Air Passenger Duty

Lord Foulkes of Cumnock Excerpts

Monday 28th January 2013 Lords Chamber

[Lord Foulkes of Cumnock]

My Lords, along with other noble Lords, including the admirable noble Lord, Lord Palmer, I have had representations on the general issue, calling APD a tax on exports, on business, on inbound tourism and on families, and pointing out that it is the highest air passenger tax in the world. However, I want to concentrate on, and say just a few words about, a particular anomaly and to suggest a solution to the Minister.

First, I declare a non-pecuniary interest as president of the Caribbean Council, which is not as exotic as the banana plantation of the noble Lord, Lord Palmer. The Caribbean Council meets regularly with Caribbean high commissioners, and we recently met many of the Tourism Ministers from the Caribbean when they were in London. The unfairness of the APD in general, and the Caribbean anomaly in particular, is top of the agenda of all those meetings. The four bands, A to D, which have been described by the noble Lord, Lord Palmer, are measured by the distance to the capital of the country concerned, so because California is nearer to Washington, the capital of the US, it is cheaper in APD terms than the Caribbean, which is in the dearer band C. Travel to the Caribbean is disproportionately costly, yet the Caribbean is the most tourist-dependent region in the world; in Antigua and Barbuda, for example, 74% of their GNP comes from tourism. The high APD has resulted in British tourists choosing not to visit the Caribbean. Between 2008 and 2011, there was more than a 10% decrease in UK-Caribbean air traffic, in spite of a general increase of 1% in air traffic generally.

One of the groups most affected is the Caribbean diaspora. Agencies have suggested, for example, that the visiting friends and relatives, or VFR, market has been particularly hard hit. That is worrying. The Government have in fact admitted that the banding is arbitrary. The Chancellor—I am sure the noble Lord, Lord Howell, will use all the influence he can in relation to this—said in his 2011 Budget that he was,

“consulting today on how to improve the existing and rather arbitrary bands that appear to believe that the Caribbean is further away than California”.—[Official Report, Commons, 23/3/11; col. 963.]

However, by November 2011, the willingness to tackle the anomaly had petered out.

To help the Minister—noble Lords know that I am always keen to help the Government when I can—the Caribbean Council proposal is to reband the Caribbean from band C into band B by designating Bermuda as the capital of the Caribbean, for APD purposes only. There is no reason why that cannot be done; it can be done technically and it has been suggested to the Government. The cost to the Government would be just over £18 million out of a total projected revenue of £3 billion. The benefit to the Caribbean and the resulting benefit to the United Kingdom Government would be enormous. In conclusion, I ask the Minister whether he will say in his reply or give us a pledge—I am not expecting an answer today—that he will take this away, look at it sympathetically, discuss it with the Chancellor, remind him of his pledge in the Budget in 2011 and come back to the House with, I hope, a positive response.

--- Later in debate ---

[Lord Newby]

Okay, one noble Lord has called for abolition. I am sorry if I exaggerated the opposition but it certainly felt as though a number of noble Lords were calling for the abolition of the tax.

On the Caribbean, there have been strong arguments presented tonight and over the years about the effect of APD there. I am aware of the strength of the arguments because in a former existence I made them myself. In response to these arguments, changes to the structure of APD were considered as part of the 2011 consultation. For a number of reasons, it proved much more difficult to do it than appeared at first sight. One of the main challenges is that if you adopt the pure principle of a distance-based tax, it would be seen— bizarrely, in my view—as a proxy to taxing fuel. That would be illegal under the Chicago Convention on international aviation, so the Government looked at a rather simpler restructuring. However, they found that the only way they could have done it that would have dealt with the disparity of treatment between the US and the Caribbean would have required an increase in the duty for about 90 per cent of passengers, including those flying to Europe and the USA. The Government felt that, in the current economic climate, it would not be fair to ask the majority to pay more to help fund a cut for the minority.

[Lord Foulkes of Cumnock]

I think the Minister has been listening carefully to the debate. He will recall that I gave him a suggestion; my understanding is that it was not considered in the review. It came up very recently from a meeting between the Caribbean Council and Ministers from the Caribbean. I asked the Minister for a very simple pledge to take this new suggestion back now and discuss it with the Chancellor: Bermuda should be designated the capital of the Caribbean for this purpose only. Surely that is the least he can do for the people of the Caribbean, on behalf of whom my noble friend Lord Morris spoke so eloquently.

[Lord Newby]

The noble Lord, Lord Morris, anticipated me two minutes ago and the noble Lord, Lord Foulkes, has anticipated me just now. I was about to say that I had not heard the Caribbean Council’s suggestion of designating Bermuda the capital of the Caribbean. My experience of the Caribbean does not fill me with hope that, when push comes to shove, there would be much agreement to designate anywhere as its capital. I am not sure whether you can designate somewhere as a capital for one purpose but not a capital for every other purpose. However, it is a new suggestion; I will certainly take it back and we will see whether it deals with the problem. My initial thought, not having heard the suggestion before, is that it is probably not quite as simple as that.

The Government recognise the mutual benefit of tourism and trade between the United Kingdom and the Caribbean. We welcome the work of the UK-Caribbean Forum to establish a new and improved strategic partnership to promote prosperity, growth and development within both regions. No doubt this topic can be discussed in that forum.

The noble Lord, Lord Howell, and other noble Lords referred to the devolution of air passenger duty to Northern Ireland. The Finance Act 2012 devolved to the Northern Ireland Assembly the power to set rates on direct long-haul flights leaving from Northern Ireland. The rate on short-haul flights will remain the same as that for the rest of the United Kingdom. In devolving direct long-haul rates to Northern Ireland, the Government responded to the wishes of the Northern Ireland Executive. We also recognised that Northern Ireland is in a unique position within the United Kingdom in that it shares a land border with another EU member state that has a lower rate of aviation tax. Further devolution of air passenger duty to Scotland or Wales is a subject that requires careful continued evaluation before we can be confident of its effects across the UK as a whole.

I return to my initial comment that I thank the noble Lord, Lord Palmer, for securing the debate. The Government want to ensure that aviation and tourism continue to grow to promote economic growth and support jobs across the country more generally. However, we also believe that aviation must bear its fair share of the fiscal burden so that we remain on course to address the record deficit. Air passenger duty makes an essential contribution to the public finances and to this Government’s plans to create a stable platform for growth.