Air Passenger Duty

Chuka Umunna Excerpts

Thursday 20th January 2011 Commons Chamber

[Ms Abbott]

The hon. Gentleman has made his point very well indeed. Many of those people, particularly the older ones, have contributed to this country. Some of the generation who came to this country after the war helped to rebuild its public sector, and they have worked all their lives. As I have said, the sums of money involved might seem relatively minor to a Treasury official, but they represent a huge imposition on those people who love this country and who are almost invariably British citizens but who also have a great love for the country of their birth. One thing that makes this seem all the more unfair to those people is that air passenger duty is not charged on private aircraft. If this were really an environmental measure, one would expect it to be charged on private aircraft. I will come back to that point later.

It is my contention that air passenger duty is having a negative effect on British business. I have evidence that British business travellers are flying to the continent, then flying to the Caribbean from there, because it is cheaper to do so. Business travellers contribute £70 million to the British economy—money that is slowly being lost due to airport passenger duty charges. Aviation taxation is putting the UK at a competitive disadvantage in comparison with our European neighbours. This duty will incentivise the strengthening of alternative hubs to the UK both in and outside Europe. In the end, it could well reduce the number and connection of destinations served by UK airports.

Let me move on to tourism. I have been in the House quite a few years and I have lived to see Caribbean countries urged to restructure their economies and to move away from old-fashioned economies, such as those based on bananas and sugar, into financial services, which ended badly. Then they were encouraged to restructure the economy and diversify into tourism. Thus the Caribbean tourism industry now employs, directly and indirectly, more than 1.9 million people—11% of the region’s work force. In important tourist destinations such as Jamaica and Barbados, as much as 25% of the work force are engaged in tourism, while 60% of St Lucia’s gross domestic product derives from tourism. For the Barbados hotel industry, a significant number of holidaymakers are British, and there is no question that the tourism industry in the Caribbean has been damaged by the increases in this duty.

Arrivals from the UK to the Caribbean are now in decline, while those from other markets are increasing. The latest figure from the UK Office for National Statistics shows that visits to the Caribbean by UK residents in 2010 were 16% lower than for the same period in 2009. Visits to Barbados for the same period were 22% lower. For a tourist, as opposed to someone with family links to the region, the Florida Keys is now a cheaper destination. In respect of our air passenger duty arrangements, the whole system is wrong and it is having an effect on British citizens who happen to have links with the Caribbean.

[Mr Chuka Umunna (Streatham) (Lab)]

I congratulate my hon. Friend on securing this debate on an incredibly important issue. I represent one of the constituencies with the biggest Caribbean diaspora populations in the country. It covers Brixton, for example, and this is a huge issue in my community. I endorse all my hon. Friend’s comments, but would add one more. If this measure were primarily about increasing sustainability and reducing emissions, one would have thought that the proceeds would be used for environmental purposes. My understanding is, however—I am sure the Minister will correct me if I am wrong—that the sums raised from this duty go back into the general pot. Will the Minister also answer a specific point that was put to me? How can it be fair to charge a greater level of tax to fly to Jamaica—there are many Jamaican families in my constituency—than to fly the whole way to Hawaii? I would appreciate an answer on that.

[Ms Abbott]

I am grateful to my hon. Friend, who makes his point very well. He raised the question of the avowed environmental intent of the duty. I remember that when passenger duties were put forward under a Labour Government, Ministers said that they were there largely in order to help the environment and discourage unnecessary airline travel. This Government have stated that the rises in air passenger duty are partly intended to help achieve environmental goals.

Far be it for me to accuse any Government—whether it be my own or the present Government—of glossing over the reality, but the truth is that if APD were really about achieving environmental goals, it would be calculated differently. For instance, APD is calculated according to only one element of a given flight—the distance travelled, not according to whether the plane is full or half-empty. A whole range of other factors are relevant to environmental impacts, including the type and age of the aircraft, the time it spends in the air and how heavy it is, but the Government choose not to take those factors into account in calculating aviation tax rates.

As I have said, if this is really about the environment, why is no duty charged on private aircraft? The failure to establish a way of calculating the duty that would actually minimise the effect on the environment gives people the impression that, although Ministers may indeed believe in the environmental benefit, it may be no more than a pretext on the part of their officials.

If we want to persuade people to abandon planes for other forms of transport, it is surely logical for APD to bear more heavily on short-haul flights, to which there are genuine alternatives in the form of trains and boats. What, though, is the alternative for the retired nurse living in Hackney who wants to return to Jamaica every couple of years to see her friends and family? There is no such alternative, but we are imposing these big APD rates on her flight, or that of her family.

Having raised the issue under the last Government, I have taken the earliest possible opportunity to raise it again now.

--- Later in debate ---

[Ms Abbott]

My hon. Friend and I went on a number of delegations to Treasury Ministers, and found them—as Ministers always are—well-meaning, kindly and ostensibly understanding of our case. However, they were simply unable to stand up to their officials. We look to this new Treasury Minister for more stoutness of heart and firmness of purpose.

[Mr Umunna]

I think it important for us to send the public—our constituents—the message that this is not a party-political issue. I have obtained a very good House of Commons note on the subject, and I know that the hon. Member for Chelsea and Fulham (Greg Hands), who is sitting behind the Minister, made a number of excellent points about it in the debate on the Finance Bill in, I think, 2009.

[Ms Abbott]

I am grateful to my hon. Friend for making that point. I agree that this is not a party-political issue, but one on which Members on both sides of the House feel strongly. I also agree with my hon. Friend the Member for Slough (Fiona Mactaggart) that Ministers should show some fixity of purpose. The present method of calculation is indefensible in terms of both equity and environmental impact, and it could have a big impact on British business by removing the incentive for business-class travellers to make long-haul flights to the Caribbean from London rather than from the continental hub. It is bad for business, it is bad for the Caribbean’s economy—of which tourism is a vital part during an international downturn—and it is bad for British citizens with business interests or family members in the region who simply want to be able to travel at an affordable price.

I have pursued this issue for some time, but I have every hope that a new set of Treasury Ministers will view the arguments afresh, and will undertake to reconsider the way in which air passenger duty is calculated. We appreciate that the Treasury’s tax take must remain the same, and, as I said at the outset, we appreciate that there is a genuine environmental case for seeking to lessen air travel over time. However, we consider the present level of air passenger duty to be unfair, indefensible, and a burden on the Caribbean which this Government should seek to lift.

--- Later in debate ---

[Justine Greening]

I am grateful for that intervention. My hon. Friend points out the impact on local communities but, in a friendly way, I would challenge the point about contradictions. In terms of our tourism industry and our need for links with other countries to drive economic growth, this is very healthy. Our relationship with the Caribbean and the role that aviation plays in helping us to maintain that more broadly is particularly important, so we are not necessarily faced with an either/or choice.

One of the most intractable problems we face, which underpins the whole approach in the Treasury, is the unavoidable challenge of tackling the fiscal deficit. We are faced with that while also making sure that the tax measures in place work effectively and do not have the sort of negative impacts that we do not want or need them to have.

[Mr Umunna]

I should like to follow up the point about equity made by the hon. Member for Bedford (Richard Fuller), which I endorse. The key issue is the banding system, which was, admittedly, introduced by the previous Labour Government—I think one of the Minister’s predecessors referred to it as being rather rough and ready—and I would not necessarily endorse the form of APD that they put in place. The Minister says that the coalition Government have undertaken to review the system, but can she tell us when we can expect the results of the review? Obviously, the Budget will be on 23 March. Are the results of the review likely to be announced then or beforehand? That information would be useful to the industry and the many families who want to plan what they will be doing in the next few months.

[Justine Greening]

First, it would be wrong of me to pre-empt the Budget statement. What I can say—we have already been clear about this—is that any major change to air passenger duty will be subject to consultation. One thing that we have learned from looking at how this tax and others have been changed in the past is that we need a sensible tax-making policy that involves not just the Treasury thinking about the objectives it wants to achieve, but talking with stakeholders. There is a need to issue a consultation document to which people can respond and then draft legislation to make sure that the final legislation can achieve the aims we have agreed on and that have come out of the consultation.

I cannot give the hon. Member for Streatham any timings for all that, but I can tell him that we want to ensure that any reforms we bring forward will work as intended. He quoted a previous Minister saying that the system was rough and ready. We want to avoid making another change to APD that brings other problems we have not anticipated. Whatever we do in this area, it is impossible to get the perfect system, but we need to understand the pros and cons of any particular approach. We need to understand what the risks are and whether we can mitigate them. He is right to ask about timelines. The fact that we said in the previous Budget that we want to review and reform APD and that we have been working on that and meeting a variety of stakeholders to get their views shows that we want to do this in a thoughtful way rather than just announcing something that would be a surprise to the industry and to people who are trying to plan for their holidays.

Let me finish by saying that I recognise the urgency with which the hon. Member for Hackney North and Stoke Newington wants this area of tax policy to be changed. However, I think we are right to work out cautiously which path we want to go down. That is why we talked about reviewing the existing APD regime in the June Budget. As I have said, in the past few months I have met a variety of stakeholders, particularly from the Caribbean countries and the Caribbean Council in London. Those discussions have been very helpful and I have had a useful and detailed report from the Caribbean countries about their views on how we could reform APD. Obviously, we will look at that carefully. I am determined to make sure that we continue that constructive dialogue and I hope that in doing so we can ensure that wherever we end up with the reform of APD we will have done a better job of making sure that—