Air Passenger Duty

Henry Smith Excerpts

Thursday 20th October 2011 Commons Chamber

[Henry Smith (Crawley) (Con)]

Thank you very much, Mr Speaker. May I say how extremely grateful I am to have the opportunity to hold this Adjournment debate?

In this place I might be known as the hon. Member for Crawley, but my constituency is perhaps better known for being the home of Gatwick airport, the world’s busiest one runway, two terminal airport. It is also home to a number of significant aviation industry companies, such as Virgin Atlantic Airways, TUI Travel and British Airways. My arguments for not increasing air passenger duty and for simplifying the system are not simply parochial; Great Britain’s historical success has been not only as a politically assured, innovative country, but as a trading nation, and we have a unique set of global links. In addition, approximately 30 million hard-working Britons save each and every year to fly off on well-deserved holidays.

Like the debate we have in the Gatwick area about the future of the airport and whether or not it should expand, the debate on the future of APD is about balancing economic growth and the needs of environmental protection—I care passionately about both. It is right that aviation should contribute to dealing with its environmental impact, but that needs to be put into perspective and weighed against its economic contribution. Aviation accounts for about 5.5% of UK total emissions. To put that in context, road transport emissions account for about 18% and energy production emissions account for about a third of the UK total. In addition, it should be noted that the aviation sector contributes some £53 billion to UK GDP and employs almost 1 million people, in addition to the further 1.5 million employed in our tourism industry, and that about half of this country’s population fly each year.

The history of APD goes back to the early 1990s, when a charge of £5 was introduced for flights to EU countries, with a £10 charge for flights to rest of the world destinations. Under Labour, over the past decade, that was significantly hiked up to a point where British aviation taxation has become by far the highest in Europe—indeed, it is eight and a half times the European average. It is worth noting that only four other European countries charge a form of APD, with a further five European countries—Denmark, Belgium, Norway, Malta and the Netherlands—having abandoned the charging of APD. The Dutch Government abandoned APD as a taxation because it brought in the equivalent of £266 million to their exchequer but cost an estimated equivalent of £950 million to the Dutch economy.

For our own Government’s part, I very much welcome the announcement that my right hon. Friend the Chancellor of the Exchequer made in the last Budget on the freezing of APD. I also very much welcome the taxation of business jet aviation for the first time ever, so long as the collection of that tax does not cost more than it brings in. I very much congratulate the Government on their consultation on the future of APD in order to get the widest possible view on that. That is all in stark contrast to the Labour party, which did not even mention the issue in its pre-election manifesto and does not seem to have a plan B, although we are quite used to Labour not having a plan A on the economy.

[Mr Andy Slaughter (Hammersmith) (Lab)]

This is the second time I have come to listen to what the hon. Gentleman has to say and I had hoped that his speech would be somewhat non-partisan. I remind him and the Minister that the Conservative party said in its manifesto that it would move to a per-plane duty and would not keep the current banding system, which is seen to be wholly unfair. I hope that both the hon. Gentleman and the Minister will address what will be done to remove the unfair anomalies in the system.

[Henry Smith]

I thank the hon. Gentleman for his intervention. He is absolutely right that a per-plane duty was discussed and I understand that there were some legal problems with it. It is important that we as a country should finally get right the future of aviation taxation in the round, not only for the sake of hard-working families who want to enjoy a holiday now and again but, most importantly, for our economy.

Quite apart from what we think in this place about the future of APD, let me quote what a few others have said. Southern rail has added its concerns about a future increase in APD by saying:

“Any tax regime that has the potential to impact negatively on Gatwick Airport’s growth plans also has the potential to impact on Southern’s growth plans. We work closely with the airport and in recent months we have seen growth in airport passenger numbers and growth in its public transport market share. We would not want this momentum to be lost or hampered as this will impact on the medium term growth aspirations of our business”.

The airport has said:

“Gatwick is a family airport. Our passengers pay £400 million in APD every year, which goes straight into the Treasury’s coffers. It is difficult to understand why hardworking families, whose household bills are rising every month, should pay so much extra just to go on holiday. For many of them, it’s a luxury they save all year to afford.”

The Gatwick Diamond Business Association, which represents all the economy and not just the aviation sector in the sub-region, has said:

“The tax regime is having a negative impact on the UK’s ability to connect with emerging markets.”

In his speech in Manchester just a couple of weeks ago, my right hon. Friend the Prime Minister pointed out how one of the keys to UK economic growth is the need to connect better with the growing markets in Asia and South America. The Gatwick Diamond Business Association went on to say:

“Increasing tourism from the Far East is important too and in total the hospitality sector is the fifth largest in the UK. This could grow by 10% over the next five years alone…provided they are given the ability to derive their fair share of the forecasted growth in global travel.”

Another local firm in the Gatwick diamond area, CGGVeritas, has taken about 1,500 flights to meet its global customers in the past year and estimates that it has paid up to £50,000 of its budget just on the APD portion of those air tickets.

Virgin Atlantic, headquartered in my constituency, takes the view that aviation has a critical role to play in UK tourism and the wider economic recovery through encouraging visitors to these shores ahead of the Olympic and Paralympic games, but this economic potential is being stifled by ever increasing levels of air passenger duty, which are already the highest in Europe.

[Gavin Shuker (Luton South) (Lab/Co-op)]

I congratulate the hon. Gentleman on securing this debate not once, but twice, not least because it gives me the opportunity to welcome the Economic Secretary to the Treasury to her new role—a well-deserved promotion. Does the hon. Gentleman agree that part of the problem with this issue, with which I am very sympathetic, is the fact that there is a gap between the Treasury and the Department for Transport in that the Treasury leads but the Department for Transport is required to produce plans for airports and aviation?

[Henry Smith]

I am grateful for that intervention. The holy grail of government is joined-up government, with all Departments and the Treasury working together. My right hon. Friend the Minister for the Cabinet Office and Paymaster General is doing a great job in trying to achieve that.

The World Economic Forum’s international tourism competitiveness report ranked the UK 134th out of 138 nations for air taxes, and we are beaten only in the amount we charge by the west African countries of Senegal, Ivory Coast, Mali and Chad. The chief executive of British Airways said:

“Aviation in the UK is the most undervalued and overtaxed industry in Britain. We want to play our full part in assisting Britain’s economic recovery, but we are held back by levels of tax on flying which are higher than anywhere else in the world”.

and added that the increases would cost BA an extra £100 million and put more pressure on ticket prices. At the recent launch of a new Air Asia X route from Kuala Lumpar to London Gatwick, its chief executive stated that it is commercially more difficult to operate from the UK than from France. He pointed out that 10% to 12% of its passengers flying from Paris to Kuala Lumpar are British nationals. That gives a sense of the shift that passengers are already starting to make.

[Naomi Long (Belfast East) (Alliance)]

We in Northern Ireland have an interest in airport duty. Does the hon. Gentleman agree that there is an irony that we, as island nations that have to use air transport to make those important international connections, are taxed so highly in comparison with many other regions? There is also a challenge in trying to join up what happens not just with Her Majesty’s Revenue and Customs and other Departments, but, particularly in terms of the growth of our economy, with the Department for Business, Innovation and Skills.

[Henry Smith]

The hon. Lady makes a very good point. I have been pleased to see that in the context of Ireland, between the north and the south, there has been some improvement. Her point about our being island nations and relying on trade—and therefore in this day and age on aviation—is extremely well made.

The chief executive of the Association of British Travel Agents has said:

“It is vital that the Government understands the damaging impact that APD is having on the tourism industry in the UK. We already pay the highest levels of aviation tax in the world, and if the Government goes ahead with its double-inflationary increase and levies”—

as will happen on 1 January with the European emissions trading scheme tax—

“on top of this…we will see another eye-watering increase in the tax burden on the industry and on holidaymakers”.

The CBI has also rightly highlighted the fact that aviation is a critical pillar of the UK economy. Crawley-based companies such as TUI Travel, which is perhaps better known in the domestic market as First Choice and Thomson Holidays, are world leaders in developing biofuels to mitigate their environmental impact. Indeed, I am delighted that just a couple of weeks ago, they started regular biofuelled flights. Virgin Atlantic, another local company, has invested in the very latest new aircraft with the highest environmental standards.

In addition to those quotes from the industry, I should like to outline some figures that clearly demonstrate how the UK’s aviation tax burden is significantly in excess of those of our nearest competitors. As I have said, we already charge by far the highest in Europe. To fly from the UK to a European destination, we charge £12 in APD, whereas Germany charges £7 and France charges just a single euro to travel within the EU. To travel from the UK to New York, we charge £60 in APD, whereas the Germans charge £22 and the French charge just €5. To travel from the UK to Sydney, Australia, we charge an APD rate of £85 at the moment, whereas Germany charges £39 and France charges just €5. I do not think that anyone can accuse the Germans of not being astute in economic or environmental policy.

If APD were to increase from next April, there would be a huge percentage increase in just six years. For example, a family of four travelling on holiday to Florida in economy class in 2006 paid £80 in APD, whereas they would currently pay £240. If the increase goes ahead, they would pay £260 in 2012, representing an increase of 225%. A business party of four travelling to Shanghai in premium economy in 2006 were charged £160 APD; currently they are charged £600 and in 2012, if the increase goes ahead, the charge will be £656, representing a percentage increase of 310%. My final example is that of a retired couple travelling to Australia to visit family, again in economy class. In 2006, they would have been charged £40 in APD, currently they would be charged £170 and in 2012, if the increase goes ahead, they would be charged £186, representing the biggest percentage increase of 365%.

Simplifying APD would benefit not only citizens of the UK but Her Majesty’s subjects in the overseas territories. For example, the Government of the British Virgin Islands are rightly concerned that, as currently structured, APD is charged at a higher level to travel there than to fly to the west coast of the United States because the system is based on where the capital of a country is. It should not be forgotten that there are five British overseas territories in the Caribbean, as well as the many other Commonwealth countries around the world.

Before I conclude I wish to refute one suggestion mooted recently, which is that London and south-east originating flights should pay an enhanced amount of APD compared with the rest of Great Britain. I am very much opposed to that proposal because it would be unfair, unnecessary, economically misguided and environmentally dubious. It is unfair because, as I have said, we already pay one of the highest duties in the world. Millions of people living in the south-east and London should not have to pay extra just to fly from their local airports. It is unnecessary because the proposed growth of regional airports between now and 2050 is significant.

The proposal is economically misguided because while proponents of the policy say that it would rebalance the UK economy by moving key business routes to regional airports, it misunderstands the fundamental economics of long-haul business routes and ignores the fact that London’s airports serve the whole British economy. Indeed, London is a global-class city and, with the south-east, a world-class region, connecting with and competing against the likes of southern California, the east coast cities of Japan and China, the greater Frankfurt area and the Ile de France among others. Finally, the proposal is environmentally dubious because it perversely risks increased carbon emissions if south-east passengers drive hundreds of miles to regional airports for cheaper flights. More indirect flights—for example, London Heathrow to Manchester; Manchester to New York—would result in more movements and more take-offs and landings.

In conclusion, I believe that if APD is increased further and not simplified we risk damaging growth by increasing the tax burden on families and by giving our European competitors an unfair advantage in a global market. Additionally, it could create an unintended, negative environmental impact when we are already more than off-setting our aviation carbon emissions, and that is before we join the European trading scheme in the new year. Indeed, the TaxPayers Alliance, using the Department for Transport’s own figures, has highlighted the fact that, following the APD increase in 2007, aviation more than covers the cost of its environmental impact by at least £100 million. It also points to research by the Economic and Social Research Institute which found that doubling APD back in 2007 might have actually increased emissions because it reduces the relative price difference between near and far holidays.

In welcoming the Minister to her position and congratulating her, I appeal to her and the Treasury to think again, for the sake of our economy and our hard-working families, about increasing the APD burden further still.