Air Passenger Duty

Brian H. Donohoe Excerpts

Thursday 1st November 2012 Commons Chamber

[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.

--- Later in debate ---

[Mr Donohoe]

In order not to prolong the debate, and to give the hon. Gentleman time to speak later, I will not respond to his intervention.

The report suggests that, as a result of air passenger duty, 2 million fewer passengers will fly from Scotland from 2016 onwards. That is a fair number of passengers, given the number of people who fly. There are other reasons to believe that the problem is more serious in the regions than it is in the south-east of England, but I will not go into them in depth now. Our report recommended that the Treasury and the industry come together to undertake a comprehensive study. I would echo today’s calls that, until such an assessment is made, APD should be frozen.

I shall briefly mention VAT and fuel duty. If either were to be imposed on aviation fuel, the airlines—and not just those based in the UK—would go abroad for their fuel in order not to have to face that problem. Buying it here would simply no longer be an earner. I put it to the Minister that any suggestion of such an imposition should be studied in much greater detail. Indeed, fuel is not taxed for other forms of transport in the UK. There are a number of unconvincing arguments. One is that whereas the UK does not levy VAT on domestic flights, international air travel is generally VAT-exempt in many other countries. There are all sorts of other things that have to be brought into the picture. The aviation sector has no competitive advantage over other forms of public transport.

Let me look at the question of tax and tax avoidance. There is a good deal of evidence coming to the fore to suggest that families, instead of travelling out of the UK long haul, are travelling to other hub airports in mainland Europe and even further afield. As a consequence, the Treasury will lose the business and “Air UK” will lose the business.

[Mr David Hamilton]

Is my hon. Friend aware that travel agents throughout Scotland—and, I suspect, in the north-east, where the regional airports are based—are now actively encouraging people to go via Europe because it will save them quite a bit of money? For a family like mine, going to America otherwise means paying £1,000 extra.

[Mr Donohoe]

I am very grateful to my hon. Friend, but he is eating into my time and I have to be careful in that what happens in that respect has already been mentioned. I am told that up to £380 extra per person might need to be spent in those circumstances.

In conclusion, as we know from the length of the Davies commission, the Government appear to be in no rush to address the competitiveness problems of the UK aviation industry, which are impacting on the whole of our economy. The abolition or reduction of APD has the potential to make the UK more internationally competitive. As a minimum, I urge the Minister’s Department to undertake research to find out what the impact of APD has been on the aviation industry and what it means for that industry.