Scotland Bill

Graham Stringer Excerpts

Monday 29th June 2015 Commons Chamber

[Graham Stringer (Blackley and Broughton) (Lab)]

Amendment 36 would, in essence, have opposed clause 16 standing part of the Bill, because I want the Committee to explore the specific issues related to air passenger duty and the more general principles about tax competition between Scotland and the rest of the United Kingdom that may well evolve from a discussion on air passenger duty.

Some of us who voted to set up the Scottish Parliament in the first place now think that, although it seemed a very bold decision at the time, it was less bold than it might have been and that if we had the benefit of being able to go back in time—we do have the benefit of hindsight—the proposals that the Government are making might well have been those that should have been put before the House after the 1997 general election, with us now moving towards full fiscal autonomy for the Scottish Parliament. It was a fundamental mistake to set up a Scottish Parliament with mainly spending powers and no tax-raising powers, apart from the plus or minus 3p on income tax.

[Mr MacNeil]

The hon. Gentleman is absolutely right. One of the mistakes is that there is no incentive for the Scottish Government to grow the economy. A great example that we have in the Hebrides is that the Scottish Government have put a road-equivalent tariff on to the ferries. This has grown the economy in the west of Scotland, but the increase in tax revenue is not going to the Government that funds it but to Westminster, which gives no extra cash and further incentives to roll it out further across the west coast. It is similar with childcare and a number of other issues.

[Graham Stringer]

The hon. Gentleman makes a pretty fundamental point about devolution. When the House was making a decision to devolve powers, it would have been sensible to settle on a grant basis that was fair between Scotland, England and Wales, which the Barnett formula was not, and then allow the Scottish Parliament to raise taxes on that basis, so that if it wanted better-quality services, it could have had higher taxes and, if it was more efficient, it could have had better services or lower taxes, and so on. That is a very clear principle.

[Mr MacNeil]

The important point I am driving at is that, if the Scottish Government had proper control of their taxes, they could have grown the economy more and that growth would have delivered far more than the zero-sum game of who has got and has not got what in the UK. It is the ability to grow the economy that tax powers would give that is really fundamental.

[Graham Stringer]

If the hon. Gentleman is saying that Scotland, or any other devolved authority, should benefit from the initiatives it takes and from its own efficiencies, I agree completely. We are moving that way, but the Bill does not move far enough. No Minister or shadow Minister has been able to explain to me, in any of our debates, why we should have the unfair funding in the Barnett formula.

Those are the basic principles. I now want to explore how, if taxation is devolved to the Scottish Parliament, the United Kingdom Government will respond to competition. Air passenger duty is a very good example. As I understand it, the SNP intend to reduce air passenger duty by 50% and then reduce it to zero. That is quite a sensible policy for the SNP to follow. For that matter, it is a sensible policy for the United Kingdom Government to follow, because a number of consultants’ reports have shown that there is almost certainly likely to be a benefit for the whole United Kingdom if air passenger duty is taken away.

Every other country in the European Union has moved either to very low rates of APD or, as in the Netherlands, to zero. It is therefore a sensible policy, but the Government do not seem to have a clear position on what they will do about the very unfair competition between regional airports.

[Mr MacNeil]

Air passenger duty is a perfect illustration of what I said earlier. If the Scottish Government decided to lower APD and that upped the rate of economic activity in Scotland, they should benefit from the fruits of that activity. The benefits should not go to Westminster, because it would not compensate the Scottish Government for that initiative.

[Graham Stringer]

On 20 January, the Chancellor of the Exchequer told the Treasury Committee, in response to a question asked by my hon. Friend the Member for Wythenshawe and Sale East (Mike Kane) about that very point:

“I think the best approach to dealing with this concern, which I think is perfectly legitimate, is to cross the political boundaries of our two parties to try to find a solution that helps these regional airports that can be affected by an air passenger duty decision north of the border.

HMRC has done some work on this and I think it anticipated that Manchester airport would lose around 3% of its traffic and Newcastle could lose around 10% of its traffic. That was work carried out a couple of years ago… I think you and I—I made the same offer to Ed Balls—could work to help regional airports in the north of England if the Scottish Government were to go down the road of dramatically cutting its air passenger duty.”

Further to that, the Chancellor told the House of Commons on 27 January:

“We have a couple of years to work this out—it does not have be done tonight or tomorrow—and we can work out a plan that protects the brilliant Newcastle, Manchester and other regional airports.”—[Official Report, 27 January 2015; Vol. 591, c. 726.]

What progress has been made on that? This is about a loss of 3% and 10% of business, which are not trivial amounts.

This will result in not only an economic benefit for Scotland, but in real competition, which will come in two forms: there will be competition for passengers on short-haul flights, for which APD is £13 per passenger, and for those on longer-haul flights, for which it is £71 per passenger. Obviously, the same amount is paid for the return flight. A passenger from Newcastle therefore has an incentive—this applies to large families in particular—to travel to Edinburgh or Glasgow in order to save some money. Someone travelling long distance from north America or China has the same incentive.

[Mr Kevan Jones (North Durham) (Lab)]

Does my hon. Friend agree that there is a knock-on effect on cargo? If the successful flight from Newcastle to Dubai were to be jeopardised in any way, the revenue earned from the airport through the transfer of cargo in that passenger aircraft would also be at risk.

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[Graham Stringer]

I agree with my hon. Friend. There is competition not only for passengers, but to get airlines and aircraft to land. Given that a lot of cargo is carried in an aeroplane’s belly, if Newcastle, Manchester or Leeds Bradford loses a flight to Scotland, it will lose not only the passengers and the benefit they bring but the cargo carried by the plane. The United Kingdom already has experience of that with Belfast airport. The Northern Ireland Assembly managed to get the power to vary APD because it was in competition with Dublin airport, which was taking passengers and aircraft to travel from south of the border. That is well known to people who are interested in transport, but it is less well known that the impact was not only on Belfast, but on English and Welsh airports, as people decided to fly across the Atlantic from Dublin to save the £71.

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

The hon. Gentleman is making a point about cross-border competition. Does he agree that there is another point about the longer-term sustainability of airports outwith that area, such as Inverness and Dundee? They need additional support and would benefit from the reinvestment in Scotland of the revenue generated by additional passenger traffic.

[Graham Stringer]

I agree with that perfectly sensible point.

The Government may have a number of possible solutions, and I hope that the Financial Secretary will be able to respond in some way. Manchester airport has made the case strongly to the Government that there should be an air passenger duty holiday on new long-haul routes, and that would be helpful. The Government could devolve decision making to other parts of the United Kingdom as well as to Scotland, although it would be difficult to find a mechanism for doing so. The Government could also agree to compete with Scotland, because if there is no competition, there will be an unfair loss of jobs through lowering the rate of air passenger duty.

Such solutions seem sensible to me, given the experience in the rest of Europe and, indeed, in the rest of the world. The tax was brought in not for environmental reasons, as is sometimes said, but entirely to deal with the hole in the budget after the 1992 general election. It is an inefficient tax: consultants have estimated that it costs the economy more than it brings into the Treasury in cash. Even if the Financial Secretary cannot give an absolutely definitive answer today, I hope he will assure us that he is willing to look at some of the sensible responses to this new competition in tax regimes.

[Mr MacNeil]

The hon. Gentleman has been very kind in giving way. The tax is about more than just a hole in the budget; it is actually a demand-management tool for Heathrow and perhaps for Gatwick as well. If airports are full, APD is a demand-management tool that might work. It is certainly not helping in Edinburgh, Glasgow or Manchester. The solution is not to worry about each other, but for us to be rid of it, and for the Government to keep the demand-management tool in airports that are already saturated.

[Graham Stringer]

I do not agree with the point the hon. Gentleman makes in his fourth intervention. Demand management is not the solution for our regional airports, which have huge extra capacity, but if I went down that line, I expect you would rule me out of order, Mr Crausby. I look forward to the Financial Secretary’s response.

[Stewart Hosie]

I will come on to the comments made by the hon. Member for Blackley and Broughton (Graham Stringer) in a moment.

The provisions relating to the devolution of air passenger duty—I will concentrate on the duty, rather than the aggregates levy or the further provisions in clause 18—were set out clearly in the Smith agreement:

“86. The power to charge tax on air passengers leaving Scottish airports will be devolved…The Scottish Government will be free to make its own arrangements with regard to the design and collection of any replacement tax, including consideration of the environmental impact.

“87. In line with the approach taken in relation to the Scotland Act 2012, if such a tax is introduced by the Scottish Parliament to replace Air Passenger Duty (APD), the Scottish Government will reimburse the UK Government for any costs incurred in ‘switching off’ APD in Scotland.”

Given that they simply would not collect it, I do not imagine those costs would be very high. The provisions also require:

“88. A fair and equitable share of associated administrative costs will be transferred to the Scottish Government. The…block grant will be adjusted”.

A wide range of organisations that gave evidence to the Scottish Parliament Devolution (Further Powers) Committee backed the devolution of APD, including the Institute of Directors Scotland, Glasgow chamber of commerce, the Scottish Chambers of Commerce and the Scottish Council for Development and Industry. As the report says:

“This was coupled with support for either a reduction or scrapping of this duty after devolution had taken place.”

The Scottish Parliament Information Centre analysis for the Committee, referred to in the report, found that:

“Draft clause 14”—

now clause 16—

“would make this a devolved tax, as recommended by the Smith Commission. It would give HMRC the ability to ‘switch off’ these UK taxes in Scotland from a date to be set by secondary legislation.”

As with many of the clauses we have discussed, there is no recommendation as to how the transfer would work or how the block grant would be adjusted, but, as I understand from other clauses, there is no requirement for legislation to achieve that. Essentially, the legislation delivers on the Smith agreement in the way anticipated. We have no concerns with the drafting of the clause, which did not change between the Command Paper version and the Bill.

In terms of the policy approach on air passenger duty, on which much of this clause stand part debate is centred, the Scottish National party supports the devolution of air passenger duty to the Scottish Parliament. We are pleased that the Scotland Bill will deliver this recommendation. We have previously set out our proposals to halve APD when control over the tax is devolved, and we fully intend to abolish it when public finances allow. We believe that taking that action will encourage greater tourism and investment in Scotland, boosting our economy and creating new jobs.

There are a substantial number of benefits for consumers from the reduction of air passenger duty, not least because the UK levies are some of the highest aviation taxes in the world—indeed, APD is relatively rare in other countries. APD is currently £71 for an economy class long-haul flight, which is extraordinary—that is over 2,000 miles. Abolishing APD would mean that a family of four, with children over 12-years-old, would save something under £300 per long-haul flight—a substantial saving by any measure. Reducing APD would therefore save consumers money, and, in certain circumstances, significantly reduce the cost of family holidays.

There are broader economic benefits from a reduction in air passenger duty. A report commissioned by Edinburgh airport in March 2015 found that a reduction in APD would bring considerable economic benefits to Scotland. The report argued that the Scottish Government’s policy of halving APD in the first instance would create new jobs, and that a failure to take action would cost Scotland tourists and tourism revenue. Its key findings included the fact that a 50% reduction would provide benefits to Scotland worth £200 million a year, meaning a £1 billion economic boost over the lifetime of a Parliament; and that a 50% reduction would bring considerable benefits to local communities, creating something in the order of 3,800 new jobs by 2020. On the other hand, it was estimated that we could lose out on about 1 million passenger journeys a year if APD was not reduced. Again, by 2020, that would cost the Scottish economy up to £68 million in lost tourism expenditure every year. It is clear, therefore, that devolving and reducing APD would have a considerable economic impact on Scotland and that failure to act would mean Scotland missing out on significant tourism and hospitality revenues.

We have heard what happened in the Republic of Ireland and Northern Ireland. Although the 2014 study by Ulster University was a little more ambivalent and suggested only a limited number of scenarios in which Northern Ireland might benefit, supporters of a reduction pointed to the success of this approach in the Republic of Ireland. As the BBC reported:

“Tourism NI chairman Howard Hastings said: ‘If you compare with our nearest neighbour in the Republic of Ireland, in the two years since they abolished air passenger duty, they've seen arrivals grow by 1.1 million passengers.’”

It is self-evidently a success, and if we can replicate that, we can deliver the benefits I have described. If we do not, we will face the cost of failure.

The hon. Member for Blackley and Broughton and others tabled amendments that are not being debated—although the debate has been very similar to the one I would have heard had we been debating them—and expressed concern that the devolution of APD to Scotland would disadvantage airports in the north of England, as travellers journey across the border to Scottish airports in order to travel to holiday destinations abroad. The SNP makes no apologies for championing Scotland, and we believe that the reduction and eventual abolition of APD would benefit Scotland’s economy and tourism sector in particular. Its devolution is also a cross-party commitment agreed through the Smith commission.

Attracting more tourists to Scottish airports by reducing APD could also benefit the north of England by rebalancing the economy away from London’s pull and bringing more visitors to the northern parts of these islands as a whole. If one considers Edinburgh to be a hub airport, I am sure that businesses in the north of England would rather spend an hour on the train from Newcastle to Edinburgh than four, five or six hours on the cross-London journey to Heathrow, let alone travelling to a hub airport such as Schiphol or Charles de Gaulle. Edinburgh is the ideal solution for people from Durham, for example.

A stronger Scottish economy will also bring significant economic benefits to the north of England, as new trade and investment opportunities arise. However, we are concerned about some of the UK Government’s threats in relation to APD—this relates to what the hon. Member for Blackley and Broughton said about competition. During the election, the Prime Minister astonishingly expressed concerns that a reduction in APD would “distort competition”. He said:

“The SNP government in Scotland is committed to using its new powers to cut and eventually abolish air passenger duty for flights from Scottish airports. That could distort competition and see business drawn north of the border with a huge impact on airports in the rest of our country so we’re reviewing the way air passenger duty works to make sure other cities don’t lose out”.

Devolving and amending APD is not a distortion of competition; it is competition.

The Prime Minister’s comments chimed with his so-called Carlisle principle. It was reported that the Prime Minister had

“outlined plans for an annual review of the impact of Scottish Devolution on the rest of the UK. He announced what he’s calling the ‘Carlisle principle’”.

He did that during a speech in Crewe—one would think he would go to Carlisle to do it, but Crewe it was. He said that the aim was to make sure that policies devolving more power to Scotland did not have a negative impact on other parts of the UK—in areas such as air passenger duty, tax rates, university tuition fees or energy policy. If only we had thought of that, we would not have abolished the subsidies for onshore wind.

The Prime Minister said:

“I want to set out a new principle—you could call it the Carlisle Principle—that we will make sure that there are no unforeseen detrimental consequences to the rest of the country from Scottish devolution, for either England, Wales or Northern Ireland.”

Will the Minister explain what the Carlisle principle—whatever it actually is—will mean in practice for the devolution of APD? I hope that when he gets up, he will say precisely nothing.

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[Alex Salmond]

I agree with the hon. Gentleman’s first point only to the extent that there are people who argue that nuclear power does not require the investment of public money. I think he will find that, as the implementation of these proposals proceeds, substantial amounts of public money will be invested in the infrastructure to make it viable and credible. According to a recent study of transport infrastructure spending per head in various parts of England, the figure for the south-east of England was over £2,000 per head, the figure for the north-east was £26 per head, and the figure for the north-west was £200 per head. I do not have the exact figures, but I think that I have the relative parameters just about right—

[Graham Stringer]

rose—

[Alex Salmond]

The hon. Gentleman can please inform me otherwise.

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[Graham Stringer]

The figures that the right hon. Gentleman has given are moving in the right direction, but the distortion is actually even greater. The capital expenditure figure is over 90% in London and the south-east, compared with single-figure percentages in Yorkshire and Humberside and the north-east.

[Alex Salmond]

I am never knowingly undersold. I accept what the hon. Gentleman has said. I was trying to moderate the figures slightly, in case the Committee found them incredible. However, they do tell us where we should be turning in the context of “distortion of competition”.

I am delighted that Members from the north of England have accepted that this tax should be devolved, and I am delighted that they have accepted the economic argument behind the direction in which the Scottish Government are moving. I think that the tax should be reduced at airports in the north of England as well, because they have substantial capacity that would increase revenue for us all. I am glad that their amendment did not become the basis of this conversation, because if the Scottish Government had opposed the devolution of part of APD to Northern Ireland, no progress would have been made. We are now on the verge of having APD devolved to Scotland, and I say to Members representing north of England constituencies that they should take the attitude that this should be the example for further devolution of a sensible policy which not only benefits one part of the country but looks at the economic opportunities in all parts of the country.

Unfortunately, I arrived for this debate at the end of the VAT fiddle discussion. I hope when the Minister replies on APD that, instead of his wholly disappointing and negative attitude to the embezzlement of VAT from the Scottish police service, he will return to the style of grace and imagination with which he usually so adorns the Dispatch Box, and this time recognise the opportunity for Scotland, and indeed the north of England, of making sure that this disgraceful tax is reduced and economic activity is increased.

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[Mr Gauke]

We have had a reasonably lengthy debate in which Members have not, for the most part, tended to differ on the substance of the clause on air passenger duty, although the hon. Member for Wolverhampton South West (Rob Marris) is never afraid of setting out a contrary opinion. In fact, some Opposition Back Benchers argued for the abolition of APD, which would cost about £3.2 billion, while others argued for increasing it. If there is a need for fresh thinking among Labour Members, we are hearing plenty of it this evening, even if there has not been much in the way of coherence.

[Graham Stringer]

The Minister is right to mention the revenue from air passenger duty, but is he aware that a number of studies—the most significant being the PwC study—suggest that the economic benefit to the country of the abolition of APD would be greater than £3.2 billion?

[Mr Gauke]

I am aware of those studies. I will not detain the Committee for long on this subject, but we do not agree with the conclusions of the PwC study. We do not believe that the benefits of abolition would be as significant as the study suggests.

The hon. Members for Blackley and Broughton (Graham Stringer) and for North Durham (Mr Jones) talked about the impact on regional airports of the devolution of APD to Scotland. We recognise the potential impacts and the Government are reviewing options for supporting regional airports to deal with the effects of devolution. We will be publishing a discussion paper on this later in the summer and our document will address many of the concerns raised during today’s debate by the hon. Gentleman. I will ensure that it is available to Members of this House.