Air Passenger Duty

Debate between Gavin Robinson and Gregory Campbell

Tuesday 10th July 2018 Westminster Hall

[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.