Air Passenger Duty

Anneliese Dodds Excerpts

Tuesday 10th July 2018 Westminster Hall

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

It is a pleasure to speak in this debate with you in the Chair, Sir David. I congratulate the hon. Member for Belfast East (Gavin Robinson) on securing the debate, which has been very inclusive and interesting, and on his illuminating speech.

Many of these issues have been discussed before, as the hon. Gentleman mentioned. They were foreshadowed in our debates about recent Finance Bills, in which I spoke on behalf of the Opposition. Labour argued in those debates that the Government need to be clearer about their long-term plan for APD. There have been a number of reviews of APD’s efficacy, proportionality and impact on competitiveness since its introduction in 1994, and we need to situate this debate in that context. However, despite those reviews, a number of questions still have not been answered, so I hope the Minister provides some indication of the Government’s thinking.

As has been indicated in previous debates on this topic, the Government estimate that APD contributes about £3.1 billion to general taxation. I am well aware that the hon. Gentleman and others suggest that, if one takes a holistic view of its fiscal impact, APD may be fiscally positive on the ledger. It would be helpful to hear from the Minister whether the Treasury is conducting a 360° review of APD’s fiscal impact. I understand that PwC has carried out research, but it would help if the Treasury were focused on this issue, too.

In response to the comments by the hon. Member for Shannon, I cannot resist—

[Jim Shannon]

For Strangford—that’s a step too far!

[Anneliese Dodds]

I beg the hon. Gentleman’s pardon. I am very sorry about that. He will perhaps be even more perplexed when I mention that, rather than pound pinching, my family talked about looking after the pennies and the pounds looking after themselves. Perhaps that reveals a psychological difference between lowland and Ulster Scots. Of course, we need to look after the pennies and the pounds—that is the whole point. We need to trace exactly the impact of APD.

Studies suggest that the evidence about APD’s impact on passenger numbers is mixed. As many Members said, such a duty is unusual in the international context, but the number of passengers using UK airports has increased by 15%—a substantial increase—in the past five years. Of course, APD needs to be considered in the context of there being no tax on aviation fuel and no VAT on domestic or international flights. There are also different levels of APD for different kinds of flights, and exemptions for children were introduced in 2015 and extended in March 2016.

I will focus on four issues: the long-term viability of APD, regional competitiveness, the unequal impact of APD on different groups of Britons, and environmental issues. From a revenue point of view, there are clearly significant concerns about APD’s long-term viability. The Government have moved to provide industry with earlier notice of APD changes. The rates for next year were announced last autumn. That is surely positive for industry but, as I mentioned, we have had no indication of the Government’s view of the long-term trajectory of the tax, particularly in the context of the race to the bottom occasioned by internal competition in the UK. The tenor of this debate demonstrates that the starting gun has been fired on that race—it has begun, and we need to know the Government’s response.

We must view increases or reductions in APD in the context of taxation generally across income levels. It is notable that, given the increasing popularity and accessibility of air travel, many more people pay APD. As my hon. Friend the Member for North Tyneside (Mary Glindon) said, many more people enjoy hard-earned holidays abroad, and there are also people who need to travel abroad for family or work reasons.

Equally, APD is far less significant for household incomes than VAT, another transaction-based tax, which Members touched on. We would be in a different situation if the potentially regressive impacts of consumption taxes as a whole were cancelled out by progressive income taxes, for example, but of course the Government reduced the top rate of income tax. The latest Office for National Statistics figures suggest that overall, unusually in Britain’s history—at least in recent times—people in the least well-off decile pay a greater proportion of their income in tax than those in the most well-off decile. That is a peculiar situation.

Another concern we must note is about APD’s impact on regional competitiveness, which has been a focus of the debate and was perhaps its motivation. As we have discussed, APD levels were devolved to the Scottish Government in the Scotland Act 2016 and initial suggestions were that it would be halved and then potentially removed altogether.

We have discussed at length changes mooted in Northern Ireland, where there has been a call for evidence. We got useful detail about the operation of that from the hon. Member for Belfast East. As I understand it, the Government stated in February 2015 that they would also consider the case for devolving APD to the Welsh Assembly. We have therefore seen much change in relation to this duty.

All those changes naturally raise questions for airports contiguous to other airports not subject to the same APD levels, whether they are contiguous to Scotland or to the Republic of Ireland. We heard interesting thoughts on that from the right hon. Member for Belfast North (Nigel Dodds) and the hon. Members for Upper Bann (David Simpson) and for East Londonderry (Mr Campbell). Of course, the hon. Member for Strangford (Jim Shannon) —I have got it right this time—gave us a typically passionate and inclusive speech and a glimmer of his holiday plans. I hope they are more sedate and relaxing than those of the hon. Member for Henley (John Howell), whose itinerary of recent movements sent my head into a bit of a spin.

We also heard from my hon. Friend the Member for North Tyneside, who pointed out research suggesting that the duty has a significant impact on people living in her area. She is always a doughty supporter of their interests.

The Treasury published a discussion paper on options to support English regional airports in July 2015, but it is difficult to find out what concrete steps have occurred since then. Furthermore, the Government have said they will look at the matter once legislation concerning state aid changes is produced. An indication from the Minister of the Government’s thinking on that would be helpful; it is particularly important, given the points made by the hon. Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry) about the situation for the highlands and islands.

There is often confusion in this place, though certainly not on the hon. Gentleman’s part, about the impact of EU state aid provisions in general. Of course, they prevent the provision of arbitrary support, but, as he suggested, low levels of population could be a feasible basis for such an exemption.

[Drew Hendry]

The hon. Lady makes the point well. This is an exemption based on population density and the regional difficulties in the highlands and islands. Indeed, it should be possible—I hope it is—for the Scottish and UK Governments to work together to solve that problem.

[The Exchequer Secretary to the Treasury (Robert Jenrick)]

We are.

[Anneliese Dodds]

I was pleased to hear the Minister say from a sedentary position that they are working on that. I hope the UK Government will do so with rather more application than they did on support for the steel sector, of which I had an inside view as a Member of the European Parliament: they made no attempt to secure clearance for the kind of support we saw applied in countries such as Romania, which had been okayed by the European Commission; they asked the Competition Commissioner for exemption only from environmental measures. There was not much application around steel, so I hope we will see a different approach to these matters.

Another concern is the impact of APD on Britons who have family living outside the British Isles. The previous four-banding system meant that such individuals could end up paying more APD than those travelling to the US, for example. None the less, the division in the calculation between short and long-haul travel continues to be criticised by some who feel that that disadvantages Brits with families in, for example, the Caribbean, India, Pakistan or Bangladesh, who need to fly long haul to visit them. One could argue that other, lower carbon alternatives are available to flying for short-haul journeys, which do not apply for travelling long distances. An indication of the Government’s thinking on that would be helpful.

Our final concern is about APD’s impact, or otherwise, on environmental outcomes. In response to a question posed by the hon. Member for Henley, the hon. Member for Belfast East maintained that APD does not have a positive environmental impact. However, we must look at it in the context of enormous public concern around climate change and the increasing significance of emissions from aviation. At APD’s introduction in 1994 and, following that, the Labour Government’s focus on it, there was an attempt to ensure that its design would have a green impact. For example, during the 2007 Budget process it was stated that APD

“plays a valuable role in ensuring that passengers understand and acknowledge the environmental costs of their actions. The resultant behaviour change can deliver significant climate change benefits”.

Those believed benefits were then detailed.

[Gavin Robinson]

I hope that the hon. Lady does not misconstrue what I said as a suggestion that we are not interested in climate change. The Library briefing is helpful, talking about the Labour Government in 2006 and a Department for Transport recalibration of emissions, which were to increase and not decrease until 2030. I do not think consumers realise that the contribution is made for environmental benefit or that it is having any tangible impact. The growth of aviation technology will have a much bigger impact on environmental benefits than an APD charge.

[Anneliese Dodds]

I am grateful to the hon. Gentleman for those comments. I acknowledge that there is not necessarily the awareness to ensure that it does have such an impact. Some of the matters he just raised have led to calls for a redesign of the duty, which some believe could lead to a greater environmental impact. One suggestion, which was examined in 1998, was whether it would be better to levy the duty on planes rather than passengers to reduce under-occupancy and lessen emissions. However, the then Government suggested that a restructuring of APD would be more appropriate and the four bands were introduced. Of course, since then we have gone down to two bands.

It is interesting to note that the highly interventionist right hon. Member for Wokingham (John Redwood)—he is not often described as that—argued that, on reducing under-occupancy through such a measure,

“there is a green case to be made there.”—[Official Report, 23 April 2007; Vol. 459, c. 729.]

However, the practicalities of doing so are highly complex, which may be why that did not develop at that time. In particular, it is difficult to exempt transit and transfer passengers from the calculation, which led Alistair Darling away from initial moves in that direction.

The taxation of aircraft fuel has been mentioned as an alternative, but that is prevented by the network of bilateral air service agreements under the principles of the Chicago convention. It would be helpful to hear whether the Minister has been involved in attempts afoot internationally to alter that agreement to provide more flexibility.

[Drew Hendry]

I am grateful to the hon. Lady for giving way yet again. She is talking about alternatives for taxation. Does she agree that had APD been used directly for environmental measures, it would have had a huge impact? For example, it could have been involved in the creation of alternative biofuels and other incentives and operations to reduce dramatically the environmental impact, yet it has not been spent in that way at all.

[Anneliese Dodds]

I am grateful to the hon. Gentleman for that interesting point. Hypothecation of tax is relatively unusual in the UK. My party believes—he will expect me to say this—that there needs to be much more investment in those technologies. That would be positive for our country, whether funds are hypothecated from a particular area or found through other mechanisms.

One other aspect of the international context—this was mentioned to me by a Minister—is the ICAOs agreement on the carbon offsetting and reduction scheme for international aviation, which was introduced in October 2016. Members have referred to the EU’s emissions trading scheme in that context, but we have not yet heard from the Government about whether we will remain part of the ETS beyond 2020. If we follow existing patterns for APD, Parliament will set the rate for 2021 next autumn. It would be helpful to get a clearer idea about how the Government view international schemes such as that of the ICAO interacting with multilateral mechanisms such as the ETS. The general lack of clarity on environmental matters amplifies the fact that the UK Government seem to lack any long-term vision about what constitutes green taxation in the first place, let alone how it should develop in future. This is a bit of a cheesy point, but I contrast that with the shadow Treasury team, which includes a shadow Minister who is focused exactly on such matters, and on the link between environmental and Treasury issues.

In conclusion, I am afraid that I lack the poetic sensibilities and contacts of the hon. Member for Belfast East, but I congratulate him again on securing this debate. I look forward to hearing from the Minister about the five issues I raised: whether there will be a 360° review of APD; whether there is a long-term plan for it; what the Government’s view is about the substitutability of short-term flights, and whether that should be taken into account; whether the Government are participating in international attempts to reform the Chicago convention; and what their view is of the interaction between the ICAO scheme and the ETS, and what the future will hold for carbon trading for the UK beyond 2020—that point is very germane to this debate.