Air Passenger Duty

Jim Sheridan Excerpts

Thursday 1st November 2012 Commons Chamber

[Jim Sheridan (Paisley and Renfrewshire North) (Lab)]

I apologise in advance to you, Mr Deputy Speaker, and to the general public, for the repetitive nature of the comments I am about to make. I genuinely believe that the more people say these things, and the more often we say them, the more the Government will listen.

APD was introduced under the guise of an environmental tax, but all hon. Members know that it simply is not an environmental tax. No money from it goes back into the aviation industry or into the environment—nothing is ring-fenced. However, it is discriminatory against people who live north of the Watford Gap, because they have to pay twice, which is grossly unfair. From that point of view, will the Minister consider the possibility of ensuring that people do not pay APD twice, even if he does not abolish or freeze it, to ensure that it does not discriminate against people?

The APD has a significant cost impact on passengers, and therefore on the UK’s competitiveness and on the profitability of the UK aviation industry. The UK has the highest air passenger tax in the world. Taking air tax, air ticket taxes and airport charges together, the World Economic Forum ranks the UK 134th out of 138 countries. Only six European countries tax passengers for international air travel, and UK rates are twice the level of the next most expensive tax, which is levied in Germany.

A number of colleagues have identified examples of APD. A Chinese family of four flying to the UK must pay £648 APD to fly premium economy. They would pay only £134 to fly to France, and £141 to fly to Germany. A British family of four holidaying in Florida must pay £260 APD to fly economy. A German family of four would pay £141, and a French family would pay just £133.

We should also look at comparators from other European countries. Aviation duty considered by the Belgian Government was never implemented because of concerns about the impact on industry. In the Netherlands it has already been abolished. In Germany, it has led to a significant reaction from airlines, including the withdrawal of low-fare airline capacity. Denmark briefly introduced a ticket tax, but it has since been withdrawn, and of course we know what is happening in Ireland. In Malta, a duty was removed following a legal challenge from the European Commission, with the tax being described as “discriminatory”.

Several hon. Members have asked for an impact assessment, but that has been being carried out for the past 18 years. Currently, the aviation industry contributes £49.6 billion, or 3.6% to UK GDP, supports 921,000 UK jobs, and pays more than £7.9 billion in tax. Glasgow airport in my constituency provides 5,000 jobs both directly and indirectly.

As has already been said, the APD will cost Scotland more than 2 million passengers per annum. Up to 5% of long-haul demand may be lost. There will be a loss of competitiveness, which is important to the economy, and it will have an impact on the tourism industry, with more than 148,000 trips and £77 million in visitor expenditure lost over the next three years. By 2016, APD will cost the Scottish economy up to £210 million in lost tourism spend per annum. Those figures are from York Aviation.

The aviation industry is under severe pressure. Hon. Members may recall the recent terrorist attacks in Glasgow. BAA, the airport authority, has had to make extensive investment in security to make Glasgow airport more secure, and the airlines have also had to contribute. There are significant pressures on airports such as Glasgow to compete, and both management and the workers whose jobs are on the line are extremely concerned about the competitive nature of aviation. We have already heard about the competition from railways. Like the right hon. Member for Belfast North (Mr Dodds), I am approached by people in airport lounges who tell me that they have done an assessment of travelling from Glasgow to London and it takes almost the same time to fly—given the time it takes to get to the airport, go through security, get on the plane, get to London, get the Paddington Express—as it does on the train. The danger is that we could lose the aviation industry as it stands.

There are other arguments against the APD. Some 200,000 people have written to their MPs calling for an impact assessment, and that is crucially important. Some 90,000 overseas travellers have written to the Treasury asking for similar measures. APD does not do what it was supposed to do. It is not an environmental tax—it goes straight to the Treasury. The three largest airports in Scotland are putting pressure on Members of Parliament to ask the UK Government to look at the tax and do something to help the people in the aviation industry to retain their jobs.

[Several hon. Members]

rose—

--- Later in debate ---

[Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)]

I note that no Member has spoken in favour of APD, which I think says a lot. In the midst of a recession, when the cult of austerity is starving the economy, taxes such as APD are bleeding the economy. That is not just my view; it is the view of those in the frustrated aviation and airport sector in Scotland, who see themselves as hostages of a Government policy here at Westminster that is damaging their sector and, by logical extension, the wider economy.

Amanda McMillan, the managing director of Glasgow airport, has said:

“Due to the size of the market in Scotland, we will always find it difficult to attain and sustain new routes, and this situation is compounded…further by APD which simply serves to artificially depress demand and dissuade airlines from basing aircraft here.

Unless APD is reformed, people travelling to and from Scotland—who must fly due to the lack of feasible alternatives—will continue to face some of the highest levels of taxation in Europe which is clearly a disincentive to travel.”

[Jim Sheridan]

If APD were devolved to Scotland, and Scotland then cut the tax, would there not be consequences for the Barnett formula?

[Mr MacNeil]

If APD were devolved to Scotland, the economy would grow. I should like all taxes to be devolved, so that the benefits of the policies introduced by the Scottish Government could go to the Scottish Exchequer. That is a logical extension, and it is what is happening in all the other countries. I am sure that, given the level of APD in the United Kingdom, no other country would be as foolish as the Government whom the hon. Gentleman supports at Westminster. He wants a Tory Government to have these powers over Scotland, and, given that he is a Labour MP, I find that quite shocking.

It is calculated that APD will have cost the Scottish economy £210 million in lost spending by 2016. So short-sighted is this policy that it will end up with our losing up to £50 million in other taxes through economic activity that will not take place. The Federation of Small Businesses has been damning of the UK policy on this tax:

“The Government’s determination to tax air passengers has resulted in a sustained negative impact on businesses as well as on leisure travel. IATA reported in June 2012 that UK passenger numbers have declined slightly over the past four years at a period when Germany, France and the Netherlands saw growth of between 2-4%.”

That must have damaged our economy.

The UK has embraced this tax in a helter-skelter fashion. It is regressive and it hits the poor disproportionately. It is a poll tax of the skies. It is felt less by millionaires in the Cabinet and elsewhere than it is by others.

Other countries have been wiser in their approach. Some countries that have introduced APD, such as Germany and Austria, have done so at a lower level. The Germans are economically canny, of course, and after they introduced it, they reduced it, rather than increasing it as the UK has done. We must welcome the fact that Aer Lingus is planning to fly to Edinburgh and therefore give us more choice, but there is still the handicap of high APD.

King Louis XIV of France was known as the sun king, and perhaps his sunny disposition was in part due to this quote from his Finance Minister, Jean-Baptiste Colbert:

“The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the smallest possible amount of hissing.”

For the benefit of Members, I have translated that passage from the French. We have not had much of a sunny disposition from the Treasury for the past two years, but there has been plenty of hissing—and booing—in its direction.

Since 2007, APD has risen by 160% on short-haul flights and between 225% and 360% on long-haul flights. The Aberdeen Airport managing director has said:

“At Aberdeen Airport we run a real risk of losing around 200,000 passengers by 2016 through this damaging tax. Each recent increase in APD has had a dramatic impact upon what we, as airports, have achieved and could have achieved without APD. It is imperative that the UK government undertake a detailed and comprehensive review into APD with the utmost urgency, and at the very least freeze APD whilst that is taking place.”

Gordon Dewar of Edinburgh Airport adds:

“This tax has now hit its tipping point where the damage it is doing to Scotland far outweighs the benefits. This cannot stand and must be reviewed as a matter of urgency.”

No wonder people are concerned, especially as the Calman commission recommended this policy be devolved in 2009 and the MSP representing the Edinburgh airport area, Colin Keir, says:

“APD hits tourism and business and we need to have the power at Holyrood to maintain competitiveness with other countries and fairness to those travellers who have to use our airports.”

The economic mismanagement from Westminster is frustrating people, especially as this Parliament and Government will not devolve this policy to Scotland. I tell Parliament and the wider country, however, that in 2014 people will have a chance to have APD devolved and to give Scotland a competitive edge. After the independence referendum of 2014, I look forward to the devolution of APD, along with everything else, by one means or another.

--- Later in debate ---

[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—

[Jim Sheridan]

Before the hon. Gentleman concludes, does he accept that it is grossly unfair for British people to pay APD twice, depending on where they live?

[Sajid Javid]

I thank the hon. Gentleman. We have looked at these issues in the consultation, and I believe that I have addressed them.

I have listened carefully to the debate, and the many thoughtful contributions from Members on both sides of the House have been very valuable. Should the motion pass, then of course the Government will take note of Parliament’s view; it is important that we listen to the views of Parliament. Let me conclude by thanking my hon. Friends the Members for Witham and for Crawley for raising this important issue with the House.