Air Passenger Duty

David Hamilton Excerpts

Thursday 1st November 2012 Commons Chamber

[Priti Patel]

I thank my hon. Friend for her comments.

We would all like to see travellers from Brazil, Russia, India, China and a range of emerging markets choose to spend their dollars, rupees and other currencies here, but the current rates of APD are deterring inbound tourism, especially from developing countries with a growing middle class. Why would a family of four from China wishing to take a holiday in Europe come to Britain where APD would add a further £324 to their travel costs when they could hop on a flight to France and pay aviation taxes totalling £36 or to Germany where they would also pay less? The Government’s tourism strategy clearly warns that we are pricing ourselves out of the mass or middle market and will swiftly relegate Britain from being the sixth most popular destination in the world to the margins of the industry. The aviation sector supports more than 900,000 jobs and contributes more than £50 billion to GDP. I urge the Government to consider how APD can be reformed to support tourism as well as business.

In 1994, modest levels of £5 for short-haul travel in the EU and £10 for destinations beyond the EU were introduced. APD is now having a negative impact on our economy. When the then Chancellor of the Exchequer, the Minister without Portfolio, my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke), announced the introduction of APD in November 1993, he said it was a small duty on all air passengers from United Kingdom airports. The predicted revenue was £330 million a year. It now raises 10 times more than that, and a family of four travelling economy class to Florida this winter will pay £260 in APD.

[Mr David Hamilton (Midlothian) (Lab)]

That figure would be a lot higher if the family were going via one of the regional airports and could not get the same carrier, because they would pay two lots of APD. It is now proving very difficult for many families to have a decent holiday abroad.

[Priti Patel]

The hon. Gentleman makes his point clearly. APD is having a wider multiplier effect.

If that same family of four were travelling to Australia, they would have to fork out £368. Those figures are not small and are having a severe effect on households with modest incomes throughout the country, including pensioners who wish to visit relatives living abroad. We have all had correspondence from our constituents, and one of mine wrote to me on this point to say that she supports this campaign because both of her children and her grandchildren live overseas and flying is the only way to visit them.

Another has written:

“Having friends and family in the Caribbean we have to pay even more of this excessive tax than flying to the west coast of the USA although the distance flown is less.”

This tax is clearly having a negative impact on families. It is deterring foreign direct investment, it is holding back our businesses, and it is making our country less competitive. For those reasons, I hope that colleagues will support the motion and I urge the Minister to take on board the remarks that I have just made.

--- 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.

--- Later in debate ---

[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

I will not be churlish, so let me say only that it is a pleasure to follow the hon. Member for Na h-Eileanan an Iar (Mr MacNeil), with whom I have shared a number of flights to destinations both within the UK and further afield. I have therefore heard him speak at great length on some of the issues he has just discussed, but he has still not persuaded me of anything other than that we are better together.

I congratulate those Members who secured the debate. By and large, we have had some helpful and thoughtful contributions, and I was very aware from the outset that a number of Scots were in the Chamber. I was glad to see that. Most of them are still here, although I note that my hon. Friend the Member for Central Ayrshire (Mr Donohoe), who has an encyclopaedic knowledge of the airline industry and was warning of inclement weather, is no longer in his place. I am worried that the rest of us might be detained here for somewhat longer than we had wished—I hope that will not be the case.

Hon. Members have made the case for the motion powerfully and persuasively. I am not going to repeat everything that has been said, although some points are worth reiterating because the issue has clearly touched a lot of people. The fact that well over the 100,000 people needed to trigger a debate in this place were drawn to sign the fair flying petition is evidence of that. Although I perhaps did not receive as many e-mails as other hon. Members, I know from my postbag that the issue matters to people. It matters to those who fly for business purposes, for family reasons, and for leisure and holidays.

I undertook a short survey of those who responded to the fair flying petition, asking them for their comments. I heard from a 65-year-old woman who flies from Scotland regularly to see her elderly father, who lives in the south of England; from the mother of a young person who is working overseas as a teacher—she told me that she helps to pay for the flights to enable the visits; and from a grandmother who travels regularly to the other side of the world to see her grandchild, who has a long-term condition. Those are the real-life examples that people were bringing to me. It is important to recognise the strength of feeling on this issue.

There has been wider frustration at this Government’s lack of consistency or urgency on aviation policy, as well as concerns about APD. When the economy has been struggling, the family purse strings have been tightened and businesses are crying out for support, the lack of direction has not been helpful. A number of speeches have dealt with the issues of tourism and jobs. I can tell the hon. Members who mentioned the Caribbean question that I have agreed to meet a delegation to discuss that in more detail, just as I have agreed to meet a number of other organisations after this debate to see where we take things in future.

It is important to remember that when Labour was in government APD was restructured so that it would be based on four geographical bands set at intervals of 2,000 miles. It was intended that travellers flying further would pay a higher rate of duty, but I know that hon. Members have discussed some of the anomalies. The intention was that additional taxes on air travel would be targeted at the most polluting, long-haul flights—again, people have raised issues about that today.

As we heard from my hon. Friend the Member for Hammersmith (Mr Slaughter), during the election campaign both the Conservatives and the Liberal Democrats argued for reforming APD further. The Conservatives argued that they wished to

“reform Air Passenger Duty to encourage a switch to fuller and cleaner planes.”

The Liberal Democrats’ manifesto contained more detail, suggesting that they would ensure that pollution was properly taxed by replacing the per-passenger APD with a per-plane duty—PPD—and that air freight would be taxed for the first time. They also said they would introduce an additional, higher rate of PPD on domestic flights if realistic alternative and less-polluting travel was available.

Those statements in the manifestos were supposed to be translated into action following the coalition agreement, which confirmed that the Government would

“reform the taxation of air travel by switching from a per-passenger to a per-plane duty”

and

“ensure that a proportion of any increased revenues over time will be used to help fund increases in the personal allowance.”

Those allowances were referred to in an earlier debate, and they have been referred to again today.

The Chancellor announced in the 2010 Budget that major changes would be subject to a public consultation. We then saw speculation in the press that the Government had had a change of heart over per-plane duty. Indeed, that was what triggered the organisations coming together to launch the fair tax on flying campaign, to apply pressure in order at least to get some action or clarification on APD.

In the 2011 Budget, the Chancellor announced that the Government would consult on simplifying the structure of APD. He also announced that he was dropping the commitment made in the coalition agreement and not pressing ahead with a per-plane duty, and that APD rates would rise in line with inflation, although the next increase would be deferred for a year. After promises of wholesale reform, the industry and the public heard that he was not only keeping the current structure but raising the rates further.

I am always happy to try to give people credit where it is due, not that I have had to do that often in the Chancellor’s case. There was a consultation and it covered a number of areas, including private jets, different tax bands, premium economy flights, flights from regional airports and the devolution of APD—all the things that people have talked about today. However, having consulted, the Government failed to propose anything. They did not propose any changes to the tax’s banding structure, to how different classes of flights are taxed or to the application of APD to the regions. Instead, they seemed for some time to have given up on any reform of APD at all. They argued, as the Minister did again fairly recently, that although no action had been taken there was no reason for another consultation or review.

I have only a couple of minutes left to summarise the debate and I realise that this subject is very difficult, given the range of considerations that must be balanced—including those of industry and business, the travel trade, airlines, consumers and the Treasury. I recognise the Scottish issues and those in Northern Ireland, particularly those outlined as regards Scotland and the connections with the main hub airports.

[Mr David Hamilton]

If a passenger uses the same airline—British Airways, for example—from Scotland to London and then to America, Australia or South Africa, the duty in the regional airport does not matter. The real issue is the double tax.

[Cathy Jamieson]

My hon. Friend makes a valuable point and I know that he has raised that question on a number of occasions. A sensible review would allow us to consider such matters. For the Government to undertake a consultation and take no action, without even considering any further work on the issue, was disappointing and showed a lack of leadership. It did not go unnoticed by the aviation industry, and we have heard a string of comments from the travel organisations, airlines and consumers. The Select Committee on Transport stepped in, in a sense, with its inquiry into aviation. The Chair helpfully confirmed that that inquiry would consider APD issues and it has provided an initial focus.

In conclusion, I hope that the Chancellor and the Minister, who will relay this debate to him, will take note of what has been said today and will consider and act on the findings of the Transport Committee’s report when it is published. Many Members are arguing for action and a review. The motion is modestly worded, although at some points I might not have worded it in such a way. However, in the spirit of co-operation, we want to ensure that we have the opportunity to consider the issue in more detail. We recognise the significant economic issues in the UK that need tough decisions, but such decisions should be based on the best available evidence.

The consistent message coming from all sectors of the industry is that the lack of certainty is causing problems, delaying investment decisions, risking future development and, crucially, risking jobs. I hope that the Minister, who comes fresh to this issue—indeed, he is the third Minister I have faced across the Dispatch Box in the relatively short time for which I have been shadow Minister—will take account of the points that have been made today, take away the work that needs to be done and introduce the review asked for in the motion.