Air Passenger Duty

Gavin Robinson Excerpts

Tuesday 10th July 2018 Westminster Hall

[Gavin Robinson (Belfast East) (DUP)]

I beg to move,

That this House has considered air passenger duty throughout the UK.

Good morning, Sir David. It is a pleasure to serve under your chairmanship.

Air passenger duty is a protracted issue that Parliament has had many opportunities to consider since its introduction more than 20 years ago. The fundamental premise of my party’s position on air passenger duty and the thrust of the debates throughout recent decades is the economic barrier and detriment that air passenger duty—it as an arbitrary charge on short-haul and long-haul flights—causes for our economy more generally, for our tourism industry and for connectivity within and outwith the United Kingdom. This is a timely opportunity for the House to consider the impacts of air passenger duty once again.

[John Howell (Henley) (Con)]

It would not be a debate if I did not intervene. Air passenger duty was introduced as an environmental tax to try to discourage people from using planes. Does the hon. Gentleman think it has worked at all in that function?

[Gavin Robinson]

I am delighted to have an intervention so early and to have it from the hon. Gentleman. The answer is no—it has not worked to protect our environment at all. The Treasury call for evidence published as a result of the confidence and supply agreement states clearly:

“APD is a tax based on the number of chargeable passengers aboard an aircraft taking off from a UK airport, and is the only tax applied on air travel as the government does not apply VAT to airline tickets or levy a tax on fuel.”

Somebody who is interested in the environmental impacts of air travel would suspect that a tax might be attributed to fuel, given that the fuel causes the damage. When the Labour Government considered APD back in 2006, they felt they needed to strengthen the opportunity to protect the environment through air passenger duty. Department for Transport modelling indicated that, even if they were to proceed along the current path, there would not be a stabilisation of emissions until 2040. Does it work as an environmental protection? No, it does not. Does it work as an economic detriment to our country, our economy and our tourism industry? Yes, it does.

I pay tribute to those who have campaigned on this issue for much longer than I have. Northern Ireland has been enriched by the enthusiasm and passion of the campaign from Hospitality Ulster, the Northern Ireland Hotels Federation and the Northern Ireland airports. I have the privilege of representing George Best Belfast City airport in my constituency. We have Belfast International airport, some recreational spaces in Newtownards aerodrome and St Angelo, and the City of Derry airport in Londonderry. Airlines UK, a campaigning body that represents airlines across the United Kingdom, has provided much information. The House of Commons Library and the Tourism Alliance have also been very useful in providing information for this debate.

As I have mentioned, the confidence and supply agreement struck between my party and the Government last year specifically provided for a review of air passenger duty and of VAT on tourism and the hospitality sector. The issue crosses the entirety of our United Kingdom. Other Members here today will want to raise issues that are particular to Scotland and to the northern parts of England. Although this debate covers the whole United Kingdom, I will focus most of my remarks on the impacts of APD and VAT in Northern Ireland.

[Mary Glindon (North Tyneside) (Lab)]

I congratulate the hon. Gentleman on securing the debate. As he has said, the issue affects other parts of the United Kingdom. A Fair Tax on Flying estimates that, since the measure was introduced, the residents of North Tyneside have paid more than £38 million in APD. Is that fair or commensurate with the economic problems that we face in the north-east when we need to increase our trade and let people go on hard-earned holidays?

[Gavin Robinson]

The hon. Lady is entirely right. She indicates how APD acts as an economic barrier and a detriment. It curtails growth and success and stands in the way of business from the north of England to the south of England to other parts of the United Kingdom. It stands in the way of leisure pursuits and increases the costs on hard-working taxpayers and their money, whether it is for business or pleasure. She is entirely right. It is a barrier.

[David Simpson (Upper Bann) (DUP)]

My hon. Friend knows that the UK has the highest flight taxes anywhere in the world. We surely need to look at that. Hopefully we are going to be in a post-Brexit situation, so we need to make sure we can attract businesses and more people into the country. Cutting the tax is one way we can do it.

[Gavin Robinson]

The Minister does not need to be encouraged on the merits of leaving the European Union or indeed on the benefits, flexibility and freedoms that it will give us as a country to chart our own course and to set preferential tax rates that are beneficial and encourage growth, which I think must be a key factor for the Treasury.

I have mentioned the confidence and supply agreement and the call for evidence that was published. I understand that there has been extensive engagement, particularly from Northern Ireland industry, the airlines and all of those affected by this arbitrary tax. The consultation closed on 5 June and we look forward not only to the thoughtful engagement of the Treasury, but to its purposeful response. The issues that it took evidence on are the same issues that have applied to this debate for years. When the Treasury says that it wants to explore the economic impact of APD, it is exploring the same reports that were presented to it in 2011, 2013 and 2015—exactly the same reports carried out using exactly the same modelling—which indicate that scrapping air passenger duty would be a net gain to the UK Treasury. I do not say that superficially, but whenever we stand before a Treasury Minister or try to argue with the Treasury and say, “We want to have this cut for a boost,” they look at you and say, “This will cost us money. If we take from this pot, how will we supplement it in another way?” The call for evidence will show, as every economic forecast has shown, that there is a net economic benefit to the reduction of air passenger duty.

[Mr Gregory Campbell (East Londonderry) (DUP)]

I congratulate my hon. Friend on securing this debate. Does he agree that the major competitor to all of Northern Ireland’s airports—International, City and Londonderry—is Dublin? Dublin Airport has now attracted tens of millions of passengers. It is one of the fastest growing airports in western Europe and the Irish Republic does not have APD. We need a very competitive industry. Cancelling APD would give our airports a magnificent advantage over Dublin.

[Gavin Robinson]

My hon. Friend is right. I will come on to those Northern Ireland-specific issues, but first I will touch on the 2013 PricewaterhouseCoopers report. PwC uses—this will mean something to the Minister, and probably a lot to the officials sitting behind him, although it does not mean much to a layman like me—a computable general equilibrium model: exactly the same model that the Treasury uses when considering economic impacts. PwC updated its report in 2015, but the 2013 report was clear: scrap air passenger duty, and the Treasury will gain—not lose and claw back, but gain.

As a country we have gone from getting £343 million per year from air passenger duty in 1999, to £3.9 billion last year, with £4 billion estimated by 2021. When PwC updated its model in 2015, it said that there would be a direct boost to this country’s GDP of 0.5% in the first year, not a loss. How many times do we see newspaper headlines with every political decision that is having a detrimental impact on our GDP? Yet here is a simple and clear way that the Treasury could make a positive and progressive move that would lead to an increase in GDP in the very first year.

PwC said in 2015 that if we had done it that year, by 2020 we would have had 1.7% economic growth. That would have meant 61,000 additional jobs in this country, stimulation of our tourism and hospitality sectors, growth in business, 61,000 more families benefiting from a good income, 61,000 more families not otherwise relying on the state, and more revenue raised in tax than would be lost in abolition. If we can push one message, whether through the consultation, the call for evidence or the plethora of modelling and economic data that has been provided to the Treasury, it must be this: more tax revenue will be raised with the abolition of APD than its retention—an extra £570 million per year, had the decision been taken in 2015. That is not the £4 billion we are hoping to get, but £2 billion on top of that by 2020. That is a 50% increase, and were I a Treasury Minister I would jump at the chance.

Northern Ireland is, of course, close to our hearts. We have to look at the competitive disadvantage in Northern Ireland compared with our near neighbours in the Republic. Travelling from Belfast to Dublin airport is no different from travelling from Manchester to Birmingham. It is only 100 miles, so when someone is considering where to fly from and how much it will cost, the economic attractiveness of flying from Dublin is incredibly strong.

I do not put those figures forward to suggest that the UK tourism industry is in a bad place; it is not—we rank fifth out of 136 nations in travel competitiveness overall. However, on ticket price competitiveness, the Treasury report says we are 135th out of 136 countries. When someone is faced with the attractive economic proposition of travelling 100 miles down the road to Dublin, that is a barrier to growth in Northern Ireland, to additional connectivity, and to greater opportunity for leisure travel. It is frustrating and constraining the economic stimulus that we in Northern Ireland desperately need, and that our businesses crave.

In Northern Ireland we have had an 11% increase in travel, with 17% more air passengers going through our airports over the last five years. That sounds good, as the UK average is 22%, but what are Dublin’s figures? In 2014, the Republic of Ireland scrapped air passenger duty. From 2014 to 2018, the number of air passengers going through Dublin’s airports rose by 47%. That is an additional 9 million travellers, 1.2 million of whom come from Northern Ireland. That starkly illustrates what we are attempting to highlight. On average, 25% of the cost of a one-way short-haul ticket in this country is air passenger duty. It is not small beer; it is a considerable consideration for anyone seeking to travel.

The Northern Ireland Affairs Committee, which I served on during the time of the inquiry, has considered both the reduction and the abolition of air passenger duty, as well as a reduction in VAT. The debate does not focus on VAT but on air passenger duty. However, in our view the two are intertwined, and the Northern Ireland Affairs Committee agreed. The Republic of Ireland cut its VAT rate for tourism and hospitality, bringing it down to 9%. That means, again, that that industry has a competitive advantage. If somebody goes to visit the island of Ireland they will see our hospitality figures, hotel rates and so on with a significant uplift.

When the Republic of Ireland cut its hospitality and tourism VAT, there was a significant benefit to the economy again. For every percentage point dropped—and the rate went down to 9%—there was an increase of 1.7% in employment. That directly led to 4,800 new jobs in the Irish Republic, because it had the courage to cut the VAT associated with hospitality and tourism. The Northern Ireland Hotels Federation and Hospitality Ulster are clear that the economic benefit and growth created in the Northern Ireland economy through that simple reduction could result in 1,100 jobs.

I understand that we have two tax rates for VAT in this country—20% and 5%. We are constrained to those two at the moment, and even if we were not, we might not choose to have three, four or five because of the increase in burden. However, the Northern Ireland Affairs Committee was quite clear that the disparity makes a distinct difference when Tourism Ireland, which is charged with promoting tourism on the island of Ireland under the Good Friday agreement, is promoting Northern Ireland, as opposed to the Republic of Ireland.

I hope that the Minister will not only outline a timetable for considering the Treasury’s call for evidence, but show an earnest desire to take, once thoughtful consideration has been given to the mounting evidence that has been compiled over years, reasonable, beneficial, appropriate steps to stimulate the aviation sector across the United Kingdom, tourism and economic growth in Northern Ireland. I hope that we look at not only the specific calls of the Northern Ireland Affairs Committee on the abolition of APD and the reduction of tourism VAT, but other models as well.

One such model could be a route development fund. We could charge no APD for a three-year window. That would be a good way to test whether or not it is an economic barrier or detriment. There would be no loss to the Treasury on any new route, because it would just not charge for such a route. A route development fund would encourage growth and stimulate the sector to get business destinations, which we crave in Northern Ireland, such as Frankfurt in Germany, France or even transatlantic flights to the United States. We could give a route development fund three years to see whether it makes sense, and whether air passenger duty has been a significant barrier. Allow a route to develop without the threat of air passenger duty, allow it to stabilise and grow, and we believe that fruit would be borne through that sensible policy.

[Nigel Dodds (Belfast North) (DUP)]

I am grateful to my hon. Friend for securing this important debate. It is a timely opportunity to remind everyone of the important work that is under way in relation to the consultation on APD and VAT in Northern Ireland, which he referred to. He talked about the general issues, but there are two crucial issues that will result in a change for Northern Ireland: first, we are in competition with Dublin airport; and, secondly, Northern Ireland is cut off from the rest of the United Kingdom by the Irish sea, and therefore we are much more dependent on air links. When the Treasury looks at APD, it must conclude that, to make Northern Ireland competitive and to sustain our economy, it must take action to deal with those two issues.

[Gavin Robinson]

My right hon. Friend is absolutely right about the competition and the constraints put upon us as a region. I could not have put it better. We are set aside by the Irish sea, and we rely on air connectivity. We do not have the choice to search around for off-peak train travel, or to easily jump on a boat, only to find that the bus is not at Stranraer waiting for us. When we look at stimulating our economic growth, we have to recognise that we are at a distinct disadvantage because of the Irish border and the tax duty regime in the Republic of Ireland.

I know that other hon. Members will mention the other devolved regions, which have committed to remove air passenger duty. Whenever a devolved Administration gets into such a discussion with the Treasury, it will ask for the cost to be covered by the block grant. It has had such conversations with Northern Ireland and with the Scottish Government. If there is further devolution, it may have such conversations with the north of England.

The whole thrust of that approach is predicated on loss and on the Treasury not having something it otherwise would have had. If it is successful, Scotland, Northern Ireland or the north-east of England are not allowed to reap the rewards; they go back to the Treasury. We need confidence and optimism in this process. Evidence from across the United Kingdom shows that there are benefits. The Government must recognise our unique challenges and those of other parts of the United Kingdom.

I look forward to hearing what the Minister has to say. I have a Valentine’s poem for him. It was written by Pubs of Ulster—the predecessor to Hospitality Ulster—to one George Osborne in February 2015. I hope it adds a bit of levity to a debate that can be turgid when we get down into the figures. I think pragmatists can see what the answer is.

“Labour is red

Tories are blue

Here’s something important

That you need to do

Our VAT rate is crippling

Our ability to grow

It’s putting off tourists

To other countries they go

Please cut the VAT rate

And help us create

A competitive market

For our beds and our plates

As you know my dear Chancellor

You’re close to our hearts

But elections are looming

And you may depart

So as your last action

Before the big day

Please cut the VAT rate

And you may get to stay!”

That is a little bit of fun, but it lays out the Northern Ireland tourism and hospitality industry’s calls about VAT.

Air passenger duty is clearly a barrier to growth. I trust that the Minister will thoughtfully consider all the calls for evidence. We look forward to hearing a suitable response today and in the weeks to come. I hope that, come the autumn statement, we will be in a position to make some sensible and serious proposals.

--- Later in debate ---

[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.

--- Later in debate ---

[Gavin Robinson]

This has been a productive debate. We may not be many in number, but we were ably assisted by the hon. Members for Henley (John Howell) and for North Tyneside (Mary Glindon), and by the Front-Bench contributors. I have enjoyed listening—the speeches were thoughtful and full of detail, which is how a debate should be.

I am grateful to the Minister for his commitment to engage in the interim and to present a response to the call for evidence in October. He is right that we have the power for a route development fund, but that misses the point that, if the Treasury were to permit the introduction of previously non-serviced routes where no APD is applied, not only would there be freedom to grow those routes, but it would be demonstrated to the Treasury that there is a benefit in not having APD associated with them. It is slightly different: if the Executive used their powers, APD would be charged for those routes.

We are one of a few European Union countries with APD. We have heard in the debate about the benefits for Ireland and the Netherlands from scrapping it. There has been exponential growth in their economies as a direct result. We are the only European Union country, out of 28 member states, where connectivity has declined. We need to think about the reasons for that and work productively to see what we can do to encourage growth in business, aviation and the country.

Question put and agreed to.

Resolved,

That this House has considered air passenger duty throughout the UK.