Air Passenger Duty: Regional Airports

Drew Hendry Excerpts

Tuesday 20th October 2015 Westminster Hall

[Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP)]

It is a pleasure to serve under your chairmanship, Sir David. I congratulate the hon. Member for Solihull (Julian Knight) on securing this important debate. As the SNP spokesperson on transport, I obviously take a keen interest in this issue.

The hon. Gentleman described the positive impact regional airports can have on the economy—jobs, direct investment and the growth that stimulates further jobs down the line. Members around the Chamber have talked with common purpose about supporting regional airports and those who have to travel from the periphery.

The right hon. Member for Belfast North (Mr Dodds) said that regional airports are being held back by APD, but I would suggest that this goes even further: they are also being held back by a lack of flexibility in policy on route development and route protection. The right hon. Member for Meriden (Mrs Spelman) said that devolving the relevant powers would make a difference, and I think they will when they come on stream for Scotland. That is mainly because Scotland’s regional airports will not get the benefit of High Speed 2. Even if HS2 does come to Scotland, they will not see a difference.

[Mrs Spelman]

For the record, it is right to say that the Scottish Government do want HS2 to reach Scotland. They have given clear evidence to that end.

--- Later in debate ---

[Drew Hendry]

Absolutely. We would be delighted to see HS2 reach Scotland; indeed, we have always said it should start in Scotland and be developed southwards.

My hon. Friend the Member for Central Ayrshire (Dr Whitford) mentioned the impact that the development of regional airports has on tourism. Nowhere is that more true than in her constituency, but it is now an expensive destination because of the policy we have had. As we heard, Elvis left the building, and he was not encouraged to come back subsequently—regrettably, he cannot do so now.

The hon. Member for Fylde (Mark Menzies) talked about APD’s effect on Blackpool airport. He said that the airport needs support, but that it has been left in a precarious position over the years. That is very similar to the position in Inverness and Dundee, so I have a great feeling of common purpose with him. We must make sure that routes are not dropped just because there is a more profitable option elsewhere. These routes are important lifelines for the communities they serve.

We have heard about the proposals for the reduction and abolition of APD in Scotland. I am pleased to say that those are yet another good idea from the SNP Government, and they seem to have gained quite a lot of support around the room. They make sense, and it is important that we go ahead with them.

As the MP for Inverness, Nairn, Badenoch and Strathspey, I understand the impact of APD. Regional airports such as Inverness and Dundee have long suffered the inequity of APD, but they are not alone, because other airports suffer too, and Edinburgh, Glasgow and Aberdeen are not well served by APD either. As we have heard, Prestwick could very much benefit from the proposed change. Air connectivity is vital to the local economy, and I am pleased that it will be—in fact, I am impatient for it to be—in the Scottish Government’s hands.

The UK introduced APD in 1994 to raise revenue from the aviation industry, anticipating that it would have environmental benefits through its effect on air traffic volumes. When it was introduced, it took the form of a flat £5 charge on flights in the UK and a £10 charge on other flights. It has been changed many times over the years. It was doubled in 1996, lowered in 2000, frozen between 2001 and 2007 and doubled from February 2007. It was then changed under the Labour Government in 2008 and the coalition Government in 2010. In 2013, it was increased, and the Chancellor made further changes in 2014 and 2015. This APD hokey cokey, married with the here today, gone tomorrow effect on routes and regional airports, has done nothing to help regional economies in places such as Inverness and Dundee or in the other constituencies represented by Members around the Chamber.

I point to those changes because, throughout all these years, successive Governments have failed to support regional airports. My constituents have suffered under the current approach. In addition to devolving APD powers as quickly as possible, we need public service obligations on routes to regional airports, as well as guarantees on those routes. We also need more flexibility on route development.

By 2016, £210 million less per annum will be spent in Scotland by inbound visitors than would have been the case if APD had not risen since 2007. That is a staggering figure. When power is transferred, the Scottish Government are committed to reducing APD by 50% by the end of the next Parliament, with a view to eventually abolishing the tax when public finances allow. Their plans to abolish APD have been welcomed by the British Air Transport Association, Aberdeen and Glasgow airports, VisitScotland and the Scottish Chambers of Commerce.

Sophie Dekkers, the UK director for easyJet—Scotland’s largest airline—has said:

“When APD is halved passengers in Scotland will quickly feel the benefit, with easyJet and other airlines adding more services to existing destinations and launching flights to new destinations from Scotland.”

Again, that would be welcome news for my constituents, who have long suffered the effect of here today, gone tomorrow flights.

[Jim Shannon]

In the scenario that the hon. Gentleman has outlined, if Scotland were to abolish APD, and given that the Republic has already done it, Northern Ireland would be the meat in the sandwich. It is important that Northern Ireland as well as Scotland gets to do it. Does he agree?

[Drew Hendry]

I absolutely agree, and support the devolution of powers to the nations of the UK in that way.

A consultation on a Scottish replacement to APD has been launched by the Scottish Government. It will give the people of Scotland and other interested parties the opportunity to provide their views—public views—on the design and structure of a Scottish APD. A Scottish APD stakeholder forum has also been established to help provide expert policy input in the preparation of policy proposals for Scottish APD, involving the air transport industry, environmental groups and tax practitioners and advisers. Devolution of APD to the Scottish Parliament will provide an opportunity to design a replacement tax that better supports our objective to improve connectivity to Scottish airports, generating new direct routes and increasing inbound tourism.

Reducing APD will have a positive impact on passengers, business costs and connectivity. However, as I have said, our support for regional airports should not end there. We need to make sure that the UK Government will do more to support regional airports, with a review of the current public service obligation regimes. The current criterion is too narrow and limits opportunities for regional airports.

--- Later in debate ---

[Mr Gauke]

My right hon. Friend is absolutely right, particularly in the context of a debate secured by my hon. Friend the Member for Solihull, to refer to the progress that we want to make in the west midlands, which is very much a priority area as well. I was going to touch on that. The case for the midlands engine set out today by my hon. Friend and my right hon. Friend the Member for Meriden is important.

I turn to English regional airports; I know they have expressed concerns that air passenger duty devolution will impact negatively on their business. The Government appreciate those concerns. Regional airports play an important role as local employers and enable the transport of people and products nationally and internationally. That improves connectivity, increases trade and helps to create new jobs. Consequently, the Government are undertaking a review of how to support regional airports in respect of such impacts. That is why the Prime Minister stated earlier this year:

“We are not going to accept a situation where there’s unfair tax competition…We will do what’s necessary to make sure that England’s regional airports can succeed.”

[Drew Hendry]

Does the Minister agree with the points made around the Chamber earlier about the fact that, whether someone is in a regional airport in Scotland or England, the economic growth that can be generated by changing the tax regime to encourage trade will enable all the regions to become more successful? They are not necessarily a threat to each other.

[Mr Gauke]

The Government have made significant progress on the devolution of taxes generally. The hon. Gentleman will be aware of the announcement made by the Chancellor of the Exchequer on the retention of business rates, for example. I know that business rates are already devolved in Scotland, but allowing English local authorities to retain business rates is an example whereby through aligning incentives, as it were, we can create the conditions for economic growth in every part of the United Kingdom.

I will deal with the specific points on APD in a moment, but first let me address the issue of the regional airports review, because, as part of that review, the Government published a discussion paper at the summer Budget this year. The paper explored three potential options for supporting regional airports affected by devolution: the first was devolving APD to regions within England; the second was varying APD rates within England; and the third was providing aid to regional airports.

The paper explored how the options could work and highlighted key points for consideration. The period for feedback on the options is now closed. We received a large number of responses and would like to thank all interested parties for their valuable responses to that consultation. We are carefully considering the views and evidence that we have received. We appreciate that the aviation industry values stability and certainty in the UK tax system and we will respond to the views expressed on the options in the discussion paper in due course. The response will set out how the Government wish to take the matter forward.

--- Later in debate ---

[Mr Gauke]

Our rates are higher than those in many other countries; I am not disputing that. I am arguing that we are not convinced that abolition of APD would pay for itself. Presumably the Scottish Government are also not convinced, because they have not brought forward proposals to abolish APD. It may be an aspiration for the long term—when finances allow—but that does suggest that there would be a loss of revenue.

The hon. Member for Central Ayrshire referred to the experience of Prestwick airport and the effect on tourism—a perfectly legitimate point to raise. As I said, we accept that APD rates are high on an international comparison. However, we think that APD is a very small component of a tourist’s overall spending on a trip to the UK. Some analysis done by Treasury officials over the summer suggests that depending on how long a long-haul passenger stays in the UK, APD probably makes up less than 2% of total spending on travel, hotels and subsistence, so although I accept the point, we have to put it into the context of the wider costs that may apply.

[Drew Hendry]

I am listening to the Minister’s comments about the effect on Prestwick airport. Does he accept that Prestwick, along with other regional airports whose local economies rely heavily on tourism, would be affected exponentially by additional costs for passengers? The Scottish Government’s approach—to reduce immediately and then remove APD—is likely to serve those economies better than taking no approach at all.

[Mr Gauke]

What I will say—this is the case for devolution; I suspect that the hon. Gentleman and I might agree on this—is that we shall see. We have the chance to see whether that approach has an impact on tourism levels in that area. We will be able to see that from the evidence that emerges, and that could help to inform future decisions. We have that flexibility, and the Scottish Government are able to exercise the policy that they think fit for Scotland.

--- Later in debate ---

[Mr Gauke]

If there was a dramatically different regime for new routes to and from the UK versus existing ones, there is a risk that there could be a certain gaming of the system. In order to qualify for a lower rate of APD, an operator might attempt to make a relatively minor change to a route, such as flying to a different German airport close to the original one, and thereby replace an existing route with a new one. That would do little to improve the use of, say, Birmingham International airport, as my hon. Friend seeks to do—given the remarks of my right hon. Friend the Member for Meriden, it might be unwise to try to increase the number of users to 36 million—and we would merely see a lot of churn, rather than the increase that my hon. Friend would like. On that and related ideas, we are considering all responses from interested parties to our consultation, and we will respond in due course.

[Drew Hendry]

I am grateful to the Minister for being generous with his time. I believe that he is talking quite a lot of sense on the difficulties with APD holidays, but does he agree that what we need is flexibility over route development? In other words, we need not only starter routes but more frequency on those routes. Indeed, perhaps we need public service obligations to guarantee those routes, which would allow them to bed in, to become established and to reach critical mass.

[Mr Gauke]

The hon. Gentleman, who is his party’s Front-Bench spokesman on transport matters, raises an important point, but I question whether APD is the correct way of achieving the objective that he seeks. In the context of APD, there are some challenges, and the gaming of the system is one risk.

Having welcomed the hon. Member for Salford and Eccles, I must point out that her shadow Treasury colleague the hon. Member for Wolverhampton South West (Rob Marris), the shadow Financial Secretary to the Treasury, told the House on 29 June:

“I would increase the rate of APD.”—[Official Report, 29 June 2015; Vol. 597, c. 1275.]

To be fair, that was before he was appointed to the shadow Front-Bench team. I do not know whether that is the Labour party’s position. I will leave that question hanging.