Air Passenger Duty: Regional Airports

Debate between Rebecca Long Bailey and Alan Brown

Tuesday 20th October 2015 Westminster Hall

[Rebecca Long Bailey]

I shall come on to my party’s position in due course.

I was saying that the possibility of powers to determine APD being devolved to Wales could lead to an impact on airports in the north of England and the south-west. York Aviation has predicted that, with Cardiff airport no longer subject to air passenger duty, Bristol airport would lose 440,000 passengers, up to 33 routes, 1,500 jobs and more than £800 million from local GDP. That concern has been cemented by a warning from Ryanair’s commercial chief that the company could double its profits per passenger by flying from Cardiff instead, should APD rates be set to zero there. It is therefore clear that the devolution of powers to set air passenger duty will have a profound effect on England’s regional airports, so I am glad that the Conservatives heeded the advice of my colleagues the then shadow Chancellor Ed Balls and my hon. Friends the Members for Streatham (Mr Umunna) and for Barnsley East (Michael Dugher) when they wrote to the Government in September last year, calling on the Treasury to start work on a mechanism to prevent English regional airports from being disadvantaged by devolution to Scotland or anywhere else.

I welcome the Government’s publication of a discussion paper outlining three possible options for tackling the issues affecting our regional airports. I have a few specific concerns about the consultation, on which I am sure the Minister will be able to put me at ease, but first I ask the Minister for an update on the progress of the consultation as a whole. It is my understanding that the closing date for submissions was 8 September, but as yet there has been no published evidence and no conclusions from the Government. Will the Minister say when the Government’s response will be published? More specifically, one solution discussed in the paper is to devolve the power to set rates of air passenger duty to local or combined authorities, either partially or fully. That seems to have implications for our compliance with EU state aid rules. The Labour party supports reform of the EU state aid rules, which would be a much better subject for renegotiation that those chosen by the Prime Minister. None the less, the current rules will apply.

One problem is that the Government cannot vary national tax rates in a way that is more favourable to specific regions. For that reason funding for the relevant local authority would be reduced by the full value of air passenger duty receipts in that area. HMRC research indicates that full devolution to a local authority containing one medium-sized airport would require a staggering reduction in funding of £45 million a year. The point of devolving the powers is to allow regional airports to avoid undercutting by rivals. Can the Minister confirm that under that option a local authority that took that course would receive no extra funding from central Government and would have to deal with a cut of £45 million? He will understand our concern that even the devolution package the Chancellor proposes will not contain much in the way of revenue-raising powers, nor anything like the scope that the devolved Administrations have to make savings elsewhere. Also, does he share my concern that if local authorities are able to set their own levels of APD, it will start a race to the bottom, which, taken to its logical conclusion, would result in an overall loss to the Treasury of £3.2 billion?

[Alan Brown]

The hon. Lady talks about a race to the bottom and says that different regional airports cutting APD could result in a net decrease overall. Does that not run contrary to the argument I have just been making, which is that cutting APD increases passenger numbers, jobs and revenue? Does she therefore agree that her argument could be flawed?

[Rebecca Long Bailey]

I thank the hon. Gentleman for making that important point. Hopefully, when the Minister responds about the progress of the report, he will be able to shed some light on those issues specifically.

The third option outlined in the discussion paper is to provide aid to regional airports that will be particularly affected by the devolution of APD, but I am particularly concerned that that would do little to neutralise the effects at the airports that will feel the greatest impact. Airports such as Manchester and Newcastle would be too large to be eligible for such aid under the proposal, so the measure would be ineffective in tackling the problem where doing so will have the biggest impact. Furthermore, providing direct aid has an obvious fiscal implication for the Exchequer, so it would be helpful to clarify whether that would be provided by the Treasury or would again involve corresponding cuts to other local authority funding.

Finally, it would be helpful if the Minister touched on the environmental implications of air passenger duty generally. I have had a number of queries regarding that, particularly from my own constituents. Aviation is, of course, covered by the EU emissions trading scheme, and we anticipate that the fifth carbon budget will address the sector later this year, but it would be helpful if he were to outline how the proposals under consideration will interact with our obligation to decarbonise, especially if we are moving towards little or no APD, and how a devolved settlement will work alongside nationally set targets.

In conclusion, there is a degree of consensus that this matter must be addressed urgently, and we welcome both the Government’s consultation and today’s debate. There are a number of points on which we would welcome further clarification, and I look forward to hearing the Minister’s response.