The Atol scheme will continue to be the way the UK provides financial protection for holidays under new EU legislation and it could see UK firms offer it to customers from the continent.

On Friday the Department for Transport issued a long-awaited consultation on Atol changes after the EU agreed a new Package Travel Directive that was approved last year will become UK law in 2018.

Under new PTD ‘place of establishment’ rules, this could see UK firms promoting the virtues of Atol protection across Europe as they compete for customers cross-border.

The Civil Aviation Authority concedes this potentially changes the risk profile of the Atol scheme, which is currently backed by a £2.50 per passenger Atol protection Contribution and the Air Travel Trust Fund which is over £120 million in the black.

But it says the CAA can “exercise discretion” and “assess each situation on a case by case basis”, and the rules do not oblige it to provide “organised repatriation” as it has with large UK failures but recompense customers instead.

The new place of establishment rule has been controversial as it would appear to endorse the sort of decision by Lowcost Holidays to relocate to a lighter and less comprehensive regulatory regime to avoid costs.

However, the consultation document raises the prospect of firms actively choosing to base themselves in the UK to compete based on what could be promoted as a more robust protection regime.

Steve Mason, senior partner at Travlaw, said no doubt other EU countries will claim they have strong protection regimes, but it was notable that the UK government is indicating it wants to compete.

“You would want to know the relative cost. Is Atol going to cost the same, more, or less than say the German or Spanish schemes?

“To be fair a lot of companies would not want to relocate their place of establishment outside of the UK unless they really have to because it would mean all management moving to a distant location.

“The second question is what happens after Brexit. We are all getting massively conflicting messages. This would indicate we are moving towards a very soft Brexit.

“I would like to think Britain will promote itself as being open for business. We have the most comprehensive regulatory scheme but it’s by no means the cheapest.”

The consultation document acknowledges the result of the June 23 Brexit referendum but says the UK government is bound by EU legislation until exit negotiations are completed.

The UK government is keen to move holiday sales protection onto a more sustainable, commercial basis and says it will look to market solutions in the form of bonding or insurance where appropriate.

However, the consultation indicates it is considered too late to go down this route for Atol ahead of 2018 and to consider an entirely new regime not funded by a levy.

“We believe that the Atol scheme will continue to have a central role to play as a method of complying with PTD 2015,” the consultation document says.

Moving to a non-Atol market-based regime remains a possibility for a new travel type introduced by the 2015 Package Travel directive, the Linked Travel Arrangement, designed to catch website click-throughs.

The DfT wants trade views on whether these should be afforded the appearance of full protection under the Atol badge when, in fact, the level of protection will be lower than under a full Atol.

The trade has been asked to give its views as to whether a different market-based approach would be better and less confusing for consumers.

The DfT also suggests it would be more consistent if what are known today as Flight-Plus sales, following 2012 changes to Atol, should also be dealt with in the same way as LTAs.

The consultation says including everything including LTAs under Atol might be considered a “consistent approach” for the protection of all holidays that include a flight.

“However it would give businesses no choice of how to comply, and it may lead to consumer confusion as to the nature of the protection provided by Atol,” it adds.

Mason said: “The government does not have a proposal on this as such but they are looking for people’s views in the consultation.

“But they point out it may be preferable to have a private market solution for Linked Travel Arrangements because the level of protection is much weaker than for packages and it might be confusing to give them an Atol badge.

“Quite rightly they make the point that if they take that line with LTAs, should not flight-Plus go down the same path.”

The consultation also seeks views on longer-term Atol changes including the possibility of moving away from a flat APC levy to a variable one based on risk.

This could see firms that move to use trust accounts or are assessed as less risky based on value if sales or turnover be given an APC discount.

It is also seeking views on proposals to separate the repatriation and refunding aspects of Atol moving the latter into a more market-based approach.

Another suggestion to lessen the risk to Atol is to limit the how far in advance firms can take final balances from customers, with four weeks before travel suggested as an example.

Finally the government also wants to address “overlapping protections” where consumers can be covered by Atol as well as the Consumer Credit Act 1974 that covers card purchase over £100.

The consultation acknowledges this can lead to increased costs and consumer confusion and lead to card companies demanding additional security that can increase the probability of a company in financial difficulty failing.

To see the full consultation document and to respond go to the Department for Transport website