General Matters

Lord Jackson of Peterborough Excerpts

Tuesday 18th September 2012 Commons Chamber

[Mr Stewart Jackson (Peterborough) (Con)]

I am glad to have this opportunity to discuss a vexed issue of tax policy, namely air passenger duty, which has been described succinctly by the TaxPayers Alliance as an unwelcome burden on family holidays, a cost to business and redundant now that the European Union’s emissions trading system is being applied to aviation.

I declare an interest at the outset as the constituency Member of Parliament for Peterborough, which houses the international headquarters of Thomas Cook, so tourism and leisure issues are important to me. This is also a wider issue relating to business competitiveness, the impact on family budgets and household incomes, and the ongoing debate about sustainability, the environment and climate change.

The fair tax on flying campaign has been one of the most successful campaigns in recent parliamentary history. More than 130,000 individuals have written to their MPs in support of early-day motion 174, which calls on the Government to undertake a comprehensive study of the full economic effects of aviation tax in the United Kingdom, including its impact on employment.

APD was introduced in 1994 at an original rate of £5 per person for short-haul flights and £10 for flights elsewhere. In 2008, the then Government announced that the per-plane duty proposal that they had suggested the previous year would not go ahead and that, instead, APD rates and geographical bands would be restructured. Following the general election, the coalition Government have explored plans to switch to a per-plane duty, as outlined in both the coalition agreement and the 2010 emergency Budget. The overall APD tax take increased significantly from 1 April 2012, after the Government implemented an 8% APD increase.

A typical family of four pays an average of more than £115 in APD each year. A family of four flying in economy class to Florida from the UK would pay £262 in APD, whereas in France the equivalent tax is £38. Compared with seven years ago, APD rates have risen 160% on short-haul flights and up to 360% on long-haul flights, with inflation over that period being about 18%.

The tax has a significant and deleterious effect on the economy. The British Chambers of Commerce found that APD could cost the economy a staggering £10 billion in lost growth and up to 250,000 fewer jobs over the next 20 years. Many European countries, including Belgium, Holland and Denmark, have abandoned their aviation taxes because of the negative effects on their economies. In the longer term, analysis undertaken by Oxera in 2009 shows that the UK economy will forgo £750 million in wealth and 18,000 jobs because of the rises in APD since November 2010, with about half of the extra revenue raised offset by tax revenue losses in the wider economy.

Although it has to be conceded that the research on APD is piecemeal, it does point to significant damage to the economy in the long run. The Government’s figures project 7,000 fewer flights in 2011-12 as a result of the APD increase in 2010. A 2011 report by York Aviation estimated that APD would result in Scotland losing 1.2 million passengers, 148,000 tourists and £77 million in revenue by 2014.

Aviation is vital to the UK economy. It contributes £53.3 billion or 3.8% of GDP. It supports 963,000 UK jobs—352,000 directly in the sector and 344,000 indirectly through the supply chain. A massive amount of economic activity is dependent on the success of tourism, leisure and aviation.

[Keith Vaz]

There is a burden on the traveller not only through the additional tax, but through the increase in the cost of visas.

[Mr Jackson]

The right hon. Gentleman makes an important point about the impact on people who take long-haul flights, such as to India or the Caribbean.

APD is having a significant impact on people who want to come to the UK from growth economies, such as China. Such people would spend money and drive growth. In 2011, the Tourism Alliance produced a report entitled “Air Passenger Duty: the Impact on Visitors from China”, which found that the UK’s share of the Chinese market had more than halved from 0.5% in 2001 to 0.2% in 2010. If the UK had retained its share of the outbound market from China, it would have gained more than £1 billion in additional tourism revenue from China over the last decade.

Britain has the highest air taxation of all European Union and G20 countries. It is so high that the Treasury will collect more than twice as much in passenger taxes this year as all other European countries combined. Only five other countries in Europe have a similar tax. In August 2010, the German Government approved an air travel levy. It was introduced on 1 January 2011 and ranges from the equivalent of about £7 per passenger for short trips to £39 for long-haul trips. That is well below the UK’s APD, which starts at £13 for short-haul trips. In 2009, the Netherlands followed Belgium in abandoning its equivalent of APD because, although it raised the equivalent of £266 million in one year, the Dutch calculated that the loss to the wider economy was more than £950 million. Germany has set its rate at about half the UK’s level.

Given that one of the Government’s economic ambitions is for Britain to have the most competitive tax system in the G20, it is extraordinary that the World Economic Forum’s recent tourism competitiveness report ranked the UK 134th out of 138 countries for air ticket taxes and airport charges. That was before the 8% rise in the last Budget.

This tax is having a direct effect on constituents across the country—ordinary working people on modest salaries who want to go on holiday. That is the important point that Treasury Ministers need to think about when preparing next year’s Budget.

The British Chambers of Commerce has found that UK airports believe that rises in APD have contributed to a number of key routes being lost at local airports. Peel Airports, which operates Liverpool John Lennon airport, Robin Hood airport Doncaster Sheffield, and Durham Tees Valley airport, provided an analysis of its lost routes in a joint submission to the Treasury by the Northern Way, a coalition of regional development agencies in the north of England. Following the doubling of APD in 2007 and the subsequent rises, Liverpool John Lennon lost six domestic services, five European services and two long-haul services to north America, and Robin Hood airport Doncaster Sheffield lost one domestic service, six European services and three long-haul services.

People will inevitably say that this tax is about maintaining some kind of traction on air travel and aviation in order to reduce the dangers of climate change. However, attempts to justify the tax on environmental grounds have been unpersuasive, and particularly with the application of the EU emissions trading scheme to the aviation sector, I believe that the aviation tax should eventually be phased out.

In his 2011 book “Let them Eat Carbon”, the chief executive of the TaxPayers Alliance, Matthew Sinclair, noted research by the Intergovernmental Panel on Climate Change that suggests that by 2050 aviation will still be responsible for only 5% of the human contribution to climate change. That figure, although significant, is still pretty marginal. With aviation expected to continue to make up such a small share of global emissions, stopping people flying is not critical to limiting climate change, and we know that aeroplanes are now quieter, cleaner and more efficient than ever. APD is excessive, unfair and inefficient as a means of reducing greenhouse gas emissions, and it is duplicated in a number of other policy interventions. I therefore believe that it should eventually be abolished.

In their working paper “The impact of the UK aviation tax on carbon dioxide emissions and visitor numbers”, Mayor and Tol found that the 2007 increase in UK aviation tax had had

“the perverse effect of increasing carbon dioxide emissions, albeit only slightly,”

while reducing the number of travellers to Britain.

A 2008 cost assessment by the Department for Transport found that the aviation tax was excessive following the doubling of air passenger duty rates in February 2007. The Government have since—surprise, surprise—stopped carrying out such studies, but results show that even with a high estimate for the social cost of carbon, it is hard to justify the current APD rates on the basis of aviation’s contribution to climate change.

In the run-up to the autumn statement and next year’s Budget in March, the Government have an excellent opportunity to reconsider this tax, which I believe is regressive, inefficient and, above all, damaging to what we all care about—British jobs and British growth. Even more important, we as hon. Members must defend the interests of our constituents. They are not wealthy and do not own Learjets and jet across the world at the drop of a hat, but are decent working people who wish to have a holiday with their family. At the moment, we are clobbering them, but next year we have a real opportunity to right that wrong and bring in a fair tax regime that will compare with other such regimes across the world. We should do the right thing, and I believe that over the next few years, this tax should come to an end.

Although no Treasury Ministers are sitting on the Front Bench, I hope that they will listen to people power—some 130,000 people have written to hon. Members about this issue, and it is time for a change.