Air Passenger Duty

Kwasi Kwarteng Excerpts

Wednesday 23rd October 2013 Commons Chamber

[Catherine McKinnell]

It is interesting that the hon. Lady mentions cheering up—an ONS report out today says that Northern Ireland is one of the happiest places in the UK—but I appreciate that APD is a cause of unhappiness, as was clearly articulated by a number of hon. Members, particularly the hon. Member for East Antrim. I will set out the Labour party’s position on the subject later, but I want to focus on the Government’s approach—[Interruption.] Given the Prime Minister’s performance today, one wonders who is running the country.

[Kwasi Kwarteng (Spelthorne) (Con)]

To be specific, what exactly is the position of the Labour party, not the Government, on air passenger duty?

[Catherine McKinnell]

As I said, I will set out the Labour position, but it is interesting that Government Members are keen to deflect responsibility. It is important to reflect on what the Government have said to date on air passenger duty.

I would, however, first like to reflect on the contribution by the hon. Member for East Antrim, who made a well-thought-out speech, particularly on the 2013 PricewaterhouseCoopers report into the impact of APD. The report concluded that APD affects not just the travel and tourism sector, but the economy as a whole. PWC was commissioned by British Airways, Virgin Atlantic, Ryanair and easyJet, and suggested that the abolition of APD could result in a 0.45% increase per year in GDP and the creation of almost 60,000 jobs between now and 2020. The Government dispute those figures, but I will return to them later in my speech.

--- Later in debate ---

[Catherine McKinnell]

The hon. Gentleman anticipates my next comment. It is important not to take a Liberal Democrat election manifesto at face value, but one might reasonably have expected to see some action from Ministers given that the coalition agreement promised that the Government would:

“reform the taxation of air travel by switching from a per-passenger to a per-plane duty.”

and

“ensure that a proportion of any increased revenues over time will be used to help fund increases in the personal allowance.”

The Chancellor then announced in the 2010 Budget that major changes to APD, including switching to a per-plane duty, would be subjected to public consultation, but nothing happened, and almost one year later, at Budget 2011, he announced that the Government would consult on simplifying the structure of APD. In between, the fair tax on flying campaign was launched not only to raise concerns about this issue, but to elicit a modicum of action or at least certainty or clarity from the Government. Budget 2011, however, saw the Chancellor U-turn on the coalition agreement pledge made less than 12 months earlier to switch to a per-plane duty, informing the House:

“we had hoped that we could replace the per passenger tax with a per plane tax. We have tried every possible option, but have reluctantly had to accept that all are currently illegal under international law. So we will work with others to try to get that law changed.”

Will the Minister update the House on how that work on changing the law is going?

At Budget 2011, the Chancellor went on to state:

“In the meantime, we are consulting today on how to improve the existing and rather arbitrary bands that appear to believe that the Caribbean is further away than California. We will also seek to bring private jets, which pay no duty at all, into the scope of taxation.”—[Official Report, 23 March 2011; Vol. 525, c. 963.]

The APD rate rise due in April 2011 was deferred to April 2012.

[Kwasi Kwarteng]

Will the hon. Lady give way?

[Catherine McKinnell]

Not just yet, because I need to make some progress.

At the same time, we saw an 8% increase take effect, with APD rates thereafter rising in line with inflation. As announced at Budget 2010 and then again at Budget 2011, the Government did indeed consult on the structure of APD, in a consultation that covered several areas, including private jets, different tax bands, premium economy flights, flights from regional airports and the possible devolution of APD. The consultation paper raised the concern that the existing four-band structure was damaging UK competitiveness and contained several anomalies, such as the higher rate on Caribbean flights than on flights to destinations in the USA, about which several hon. Members have raised concerns.

The paper set out two options: returning to the pre-2009 structure of two tax bands and a different rate between two classes of travel; and combining the two higher bands for flights over 4,000 miles to create a three-band structure and retaining different rates between different classes of travel—an option, however, that would not have resolved the Caribbean concern. The consultation also raised the prospect of a lower rate of APD for flights from regional airports and the question of whether APD should remain a UK-wide tax or be devolved.

The Government spent the best part of a year apparently listening to interested parties that took considerable time and effort to respond in good faith to the consultation. And then what? For the whole of the UK, apart from announcing that APD would be extended to business flights, they did absolutely nothing. In their response to the consultation, they confirmed in December 2011 that they did not propose to make any changes to the tax’s banding structure, to how different classes of flight were taxed or to the application of APD to the regions. It is little wonder then that industry players described the consultation as

“a sham and a waste of taxpayers’ money”.

Of course, we saw action on Northern Ireland, following the July 2011 Northern Ireland Affairs Committee report, which urged the abolition of APD on flights to and from airports in Northern Ireland owing to the specific problem faced there—direct competition from airports in the Republic and its lower rates of APD. In order to maintain the transatlantic route from Belfast to Newark, the Chancellor announced in September 2011 that the APD rate on long-haul flights using airports in Northern Ireland would be cut, because Continental Airlines had, unsustainably, been paying the APD itself at a cost of some £3.2 million a year. Then, in the Finance Act 2012, APD on direct long-haul flights departing from Northern Ireland was devolved to the Northern Ireland Assembly, which then abolished it on these flights from 1 January 2013.

Clearly, flights from Northern Ireland face specific challenges, as I have noted and as was set out clearly by the hon. Member for East Antrim. It is the only part of the UK that has a land border with another EU member state. George Best Belfast City airport and Belfast International both compete directly with Dublin in attracting airlines, routes and passengers. So the Opposition supported the Government’s move on APD in relation to long-haul flights and Northern Ireland. Given that Northern Ireland also largely relies on air transport for its link to the rest of the UK, we are sympathetic to the argument for reducing APD on all routes from Northern Ireland, but we would need to examine the impact of that in the round, including on the block grant, which the hon. Member for East Antrim acknowledged.

Other options are, of course, available. We could consider protected routes, which already exist in the UK—the air link to the Scottish islands being an example—with Belfast to Heathrow being suggested as the obvious choice. But the Government’s piecemeal approach to dealing with APD, an issue that affects the UK as a whole, is regrettable, particularly given the importance of long-term certainty on this issue for industry and the wider economy. Leaving aside the changes we have seen in Northern Ireland, it appears that the Government have simply given up on this issue altogether.

In May, the Select Committee on Transport published a number of proposals on APD as part of its wider inquiry into aviation strategy. Included in the recommendations were that: the Treasury should conduct and publish a fully costed study of the impact of APD on the UK economy; the Government should carry out an objective analysis of policies such as differential rates of APD; the Government should conduct a 12-month trial on an APD holiday for new services operating out of airports not in the south-east; and the Government should not further devolve APD at this stage, as it may have negative impacts, for example, in the north of England. Some of those recommendations stemmed from the February 2013 PricewaterhouseCoopers report, to which reference is made in the motion.

Ministers appear to have totally dismissed both reports, rejecting all the Select Committee’s recommendations apart from the one on devolution. They have stated:

“The Government disagrees with the findings of the PwC report. The Government believes that abolishing APD would have a smaller impact on GDP than the report implies and would cause a net loss of tax receipts. This reduction in receipts would need to be paid for through tax rises or spending cuts elsewhere, which would themselves have an economic impact.”

The response went on to state:

“The Government has no plans to undertake a review of the economic impact of APD at this point.”

So, the Government do not believe the findings of others about the economic impact of APD, but have no plans to verify them or otherwise undertake their own review.

There is no doubt that APD brings in a significant amount of funding to the Treasury, with a yield of £3 billion anticipated this year and next, as the Minister mentioned a good number of times. The matter does need to be considered in the round, but the Government’s unscientific approach to this issue seemed to be a cavalier one to take to economic growth, given that we have had three years of a flatlining economy.

The motion states:

“that it is the intention of the Prime Minister to review green taxes; and calls on the Government, as part of that review, to give high priority to the abolition of air passenger duty.”

In preparing my comments for today, I wondered whether this review actually existed, but the Prime Minister seems to have confirmed it at questions, because he is apparently waking up to the fact that struggling families need support and believes that this is the way forward. We then read, however, that this review has been kiboshed by the Liberal Democrats before it has even begun. Perhaps the Exchequer Secretary will shed some light on that issue, too, in his concluding comments.

In conclusion, despite various promises of action on this issue, we have seen anything but. The reforms in Northern Ireland addressed the very specific situation in that part of the UK, but this issue affects the whole of our country. After three years of a flatlining economy, and with households up and down the country in the midst of a cost of living crisis, the Government’s complete lack of direction on APD has been extremely unhelpful at a time when family purse strings have been tightened and businesses have been crying out for support. The lack of certainty on this issue from the Government simply risks investment decisions being delayed and future development being jeopardised, which, crucially, puts jobs at risk, too. This just is not good enough, but it is what we have come to expect.

[Kwasi Kwarteng (Spelthorne) (Con)]

I intervened during the speech made by the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) to ask what the Labour party’s policy on this issue actually was. The hon. Lady made a good speech, but she did not answer my question. She spoke for 17 minutes without providing any clarity on the Labour party’s position, and I remain unsure about the nature of her objections—if they are objections—to this tax.

It is important to review the tax’s history. It was introduced in 1994 by my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke), and at that time it was not a green tax. Like most taxes, it was brought in as a revenue-raising exercise and there was no mention whatever of its environmental impact. It was only under the previous Labour Government that the tax mutated into a green tax. It was doubled in 2007, and the banding was introduced in 2008. The right hon. Member for Tottenham (Mr Lammy) and the hon. Member for Hackney North and Stoke Newington (Ms Abbott) have spoken of how their constituents who travel to the Caribbean are particularly affected by the banding, but we did not hear any mention that that banding was introduced by the Labour Government. It seems peculiar that the hon. Member for Newcastle upon Tyne North has not mentioned that Government’s contribution to the development of the tax and nor has she set out the Labour party’s current position on it—that remains perfectly obscure.

We need to consider the deficit. As a free-market Conservative, I do not like taxation, and I yield to no one in my desire and enthusiasm to cut taxes and to stimulate the economy through reducing the burden of taxation to promote growth and enterprise, and to encourage risk-taking and other forms of business enterprise. However, I recognise that we have a deficit, and that deficit completely shapes the nature of our debates on taxation—[Interruption.] I sense an intervention coming on.

[Mr MacNeil]

I was trying to resist the urge to intervene, but the deficit in the UK has been in existence since 2001. The UK has been in a fiscal black hole since then, which was seven years before the economic crisis; it has not been able to pay its way since that time.

[Kwasi Kwarteng]

The hon. Gentleman shows an admirable grasp of our recent economic history; he is absolutely right. From 2001 to today, we have consistently run a deficit. Conservative Members have always been struck by the fact that, although the economy was actually growing during the first six of those years, between 2001 and 2007, the Government of the time saw fit to run a deficit in every one of those years. The present Government inherited a deficit of £160 billion—12% of our gross domestic product—and the fact that it has now been reduced by a third represents a remarkable success. It now stands at somewhere between £110 billion and £115 billion, depending on how the figure is calculated. In the context of deficit reduction, any Government would be reluctant to abolish air passenger duty in a peremptory way, as it brings in more than £3 billion a year. We all recognise that the deficit is a real thing—it is an ongoing annual sum that we have to close—and the £3 billion a year raised by APD makes a real contribution to its reduction.

I fully understand all the supply-side arguments. I understand that, if we were to abolish the tax, we could perhaps reap economic rewards at some future date. However, those who promote reducing or abolishing it must tell us how they would replace that revenue from day one. Where would they find the £3 billion that APD currently brings in? Conservative Members are familiar with general tax-cutting arguments. One could argue for the abolition of most taxes on the basis that that would stimulate growth, and that the money would be recouped in the long run through increased tax revenues. However, we have to face the fact of a real deficit, which is something that Opposition Members never seem to acknowledge in their speeches.

I was entertained by the speech made by the hon. Member for East Antrim (Sammy Wilson), who put forward in a typically trenchant way his views on green taxes, the environment and all the rest of it. I have often heard such arguments in the pub in Staines among my constituents and others, so I am familiar with them, but I shall not touch on green taxes, because what I am concerned about is the deficit.

If we were balancing our books and if we had succeeded a fiscally responsible Government, I would be among the first to say that this APD tax should be abolished. I would absolutely recognise the compelling argument that lowering taxes increases business enterprise. However, because we run a deficit, I feel that the £3 billion coming into the Exchequer is too high an amount simply to discard and forget about.

We need to look at the effects of such taxation on the aviation industry. I think it was my right hon. Friend the Member for Saffron Walden (Sir Alan Haselhurst) who made the point that although APD is quite high, the industry is expanding and more people are flying. From the Government’s point of view, as a revenue collector, the tax is not impeding the growth of the industry, so it would be irresponsible for them to forgo such tax revenue, especially given our record deficit.

Going forward to a time when we are balancing the books under the next Conservative Government, I will be at the forefront of those arguing to abolish APD. Earlier in this Parliament, I wrote and often said that while, in principle, the tax might not be the best thing, there are specific budgetary requirements and conditions of the moment that make APD essential.

We have to consider corporation tax and taxation generally in the round. I congratulate my hon. Friend the Member for Loughborough (Nicky Morgan) on her appointment as Economic Secretary. She cited the fact that our corporation tax rates are extremely competitive. The rate of 20% is among the lowest, if not the lowest, in the OECD. In that context, general taxation on companies and business has been reduced, and we are seeing flickerings of growth—we expect encouraging growth figures at the end of this week. In the round, we can therefore say that the Government’s policy is working. The deficit reduction is happening and growth is beginning to return to Britain. Now is not the time to slacken the deficit reduction plan, so I fully understand why APD is necessary: to further our principal aim of deficit reduction.

[Several hon. Members]

rose—

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[Dr William McCrea (South Antrim) (DUP)]

I congratulate all Members who have taken part in the debate, and in winding-up on behalf of my colleagues I want to say that it has been an interesting discussion. I congratulate my hon. Friend the Member for East Antrim (Sammy Wilson) on the usual skilful and robust way in which he introduced the debate, and I thank him for sparing us his full views about green issues. His thought-provoking speech was certainly worthy of careful consideration, and I trust that those on the Treasury Bench listened to it carefully.

I welcome the Economic Secretary to the Treasury to her post, and as she said, we welcome the good economic news from Northern Ireland. I found it strange, however, that despite representing a party of low tax, she defended the highest APD anywhere in the world. I trust that when the Minister winds up the debate we will hear some different views.

I welcome the shadow Minister, the hon. Member for Newcastle upon Tyne North (Catherine McKinnell), to her post, and thank her for her keen interest. I accept her point that APD is an issue that affects the whole country, not simply Northern Ireland. Our motion acknowledges that because we have spread it out, taking in the whole United Kingdom, rather than only Northern Ireland.

The hon. Member for Spelthorne (Kwasi Kwarteng) proclaimed his low-tax conservatism. Having done that, however, he went on to defend why we should have the highest taxation in Europe—it was amazing to have the hon. Gentleman draw that to our attention, because in reality United Kingdom taxpayers are being taxed silly. He mentioned bringing down corporation tax. I acknowledge what the Government have done on that, but perhaps he should also bear in mind that Northern Ireland has a land border with a country that has a corporation tax of 12.5%, which is far below anything that the Government have done. We in Northern Ireland have a double whammy of taxation.

[Kwasi Kwarteng]

The hon. Gentleman will know that in this House I am absolutely in favour of low taxes, and I have said to the Chancellor that I think we should have corporation tax of 15%. I will always be in favour of lower corporation tax.

[Dr McCrea]

I thank the hon. Gentleman for that helpful intervention.

I thank the hon. Member for Brigg and Goole (Andrew Percy) for acknowledging the problems faced by regional airports—many hon. Members acknowledged that point in the debate. The hon. Member for Paisley and Renfrewshire North (Jim Sheridan) is right that statistics are worth repetition because they might get through to the Government, who must then answer to them.

The hon. Member for South Down (Ms Ritchie) drew attention to the impact of the Irish Government on Northern Ireland. She was exactly right. It has been said that the UK Government cannot do what the Irish Government have done because of the deficit. However, I draw the House’s attention to the fact that the Irish Government have a greater deficit problem than the UK Government. The Irish Government nevertheless believe that removing APD was of greater value economically. The Minister should bear that in mind when he expounds why we should not abolish APD—he should not say that it is because we are dealing with the deficit. As I have told him, the Irish Government have a greater problem, yet they have announced the measure in their budget.

I am happy that the hon. Member for Mid Norfolk (George Freeman) spared us the details of his trip to Amsterdam. Nevertheless, I hope he has learned something from the debate and will change his mind on any decision he makes later.

I share the experience of my hon. Friend the Member for Strangford (Jim Shannon): a lot of ordinary people come to my constituency office because they have no Sinn Fein representation in the House and we must represent them. That is a disgraceful situation, but it is a fact, and we must accept the reality. The hon. Member for North Antrim (Ian Paisley) gave the House an interesting report of the statement by Mr Hastings. That, too, is worthy of our consideration.

It is clear from the debate that the civil aviation sector is one of the main pillars of economic growth in the UK, driving job creation and growth both at home and overseas, as well as providing air transport for goods and passengers. More than a third of world trade is delivered by air, and about half of international tourism is facilitated by air links. However, as hon. Members commented, UK passengers are taxed more for air travel than passengers anywhere in the world, with APD rates expected to rise again in line with inflation from 1 April 2014.

In March 2013, the UK was ranked by the World Economic Forum as the world’s least-competitive country in terms of taxes and charges levied on air passengers. The TaxPayers Alliance has described APD as

“an unwelcome burden on family holidays, a cost to business and redundant with the EU Emissions Trading System now being applied to aviation”,

and has called for APD to be phased out entirely.

Our vision for a strong and prosperous Britain can be achieved only with healthy and vibrant transport and economic development sectors. Air connectivity is the key to efficient trading and, as the UK economy continues to transform in the face of domestic and global change, it is essential that the aviation industry is given the certainty and incentive necessary to allow it to plan and invest for the long term. Time and again we are presented with the argument that APD has deterred airlines from opening new routes, especially in Northern Ireland, where robust air links are fundamental to underpinning our regional economy, and has compromised the ability of local businesses to attract new foreign direct investment.

The situation is similar in Scotland. Amanda McMillan, managing director of Glasgow airport, has stated:

“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 even 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…will continue to face some of the highest levels of taxation in Europe which is clearly a disincentive to travel.”

In an evidence session to the Northern Ireland Assembly Finance and Personnel Committee on 18 September, the director of the City of Derry airport, Damien Tierney, described APD as one of the “big factors” influencing airline decision making. Low-cost carriers such as easyJet and Ryanair, which account for most of the Province’s air travel, are particularly influenced by APD.