As the travel industry implodes because of the coronavirus crisis, rules on refunds for cancelled holidays are to be suspended.
At present package holidaymakers whose trips are cancelled are entitled to all their money back within two weeks of the trip being called off.
But the Package Travel Regulations 2018 were never designed for a total shutdown of international tourism.
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An estimated two million overseas package holidays were due to depart in the first 30 days of the government’s warning against non-essential travel, running from 17 March to 16 April 2020. They have all been cancelled – representing around £1bn that the law insists should be paid back to consumers.
Many hard-pressed holidaymakers, facing uncertainty about their own incomes, are understandably anxious to get the cash that is due to them.
But The Independent understands that the transport secretary, Grant Shapps, will agree to protect Britain’s beleaguered travel industry.
For travel firms earning no revenue, having to hand back payments for cancelled holidays immediately could force them out of business.
On Friday, the European Commission updated its guidance about refunds for cancelled holidays – encouraging customers to accept vouchers or credit notes, as long as the customer is allowed to ask for their money back eventually.
But that guarantee must be backed by insolvency protection, turning the vouchers into IOUs that are backed by the state.
Mr Shapps is expected to agree to companies issuing credit notes enabling the holidaymaker to book a new trip within two years. Any customer who does not redeem the voucher can then claim the sum in cash.
If the travel firm goes bust in the interim, financial protection will be provided by the government-backed Atol scheme.
The fund that provides Atol refunds is almost empty after the collapse of Thomas Cook exactly six months ago. But the Department for Transport is the financial backer of last resort.
The travel trade association, Abta, applauded the the European Commission recommendation.
“This new guidance will give customers the essential assurance that they will either get a holiday or their money back, as well as providing a much needed helping hand to travel companies through these difficult and unprecedented times.”
While the government has stepped in to support airlines, it has not yet announced any specific measures to help the wider travel industry – including agents and tour operators.
Mark Tanzer, chief executive of Abta, said: “We’re running out of time, people are losing their jobs right now and some companies will be facing bankruptcy if nothing is done.
“If that happens on a significant scale then the financial protection schemes for holidays will be placed under immense pressure and there will be considerable delays in customers recovering their money.
“The government has said they will do ‘whatever it takes’ but we need much quicker and more decisive action.”
The move will anger many travellers who entered into contracts that guaranteed a full refund if the operator called off the holiday. They will instead become unwilling creditors of the company.
Some holiday companies are already claiming, incorrectly, that the rules have been changed. The Independent has seen dozens of examples of travel firms rejecting requests for refunds.
Until the rules change, a strict entitlement to a cash refund remains.
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