Air Passenger Duty

Robert Jenrick Excerpts

Tuesday 10th July 2018 Westminster Hall

[Drew Hendry]

The hon. Lady makes the point well. This is an exemption based on population density and the regional difficulties in the highlands and islands. Indeed, it should be possible—I hope it is—for the Scottish and UK Governments to work together to solve that problem.

[The Exchequer Secretary to the Treasury (Robert Jenrick)]

We are.

[Anneliese Dodds]

I was pleased to hear the Minister say from a sedentary position that they are working on that. I hope the UK Government will do so with rather more application than they did on support for the steel sector, of which I had an inside view as a Member of the European Parliament: they made no attempt to secure clearance for the kind of support we saw applied in countries such as Romania, which had been okayed by the European Commission; they asked the Competition Commissioner for exemption only from environmental measures. There was not much application around steel, so I hope we will see a different approach to these matters.

Another concern is the impact of APD on Britons who have family living outside the British Isles. The previous four-banding system meant that such individuals could end up paying more APD than those travelling to the US, for example. None the less, the division in the calculation between short and long-haul travel continues to be criticised by some who feel that that disadvantages Brits with families in, for example, the Caribbean, India, Pakistan or Bangladesh, who need to fly long haul to visit them. One could argue that other, lower carbon alternatives are available to flying for short-haul journeys, which do not apply for travelling long distances. An indication of the Government’s thinking on that would be helpful.

Our final concern is about APD’s impact, or otherwise, on environmental outcomes. In response to a question posed by the hon. Member for Henley, the hon. Member for Belfast East maintained that APD does not have a positive environmental impact. However, we must look at it in the context of enormous public concern around climate change and the increasing significance of emissions from aviation. At APD’s introduction in 1994 and, following that, the Labour Government’s focus on it, there was an attempt to ensure that its design would have a green impact. For example, during the 2007 Budget process it was stated that APD

“plays a valuable role in ensuring that passengers understand and acknowledge the environmental costs of their actions. The resultant behaviour change can deliver significant climate change benefits”.

Those believed benefits were then detailed.

--- Later in debate ---

[The Exchequer Secretary to the Treasury (Robert Jenrick)]

I congratulate the hon. Member for Belfast East (Gavin Robinson) on securing this debate. I have known him since he and I were elected and have always been fond of him, but I was not expecting a belated Valentine’s day present. I vaguely remember that some time ago the hon. Members for Strangford (Jim Shannon) and for East Londonderry (Mr Campbell) presented a giant heart-shaped card to No. 11. I wonder whether the Chancellor’s predecessor regrets not taking the advice on it. Flattery will get you everywhere at the Treasury, so I am grateful for that.

We have had a productive debate and it has been interesting to hear from all sides. There is significant agreement across the House that we view the UK aviation sector as extremely important to our quality of life and for creating jobs, and particularly for connectivity within our United Kingdom and beyond. There is no more important time for us to consider both how we can bring the United Kingdom closer together, and how we can make ourselves more open to the outside world. This is therefore a timely debate. Let me say a few words about APD and aviation in general, and then I will turn to Northern Ireland and try to answer, assuming time allows, many of the reasonable and important points raised. If I cannot do so, I will write to the relevant Members.

The UK aviation sector is a strong performer and we are a world leader in that industry. We have the third largest aviation network in the world, and since 2010 passenger numbers at UK airports have grown by more than 20%. That strength extends across the entire UK, not just at major airports such as Heathrow. Regional airports are growing and handled approximately 113 million passengers last year. There is good news across the sector.

Regional airports have been the basis of this debate. They make a valuable contribution to the growth of local economies and support connectivity across the UK. We appreciate that and want it to continue. We must also appreciate that aviation plays its part—like all industries—in contributing to the Exchequer. We heard various epithets about looking after pennies and not being penny-wiser and pound-poorer, and we appreciate that. The Treasury wants to ensure that we meet our commitments to public services and to continue to address the deficit and the debt.

We also want to pursue policies that will increase economic growth, in which tax has a role. As the hon. Member for Oxford East (Anneliese Dodds) said, in line with our international treaty commitments, we do not tax commercial aviation fuel and no VAT is charged on airline tickets. It is important that that part of the economy plays its part in funding public services, which was why the Government introduced air passenger duty in 1994. Without that duty, commercial aviation would be relatively undertaxed compared with other industries.

Air passenger duty raises around £3.2 billion a year, which is a significant amount of money. It would be foolish of the Treasury not to take that seriously and to proceed without great caution. That is why we are proceeding with the introduction of a call for evidence, which I will discuss in a moment. We appreciate the arguments that were made eloquently by the hon. Member for Belfast East—those points were also made by Democratic Unionist Members who spoke after him and by many other Members across the House, including those from the north-east, the west country, Wales and Scotland. We are alive to those concerns and I hope I can provide further detail about the steps that we are taking.

We are conscious that APD is often passed on to passengers as part of their ticket fares. This is not a tax on passengers—it is a tax on airlines—but in many cases it feeds through to the cost of tickets. In recent years we have tried to minimise the impact of APD on hard-working families to ensure that those who can afford to pay more do so. Last year we announced that rates will stay frozen for the sixth year in a row for the 80% of passengers who fly short-haul. That will help to keep down the cost of holidays for the vast majority of travellers, including those who travel throughout the United Kingdom for business or other reasons. We have exempted children from APD, which could save a family of four £26 on a short-haul flight and £156 on long-haul flights. Together those actions reduced the burden of APD by about £300 million pounds in the last financial year alone.

We have increased APD on private jets to ensure that those with the deepest pockets pay their fair share, and we are using those proceeds to fund some of the savings for families and holiday travel. I hope Members agree that, alongside those reforms, the Government have demonstrated their strong commitment to the aviation sector more generally, which was exemplified most recently by decisive action to address capacity constraints in the south-east. The new Heathrow expansion will provide capacity for an additional 260,000 flights a year and deliver an extra 16 million long-haul seats for passengers travelling from UK airports by 2040. I hope and believe that it will also be beneficial for all regional airports in the UK, including those in Northern Ireland and Scotland. We heard the Secretary of State’s important commitments on Heathrow and want them delivered. Additional capacity at Heathrow is expected to bring a boost of up to £74 billion to passengers and the wider economy over the next 60 years and we want that delivered at pace.

The Government are not blind to calls from the industry and over the years, including during my relatively brief time as a Minister, we have met a number of airports stakeholders. As a result of discussions with the DUP, we decided to create a call for evidence—I have received and read the representation from the right hon. Member for Belfast North (Nigel Dodds) on behalf of his party. The Financial Secretary to the Treasury has already visited Northern Ireland to meet stakeholders, including representatives from the airports, so that we can take seriously and listen directly to concerns about APD and VAT.

We are concerned to proceed with care in these matters, first because of the significant amounts of revenue for the Exchequer that are at stake, but also because, as we have heard during this nuanced debate, there are currently complexities regarding EU state aid guidelines. That situation may continue depending on the ultimate agreement that we reach with the European Union—in a moment I will come on to the position in Scotland, where those complexities have come out most vividly in recent months and years.

We keep the matter under review. The call for evidence has now closed. The Chancellor, Treasury officials and I will carefully consider the arguments submitted by many stakeholders in Northern Ireland. We expect to offer a response in the Budget in October or November. I hope we can continue conversations once we have carefully analysed the evidence submitted.

Clearly the tourism industry is important in Northern Ireland, as it is in all parts of the United Kingdom, and we appreciate that the Northern Ireland economy is still in recovery mode and that it requires our wholehearted support to continue to grow. Tourism in Northern Ireland has been growing significantly in recent years, as there is so much to offer there. We appreciate the unique position of Northern Ireland in the United Kingdom with respect to economic competitiveness. It is the only part of the Union that shares a land border with another state—the Republic—which poses a number of challenges, one of which relates to airports. Anyone who visits Northern Ireland and understands its economy will appreciate the impact on passenger numbers, business and other passenger choices of the fact that there are other airports within easy driving distance. We shall consider those points carefully in the coming months.

We have read the various reports hon. Members have quoted. We do not necessarily agree with all their findings, but the purpose of the call for evidence that has just closed is to build our own significant evidence base, to enable us to arrive at our own view. It may not be exactly the same view as the independent reports, but we intend to take a detailed, careful decision.

I will deal briefly with other points made in the debate. EU state aid rules, which are relevant to Scotland, have proved complex. As I said from a sedentary position—the hon. Member for Oxford East picked it up—we are working productively with the Scottish Government, which I should like to continue. I would be happy to discuss after the debate or on another occasion how we can step up those efforts. The Government passed the legislation recommended by the Smith commission in 2014 that devolved APD to Scotland. Implementation has been delayed, as the hon. Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry) described, because it has proved difficult to square the circle as to how the measure would apply to the highlands and islands. I am sure the hon. Gentleman wishes for a settlement to be reached. We shall continue to work closely together and when it is eventually implemented we will bear in mind how it works in other parts of the United Kingdom, including for the airports closest to the Scottish border.

As the hon. Member for Oxford East mentioned, we have in the past looked into the impact of air passenger duty on regional airports in England. There was at that time no consensus about how to proceed. We analysed the various recommendations carefully. There were no easy answers and different airports came up with different and often competing proposals, but we remain open to further suggestions and are in constant conversation, as Members might expect, with airports, stakeholders and Members of Parliament who want to take the matter forward.

As was mentioned in the debate, we have had a discussion with the Welsh Government about the devolution of air passenger duty to Wales. Careful consideration led to the conclusion, which was respected by many if not all the stakeholders, that Cardiff airport was essentially within the same air economy as Bristol airport, and that it was necessary to proceed very carefully before changing the regime for Cardiff in view of the knock-on effect on Bristol. However, we shall continue to think carefully about whether there is a way around that situation. We should not want to harm Bristol inadvertently by creating a competitive advantage for Cardiff.

There are already powers for devolved Governments to take action on route development funds. I appreciate the current difficulties in Northern Ireland in taking that forward, but were the Executive there to resume, they would have the capacity to proceed and implement a route development fund for Northern Ireland. The Government in Wales also have powers to take action because they own Cardiff airport. They could act to develop it further from its current relatively small number of passengers—it is about 1.5 million a year, whereas there are 8 million at Bristol, its nearest competitor.

There is still no easy definition of long and short-haul flights. We have alighted on a definition of a short-haul flight as one where the capital—not necessarily the relevant airport—of the destination country is within 2,000 miles of the UK airport. The effect of that is to take in all European Union countries, plus most Mediterranean-facing countries, with one or two exceptions that are arguably anomalies, such as Israel and Egypt. The vast majority of countries bordering the Mediterranean fall within the definition, and it seems broadly logical. There is no perfect definition.

On the environmental points made, we are interested in treaty obligations. Perhaps there is an opportunity to take action on a multilateral basis. I do not think that that is being pursued today, but I am happy to look into the matter and revert to the hon. Member for Oxford East. As I said, we have taken action against private jets, which are less environmentally friendly and may at times be under-occupied. It has proved complex and difficult to take action on under-occupied flights. HMRC has done significant work on that and no simple solution has been found. Today the duty is paid by airlines, not passengers, so there would need to be significant change to the tax to implement that.

I hope I have answered some of the questions that hon. Members raised. If there are further points, I am happy to discuss them afterwards. I want to leave the hon. Member for Belfast East with my and the Chancellor’s reassurance that, in the months ahead, we will work carefully through the submissions in response to the call for evidence. We will listen to the arguments of the hon. Gentleman and his colleagues, which appear to have significant support from other parts of the House, and before the Budget we shall present our careful response. In the meantime I shall be happy to discuss the issue further should he or his colleagues want that.