Air Passenger Duty

Lord Palmer Excerpts

Monday 28th January 2013 Lords Chamber

Tabled By

[Lord Palmer]

To ask Her Majesty’s Government what plans they have for the future of Air Passenger Duty.

[Lord Palmer]

My Lords, I am grateful for the opportunity to raise an issue that I know vexes many in this House and puts significant burdens both on British business and ordinary families. I must declare my interests. I open my home in Berwickshire to the public and I am a residual beneficiary of a banana plantation on St Lucia.

Air passenger duty has become an increasingly contentious issue over recent years and it is worth reflecting on the reasons. When it was first introduced back in 1994, the maximum that any passenger paid in air passenger taxes on departing a UK airport was just £10, and for those flying short haul it was half that. But, as is often the way with these things, once a tax has been established it is almost impossible for the Treasury not to resist the temptation to find ways to increase it—and what a truly astounding increase we have seen. From that modest beginning, the tax is now generating almost £3 billion each year for the Treasury and costing passengers who pay the highest rate more than £180 in tax alone for a single journey.

Some of the most dramatic increases have been introduced in the past decade. In 2006, a family of four flying to Florida paid £80 in APD—still a significant additional cost on a summer vacation but nothing compared with the £260 they now pay to fly to North America. That is an increase of 225% in just six years. Following the Chancellor’s Autumn Statement, we now have confirmation that APD is set to rise again in April. I offer this example because it illustrates just how rapid the increases have been and explains why there is a growing concern about its impact not just on families, but perhaps more importantly, on the UK’s business community. Indeed, there is a growing body of evidence that points to the damage the tax is having on jobs, growth and in various regions of the economy with various estimates, for example, that more than 90,000 additional jobs could be created were it to be scrapped.

It is tempting to say that the tax should be significantly scaled down. After all, we levy the highest APD anywhere in the world. We are one of only six EU countries to levy APD, the others having recognised the damage such a tax inflicts on economic growth.

As an island nation we depend on inbound air travel to carry three-quarters of overseas tourists into the United Kingdom. Yet, the World Economic Forum’s tourism competitiveness report ranked the UK 134th out of 138 countries for air ticket taxes and airport charges.

I could go on, but today I am merely asking not for the abolition of APD, not for a reduction of APD; not even for it to be frozen. I am simply asking Her Majesty’s Government to review the tax: a proper macroeconomic impact assessment into APD across the whole of the UK economy. That is all. No spending commitment implied, just good old-fashioned evidence-based policy-making.

The reason for this is quite simple: there is a growing body of evidence that points to the profoundly damaging impact of APD on our economy. Among the most compelling research that I have seen includes data from the British Chambers of Commerce which estimates that were APD to be increased by 5% in real terms every year—admittedly less than this year’s rise—there could be a loss to the economy of £3 billion by 2020. They add that this effect could reach £100 billion by 2030.

The World Travel and Tourism Council has estimated that removing APD altogether would result in an additional 91,000 British jobs being created and £4.2 billion being added to the economy in just 12 months.

Just as compelling is the documented damage that we know the tax is already having on airports and airlines across the UK. To give just one example: the BCC in a recent report states that, following the doubling of APD in 2007 and its subsequent rises, Liverpool’s John Lennon Airport has lost six domestic, five European and two long-haul services.

I strongly believe that Her Majesty's Government must take this grave situation into account. It is no wonder that this tax—which started out so modestly—is now one of the most hated indirect taxes that the Government levy, along with capital gains tax and inheritance tax. Indeed, part of the reason I wanted to raise this issue tonight is precisely because of the growing public anger at the tax, with which colleagues in the other place will be much more familiar

Last summer, an incredible 200,000 people wrote to their local MP asking for the Treasury to review the tax—as I am asking now. In addition to this, 100 MPs have publicly stated their support for a comprehensive Treasury review. The APPG on Aviation has also called for a review. Even senior members of the party, such as one of its former leaders, have joined the growing chorus of voices who back this. In other words, this is not the preserve of a few low-tax puritans—it has gained genuine cross-party support.

As expected, this proposal has been supported and championed from the tourism and aviation industry. Indeed, A Fair Tax on Flying, whose research and tireless campaigning have helped bring this issue to the attention of policymakers and the media alike, deserves to be praised for its work. This tide of support is irresistible—or so one would think. The Government have been—I know that the noble Lord, Lord Newby, likes his cricket—playing a rather repetitive game of forward defensive on this, if I am being kind, or stonewalling, if I am being a little more honest.

In almost all their responses to the request for a review—both to constituents and to MPs—the Treasury has, I am afraid, claimed that an impact assessment has already been carried out. Its response to the honourable Member for Crawley on 19 October is typical. He asked what research the Treasury has conducted to assess the impact of APD on the economy. He was told by the honourable Member for Bromsgrove, a Treasury Minister:

“Given that we recently completed a comprehensive consultation on the subject, we have no plans for further review”.—[Official Report, Commons, 19/10/12; col. 536W.]

There are plenty of other similar responses to very similar inquiries, yet there has never been such a consultation. It is a great phantom that has been created by the Treasury—a wonderful piece of misdirection of which the illusionist Derren Brown would be proud.

The fact is that the oft-cited 2011 consultation was to look at the merits of changing the banding of APD—a completely separate issue—and did absolutely nothing to review the macroeconomic impact of the tax. Indeed, even when they had this opportunity, the Government failed to address the gross unfairness of the banding structure. It is quite ridiculous that APD to the Caribbean—which is 6,000 miles from London—should be considerably more expensive than APD levied on passengers travelling to Hawaii, which is 10,000 miles from the United Kingdom.

I implore the Minister not to play the forward defensive on this. Perhaps he might consider playing to the stands and pavilion and giving the 200,000 constituents what they have asked for: a comprehensive review of APD.

On a more positive note, I am in fact supportive of one of the Government's increases in APD to finally, at long last, levy the tax on private jets—an omission that was an affront to reason and fairness, and was long overdue. It has taken 19 years since the introduction of APD for this change to be adopted. Can the Minister assure us today we will not have to wait another 19 years before the Government undertake a review of APD?

All the evidence suggests that our economy and the UK’s international competitiveness are being strangled by APD. If we want to send the message that the UK is open for business then I can think of no more damaging or perverse policies than year-on-year rises in this tax, making it prohibitively expensive for inbound tourists and overseas business travellers to come to Britain to spend their money and to do business —precisely the things we surely need to help grow our economy.

I urge the Minister to make representations to the Chancellor ahead of this year’s Budget. Surely a wise Government would accept that sometimes having money in the Treasury’s coffers instead of circulating around the economy has a damaging overall impact. A really comprehensive review would at least provide us with that evidence.

I hope that the noble Lord can offer us more today than his Treasury colleagues in the other place have been able to do thus far, and I look forward to his response.