Air Passenger Duty: Regional Airports

Jim Shannon Excerpts

Tuesday 20th October 2015 Westminster Hall

[Jim Shannon (Strangford) (DUP)]

It is a pleasure to speak on this matter, and I thank the hon. Member for Solihull (Julian Knight) for securing the debate. As the hon. Gentleman and others, including my right hon. Friend the Member for Belfast North (Mr Dodds), have said, air passenger duty is a very important issue for us in Northern Ireland. Air passenger duty can be a positive means of raising revenue but can also be an obstacle to growth. If changes are not brought in it will be a problem for us in Northern Ireland.

Members are no doubt aware that our airports are in direct competition with those in the Republic of Ireland, so I am pleased to speak on this issue and to make a plea for Belfast City airport, for Belfast Aldergrove airport and for Londonderry airport. With air passenger duty set to be halved in Scotland, this debate is timely and will, I hope, ignite a national conversation on the issue, regardless of which side of the debate people are on. Given the potential for Scotland to reduce APD—and perhaps Wales as well—we have to look at the issue across the whole of the United Kingdom.

As I have said, it is now certain that the duty will be at least halved in Scotland, and the Scottish First Minister has indicated her preference for its eventual abolition. As that is the intention, we must be ready and able to respond. With signs that Wales could soon follow suit, the disparity in APD across the UK is likely to push regional airports in England and Northern Ireland further towards supporting the abolition of the duty.

Data from the Civil Aviation Authority show that the numbers of terminal passengers—that is, passengers joining or leaving aircraft at the reporting airport—were the equal highest ever, at around 240 million a year; again, those figures indicate how important this issue is. It is clear that despite air passenger duty, demand has not decreased but in fact increased, suggesting that people will want to fly regardless of APD. However, the increase in traffic has not been evenly spread, and as the hon. Gentleman and others have said, regional airports are losing out—airports outside London, in Wales, in Scotland and, in particular, in Northern Ireland. That is why those airports are making a case for at least some reduction in air passenger duty, with Wales and Scotland already on course to deliver, and why this debate is important to me: as MP for Strangford, as I see Belfast City airport as the airport for the people of my constituency.

As well as regional disadvantages, APD is at risk of creating a socioeconomic divide, where those with the ability to pay can enjoy the benefits of air travel when and where they want, while those without it are left using other, less appropriate means of transport. Air passenger duty raises approximately £3 billion a year in tax revenue, year on year, for the United Kingdom but, as I said, despite its introduction, demand has risen rather than fallen. Although APD is a form of revenue raising it has failed in its aim of reducing demand and carbon demand. If something is broken—and in this case, it is—let us fix it. It is clear that APD does not work for regional airports across the whole of the United Kingdom.

We could point to the revenue the duty raises as a justification for continuing with it, but there is evidence that we would be better off without it, not just with regard to regional airports or people from lower socioeconomic groups, but with regard to the economy as a whole. The figures have already been mentioned by my hon. Friend the Member for Upper Bann (David Simpson), and point to the benefits of the abolition of air passenger duty to regional airports, not least those across the water in Northern Ireland. That is a keen concern for me and my party colleagues.

The benefits of abolishing air passenger duty would be seen across the entire United Kingdom. According to PricewaterhouseCoopers, abolishing the duty would see the UK economy grow by a staggering 0.5% in the first fiscal year alone. Crucially, the UK Treasury would see an extra £570 million in tax receipts in the first year after abolition resulting from increased demand for air travel, as well as any additional tax receipts from trade linked to air travel.

The figures are clear and cannot be argued with. They indicate the need for a change. That change would benefit the Treasury and everyone across the United Kingdom, so it seems very much to be a win-win situation. Increased activity in the sector would mean an increase in jobs and economic success and security for our constituents. Our party is on the record as supporting the third runway at Heathrow—we said that in the Chamber last night—and are keen to see it go forward, as we see connectivity with the rest of the United Kingdom of Great Britain and Northern Ireland as a plus. That is the good news. We also need a reduction in air passenger duty, because if action is taken it is clear that we will all benefit.

In Northern Ireland we know all too well how much air passenger duty influences airlines’ decisions about doing business. We compete directly with the Republic of Ireland in this sector and need only to look at what happened when air passenger duty was abolished in the Irish Republic. The figures are interesting: Dublin airport increased its number of passengers from the north of the border—my constituents, those of the hon. Member for South Antrim (Danny Kinahan) and of other Northern Ireland MPs. That is proof, if ever proof were needed, that APD is an obstacle to business, growth and prosperity and security for our people.

It is time we took heed of the facts—the revenue that could be generated by abolishing APD, as well as what abolition has done for the Republic of Ireland and how that has hurt us in Northern Ireland, in particular. Let us set the potential of the air travel industry free, and we can spread the prosperity from that industry fairly across the United Kingdom so that we all gain.

--- Later in debate ---

[Drew Hendry]

Absolutely. We would be delighted to see HS2 reach Scotland; indeed, we have always said it should start in Scotland and be developed southwards.

My hon. Friend the Member for Central Ayrshire (Dr Whitford) mentioned the impact that the development of regional airports has on tourism. Nowhere is that more true than in her constituency, but it is now an expensive destination because of the policy we have had. As we heard, Elvis left the building, and he was not encouraged to come back subsequently—regrettably, he cannot do so now.

The hon. Member for Fylde (Mark Menzies) talked about APD’s effect on Blackpool airport. He said that the airport needs support, but that it has been left in a precarious position over the years. That is very similar to the position in Inverness and Dundee, so I have a great feeling of common purpose with him. We must make sure that routes are not dropped just because there is a more profitable option elsewhere. These routes are important lifelines for the communities they serve.

We have heard about the proposals for the reduction and abolition of APD in Scotland. I am pleased to say that those are yet another good idea from the SNP Government, and they seem to have gained quite a lot of support around the room. They make sense, and it is important that we go ahead with them.

As the MP for Inverness, Nairn, Badenoch and Strathspey, I understand the impact of APD. Regional airports such as Inverness and Dundee have long suffered the inequity of APD, but they are not alone, because other airports suffer too, and Edinburgh, Glasgow and Aberdeen are not well served by APD either. As we have heard, Prestwick could very much benefit from the proposed change. Air connectivity is vital to the local economy, and I am pleased that it will be—in fact, I am impatient for it to be—in the Scottish Government’s hands.

The UK introduced APD in 1994 to raise revenue from the aviation industry, anticipating that it would have environmental benefits through its effect on air traffic volumes. When it was introduced, it took the form of a flat £5 charge on flights in the UK and a £10 charge on other flights. It has been changed many times over the years. It was doubled in 1996, lowered in 2000, frozen between 2001 and 2007 and doubled from February 2007. It was then changed under the Labour Government in 2008 and the coalition Government in 2010. In 2013, it was increased, and the Chancellor made further changes in 2014 and 2015. This APD hokey cokey, married with the here today, gone tomorrow effect on routes and regional airports, has done nothing to help regional economies in places such as Inverness and Dundee or in the other constituencies represented by Members around the Chamber.

I point to those changes because, throughout all these years, successive Governments have failed to support regional airports. My constituents have suffered under the current approach. In addition to devolving APD powers as quickly as possible, we need public service obligations on routes to regional airports, as well as guarantees on those routes. We also need more flexibility on route development.

By 2016, £210 million less per annum will be spent in Scotland by inbound visitors than would have been the case if APD had not risen since 2007. That is a staggering figure. When power is transferred, the Scottish Government are committed to reducing APD by 50% by the end of the next Parliament, with a view to eventually abolishing the tax when public finances allow. Their plans to abolish APD have been welcomed by the British Air Transport Association, Aberdeen and Glasgow airports, VisitScotland and the Scottish Chambers of Commerce.

Sophie Dekkers, the UK director for easyJet—Scotland’s largest airline—has said:

“When APD is halved passengers in Scotland will quickly feel the benefit, with easyJet and other airlines adding more services to existing destinations and launching flights to new destinations from Scotland.”

Again, that would be welcome news for my constituents, who have long suffered the effect of here today, gone tomorrow flights.

[Jim Shannon]

In the scenario that the hon. Gentleman has outlined, if Scotland were to abolish APD, and given that the Republic has already done it, Northern Ireland would be the meat in the sandwich. It is important that Northern Ireland as well as Scotland gets to do it. Does he agree?

[Drew Hendry]

I absolutely agree, and support the devolution of powers to the nations of the UK in that way.

A consultation on a Scottish replacement to APD has been launched by the Scottish Government. It will give the people of Scotland and other interested parties the opportunity to provide their views—public views—on the design and structure of a Scottish APD. A Scottish APD stakeholder forum has also been established to help provide expert policy input in the preparation of policy proposals for Scottish APD, involving the air transport industry, environmental groups and tax practitioners and advisers. Devolution of APD to the Scottish Parliament will provide an opportunity to design a replacement tax that better supports our objective to improve connectivity to Scottish airports, generating new direct routes and increasing inbound tourism.

Reducing APD will have a positive impact on passengers, business costs and connectivity. However, as I have said, our support for regional airports should not end there. We need to make sure that the UK Government will do more to support regional airports, with a review of the current public service obligation regimes. The current criterion is too narrow and limits opportunities for regional airports.