Air Passenger Duty

Debate between Angus Brendan MacNeil and Mike Crockart

Thursday 1st November 2012 Commons Chamber

[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.