Air Passenger Duty

Henry Smith Excerpts

Thursday 1st November 2012 Commons Chamber

[Paul Goggins]

My right hon. Friend was a very able Minister for tourism and he did a superb job. He is right: APD is a tax on our constituents who seek to go on holiday, but it is also a tax on those who want to come here to enjoy the wonderful countryside and the great features of our society, with the associated benefit to our economy.

The APD, as hon. Members know, is the highest in Europe. Denmark, Norway and Holland have scrapped it. Ireland, as my hon. Friend the Member for Belfast East (Naomi Long) pointed out, has all but scrapped it—it intends to do so in the near future.

As the hon. Member for Witham argued, we have to look at this in terms of the wider economy. I wish to look at it particularly from the perspective of the Manchester city region, and it is good to see the hon. Member for Altrincham and Sale West (Mr Brady) in his place. I know that he has a great commitment to Manchester airport. I also see my hon. Friend the Member for Blackley and Broughton (Graham Stringer), who is a former chairman of the airport. It now serves more than 200 destinations, has 24 million passengers a year, and employs 19,000 people on the site, with many thousands more provided in the wider economy. It is estimated to bring in around £3 billion to the UK economy as a whole.

One of my principal concerns, which I have already mentioned, is that APD is a tax on our constituents. Let us reflect on that for a second. Hard-working families already paying tax on their hard-earned incomes have to pay tax again if they want to take their children on holiday. We ought to think about that. In particular, let us consider the economic problems that APD creates. There is clear evidence that airlines are not coming to Manchester airport because of APD. In particular, AirAsia X has dropped its plans for a route from Manchester to Kuala Lumpur and routed instead to Paris Orly. The airlines will go where the profits are greatest, and with those profits will go the jobs and all the additional economic value.

[Henry Smith (Crawley) (Con)]

AirAsia X also stopped flying from Gatwick to Kuala Lumpur, and cited exactly the same reason—APD being far too high. The right hon. Gentleman makes a good point.

[Paul Goggins]

The hon. Gentleman makes it clear that this is an issue not only for Manchester but for other airports and therefore the whole economy.

I am particularly concerned about the barrier that APD might pose to Manchester’s ambitious plans for an airport city—a plan that fits squarely with yesterday’s report by Lord Heseltine, which locates the focus for economic development absolutely in the city regions, the ambition, skill and energy of which are the drivers of that development. Manchester is at the forefront of that. The plans would result in major investment in manufacturing, office development, retail, leisure and an ambitious plan for a medipark that would mean major international investment in health and biotech industries. All that would be in the area around the airport and, crucially, would be facilitated by the presence of that international airport. It could become an economic hub drawing in investment from across the world, bringing high-value investment, much-needed jobs and links to destinations throughout the world.

The vision for the airport city has the Government’s full support. They have given it enterprise zone status, which brings with it rate relief and access to superfast broadband. It is utterly contradictory, however, to have that plan in place but then to impose on every business passenger passing through Manchester airport a tax on that business. It is like saying to an investor from north America, “We’re very grateful for your business, and by the way it’s going to cost you an extra £65 every time you want to visit that investment.” It is preposterous, and it is a barrier to the kind of economic growth that we need and want.

We cannot wish APD away. As the hon. Member for Witham said, it brings nearly £3 billion into the Treasury, which of course helps to pay for our schools and hospitals, but one way or another we must think our way out of this creatively. I support—I suspect that not all hon. Members would—a further investigation into regional APD variations, because they could encourage the use of spare capacity at some of our regional airports and facilitate the kind of economic development, such as our ambitions for airport city that I have described.

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[Henry Smith (Crawley) (Con)]

This debate is most important for the well-being of the British economy. I would like sincerely to thank the Backbench Business Committee for allowing time on the Floor of the House for today’s debate, and I particularly pay tribute to my hon. Friend the Member for Witham (Priti Patel) for helping to secure it.

It is perhaps of little surprise that I take a great interest in this subject, as I represent the constituency that contains Gatwick airport—the world’s busiest one-runway, two-terminal airport—and it is also the home of a number of aviation-related companies. We have tour operators, globally renowned companies such as TUI Travel and, of course, British Airways operating from Gatwick. We have the headquarters of Virgin Atlantic, an iconic British company that is innovative in the services it provides, and we also have easyJet, now this country’s largest airline with about 40% of the flights from the area—indeed, 1,078 easyJet flights go out of Gatwick airport every week. I am delighted to say that, from next spring, easyJet is starting a new route to Moscow. It is little surprise, then, that many of my constituents who work locally in the aviation industry are deeply concerned about air passenger duty. Mention was made of the number of e-mails that right hon. and hon. Members received from the fair tax on flying campaign, and I believe I received more than 1,000 such e-mails.

It is not for parochial reasons, however, that I speak in today’s debate and raise my concerns again about the level of APD that we charge. Almost a year ago, I was fortunate enough to be granted an Adjournment debate and warned that if APD were to be increased, as was suggested, we would do some real damage to this country’s economic prospects.

I entirely understand why the Treasury is seeking to bring in revenue. We are all acutely aware of what is happening to the national finances. The deficit that we are sustaining is deeply troubling, and although I warmly congratulate the Government on reducing it by a quarter in just two and a half years, it is little wonder that the Treasury does not view with enthusiasm the prospect of giving up an income of almost £3 billion in APD receipts.

[Adam Afriyie (Windsor) (Con)]

Although the Exchequer may be raising between 2 billion and £3 billion from air passenger duty, it may be losing an equivalent amount, if not more, as a result of the reduction in trade and improved economics. Is it not for that reason that we should demand a forward view of the economic impact?

[Henry Smith]

My hon. Friend has anticipated what I was about to say. The Netherlands scrapped air passenger duty after studies conducted by the Dutch Government established that it was costing the economy more than it was bringing into the Treasury. I think that it is for the same reason that only six European countries charge any form of air passenger duty, and the amounts that they charge are very modest.

[Guy Opperman (Hexham) (Con)]

My hon. Friend is making a very articulate case not only on Gatwick’s behalf but in favour of the change that we all want to see, but does he agree that air passenger duty is not just a London tax? If the Government are interested in supporting the regions of England, at the very least they should bear in mind the fact that a change in APD would make a huge difference to regions such as the north-east and the north-west.

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[Henry Smith]

My hon. Friend is right. Air passenger duty is a bad tax for the UK as a whole, regardless of which nation or region within it Members may happen to represent.

[Michael Connarty]

The hon. Gentleman is making a very good case. It is estimated that air passenger duty raises £2.6 billion, which is nearly £1 billion more than the £1.76 billion that it raises in all the other European countries. It is a tax on tourism and trade, and the Government should act before it does more damage. It is estimated that up to £3 million will be lost in trade by 2016 if the present position continues.

[Henry Smith]

The hon. Gentleman is absolutely right.

Members have suggested that we adopt some form of regional banding, but I think that that would be a mistake. I think that the solution is for us to get rid of air passenger duty altogether over time, or at least reduce it to a very modest level. I do not think that we should pit one part of the United Kingdom against another. We, as a relatively small country, achieved global dominance because we are a trading nation, and we either stand together or fall apart when it comes to trade. I think that we need to view the argument holistically, and to see this as very much a British issue.

In the remaining time available, let me deal with some of the misnomers that have been applied to air passenger duty. First, it is not an environmental tax. If it were I would support it, because I think it important for us to reduce our emissions whenever possible, but it is purely a revenue-raising tax—albeit a misguided one and a false economy, because it costs our economy far more than it raises. In fact, we are subject to double taxation when it comes to air duty. The European emissions trading scheme, which was introduced at the beginning of this year, is an environmental tax, and I have no complaint about it; but air passenger duty is almost certainly not.

I also want to debunk the myth that we need APD because aviation fuel and air tickets are not subject to value added tax. Under the conditions of the Chicago convention, it is impossible to charge VAT on aviation fuel and air tickets, but even if it were possible, the current APD represents a far higher amount than VAT would. We are, therefore, greatly overtaxed.

A year ago I had an Adjournment debate in which I asked the Government not to increase APD. I am sorry that I failed in that, and APD went up. Today, we are not calling for a cut in APD, however; we are simply calling for APD to be frozen at its current level until the Treasury assesses whether it is costing our economy more than it brings into the Exchequer, as I contend. The Treasury conducts surveys and studies all the time, and it is perfectly reasonable to ask it to carry out a study on this matter so that we can have some proper facts and figures and are able to make an informed decision.

The stakes are very high. We are a trading nation with competitors, not only in continental Europe but around the world, who are eager to take our business. We will lose out to them if we do not carry out an assessment so that we can understand APD’s impact on our economy and take action if necessary. I therefore hope the Government will respond positively to this reasonable motion. They should carry out a study of the effects of APD. Until that is done, we must not harm the British economy by increasing APD still further.

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[Sajid Javid]

Absolutely. I can assure the hon. Gentleman that the effects on taxation were taken together and that the Government had determined that the extra 5% was raising hardly any tax whatsoever.

Given that we have recently completed a comprehensive consultation on the subject, we have no plans for further reform at this point.

[Henry Smith]

Would it not be reasonable, though, to have a study, as proposed in the motion, to see the impact on the economy that air passenger duty is having? Surely a study by the Treasury is a reasonable thing to request.

[Sajid Javid]

I thank my hon. Friend. I will come to that point in a moment.

As I said, we have no plans at this point for further consultation, but we are keen to ensure that the aviation sector can continue to enable economic growth and support jobs across the country. APD makes an essential contribution to the public finances and to this Government’s plan to create a stable platform for growth.

This has been an excellent debate that has given me and the Government much food for thought. There have been excellent contributions from Members in all parts of the House, and I assure them that I have been listening very carefully. Should the motion pass; I have a feeling that it might well do so—