Air Passenger Duty

George Freeman Excerpts

Wednesday 23rd October 2013 Commons Chamber

[George Freeman (Mid Norfolk) (Con)]

It is a pleasure to follow the hon. Member for South Down (Ms Ritchie) and her colleague the hon. Member for East Antrim (Sammy Wilson). I welcome the new Economic Secretary to the Front Bench; I have no doubt that she will be a huge asset to the Government and the House.

I declare a slight interest, as I have cousins in Northern Ireland and, in my prior career, I spent far too many hours on internal flights, particularly to Scotland. Like many, I have enjoyed city breaks with my family; I shall spare the House the details of our recent trip to Amsterdam.

The democratisation of air travel in recent years has been a force for good, opening up to millions of families opportunities previously denied them. Millions more people are enjoying the thrill and experience of easy air travel and all that it opens up. Air travel does, of course, have a high carbon footprint, but just as the air industry has achieved stunning breakthroughs in safety through the extraordinary application of private sector expertise, investment, innovation and science, I have no doubt that it will be a force in demonstrating potential for energy-efficient air travel as well.

My principal reason for speaking this afternoon is to discuss the business of air travel and the role of air travel in business and in the economic predicament faced by this country. We are rightly—I commend the Government for it—putting an emphasis on the rebalanced economy and unlocking the power of our regions and cities to drive a new model of innovation-led growth, and air travel is an important part of that.

However, let us turn to the charge sheet that the House is presented with this afternoon and the motion, which calls for air passenger duty to be scrapped. The first charge is that it is a green tax, but, as the hon. Member for East Antrim said, it was not introduced and justified on that basis. However, he explained that even if it were, that would be no reason for not getting rid of it. This country, the western world and the whole world face a challenge in increasing energy efficiency and reducing the carbon footprint. Although that would not be a reason for introducing APD, it is worth bearing it in mind that we need to send a signal that rail travel, car-sharing and other forms of energy-efficient transport are to be encouraged.

The second charge is that the tax is regressive. The data in the ONS publication “The Effects of Taxes and Benefits on Household Income, 2011/12”, which I commend to colleagues, make it clear that it is not regressive; in fact, it is no more so than VAT. I think we would all love to get rid of that too—certainly colleagues in the House today would love it; we would like to get rid of most taxes—but we are not in a position where we can afford that luxury.

The third charge, interestingly, is that the tax is disproportionate. In fact, the Government have limited the rise in APD to inflation in the period 2010-11 to 2013-14, and in this year’s Budget they ensured that the rate will remain constant in real terms. This afternoon I looked online and found an air ticket to Berlin for £80, £13 of which is APD. That does not seem to be a prohibitive level of tax that will put people off.

[Andrew Bridgen (North West Leicestershire) (Con)]

Does my hon. Friend share my sentiment that it is good to be on the Benches of a Government who realise the need for tax competition? We realise the need for competitive corporation tax rates and income tax rates; surely APD is a tax and we need to be competitive on that too. We have the highest APD in Europe. Of the 27 countries in the European Union, only six charge APD, and the Republic of Ireland is going to reduce it to zero in April next year. Should my hon. Friend not bear it in mind that we need to compete?

[George Freeman]

My hon. Friend makes a good point. He must have spotted my notes, because my very next point is that we need to view this in the wider context of business and tax competitiveness. I hugely welcome the fact that the Government have committed to reduce corporation tax from 28% to 23% and, in due course, to 20%, meaning we are constantly cited as one of the top three in the G8 on tax competitiveness, as stated in the 2012 KPMG global survey. That is a strong signal to global businesses that we are open for business, and it supports my hon. Friend’s point that we need to view this in the context of wider support for businesses and tax competitiveness.

The fourth charge is that the tax is bad for Northern Ireland. In this respect, I have some sympathy with the case made by colleagues from the Province. The fact that the Republic has cut APD creates a particularly difficult situation in Northern Ireland. The Minister said, encouragingly, that the Northern Ireland economy is not showing signs of suffering as a result, with very high growth and new jobs being created. That is a testament to the creativity and entrepreneurialism of the people of Northern Ireland. The changes made to the tax in November 2011, which reduced long-haul rates to the same as those for short-haul, and the devolution of the matter to the Assembly are important and welcome measures. However, I have a lot of sympathy with the argument that locally, given the situation in the Republic, there is a particular problem that the Government will need to look at.

The truth—an inconvenient truth, to borrow a phrase—consists of three points. As a generation, a Parliament and a Government, we face, and have to deal with, the most massive crisis in our public finances. We inherited from the previous Government £1.2 trillion of debt—£5,000 for every man, woman and child in the country. Debt interest alone is now the fourth biggest item of Government expenditure, and it is set to rise, if the coalition has not acted, to £76 billion a year in interest payments. We have a structural crisis in the public finances—in pensions, in welfare, in health and in debt interest.

Despite the very best efforts of the Government to contain the crisis and make sure that they do not trigger a downward spiral in public confidence in the economy, we still face a huge challenge to restore our public finances. We do not have money to spare. There is no such thing as a free tax cut; the closest thing is a tax cut on wealth creation. That is why I support the steps that the Treasury has taken on corporation tax to put in place a competitive tax environment for our businesses and why, in particular, I support a new deal for start-up businesses—the people who are at the coal face of creating new jobs. The truth is that APD is not a tax on business creation; it is a tax on air travel, which is not the same thing.

Finally, this tax raises £2.8 billion a year, and that figure is set to rise to £3.8 billion in 2016. That is a significant amount of money. Interestingly, it is nearly the same amount as that which the Government have given away in a fuel duty cut, which has caused huge reductions in income at the Exchequer and has a relatively low impact on people’s pockets. Abolishing APD would have a small impact on GDP and hard-working families, but it would lead to a major £4 billion cut in our deficit credibility. I hope Ministers resist it.