Wales Bill

Lord Rowe-Beddoe Excerpts

Wednesday 15th October 2014 Lords Chamber

[Lord Rowe-Beddoe (CB)]

My Lords, I wish to speak to my Amendment 51A, which relates to air passenger duty devolution. I draw the attention of the Committee to the register of interests, in particular the reference to my chairmanship of Cardiff Wales Airport.

The UK Government’s stance on APD remains bafflingly inconsistent with the devo-zeitgeist, if I may call it that, that has so enraptured everyone over recent months. The decision to cherry pick parts of the Silk recommendations is a sad example of the short-sightedness that seems continually to put Wales behind. The Bill provides an opportunity to redress this state of affairs. I shall quote the relevant passage from Silk 1, so that I can put it on record. It states:

“We have also recommended the devolution of long haul rates of Air Passenger Duty, and consideration of full devolution in the future. We do this in the context of the wider consideration of regional airport developments across the United Kingdom associated with the independent commission on airport capacity, chaired by Sir Howard Davies”.

The UK Government position currently is that:

“APD devolution will distort competition”,

when applied to Cardiff and Bristol. This is unsound and I put it to your Lordships that that position is not supported by the European Commission guidance that defines the laws on support of regional airports. The European Commission in its latest guidelines on state aid to airports and airlines made it clear that airports with more than 5 million passengers per annum can and should run on their own steam, without any government support. Bristol has more than 6 million passengers. The Commission recognises that there is a case for government state aid being offered to smaller regional airports, and defines them as those that have between 1 million and 3 million passengers per annum. Cardiff currently handles just over 1 million. The Commission also states that if airports are more than 100 kilometres apart, then they have, by definition, different core catchments, and aid to one will not affect aid to the other. I can assure noble Lords that Cardiff Airport is more than 100 kilometres from Bristol Airport—I have actually used my tape measure—and each certainly has different core catchments. It is my contention that aid to one will not affect the other. It is therefore my contention that the UK Government’s current position is flawed because they could not make a legitimate case, underpinned by EC guidance, that aid to Cardiff distorted competition with Bristol.

The Welsh Government have a long-standing policy of lobbying for full devolution of air passenger duty, with a view to abolishing it. I was informed this afternoon that all four party leaders have agreed to propose again the abolition of long-haul air passenger duty. The Commission on Devolution in Wales, Silk 1, recommended that long-haul air passenger duty should be fully devolved. So where are we? This is a very important factor regarding competition. Belfast was given such devolution on the basis that it is near to Dublin. I do not think that it is 100 kilometres distant but Belfast was given it anyway by the UK Government. I bet my bottom dollar, if I may use such vulgarity in your Lordships’ House, that Edinburgh will be after this in a flash when it gets whatever it is going to get in the future.

I put it to noble Lords and the Government Front Bench that this situation is very serious for us in Wales. The Howard commission recognised the importance of regional airports. This is the one regional airport of our capital city in Wales, and has to be provided for and helped. That is the point of my amendment and I ask the Government to consider it.

[Lord Anderson of Swansea]

My Lords, I have two brief comments—one on the varying of fuel duty and the other on air passenger duty.

I hear what the noble Lord, Lord Wigley, says and the assumption is that we as a people are relatively poor in Wales in terms of prosperity when compared with much of the rest of the UK. That is certainly true and, therefore, the assumption is that he would wish to reduce fuel duty rather than increase it. If that duty were to decrease, I can imagine the Luxembourg precedent happening. Those of your Lordships who know that country will know that fuel duty is lower there than in the adjoining countries, so there are large queues at all the filling stations in Luxembourg of people who come across the border. One can imagine similar occurrences over the border in Cheshire, Herefordshire and elsewhere, the sorts of problems that would arise as a result, and the complaints that would be made if there were to be a reduction in fuel duty.

I hear what the noble Lord, Lord Rowe-Beddoe, said about air passenger duty and different core catchment areas. I come from Swansea and I should have thought that Bristol and Cardiff are, frankly, within the core catchment areas. I can see nodding from the direction of Newport. This is not like the precedent in Northern Ireland, where there is no immediate competitor. Bristol and Cardiff are very close and, in my judgment, the passenger catchment areas are similar. There is therefore a substantial difference in this situation and there could be real problems in seeking to provide greater competitiveness for Cardiff, which could only be at the expense of Bristol.

[Lord Rowe-Beddoe]

It is not my idea of a catchment area but the European Commission’s, and the figure of 100 kilometres between two regional airports is in the Commission’s guidance. I again submit that Cardiff and certainly Swansea are not within the Bristol catchment area, as defined by the European Commission.

[Lord Anderson of Swansea]

That may be the definition of the European Commission but I speak on a matter of reality and look at it from the perspective of those who travel from those airports.

[Lord Rowe-Beddoe]

With respect, the journey from Swansea to Bristol is considerably longer than the journey from Swansea to Cardiff.

[Lord Thomas of Gresford]

Surely the distance between Bristol and Cardiff and the services provided from Bristol are such that Bristol sucks people out of south Wales to use the additional services that fly there. That is why it seems to be in competition. What we are after is the development, the building-up, of Cardiff. If it comes within the European definition, that must be good enough.

On the issue of fuel duty, I understand that provisions have been made in Scotland to reduce fuel duty—I stand to be corrected—if you are more than 100 miles away from an oil refinery. In Wales, we have rural areas and people who are very much dependent on the use of motor vehicles—almost exclusively so in parts of Wales. However, Milford Haven, which is not built to supply Wales, happens to be within that 100-mile area in the south; and, of course, we have Ellesmere Port in the north. Consequently, the reduction of fuel duty, as happens in Scotland, does not happen in Wales. However, that ignores reality. It ignores the fact that the needs of the rural population of Wales are just as great as those in the highlands of Scotland. They suffer the same impoverishment as they do in the highlands of Scotland, perhaps even more, and accordingly there is a case for taking fuel duty under the wing of the Welsh Assembly. That does not necessarily mean applying it to the whole of Wales, so that we have queues of English people in Gresford from across the border, which is not something that I would wish to see. That is not the idea at all. It would enable the Welsh Assembly to vary fuel duty with regard to the needs of the people of Wales, which I think is very sensible.

--- Later in debate ---

[Lord Newby]

I shall take the amendments in turn. Amendments 49 and 51A seek to include explicit provision in the Bill for fuel duty and air passenger duty to be devolved to the Welsh Assembly. First, I remind noble Lords that Clause 6 of the Bill already contains the power for further taxes to be devolved to the Assembly by Order in Council and therefore the Bill does not rule out in perpetuity any tax being devolved at a future point if there is agreement to do so. I shall explain why we are not devolving these powers in the Bill, starting with air passenger duty. As has been pointed out, the Silk commission recommended that long-haul rates should initially be devolved with devolution of all rates considered subsequently. In the Government’s response to the Silk commission we highlighted HMRC research which suggested that differential rates of APD could end up redistributing passengers rather than creating additional growth. This potential distortion, despite what the noble Lord has said, is particularly acute in relation to Wales, given the short distance between Cardiff and Bristol airports. As the noble Lord, Lord Anderson, pointed out, for many people who fly from south Wales and just across the Severn there is a real and immediate choice between those airports, which they see as close competitors.

[Lord Rowe-Beddoe]

Let me just point out that Cardiff—perhaps noble Lords do not know—has lost more than 1 million passengers to Bristol in the past five years. This happened because of the management of the airport at the time and the company that owned it, but there was a bleeding of that number of people. We have got to get the passengers back. It is not a distortion of competition; it is to restore the services. You require two things for an airport: good customer experience and a plane that goes where the passenger wants to go. We are desperately trying to bring people back; this is a levelling to help that situation. It is not a question of distortion. We have heard about the 100 kilometres, or whatever. Forgive me—go around the Midlands and see where the airports are. It is not a question of distortion in that sense.

[Lord Newby]

The noble Lord has just made my point that they are part of a single market for passengers in south Wales, or there would not have been that bleeding away. Passengers are not bleeding away from south Wales to Manchester airport because it is just too far. The point is that Bristol is within a relatively easy ambit and people are going there. The noble Lord discussed the question of distortion in respect of strict EU law, but the kind of competition we have been debating—and, indeed, his description of what has happened and how he wishes to reverse it—suggests that if we were to devolve this power and APD was reduced it could and probably would contravene the third principle of devolution, which we discussed earlier, that any change in one part of the UK should not be to the detriment of another part of the UK. The noble Lord wants it to be to the detriment of Bristol, so that there will be a balancing away from Bristol towards Cardiff.

[Lord Newby]

Noble Lords are, as ever, extremely eloquently making a case for preferential treatment for Wales, which would benefit Wales. I am just making the point that it might well benefit Cardiff Airport but that would be to the detriment of Bristol Airport. That only stands to reason. There is not going to be a sudden explosion of long-haul traffic because of a tax change.

[Lord Rowe-Beddoe]

In my definition of a regional airport, I made it very clear that it had between 1 million and 3 million passengers. We want to develop regional airports. Howard Davies’s commission refers to this. That is what we are talking about. Of course it would benefit Wales, if it were ever to happen. Cardiff Airport falls exactly within the categorisation made by Howard Davies and the EU.

[Lord Newby]

My Lords, I am sure that the Welsh Assembly, which I believe—including the Labour element of it—is in favour of devolution of air passenger duty to Wales, will continue to make the case. However, I am afraid that the Government are not at this point persuaded of it. The situation in Northern Ireland is completely different, in that it shares a land border with the Republic, which has a significantly lower rate of air passenger duty. That is its competitor.

The Silk commission recommended against devolution of fuel duty largely on the basis that member states must set a single rate for each fuel under the EU energy products directive. It also highlighted that fuel duty is a highly mobile tax base—no pun intended. As noble Lords have made clear, we could very easily see queues of motorists across the border if there was a significant disparity, which in itself makes it an unlikely candidate for devolution. So the Government accepted the Silk commission conclusion on that.

The noble Lord, Lord Thomas of Gresford, referred to the issue of whether the rural fuel scheme in Scotland might be extended to Wales. The Silk commission recommended that the Government assess whether the rural fuels scheme should be extended to remote and rural areas of Wales. It now operates in the Scottish islands and the Isles of Scilly. The Government have applied to the European Commission to extend the current scheme to areas on the UK mainland that meet strict criteria around pump price, population density and cost of fuel transportation. However, no areas in Wales were included, because they were not felt to meet the objective criteria. The Government believe that areas should experience similar characteristics to the islands in the current scheme to make the strongest possible case to the European Commission. The Government have yet to receive a response from the Commission to their existing proposal.

Amendment 51 would devolve corporation tax to the Welsh Assembly if it is devolved to either Scotland or Northern Ireland. The Government have been consistently clear that the devolved countries are different and that it is therefore right that decisions on devolution are treated on their own merits. In relation to corporation tax, the Government are committed to making a decision on devolving rate-setting powers to Northern Ireland by the time of the Autumn Statement. However, similar to the position on long-haul rates of air passenger duty, the potential devolution of corporation tax to Northern Ireland is being considered in the light of two unique features. First, Northern Ireland is competing against the Republic, which has a much lower headline rate of corporation tax. Secondly, the stated purpose of tax devolution in Northern Ireland is to help to rebalance the Northern Ireland economy. In Wales, as noble Lords will be aware, the principal aim of devolution is to increase the accountability of the Welsh Assembly and Welsh Government. Different objectives potentially require different decisions on devolution; it is therefore right that the UK Government retain the flexibility to take the right decisions for each part of the UK.

Finally, I turn to Amendment 50, which would require the publication of an independent report on options for the UK and Welsh Governments to share tax revenues from natural resources in Wales. The noble Lord in moving the amendment spoke about the resources available potentially to the Crown Estate and referred to energy. With regard to the Crown Estate, there are no provisions in the Bill to change its status, and I find it difficult to envisage circumstances in which that would happen. Therefore, I am not sure how relevant that is. On energy, I can only agree with the comments of the noble Baroness, Lady Morgan, about the fact that one does not tax wind power in the same way as one taxes a barrel of oil, and it is very difficult to envisage that we ever would do so. So I do not think that an independent report as proposed by the noble Lord would be of any real value.

In the light of my remarks, I hope that all noble Lords who have proposed amendments in this group will feel able not to press them.