(13 years, 10 months ago)
Commons ChamberRead Hansard Text Read Debate Ministerial Extracts
Ms Diane Abbott (Hackney North and Stoke Newington) (Lab)
I am very glad indeed to have the opportunity to raise in the House of Commons the vital issue of the effect of air passenger duty changes on the Caribbean.
I want to begin by outlining what is intrinsically wrong with the changes—namely, the way in which the duty is calculated. No one in the Chamber is against environmental measures designed to bear down on excessive airline travel, and no one wants the British Treasury to lose money, but the way in which the duties have been calculated, and the way in which the zones have been worked out, are indefensible. The zones are calculated on the basis of where a capital city is. For instance, because the capital of the United States is Washington DC, one would pay less duty under this system to fly to Hawaii or Los Angeles than to fly to the Caribbean. How can that be right? How can it be cheaper to fly those vast distances than to fly to the Caribbean? These are issues of fairness, equity and transparency.
The flight tax to the Caribbean increased by 25% on 1 November 2009. In November 2010, the tax on flights from the UK to the Caribbean increased by a further 50% in all classes of travel. At present, passengers travelling to the Caribbean pay £75 per person in economy and £150 per person in all other classes. There is a substantial amount of traffic between Britain and the Caribbean, particularly at holiday times. As a member of the Jamaican diaspora, I sometimes find myself on those planes packed full of people who are happy to go home and see their relatives. Many of them have saved for two years or more for their flights. I put it to the Minister that £75 might not seem much to the Treasury, but when people are paying for a family of four, five or six, it amounts to a lot of money. People have often saved up for their flights for years, and that sum is a big consideration.
I am appealing not only to the Minister’s humanitarian instincts, however. I know from talking to Ministers of whatever party that I would do that in vain. I also want to talk about the effects of air passenger duty on British business and on the economies of the Caribbean.
Richard Fuller (Bedford) (Con)
The hon. Lady is making some excellent points. Before she moves on to business, I would like to encourage her to talk more about the matter of equity, although she says that she would do so in vain. Many people from my constituency travel to destinations in the Caribbean, and many of them came to this country in the 1950s, ’60s or ’70s. They have often spent their careers working in the public sector on very low incomes, and many are now pensioners. For them, £75 is a very significant cost. They have siblings, perhaps aunties, and certainly nephews and nieces back on the Caribbean islands—not only Jamaica but many others. Does the hon. Lady agree, notwithstanding the excellent points that she has made about geography and is about to make about business, that there is a strong equity case for the Minister to review the question of air passenger duty?
Ms Abbott
The hon. Gentleman has made his point very well indeed. Many of those people, particularly the older ones, have contributed to this country. Some of the generation who came to this country after the war helped to rebuild its public sector, and they have worked all their lives. As I have said, the sums of money involved might seem relatively minor to a Treasury official, but they represent a huge imposition on those people who love this country and who are almost invariably British citizens but who also have a great love for the country of their birth. One thing that makes this seem all the more unfair to those people is that air passenger duty is not charged on private aircraft. If this were really an environmental measure, one would expect it to be charged on private aircraft. I will come back to that point later.
It is my contention that air passenger duty is having a negative effect on British business. I have evidence that British business travellers are flying to the continent, then flying to the Caribbean from there, because it is cheaper to do so. Business travellers contribute £70 million to the British economy—money that is slowly being lost due to airport passenger duty charges. Aviation taxation is putting the UK at a competitive disadvantage in comparison with our European neighbours. This duty will incentivise the strengthening of alternative hubs to the UK both in and outside Europe. In the end, it could well reduce the number and connection of destinations served by UK airports.
Let me move on to tourism. I have been in the House quite a few years and I have lived to see Caribbean countries urged to restructure their economies and to move away from old-fashioned economies, such as those based on bananas and sugar, into financial services, which ended badly. Then they were encouraged to restructure the economy and diversify into tourism. Thus the Caribbean tourism industry now employs, directly and indirectly, more than 1.9 million people—11% of the region’s work force. In important tourist destinations such as Jamaica and Barbados, as much as 25% of the work force are engaged in tourism, while 60% of St Lucia’s gross domestic product derives from tourism. For the Barbados hotel industry, a significant number of holidaymakers are British, and there is no question that the tourism industry in the Caribbean has been damaged by the increases in this duty.
Arrivals from the UK to the Caribbean are now in decline, while those from other markets are increasing. The latest figure from the UK Office for National Statistics shows that visits to the Caribbean by UK residents in 2010 were 16% lower than for the same period in 2009. Visits to Barbados for the same period were 22% lower. For a tourist, as opposed to someone with family links to the region, the Florida Keys is now a cheaper destination. In respect of our air passenger duty arrangements, the whole system is wrong and it is having an effect on British citizens who happen to have links with the Caribbean.
Mr Chuka Umunna (Streatham) (Lab)
I congratulate my hon. Friend on securing this debate on an incredibly important issue. I represent one of the constituencies with the biggest Caribbean diaspora populations in the country. It covers Brixton, for example, and this is a huge issue in my community. I endorse all my hon. Friend’s comments, but would add one more. If this measure were primarily about increasing sustainability and reducing emissions, one would have thought that the proceeds would be used for environmental purposes. My understanding is, however—I am sure the Minister will correct me if I am wrong—that the sums raised from this duty go back into the general pot. Will the Minister also answer a specific point that was put to me? How can it be fair to charge a greater level of tax to fly to Jamaica—there are many Jamaican families in my constituency—than to fly the whole way to Hawaii? I would appreciate an answer on that.
Ms Abbott
I am grateful to my hon. Friend, who makes his point very well. He raised the question of the avowed environmental intent of the duty. I remember that when passenger duties were put forward under a Labour Government, Ministers said that they were there largely in order to help the environment and discourage unnecessary airline travel. This Government have stated that the rises in air passenger duty are partly intended to help achieve environmental goals.
Far be it for me to accuse any Government—whether it be my own or the present Government—of glossing over the reality, but the truth is that if APD were really about achieving environmental goals, it would be calculated differently. For instance, APD is calculated according to only one element of a given flight—the distance travelled, not according to whether the plane is full or half-empty. A whole range of other factors are relevant to environmental impacts, including the type and age of the aircraft, the time it spends in the air and how heavy it is, but the Government choose not to take those factors into account in calculating aviation tax rates.
As I have said, if this is really about the environment, why is no duty charged on private aircraft? The failure to establish a way of calculating the duty that would actually minimise the effect on the environment gives people the impression that, although Ministers may indeed believe in the environmental benefit, it may be no more than a pretext on the part of their officials.
If we want to persuade people to abandon planes for other forms of transport, it is surely logical for APD to bear more heavily on short-haul flights, to which there are genuine alternatives in the form of trains and boats. What, though, is the alternative for the retired nurse living in Hackney who wants to return to Jamaica every couple of years to see her friends and family? There is no such alternative, but we are imposing these big APD rates on her flight, or that of her family.
Having raised the issue under the last Government, I have taken the earliest possible opportunity to raise it again now.
Fiona Mactaggart (Slough) (Lab)
I joined my hon. Friend in some of her representations to the last Government. My impression was always that Ministers found the issue too difficult to deal with, and that civil servants thought it a nice tidy way of arranging things to impose air passenger duty in accordance with the locations of the capitals of the countries to which people were travelling. However, would it not be possible to devise an equally simple APD system based on, for example, time zones? Surely a determined Minister who wished the duty to reflect the real distance involved would be able to corner his or her civil servants into achieving such an end.
Ms Abbott
My hon. Friend and I went on a number of delegations to Treasury Ministers, and found them—as Ministers always are—well-meaning, kindly and ostensibly understanding of our case. However, they were simply unable to stand up to their officials. We look to this new Treasury Minister for more stoutness of heart and firmness of purpose.
Mr Umunna
I think it important for us to send the public—our constituents—the message that this is not a party-political issue. I have obtained a very good House of Commons note on the subject, and I know that the hon. Member for Chelsea and Fulham (Greg Hands), who is sitting behind the Minister, made a number of excellent points about it in the debate on the Finance Bill in, I think, 2009.
Ms Abbott
I am grateful to my hon. Friend for making that point. I agree that this is not a party-political issue, but one on which Members on both sides of the House feel strongly. I also agree with my hon. Friend the Member for Slough (Fiona Mactaggart) that Ministers should show some fixity of purpose. The present method of calculation is indefensible in terms of both equity and environmental impact, and it could have a big impact on British business by removing the incentive for business-class travellers to make long-haul flights to the Caribbean from London rather than from the continental hub. It is bad for business, it is bad for the Caribbean’s economy—of which tourism is a vital part during an international downturn—and it is bad for British citizens with business interests or family members in the region who simply want to be able to travel at an affordable price.
I have pursued this issue for some time, but I have every hope that a new set of Treasury Ministers will view the arguments afresh, and will undertake to reconsider the way in which air passenger duty is calculated. We appreciate that the Treasury’s tax take must remain the same, and, as I said at the outset, we appreciate that there is a genuine environmental case for seeking to lessen air travel over time. However, we consider the present level of air passenger duty to be unfair, indefensible, and a burden on the Caribbean which this Government should seek to lift.
The Economic Secretary to the Treasury (Justine Greening)
I congratulate the hon. Member for Hackney North and Stoke Newington (Ms Abbott) on securing this debate. She eloquently ran through some of her concerns about the way in which air passenger duty is currently structured. She is asking me, as a Minister, to defend the current structure, but it is difficult for me to take responsibility for the structure of APD, given that it was entirely put in place by the previous Government. I took on board the questions put by the hon. Member for Streatham (Mr Umunna) about the fairness of the structure, but he would be better placed asking his party leader and the now shadow Chancellor about the logic that the previous Government used in approaching these issues and how they thought about the issue of fairness with respect to Caribbean countries.
Ms Abbott
I am the last person to defend the previous Government mindlessly. I made it clear from the very beginning of my speech that I made this argument to the outgoing Government and was disappointed by their response. Nobody is asking the Minister to defend the current system, because we know that incoming Ministers have to deal with the hand that they are dealt. What I am asking her to do is to reconsider the current system—that is a different point.
Justine Greening
In that case, I have good news for the hon. Lady. She was doubtless paying close attention to the emergency Budget in June, when we said that we would look at reforming APD. We recognise some of the shortcomings in the existing system’s structure, and in the next few minutes, I am going to discuss some of the issues that she has raised.
First, it is important to say that the new coalition Government recognise the importance of the strong ties that exist between the UK and Caribbean countries. As a London Member, a large number of my constituents have strong family ties with the Caribbean and they spend a lot of time saving up to go there, travelling there and spending time there, as well as having relatives come over to see them in this country. So the hon. Lady makes an important point about these links. We must also not forget the Caribbean’s relationship within the Commonwealth, which is a further incredibly important link with our country.
When the hon. Lady wrote to me recently to raise her concerns about this issue, she rightly highlighted the context within which the coalition Government are operating. Clearly the fact that we have inherited a record budget deficit has meant that some of the tax rises announced by the previous Government, such as the increase in APD rates that came into effect last November, simply could not be avoided. She referred to the APD bandings, which are the aspect of APD that concerns the Caribbean countries most, and I need not remind her that they were the brainchild of the previous Administration, not this Government.
However, we need to look forward, which is why today’s debate is worth while and important. The hon. Lady was right also to point out the role that aviation and business plays. The coalition Government recognise that as we get the economy back on track and as the recovery in the world economy starts to gather pace, aviation can play an important part in delivering future growth for the UK economy. Without continuous improvements in air connectivity, we risk endangering future growth and prosperity in the UK. She talked about the importance, particularly for the Caribbean tourism industry, of the aviation connection with the United Kingdom. I shall discuss that in a little more detail shortly, but she will be aware that I met representatives from the Caribbean countries and the Caribbean Council here in London last year, once we started to ensure that we were talking to all the stakeholders who had an interest in the reform of APD. Of course, they were an important group that I needed to talk to face to face. We had a very helpful meeting and they set out their case effectively to me that afternoon.
The hon. Lady raised some particular concerns today and in the letter that she wrote to me, and I shall do my best to address them. First, she talked about the contrast between the duties paid on flights to the Caribbean and to other destinations, including the United States. It is true that the current four band structure of air passenger duty based on the distances between London and the capital cities of other destination countries—something that was brought in under the previous Government—has the effect of placing the Caribbean in a higher tax band than the United States. Such issues are common to any banded system. I do not particularly want to defend the existing structure of APD and how the previous Government changed the tax system, but it is difficult to have any banding system that solves all the problems raised. Whichever approach we take—she mentioned time zones—there are trade-offs between equity, simplicity and effectiveness. She is right to point out that the current banding system has some downsides, but it is also fair to be pragmatic about the fact that any banding system will have its downsides.
The second point, which is very fair, concerns APD as structured and the environment. I shall not try to defend the way that APD is structured in that regard, but the new coalition Government have been very clear that we have a strong sense of purpose about the environment. We want to be the greenest Government ever. We know that alongside other major sources of emissions, the aviation sector needs to start to take proper account of its global environmental impact in the future. It is also worth recognising that from 2012 aviation will be part of the EU emissions trading scheme. That is an important step forward in ensuring that the environmental impact of aviation is better taken into account as part of the overall fiscal environment.
The coalition Government’s approach to the environment will be guided by the evidence. We do not think that there is anything to be gained by empty rhetoric on the environment, so I am very clear that we need to take a fresh look at how best to deliver our environmental objectives in a way that is fair to passengers—the hon. Lady has talked about her concerns about passengers flying to and from the Caribbean—and to industry, which has perhaps never been more important than it is now. Also, we must not lose sight of the need for the UK to have economic growth while tackling the clear problems with emissions.
Ms Abbott
It is important that we as a country achieve our environmental goals, but our environmental goals should not necessarily conflict with other wider development goals, such as the millennium development goals. As regards the impact of the air passenger duty as constructed on a region that, although it is ostensibly a middle income region, has communities that are among the poorest in the world, I see no reason why environmental goals cannot be co-ordinated with broader development goals.
Justine Greening
In many respects, that is precisely what we are trying to do. We are trying to see where we can strike the balance. That is one reason why, at the emergency Budget, we talked about wanting to reform APD. The hon. Lady is setting out some of the challenges, and finding the right mix in an approach to APD that means that we try to square off some of the difficult issues at the same time will not be easy. Debates such as this, and the time that I am taking to meet the various stakeholders—not just the Caribbean countries and their interests, particularly in tourism, but the aviation industry, airports and business in general—
Richard Fuller
I greatly appreciate my hon. Friend giving way. I have admired the rigour of her analysis as she has gone about her duties as a Minister as well as her powerful advocacy. If I may, I want to encourage her to use the second part of her talents—her advocacy. There is a strong equity case for people in this country to consider carefully the APD ratings for Caribbean islands. A significant number of people who have made their home here like to go home to their place of birth and origin. We all want to see the environmental goals that she has discussed accomplished, but there is a strong and powerful equity case. I ask her, through her rigour, to give due regard to that case as well as to the other competing pressures.
Justine Greening
I am grateful for that intervention. My hon. Friend points out the impact on local communities but, in a friendly way, I would challenge the point about contradictions. In terms of our tourism industry and our need for links with other countries to drive economic growth, this is very healthy. Our relationship with the Caribbean and the role that aviation plays in helping us to maintain that more broadly is particularly important, so we are not necessarily faced with an either/or choice.
One of the most intractable problems we face, which underpins the whole approach in the Treasury, is the unavoidable challenge of tackling the fiscal deficit. We are faced with that while also making sure that the tax measures in place work effectively and do not have the sort of negative impacts that we do not want or need them to have.
Mr Umunna
I should like to follow up the point about equity made by the hon. Member for Bedford (Richard Fuller), which I endorse. The key issue is the banding system, which was, admittedly, introduced by the previous Labour Government—I think one of the Minister’s predecessors referred to it as being rather rough and ready—and I would not necessarily endorse the form of APD that they put in place. The Minister says that the coalition Government have undertaken to review the system, but can she tell us when we can expect the results of the review? Obviously, the Budget will be on 23 March. Are the results of the review likely to be announced then or beforehand? That information would be useful to the industry and the many families who want to plan what they will be doing in the next few months.
Justine Greening
First, it would be wrong of me to pre-empt the Budget statement. What I can say—we have already been clear about this—is that any major change to air passenger duty will be subject to consultation. One thing that we have learned from looking at how this tax and others have been changed in the past is that we need a sensible tax-making policy that involves not just the Treasury thinking about the objectives it wants to achieve, but talking with stakeholders. There is a need to issue a consultation document to which people can respond and then draft legislation to make sure that the final legislation can achieve the aims we have agreed on and that have come out of the consultation.
I cannot give the hon. Member for Streatham any timings for all that, but I can tell him that we want to ensure that any reforms we bring forward will work as intended. He quoted a previous Minister saying that the system was rough and ready. We want to avoid making another change to APD that brings other problems we have not anticipated. Whatever we do in this area, it is impossible to get the perfect system, but we need to understand the pros and cons of any particular approach. We need to understand what the risks are and whether we can mitigate them. He is right to ask about timelines. The fact that we said in the previous Budget that we want to review and reform APD and that we have been working on that and meeting a variety of stakeholders to get their views shows that we want to do this in a thoughtful way rather than just announcing something that would be a surprise to the industry and to people who are trying to plan for their holidays.
Let me finish by saying that I recognise the urgency with which the hon. Member for Hackney North and Stoke Newington wants this area of tax policy to be changed. However, I think we are right to work out cautiously which path we want to go down. That is why we talked about reviewing the existing APD regime in the June Budget. As I have said, in the past few months I have met a variety of stakeholders, particularly from the Caribbean countries and the Caribbean Council in London. Those discussions have been very helpful and I have had a useful and detailed report from the Caribbean countries about their views on how we could reform APD. Obviously, we will look at that carefully. I am determined to make sure that we continue that constructive dialogue and I hope that in doing so we can ensure that wherever we end up with the reform of APD we will have done a better job of making sure that—