You're not alone in the belief that you your delay merits compensation but the sad fact is the airline is correct in saying compensation applies only when the flight is cancelled. Also applies if passengers are 'bumped' when the flight's overbooked.
However, delayed flights into or out of an airport within the EEC (Manchester counts when flying back from Tenerife) require the airline to provide meals and refreshments in keeping with the length of the delay. EEC 261/2004 makes no mention of vouchers - the airline should provide meals and refreshments - simple.
Where the delay extends into the day following they should also provide accommodation and travel between such accommodation and airport.
Failure to follow these guidlines could result in a fine (£5000 I believe, per event). Your best bet is to write to the airline and explain how they failed to meet these requirments. Quote EC261/2004 article 9 (1) (a) regarding meals and refreshments, 9 (1) (b) regarding accommodation and (c) for transport to/from.
They should also have provided you with 2 free phone calls (emails, texts) quote article 9 (2) and they should also have provided you with a copy of the EC261/2004 articles. The final option is to permit you to cancel the flight wherein they should within 7 days refund you the flight cost (not hotel, car etc costs). You could then arrange your own flight and pay privately. Probably not viable but they should still have offered you the option. You will need to assign a reasonable value to the failure to provide these facilities. For example, you may have paid for a meal and drinks yourself; this should be claimed.
Call Ros Fernihough on 01922 621114 for true legal advice - she's mentioned many times in Holiday Truths forum.
Hope this helps.

I believe we'll see more of this type of delay whereby an event that would have previously resulted in a cancellation will now be simply delayed, but for a long time, whilst alternate aircraft are shuffled about. The knock-on effect to other flights that would not normally be affected will in turn cost the airline a very minimal amount (meals, refreshments etc.) but these are insignificant compared to the cost of a full cancellation.

I believe EC261/2004 needs to be tightened-up to avoid this loophole otherwise more and more passengers will be delayed.

Worth noting the 'refund' bit is only the airfare part of your holiday, not the whole holiday cost. the cost of these airfares is priced according to distance, this is standard for every airline and pricing done by the EU legislation. The distance to the Canaries would've entitled you to £43 each, you would have had to physically offloaded yourself off the flight. Not much money in the scheme of things, but the airfare is a tiny percentage of you hols. You then have the hassle of getting new flights, and you can bet they won't be less than £43 each!!!!

Hi MikeBravo,
I would expect that if a passenger cancels due to delay the refund for the airfare would relate to the value quoted on any invoice from the travel agent/tour operator. My recent Florida fly-drive and accommodation 'package' clearly showed the flight cost per pax. Are packages to the Canaries and other destinations not showing the airfare element?

MikeC, for regular package hols- your invoice would show the total amount- no breakdown for accommodation anf flights unless you have booked them seperately. The only breakdown you would have on a package hol, is some tour operators invoices will detail the hol cost, then meals, fuel supp, pre-booked seats etc....