statement, parliamentary secretary of state for transport Paul Clark said the increase would minimise the burden on travel companies and consumers.
He said: “I am aware of the extra burden this will place on travel companies and consumers at difficult times, which is why I have agreed to an increase at the bottom of the range consulted on by the Civil Aviation Authority (CAA).
“I believe this strikes the right balance between ensuring the financial stability of the Air Travel Trust Fund (ATTF) while keeping additional burdens on travel companies and consumers as low as practicable.”
The charge is a good deal for customers, Clark added, as it is cheaper than stand-alone airline failure insurance and less than 0.5% of the average holiday price. APC is likely to be reviewed again by spring 2012, he said.
The government also plans to consult on reforms to the ATOL system in the autumn to make it fairer and more transparent for consumers.
The CAA finished its consultation on the scheme in June. The consultation looked at the options of raising the charge to £2.50 or £3.50 before recommending an increase to £2.50.
ABTA had lobbied for the scheme to be widened rather than increase APC. Commenting on the move, ABTA chief executive Mark Tanzer said: “Although ABTA members were disappointed that the APC should rise so soon after its introduction at £1, we accept that market conditions and recent failures have meant that measures are required to stabilise the ATTF.
“We are glad that the proposed increase is at the lower end of the options considered, as APC places a direct burden on ATOL holders in what is a difficult trading environment. We look forward to the APC returning to the level of £1 as soon as the finances of the ATTF permit.”
The ATTF which underwrites consumer financial protection on package holidays would have gone bankrupt without an increase from the current £1. The CAA blames the recession and the collapse of XL Leisure for the shortfall.