If you've been wondering who foots the bill for the absurdly cheap flights to new European destinations, stop now. It's you, the taxpayer. But the subsidies are coming under scrutiny

Passengers who have taken ultra-cheap flights with Ryanair or easyJet and gleefully wondered, "Who on earth is footing the bill for this?" now have the inkling of an answer. They are. Through taxes. The no-frills airlines have been a spectacular success story, but the suspicion is growing that it is built on taxpayer-funded subsidy as much as on the entrepreneurial flair of men such as Michael O'Leary (Ryanair) and Stelios Haji-Ioannou (easyJet).

Sure, the no-frills carriers have kept costs down by axing free drinks, achieving quick plane turnaround times and selling seats over the internet. But the real secret of their success lies in getting into the ribs of the European Union.

The obscure airports favoured by the no-frills brigade qualify for a string of regional aid and tourism development subsidies. Unspecified lumps of EU money are then passed on to the airlines which, in return, deliver planeloads of high-spending Brits who would otherwise never visit Carcassonne, Treviso or Newquay.

Now this looks threatened. O'Leary has shut down his service to Strasburg after it emerged in a legal challenge from Air France that Ryanair was receiving annual payments of 1.4m euros from the Strasburg Chamber of Commerce.

Elsewhere, the European Commission has brought a case against the Walloon region of Belgium suggesting its subsidy of Brussels-Charleroi airport is an illegal use of public money. Examples of all kinds of baksheesh are likely to come out - from the 160,000 euros Ryanair gets for each new service it launches, to the 150,000 euros a year it receives for putting up its pilots and cabin crew in local hotels.

If the Charleroi case goes against O'Leary, other no-frills routes will come under the spotlight. Some City analysts are advising shareholders to bale out.

The other beneficiaries of the no-frills flights boom are British second-home owners, who have seen the value of their properties soar as previously remote regions become cheaply accessible.

It's hard to defend such subsidies - however well-intentioned - if a main effect is to feed through into windfalls for well-off second-home owners and whack up housing costs for the locals.

Sir Howard Davies has been boasting that he is about to bring "a dirty dozen" insider dealers and other market abusers to book. The outgoing chairman and chief executive of the Financial Services Authority - who is leaving for the calm of the London School of Economics - has been busy briefing Sunday newspapers and is clearly anxious that his reign as the chief City regulator should be viewed positively: "There are quite a lot of cases coming to fruition," he told the Sunday Times. "The pipeline is going to disgorge soon and there will be some fun for my successor."

The fact remains that under Davies's six-year watch, insider dealers have not had to worry too much about getting caught. The conviction rate has been virtually non-existent. One exception is Tim Blackstone, the PR adviser and brother to Baroness Blackstone, who was fined £1,000 and ordered to repay his profits. However, that prosecution was brought by the Department of Trade and Industry. The FSA has so far achieved nothing concrete, although it argues that it is only in the past 20 months that it has had the necessary powers to tackle the problem. While Davies claims the brownie points, his successors, the new FSA chairman, Callum McCarthy, and the chief executive, John Tiner, are left with the task of delivering actual scalps - convictions, fines and jail sentences. They will struggle. Insider dealing is difficult to pin down.

Prosecutors not only have to prove that the accused dealt in the shares but that they knew the inside information. Having access to it is not enough.

In the Jeffrey Archer case almost ten years ago, there was no question that Archer had bought Anglia Television shares. There was no dispute that his wife, Mary, who was an Anglia director at the time, had known a bid was looming. But there was no evidence that Archer had been privy to the information.

The FSA has one ace up its sleeve. It can now bring civil cases, judged by its own regulatory decisions committee. It can levy unlimited fines and ban people from the City. Best of all, it can convict on a balance of probabilities, a much less onerous burden of proof than in a criminal case. Investors are sick of seeing share prices race up ahead of deals as insiders take risk-free profits at other people's expense. They are fed up with crafty directors secretly using spread-betting to bypass disclosure rules.

The City establishment recognises that its reputation is being tarnished and would like to see a crackdown. Expectations are rising fast that the FSA will finally nail some culprits.

Patrick Hosking is deputy City editor of the London Evening Standard

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