Air Passenger Duty

Justine Greening Excerpts

Thursday 20th January 2011 Commons Chamber

[The Economic Secretary to the Treasury (Justine Greening)]

I congratulate the hon. Member for Hackney North and Stoke Newington (Ms Abbott) on securing this debate. She eloquently ran through some of her concerns about the way in which air passenger duty is currently structured. She is asking me, as a Minister, to defend the current structure, but it is difficult for me to take responsibility for the structure of APD, given that it was entirely put in place by the previous Government. I took on board the questions put by the hon. Member for Streatham (Mr Umunna) about the fairness of the structure, but he would be better placed asking his party leader and the now shadow Chancellor about the logic that the previous Government used in approaching these issues and how they thought about the issue of fairness with respect to Caribbean countries.

[Ms Abbott]

I am the last person to defend the previous Government mindlessly. I made it clear from the very beginning of my speech that I made this argument to the outgoing Government and was disappointed by their response. Nobody is asking the Minister to defend the current system, because we know that incoming Ministers have to deal with the hand that they are dealt. What I am asking her to do is to reconsider the current system—that is a different point.

[Justine Greening]

In that case, I have good news for the hon. Lady. She was doubtless paying close attention to the emergency Budget in June, when we said that we would look at reforming APD. We recognise some of the shortcomings in the existing system’s structure, and in the next few minutes, I am going to discuss some of the issues that she has raised.

First, it is important to say that the new coalition Government recognise the importance of the strong ties that exist between the UK and Caribbean countries. As a London Member, a large number of my constituents have strong family ties with the Caribbean and they spend a lot of time saving up to go there, travelling there and spending time there, as well as having relatives come over to see them in this country. So the hon. Lady makes an important point about these links. We must also not forget the Caribbean’s relationship within the Commonwealth, which is a further incredibly important link with our country.

When the hon. Lady wrote to me recently to raise her concerns about this issue, she rightly highlighted the context within which the coalition Government are operating. Clearly the fact that we have inherited a record budget deficit has meant that some of the tax rises announced by the previous Government, such as the increase in APD rates that came into effect last November, simply could not be avoided. She referred to the APD bandings, which are the aspect of APD that concerns the Caribbean countries most, and I need not remind her that they were the brainchild of the previous Administration, not this Government.

However, we need to look forward, which is why today’s debate is worth while and important. The hon. Lady was right also to point out the role that aviation and business plays. The coalition Government recognise that as we get the economy back on track and as the recovery in the world economy starts to gather pace, aviation can play an important part in delivering future growth for the UK economy. Without continuous improvements in air connectivity, we risk endangering future growth and prosperity in the UK. She talked about the importance, particularly for the Caribbean tourism industry, of the aviation connection with the United Kingdom. I shall discuss that in a little more detail shortly, but she will be aware that I met representatives from the Caribbean countries and the Caribbean Council here in London last year, once we started to ensure that we were talking to all the stakeholders who had an interest in the reform of APD. Of course, they were an important group that I needed to talk to face to face. We had a very helpful meeting and they set out their case effectively to me that afternoon.

The hon. Lady raised some particular concerns today and in the letter that she wrote to me, and I shall do my best to address them. First, she talked about the contrast between the duties paid on flights to the Caribbean and to other destinations, including the United States. It is true that the current four band structure of air passenger duty based on the distances between London and the capital cities of other destination countries—something that was brought in under the previous Government—has the effect of placing the Caribbean in a higher tax band than the United States. Such issues are common to any banded system. I do not particularly want to defend the existing structure of APD and how the previous Government changed the tax system, but it is difficult to have any banding system that solves all the problems raised. Whichever approach we take—she mentioned time zones—there are trade-offs between equity, simplicity and effectiveness. She is right to point out that the current banding system has some downsides, but it is also fair to be pragmatic about the fact that any banding system will have its downsides.

The second point, which is very fair, concerns APD as structured and the environment. I shall not try to defend the way that APD is structured in that regard, but the new coalition Government have been very clear that we have a strong sense of purpose about the environment. We want to be the greenest Government ever. We know that alongside other major sources of emissions, the aviation sector needs to start to take proper account of its global environmental impact in the future. It is also worth recognising that from 2012 aviation will be part of the EU emissions trading scheme. That is an important step forward in ensuring that the environmental impact of aviation is better taken into account as part of the overall fiscal environment.

The coalition Government’s approach to the environment will be guided by the evidence. We do not think that there is anything to be gained by empty rhetoric on the environment, so I am very clear that we need to take a fresh look at how best to deliver our environmental objectives in a way that is fair to passengers—the hon. Lady has talked about her concerns about passengers flying to and from the Caribbean—and to industry, which has perhaps never been more important than it is now. Also, we must not lose sight of the need for the UK to have economic growth while tackling the clear problems with emissions.

[Ms Abbott]

It is important that we as a country achieve our environmental goals, but our environmental goals should not necessarily conflict with other wider development goals, such as the millennium development goals. As regards the impact of the air passenger duty as constructed on a region that, although it is ostensibly a middle income region, has communities that are among the poorest in the world, I see no reason why environmental goals cannot be co-ordinated with broader development goals.

[Justine Greening]

In many respects, that is precisely what we are trying to do. We are trying to see where we can strike the balance. That is one reason why, at the emergency Budget, we talked about wanting to reform APD. The hon. Lady is setting out some of the challenges, and finding the right mix in an approach to APD that means that we try to square off some of the difficult issues at the same time will not be easy. Debates such as this, and the time that I am taking to meet the various stakeholders—not just the Caribbean countries and their interests, particularly in tourism, but the aviation industry, airports and business in general—

[Richard Fuller]

I greatly appreciate my hon. Friend giving way. I have admired the rigour of her analysis as she has gone about her duties as a Minister as well as her powerful advocacy. If I may, I want to encourage her to use the second part of her talents—her advocacy. There is a strong equity case for people in this country to consider carefully the APD ratings for Caribbean islands. A significant number of people who have made their home here like to go home to their place of birth and origin. We all want to see the environmental goals that she has discussed accomplished, but there is a strong and powerful equity case. I ask her, through her rigour, to give due regard to that case as well as to the other competing pressures.

[Justine Greening]

I am grateful for that intervention. My hon. Friend points out the impact on local communities but, in a friendly way, I would challenge the point about contradictions. In terms of our tourism industry and our need for links with other countries to drive economic growth, this is very healthy. Our relationship with the Caribbean and the role that aviation plays in helping us to maintain that more broadly is particularly important, so we are not necessarily faced with an either/or choice.

One of the most intractable problems we face, which underpins the whole approach in the Treasury, is the unavoidable challenge of tackling the fiscal deficit. We are faced with that while also making sure that the tax measures in place work effectively and do not have the sort of negative impacts that we do not want or need them to have.

[Mr Umunna]

I should like to follow up the point about equity made by the hon. Member for Bedford (Richard Fuller), which I endorse. The key issue is the banding system, which was, admittedly, introduced by the previous Labour Government—I think one of the Minister’s predecessors referred to it as being rather rough and ready—and I would not necessarily endorse the form of APD that they put in place. The Minister says that the coalition Government have undertaken to review the system, but can she tell us when we can expect the results of the review? Obviously, the Budget will be on 23 March. Are the results of the review likely to be announced then or beforehand? That information would be useful to the industry and the many families who want to plan what they will be doing in the next few months.

[Justine Greening]

First, it would be wrong of me to pre-empt the Budget statement. What I can say—we have already been clear about this—is that any major change to air passenger duty will be subject to consultation. One thing that we have learned from looking at how this tax and others have been changed in the past is that we need a sensible tax-making policy that involves not just the Treasury thinking about the objectives it wants to achieve, but talking with stakeholders. There is a need to issue a consultation document to which people can respond and then draft legislation to make sure that the final legislation can achieve the aims we have agreed on and that have come out of the consultation.

I cannot give the hon. Member for Streatham any timings for all that, but I can tell him that we want to ensure that any reforms we bring forward will work as intended. He quoted a previous Minister saying that the system was rough and ready. We want to avoid making another change to APD that brings other problems we have not anticipated. Whatever we do in this area, it is impossible to get the perfect system, but we need to understand the pros and cons of any particular approach. We need to understand what the risks are and whether we can mitigate them. He is right to ask about timelines. The fact that we said in the previous Budget that we want to review and reform APD and that we have been working on that and meeting a variety of stakeholders to get their views shows that we want to do this in a thoughtful way rather than just announcing something that would be a surprise to the industry and to people who are trying to plan for their holidays.

Let me finish by saying that I recognise the urgency with which the hon. Member for Hackney North and Stoke Newington wants this area of tax policy to be changed. However, I think we are right to work out cautiously which path we want to go down. That is why we talked about reviewing the existing APD regime in the June Budget. As I have said, in the past few months I have met a variety of stakeholders, particularly from the Caribbean countries and the Caribbean Council in London. Those discussions have been very helpful and I have had a useful and detailed report from the Caribbean countries about their views on how we could reform APD. Obviously, we will look at that carefully. I am determined to make sure that we continue that constructive dialogue and I hope that in doing so we can ensure that wherever we end up with the reform of APD we will have done a better job of making sure that—