Clause 12 — Rates of air passenger duty

Orders of the Day – in the House of Commons at 6:30 pm on 1st May 2007.

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Photo of Christopher Chope Christopher Chope Conservative, Christchurch 6:30 pm, 1st May 2007

I beg to move amendment No. 3, in page 8, line 22, leave out '1st February' and insert '21st March'.

Photo of Sylvia Heal Sylvia Heal Deputy Speaker

With this it will be convenient to discuss the following amendments:

No. 4, in page 8, line 23, leave out subsection (5).

No. 5, in page 8, line 27, leave out subsection (6).

Photo of Christopher Chope Christopher Chope Conservative, Christchurch

Amendments Nos. 4 and 5 are consequential on amendment No. 3, because if the retrospective element is removed by amendment No. 3, the need for the remainder of the clause will be removed.

Today is the 10th anniversary of the winning back of the Christchurch constituency from the Liberal Democrats. I do not know whether it is a delightful irony or generosity of spirit that has resulted in the Liberal Democrat Front-Bench team supporting the amendment in my name today. It may indeed be both. I applaud the fact that the Liberal Democrats are prepared to come into the Lobby to support those of us who are concerned about the principle of retrospective taxation.

I have raised this matter on a number of occasions in the House. The first time was on 31 January on a point of order, on the eve of the implementation of the increase in taxes. As a result of Mr. Speaker's statement then, I applied for an Adjournment debate, which took place on 20 February. During the debate the Financial Secretary said that I would be able to return to the subject during the Budget debate and the Committee stage of the Finance Bill. He is right. I have taken up those opportunities, because we still do not seem to have persuaded the Government that they are doing the wrong thing by imposing retrospective taxation. That is why I hope the amendment will be supported this evening.

That has been the view of all my right hon. and hon. Friends, and we have been involved in sending standard letters to our constituents, drafted with the support of our Front-Bench team. Those standard letters included the following words:

"I do share your concerns about the implementation of the Chancellor's APD increases, particularly the retrospective aspect. I know that many individuals and companies have been hit by the increased duty being levied on holidays that were booked before the Chancellor's announcement."— holidays that were not only booked but paid for before the Chancellor's announcement—

"It seems clear to me that Gordon Brown did not properly think through the consequences of this bungled raid on the travel industry. Indeed, a legal opinion received by the Conservatives suggests that the Chancellor's actions may even be illegal as it has not been approved by Parliament."

I am informed that in the judicial review that has been initiated, the Government have until the end of this week to submit their response to that claim, and that it is likely to be heard before the end of July. So it was not an idle threat that their illegal act would be challenged. This is being followed up, no doubt at considerable expense, by the travel companies, which are especially outraged by what has happened.

It is a long-standing convention of the House that Budget resolutions are not retrospective. That is why the amendment is designed to change the starting date for the air passenger duty increase from 1 February to 21 March—a seven-week deferral. The reason I chose 21 March is that that was the date of the Budget. There was a Budget resolution on the matter, but prior to that there had been no opportunity for any Member of the House to vote on the increase in taxation. We now have the opportunity to vote on it again.

During the vote on Budget resolutions, six of my right hon. Friends and 14 of my hon. Friends voted against motion 13 because we were concerned about the retrospective nature of the matter and because we regarded it as a constitutional outrage. I know that some of my right hon. and hon. Friends were concerned that to vote against the whole motion was going too far. That is why the amendment focuses much more narrowly on the issue of retrospection, and simply changes the date by seven weeks.

Photo of David Wilshire David Wilshire Conservative, Spelthorne 6:45 pm, 1st May 2007

Can my hon. Friend confirm that the amendments before us leave behind the generality of the debate? This is no longer a debate about air passenger duty itself. It is not about whether this is a permanent tax. It is about a one-off arrangement. It is focused narrowly on the abomination of imposing a tax before the Government have the authority of Parliament to do so.

Photo of Christopher Chope Christopher Chope Conservative, Christchurch

My hon. Friend is right. I know that he would have been in the Lobby with us on 27 March had he been in the country, but he was away on overseas parliamentary business at that time. The amendment has been drafted so that it deals with the one-off period of seven weeks. It reflects the concerns shared by my right hon. Friend the Leader of the Opposition and my hon. Friend the shadow Chancellor of the Exchequer.

It may be immodest to recall that shortly after 31 January, when I raised my original point of order about the retrospective nature of the measure, I was having a sandwich lunch with my right hon. Friend the Leader of the Opposition, who congratulated me on the points that I had made and said that he very much shared my concern about the retrospective nature of the air passenger duty increase set out in the pre-Budget report and confirmed in the Bill.

I know that some of my colleagues are still worried about the cost of delaying the increase by seven weeks. It is a large cost in layman's terms—about £100 million. That is an indication of the extent of this stealth tax introduced by the Chancellor of the Exchequer—a yield of about £100 million in seven weeks. Some of my colleagues are sensitive about supporting an amendment that could be misrepresented by the Government, who might say that we have a black hole in our calculations, and ask how we will manage to balance the books when we get into government if we have voted against the retrospective nature of the air passenger duty increase.

Photo of David Wilshire David Wilshire Conservative, Spelthorne

Can my hon. Friend confirm that my memory is correct—that when the extra tax was put on, we were told that it was nothing to do with general taxation or a black hole if it were not introduced? It was all to do with special measures that would be introduced in the future, which our amendment would simply delay by seven weeks.

Photo of Christopher Chope Christopher Chope Conservative, Christchurch

My hon. Friend is right. We are talking about a seven-week delay. Once the measure is introduced it will continue for ever and a day, unless or until it is changed. I am sure that on clause stand part, and perhaps on the next set of amendments, we will have a chance to consider whether air passenger duty can properly be regarded as a green tax.

Let us put the £100 million cost of my amendment into context. It represents less than 0.02 per cent. of total annual public expenditure. That is £2 in every £10,000. Most people believe that about 40 per cent. of the money raised in taxes is wasted by the Government. As an Opposition, we are in the business of saying that we could save 0.02 per cent. of public expenditure in a year without any problems at all. Another way of looking at it would be to say that that £100 million is only 1 per cent. of the money being wasted on the new NHS computer system. We are not talking about an enormous black hole that the Government can use to intimidate us into not voting against retrospective taxation.

Photo of Julia Goldsworthy Julia Goldsworthy Shadow Chief Secretary To the Treasury, Treasury

If somebody bought a ticket before 6 December, when the announcement was made, and was travelling after 21 March, the date that the amendment suggests, would they not still be caught by the retrospective changes to the tax system?

Photo of Christopher Chope Christopher Chope Conservative, Christchurch

The hon. Lady is right; the amendment is limited. I considered tabling another amendment stating that clause 12 should not apply in respect of anybody who paid for and ordered their tickets before 6 December. She has referred to another mischief, which is one of the reasons a number of us are concerned about clause 12 in general. In a sense, that is a separate argument. It is a strand of the same retrospection issue, but speaking in strict parliamentary terms, I am talking about not increasing taxes on people in this country without allowing Parliament to vote on those increases.

Although the Government say that they have only one Budget a year, they are using the pre-Budget report as an opportunity to announce tax increases—in this case, a tax increase of £1 billion a year—so the Chancellor can come along on Budget day and say, "This is a neutral Budget." That is exactly what he did this time, having conveniently forgotten that he had already announced a £1 billion tax increase in his pre-Budget report, for which he had not legislated or obtained parliamentary approval. The issue is important, and I am glad that there is concern among Conservative Front Benchers and in the wider House about retrospection.

I want briefly to examine the idea that the tax is somehow justifiable because it is "green" or "environmental". I will not get into what I think is partly a semantic debate about whether this is a proper environmental tax—although in my view it is not. Even if it were an environmental tax, Conservative party policy, which has been announced by my hon. Friend the shadow Chancellor, is that we support green taxes, but only if they are offset by reductions in taxes elsewhere. The shadow Chancellor put it this way when he addressed the issue in an interview in "The World at One" on 1 February, following my point of order on the previous day:

"I think there is a case for green taxes and bringing in an aviation tax but they should be replacement taxes".

That is not consistent with saying, "We can't vote against any tax increases proposed by this Government." We have said, as a matter of policy, that we will vote against tax increases, and particularly those that purport to be green tax increases, unless they are accompanied by offsetting reductions in tax.

The amendment is modest, and it does not go as far as some would wish, but it states the important principle, which we should stick to through thick and thin in this House, that we should not introduce retrospective taxation.

Photo of Helen Goodman Helen Goodman Labour, Bishop Auckland

I oppose the amendment—and will vote against it if Mr. Chope presses it—for seven reasons.

First, the position adopted by Opposition Members—this particularly applies to the Liberal Democrats—is Augustinian. They want to be good, but not yet, so they will take any opportunity to push back the increase in tax. Secondly, the tax cannot be described as truly retrospective, when people had more than two months' notice of the increase. Retrospection surely means increasing tax on things that people have already done. Thirdly, the practice adopted is not significantly different from the traditional practice with excise duties.

Photo of Paul Goodman Paul Goodman Shadow Minister (Childcare), Treasury

Why does the hon. Lady think that the last time the Government substantially raised APD, they gave a year's notice of the rise?

Photo of Helen Goodman Helen Goodman Labour, Bishop Auckland

I have no idea. I did not know that the Government gave a year's notice last time. It was obviously not for the reason suggested by the hon. Member for Christchurch, because it would not take a year to go through the process that he is calling for.

Photo of John Redwood John Redwood Conservative, Wokingham

Would the hon. Lady think it fair if the Government suddenly said that all the things that she had paid for over the past month would attract a special tax, which she had to pay although it had not been ratified by this House?

Photo of Helen Goodman Helen Goodman Labour, Bishop Auckland

The right hon. Gentleman's point is not significantly different from all sorts of taxes that we must pay. For example, the same applies to council tax—when the local council issues a bill, one does not have time to move house.

Several hon. Members:

rose —

Photo of Helen Goodman Helen Goodman Labour, Bishop Auckland

I will not give way, because some of the points being made by Opposition Members are wholly ridiculous.

Fourthly, Conservative Members have clearly forgotten the action that they took in February 1985, when they changed the tax treatment of gilts. When the decision was taken, the Bank of England said that it could not possibly trade in the gilts market if it knew that that tax change was forthcoming, so it could not possibly wait until the Budget. A press notice was issued at 7 o'clock in the morning, before the gilts market opened, so there were certainly no Budget resolutions on that occasion.

Photo of Stewart Hosie Stewart Hosie Shadow Spokesperson (Women), Shadow Spokesperson (Home Affairs), Shadow Spokesperson (Treasury)

Trading in gilts is market-sensitive, whereas the introduction of a retrospective tax is not. The hon. Lady's fourth argument does not hold very much water.

Photo of Helen Goodman Helen Goodman Labour, Bishop Auckland

No, the hon. Gentleman is wrong. Either the principle is important or it is not. Tory Members who support the amendment have clearly forgotten that they used precisely the same procedure in February 1985.

Photo of Julia Goldsworthy Julia Goldsworthy Shadow Chief Secretary To the Treasury, Treasury

Returning to the hon. Lady's third argument, she mentioned council tax. An analogous example would be if someone were issued with a council tax bill, which they paid, but was then asked to pay more on top of it.

Photo of Helen Goodman Helen Goodman Labour, Bishop Auckland

Fifthly, another key point is the behaviour of the airlines. The airlines frequently add charges, such as fuel surcharges and changes in airport taxes, after people have bought their tickets. They have protested about this measure, but their position is weak.

Sixthly, 1 February is an extremely sensible choice of date, because that is the point in the year when the fewest people are flying, which means that the fewest people will be inconvenienced. My final reason is that airlines frequently put on other charges after people have taken such decisions.

Photo of Vincent Cable Vincent Cable Shadow Chancellor of the Exchequer 7:00 pm, 1st May 2007

I wish to support the amendment. Mr. Chope was surprised that people might wish to support it on its merits rather than on the basis of their political alignments, but it seems perfectly sensible and I am happy to do so.

The hon. Member for Christchurch argued for the amendment primarily in terms of the principle of retrospectivity. It is fair to say that there is not a basic theology about retrospective taxation, which has happened in the past. Indeed, when my hon. Friend Julia Goldsworthy wrote to the Economic Secretary to ask him for examples, he came up with several, but they related primarily to anti-avoidance measures. Nobody would remotely suggest that the people turning up at an airport and being asked to pay a levy on their tickets are in any sense involved in tax avoidance. That is a completely different concept; Mr. Redwood made the distinction earlier.

Two groups of people will be disadvantaged. The first comprises travellers who bought their tickets before 6 September without any awareness that this was going to happen and will travel after 1 February. There are many people in that category. They are not business travellers, who normally buy tickets fairly close to the point of departure, but people planning a family holiday, probably with a substantial cost involved. The other group comprises travel agents who have decided to carry the cost themselves because they have no alternative, or to avoid alienating their customers. Several travel agents have made that point to me.

Photo of David Taylor David Taylor Labour, North West Leicestershire

Is the hon. Gentleman suggesting that those who purchase, long in advance, services or goods that they do not use or take possession of should always be able to avoid any increases in taxation on that good or service in the meantime, no matter how long a period is involved? That is the logic of his argument, is it not?

Photo of Vincent Cable Vincent Cable Shadow Chancellor of the Exchequer

Of course, these are tickets that have been paid for in good faith. As I understand it, the purpose of this tax measure was to change people's behaviour, but it is now being applied to decisions that have already been made. There is a basic lack of logic in the Government's proposals.

Helen Goodman made the reasonable point that a lot of money is at stake—£100 million or something of that order. Those who oppose the measure—Opposition parties, rebels or whoever—will be challenged on how they would fund the deficit. I do not have much of a problem with that, because our approach to aviation taxation is not that it should be tax-neutral. We believe—I do not know whether the hon. Member for Christchurch shares this view—that aviation taxation should be quite a lot higher to capture all the environmental externalities involved, and we have set out the case for that. Our proposals would raise substantially more revenue than the Government's proposals, not less.

The amendment involves an important issue of principle that has been well expressed, and we are happy to support it.

Photo of Quentin Davies Quentin Davies Conservative, Grantham and Stamford

I congratulate my hon. Friend Mr. Chope on his principled approach to this difficult question, on the single-mindedness with which he has pursued his campaign for several months, and on his efforts throughout that time to draw to the attention of his colleagues in all parts of the House the importance of this issue.

Helen Goodman is a distinguished Member of the House to whom I always listen with pleasure, but it did not sound as though she understood the concept of retrospectivity. She cited in defence of the Government's proposals an occasion in 1985 of which I have no memory—although I do not dispute that it may have occurred in the way she describes—in which the Treasury announced at 7 o'clock in the morning that a new tax would apply thenceforth. That is not retrospectivity, because all the trades done after the market opened at 7 o'clock in the morning would be done in knowledge that a new tax then applied.

Retrospectivity is a very serious matter, and it is incorporated in a glaring or, I might say, an egregious fashion in the Government's proposals. It occurs when a transaction is concluded between two or more citizens who believe that no tax applies, or a certain type of tax applies, and then find afterwards that a new tax is levied on them. It is exactly as if I had agreed today with the Financial Secretary to buy his tie for—what would it be worth? I suppose £5 or so— [ Interruption . ] No, that is unkind—I will make it £10 or so. I am not actually making him an offer, in case he is getting excited. It is as if I concluded with him today that I was going to buy his tie for £10, gave him the £10 and received the tie or was promised its delivery, and then we were suddenly told the next day, the next week, the next month or six months later that a new stamp duty or purchase tax was being imposed on ties and I had to come up with another £500 to give to the Treasury for having concluded the transaction with him some time before. That would be retrospectivity. I can see from the reaction on both sides of the House that we all think that that is a completely fantastical situation which, if it arose, would be utterly intolerable and unacceptable. However, it is precisely the situation that we face.

Photo of David Taylor David Taylor Labour, North West Leicestershire

The hon. Gentleman makes my earlier point precisely. In his example, he takes possession of this hypothetical tie and would rightly feel aggrieved if there was a retrospective tax thereon. However, in the case of air passenger duty we are talking about advance payments for services—in this case, flights—that are not consumed at the point at which the tax bites. That is not retrospectivity.

Photo of Quentin Davies Quentin Davies Conservative, Grantham and Stamford

It is indeed retrospectivity. The issue is whether the tax is known to apply by the parties involved when the transaction is concluded.

Photo of Quentin Davies Quentin Davies Conservative, Grantham and Stamford

Of course I will give way to the hon. Lady in a moment if she will be kind enough to let me respond to her colleague.

This is a matter of justice. It is also a matter of economic risks. The great question is whether we have a country—a free country, I hope, in our case—and an economy in which people can conclude transactions knowing what the tax regime is at the time that they do so. It is enormously important for the economy, and for justice, that that should be the case. If there is any retrospectivity, neither of those conditions applies. When the transaction takes place, the parties involved need to know what are the costs, risks and benefits to all concerned. If the Government subsequently, in a way that those parties could not have anticipated, change the rules of the game—the costs, risks or benefits emerging from the transaction—they have acted retrospectively. That is unjustified morally and extremely dangerous economically.

Photo of Helen Goodman Helen Goodman Labour, Bishop Auckland

The hon. Member for Christchurch placed emphasis on whether the Budget resolutions had been passed—I took that to be the thrust of his argument—but the hon. Gentleman seems to be arguing a completely different case and to think that that is not at all relevant.

Photo of Quentin Davies Quentin Davies Conservative, Grantham and Stamford

It is a curious way to conduct a debate to try to refute an argument by saying that it is different from what was said by another person who took the same line but used different arguments in support of the same cause. That may well be the case, but I take my stand on the matter of retrospectivity. Such an important principle is at stake here that I will vote to defend it whether or not I am joined by the majority of my colleagues. We have heard some other good arguments. For example, Dr. Cable made some points of a practical character that tend in the same direction. The fact that there are other arguments from different sources that tend in the same direction hardly undermines my argument, which is based on the principle of retrospectivity.

Photo of Julia Goldsworthy Julia Goldsworthy Shadow Chief Secretary To the Treasury, Treasury

David Taylor said that the point of consumption was the most important. However, if one buys a bottle of whisky before a Budget that increases duties on whisky, but does not open it until afterwards, one is not expected to pay an additional charge.

Photo of Quentin Davies Quentin Davies Conservative, Grantham and Stamford

The hon. Lady is right and I thank her for that additional argument, which reinforces my case, as it was intended to do. The important point is the conditions that apply when the transaction is made. Transactions are irrevocable—one buys or one sells and, at that point, one must make a definitive calculation of the costs and gains. I repeat myself because I believe that the hon. Member for Bishop Auckland has some difficulty in grasping the notion of retrospectivity. If conditions are subsequently changed by a Government tax decision, which applies to the transaction, even though at the time no one could know that the change would occur, retrospectivity has clearly taken place.

If we vote for the amendment—and one never knows in a democratic Parliament how many colleagues will go through the same Lobby—we must act responsibly and accept that the consequence of voting for something is that it may pass into law. I recognise that, if that happens, the Government will lose revenue. I have not made the calculation but I take on board the figure of £100 million or £120 million, which is not insubstantial. I am always careful about voting for a measure that will cost the taxpayer £100 million to £120 million. Perhaps the phrase "cost the taxpayer" is a little unfair because the taxpayer had no more idea than anybody else that the Government were proposing the measure.

In every society that operates under the rule of law and in a market economy that is run on sound principles, the principle that there should be no retrospectivity is so important that establishing it is worth £100 million or £120 million. If the Government are defeated, that will convey a signal to them and subsequent Governments, who may be tempted by retrospectivity, that it is expensive because the House of Commons may rightly take a principled stand. Our predecessors for generations and centuries have upheld the principle that the House should not legislate retrospectively, whether for tax law or other laws. I leave aside the special circumstances of tax avoidance schemes.

We in our generation should uphold the principle that I have outlined. If the cost of doing that in the current circumstances is £100 million or thereabouts, I fear that it must be borne in the higher and longer-term national interest.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

We are debating two principles this evening. First, Mr. Chope raised what might be called the constitutional principle. I understand that and I will be interested in the Government's response.

Secondly, we are considering retrospection. I understand the principle that Mr. Davies enunciated. However, he has got it round his neck when he tried to give practical examples. That also applies to Julia Goldsworthy, with her ridiculous argument about consuming a bottle of whisky. They both fail to differentiate the purchase of a physical artefact—whether a tie, a bottle of whisky or a car—and the delivery of a service.

For example, if the hon. Member for Grantham and Stamford looks back, he will realise that, when the Conservative Government, contrary to their electoral promises, raised the VAT rate markedly, that higher rate covered services, which were delivered after the change in the VAT rate, even though the agreement for providing them was made before the increase.

Photo of Quentin Davies Quentin Davies Conservative, Grantham and Stamford

The hon. Gentleman used the word "principle". I hope that he agrees that a good principle remains good even if someone in the past has breached it. If some past Government or Government of a different complexion have breached it, that in no way negates or reduces its importance. Surely he does not seriously suggest that different tax rules—in the case that we are discussing, different rules relating to retrospectivity—should apply to goods and to services. He has a background in economics and he knows that there is no foundation for such a distinction in the science of economics.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Perhaps I am not making myself clear. I understand the principle that the hon. Gentleman outlines. I am trying to explain that there is no retrospectivity in air passenger duty. I understand the constitutional point—we will consider that shortly and the Financial Secretary will tackle it—but there is no retrospection in air passenger duty.

Although I have an A-level in economics, my background is in being a lawyer. I therefore know something about contracts. The tax is not to do with when the contract is made but, in the case of a service, which often entails delay, when the transaction is concluded through the delivery of the service. The example that the hon. Gentleman gave of the tie was a concluded deal and ownership had passed before the tax change had occurred.

Photo of Quentin Davies Quentin Davies Conservative, Grantham and Stamford 7:15 pm, 1st May 2007

The important point about air passenger duty is that the economics of the transaction will be changed subsequently. I am sure that the hon. Gentleman agrees that any transaction is based on a balance of cost and gain. Each party has costs and gains. In the example that I cited, the Financial Secretary lost his tie and gained some money. If the state subsequently changes the economics of a transaction, the equation would be different and one or other party to it would probably not have undertaken it if he or she had known what was coming. That is the essence of retrospectivity and the hon. Gentleman cannot deny that that is the result of the Government's actions in the matter that we are discussing.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

The hon. Gentleman says that I cannot deny it but I do.

Photo of Julia Goldsworthy Julia Goldsworthy Shadow Chief Secretary To the Treasury, Treasury

As my pocket money probably would not have stretched to procuring any services when the change in VAT to which the hon. Gentleman referred was made, will he clarify whether people were liable for the increase regardless of whether they had paid for the services and of whether the contract to provide them had been agreed?

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

It happened when the service was performed. For example, if one engages a VAT-registered garden company and the VAT rate changes before the garden is done up, the higher rate has to be paid. It is not simply a matter of goods and services. The nature of the purchase of goods often means that ownership changes instantly whereas delivery of a service can be delayed.

Photo of John Healey John Healey The Financial Secretary to the Treasury

My hon. Friend is making a typically well argued case. Does he agree that the point at issue, which is causing some confusion, is that the tax point in air passenger duty is that of departure, not of purchase?

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

My hon. Friend is as perspicacious as ever. If a service has been bought in October 2006 but is performed by an aircraft company in April 2007, there is a duty on departure when the service is performed—when the aircraft takes off with a passenger in it. There is therefore no retrospectivity in the provision.

Photo of David Gauke David Gauke Conservative, South West Hertfordshire

I was merely going to intervene on Rob Marris. I thought that his VAT example was good, but as his argument developed it became clear that it was not. Value added tax is payable when the service is paid for, and if that happens before the increase in the rate, no further payment is necessary. That is the difference between VAT and air passenger duty, for which, as the Financial Secretary said, the tax point is later. I simply wanted to make the point that VAT is not an adequate example and that the Government experience great difficulty in providing examples of similar retrospective legislation—

The First Deputy Chairman:

Order. May I clarify whether the hon. Gentleman is making an intervention or a speech?

The First Deputy Chairman:

Mr. Gauke is therefore making a speech.

Photo of David Gauke David Gauke Conservative, South West Hertfordshire

I am grateful for your clarification, Mrs. Heal, of exactly what I am doing— [ Interruption. ] And I thank Mr. Breed for his retrospective clarification.

The difficulty for the Government is that the examples that they have produced generally relate to cases of a market-sensitive nature, such as the example given by Helen Goodman. No doubt we shall hear other examples from the Minister later in which there has been a delay before parliamentary ratification, perhaps because of a general election, for example.

As I am now making a brief speech, I will ask the Financial Secretary to clarify one point. I remember that, immediately after the pre-Budget report, there were strong rumours floating around that the Chancellor had received strong advice from Treasury officials that this rise in air passenger duty could be attacked and that it might be illegal. It was also rumoured that the Chancellor had been advised to delay its implementation until after the Budget in March. No doubt there will at some point be a freedom of information request from The Times seeking details of the advice that the Chancellor received, but I should be grateful if we could short-cut the process so that we do not have to wait two or three years for the answer. Will the Financial Secretary confirm or deny that the Chancellor received strong advice that this retrospective legislation could prove vulnerable in the courts?

Photo of John Redwood John Redwood Conservative, Wokingham

We are hearing the most extraordinarily convoluted legal arguments from the Government about why this measure is not retrospective, and why it is a good thing that people will have to pay this tax in spite of having paid for their tickets in advance of its imposition. Perhaps the House should think about the underlying realities of the people for whom we are legislating today. We know that it is the Government's policy that only the rich should travel. Clause 12 is part of their policy that those on low incomes should be priced out of travelling by air. That is the purpose of the duty. Clearly it will not price the rich people on expense accounts at the front end of the aircraft out of travelling; it will price the poor out.

Photo of John Redwood John Redwood Conservative, Wokingham

I see the hon. Lady disagreeing with me, but she should recognise that her Government wish to reduce the number of people travelling by air by taxing them, and that it will be the poor, not the rich, who get thrown out.

Photo of Helen Goodman Helen Goodman Labour, Bishop Auckland

Surely the right hon. Gentleman can understand that the people in the top 25 per cent. of the income distribution take on average six return flights a year and that the people in the bottom 25 per cent. take on average one such flight a year. The benefit to the environment would be secured if those people on high incomes who take six flights reduced the number to, say, four. This would not reduce the opportunity for the rest of the population to go on their summer holiday.

Photo of John Redwood John Redwood Conservative, Wokingham

The Conservative party is holding a consultation on this sensitive issue. One of the questions in the consultation asks whether there is a way of imposing taxes on air travel that would be less penal for those on low incomes, and that would get away from the obvious obstacle in clause 12. Perhaps even worse than the underlying reality of clause 12—which is its aim of taxing the poor out of planes—is that, although those people on low incomes have already bought their tickets and carefully calculated their family budgets, perhaps for a once-in-a-lifetime trip that they could not normally afford in other circumstances, the Government have suddenly come along and said, "We have bad news for you. All your family members have to pay this extra air passenger duty." The fact that those people have already paid for their tickets and that that is a done deal has no impact on the Government; they are stony-hearted men and women, and they are going to impose the tax anyway.

I will be guided by my hon. Friends on the Front Bench, and I suspect that they will suggest that we let the Government get on with this, because the reality is that I do not think that my hon. Friend Mr. Chope has enough people crowding around the Chamber to defeat the Government on this measure. Either the Government must change their hard heart, and their mind, and find another way to raise this £100 million, or those people will be badly damaged. I shall give the Government some free advice, as I often do. They could make themselves considerably more popular on the eve of the local elections if they cancelled this tax on people travelling around and paid for it by cancelling the identity card scheme. Indeed, if they did that, we would be able to have other tax reductions as well—

The First Deputy Chairman:

Order. We are not discussing the identity card scheme this evening.

Photo of John Redwood John Redwood Conservative, Wokingham

I accept your advice, Mrs. Heal. I was illustrating that there are other ways of finding £100 million, and a lot more besides. We are discussing whether £100 million is absolutely essential to the future of the Government, and I was making the point that there are many popular ways for them to show that that £100 million is not essential to them.

My hon. Friends on the Front Bench are probably worried, because they have seen what the Government can do, about what would happen were they to recommend that we vote against the measure. It would be scored as £100 million that the Conservatives would not have when they come to power. The reality is completely different, however. We all know that the Government are going to take this £100 million tonight, and many more hundreds of millions of pounds through this tax in the run-up to the next general election.

Any sensible Government would accept the Opposition's position, which is that, in due course, nearer to the election, we will set out our tax proposals for a future Conservative Budget, but I hope that that will not get in the way of our vigorously opposing measures such as these, which are mean-minded and unpleasant. I hope that the Minister will think again, but I am sure that he is not going to. He obviously believes in retrospectively taxing the poor.

Photo of Brooks Newmark Brooks Newmark Conservative, Braintree

Thank you for calling me to speak, Mrs. Heal, and I appreciate the ongoing guidance that I have received from you. I have four brief points to make on amendment No. 3 and the deferral of the air passenger duty increase. I use the term "increase" advisedly because, in respect of economy fares, the Chancellor has merely undone his own handiwork.

First, I want to make it clear that air passenger duty has nothing whatever to do with forestalling. I do not want to get too bogged down in procedural intricacies and precedents, but the precedent laid down by my right hon. and learned Friend Mr. Clarke when he originally introduced air passenger duty was to give the industry several months in which to adapt to the duty and to any subsequent rises. As I understand it, however—perhaps my hon. Friend Mr. Chope will correct me if I am wrong—amendment No. 3 seeks partly to preserve that precedent which, until the Chancellor scrapped it, helped to prevent a good deal of unnecessary confusion to airlines, tour operators and passengers alike.

My second point is that air passenger duty is not at risk of forestalling precisely because it does not really help to effect behavioural change. APD was introduced on a clear pretext: to raise revenue from an under-taxed industry. The reason for the curious timing of the APD increase that appeared in the pre-Budget report was equally clear: it was to raise £100 million of additional revenue. That was certainly the view of Robert Chote of the Institute for Fiscal Studies when he gave evidence to the Treasury Committee. He said:

"The fact that the Chancellor is in a tight position I think is clear...from the fact that he did not offset the rise in green taxation with a cut in other taxation, as he might have found appealing given the political debate".

Martin Weale, also giving evidence, told me personally that APD

"is very much at the level where it is just an additional tax rather than really going at changing behaviour."

Likewise, the Institute of Chartered Accountants was of the opinion that APD did not demonstrably change behaviour.

It took another three and a half months for the Treasury to concoct an explanation. When Mark Neale from the Treasury gave evidence on the Budget, he suddenly told me that

"the APD change came in quickly because there were pressing environmental reasons for bringing that change in quickly."

I will not try to guess what those pressing environmental reasons were, but it remains my opinion that there were pressing economic reasons to grab the £100 million on offer from seven extra weeks of increased yield. What we need from the Chancellor now and in the future is a much clearer differentiation between taxation to change behaviour and taxation simply to raise revenue.

My third point concerns the anomaly that tour operators have faced regarding their ability to pass on the cost of increases to their customers, to which Julia Goldsworthy referred earlier. I know that the matter is, embarrassingly, sub judice, and that the Financial Secretary gave some reassurance in February that he would have the Department of Trade and Industry consider reviewing the guidelines.

Photo of Christopher Chope Christopher Chope Conservative, Christchurch 7:30 pm, 1st May 2007

Has my hon. Friend seen that a consultation paper has been published today in relation to reviewing the guidelines? Having looked at that consultation paper, however, I can say that any expectations that he had that the problem would be solved will be dashed.

Photo of Brooks Newmark Brooks Newmark Conservative, Braintree

My hon. Friend beats me to my peroration, which, sadly, I will now have to leave aside.

I want to address, however, the damage that has been done to the reputation of environmental taxation by this debacle. The Treasury claimed that APD would save 1.1 million tonnes of CO2 annually, but it is left to the Environmental Audit Committee to remind us that that is a cut in projected growth, not a cut in absolute terms.

Photo of John Healey John Healey The Financial Secretary to the Treasury

The Treasury has at no stage said that the APD change will lead to a saving of 1.1 million tonnes of carbon each year. Its direct impact will be to save 0.3 million tonnes of carbon a year, as I and the Treasury have consistently made clear. Given the savings on other greenhouse gas-causing emissions, which are not CO2, its overall impact will be to save about 750,000 tonnes of carbon a year by 2010. I hope that that helps that hon. Gentleman, and does not damage his case too much.

Photo of Brooks Newmark Brooks Newmark Conservative, Braintree

No, it does not damage the case. I appreciate the clarification, but it does not detract from my point that APD is effectively a blunt instrument to deal with the amount of CO2 being chucked out into the air.

Photo of John Gummer John Gummer Conservative, Suffolk Coastal

Does my hon. Friend agree that were the proposal a green tax, no more would be paid for a full aeroplane than for an empty aeroplane? It is a simple fact—

The First Deputy Chairman:

Order. I am afraid that that intervention is not relevant to the debate.

Photo of Brooks Newmark Brooks Newmark Conservative, Braintree

I appreciate that guidance, Mrs. Heal, but I do concur with my right hon. Friend.

There is a legal challenge against APD on the grounds that it is not a proper environmental tax, with the result that the entire industry is feeling less inclined to be co-operative with the Government. There is a growing sense among the general public that APD—

The First Deputy Chairman:

Order. May I remind the hon. Gentleman of the amendment under discussion, which is not about environmental taxation? His remarks might be more suited to the clause stand part debate.

Photo of Brooks Newmark Brooks Newmark Conservative, Braintree

Again, I appreciate your guidance, Mrs. Heal, but my remarks were a precursor to my final point.

Lastly, there seems to be no intention that APD revenue, especially the extra £100 million stealthily—or perhaps not so stealthily—taken from airline passengers should be hypothecated to investment in the environment, such as building more flood defences.

Photo of Edward Leigh Edward Leigh Chair, Public Accounts Committee

To be entirely in order, the debate should be about the implementation date. The Minister has made an intervention, however, giving an estimate of the amount of carbon emissions that would be saved. Will my hon. Friend tell us what proportion of worldwide carbon emissions from aviation will be saved by varying the implementation date? I suspect that it would be infinitesimal.

The First Deputy Chairman:

Order. May I point out to the hon. Gentleman that the decision as to what is in order is entirely a matter for the Chair?

Photo of Brooks Newmark Brooks Newmark Conservative, Braintree

Thank you, Mrs. Heal.

As I was saying, the £100 million retrospective tax would be most beneficial if it could be hypothecated to building such things as more flood defences, which would be most welcome in my constituency, especially in the north end at Three Fields, in the south near the village of Coggeshall, and particularly in my own village of Bradwell.

Photo of Paul Goodman Paul Goodman Shadow Minister (Childcare), Treasury

You are policing the conduct of the debate as vigorously as ever, Mrs. Heal, which is entirely appropriate. Let me reassure you that I do not propose to be dragged away from considering the amendments of my hon. Friend Mr. Chope, either by the general debate about the clause or by the Liberal Democrat amendments, which we will deal with in due course. During the opening debate, I will confine my remarks to the amendments tabled by my hon. Friend.

I think that the record will reflect that, essentially, Helen Goodman said that my hon. Friend was looking around for reasons to oppose the APD rise and had picked on the issue of retrospectivity as a kind of fig leaf. That is unfair to him: he has obtained an Adjournment debate on the subject, has campaigned persistently on the issue—I have had dealings with him on it—and takes the constitutional aspects of the business extremely seriously. Therefore, I had better have my wits about me in dealing with his amendments.

Although Conservative Front-Bench believe that the retrospective nature of the rise is dubious at least, are sympathetic to the intention behind the amendments tabled by my hon. Friend and fully share his concern about the principles of retrospectivity involved, we part company with him to some degree on the likely effect of the amendments if implemented, and cannot support them if he presses them to a vote. I hope to have something reassuring to say to him later, but in the meantime I shall examine in detail the points about retrospection.

As Dr. Cable said, these matters involve a certain amount of theology, and the whole question of whether the Chancellor, Treasury and Financial Secretary have acted retrospectively in relation to the clause has been closely considered, not least by the Treasury Committee, of which my hon. Friends the Members for Braintree (Mr. Newmark) and for South-West Hertfordshire (Mr. Gauke) are members. What it has said deserves some airing, because there has not yet been an opportunity to do so.

If we review the history of the doubling of APD, we see that it is not altogether a happy story. The last significant rise, as I pointed out to the hon. Member for Bishop Auckland, was announced in March 2000 and implemented in April 2001. At that time, therefore, Ministers gave roughly a year's notice of the rise. They helpfully explained at the time that the delay

"would allow airlines and tour operators plenty of time to adjust their marketing and pricing strategies to the new structure."

That was only a few years ago.

By contrast, the current rise was announced on 6 December last year, in the pre-Budget report, for implementation on 1 February this year—not a year's notice or even six months' notice, but less than two months' notice. There was no question this time, then, of allowing airlines, tour operators and especially passengers "plenty of time" to adjust. Indeed, those passengers who had already bought tickets dated after 1 February, and to whom price rises were passed on, were given, as my hon. Friend the Member for Christchurch said, no time to adjust.

The Treasury Committee elegantly described that as the "first element of retrospection" of the rise that the clause seeks to bring into effect. We are therefore bound to ask the Financial Secretary: why the rush? Why did Ministers give a year's notice of the last significant rise in APD, but less than two months' notice of this one? I think that we know the answer, to which my hon. Friend the Member for Braintree alluded in relation to the evidence heard by the Treasury Committee. The Chancellor was not, it seems, overcome by an urgent desire to hurry through a reduction in emissions by the means of APD, but simply grabbing the first instrument to hand to help him to pay off the £153 billion that he plans to borrow over the next five years.

There are more questions. For instance, what estimate has the Treasury made of the number of passengers who paid the new rates of APD on tickets dated after 1 February, when many airlines—as the Treasury will have anticipated—pass the cost of the rise to passengers, and what estimate has it made of the cost to those passengers? How much will they pay in total? Can the Minister confirm that the Federation of Tour Operators has issued judicial review proceedings against the Chancellor in relation to the rise, that the Government have acknowledged the service of the claim, that a judge has directed that they must serve their defence by this Friday, and that the court has directed that the case be heard quickly with the intention that judgment may be given by the end of July?

I mentioned a moment ago that the Treasury Committee had described this manoeuvre as the "first element of retrospection". This takes us to what it described as the "second element of retrospection". It observed that

"the liability to pay Air Passenger Duty at the new higher rates will effectively be incurred before the House of Commons has authorised the increase".

The Committee concluded—I consider this an important section of what it said on the subject—

"As a general rule, we consider that, where increases in rates of duties or taxes are proposed in the Pre-Budget Report, those increases should not come into force until after the House of Commons has had an opportunity to come to a formal decision on the proposed increase following the Budget. We draw the attention of the House of Commons to the unusual timing of the implementation of the increases in Air Passenger Duty, for which the Treasury has not cited any relevant precedents."

That carefully crafted reproof—I do not know why the Financial Secretary is wincing; I am merely reading what the Select Committee had to say—suggests that any precedent cited by the Treasury was not relevant.

The Financial Secretary is on record as citing two specific precedents: the supplementary charge on North sea oil announced in the 2005 pre-Budget report, which was introduced with effect for accounting periods from 1 January 2006, and the increase in fuel duty announced in the 2006 pre-Budget report and implemented from midnight. My recollection is that he cited both those precedents during the debate initiated by my hon. Friend the Member for Christchurch on 27 February. Unfortunately, both those precedents look a little dubious. As the House of Commons Library points out,

"It is arguable that these examples do not provide a precedent that captures all the aspects of the rise in APD rates: for example, the amount of time between the implementation date, and the date the House formally approved the measure (i.e.: that it was a matter of weeks, not days); the nature of the tax change (that it was an increase in tax rates. Not just a tax continuation), and the fact that projected receipts from the change would not have been significantly affected by a delay in the implementation date (either from taxpayers taking account of the announcement, or external factors affecting the yield from the levy)."

In other words—this touches on a point raised earlier by Julia Goldsworthy—consumers have not usually pre-booked the fuel, or the alcohol or tobacco, that they consume immediately after a budget or pre-Budget report rise in duty on those products. The North sea oil supplementary charge was essentially driven by a strong surge in oil prices, and was implemented immediately to prevent forestalling—the practice of taking advantage of any implementation delay to amend tax planning strategies. As the Library puts it,

"this type of calculation would not be relevant in setting the rates of an airport departure tax".

Photo of Adam Afriyie Adam Afriyie Conservative, Windsor

The least well-off tend to book their flights much further in advance, because the earlier a booking is made, the better the deals available. On that basis alone, will those people not be disproportionately affected?

Photo of Paul Goodman Paul Goodman Shadow Minister (Childcare), Treasury 7:45 pm, 1st May 2007

My hon. Friend makes a fair point.

My hon. Friend Mrs. Villiers, the shadow Chief Secretary, has received a letter from the Financial Secretary citing further precedents. We want to examine those, because the Library note on the other precedents that he cited is extremely interesting.

That brings me directly to the amendments tabled by my hon. Friend the Member for Christchurch—

Photo of Edward Leigh Edward Leigh Chair, Public Accounts Committee

May I say at this point that my hon. Friend is making such an elegant case against the Government that he has persuaded me to vote for the amendments?

Photo of Paul Goodman Paul Goodman Shadow Minister (Childcare), Treasury

I was waiting for someone to make that point. I am only surprised that my hon. Friend needed persuading to vote for them. Evidently I have not entirely mastered his psychology: I must pay more attention in future.

I entirely agree with my hon. Friend the Member for Christchurch that the way in which the APD rise has been implemented has been—as the Library note confirms— legally and procedurally dubious, to say the least. But I doubt that the Financial Secretary will spring to his feet tonight to announce that the Chancellor has accepted the Select Committee's reproof and to guarantee that his successor will not implement a tax increase in this way in future without consulting the House first.

Photo of John Redwood John Redwood Conservative, Wokingham

Given the serious legal proceedings that the Government have had to accept, were they to lose the case presumably it would cost us even more money as taxpayers, because they would have to refund all the money and go to enormous administrative expense to sort out the mess. If the Government gave in on the amendments, they might do all of us a favour by saving us money in the event of defeat in the courts.

Photo of Paul Goodman Paul Goodman Shadow Minister (Childcare), Treasury

My right hon. Friend makes a fair point. A sword of Damocles is hanging over the Government. I do not think that the House of Commons is the right place in which to decide what change is legally in order and what is not, but it may well be that the Government have been as careless about the legal aspects as they appear to have been with the procedure.

Where I part company with my hon. Friend, to an extent, is over his belief that passengers who purchased tickets between 1 February and Budget day, 23 March, and who have consequently had part or all of the Chancellor's APD rise passed on to them by the airlines, are likely to be reimbursed by them if his amendments are passed. This is a crucial point. Part of the debate has been conducted almost on the assumption that APD is paid directly by passengers, but in fact it is paid by the airlines. It is hard to see how the amendment would not simply result in a windfall for the airlines—a windfall of some £100 million, according to our calculations and my hon. Friend.

Photo of Christopher Chope Christopher Chope Conservative, Christchurch

I think my hon. Friend has misunderstood my amendment. It would not give relief only to passengers who had purchased tickets between 1 February and 21 March; it would give relief to all passengers who had purchased tickets for travel between those dates, regardless of when they had purchased them. Some might have purchased them many months earlier.

Photo of Paul Goodman Paul Goodman Shadow Minister (Childcare), Treasury

The key point, though, is that it would give relief to the airlines, because the airlines, not the passengers, pay the duty. One of my reasons for asking the Financial Secretary earlier how much of the increase had been passed on to passengers was the genuine uncertainty that exists on this point. We fear that as a result of the amendment the airlines might simply receive the windfall, say "Thank you very much" to the Treasury, and not pass on the £100 million to the passengers.

My hon. Friend seems to be arguing that the genie can somehow be compressed and put back in the bottle. We are not convinced that the damage caused to passengers by the companies that chose to pass on the retrospective rise can be addressed by the amendment, but we are certainly not happy to leave the matter there. Although we cannot support my hon. Friend if he insists on pressing his amendment to a vote, we intend to table a new clause at a later stage that will prevent the Chancellor's successor from behaving in the same way in relation to APD. I hope that it will have the support of my hon. Friend as well as that of other Members.

In conclusion, this retrospective rise should not have happened. As my right hon. Friend said, it may be found to be illegal by the courts. However, it is genuinely difficult at this stage to correct the effects on passengers of a change in duty that has already come into effect—to put the genie back into the bottle or, groping for another cliché, to lock the stable door after the horse has bolted. However, as I say, we intend to table a new clause to prevent the Chancellor's successor from carrying out such a retrospective manoeuvre again.

Photo of John Healey John Healey The Financial Secretary to the Treasury

I think that this has been quite a good debate. All the contributions, with the exception of that by Mr. Goodman, have been clear. His was extraordinarily convoluted. It twisted and turned. I appreciate his position and look forward to any substantive contribution that he may make to the debate on air passenger duty at subsequent stages of the Bill.

Photo of Paul Goodman Paul Goodman Shadow Minister (Childcare), Treasury

The Minister finds me convoluted. May I simply ask him a straightforward question? Does he agree with the Treasury Committee that he has not cited any relevant precedents for this retrospective increase?

Photo of John Healey John Healey The Financial Secretary to the Treasury

The hon. Gentleman said himself that he wants to study the letter that I have sent to Mrs. Villiers, with a whole list of precedents, which I will mention in a moment. Clearly, they are relevant and he wishes to study them. The Treasury Committee did not have access to that information when it came to its conclusions and published its report.

Photo of John Healey John Healey The Financial Secretary to the Treasury

I will, although I want to deal with some of the points that those who have contributed have made to the debate.

Photo of Paul Goodman Paul Goodman Shadow Minister (Childcare), Treasury

Why did not the Treasury Committee have access to the precedents?

Photo of John Healey John Healey The Financial Secretary to the Treasury

The information before the Treasury Committee did not include the information that I was able to set out, first, to the Chairman of the Procedure Committee and then to Conservative and Liberal Democrat Front Benchers who lead on the subject.

Photo of David Gauke David Gauke Conservative, South West Hertfordshire

I am a member of the Treasury Committee. We hold a number of hearings after a pre-Budget report. There was plenty of opportunity for the Government to cite precedents that we might have considered to be relevant, but the Government did not take that opportunity. Can the Minister explain why?

Photo of John Healey John Healey The Financial Secretary to the Treasury

For the purposes of this debate, there are a number of precedents that I wish to cite. I set them out in some detail to the Chairman of the Procedure Committee, to which I will refer, to Conservative Front Benchers and to Julia Goldsworthy, who speaks for the Liberal Democrats on the matter. What is clear is that aviation currently is responsible for nearly 6 per cent. of the United Kingdom's carbon dioxide emissions, but that figure is rising and aviation is also responsible for other non-carbon dioxide emissions that contribute to climate change. Very few contest the case that that under-taxed industry should at least cover the climate change costs that it imposes, and very few contest that action is necessary to encourage aviation to reduce the climate change impact.

While the Government continue to push and have led the arguments for aviation to be included in the European Union emissions trading scheme, which we view as the best, most effective and most efficient policy instrument available, it is right to look at what can be done domestically with the policy tools at our disposal at this point. That is what we said in the air transport White Paper in 2003, in the Budgets in 2004, 2005 and 2006 and in the energy review in 2006.

Photo of Christopher Chope Christopher Chope Conservative, Christchurch

If that is so, can the Minister confirm today that, when the European emissions trading scheme comes into place, air passenger duty will be abolished, because that was a pledge that his ministerial colleague was unable to give the European Committee the other day?

The First Deputy Chairman:

Order. I wonder whether I could ask the Minister to move on quickly to the amendments currently under discussion. Perhaps the comments made would be more appropriate in the debate on clause stand part.

Photo of John Healey John Healey The Financial Secretary to the Treasury

Of course I will, Mrs. Heal. It has been a wide-ranging debate to date. Let me return to the question of the air passenger duty and the proposals of Mr. Chope.

To be clear, air passenger duty is a tax on airlines, payable by airlines. It is charged per passenger at the point of departure from UK airports, so it is a departures tax. It is not a ticket tax, not a booking tax, not a purchase tax. Again, the tax point is the point of departure by the passenger from the UK airport, not the point of purchase of the flight ticket. That is just as it was in 1994 when the APD was introduced by the previous Government and it is just as it has been for every change since.

Photo of John Redwood John Redwood Conservative, Wokingham

Can the Minister tell us how much of the extra duty has been charged directly to the customers who had already bought their tickets, and how many airlines have put surcharges on all subsequent ticket sales?

Photo of John Healey John Healey The Financial Secretary to the Treasury

I cannot precisely, because clearly that is a commercial arrangement between the airlines and their passengers, but, for example, Ryanair e-mailed its customers who had pre-booked and direct debited the increase in the air passenger duty from those accounts. BMI and British Airways waived the increase and absorbed the costs. There was a variety of different responses from different commercial operators. The right hon. Gentleman would appreciate that that is properly a commercial matter for those companies in relation to their customers.

Photo of Brooks Newmark Brooks Newmark Conservative, Braintree

Further to what my right hon. Friend Mr. Redwood has said, the Minister has just said that the money is to be used to deal with the damage created by CO2. Therefore, I would like to ask him a specific question: how much of the £100 million that is being raised will be used to deal with the damage that CO2 has created?

Photo of John Healey John Healey The Financial Secretary to the Treasury

The Chancellor was clear in his pre-Budget statement and I have made the position clear since then in different debates and in Select Committee inquiries. The rise in the air passenger duty will contribute to the increase in spending that we are looking to be able to deploy to some of our priorities, including, specifically, transport and environmental protection. This may interest the hon. Gentleman. He mentions £100 million, but in 2005-06, as the public expenditure statistical analysis confirms, we spent as a Government £8.4 billion on environmental protection. He may have seen yesterday that we published the new PESA outturn estimates. For 2006-07, the spending on environmental protection was £9.7 billion.

Mr. Illsley, I welcome you to the Chair and to this debate. The intention to introduce this legislation to Parliament was announced to Parliament in the pre-Budget report on 6 December and the change has effect for all flights departing after 1 February 2007.

I pay tribute to the hon. Member for Christchurch. As members of the Committee recognise, he has been dogged in his pursuit of the issue. He raised it on a point of order, in an Adjournment debate with me, in a debate on the Budget resolutions, although none of the others from his party who have signed his amendment did so, and of course he has raised the matter today. The decision that we have taken, the move that we have made and the provision in the Bill is not an illegal act, as he asserts. We will mount a strong defence in the case that the Federation of Tour Operators is bringing to the courts. I am confident that our arguments will carry the day.

The hon. Gentleman advanced three arguments. Let me contest each and every one of them. The measure is not retrospective; it is not out of step with established parliamentary procedure; and it is not a measure going through the House without parliamentary scrutiny and debate. I will take those in reverse order.

On the issue of proper debate and scrutiny in Parliament, after the pre-Budget report statement on 6 December, Treasury officials and the Chancellor gave evidence to the Treasury Committee on 12 and 13 December; I gave evidence to the Environmental Audit Committee on 31 January; I gave evidence to the Treasury Committee on 7 February; I wrote to the Chair of the Procedure Committee on 27 March; I answered an oral question in this Chamber in January and I answered the hon. Gentleman's Adjournment debate in February. Finally, the House had the opportunity to debate the resolution over four days following the Budget, before the taxpayers concerned had to pay out any of the increased sums for which they were liable. At the end of those four days of debate on the Budget resolutions, the House voted on the proposals for APD announced in the pre-Budget report. The vote was carried by 296 to 84—and I must say that the Whip, my right hon. Friend Mr. McAvoy, would welcome a majority of 212 on several other issues that face us. We are also now having scrutiny and debate as part of our consideration of this Finance Bill. Therefore, the first assertion is not founded.

The second argument related to parliamentary precedent. In announcing and putting forward the provisions for the rise in APD, we have used provisions under the Provisional Collection of Taxes Act 1968. We followed established procedure that has been used on a number of occasions by this Government and previous Governments. I confirmed that to the Chairman of the Procedure Committee in March. I understand that that Committee has neither considered nor reported my letter, and I therefore wrote separately to the hon. Members for Chipping Barnet and for Falmouth and Camborne to make many of the same points as were made in the letter.

I wish to quote a couple of passages from that letter. Dr. Cable is right that some of the precedents relate to anti-avoidance, but by no means do all of them:

"Others include, for example, the resolution to charge income tax for the 2002-2003 financial year...at the specified rates."

An older precedent mentioned was the petroleum revenue tax:

"In August 1978, the Government announced a package of changes to the tax, including an increase in the rate to 60 per cent. from 1 January 1979. The measure was not enacted until the post-election 1979 Finance Bill...These precedents are in addition to the one I cited in the House of the North Sea Oil taxation measures"

—the increase in the supplementary charge—

"announced in the 2005 Pre-Budget Report" and implemented from 1 January 2006. Therefore, it is clear that established parliamentary conventions and procedures are not being broken.

Finally, let me turn to the third argument on retrospection. My hon. Friends the Members for Bishop Auckland (Helen Goodman), for North-West Leicestershire (David Taylor) and for Wolverhampton, South-West (Rob Marris) understood the point to do with this clearly, although a number of other contributors did not. I must say to Mr. Redwood that the arguments are not at all convoluted; they are straightforward. Far from being retrospective, this tax change was pre-announced. The pre-Budget report documents made it clear that the new rates would apply to passengers departing the UK from 1 February. I accept that there is an issue in respect of those passengers who pre-booked before the pre-Budget report of 6 December, but the airlines had almost two months to deal with that. I say to the hon. Member for Wycombe that they are the liable parties. The airlines are responsible for payment: the airlines choose, and have chosen, whether to levy the APD increase on their passengers or to absorb the costs.

Let me repeat that the distinction is principally to do not with goods and services, but with the point of tax. The point of tax is when a flight takes off, not when it is booked. All previous changes to APD have applied to both flights that were already booked at the time of announcement and to flights booked subsequently. That did not make those changes retrospective. How or whether to pass on the cost of the tax is a commercial matter for airlines. It is a matter to do with their pricing policy, their judgment and the terms and conditions of their ticket sales.

Photo of Edward Leigh Edward Leigh Chair, Public Accounts Committee 8:00 pm, 1st May 2007

This is a theological argument about dancing on the head of a pin. What about the public? They have no choice. It does not matter whether Ryanair keeps the money or gives it back. The Government can blame it or not. What about the public? What about somebody who has pre-booked his ticket and is now surcharged? Do such people not have any rights?

Photo of John Healey John Healey The Financial Secretary to the Treasury

It is not a theological argument. It is a principled argument that is based on legislative and parliamentary precedent. For the hon. Gentleman's benefit, let me add that because APD is a tax on airlines and not passengers, if a flight that is booked is cancelled or not taken, no APD is liable. Whether an airline then repays to the customer the equivalent sums of the APD that they have already taken is a matter for the airlines, and a question to do with their terms and conditions. I and many other Members have had experience of constituents who have found it difficult to get that APD repaid when they have not taken flights that they have booked and paid for.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Many airline passengers are aware that the actual price of the service that they are buying is more likely to vary upwards than downwards and that it is more likely to do so the longer the interval between when they book and when they fly, because of fuel surcharges which are commonly added in by many airlines. Therefore, passengers are aware that prices can change.

Photo of John Healey John Healey The Financial Secretary to the Treasury

It is also frequently the case that people or organisations make decisions on investments, purchases or pricing without having full knowledge of how the tax position may change.

I wish to emphasise that following the pre-Budget report I and officials at the Treasury and Her Majesty's Revenue and Customs held many meetings with those affected by the change, including representatives of airlines, travel agents and tour operators. During those discussions, I was able to clarify a couple of points to them, on which I wish to update the House.

Mr. Newmark raised an issue to do with package travel regulations. Scheduled airlines were generally able to pass on the cost of APD if they wished—although some, of which I have cited two, chose not to do so. We recognise that tour operators, who account for about 15 per cent. of the flights on which APD is charged, are restricted by the Package Travel Regulations 1992 from passing on increased costs to customers. The European Commission is planning a review of the directive from which the regulations stem. We believe that it should be fundamental and wide-ranging. We expect the EC soon to issue a discussion document setting out options for the review, and my right hon. Friend the Minister for Trade, Investment and Foreign Affairs has today written to the commissioner for consumer affairs underlining the importance that we place on the review of the directive and urging that any review should be wide-ranging and fundamental.

The next point relates to how APD is currently defined in terms of classes of travel; I think that the hon. Member for Christchurch referred to the consultation on this earlier. The aviation and tour operator industries have raised with me concerns about the current structure of APD, which has not changed since it was introduced more than 10 years ago, and in particular in relation to the treatment of seats on business-only flights or seats marked as premium economy. Following initial meetings with the industry, we announced in the Budget that we were open to reviewing the issue, given that the current structure might not send appropriate environmental signals and might cause market distortions. I can confirm today that HMRC has issued a consultation document seeking further information on possible options for change. I have placed a copy of that in the Library and it is also on the website.

In summary, the amendment would cost the Government £140 million—not £100 million, as the hon. Member for Christchurch suggests. The arguments that he mounts that this is a move without parliamentary precedent and without legal basis, that it is retrospective and that it has not been subjected to parliamentary scrutiny and debate are all wrong. I hope that I have been able to demonstrate that. I hope that he will not press his amendment to a Division. If he does, I shall have to ask my hon. Friends to oppose it.

Photo of Christopher Chope Christopher Chope Conservative, Christchurch

I am grateful to the Financial Secretary for his response and for his comments about the package tour regulations, but I do not understand why the Government did not take account of them when they decided to double air passenger duty. Back in 1993, when those regulations were in place, my right hon. and learned Friend Mr. Clarke, the then Chancellor, introduced the concept of air passenger duty in his November autumn statement. He admitted that he did so because, unlike the present Chancellor, he was in need of extra money at the time. He was brave enough to say that, instead of trying to cover up the situation as some sort of environmental good thing.

My right hon. and learned Friend did not implement the tax, however, until 1 November 1994. He delayed implementing it not because he could afford to do so—he needed the money—but because he took the view that it would be inequitable to implement it earlier. My noble Friend Lord Cope of Berkeley, the then Paymaster General, told this House:

"It would be unreasonable to expect tour operators to take the theoretical possibility of new taxes into account"—[ Hansard, 31 January 1994; Vol. 236, c. 643.]

For that reason, there was a very long lead-in period. The then Government knew about the position of tour operators, which has not changed under subsequent package tour regulations. Why, therefore, did this Government not take the same view this time? That is why they find themselves in the courts, and why the Financial Secretary is desperately exchanging notes with the European Commission before Friday, when he has to hand in to the High Court his submission in answer to the judicial review. I am therefore not convinced by that part of the Government's argument.

The Treasury must have known about this measure at the time of last year's pre-Budget report. It must have decided that, irrespective of the situation, it would proceed and impose a tax that will result in tour operators being charged £44 million, which they will not be able to recover from their customers. That is a windfall tax on tour operators—a point that needs to be taken into account when bearing in mind what my hon. Friend Mr. Goodman said about the consequences of accepting my amendment.

I was also concerned at the Financial Secretary's saying that he was playing the situation by the book. He gave a technical, carefully worded response, saying that this duty was not retrospective because under the terms of clause 12, all the taxpayers concerned will not have to pay out any sums incurred before the Budget. He means by that not our constituents—the people who will pay these extra charges in order to travel by air—but the airlines. He implied in that careful use of language that because, technically speaking, the taxpayer in this case is the airline concerned, rather than the customer of that airline, the duty is not retrospective. That is disingenuous beyond belief. Constituents who booked before 6 December holidays and flights taking place after 1 February, and who were charged a surcharge when they got to the airport, have written to me about this issue.

If my amendment were carried, it would alleviate the burden in respect of the period between 1 February and 21 March and would provide extremely welcome relief to many passengers. It would not deal with those passengers who pre-booked their summer holidays, but it would provide relief for all those who booked in advance for their spring or half-term holidays, including most skiing holidays. As a matter of interest, I would probably be able to claim back money in respect of a foreign exchange to France by my son, who went to improve his French. That is not a significant issue; however, many other people would be in the same position if the amendment were carried.

I thank my hon. Friend the Member for Wycombe for his courtesy; he powerfully reinforced the case that I was making for the amendment. My hon. Friend Mr. Leigh said that he was persuaded by his argument. It was only in the last few moments that my hon. Friend the Member for Wycombe poured cold water on the whole proposition. He suggested that it would somehow be wrong to enable airlines to enjoy a windfall gain as a result of this tax not being retrospective. Airlines such as Ryanair—I mention that one because it has spent a fortune on full-page advertisements campaigning on behalf of its customers against this awful tax—would not refuse to reimburse its passengers who travelled on flights between 1 February and 21 March; to do so is unthinkable. My hon. Friend the Member for Wycombe has not adduced any evidence to suggest that these commercial organisations would refuse to refund the money. In fairness, he does them an injustice if he thinks that they would behave in that way.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West 8:15 pm, 1st May 2007

I can give the hon. Gentleman some evidence, although it is an assumption so far as Ryanair is concerned. Ryanair is the kind of airline that used to charge passengers for using a wheelchair.

Photo of Christopher Chope Christopher Chope Conservative, Christchurch

I know that Labour Members do not like Ryanair, which I think has been voted by its passengers the airline of the year and is one of the fastest growing, most successful airlines. My only regret is that it is not British-owned, but it is providing a very good service for its passengers. I am proud, as the Member of Parliament with Bournemouth international airport in his constituency, that Ryanair is one of its more popular operators. I hope that it will expand its number of routes next year.

Photo of Quentin Davies Quentin Davies Conservative, Grantham and Stamford

In the event that my hon. Friend's amendment is passed and an airline subsequently refused to reimburse its customers for money that it had extracted from them on the basis that it needed to meet the tax liability imposed retrospectively by the Government, would it not be in a very weak position in the courts, having obtained money under entirely false pretences?

Photo of Christopher Chope Christopher Chope Conservative, Christchurch

My hon. Friend is absolutely right.

The sad thing is that the argument that the airlines might not reimburse the money and might pocket it for themselves and their shareholders is the only argument on which my hon. Friend the Member for Wycombe relies in saying that he does not want the House to support the amendment. I welcome his re-stating our party's opposition to the principle of retrospection and his saying that we will table a new clause on Report, but actions speak louder than words, and the clearest message that our party could send tonight to our constituents is to vote against this example of retrospective legislation. It is very unfair and, as has been pointed out, it will be particularly damaging to those who booked their flights furthest in advance, who tend to be the weakest members of our society financially. It is time for us to give them some relief from this ghastly Government, so I hope that Members will support me in the Lobby this evening.

Question put, That the amendment be made:—

The Committee divided: Ayes 29, Noes 260.

Division number 105 Orders of the Day — Clause 12 — Rates of air passenger duty

Aye: 29 MPs

No: 260 MPs

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Question accordingly negatived.

Photo of Vincent Cable Vincent Cable Shadow Chancellor of the Exchequer

I beg to move amendment No. 13, page 8, line 29, at end add—

'(7) This section shall come into force on a day which the Treasury may by Order appoint.

(8) No order may be made under subsection (7) unless the Treasury has compiled and laid before the House of Commons a report containing an assessment of the impact of air passenger duty on the objective of reducing carbon emissions, and including an analysis of the comparative effectiveness in meeting that objective of the taxation of air passengers, on the one hand, and of aircraft according to their emissions levels, on the other.'.

In the debate that we have just had on retrospectivity, the discussion strayed into the environmental aspects of the tax, so some of the points that we are about to deal with have been covered already. I do not want to duplicate them, but this amendment would provide a mechanism obliging the Government to look more carefully at how environmental differentiation can be introduced into the taxation of the aviation industry.

In his reply to the previous debate, the Financial Secretary sought to justify the Government's proposals in environmental terms, and I think that he said that the air passenger duty was introduced in 1994. I have not checked on that year's Budget speech, but I should be very surprised if the word "environment" passed the then Chancellor's lips. It was an era when politicians who thought at all about the climate thought about global cooling rather than warming, so the eloquent argument about carbon emissions is something that we have discovered in retrospect.

Photo of Paul Goodman Paul Goodman Shadow Minister (Childcare), Treasury

I am grateful to the hon. Gentleman for giving way. That word did not pass the Chancellor's lips.

Photo of Vincent Cable Vincent Cable Shadow Chancellor of the Exchequer

Indeed, and the tax being proposed at that time was not an environmental tax at all, but a revenue measure. However, the Financial Secretary was right to say that we now confront a different kind of world, where there is a legitimate and powerful concern about the environment, and particularly about global warming. As he rightly said, carbon emissions from the aviation industry are substantial and growing very rapidly. The question is whether the air passenger duty is a reasonable proxy for an environmental tax.

Can the environment be taxed in a better way? There is a strong argument that the air passenger duty is a very clumsy way to tax the environment. That point was made in a brief interjection by Mr. Gummer, who was ruled out of order but whose point was nevertheless correct. The current duty penalises airlines that use their aircraft efficiently. The same aircraft travelling full pays twice as much duty as one travelling half empty, so there is no incentive to be efficient. Moreover, the duty is inequitable because it bears particularly heavily on low-cost airlines and their passengers.

That is compounded by the fact that this country has a very inefficient system for allocating slots for landing and take off. They are allocated free, and are grandfathered. No consideration of efficiency is involved, so airlines are under no pressure to use their aircraft efficiently in terms of passenger use. Very often, slots are acquired and retained so that competitors are kept out of the business but, were they auctioned in a more economically rational way, there is no doubt that aircraft would be used more efficiently. The combination of inefficient allocation of airport slots and the existing taxation system is pretty rough and ready, and an ineffective environmental measure. However, no doubt the Minister's figures are right and he is working on Treasury assumptions about the elasticity of demand. Doubling the tax will no doubt have a rough and ready impact on carbon emissions. The question is whether it could be done significantly better.

This morning, the Treasury issued a ministerial statement. When I started to read it my heart jumped because the first sentence said that "air passenger duty", as defined,

"could send inappropriate environmental signals and cause market distortions".

At last, I thought, the Treasury has got the point and it will look at different options. However, it turned out that what was produced in a long and complicated consultation paper has nothing much at all to do with the environment; it would produce simply a more equitable sharing of the burden of air passenger duty between different categories of passenger. The Government have spotted that there are such things as airlines with only one travel class and their passengers may qualify for the lowest rate of duty. The Government are concerned about the anomalies and have produced a complicated consultation paper to deal with them. I have not yet had a chance to study it, but it does not seem at first sight—the Minister may correct me—to have much to do with environmentalism.

Photo of John Gummer John Gummer Conservative, Suffolk Coastal

Has the hon. Gentleman noticed that almost all the proposals will in fact increase the Treasury take with no noticeable environmental difference? Is not that all of a piece with the legislation?

Photo of Vincent Cable Vincent Cable Shadow Chancellor of the Exchequer

The right hon. Gentleman has the advantage over me, because he has had the chance to read the consultation paper carefully. I am sure what he says is true and that when I study the document that conclusion will emerge.

Is there a better way of taxing the aviation industry that captures more effectively the environmental impact? If we were starting from scratch and did not have to worry about legal constraints, the obvious thing would be to tax the fuel. That could be done on domestic flights, although they are only a small percentage of the total, but it would be difficult to implement internationally, partly for treaty reasons and partly because airlines would simply hop from one low-fuel jurisdiction to another and fill up where the duty was lowest. There would thus be no point in pursuing that theoretically attractive option.

We suggest a simple mechanism, whereby the tax is applied in relation to the emissions produced by different types of aircraft. The model is the environmental differentiation in vehicle excise duty; different categories of vehicle are classified according to their carbon dioxide emissions and aircraft could be similarly banded. It would be a one-off tax at the point of departure, not at all complicated and probably simpler to administer than the present system. Because it would be a tax on departure and related to the CO2 emissions of a particular type of aircraft it would implicitly discriminate against short-haul flights. Paying the same duty whether the flight is to Edinburgh or Australia is not environmentally desirable because there are genuine alternatives to short-haul flights. There are no easier forms of public transport to Australia, but it is possible to switch to rail to travel to Edinburgh, Newcastle or even Cornwall, so a form of duty related to emissions makes more sense if it discriminates against short-haul flights. Environmentalists argue, too, that the greatest CO2 emissions are at take-off, when the booster impact of the engines is strongest.

No doubt there are technical problems that would have to be resolved, but we tabled the amendment to invite the Government to consider that option and to make a judgment about how such a system might operate before they proceed further down the route of more increases in air passenger duty. We merely ask them to study the feasibility of the alternatives. They are embarking on consultation about different methods of taxing aviation. I am surprised that its reach is so narrow and that the Government are not willing to look at the possibilities we have suggested, which are driven by environmental considerations.

Photo of Paul Goodman Paul Goodman Shadow Minister (Childcare), Treasury

It is a pleasure to see you in the Chair, Mr. Illsley. May I encapsulate what I want to say on behalf of the official Opposition about the amendment by saying to Dr. Cable that if his amendment had proposed only an assessment, we would have been tempted to vote for it? However, it does not do only that, so for that reason, as I shall explain, we do not propose to support it. Indeed, I shall explain why we believe that it is irresponsible.

Let me begin to consider the alternatives that the hon. Member for Twickenham referred to by making an assessment of air passenger duty itself. Perhaps the best way to start is to see what APD's most enthusiastic supporters, including the Financial Secretary, say about it. Apparently, APD is "not an environmental tax" and is not related to "a concern about emissions" or more efficient aircraft and "not related at all" to "more efficient use" of aircraft that are flying.

Who said that? One might have thought that it would be the hon. Member for Twickenham, but it was, in fact, the Financial Secretary when he appeared before the Treasury Select Committee last year. He may have thought, in retrospect, that he was not clear enough, so he came back this year to remove any possible ambiguity. He said that APD was

"a blunt instrument as far as the environment goes. It is not the best policy instrument to try to deal with the environmental impacts of aviation" and

"not even the best tax instrument to deal with the effects of aviation".

That is the unvarnished view of the Minister whose task it is to sell the doubling of this tax to the Committee tonight. As the hon. Member for Twickenham said, the Financial Secretary has placed a consultation document in the Library today, which relates to the industry's view that the way in which air passenger duty defines different classes of travel could send inappropriate signals and create market distortions.

In general terms, the Financial Secretary was very plain in his view of APD, so I think that we should return the compliment. We agree with the green critique that he set out. Indeed, we could scarcely put it better ourselves and I do not think that the hon. Member for Twickenham could put it any better either. The main points are well rehearsed: APD is not linked directly to emissions; it does not provide any incentives to use more fuel-efficient aircraft, and so forth.

The hon. Member for Twickenham referred to what my right hon. and learned Friend Mr. Clarke said when he introduced APD. Indeed, my right hon. and learned Friend did not use the word "environment" at all. He said at the time, rather baldly, that air travel was "under-taxed" compared to other sectors of the economy. In short, APD is not a green tax, but an aviation tax.

Photo of Julia Goldsworthy Julia Goldsworthy Shadow Chief Secretary To the Treasury, Treasury

Is it not also true that the inequality that the consultation document is attempting to resolve takes us back to the point for which air passenger duty was created? As well as airlines such as Eos today, back in 1984 we also had Concorde. Such airlines benefited from exactly the same differential impact.

Photo of Paul Goodman Paul Goodman Shadow Minister (Childcare), Treasury

I must confess that I have not yet got to the bottom of the consultation document, but if the hon. Lady is saying that APD is an aviation tax, I agree with her. Where we part company is that we are not opposed in principle to an aviation tax. I could not credibly stand at the Dispatch Box and argue that we were when my right hon. and learned Friend the Member for Rushcliffe introduced it and set out the reasons for it so clearly. We support the principle of aviation taxation. We took that view in government, we have maintained it in opposition and we certainly do not intend to resile from it tonight.

That is a vital point when considering the Liberal amendment, which is designed to assess the merits of APD against the merits of alternative means of reducing emissions, while implementing a delay—a key point—in the APD increase proposed in clause 12. In other words, if the amendment were accepted, the increase would be delayed. It simply would not happen as envisaged.

There is no timetable in the amendment for when the study that the hon. Member for Twickenham referred to would report. The Liberal Democrats want an assessment and they want a delay. We certainly agree with them that there should be an assessment. Indeed, we are already making our own assessment. Our policy consultation document "Greener skies", which quotes the Financial Secretary at length, confirms that, together with our quality of life policy group, we will consult the industry.

Photo of Julia Goldsworthy Julia Goldsworthy Shadow Chief Secretary To the Treasury, Treasury 8:45 pm, 1st May 2007

When it comes to not setting a timetable, does the hon. Gentleman agree that, if the Treasury is desperate for the money, that is all the more reason to make sure that the consultation is undertaken rapidly?

Photo of Paul Goodman Paul Goodman Shadow Minister (Childcare), Treasury

I am worried about proposing a delay without proposing a firm alternative. I want to come to that point in due course.

Photo of John Gummer John Gummer Conservative, Suffolk Coastal

I wonder whether I can help my hon. Friend. It is certainly my view that any assessment that was going to hold water on this issue would take some time, because the Treasury has done little work on this matter. It is a great sadness that the Treasury is so Brown and not green. An assessment will take a long time. That adds weight to my hon. Friend's argument—although I am in general sympathetic to the Liberal amendment.

Photo of Paul Goodman Paul Goodman Shadow Minister (Childcare), Treasury

That is why I would be extremely pleased—as, doubtless, would the Liberals—if the Financial Secretary said tonight that, once the clause is passed, the Government will carry out an assessment of a replacement for APD. The Financial Secretary has never ruled that out. I am interested to know whether he will do so when he responds to the debate. We believe that there should be an assessment. What I find hard to understand is why the Liberals believe that there should be an assessment. They have already announced their policy on aviation tax. The document that sets out their so-called green tax switch, to which I will return in a moment, states that their policy is

"to replace the existing airport passenger duty with an aircraft tax based on the emissions of each aircraft".

The hon. Member for Twickenham went into that. That is a perfectly sensible option. It is in our own policy document. But, for the Liberals, it is not an option; it is a firm policy commitment, as they know. A question naturally follows: if they want to replace APD with a new aircraft tax, why have they not tabled an amendment that proposes exactly that? Why do they need the Treasury to assess their own policy? [ Interruption. ] They may say that their proposals involve a tax increase and that one cannot table an amendment that is in order if it involves a tax increase. In answer to that, I would ask: why is it that last year—Rob Marris and I are veterans of these debates—they did exactly that in relation to vehicle excise duty?

Photo of Paul Goodman Paul Goodman Shadow Minister (Childcare), Treasury

I would be grateful to the hon. Lady if she confirmed that that is exactly what happened.

Photo of Julia Goldsworthy Julia Goldsworthy Shadow Chief Secretary To the Treasury, Treasury

There is an issue about revenue-raising measures and whether they can be debated on the Floor of the House. Only the Government can propose revenue-raising measures. There is also an issue in relation to the Ways and Means resolution. The amendment has to be broadly within the scope of what is in the Finance Bill. On that basis, we were unable to introduce an alternative.

Photo of Paul Goodman Paul Goodman Shadow Minister (Childcare), Treasury

But the hon. Lady did that last year in relation to vehicle excise duty.

Photo of Julia Goldsworthy Julia Goldsworthy Shadow Chief Secretary To the Treasury, Treasury

No. We proposed changes to vehicle excise duty; we did not propose an alternative to vehicle excise duty. The issue with air passenger duty is that we cannot change it to something entirely different, because that would be outside the scope of the Ways and Means resolution.

Photo of Paul Goodman Paul Goodman Shadow Minister (Childcare), Treasury

They were both tax rises. The amendment that the hon. Lady tabled last year on VED was outside the scope of what was eligible to be tabled for debate. [ Interruption. ] Well, the Liberals will have to explain why they were so keen last year on tabling amendments that were not eligible for debate, but will not do so this year. I suspect that the real reason is that, according to independent commentators—I am not claiming that this analysis comes from us; it comes from the Institute for Fiscal Studies—their green tax switch figures simply do not add up. That means that their proposal is not ready to fly. According to the IFS, the Liberals would fund their £8.1 billion rise in green taxes partly by raising fuel duty in line with inflation. But according to the IFS, the Government have already pencilled that rise into their spending plans, leaving the future Liberal Government, which the Liberals presumably believe will take office after the next election, with a £3 billion annual black hole in the public finances.

That is just the start; according to the Liberals, that £8.1 billion green tax rise is actually a £20 billion green tax rise, but they will first have to produce an independent arbiter who supports their view that their new local income tax, house price tax and pensions stealth tax, which make up the remaining £11.9 billion of their £20 billion package, are somehow green taxes. I realise that the Liberals do not like to have those details ventilated in the Chamber, but it was the Institute for Fiscal Studies, and not us, that first raised those points. I would be out of order if I continued down that path, although I am certainly not out of order at the moment.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Does the hon. Gentleman agree that amendment No. 13 shows the chaos of Liberal Democrat green tax policy? The Liberal Democrats want green taxes, not in order to change behaviour, but simply to enable a tax grab. They are not what most of us would think of as green taxes that change behaviour, and the amendment clearly shows that. Chris Huhne has admitted to me in debate in the Chamber that the Liberal Democrats do not propose green taxes as a way of changing behaviour; they will carry on with green taxes regardless of any changes.

Photo of Paul Goodman Paul Goodman Shadow Minister (Childcare), Treasury

I certainly agree that the proposals are pretty chaotic. Again, I note that there is no substantial amendment setting out Liberal Democrat policies in any form. However, I will not carry on down that road. I have made my point, and no one has got to their feet to say that the Institute for Fiscal Studies is wrong. We agree with the Liberals that there should be an assessment, but we do not agree that there should be a delay, because a delay would prevent the aviation tax proposal from coming into effect. For the Liberals, different considerations apply, and I shall explain why. After the next election, there may be a Conservative majority, a Labour majority—personally, I am rather doubtful about that—or no majority at all in the House, but it is safe to say that there will not be a Liberal Democrat majority. I shall repeat that, in case anyone wants to challenge it: I do not believe that there will be a Liberal Democrat majority in the House.

Unlike the two main parties, the Liberal Democrats are not overburdened with expectations of great responsibility. I presume that if they put their amendment to the vote this evening and it is defeated, they will vote against the clause, just as they voted against the measures in it at the conclusion of the Budget debate. In other words, tonight, they can cheerfully vote against the principle of aviation taxation, although they have no workable alternative to propose, knowing that they will not have to live with the consequences in office. That is not an approach that we can take. Unhappy as we are with air passenger duty as it stands, and with the Chancellor's handling of it, we simply do not believe that we can responsibly vote not to implement an aviation tax that we were responsible for designing, either by opposing the clause or by supporting the Liberal amendment.

The House has a choice tonight on APD, however flawed the tax may be in principle, and however faulty the Chancellor may be in practice. Members can either vote with the Liberals against the principle of aviation taxation, with no workable alternative anywhere in sight, or they can take the responsible course, and take a principled stand against the short-termism and opportunism that the amendment represents.

Photo of John Gummer John Gummer Conservative, Suffolk Coastal

I would like to be able to support the content of the Liberal amendment, because the Financial Secretary to the Treasury has been disingenuous in the way in which he has tried to defend the tax that we are discussing. The two arguments that he has used are flawed and damaging to the environment. His first argument was that air passenger duty is an environmental tax—not a very good or effective one, and not one that he would have chosen if there were anything else around, but the only thing that he could scrabble together at the time. That, roughly speaking, is his view of the tax.

The Minister went on to say that it was not a bad tax in retrospective terms, and that he would fight very hard in the courts to make sure that nobody won a case against him. The problem for me is simple. We will need regulation and a shift—not an increase, but a shift—in taxation from taxes on the family and taxes on business to taxes on pollution. However, if the country believes that that is not for the purpose of the environment, but is merely another sleight of hand, another stealth tax in order to gather money for the Treasury, that undermines our ability to take the nation with us in the tough measures that we will have to adopt.

I was disappointed by the Minister's reply to the last debate, because although it was ruled out of order to talk about the environment, he did so. He mentioned that the tax was environmentally healthy. He also suggested that some minuscule amount of emissions might or might not be saved on some technical arrangement that the Treasury had gone into. Everybody knows that this is a tax to raise money.

I have a slight disagreement with Dr. Cable, which I know he will not mind. When my right hon. and learned Friend Mr. Clarke introduced the landfill tax, he made it clear that that was an environmental tax. Even though my noble Friend the then Prime Minister allowed me to raise the rules for the defence of the sea because climate change was a real issue—and that was in the early 1980s—back in 1994, the emissions from aircraft were significant only to a very few. There were not many aircraft, the amount of emissions was not very great, and it paled into insignificance when compared with other things. The kind of nonsense that Ryanair peddles now was true then.

Since 1994 Ryanair and others have entered the market, there has been a huge increase in emissions, and those emissions are particularly great in the United Kingdom. If they continue at the present rate, they will use up all the reductions that we can make in the immediate future in other areas of carbon emission. Of course we must be very tough about emissions from aircraft. We know that that is not easy, because many of the people who have taken advantage of cheap flights have found that that hugely improves their quality of life. Any of us trying to deal with the issue knows how difficult it is.

That is why the Minister has done the environmental movement a great disservice by pretending that this ineffective, money-raising tax has anything to do with the environment at all, and why he knows in his heart—that is why he is looking down—that it would have been credible only if he had introduced at the same time a measure resembling the amendment, and said clearly that he needed the money. Honesty is the best policy. Whereas my right hon. and learned Friend the Member for Rushcliffe was honest, I have to say, within the rules of the House, that I do not quite catch that in the present Administration.

Photo of David Heath David Heath Shadow Leader of the House of Commons, Shadow Spokesperson (Cabinet Office)

The right hon. Gentleman mentioned the growth in low cost airlines. Is not one of the paradoxes of the whole issue that many of the low cost airlines are flying with relatively new planes fully laden, whereas many of the flag carriers are going round the world with virtually empty planes, causing a great deal more pollution per passenger? That is one of the problems with the Government's solution, and one of the things that our proposal would catch.

Photo of John Gummer John Gummer Conservative, Suffolk Coastal 9:00 pm, 1st May 2007

I agree with the hon. Gentleman. I was not attacking low cost airlines; I was merely saying that because of low cost airlines, there is a lot more flying. This tax is fundamentally a tax on the good airlines which have a proper number of people on their planes, because a full plane costs a lot more in tax than an empty plane.

The idea that it does not matter that the Government are taxing airlines retrospectively, because airlines can pay the tax out of their profits, is the most peculiar piece of logic that I have ever heard. The truth is that the Government are taxing the airlines, which will either pay the tax themselves or pass it on. The fault is the Government's, not anybody else's. My objection is that what the Government are doing with taxation is not helpful when it comes to emissions or green taxation generally.

There are, for example, 39 flights a day to Manchester from London, which is not a sensible way of using our slots, but there are also aeroplanes that can fly across the country and provide a real service to places such as, for example, Cornwall. Because such flights involve turboprops there are fewer emissions, and the flights can be very full. I am not opposed to examining that particular proposal, although it needs to be part of a whole package. We need to talk about slots. I understand that it is often cheaper to have a short-haul slot than a long-haul slot, which cannot be sensible.

There is a whole range of such issues that must be looked at. I have admiration for the Financial Secretary, who is a decent man. I am not making a party political attack, but how has he allied himself with the Treasury, which has not done any of that work, which has not produced a reasonable basis for the tax and which has not bothered? The Treasury has fiddled about with a tax that it knows does not work and pretended that the tax is environmental.

That is why I am interested in the amendment—but I must tell the Liberals that nothing would get me to vote for Liberal taxation proposals. I have got a very long memory, and I remember Liberals who supported tax on domestic fuel until there was a by-election, when they changed the policy overnight in order to win that by-election. The Liberals and taxation are about taxes that people do not think will hurt—the moment that taxes hurt, the Liberals get rid of them. The Liberal party is the party that no one can take seriously on the environment, because the Liberals resile from anything that is difficult. I would vote Labour a dozen times before ever voting Liberal, because at least you know what you are getting. As a constituent of mine said on the doorstep, "The choice in this village is between the Conservatives and the Liberals, and you never know where you are with the Liberals. If God had been a Liberal, we would have had the 10 suggestions." Homespun humour gets to the heart of the issue, so do not come telling us about your taxation policies, Liberals, because we know what they are—never do the tough thing; always talk the sweet talk.

That is why I think that my hon. Friend Mr. Goodman has done the right thing, which is to say that we will vote for this tax because it is a tax to raise money, and tell the Government that we would like two things from them. Either they accept the sense of the Liberal amendment and say that they will produce some properly audited, sensible proposals so we can all see the figures and make an environmental decision in the future—or, if that is not possible, that the Government themselves will say that there needs to be a different way of looking at taxation on aircraft that is much more closely associated with the damage that aircraft do to the environment.

Finally, I am usually able to say such things on the side of the Government with a clear conscience, but I remember that our Prime Minister changed his view even on this matter from the morning to the evening, when he was pressed on the perfectly reasonable question why he felt in the circumstances of today that to take two holidays a year in the Caribbean and none at Chequers was reasonable. Between the morning and the evening, he moved from pooh-poohing aircraft taxation to coming forward with a nicely chiselled but largely irrelevant proposal.

We need to be frank about this measure—it is intended to raise money—but we need also to tell the Government that they have done a serious disservice to the environmental movement by pressing it in this form, and urge them to make up for the damage that they have done.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I agree with quite a lot of what Mr. Goodman said in response to amendment No. 13, which I shall oppose. I do not wish the increase in air passenger duty to be delayed, and I do not think that it is right to put in statute a demand for an "assessment". We need aviation taxes to raise revenue and to cover the externalities of air travel. We also need additional, not replacement, taxes to change behaviour. If, as I hope, behaviour changes as a result of these taxes, we will have had a positive result in terms of that desired outcome and the Government will not have to worry about revenues from green taxes, in this case on aviation, dropping. The central paradox, if not contradiction, in the Liberal Democrats' position on green taxes is that they do not really want behaviour to change, because that would mean that tax revenue would drop and they would have an even bigger hole in their budget.

Nevertheless, I have a lot of sympathy with what Dr. Cable said about aircraft movements. In 1994, when the tax was first introduced, it had a small aircraft-related element, in that aircraft weighing less than 10 tonnes were exempt. That was to do with flights of small planes from Scottish islands, Cornwall and so on. The Liberal Democrats have a point in saying that when we try to change behaviour we should tax the right thing, which is aircraft movement rather than people. As the hon. Member for Twickenham said—this had not occurred to me and I thank him for raising it—his proposals on taxing aircraft movement rather than passengers would have a differential effect domestically as against internationally, because, as it would be calculated per take off, proportionately speaking it would hit harder domestically. He is right to say that the substitution effect is possible domestically but not for long-distance international flights, although it is possible in the case of other countries in western Europe, where one can take the train, as I do.

I urge my hon. Friend the Financial Secretary to take on board the comments that have been made about the additional green taxes on aviation that I would like in order to change behaviour, particularly domestic behaviour. Let me give an example. We could all cite the difficulties that we have in encouraging the green agenda given the cost of travel in the United Kingdom. One of my nieces, who lives in Sheffield, has just flown to Thailand. When I asked her whether she was going from Gatwick or Heathrow, she said that she was travelling from Sheffield to Manchester, flying from Manchester to London, and then flying on to Thailand on a different flight. That is not a great green message for the next generation, but she is a young woman of modest means, to say the least, and that was the cheaper option. Additional green taxes might change things in some way in the case of domestic flights.

Photo of Julia Goldsworthy Julia Goldsworthy Shadow Chief Secretary To the Treasury, Treasury

Does the hon. Gentleman not agree that broadening the scope of the consultation would prove useful because the Financial Secretary has already said that he favours a move towards emissions trading for aviation? Would not broadening the scope help the Treasury prepare better for that?

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Yes, I believe that broadening the consultation is a good idea. I imagine that the amendment was tabled before the consultation document was issued, but I do not believe that primary legislation is the place to include broadened consultation or an assessment, especially given that the amendment is framed to delay the increase in air passenger duty as a nakedly, openly revenue-raising measure for the Government, which I support. I do not agree with the amendment but I hope that my hon. Friend the Financial Secretary will consider broadening the consultation on aviation taxes as a revenue-raising measure, and on additional taxes to change behaviour.

Photo of John Healey John Healey The Financial Secretary to the Treasury

I congratulate Dr. Cable on prompting a wide-ranging debate on a narrow clause. I acknowledge the consistent interest and expertise that Mr. Gummer brings to bear on such issues. That also applies to my hon. Friend Rob Marris.

Let me say to the right hon. Gentleman that, as Mr. Goodman acknowledged, I have always been clear about air passenger duty. The Chancellor has also always been clear about it. When he announced the doubling of air passenger duty on 6 December, he said in his pre-Budget statement:

"Currently, aircraft emissions are not part of the EU emissions trading scheme, and nor is aviation fuel taxed. While we continue to work internationally to seek a global agreement on reducing aircraft emissions, each country must take action domestically. From 1 February, we will double air passenger duty. For most journeys—over 75 per cent. of them—duty will rise from £5 to £10, securing extra resources in the coming spending round for our priorities, such as public transport and the environment."—[ Hansard, 6 December 2006; Vol. 454, c. 310.]

There we have it.

Air passenger duty has an environmental impact but it is not an environmental tax such as landfill tax, which the right hon. Member for Suffolk, Coastal mentioned. That was designed and introduced for the policy purpose of making an environmental impact.

Photo of Julia Goldsworthy Julia Goldsworthy Shadow Chief Secretary To the Treasury, Treasury

If the proposal has no bearing on the environment, why does today's written ministerial statement refer to the "inappropriate environmental signals" that the current rates of air passenger duty convey?

Photo of John Healey John Healey The Financial Secretary to the Treasury

The hon. Lady did not listen to me. I shall not give way again unless she listens. I clearly said that air passenger duty has an environmental impact. The consultation that I have confirmed today is about a point that business raised with me and has an environmental impact. For example, it has been put to me that the structure of air passenger duty makes it unsuitable for business-only flights, which may offer 100 business class seats on a plane designed to carry 300 passengers. Clearly, that has an environmental impact.

However, as I explained, air passenger duty is not principally an environmental tax in the same way as the landfill tax, the aggregates levy or the climate change levy, which are designed with an environmental impact specifically in mind.

The problems with amendment No. 13 are not so much technical as legal. International laws, within which we must work, prevent taxing emissions from aviation inasmuch as they are linked to fuel consumption. Courts have successfully struck down taxes on that basis. In a Swedish case involving the Braathens Sverige airline, the European Court of Justice held that a tax that resembled a tax on fuel, such as a tax that related to carbon dioxide emissions, was incompatible with legislation predating the energy products directive. The judgment of the European Court, of course, binds the United Kingdom.

I have consistently said to Select Committees and to the House that our preferred policy for tackling the impact of aviation on climate change is the European Union emissions trading scheme. That is why we have worked so hard to press the case for, and achieve progress on, the inclusion of aviation in the scheme. I have also made it consistently clear over a number of years that APD is not the most environmentally effective tax for aviation. It is, however, established, available and compatible with international law. I should also add that, unlike some of the proposals suggested by others, it is a simple tax to operate and it imposes a small compliance burden on the industry and on air passengers. APD has a role to play in recognising the environmental costs of air travel, and in ensuring that air passengers understand and acknowledge the environmental costs of their actions.

The rise in APD announced by the Chancellor will have an environmental impact. That is why, before the pre-Budget report, many of the green groups were arguing for an increase in the APD, as it is currently designed and structured. It is also why, after the Chancellor's pre-Budget report statement, groups including Transport 2000 welcomed the move.

I hope that, having been able to air some of the wider arguments in this short debate, the hon. Member for Twickenham will not seek to press his amendment to a vote. His proposal would delay the increase in air passenger duty, as my hon. Friend the Member for Wolverhampton, South-West pointed out, and that would be undesirable. I hope that the hon. Gentleman will not press his amendment, but if he does, I shall have to ask hon. Members to resist it.

Photo of Eric Illsley Eric Illsley Labour, Barnsley Central 9:15 pm, 1st May 2007

Order. Before I call Dr. Cable to respond, I inform the Committee that I do not intend to have a clause stand part debate on clause 12, given the length of time that we have spent debating it so far.

Photo of Vincent Cable Vincent Cable Shadow Chancellor of the Exchequer

I should like briefly to respond to some of the points raised in the debate. Mr. Goodman is normally quite thoughtful, but he seemed to feel that he had to make some terribly tribal points tonight in order to wriggle out of his desperate embarrassment at agreeing with the Liberal Democrats. We have a proposal but, as far as I am aware, his party does not have anything at all apart from a general commitment to raising revenue from the aviation sector. I think that his points were slightly unworthy of him.

I should also like to correct something for the record. We have submitted a balanced and tax-neutral alternative budget to the Institute for Fiscal Studies. I do not think that the hon. Gentleman's colleagues got that far. We suggested a series of measures that were environmentally friendly and also fairer and more redistributive. The IFS acknowledged that our sums added up. The hon. Gentleman might not like the policies, but the sums certainly balanced. We acknowledge that, following the introduction of the Budget, which included at least some of the measures that we recommended, such as cutting the basic rate of income tax, we shall have to redo the numbers. We shall do that, and take into account the environmental tax implications.

The hon. Gentleman made a criticism that I did not fully understand. He started by asking why, since we had a workable alternative, we wanted to carry out a study on it. He finished by saying that we did not have a workable alternative, however, so I am not quite sure where his argument was leading. There are two reasons why we suggested that an evaluation was necessary. One is that any sensible party in any Government should do impact assessments even if it thinks that it has got the basic formula right. The present Government have structured that in, but not enough.

Secondly, we are trying to find a mechanism to reach common ground with the Government. We know that they are not in the same position as us, and that they have embarked on a consultation exercise. It would be helpful if they widened that exercise; I do not see a problem with that. In his response, the Minister made what might well have been a valid point about the legal difficulties involved. We have looked at this, and we were persuaded that there would not be a problem, but perhaps there would. That is all the more reason for widening his consultation to try to answer that specific question.

As always, Rob Marris made some good points, some rather quirky points and—by his standards—some rather silly ones. The argument that he and some of his colleagues keep repeating that revenue-raising environmental taxes and behaviour-changing measures are fundamentally incompatible is simply wrong. Environmental taxation produces both effects, and if he wants some proof, he should look at the history of his Government's climate change levy, which has raised more revenue and changed behaviour. That is a good model, on which our policy—and, I am sure, that of others—is based. As he normally makes very good contributions, I hope that he will not repeat that not very worthy point.

Mr. Gummer, with his vast experience, started off with some good and helpful criticisms, which I took in good part. He then felt that he had to embark on a bit of tribalism too, which no doubt reflects what is happening on the doorsteps in his area at the moment. He told a good joke, however, and I will repeat it at my party's fundraising dinner.

The Minister made some good, constructive criticisms. I do not intend to press the amendment to a vote, as some useful points have been made. I accept that there is an argument against delay, and that is one of the reasons we do not intend to lose the principle behind the amendment, but will return to it in a different form that captures that criticism properly. As the Minister is opening his mind to a consultation and a review of how the tax would work, I hope that he will accept that he should look more broadly and in the direction that we have indicated. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 12 ordered to stand part of the Bill.