Air Passenger Duty

Jim Shannon Excerpts

Tuesday 10th July 2018 Westminster Hall

[Jim Shannon (Strangford) (DUP)]

It is always a pleasure to follow my hon. Friend the Member for Belfast East (Gavin Robinson), who made a detailed, informative presentation about air passenger duty. I commend him for his choice of tie colour. There is no better colour to wear as we approach 12 July than the one he is showing, not only to Westminster Hall but to the world. Well done to him. I hope he will be wearing the same tie—perhaps not exactly the same tie—in the run-up to the 12th.

I thank my hon. Friend for obtaining this debate and for his detailed presentation. The Democratic Unionist party has been trying to make progress on this issue for many years. He has outlined the facts. He is correct that the stats are sometimes a bit turgid, but they underline the importance of this issue. UK air passenger duty is currently the highest tax of its kind in the EU. That causes us some concern—not because it is about the EU, but because it gives us a comparison across the whole of Europe. The next-highest air passenger duty in the EU is Germany’s, which is half the UK’s. That indicates how far we have to go even to make a small difference. The Minister must respond to that. APD is the highest European aviation tax for short-haul and long-haul flights. For long-haul flights, APD is the highest rate of tax in the world. Again, that illustrates how important this issue is.

Most countries do not have a tax on air travel, and many countries that did have an equivalent tax abolished it due to the negative impact it had on competitiveness, connectivity and the wider economy. They recognised that change was needed. If we need an incentive, we should look at what other countries have done and do likewise.

APD harms UK connectivity, and we are losing out to our European neighbours, particularly in respect of the emerging markets with which the UK should be strengthening its trading relationships after Brexit. We have seen the new flight connections with China advertised in the tube stations; Chinese airlines are trying to build up such connections. That is another part of the world with which we can have connectivity through air flight connections, and we should be looking at that.

My hon. Friend and I were talking before the debate about the figures for our neighbours in the Republic of Ireland. This year, Dublin airport had its highest ever number of passengers—29.6 million. Can we catch up with that? I am not sure we can, but we should at least try to respond in a way that enables us to get some of that passenger potential and retain it for ourselves.

[Mr Gregory Campbell]

My hon. Friend is outlining the numbers for Dublin airport—it will probably breach the 30 million mark this year—but is he aware that Dublin is constructing an additional runway to take advantage of the nil rate of APD? It is not only getting 30 million passengers; the number will go way up beyond that. Northern Ireland’s hospitality and tourism industry needs a competitive advantage to compete with that.

[Jim Shannon]

My hon. Friend always brings intelligent thought to his interventions. I confess that Dublin gives me easy access to the States every year. It is the airport that my family and I use whenever we go on holiday. One of the reasons why we do that is the customs connection. We do our customs clearance in Dublin, and when we get to the far side, we get off the plane, get our baggage, and we are away. With great respect, if we go from Heathrow to New York, we spend an hour in the long customs clearance line.

[Nigel Dodds]

My hon. Friend points to an important factor, but it has been proved that the single biggest factor that causes people to travel through Dublin airport is price. One fifth of all visitors to Northern Ireland use Dublin airport. The trouble is that many people who arrive at Dublin airport from the States and elsewhere do not, unfortunately, leave the greater Dublin vicinity or southern Ireland. They do not come north; that is the reality. Price is the crucial point. My hon. Friend refers to another important aspect, but air passenger duty means that he and many of my constituents are being directed—almost shown the road—to Dublin airport.

[Jim Shannon]

My right hon. Friend clearly states the real issue, which is price. He is absolutely right. I was just saying that one of the other advantages is customs clearance, which probably suits many, but the thing that puts people there first is price. Customs clearance is an incentive but an extra which makes things a wee bit easier. My right hon. Friend is also right about Tourism Ireland needing to ask how better to connect passengers who come into Dublin airport so that they do not stay in Dublin but go north. To be fair, Tourism Ireland does things well when I go every year to the Milwaukee Irish Fest in Wisconsin, but we can and should be doing a lot more. My right hon. Friend is absolutely right about that. First and foremost, people are attracted by price. That can be applied to many facets of life, such as shopping trends or changing shopping practices.

According to a report published by Airports Council International, this year the UK was the only European nation to see a decline in its direct connectivity. That is worrying. If that is happening and a trend shows that, we need to do something positive and constructive about it right away. The reason for our focus on APD is that we believe in Northern Ireland’s ability to compete with the rest of the UK, and any area, to attract and secure global business. Belfast has clearly become the cyber-security capital of the UK and has the potential to do even more than it has so far. Why is that? Look at the reasons to learn how important it is for us to have the APD issue addressed, which would be of advantage to other parts of the UK as well.

In Belfast and other cities in Northern Ireland, global tech names such as Citi or Allstate work in the sector with silicon valley firms such as BDNA, and they are all recognisable. Not only does our highly skilled workforce attract global investment, but our indigenous tech firms such as Kainos, Novosco and First Derivatives grow in size and are becoming global leaders, all in a region of Northern Ireland. We must pay tribute to the Department of Enterprise, Trade and Investment and to the Ministers—when the Assembly was working—for their hard work, which is still delivering today, even though the Assembly is not functioning as it once was—the seeds were sown and the dividends are being paid.

Much of our attraction is the skills base, supported by international-standard research facilities, with education and big business working together. We have the education, the big business, the opportunities, the quality of graduates and all those things together—Northern Ireland again leading the way for the UK to follow. That is how things happen and benefits are achieved.

Northern Ireland is consistently the top-performing region of the UK in national exams at age 16 to 18. The fact is that we have the graduates, and that encourages the investment, which is perhaps why we have done so well. Digital firms want to invest because the skills base is there in Northern Ireland, and still available, because we continue to produce graduates to build above and beyond where we are. We have the highest percentage of qualified IT professionals in the UK and Ireland, with more than 77% holding a degree-level qualification.

I say with respect to the Minister and all other regions, Northern Ireland is leading the way. From a small base of 1.8 million people—although the latest stats tell us we are nearly at 1.9 million—we are up there with London and other parts of the United Kingdom. Post Brexit, therefore, we are in a position to do great good for the United Kingdom of Great Britain and Northern Ireland. This is an opportunity that we should be taking advantage of. Some 77% of post-A-level high school graduates in Northern Ireland go on to further and higher education, compared with the UK average of 71%. Again, Northern Ireland is leading the way.

All such things make it attractive to come to Northern Ireland. Furthermore, labour and property costs for a 200-person software development centre in Belfast are 36% less than in Dublin, 44% less than in London and 58% less than in New York. We can see the benefits of coming to Belfast and Northern Ireland. Improved connectivity, which is central to this debate, will only enhance our global potential. How can we build on our base and our level of delivery in Northern Ireland and across the whole of the United Kingdom? The motion seeks to highlight the importance of the ability to hop on a plane and get anywhere in the world quickly—the need for competitive APD, to allow us to show the world that we are only a short, cost-effective flight away.

Only aviation can connect the United Kingdom with existing and emerging markets vital to our post-Brexit future, producing and maintaining thousands of jobs, and indeed the thousands more jobs to come. At the moment we have a competitive disadvantage that we cannot afford: we pay more than double the aviation tax of our nearest European trading rival, Germany. The tax on trade hits UK businesses as they seek to expand international trade essential to our post-Brexit future. It acts as a brake on airlines’ developing new routes to the very markets that UK businesses need to reach.

If the Government want to signal that Britain is truly open for business as Brexit approaches, what better way could there be than to cut this tax on trade by at least 50%, to bring us in line and give us an advantage? The high rate of APD is a brake on expanding links with the world, meaning that the United Kingdom of Great Britain and Northern Ireland loses out on connectivity opportunities, and it is one of the main reasons why Germany is better connected to South Korea, Japan, China and Brazil than the UK. It should be the other way around and we should be doing something to address that.

[Mary Glindon]

Does the hon. Gentleman agree that this is not only about Germany and further abroad? Under the Scotland Act 2016, Scotland is able to go ahead with its air departure tax proposal, which is a reduction of 50%, and that will affect the north-east, with a further bad effect on Northern Ireland in addition to the Dublin effect.

[Jim Shannon]

I thank the hon. Lady for her intervention and her wise words. The Minister has heard what she said, and I agree with her, as others do. We need to have a strategy and policy that move us forward together, so that we can all take advantage of what happens, rather than efforts that are divisive—perhaps the wrong word—or different ways of trying to achieve the same goal. I therefore wholeheartedly support the A Fair Tax on Flying campaign and its call for at least a 50% reduction in air passenger duty. I urge all Members to support the AFTOF campaign.

My mother often urged me not to be penny wise and pound foolish. Many people would say that that is the Ulster Scot in her, and in me—every pound is a prisoner, and we were told to look after it and to look after it well. There is nothing wrong with that: thriftiness is good—my children comment on that to me, but that is by the way, and I hope that they learn the lessons that my mother taught me, and that I have tried to teach them. The point is this: we need to focus on the immediate penny, but sometimes we forget the value of the pound. That was what my mum was telling me. We need to look at how we spend better to grow our economy.

From the Minister’s response to various comments, I know that he is sympathetic to our point of view. It has been outlined to me that up to £175,000 can be generated through trade from a high-growth market per average flight added. That is a massive amount of money per flight added, and gives us an idea of our potential to grow.

[David Simpson]

I am sure my hon. Friend will be as surprised as I was to hear that within five years it is reckoned that Dublin airport will be a strong competitor of Gatwick. At one point that was unimaginable, and it is simply because of APD.

[Jim Shannon]

My hon. Friend is absolutely right. Those are all the arguments and the evidential base from places around us. We should be looking at how such places advance and how we can do so alongside them or do even better.

New daily flights to the eight largest high-growing economies could generate as much as £1 billion in additional trade per year for the economy—that figure multiplied up from the one flight to all the flights together. The economic value of new connections to five Chinese destinations, which I mentioned earlier, will add £16 million to GDP and 530 new jobs. That alone gives an idea of the advantage to be gained there.

I do not want to make a pun, but I urge the Government to consider a pilot scheme—for a methodology whereby we can move things forward. Research by PwC shows that more tax revenue would be raised from other taxes than would be lost from abolition of the APD, with a net £570 million in extra tax receipts in the first fiscal year. Positive benefits through to 2022 could add up to as much as £2 billion in tax receipts additional to the total in the status quo. These are not just enormous figures; they represent our potential growth and what we can do. APD abolition could boost UK GDP by almost 0.46% in the first year, with ongoing benefits up to 2022. The increased economic output associated with abolition could lead to the creation of 61,000 jobs by 2022, which is not very far away. At my age, the years seem to go by quicker, but the fact of the matter is that we would quickly see the advantages.

I join the calls to sincerely urge the Government to reduce APD by at least 50%, to ensure that the United Kingdom of Great Britain and Northern Ireland, better together, is more connected to the world, including emerging markets, so that there is increased choice for holidaymakers and to demonstrate that a truly global Britain is open for business. After Brexit, we should be even more open than we are now.

--- Later in debate ---

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

It is a pleasure to speak in this debate with you in the Chair, Sir David. I congratulate the hon. Member for Belfast East (Gavin Robinson) on securing the debate, which has been very inclusive and interesting, and on his illuminating speech.

Many of these issues have been discussed before, as the hon. Gentleman mentioned. They were foreshadowed in our debates about recent Finance Bills, in which I spoke on behalf of the Opposition. Labour argued in those debates that the Government need to be clearer about their long-term plan for APD. There have been a number of reviews of APD’s efficacy, proportionality and impact on competitiveness since its introduction in 1994, and we need to situate this debate in that context. However, despite those reviews, a number of questions still have not been answered, so I hope the Minister provides some indication of the Government’s thinking.

As has been indicated in previous debates on this topic, the Government estimate that APD contributes about £3.1 billion to general taxation. I am well aware that the hon. Gentleman and others suggest that, if one takes a holistic view of its fiscal impact, APD may be fiscally positive on the ledger. It would be helpful to hear from the Minister whether the Treasury is conducting a 360° review of APD’s fiscal impact. I understand that PwC has carried out research, but it would help if the Treasury were focused on this issue, too.

In response to the comments by the hon. Member for Shannon, I cannot resist—

[Jim Shannon]

For Strangford—that’s a step too far!

[Anneliese Dodds]

I beg the hon. Gentleman’s pardon. I am very sorry about that. He will perhaps be even more perplexed when I mention that, rather than pound pinching, my family talked about looking after the pennies and the pounds looking after themselves. Perhaps that reveals a psychological difference between lowland and Ulster Scots. Of course, we need to look after the pennies and the pounds—that is the whole point. We need to trace exactly the impact of APD.

Studies suggest that the evidence about APD’s impact on passenger numbers is mixed. As many Members said, such a duty is unusual in the international context, but the number of passengers using UK airports has increased by 15%—a substantial increase—in the past five years. Of course, APD needs to be considered in the context of there being no tax on aviation fuel and no VAT on domestic or international flights. There are also different levels of APD for different kinds of flights, and exemptions for children were introduced in 2015 and extended in March 2016.

I will focus on four issues: the long-term viability of APD, regional competitiveness, the unequal impact of APD on different groups of Britons, and environmental issues. From a revenue point of view, there are clearly significant concerns about APD’s long-term viability. The Government have moved to provide industry with earlier notice of APD changes. The rates for next year were announced last autumn. That is surely positive for industry but, as I mentioned, we have had no indication of the Government’s view of the long-term trajectory of the tax, particularly in the context of the race to the bottom occasioned by internal competition in the UK. The tenor of this debate demonstrates that the starting gun has been fired on that race—it has begun, and we need to know the Government’s response.

We must view increases or reductions in APD in the context of taxation generally across income levels. It is notable that, given the increasing popularity and accessibility of air travel, many more people pay APD. As my hon. Friend the Member for North Tyneside (Mary Glindon) said, many more people enjoy hard-earned holidays abroad, and there are also people who need to travel abroad for family or work reasons.

Equally, APD is far less significant for household incomes than VAT, another transaction-based tax, which Members touched on. We would be in a different situation if the potentially regressive impacts of consumption taxes as a whole were cancelled out by progressive income taxes, for example, but of course the Government reduced the top rate of income tax. The latest Office for National Statistics figures suggest that overall, unusually in Britain’s history—at least in recent times—people in the least well-off decile pay a greater proportion of their income in tax than those in the most well-off decile. That is a peculiar situation.

Another concern we must note is about APD’s impact on regional competitiveness, which has been a focus of the debate and was perhaps its motivation. As we have discussed, APD levels were devolved to the Scottish Government in the Scotland Act 2016 and initial suggestions were that it would be halved and then potentially removed altogether.

We have discussed at length changes mooted in Northern Ireland, where there has been a call for evidence. We got useful detail about the operation of that from the hon. Member for Belfast East. As I understand it, the Government stated in February 2015 that they would also consider the case for devolving APD to the Welsh Assembly. We have therefore seen much change in relation to this duty.

All those changes naturally raise questions for airports contiguous to other airports not subject to the same APD levels, whether they are contiguous to Scotland or to the Republic of Ireland. We heard interesting thoughts on that from the right hon. Member for Belfast North (Nigel Dodds) and the hon. Members for Upper Bann (David Simpson) and for East Londonderry (Mr Campbell). Of course, the hon. Member for Strangford (Jim Shannon) —I have got it right this time—gave us a typically passionate and inclusive speech and a glimmer of his holiday plans. I hope they are more sedate and relaxing than those of the hon. Member for Henley (John Howell), whose itinerary of recent movements sent my head into a bit of a spin.

We also heard from my hon. Friend the Member for North Tyneside, who pointed out research suggesting that the duty has a significant impact on people living in her area. She is always a doughty supporter of their interests.

The Treasury published a discussion paper on options to support English regional airports in July 2015, but it is difficult to find out what concrete steps have occurred since then. Furthermore, the Government have said they will look at the matter once legislation concerning state aid changes is produced. An indication from the Minister of the Government’s thinking on that would be helpful; it is particularly important, given the points made by the hon. Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry) about the situation for the highlands and islands.

There is often confusion in this place, though certainly not on the hon. Gentleman’s part, about the impact of EU state aid provisions in general. Of course, they prevent the provision of arbitrary support, but, as he suggested, low levels of population could be a feasible basis for such an exemption.