Air Passenger Duty

Angus Brendan MacNeil Excerpts

Thursday 1st November 2012 Commons Chamber

[Priti Patel]

The hon. Lady makes a valid point. I have no doubt that right hon. and hon. Members recognise the global trends and the direction of travel when they see the rise of super-hubs and big business destinations, such as Singapore, Dubai and Mumbai. There is certainty around their aviation and economic strategies, and we are competing against many big international centres. We must remain competitive to survive. Tax rates that are higher than those in other economic centres put businesses off when they are making investment choices and decisions. Attracting foreign direct investment is an essential component of the Government’s plan for growth, and current APD rates are a barrier to foreign investors who are looking to expand into the UK.

[Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)]

The hon. Lady is making a great speech. Does she agree that APD, as a gateway tax, sends a signal and puts down a marker, and leaves a bad taste in the mouth for many who are thinking of coming to the UK? Their first taste of the UK, and the first piece of information they have about it, is the very high-tax regime to get into the country.

[Priti Patel]

The hon. Gentleman makes a valid point on how counter-productive taxes such as APD are when it comes to inward investment and the attraction of Britain as a place to do business.

Martin Craigs, chief executive of the Pacific Asia Travel Association, has stated:

“The UK is an island trading nation, air services are the vital lifeblood of modern global commerce. The UK Air Passenger Duty is now the world’s highest by a wide margin. It is certainly turning away tourism and trade from the world’s fastest growing economic region”,

which, of course, is Asia-Pacific.

APD also acts as a deterrent to British businesses that are looking to exploit lucrative business opportunities elsewhere in the world, and particularly in emerging markets. Businesses in my constituency, including small and medium-sized enterprises, provide more than 80% of local jobs. They are hit hard by APD. They want to export more, but APD is a barrier.

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[Mr Brady]

I do not always agree with the hon. Gentleman, but I am pleased to agree with him about that. This tax precisely targets investment and international trade, which are exactly the things that the United Kingdom needs to focus on if we are to grow our way out of the problems we face.

[Mr MacNeil]

The hon. Gentleman said that Northern Ireland is competing with the Republic of Ireland, but surely we are all competing with the Republic of Ireland and with each other. We had better make sure we have that mindset; otherwise we will be left very much in the slow lane.

[Mr Brady]

That is absolutely right. Unlike the hon. Gentleman, I hope we will not be competing internationally with Scotland in the near future, but if we are, I hope we have lower aviation duty. The regional effects—on Scotland and Northern Ireland, but also on airports in the north of England—are clear. There is a plain and unanswerable case.

Like my hon. Friend the Member for Witham (Priti Patel) and the right hon. Member for Wythenshawe and Sale East (Paul Goggins), I want to touch briefly on the impact on families. Air travel should not again become a luxury that only the rich can afford. It is not a luxury in the modern world. Air travel, whether for business or leisure, is an essential part of modern life. It has opened up the world, opened people’s minds and enhanced the quality of life for us all.

I have said that I am confident that my hon. Friend, being such a good Minister, will respond warmly to the case we are all making. The final reason for that is that the proposers of the motion have been so modest in their aspirations. The motion highlights some of the damage that we think is being done by this tax, but we do not call for it to be cut or axed altogether. We are asking only for the Treasury to look carefully at its effect before next spring’s Budget. All we want is a proper detailed review and economic assessment of whether this tax does more economic harm than good. I think that all who have spoken so far believe it does.

[Mr Brian H. Donohoe (Central Ayrshire) (Lab)]

I congratulate the hon. Members for Witham (Priti Patel) and for Crawley (Henry Smith) on securing this debate. As a co-sponsor of the motion, as well as a seasoned and regular air traveller, I apologise to the House: because of the inclement weather coming in from the Atlantic, I shall try to rush back to Scotland this evening rather than waiting, or having my constituents wait until tomorrow afternoon before they see me.

I do not know whether I was targeted, but as chairman of the all-party aviation group I certainly received my fair share of correspondence on the petition connected with this debate. Indeed, I do not believe I have ever been contacted by as many constituents on any subject in my time in this place, and I have been here for some 20 years. As has been mentioned, the all-party group instigated an inquiry, not only into this tax but into the whole question of aviation and its future in the UK. It was clear from that work—a fairly major inquiry, with some 50 submissions and two oral evidence sessions—that we are likely to damage the whole UK economy unless we get this tax right. That was clear to me and the all-party group, with all conclusions supported by all parties in the House that were part of the inquiry, which is a first when it comes to the future of air traffic.

A report is available, and if hon. Members ping me an e-mail, I will send them a copy, if they have not already read it. The report has been sent to the Prime Minister and a fairly sizeable number of Treasury civil servants have asked for a copy, as a consequence of which I presume that the Minister is aware that the report is in existence. If he has not done so already, I would ask him to look at it, because we still await a response from Treasury officials and the Minister. There is overwhelming support from all sections of the House; indeed, we have already heard—as I am sure we will hear again this afternoon as we approach 5 o’clock—about the disadvantages of air passenger duty, as well as the evidence for those disadvantages. The vast majority of submissions received stated that the UK was being placed at a significant competitive disadvantage as a result of the tax. That applied to 43 of the 51 submissions, which I suggest is overwhelming.

But—and it is a big “but”—it is impossible to draw a comprehensive picture of the national economic impact of air passenger duty without Treasury support in looking at the issue far more closely. I am looking for that support from the Government this afternoon, and I also hope to see their response to the report sooner rather than later. The report also mentioned reports from the British Chambers of Commerce and from Oxera. They were good reports with credible data sources, but they were selective. We need a comprehensive assessment of the effects of the tax, and that is a task for the Treasury to undertake.

There are examples of air passenger duty leading to direct commercial loss. We have already heard my right hon. Friend the Member for Wythenshawe and Sale East (Paul Goggins) talk about Manchester airport, and say that AirAsia X cited ever-increasing taxes as its primary reason for abandoning its flights to UK destinations. I have been given other examples as well. It is a matter of public record that Continental Airlines, now part of United Airlines, would have abandoned flights from Belfast to the United States had the level of APD not been reduced in October 2011.

If only some thought could be given to the idea of regional variation, as my hon. Friend the Member for Linlithgow and East Falkirk (Michael Connarty) said. That would have the greatest effect on the regions in question. Only yesterday, Aberdeen, Glasgow and Edinburgh airports called for immediate action on the levy. They estimate that, by 2016, £210 million less will be spent each year in Scotland because of the tax. Glasgow airport’s managing director, Amanda McMillan, has said that APD

“will continue to damage Scottish aviation by making routes unviable and decimating Scotland’s links to the rest of the world.”

As my hon. Friend the Member for Ayr, Carrick and Cumnock (Sandra Osborne) said, the problem is also affecting my own airport at Prestwick.

[Mr MacNeil]

Given the quote from the managing director of Glasgow airport that the hon. Gentleman has just read out, does he support the Calman commission’s recommendation that air passenger duty should be devolved to Scotland?

[Mr Donohoe]

The hon. Gentleman might well be shocked by this—indeed, I expect him to fall off his seat—but I do actually support that proposal. I would suggest, however, that any such duty should not be frittered away, as many of the tax receipts obtained by the Scottish Government are. I would suggest that, if it were devolved, it should be hypothecated so that the money could be put into the airports, rather than into some of the other high-falutin’ schemes that happen north of the border at present—[Interruption.] I do not know what the hon. Gentleman is saying from a sedentary position, but I will give way to him again if he wants to intervene.

[Mr MacNeil]

Surely the idea behind devolving APD would be to cut it to make Scotland more competitive.

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. I warned the hon. Member for Na h-Eileanan an Iar Mr MacNeil) that he would be at the bottom of the list, but there is a danger that he will fall off the list because the amount of time available is disappearing.

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[Dame Anne Begg (Aberdeen South) (Lab)]

I support the motion in the name of the hon. Member for Witham (Priti Patel) and others. Aberdeen depends greatly on the airlines, and especially on connecting flights. If the hon. Lady thinks the situation is bad in Essex, she should consider what it must be like for my constituents. Her constituents—and others who live within easy reach of London—have some choice in how to get out of the country; they can travel by Eurostar, for instance. From Aberdeen, however, it is impossible to get out of the country without either flying or spending a very long time travelling.

APD’s great impact on my constituents’ lives is highlighted by the fact that I received more e-mails about the fair tax on flying campaign than any other MP. Although it is good that 800 or so constituents got in touch with me, I do not necessarily want to thank them, because I received half of those messages in a two-hour period one afternoon after British Airways sent out an e-mail to all its executive club members. I thought I was under cyber-attack because my computer went mad; it started constantly pinging. In all the years I have been an MP, this is the issue on which I have received the most e-mails.

Other Scottish Members have mentioned a report published today by York Aviation, which was commissioned by Scotland’s largest airports. Derek Provan, the managing director of Aberdeen airport, said:

“This report shows, quite simply, that APD is damaging Scotland. It is damaging our economy, our tourism potential and our ability as a nation to bounce back from the recession. It limits our opportunities for growth in the employment market, costing as much as £50 million in the process.

At Aberdeen Airport we run a real risk of losing around 200,000 passengers by 2016 through this damaging tax. Each recent increase in APD has had a dramatic impact upon what we, as airports, have achieved and could have achieved without APD. It is imperative that the UK government undertake a detailed and comprehensive review into APD with the utmost urgency, and at the very least freeze APD whilst that is taking place.”

So both Aberdeen airport and other airports in Scotland are being affected because of not only the level of APD, but its existence and the way it acts as a disincentive to those furthest from the hub airports.

[Mr MacNeil]

Does the hon. Lady agree with her colleague the hon. Member for Central Ayrshire (Mr Donohoe) that APD should be devolved to Scotland?

[Dame Anne Begg]

Whether or not APD is devolved to Scotland, the problem we face is the level of APD and the way it is operating. Just because a tax is devolved, does not necessarily mean it would be treated any differently in Scotland—

[Mr MacNeil]

I think it might be.

[Dame Anne Begg]

It might be, but it could be treated differently down here, too. The problem I have with devolving some of the taxation that the hon. Gentleman would want devolved is that, as we know, the Scottish Government have a huge hole in their budget. So in terms of their priorities and how they spend their money, there is a fear that they would see APD as an easy cash cow, as indeed the Westminster Government do. There is no guarantee that a devolved APD would be any different from the one we see here.

[Mr MacNeil]

rose—

[Dame Anne Begg]

Mr Deputy Speaker is shaking his head, so perhaps I should not allow the hon. Gentleman to come back in, because we are getting away from the points I wish to make.

Most people who fly out of Aberdeen connect to other routes. Although lots of the flights from Aberdeen go to other domestic destinations, many of the people on the planes—the ones that the right hon. Member for Gordon (Sir Malcolm Bruce) and I are on every week—come to London to connect on to another route. I would like there to be a lot more direct flights from Aberdeen, but that, like the debate on the devolved nature of APD, is an issue for another day.

At the moment, most people in Aberdeen who want to travel abroad have to connect through one of the major hubs. The Government are making it particularly difficult to make Heathrow attractive as that hub. It is important for the British economy that Heathrow remains the main hub and that it is through Heathrow that all the traffic going out of the UK is filtered. There are two main reasons why Heathrow is becoming less and less attractive. The first is the system of APD, as anybody connecting through Heathrow is inevitably caught one way or the other. If they have booked their flights in separate lots they get a double-whammy, and if they have a through-flight, they still end up paying APD. Secondly, it would be remiss of me if I did not mention that part of the reason for Heathrow’s unattractiveness is the congestion there because of the lack of a third runway. People in north-east Scotland strongly support the building of a third runway at Heathrow.

Those two things, put together, mean that people in Aberdeen, and possibly in Edinburgh and elsewhere, are more attracted to using other airports as the hub through which to transfer. For people from Aberdeen that means going through Schiphol or Paris—and Lufthansa now has flights on to Frankfurt. Those who book the different parts of their journey separately pay only one part of APD—they do not pay APD on their full flight. So financially that approach becomes much more attractive. The consequence is business loss not only for Heathrow but for the UK carriers, who are suffering the most. That is a real problem and a shame.

We know that there is often no option other than to fly out of Aberdeen. We do not have an electrified rail service north of Edinburgh and we do not—and probably will never—have high-speed rail. It might get to Manchester, it might get to Scotland, but it is unlikely ever to get as far as Aberdeen. It takes too long for us to get a train to the Eurotunnel, so many people are affected by the rise in APD. This does not just affect business travellers. Aberdeen airport survives because we have a very buoyant economy in the north-east of Scotland because of the offshore oil and gas industry, but that economy will not be enough to support the airport if the Government are intent in undermining much of that travel through the increase in APD.

Many business travellers come through Aberdeen and they want to be connected to the whole world, not just part of it. They want to be able to fly through Heathrow and go on to some of the emerging markets, which often also have oil and gas. That is why it is important that the Government should listen to this afternoon’s debate.

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[Mike Crockart (Edinburgh West) (LD)]

I add my congratulations to the Members who secured this debate, not least because the motion is supported by a large number of Members across the whole House. I should declare a particular interest, as Edinburgh airport—voted best European airport 2011 in the 5 million to 10 million- passenger category—lies within my constituency. As a result, I recently took part in the all-party aviation group’s inquiry, which was mentioned by the hon. Member for Central Ayrshire (Mr Donohoe). Its report made 15 recommendations, four of which related directly to air passenger duty and mirror the tone of the motion.

When APD was introduced in 1994, I do not think that anyone foresaw the likely levels that it would reach 18 years later. The problem is that in those intervening years insufficient notice has been taken of whether those levels were reaching what Gordon Dewar, the chief executive of Edinburgh airport, has described as a tipping point at which they have a detrimental impact on the economy as a whole.

As the hon. Members for Crawley (Henry Smith) and for Blackley and Broughton (Graham Stringer) said, it is sometimes argued that APD is an environmental tax. Perhaps before the inclusion of the aviation sector in the EU emissions trading scheme, that was a valid argument, but it is far more difficult to make it now. If the tax were levied on a per-plane basis to encourage higher occupancy, or if its levels reflected the fuel efficiency of the planes involved to encourage airlines to upgrade their stock, then perhaps that argument could be made again, but as it stands APD is simply a revenue raiser—and an attractive one to the Treasury, at that, because it is easy to administer, has low collection costs, and to a large extent it is hidden from the end consumer. Nevertheless, the Treasury must examine it to ensure that its overall impact on the UK’s tax take is positive, not negative, as seems to be the case.

[Mr MacNeil]

Would the hon. Gentleman support the devolution of air passenger duty to Scotland, as some Labour Members seem to do?

[Mike Crockart]

I almost thank the hon. Gentleman for his question, but it is a bit of a broken record and tangential to this debate. Devolution of this tax would merely recreate the problem that existed between Belfast and Dublin; my constituents would get in their cars and drive for two hours to use Newcastle instead. We have already heard the argument about regionalisation of APD, which is a far better and more efficient way of dealing with the problem.

Levels of increase in APD over the past five years stand at between 160%, for the bottom rate, and up to 360% for band D long-haul flights. Many submissions to the APPG’s inquiry, and others made since, including one that I received yesterday from the Federation of Small Businesses, make the case that levels of APD are now putting the UK at a competitive disadvantage in relation to other European and global destinations. The evidence is that that shows itself in a number of ways.

First, APD acts as a disincentive to foreign carriers using UK airports as destinations. A number of hon. Members have mentioned the report by the Scottish airports on their perceptions of the effects of APD. It shows that Scotland’s connectivity grew from servicing fewer than 40 destinations in 2001 to almost 150 in 2009, but the figure has slipped back in recent years to about 130. That hampers not only establishing new business markets, but bringing in new tourists to Scotland. The figure also compares poorly with other small European states. Of course, some of those states have major hubs, but Belgium has links to 220 international cities and Denmark has more than 150 such links.

If APD levels hold back local airports and their connectivity, they will also hold back the surrounding local economies. The Edinburgh airport campus employs 5,000 people and its activities support a further 2,000 across Scotland. It estimates that its contribution to the Scottish economy is £146 million, of which £118 million entered the Edinburgh city regional economy. The question must be: could it do more, if allowed?

One of the key debates on the impact of APD is about price elasticity, a phrase that takes me back to 1984, when I was studying economics at Edinburgh university. Different products have different elasticities—the rate at which demand is lessened by an increase in price. On the impact of APD rises, the report prepared by the three Scottish airports estimates that, accumulatively, by 2016 Edinburgh, Glasgow and Aberdeen will carry 2.1 million fewer passengers each year than if APD had not risen since 2007. Price elasticity is lower in Aberdeen, so the impact would be less, but it might still lose 200,000 passengers. Edinburgh’s higher number of low-cost carriers will result in a far higher potential impact—it might lose 1 million passengers per year.

Those are not just numbers; they are business men making connections and sales, and tourists spending money. The 2009 Civil Aviation Authority’s passenger survey suggests that about 36% of international passengers are visitors to Scotland and that 40% of domestic passengers are similarly inbound to Scotland. If we combine the drop in actual and projected numbers with the CAA figures and apply VisitScotland’s average tourist spend, we will see that the results are very worrying.

The 2007 drop in passenger numbers appears to have amounted to a £90 million per annum loss with regard to Scottish tourism. Following the 2009 APD rise, that figure has risen to £160 million and, if projections are correct, it will rise to £210 million per annum by 2016. This simply cannot continue.

Much of what I have said has come from the industry and some might say, “Well, they would say that, wouldn’t they?”, so I did a small internet survey last night via booking sites. I imagined myself as a business man trying to establish trade with some of the BRIC countries and looked at flying direct to Sao Paulo. A flight on 14 November from Heathrow would cost me a best direct price of £768, the APD for which is about £184. However, a direct flight from Paris, where the APD equivalent is €4, would cost £642—a saving of £126, which is more than enough to cover a Eurostar ticket. If I chose to start a business with Chennai, I could fly there with Gulf Air for £475, but the cost of a flight from Paris would be £240, which is almost half the price.

If I was a tourist heading to Las Vegas—this is the worst example—I could get the 11.20 Virgin Atlantic flight for £644, but if I travelled to Dublin for £17 I could get the exact same flight from there for £453. That is a saving of £191, for which, once I arrived in Las Vegas, would buy me the “hound dog” package, whereby Elvis would sing three songs to me and I could get a rose bouquet and be walked down the aisle. That would be an interesting use of £191. I think we can do better. When the taxation system causes such anomalies, it is not only Elvis who has left the building; common sense has left as well.

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[Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)]

I note that no Member has spoken in favour of APD, which I think says a lot. In the midst of a recession, when the cult of austerity is starving the economy, taxes such as APD are bleeding the economy. That is not just my view; it is the view of those in the frustrated aviation and airport sector in Scotland, who see themselves as hostages of a Government policy here at Westminster that is damaging their sector and, by logical extension, the wider economy.

Amanda McMillan, the managing director of Glasgow airport, has said:

“Due to the size of the market in Scotland, we will always find it difficult to attain and sustain new routes, and this situation is compounded…further by APD which simply serves to artificially depress demand and dissuade airlines from basing aircraft here.

Unless APD is reformed, people travelling to and from Scotland—who must fly due to the lack of feasible alternatives—will continue to face some of the highest levels of taxation in Europe which is clearly a disincentive to travel.”

[Jim Sheridan]

If APD were devolved to Scotland, and Scotland then cut the tax, would there not be consequences for the Barnett formula?

[Mr MacNeil]

If APD were devolved to Scotland, the economy would grow. I should like all taxes to be devolved, so that the benefits of the policies introduced by the Scottish Government could go to the Scottish Exchequer. That is a logical extension, and it is what is happening in all the other countries. I am sure that, given the level of APD in the United Kingdom, no other country would be as foolish as the Government whom the hon. Gentleman supports at Westminster. He wants a Tory Government to have these powers over Scotland, and, given that he is a Labour MP, I find that quite shocking.

It is calculated that APD will have cost the Scottish economy £210 million in lost spending by 2016. So short-sighted is this policy that it will end up with our losing up to £50 million in other taxes through economic activity that will not take place. The Federation of Small Businesses has been damning of the UK policy on this tax:

“The Government’s determination to tax air passengers has resulted in a sustained negative impact on businesses as well as on leisure travel. IATA reported in June 2012 that UK passenger numbers have declined slightly over the past four years at a period when Germany, France and the Netherlands saw growth of between 2-4%.”

That must have damaged our economy.

The UK has embraced this tax in a helter-skelter fashion. It is regressive and it hits the poor disproportionately. It is a poll tax of the skies. It is felt less by millionaires in the Cabinet and elsewhere than it is by others.

Other countries have been wiser in their approach. Some countries that have introduced APD, such as Germany and Austria, have done so at a lower level. The Germans are economically canny, of course, and after they introduced it, they reduced it, rather than increasing it as the UK has done. We must welcome the fact that Aer Lingus is planning to fly to Edinburgh and therefore give us more choice, but there is still the handicap of high APD.

King Louis XIV of France was known as the sun king, and perhaps his sunny disposition was in part due to this quote from his Finance Minister, Jean-Baptiste Colbert:

“The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the smallest possible amount of hissing.”

For the benefit of Members, I have translated that passage from the French. We have not had much of a sunny disposition from the Treasury for the past two years, but there has been plenty of hissing—and booing—in its direction.

Since 2007, APD has risen by 160% on short-haul flights and between 225% and 360% on long-haul flights. The Aberdeen Airport managing director has said:

“At Aberdeen Airport we run a real risk of losing around 200,000 passengers by 2016 through this damaging tax. Each recent increase in APD has had a dramatic impact upon what we, as airports, have achieved and could have achieved without APD. It is imperative that the UK government undertake a detailed and comprehensive review into APD with the utmost urgency, and at the very least freeze APD whilst that is taking place.”

Gordon Dewar of Edinburgh Airport adds:

“This tax has now hit its tipping point where the damage it is doing to Scotland far outweighs the benefits. This cannot stand and must be reviewed as a matter of urgency.”

No wonder people are concerned, especially as the Calman commission recommended this policy be devolved in 2009 and the MSP representing the Edinburgh airport area, Colin Keir, says:

“APD hits tourism and business and we need to have the power at Holyrood to maintain competitiveness with other countries and fairness to those travellers who have to use our airports.”

The economic mismanagement from Westminster is frustrating people, especially as this Parliament and Government will not devolve this policy to Scotland. I tell Parliament and the wider country, however, that in 2014 people will have a chance to have APD devolved and to give Scotland a competitive edge. After the independence referendum of 2014, I look forward to the devolution of APD, along with everything else, by one means or another.

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[Sajid Javid]

I thank my hon. Friend for her intervention. I am pleased to hear that she has been glued to her television set watching this debate. I take her point about the Caribbean. Several hon. Members have made a similar point, and I have listened carefully.

[Mr MacNeil]

The hon. Gentleman has spoken about having a revenue-neutral tax. When the Government cut taxation from 50% to 45% for millionaires, did the revenue-neutral consideration enter into that equation?

[Sajid Javid]

Absolutely. I can assure the hon. Gentleman that the effects on taxation were taken together and that the Government had determined that the extra 5% was raising hardly any tax whatsoever.

Given that we have recently completed a comprehensive consultation on the subject, we have no plans for further reform at this point.