Finance (No. 2) Bill

Phil Wilson Excerpts

Thursday 18th April 2013 Commons Chamber

[Mr MacNeil]

I am sure the hon. Gentleman will be patient. He is usually a patient man, and I am sure he can display some patience now.

The chief executive of the UK Airport Operators Association, Darren Caplan, recently said:

“Our eye-wateringly high levels of APD already mean we pay the highest passenger tax on flying in the world—and this is not disputed by anyone in Government.”

The truth is that APD rates are having a devastating effect on the UK, and especially on Scotland. Let me pass on the views of some key people in Scotland. Jim O’Sullivan, managing director of Edinburgh airport, said on the BBC news on 6 December 2011:

“APD is already costing Scotland passengers and having an impact on tourism revenues. We know from discussions with our airline partners that it is a major factor in their decision to connect further routes to Scotland. We would urge the Westminster Government to see Scotland as it does Northern Ireland and understand the need to both reduce and devolve this unfair and damaging tax.”

Amanda McMillan, managing director of Glasgow airport, said:

“On the question of devolution of APD, Glasgow Airport has always been supportive of this proposal given the Scottish Government’s more progressive approach to aviation and its greater appreciation of the role the industry plays in supporting the growth of the Scottish economy.”

Scottish Government Transport Minister, Keith Brown, said:

“We need to be able to deal with the competitive and connectivity disadvantages that Scotland faces and if APD were devolved now we could provide the means to incentivise airlines to provide new direct international connections to Scotland, benefiting our aviation industry and our passengers and supporting the growth of the Scottish economy. The UK Government needs to listen to the many voices in Scotland who clearly want to see full devolution of the policy on APD.”

[Phil Wilson (Sedgefield) (Lab)]

Is it not true that APD was devolved to Northern Ireland because of the flights that would have left Belfast airport and gone instead to Dublin? The specific APD problem for Northern Ireland is that there is an international border between Northern Ireland and Eire.

[Mr MacNeil]

The hon. Gentleman is making my case. Airports are joined by air, not by land or sea. I am sure Prestwick is about as far from Belfast airport as Dublin and Shannon are, so if this is good enough for Belfast and Northern Ireland, it is good enough for Scottish airports.

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[Mr MacNeil]

I am sure that the hon. Gentleman has investigated the level of APD on flights from London airports to Inverness. Doubtless, he will be flying to the happy band that is the Labour conference this weekend. [Interruption.] As my hon. Friend the Member for Perth and North Perthshire (Pete Wishart) says, he will no doubt do so with enthusiasm.

Not only does APD receive a lot of criticism in Scotland and the UK; it has attracted international derision. Two days ago, at a conference in Trinidad and Tobago, it was not only criticised by Caribbean countries as discriminating against the region, but was described as

“a clear market distortion and barrier”

to tourism worldwide by a senior UN tourism official, Carlos Vogeler, the UN World Tourism Organisation’s regional director for the Americas. He added that APD

“can actually produce a net damage to the economy, particularly in those destinations which are so dependent on air travel, such as the Caribbean”.

Surely, on a social union basis, we should treat other Commonwealth countries, such as the beautiful Bahamas, on a fairer basis. At £332 for a family of four flying economy, its air tax is higher than the £268 in tax when flying to Hawaii.

I will give four reasons why APD should be devolved to Scotland. First, APD is making Scottish airports uncompetitive in their efforts to attract new direct international routes. It is needlessly restricting Scotland’s ability to realise the economic and business benefits that direct air connections bring.

Secondly, APD is designed for the circumstances in the south-east of England, not the rest of the UK. It is, at best, a demand-management tool for Heathrow—a stretched airport that will have no further runways until one is built in a panic in a few years’ time, as Ryanair’s Michael O’Leary predicts. Heathrow needs demand to be limited because it is at capacity and the Chancellor therefore has a coincidental fiscal cash cow. Scottish airports have the capacity for growth and this tax blocks it. Independent control over APD through devolved powers would give Scotland the ability to meet its own needs rather than Heathrow’s. My view of demand management is supported by the chief executive of the Scottish Chambers of Commerce, Liz Cameron, who said:

“Current rates of APD seem more suited to controlling capacity constraints at Heathrow than they do with the needs of regional airports, and devolution of this tax would afford the Scottish Government the opportunity to create an air transport package for Scotland designed to improve our direct international connectivity.”

Thirdly, a Scottish aviation tax regime would incentivise the introduction of new direct international services, which is important for business connectivity and in-bound tourism. We could do that by reducing the rate of duty, or indeed exempting it, in the early years of a new service—the most challenging financial period—until a route is established.

Fourthly, the Treasury said that it is devolving “aspects” of APD in Northern Ireland, making great play of the “unique” commercial challenges it faces—that was perhaps mentioned earlier by the hon. Member for Argyll and Bute. Scotland’s aviation sector also has specific and long-running competitive disadvantages that need to be addressed, and only the devolution of APD will do that. It is unacceptable that the UK Government are still not prepared to commit to the devolution of APD to Scotland, and I warn that such intransigence angers people at first, but when they calm and look rationally at the situation, they see the need for independence, which will be voted for a year next autumn.

According to a report published in October 2012 by York Aviation,

“by 2016 Scotland’s airports will be handling around 2.1 million passengers per annum fewer than they might have been if the APD changes since 2007 had not been implemented.”

It concludes:

“Constraining the growth of Scotland’s airports via APD can ultimately only have a negative impact from this perspective. APD makes it harder for airports to attract new routes or improved levels of service. Over time this will impact on Scotland’s attractiveness as a place to invest and its competitiveness in international markets. This in turn will negatively impact on Scotland’s international economy, including key sectors such as banking and finance, oil and gas, creative industries, technology businesses and advanced manufacturing”.

By establishing the highest passenger tax on flying in the world, the UK Government have finally managed to become the best in the world at something: unfair taxation. They are blocking growth with a gatekeeper tax.

The SNP Government are building a better Scotland. Scottish GDP grew by 0.5% during the fourth quarter of 2012—[Interruption.] The hon. Member for Sedgefield (Phil Wilson), who is from north-east England, might laugh, but I am sure a successful Scotland on his border would benefit north-east England as well. Would he rather have an independent successful Norway on his border or a Scotland that at the moment is in hock to whatever decisions are made by the Tories at Westminster? “Better Together with the Tories” is the Labour mantra.

[Phil Wilson]

If air passenger duty is devolved to Scotland that will impact on the airports at Newcastle and Durham Tees Valley. To go further and say that independence will help north-east England is ridiculous.

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[Cathy Jamieson]

I will not be joining the SNP in the Lobby, and I will explain why shortly. I will first take this opportunity to remind hon. Members who have chosen to portray in a slightly different way the consultation exercise that the Scottish Labour party conducted that there is going to be a consultation process. I suppose it would be too much to hope that the SNP will contribute constructively to that process. I am sure that we will continue to have interesting debates and discussions.

Let me deal with the arguments relating to new clause 3 and new schedule 1. I think that my hon. Friend the Member for Central Ayrshire (Mr Donohoe), who speaks with some authority on these matters, and the hon. Member for Argyll and Bute (Mr Reid) have made clear the limitations of the new clause and the new schedule proposed today. They would not address all the issues on APD, which have been well rehearsed in a number of debates on the Floor of the House. In the Back-Bench business debate held in November last year, hon. Members on both sides of the House raised real concerns about how APD was operating. There was a suggestion that the Government should produce a report, a point I will return to later.

[Phil Wilson]

We should set aside the selfish approach shown today by the SNP, because APD is an issue not just for Scotland and Northern Ireland, but for many UK regions, including the north-east of England. Durham Tees Valley airport, in my constituency, is under capacity. One way to ensure that we fill such airports to capacity is to have a regional variation in APD. Would that approach not satisfy the whole UK and not just Scotland?

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[The Economic Secretary to the Treasury (Sajid Javid)]

I thank all hon. Members who have taken part in this energetic debate, which has aroused strong passions in some parties.

Clause 183 sets the air passenger duty rates for 2013-14. These rates were first announced at Budget 2012 and took effect from 1 April 2013. The rates have increased by inflation only. Because of rounding, band A has remained the same, so about 80% of passengers have seen no cash-terms increase in the rates they pay.

Clause 184 gives Her Majesty’s Revenue and Customs the power to require payments on account in relation to the APD annual accounting scheme, which was introduced to minimise administrative burdens for the extension of APD to business jets and will improve the fairness of the tax overall. The clause also updates the list of territories in band B of APD to include the new nation of South Sudan.

It is important to recognise the need for the aviation sector to make a fair contribution to the public finances. I remind hon. Members that no tax is levied on the fuel used in international and almost all domestic flights. Moreover, no VAT is levied on international flights and, unlike many other countries, the UK does not charge VAT on domestic flights.

It was in recognition of the fact that aviation was under-taxed compared with other sectors of the economy that APD was first introduced in 1994. It was introduced purely as a revenue-raising tax and it remains a vital revenue-raiser today. However, despite the challenge of the budget deficit that we inherited, this Government have limited increases in APD to inflation only in the period since 2010-11. During this period, rates have increased by only £1 for the vast majority of passengers. Furthermore, recognising the sector’s need to plan ahead, we have provided greater clarity on future rates. Budget 2013 set out that the rates for 2014 and 2015 will rise in line with inflation only. The real burden of APD will remain unchanged for a further year.

[Phil Wilson]

On the effect of APD on regional airports such as Durham Tees Valley airport in my constituency and Newcastle airport a few miles from the Scottish border, will the Government consider regional APD variations that might incentivise airliners to fly from airports other than Heathrow and Gatwick?

[Sajid Javid]

As the hon. Gentleman will know, the Government have looked at that in the past and have ruled it out thus far, because the evidence shows that it would lead to significant distortions in the UK market. He will also know, however, that we keep all taxes and duties under review to see whether improvements can be made.

Before I move on to the proposed devolution of taxes, I want to touch on the extension of APD to business jets. A new higher rate has been introduced for passengers travelling on planes offering an enhanced level of comfort. APD on these flights is double the prevailing standard rates for business and first class. These changes improve the fairness of the tax overall.

New clause 3 proposes devolving to the Scottish Parliament and the Welsh Assembly the power to set APD rates on direct long-haul flights from Scotland and Wales. New clause 4 and new schedule 1 also propose cutting the rates for direct long-haul flights from Wales to the short-haul rate in advance of devolution from 1 April 2013. The issue of APD devolution is a complex one. As we have heard, it was considered in the 2011 consultation and has been debated several times since then, including here today.