Clause 17 — Rates of air passenger duty

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Photo of Greg Hands Greg Hands Shadow Minister (Treasury) 1:44 pm, 8th July 2009

I beg to move amendment 1, page 11, line 32, at end insert—

'(4) The Treasury shall, no later than the date of the Pre-Budget Report 2009, bring forward plans to replace Air Passenger Duty with a per-plane tax.'.

Let me start by outlining the Opposition's overall approach to air passenger duty. We believe, and have said repeatedly, that the duty should be levied on a per-plane basis, not a per-passenger basis. That allows a stronger link with emissions and other environmental impacts; after all, we are talking about what is, or should be, an environmental tax. Furthermore, levying on a per-plane basis allows the possibility of including freight and corporate aircraft, which have environmental impacts that can be as severe as those of commercial airliners, as well as transfer passengers, who are currently exempt from APD.

We also note the Government's proposals for huge increases in APD this November and next. We regret that at a time of big rises in APD, the Government have not, thanks to their ineptitude, found the time or inclination to reform air passenger duty in its entirety. Instead, the only real reform—the new division of the world into four bands, based on the location of a country's capital city—is a botched job, drawn up by someone in the Treasury armed only with a drawing compass and no common sense. I shall return to the Government's four-zone plan.

Photo of Sarah Teather Sarah Teather Shadow Minister (Communities and Local Government) (Housing and Planning)

Does the hon. Gentleman agree that those arbitrary zones have created a number of unfair anomalies? Most notably, people travelling to the Caribbean will have to pay a higher tax than those travelling further—to Hawaii, say, or to other areas around the west coast of the US. People in this country feel angry about that.

Photo of Greg Hands Greg Hands Shadow Minister (Treasury)

I thank the hon. Lady for that intervention, and she is absolutely right. I have had considerable correspondence on the issue and have met a Jamaican delegation, including the Jamaican Prime Minister, that came to see us at the all-party Caribbean group. What the hon. Lady has mentioned is a real and serious concern among people in the Caribbean, especially those who fly to and from the islands visiting friends and relatives—the VFR flight community, as it is known. I shall come to some of the anomalies in the system, but I can say now that the Caribbean is probably the biggest loser from the Government's four-zone plan.

Photo of Peter Bone Peter Bone Conservative, Wellingborough

If a per-passenger duty were imposed on cars, it would be paid four times if four people using a car pool system went in a car together, but only once if a single person used a car; we might end up with four cars, rather than one, on the road. That is the parallel, and it makes nonsense of the Government's position.

Photo of Greg Hands Greg Hands Shadow Minister (Treasury)

My hon. Friend is right. That is why our amendment 1, a much more logical and environmentally friendly alternative, would mean that air passenger duty was charged on a per-plane basis. The per-plane duty would also see the early demise of the brave new quadripartite world that the Government have described in schedule 5.

Photo of Graham Stringer Graham Stringer Labour, Manchester, Blackley

I understand the environmental arguments that the hon. Gentleman is putting forward. However, can he tell us of any studies of which he is aware, or which the Conservative party has commissioned, that show the economic impact of proposals for a plane duty on regional airports and what a plane tax would do to the air cargo industry?

Photo of Greg Hands Greg Hands Shadow Minister (Treasury)

I thank the hon. Gentleman for that intervention. He raises two very reasonable questions, which the Government considered in their response to their consultation. Unfortunately, their response did not put forward any reasonable arguments against a move to charging on a per-plane basis. On regional airports, a lot depends on how we would assess the per-plane tax and how the administration would be run. I believe that a system could be designed that did not discriminate against regional airports.

Photo of Graham Stringer Graham Stringer Labour, Manchester, Blackley

The studies carried out by Manchester airport and other parts of the industry show that it would be extremely difficult for the major regional airports to attract long-haul passenger flights if this were done on a per-plane basis. They also show—I am speaking from memory—that 80 per cent. of freight business in regional airports would go into deficit and would, in effect, be unable to trade for a profit. Will the hon. Gentleman consider that?

Photo of Greg Hands Greg Hands Shadow Minister (Treasury)

I thank the hon. Gentleman for that intervention. I am perfectly willing to look at any papers that have been produced by anybody on this subject. I just think it is a pity that the Government failed in their own consultation to give proper consideration to those questions.

Let me try to explain why the Government have not seen fit to opt for a per-plane duty. At the beginning of last year, they appeared to agree with the Opposition that taxing per plane would be a better option to penalise flights that run near-empty and a better means of recognising that the plane causes the emissions, not the people. A per-plane tax might also allow tax incentives to be given for more environmentally friendly planes, which could never easily happen with a per-passenger tax. The Government then got into problems of their own making on questions of definition and administration, so the 2008 pre-Budget report ran up the white flag. Nevertheless, when they originally launched their consultation in January 2008, the policy was absolutely clear. According to the consultation document, they would

"replace air passenger duty with a duty payable per plane rather than per passenger."

In case of doubt, the document went on:

"This reform will take place on 1 November 2009, and has the objective of sending a better environmental signal, and ensuring that aviation makes a greater contribution to covering its environmental costs, while ensuring that a fair level of revenue continues to be raised from the sector in order to support public services."

The document described as a "principle" the need to provide

"incentives for the more efficient use of planes by taxing similarly sized aircraft the same, no matter how full the plane".

We entirely agree with those sentiments as laid out by the Government last year. The Finance Act 2008 provided for certain powers to proceed in that direction. This time a year ago, Ministers again committed to a per-plane tax, with only the final details open to change—yet six months later, the change was total.

The Government's U-turn was set out in a document entitled "Aviation duty: response to consultation", which was published with the pre-Budget report last November. It makes for interesting reading, and offers sorry excuses where they are provided at all. We can agree that member states' decision in October to include aviation in the EU emissions trading scheme was a significant development, but the Government have acknowledged the ongoing case for a UK tax along the lines of the ETS. So the response document was left claiming that the U-turn in November was

"consistent with the Government's objectives to provide additional support to businesses and individuals in the short-term and maintain action on climate change".

It was certainly not consistent with the Government's previous environmental analysis, but one might infer from the talk about supporting business that it was welcome within the industry. However, one struggles to see how. Every airline and every travel company has condemned the proposed changes; meanwhile, environmental groups attack the abandonment of the per-plane alternative.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I hope that this intervention is factually accurate. I have been told that in 2006—which is, after all, in the lifetime of this Parliament—the head of the Conservative transport policy review called for air passenger duty to be increased to £20 for short-haul flights and to £100 for long-haul flights. How does the hon. Gentleman reconcile that position with the position that he is taking, or is this a reasonably recent conversion on the part of the Conservatives?

Photo of Greg Hands Greg Hands Shadow Minister (Treasury)

There has been no conversion at all. That was the view of a transport policy group, but for as long as I can recall being involved in these matters it has been the official policy of the Conservative party to back a per-plane tax.

Let us look at the extent of the proposed changes in air passenger duty in clause 17 and schedule 5 to try to understand the scale of the Government's proposals, because there is a link with the failure to move towards the per-plane tax. Because the Government had budgeted for raising revenue from freight and corporate and other aircraft, and from transfer passengers, and that business did not deliver on that revenue, there was a huge shortfall that had to be made up in the air passenger duty figures—hence the huge increases outlined in schedule 5 and clause 17.

Currently, there are two levels of APD. Roughly speaking, there is one rate for flying to a UK or other EU destination and another rate for flying elsewhere. As part of the climb-down, the pre-Budget report proposed replacing those two rates with four rates, making all flights more expensive but with the really big duty increases imposed on long-haul flights. The existing two-band regime becomes the four-band version laid out in schedule 5 and new schedule 5A, with all rates significantly higher than at present. Under the status quo, the first band is currently £10 per passenger for economy and £20 for all other classes. The long-haul band, which includes all the territories in parts 2, 3 and 4 under the new schedule, is £40 and £80 respectively—for economy class, on the one hand, and all other classes, including, interestingly, premium economy, on the other.

The four new bands start with part 1, which is similar to the existing short-haul band, with rates going up in November 2009 by 10 per cent. to £11 and £22. It now includes the Maghreb countries and Russia west of the Urals. New part 2 territories include north America, Egypt, the middle east, eastern Russia—that is, east of the Urals—and Pakistan. From November 2009, those rates will be £45 and £90—a 12.5 per cent. rise on the status quo. Returning to the point raised by Sarah Teather, part 3, which includes the Caribbean, will be banded at £50 and £100—a 25 per cent. rise on the status quo. That band also includes India, China, Japan and much of Latin America. The rates for part 4—it is not actually defined as such but covers all the territories not in parts 1 to 3, including Australasia, Argentina, Chile, Bolivia, Peru, some other smaller south American countries and the Falkland Islands—will be £55 and £110: a huge 37.5 per cent. increase on the status quo.

Even more importantly, the Government are programming further big rises—far bigger than those this coming November—for November 2010. Part 1 charges will go up to £12 and £24, part 2 charges will go up to £60 and £120, part 3 charges will go up to £75 and £150, and part 4 charges will go up to £85 and £170. Those are huge increases. Air passengers from the UK will be cursing Labour's economic mismanagement and the fact that owing to the Government's botched reforms and failure to opt for a per-plane duty, all aviation except commercial passenger aircraft will be exempt from APD. In the next 18 months, for economy class passengers, those flying to popular destinations such as France or Spain will face a 20 per cent. tax hike, those flying to Florida will face a 50 per cent. increase, those flying to the Caribbean and India will face an 87.5 per cent. increase, and those flying to Australia will face a whopping 113 per cent. increase—a more than doubling of the tax take.

Photo of Sarah Teather Sarah Teather Shadow Minister (Communities and Local Government) (Housing and Planning)

People who travel to India and the Caribbean often do so because they have family living abroad—they are not necessarily going on expensive holidays. That is not to say that people do not go on holiday to those destinations, but a large proportion of those travelling there do so for family reasons—to attend weddings or funerals, or merely to see grandparents.

Photo of Greg Hands Greg Hands Shadow Minister (Treasury)

The hon. Lady makes a very fair point. That is why many of those routes are called VFR routes, standing for "visiting friends and relatives". They are important for that reason. Of course, tourism is very important to the Caribbean and somewhat important to India, but we should not lose sight of the fact that for many people in our communities in this country, those are important routes for family or personal reasons as well.

Many will ask whether the increases—rates are being as much as doubled in some cases—are really an environmental tax, or whether they are simply a stealth tax with the most tangential link to emissions. Let us examine for a moment some of the peculiarities of the Government's new four-band regime. The existing two bands—Europe and all other countries—at least make some kind of sense and possess simplicity. The new bandings have no justification at all, as they are based on the distance of a country's capital city from London. The world is divided into four bands, of capital cities up to 2,000 miles away, up to 4,000 miles away, up to 6,000 miles away and beyond 6,000 miles away.

Some 20 years after the fall of the Berlin wall, the Government's division of the world into four zones reminds me somewhat of the arbitrary nature of the division of Berlin into four zones in 1945. That made sense at the time to someone taking a short-term view and poring over a map, but clearly only somebody with no idea about the geography and no familiarity with the facts on the ground, or indeed in the air, would not realise that the new bands will throw up a whole host of new problems.

Some countries and regions are big losers for no clear environmental reasons. We should remind ourselves that this is supposed to be an environmental tax. Because the US capital is on the east coast and within 4,000 miles of London, all flights to the US, including to the west coast, or even Hawaii or Alaska if there were direct flights there, are assessed as being in band 2. Meanwhile, as has previously been mentioned, the Caribbean is in band 3 and flights there will be subject to 25 per cent. more tax than those to the USA from November 2010. Flights to India will be taxed at 25 per cent. more than flights to Pakistan. Indeed, Bangladesh would be better off still being part of Pakistan, as APD would 25 per cent. lower.

Photo of Diane Abbott Diane Abbott Labour, Hackney North and Stoke Newington 2:00 pm, 8th July 2009

Does the hon. Gentleman agree that if so-called green taxes are to have public acceptability, they must be clearly based on environmental arguments rather than being crude revenue-raising devices?

Photo of Greg Hands Greg Hands Shadow Minister (Treasury)

The hon. Lady makes precisely my point, perhaps somewhat more succinctly than I am making it. By not creating an environmental tax but instead introducing an arbitrary and discriminatory schedule, the Government are making a huge mistake.

I have one final point about south Asia. Flights to Kashmir, if there were such things—it is quite possible that there could be in future, or that there could be charter flights—would leave the airline concerned having to make the intensely political decision as to whether its destination was in band 2, as part of Pakistan, or band 3, as part of India.

The schedule sets out a crazy scheme. Destinations such as the Caribbean, India, Bangladesh and Sri Lanka are some of the biggest routes for VFR passengers, many of whom have said that the Government are introducing deliberate discrimination against the Commonwealth. As has been mentioned, their approach has provoked uproar in the Caribbean. The Jamaican Prime Minister, Bruce Golding, whom I have mentioned, and Tourism Minister Ed Bartlett made a special visit to the UK purely about this one issue during the Committee stage, to urge against the Government's new four-zone banding scheme. They pointed out that there was no environmental or economic reason why flights to the Caribbean should be taxed 25 per cent. higher than those to Florida, or to the US or Canadian west coast.

Interestingly, the new 787 Dreamliner will be able to fly directly from London to Hawaii, yet those flights, which would be some 7,200 miles, will attract 25 per cent. less APD than flights to Kingston, Jamaica, which, at 4,693 miles, are 50 per cent. shorter in distance. As I understand it, 60,000 members of the UK Caribbean diaspora have signed a petition against the Government's plans, which are an extremely unpopular measure.

We debated this matter a little in the Public Bill Committee. The last but one Exchequer Secretary, Angela Eagle, did not seem to understand what hurt and upset her comments about the Caribbean would cause. She said in response to my speech:

"He mentioned Caribbean communities. We are aware of their circumstances and we are listening to their representations. Clearly, it mainly involves the anomaly of Hawaii."

I mentioned Hawaii merely because that is the most extreme version of the anomaly, but the anomaly is not Hawaii, but the four-zone schedule covering the whole world. Anyone who has a sizeable Caribbean community in their constituency—I have one of the largest—will know that the Caribbean tourism market, even ignoring VFR flights for a moment, competes mainly with Florida. The Caribbean will now be taxed at 25 per cent. more than its US competitor. Those who visit friends and family in the Caribbean will be similarly clobbered.

To return to the hon. Member for Wallasey and her shaky geography, she explained how we managed to have a position whereby Russia was divided into two zones. I asked her why we could not simply divide the US, for example, into two zones. She said:

"Well, clearly the US is a slightly different issue as its main land mass is much shorter than Russia's. If one includes Honolulu, it gets slightly longer."

That is extraordinary, as it implies that Honolulu is somehow on the main US land mass. She said:

"If one did it on a line between Boston and Honolulu the split would be somewhere in the middle of the Ocean." ——[ Official Report, Finance Public Bill Committee, 2 June 2009; c. 166-167.]

I was thinking of getting out a globe, if we were allowed visual aids in Committee, to show that the halfway point between Boston and Honolulu was nowhere near any ocean, but right in the middle of the United States.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

Is it not the case that if one starts at Greenwich—very close to where we are today—the far extreme of the United States at the end of Alaska and the far extreme of Russia are almost exactly the same distance away?

Photo of Greg Hands Greg Hands Shadow Minister (Treasury)

The hon. Gentleman makes a very good point. Interestingly, both those territories are in part 2, but logically they should be in part 4 because, by definition, they are the furthest points from Greenwich. Yet the Government are saying that they are as close as Egypt. That is some of the craziness involved in the schedule.

We also need to examine the environmental arguments for having a per-plane duty, which is the point of the amendment. The reaction of environmental groups to the abandonment of that policy has been mixed. Many welcomed the headline rises in APD, which they thought would combat excessive use of aviation, but, like us, decried the abandoned attempt to find a per-plane methodology. Friends of the Earth responded:

"The rises in APD are welcome, but should be seen in the context of the abandoning of per-plane aviation duty."

Greenpeace stated:

"Plans to tax flights instead of people would have encouraged the industry to fill their planes instead of flying half-empty jet liners around the world...Once again the aviation industry has been given a free pass at a time when its contribution to climate change is rising."

Nobody was satisfied with the Government's climbdown.

Why have the Government rejected the per-plane tax? To return to the Exchequer Secretary before last, the hon. Member for Wallasey, she told the Public Bill Committee:

"We had hoped to proceed with the per-plane tax, but we decided against it for a fair number of reasons...It was not thought to be the best time to shift from one tax to a completely redesigned one, given the uncertainty in the economy."

She added:

"we wanted to avoid the disruption and costs associated with a transition to a new tax right in the middle of a period of economic uncertainty that did not exist when the original change was announced."[ Official Report, Finance Public Bill Committee, 2 June 2009; c. 164.]

Those are curious justifications, because to return to the point made by Graham Stringer, apart from the state of the economy, no detail at all given was of why the per-plane duty had been rejected. In fact, the Government said that they had suspended the move because of the change in the global economy, but of course the credit crunch began many months before the original consultation was even launched.

When the Government were thinking about embarking on a per-plane duty, in the early months of 2008, the economic difficulties were already happening. The Northern Rock crisis had already taken place, some months earlier. The consequences of their decision are dire. The move to a per-plane tax, which would bring in most other forms of aviation, was slated to raise much more in revenue and be a genuinely environmental tax, but the Government choked in the middle of last year and were left to make up the revenue shortfall by clobbering air passengers. The result is what we are considering—the huge hikes in clause 17 and schedules 5 and 5A.

The reason for the climbdown is that the Government were too busy elsewhere to drive through the necessary reforms once they had started the process. It is difficult to sell to the general public a big increase—a huge increase, in the case that we are considering—in air passenger duty without reforming the system to make it a genuinely environmental tax.

We want the following to be done. First, we want the duty to be linked to the pollutant—the plane—rather than directly to the passenger. Secondly, empty or near-empty aircraft should be taxed at the same rate as full ones. Thirdly, the tax should logically be extended to transfer passengers, who fly in and out of a UK airport. There is no logic to a system whereby the only passengers who fly in and out of the UK tax-free are those who do not live, work or visit here. Fourthly, the Government's four-band system must be axed. It is arbitrary and discriminates against important UK partners such as India and the Caribbean for no good economic or environmental reason. Fifthly, other forms of polluting aviation need to be brought into the air duty regime, notably corporate jets, parcel services and other freight. Finally, the tax should encourage a move to cleaner aircraft. Ironically, higher APD will probably make that less likely as airlines become even more cash-strapped, and less able to invest because more of their money goes towards APD.

Most of all, we argue that if there is to be a big hike in the tax take from the sector, now is the time not to postpone reform but to make it happen.

Photo of Diane Abbott Diane Abbott Labour, Hackney North and Stoke Newington

I want to speak specifically about the effects of the ill-thought-out proposal for air passenger duty on flights to the Caribbean—a region with which this country has long-standing historic ties. Here and now in the 21st century there are big populations of Caribbean origin in our great cities and communities, who are looking to what we shall say and do about this matter.

Before I consider in more detail the problems with the APD proposals, I stress that I entirely accept the environmental argument for some sort of taxation on the sector. The environment is a huge issue in my constituency: I probably get more letters about the environment and climate change than about any other matter. For our children, it is vital that we in the House have the courage to make the right decisions for the future.

Climate change is also a big issue in the Caribbean, which has experienced hurricanes more regularly in the past two years than ever before. There is no question but that that is a consequence of climate change, which has also led to rising seas throughout the region—a real threat to a series of small island states. Of course, the environment is the Caribbean's biggest asset.

I am committed to fighting climate change and bearing down on carbon emissions, and so is the Caribbean. It is in the Caribbean's self-interest to do that. However, precisely because I am committed to combating climate change and to my Government's taking serious action on climate change and carbon emissions, I want any proposal for APD to be based fairly and squarely on genuine environmental arguments, not to be a mere device for raising revenue.

The Caribbean has historic ties to this country, and it is particularly hard hit by the proposed four-zone system. Perhaps when Treasury Ministers and the fabled Treasury civil servant with a compass were working out the system, the Foreign Office said, "Well, I wouldn't worry too much about the Caribbean; it's a middle-income region and it can take the hit." In my time in Parliament, I have heard time and again from Foreign Office officials that the Caribbean is a middle-income region and that the focus of UK attention should therefore be much poorer countries.

It is worth saying in the House that even though gross national product and so on may give the Caribbean the appearance of a relatively prosperous region, it has poverty to rival any on the globe. Furthermore, it faces a particular economic crisis after the collapse of its traditional commodities—sugar and bananas—through globalisation. Apart from providing foreign exchange and helping businesses flourish, those traditional commodities meant the employment of unskilled and semi-skilled male labour, and the Caribbean is finding them difficult to replace. The problems of systemic unemployment among young males are known even in a developed country such as ours.

As well as the collapse of traditional commodities, which not only made money for the region but provided employment, the Caribbean also suffers from the current credit crunch and financial crisis. For example, bauxite, which is one of the main foreign currency earners in Jamaica, has collapsed. More than ever, the Caribbean is looking to tourism, not only to provide foreign exchange and not just as business, but to create work. If there is systemic worklessness among the population in countries such as the Caribbean, the ensuing social problems have the power to affect us here in Britain.

The Caribbean is relying on tourism as never before. Yet that is the point at which my hon. Friends are choosing to introduce an arbitrary system of zones, which hits the Caribbean and will result, as we have heard, in APD nearly doubling in the next 18 months. That puts the Caribbean at an arbitrary and unfair disadvantage in comparison with one of its key rivals for tourism from the UK, Florida. Clearly, not even the fabled Treasury official with a compass thought of that when the scheme was devised.

Ministers may say that the sums are relatively small for those flying to their villas on the north coast of Jamaica and ask, "Why is there all this fuss?" As we have heard, both Prime Minister Bruce Golding and Minister of Tourism Mr. Bartlett have been to London to explain to hon. Members and Members of the other House the effects of the changes in APD on tourism.

Let me say a little about the consequences for people from the Caribbean flying home. I speak with some feeling about that because I fly to Jamaica nearly every year at Christmas, and the planes are packed—not with people like me, who can fairly well afford the fare from income, but with those who earn a fraction of what most Members earn and are trying to take home their entire family, perhaps four, five or six people. Some have saved for a couple of years out of small incomes.

Photo of Andrew Slaughter Andrew Slaughter Labour, Ealing, Acton and Shepherd's Bush 2:15 pm, 8th July 2009

My hon. Friend is making a good point, which has reached the nub of the issue. The Opposition have overstated their case by attacking the whole concept, but I hope that my hon. Friend agrees that the Government need to reconsider the anomalies in the system, which penalise some countries, such as those in the Caribbean—we have heard about others—in a logically ridiculous and unfair way.

Photo of Diane Abbott Diane Abbott Labour, Hackney North and Stoke Newington

I entirely agree. The system that the Government propose does not bear examination. I repeat that the sums may be relatively small for those travelling club class to a top resort on the north coast of Jamaica, but they are large sums for my constituents, who perhaps save for a year or two out of tiny incomes. I cannot for the life of me understand why the Government would want to penalise minority communities in our big cities from the Caribbean and Asia in that way, because people will find the sums involved onerous and hard to afford.

Photo of Sarah Teather Sarah Teather Shadow Minister (Communities and Local Government) (Housing and Planning)

The hon. Lady is giving a very good speech and I absolutely agree with the points that she is making. The briefing that the Caribbean Council has sent to all MPs says that a family of four travelling economy to the Caribbean—not club class, as she suggested—will pay £300 extra in 2010. That is a substantial amount of money.

Photo of Diane Abbott Diane Abbott Labour, Hackney North and Stoke Newington

We have to look at the incomes that people are earning. We are largely talking about people who are in low-paid public sector jobs or other low-paid sectors of the economy, and for them £300 is a lot of money. Having to find £300 extra to see their aunties or grandparents at Christmas or attend a wedding or funeral will cause real pain for families in my constituency, as well as people in Birmingham, Manchester and other places.

The other thing to say is that sometimes an arbitrary distinction is made between tourism and travel by friends and relatives. Jamaica could not sustain itself without the money spent by relatives who go home regularly and, for example, give money for school fees or invest. The economic consequences for the Caribbean are therefore serious.

As the House has heard, the system also seems to be wholly arbitrary; it really is a case of a Treasury civil servant with a compass. It means that people will pay more air passenger duty going to the Caribbean than they will going to Hawaii. It scarcely makes sense to have the whole of north America in the same zone, when America stretches from the Pacific to the Atlantic.

Photo of Peter Bone Peter Bone Conservative, Wellingborough

The hon. Lady is making a powerful speech. Is not one of the unintended consequences of the measure that people will fly to Miami and then change planes to fly down to the Caribbean? That will mean taking two flights and causing much more pollution, so I am not sure that the Government have thought the measure through.

Photo of Diane Abbott Diane Abbott Labour, Hackney North and Stoke Newington

Absolutely. As someone who flies to Jamaica most years, I can tell Ministers that travel agents will recommend, particularly to families visiting relatives, that the cheapest way would be to take a cheap flight to Miami and then take another flight onwards. That will not help with emissions; in fact, it will make things worse. That is another indication that Ministers need to look at the proposal again.

The proposal has already caused much unhappiness in Caribbean countries—we have heard about the Prime Minister of Jamaica and other regional leaders who are concerned—and among the Caribbean community here. I have received many letters from people who have been made aware of the issue and are concerned. They cannot believe that a British Government are seeking to penalise people from the Caribbean in that way. However, I would like to put on record my thanks to the Chancellor of the Exchequer, who met a small group of us earlier this week to discuss the issue. I am glad that the Government are at least listening.

In conclusion, the Caribbean has historic ties with this country and important community links. To go forward with the air passenger duty in its current form would send an unfortunate signal to those in the Caribbean community about the respect and concern that the Government have for them. It is not too late to revisit the proposal. All of us in this House understand the environmental reasons behind it, but I hope that enough has been said in this debate to make the Government understand that the four-zone system is widely seen as unfair and not seriously based on environmental considerations, and that it will have disproportionate effects on key supporters and Commonwealth countries, including India and Pakistan, as well as those in the Caribbean. For the sake of my constituents, the Caribbean community in this country and Caribbean leaders, who have gone to enormous trouble to make their case, I urge Ministers to reconsider the proposal.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

Thank you for giving me an opportunity to speak to amendment 1 and all the issues that are thrown up as a consequence, Madam Deputy Speaker. I congratulate Mr. Hands on the intelligent way in which he set out the arguments. I also congratulate Ms Abbott on making in such a compelling fashion the case that I, too, wish to make.

There are two main arguments that I wish briefly to explore. The first is about the desirability, in the view of my party, of having a system of aviation taxation based on each plane that travels, rather than on each customer who travels. It is worth momentarily setting the context for that policy preference. Aviation in the United Kingdom is an increasingly large contributor to the overall output of carbon dioxide. Six per cent. of the UK's total carbon dioxide emissions now results from aviation, and that figure is rising rapidly—far faster than, for example, the contributions made by other forms of transport or by buildings to overall CO2 emissions. There is therefore an important issue to address. How can we try to ensure that the projection of rapidly increasing CO2 emissions is limited, rather than rising inexorably in the years and decades ahead? Most people accept that CO2 emissions resulting from aviation are likely to grow as a proportion of CO2 emissions overall. The key is to try to ensure that they grow more slowly and make up a lower percentage of overall emissions than they would otherwise.

For that reason, our desire as a party is to try to find a system that allows people to fly—we realise that in many circumstances, although not all, people need to fly for work or leisure—but that ensures it is done as efficiently as possible. I thought that the analogy drawn by Mr. Bone was a good one—perhaps it is sometimes easy to think of such matters in quite straightforward terms. A car with four people in it is obviously a much more efficient way of transporting four people from A to B than four cars each with one person in. It is for that reason—a reason that is, I admit, partly to do with congestion, but partly to do with helping the environment—that some councils have explored the possibility of reserving lanes for cars with two or more passengers, because we need to be more efficient and intelligent in using CO2-emitting fuels.

On the same principle, it would clearly be desirable to have planes filled to capacity, or at least to give airlines the incentive to fill them to capacity where possible. The issue is therefore about incentivising those companies, partly to make their planes fuller but partly not to continue with this strange system whereby planes are flown around empty in order to get them to different destinations—that may sometimes be necessary, but it is reasonable to try to incentivise airlines to do it as little as possible—and partly also to introduce more fuel-efficient planes. I recognise that the Government's policy will create those incentives. However, having a per plane duty rather than a per passenger duty will create even greater incentives than the Government's system.

The hon. Gentleman also made the point that we should try to ensure that we do not create perverse incentives for customers to avoid the system that the Government are putting in place by taking a short-haul flight and then a long-haul flight, or vice versa. One always needs to consider when looking at such systems whether people will find ways around them that may be economically advantageous to them, but which will undermine the basic environmental policy that the Government are seeking to promote. That is the background to the issue.

The second part of my speech relates to the issue that has been so eloquently discussed by the hon. Members for Hackney, North and Stoke Newington and for Hammersmith and Fulham—namely, the division of the world into four bands for the purpose of assessing levels of air passenger duty. The hon. Member for Hackney, North and Stoke Newington said that the system was arbitrary, but it is not entirely so. There is a method to it. The lines that have been drawn are straight lines, not jagged or wobbly ones. What is strange about the system is that its consequences do not appear to have been fully thought through.

There are a number of anomalies in the system, and the hon. Member for Hammersmith and Fulham has been particularly imaginative in thinking of potential pitfalls in the system being proposed by the Government. The overwhelmingly obvious anomaly is the one that has been raised by my hon. Friend Sarah Teather, the hon. Member for Hackney, North and Stoke Newington and others—namely, the fact that the Caribbean is in a different band from the United States.

In an era in which anyone with a computer can put in the names of two cities and find out precisely, to the nearest metre, the distance between them, it seems strange that we need to base the system on capital cities. It would be perfectly feasible to base it on the actual distance of each flight. We could have a tax system that charged a number of pence per mile, for example. Or, if that were too complicated to administer, we could have a banding system in which the bands applied to each individual flight, rather than to the country that was being visited and to the location of the capital city in that country. The situation becomes particularly anomalous when the country in question is very large, because the capital city might be located in an area that is unfavourable to travellers—or, indeed, in one that is more favourable than the rest of the country.

I wonder why the capital city has been chosen as a measure. We were talking about the United States of America earlier. Los Angeles, which is eight time zones away from London, is a much bigger city than Washington DC, so why is Washington DC regarded as the most suitable point for judging the tax level of journeys from the United Kingdom to the United States? New York would be just as good an example, or Chicago. There are any number of cities in the United States that are bigger than Washington DC, which is not a tourist destination for many people. Far more British people go to Florida, for example, which is further from here than Washington is. It is slightly strange that the Government have chosen to use capital cities as a measure, and it is reasonable to ask them to look again at whether this is the best system to use.

I would like to suggest an alternative system. I understand that paying more tax to travel further is a reasonable proposition. I do not doubt that there are people on low incomes who wish to travel to distant parts of the world, but most of us accept the need to reflect the environmental damage done by long-haul flights. It is the anomalies in the system that people are uncomfortable with.

I do not know whether the Minister, in the short time that she has been in her job, has had the opportunity to consult her officials and other Ministers and to consider an alternative system. If she is attached to the idea of four bands, we could keep them, but each individual flight could be assessed within those bands. There is only a limited number of destinations that one can fly to directly from the United Kingdom, and it would take very little time to assess any new routes that came into effect. In that way, the Government could retain the simplicity of a banding system—they could introduce more than four bands if they wished to do so—but each individual flight could be assessed within one of the bands.

Such a system would avoid two places that were close together being banded separately. It would also avoid the even more anomalous situation—the example of the Caribbean and the United States has been mentioned—in which places that are much further from the United Kingdom are placed in a lower band than places that are more proximate to us. I hope that the Minister will consider that proposal, for reasons of fairness as well as for environmental reasons.

Photo of Peter Bone Peter Bone Conservative, Wellingborough 2:30 pm, 8th July 2009

On the environmental issue, there is a further perverse effect. Most environmental damage is done on take-off and landing, so short-haul flights are, by their nature, much more environmentally damaging. They are often used as an alternative to going by rail. If we are concerned about the environment, perhaps we should be concentrating more on short-haul flights than on long-haul flights, to which there is no such alternative. Furthermore, the aircraft used on long-haul flights tend to be the most efficient.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I am grateful to the hon. Gentleman for that intervention. Short-haul flights definitely do more damage per mile travelled than long-haul flights, and it is important to look at the alternatives, particularly within the United Kingdom. I accept that the islands of Scotland and perhaps places such as Aberdeen are a considerable distance from London, but it is important to ask whether people should be routinely flying from London to Manchester, for example, when it seems much more sensible to make that journey by rail most of the time.

The hon. Gentleman's intervention also raises the question whether people might feel incentivised to take a short-haul flight from the United Kingdom before taking a long-haul flight to a destination further away, in order to avoid paying these duties. That means that we will need to consider the tax regimes in nearby European countries. We must also be alert to the risk of creating a system that unfairly penalises some destinations. The example that illustrates the greatest unfairness involves the Caribbean, which is only four or five times zones from here yet is treated for the purpose of this rule as though it were much further away.

Photo of Angus MacNeil Angus MacNeil Shadow SNP Spokesperson (Scotland), Shadow Spokesperson (Culture, Media and Sport), Shadow Spokesperson (Environment, Food and Rural Affairs)

The hon. Gentleman is correct in his assertions about short-haul flights. Does he agree that this legislation could present greater opportunities for Schiphol and Shannon?

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

That is a hazard, but I do not want to go so far as to say that any taxes on aviation will threaten our airline industry if other countries' taxes are lower. The logic of that position would be that we should have no aviation taxes at all, and I do not agree with that proposition. However, we need to have a system in place that incentivises airlines to be more environmentally efficient, and that reflects the polluting effect of flying long haul without building in anomalies that unfairly penalise some categories of passenger and some countries whose economies rely on trade and tourism.

Photo of Andrew Slaughter Andrew Slaughter Labour, Ealing, Acton and Shepherd's Bush

I am confused, which sometimes happens when I listen to Lib Dem policy. Is the hon. Gentleman agreeing with my hon. Friend Ms Abbott that the anomalies in the Government's proposal need to be corrected, or with Sarah Teather and the official Opposition, who believe that the whole system needs to be done away with and replaced by a new one, which might be more expensive for people travelling to the Caribbean?

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I think I was making myself perfectly clear, but the hon. Gentleman might have chosen not to listen carefully to what I was saying. I have made two points. One was that I disagree with the Government's view that we should tax per passenger; I think that we should be taxing per plane. I hope that that concept is straightforward and easy to understand. I disagree with the hon. Member for Hackney, North and Stoke Newington that the system is arbitrary.

My second point relates to the bands of 2,000 miles. Everyone can agree that the capital cities are within those bands, but I believe that that is a bad way to run the system. I was suggesting that the distance covered by each individual flight should be measured. For example, we could measure the distance between London and Kingston in Jamaica, and the distance between London and Miami. I suspect that they would both fall within the same band, under a new banding system. That would be far less anomalous than the present system, in which a flight from London to Miami is judged according to the distance between London and Washington DC. That seems to be a very strange system.

Photo of Diane Abbott Diane Abbott Labour, Hackney North and Stoke Newington

The hon. Gentleman may think it is an anomalous system, but a Jamaican nurse who has saved for two years to fly home and finds that she has to pay substantially more in air passenger duty than someone who is flying all the way to Los Angeles would think the system looked pretty arbitrary.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I do not want the hon. Lady to misrepresent my position, because I am an ally of hers and it would be a great shame if she thought there was political advantage in pretending otherwise. Both she and I are trying to persuade the Government that it is unreasonable to have a system that charges people more in tax to fly a shorter distance. That is what we are saying, while the Government propose that people should pay more in tax to fly to the Caribbean than they should to fly to San Diego or Los Angeles. I think that that is a bad system and I have made that completely clear. My understanding is that the hon. Lady agrees that it would be better if we based the system on measuring the distance of each flight and taxed either per flight or had a banding system that took each individual flight into account rather than the distance from London to the country's capital city. I venture to suggest that unless the system is extremely complicated, the tax levels for Florida would be the same as for the Caribbean islands, which the hon. Lady would agree to be a fairer system.

I conclude with this parting shot—I very much hope that the hon. Member for Hammersmith and Fulham presses the matter to a Division. The case is clear cut and there is a genuine grievance, which has been articulated by Mr. Slaughter. I anticipate that he will vote with me, my hon. Friends and Conservative Members to try to make the Government think again. The case has also been articulated by the hon. Member for Hackney, North and Stoke Newington, who I also anticipate will join us in the Aye Lobby to ensure that the Government are made to understand that this is a great grievance for many people. We need to come up with a system that takes account of the environmental consequences of aviation but does not at the same time create unfair anomalies that penalise our constituents.

Photo of Neil Gerrard Neil Gerrard Labour, Walthamstow

I shall be brief as I do not want to repeat what has already been said.

Like many hon. Members, I met the Prime Minister of Jamaica when he came here to raise the issue of air passenger duty, so I heard the case that he, his Tourism Minister and the Caribbean Council have made about the effects of the proposed system on the Caribbean. My hon. Friend Ms Abbott has gone through the case in detail, so I shall not repeat it all.

The key issues for the Caribbean are quite simple. The first is the importance of tourism. As my hon. Friend said, the collapse of the traditional economy in the Caribbean—the Jamaican Prime Minister specifically mentioned the collapse in the bauxite market—has made the islands much more reliant on tourism than ever before. Anything that discourages people from flying to the Caribbean, as opposed to destinations nearby such as Florida, will have an impact on the area.

Secondly, people living in the UK, including British citizens, whose families are still living in the Caribbean and who need to visit them—I have been approached by many people in my constituency about this—are also affected. Tourists have a choice about where they go and are able to weigh up the cost of fares, but the people visiting their families have no such choice; they either visit them or they do not. The only choice they might have is to go via a different route. That could mean, as was mentioned earlier, people taking a short-haul flight to, say, Paris and then flying from there across the Atlantic because it is cheaper, which would not particularly help our airline industry or do anything to deal with pollution. We should be aware that people who need to visit their families may not be at all well off. An increase in passenger duty from £160 to £300 in a couple of years is not an insignificant amount of money for a family of four wanting to make those journeys.

Let me say a few words about the alternatives. I am not necessarily convinced that the amendment provides the answer; it simply proposes to move to duty per plane. We should be looking at a system more closely connected to distances of flights. I am told that such an approach would cause all sorts of administrative problems, but, frankly, I do not believe it. As was said earlier, we can look up in 10 seconds on Google the distance between any two cities in the world, and all the airlines provide the air miles when we fly—presumably based on the actual distances of the flight.

Photo of Sarah Teather Sarah Teather Shadow Minister (Communities and Local Government) (Housing and Planning)

I absolutely agree, and I tabled an early-day motion that incorporated those factors. The hon. Gentleman is right—it is not as if airports get up and move from one week to the next; they are fixed points, so it should not be beyond the wit of the Government to work out how far apart they are.

Photo of Neil Gerrard Neil Gerrard Labour, Walthamstow

Almost inevitably, the information is there already.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury) 2:45 pm, 8th July 2009

The hon. Gentleman provides me with an opportunity to clarify my earlier point. I agree with him that it is perfectly possible to judge every single flight on the distance travelled. My point was that if the Government were attached to a banding system, there could be eight or nine bands representing 1,000 miles each, and we could judge individual flights within those bands rather than on the basis of the distance between London and the capital city of the country in question, which is even more ridiculous.

Photo of Neil Gerrard Neil Gerrard Labour, Walthamstow

I understand that point. If a system were based on distance travelled, there would be alternative ways of charging; we could take the precise distance into account or have a banding system, for example.

As I was saying, I do not believe that there will be serious administrative problems; it should not be that complicated. I am also told that there is the problem that the measure might be seen as a proxy for fuel consumption, because the distance travelled would correspond quite closely to fuel consumption, and it is not permitted to tax that. That seems to be the root of the problem, because I would have thought that the amount of fuel consumed must be the best measure of emissions. That has to be the case. If we based the system on that, it would cover the issue of short-haul flights, where less fuel may be used in the air, but the amount used in take-off in comparison with the rest of the journey is disproportionately high. The root of our problem is thus the inability that I am told we have to tax fuel consumption. If that is the case—I assume that it is due to EU or other international regulations—we should take it up and argue about it in order to secure change towards a greener tax for the future.

J

Neil Gerrard is absolutely right - that any tax other than a tax on fuel will have perverse effects. If there is some impediment to taxing aircraft fuel it should be removed. In the meantime other taxes should be introduced that have much the same effect. For example each flight departing the UK could be taxed on a declaration of the amount of fuel used with audit and feasability checks to minimise false declarations. The declaration should include details of aircraft type, load and route taken as well as of fuel consumption and how it was assessed. The admin burden would be considerable but not disproportionate to the need to control climate change. Some people will express concern that UK taxes on aviation give a competitive advantage to other...

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Photo of Angus MacNeil Angus MacNeil Shadow SNP Spokesperson (Scotland), Shadow Spokesperson (Culture, Media and Sport), Shadow Spokesperson (Environment, Food and Rural Affairs)

The hon. Gentleman is making a sensible and cogent argument. Banding of any form will produce problems and anomalies. As he says, we are told that we cannot tax fuel, but does the answer not lie in finding some way to tax fuel and carbon emissions? We should describe the tax we need in those terms. The hon. Gentleman's suggestion of taxing per mile is eminently sensible.

Photo of Neil Gerrard Neil Gerrard Labour, Walthamstow

I thank the hon. Gentleman and agree that that is the direction we should be looking towards, irrespective of whether we have a banding system.

Photo of David Taylor David Taylor Labour, North West Leicestershire

The roots of our inability to tax fuel probably stretch back as far as the inter-war Chicago convention—in the early '30s, I believe. We need to make more progress on taxing fuel, as the aviation industry is especially lightly taxed—so much so that Al Capone would be proud to be associated with it. Something has to be done about the problem. The amendment may not be perfect; it may be a proxy for a fuel tax, as my hon. Friend says.

Photo of Neil Gerrard Neil Gerrard Labour, Walthamstow

I thank my hon. Friend and agree that we should pursue this line for the future; it is ultimately where we need to be. Such an approach could also deal with the points raised about commercial flights, planes flying empty and so forth.

I shall not say much more, because I do not want to keep repeating things that others have already said. There is time for the Government to think again. I am not convinced by the amendment as it stands, but the big rises in air passenger duty will come not in 2009-10 but in 2010-11. I hope that, especially in view of what is happening to the Caribbean, India, Pakistan and other destinations that mean quite a lot to many people in this country, the Government will have produced some possible alternatives before the pre-Budget report is presented later in the year, and before the big rises that are due in 2010-11.

Photo of Peter Bone Peter Bone Conservative, Wellingborough

It is a great pleasure to follow Mr. Gerrard. He made a valid and powerful point about the need to bear the per-mile damage in mind rather than opting for a banding system. If we can adopt such an arrangement—or something nearer to it—the position will improve greatly, because it will be environmentally friendly.

Let me begin by referring the House to my entry in the Register of Members' Interests, which states that I am a non-remunerated director of a travel company.

The Government have got themselves into a terrible tizz over APD. I think that they were right when, a year or so ago, they said that they would introduce a per-plane tax, but they got into an awful mix-up over premium and standard passengers. I remember that they discriminated against tall people last year: for some reason they thought that there were business-class-only aircraft flying around, when in fact all the companies concerned had gone out of business. The Treasury estimated that it would raise an extra £5 million from a class of airliners that did not exist. Having got into a terrible muddle in trying to define the distance between seats according to whether they were standard or premium, it has now included premium and economy seats in the premium APD.

The real question, however, is whether this measure is a stealth tax, designed purely to raise money for the Government. I fear that, in large part, it is just that. My right hon. Friend Mr. Cameron has taken hold of the Conservative party and shaken it, as he has done in many other contexts: he has brought environmental issues to the top of the Conservative agenda. I fear that APD is not an environmental tax in any sense. If an aircraft is flying to Florida carrying two passengers, they will pay two lots of duty. If it is carrying 230 passengers, they will pay 230 lots of duty. That cannot be environmentally correct. It is as simple and as straightforward as that, and many other Members have made the same point.

The Board of Airline Representatives in the UK, known as BAR UK, has made a point that has not featured much in the debate about passengers coming into the United Kingdom. Let us suppose that an American says to a travel agent, "I want to go to Europe: where do you suggest that I fly to?" The travel agent will say, "It is several hundred pounds cheaper to fly to Schiphol than to fly to London." I remember that a few years ago there was much talk of Schiphol's being the third London airport.

It is crazy to put this country at a disadvantage. The Government need to come up with a taxation system that is based on environmental considerations. I agree with Mr. Browne that there should be a tax on airlines to help to control emissions, but it should not be one that puts our airline industry and our cities at a disadvantage. If it is too high and out of synch with the rest of Europe, it will merely be a stealth tax, but I think that that is the direction in which the Government are moving.

Photo of Angus MacNeil Angus MacNeil Shadow SNP Spokesperson (Scotland), Shadow Spokesperson (Culture, Media and Sport), Shadow Spokesperson (Environment, Food and Rural Affairs)

This may support the hon. Gentleman's argument. Surely an environmental tax should have the desired effect of changing behaviour. If the intention is simply to raise revenue, the number of passengers and flights should remain the same. It would be interesting to hear from the Government which of those two options they prefer. Do they plan to change behaviour by reducing the number of passengers and flights, or are they merely using airlines as a cash cow? Banding or a per-mile tax would not be a sensible option environmentally, but it would be a very sensible option if the Government are trying to raise more money for themselves.

Photo of Peter Bone Peter Bone Conservative, Wellingborough

I hope that the Minister will answer that question.

Let me turn to a more local issue. Many of my constituents travel to the Caribbean, and many more travel to India. My constituency contains a large Indian community. One constituent wrote to me as follows:

"I am a regular traveller to the Caribbean and I am worried about the impact of the proposed tax increases. From November I will have to pay more in tax to travel to the Caribbean than if I were travelling to the West coast of America or Hawaii. This cannot be right!! Not only when comparing distances travelled but also when you consider that the tax is for green issues.

This will have a serious impact on my ability and others from the West Indian Diaspora, many of whom live in your constituency, to visit the Caribbean."

For those people, visiting the Caribbean means visiting home. That is, I think, the point made by Ms Abbott. Generally speaking, such people are not the wealthiest of my constituents. I have a horrible feeling that we are returning to the system that operated when I was growing up, when air travel was only for the rich. This is a tax on the poor, and it is a tax on people who want to go home to visit their friends or want their friends to visit this country. I do not think that the Government have thought it through at all. I am not sure that they really want to discriminate against people travelling home to the West Indies and to India, but that is the effect of what they have done. Many of my constituents are very unhappy about it, and I ask the Government to think again.

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Parliamentary Secretary, HM Treasury

I thank all hon. Members who have contributed to the debate.

As has been mentioned, in 2008 the Government consulted on proposals to replace air passenger duty with a per-plane tax. The amendment proposes that they should bring forward plans for a per-plane tax again. I assure those who tabled the amendment that the Government decided against introducing a per-plane tax at this point only after fully considering the merits of, and evidence for, such a tax. Having considered the evidence and listened to respondents, we announced in the 2008 pre-Budget report that we would instead reform the existing APD regime and change the current two-destination band structure to a four-band structure. As has already been said today and in earlier debates, that decision recognised the need for stability in the tax system in difficult economic circumstances. The reform of APD strengthens the environmental signal of the tax, and raises revenue in comparison with the existing system.

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Parliamentary Secretary, HM Treasury

I will in two seconds; I want to deal with a point that my hon. Friend made. We have always said that aviation taxation has a dual purpose, dealing with environmental impacts and also contributing to public finances.

Photo of Diane Abbott Diane Abbott Labour, Hackney North and Stoke Newington

My hon. Friend said that the Government rejected the idea of a per-plane tax. We know, because it is on the record, that they considered it very seriously, and my hon. Friend has not explained why they rejected it.

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Parliamentary Secretary, HM Treasury

If my hon. Friend will be patient, I shall come to that in a moment.

Photo of John Gummer John Gummer Conservative, Suffolk Coastal

The Minister said that the Government had always recognised that the tax should be both environmental and revenue-raising. This measure is very damaging to the environment. The public will accept green taxes if they really are green taxes, and if they are clearly connected with green activities. If they are merely means for the Treasury to raise money, the public will think that they are frauds.

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Parliamentary Secretary, HM Treasury

I think that I thank the right hon. Gentleman for his intervention. I shall explain later the way in which we are trying to achieve a balance and to send an environmental signal within the constraints presented by reform of the APD system.

Photo of Angus MacNeil Angus MacNeil Shadow SNP Spokesperson (Scotland), Shadow Spokesperson (Culture, Media and Sport), Shadow Spokesperson (Environment, Food and Rural Affairs)

The Minister talks about getting the balance right. By what percentage does she hope to reduce passenger and flight numbers as a result of her tax-raising measures?

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Parliamentary Secretary, HM Treasury 3:00 pm, 8th July 2009

Somewhere in my papers, I have the figure for the reduction in carbon that we expect as a result of the measures. If I cannot find it in time, I will write to the hon. Gentleman.

We have increased rates for all lengths of flights, but it is right that the rates for those flying to the farthest destinations are higher. That point has, I think, been agreed by all hon. Members who spoke.

Following consultation with stakeholders, the Government decided not to go ahead with a per-plane tax. Proceeding with the per-plane tax would have raised more revenue, but it was not the right decision at the time. The Government proposed a per-plane tax in a very different economic climate, before the global economic downturn had really begun and before agreement was reached to include aviation in the EU emissions trading scheme. The decision to reform APD rather than proceed with a per-plane tax was taken after considering the potential impacts on regional connectivity and on air freight and the knock-on effects on employment, as well as the need to ensure greater stability in tax policy in times of economic uncertainty and to avoid the disruption and costs associated with the transition to a new tax.

I now have to hand the answer to the question of Mr. MacNeil. We estimate that our reformed APD will deliver 0.6 MtCO2—million tonnes of carbon dioxide—by 2011-12.

Photo of Greg Hands Greg Hands Shadow Minister (Treasury)

Can we get it absolutely clear that there are only two reasons for rejecting the per-plane tax in the Government consultation, which are that it would discriminate against regional airports—or so the Minister says, at least—and that she does not want to introduce a disruption in the tax gathering system during a recession? Are those the two reasons, and if so, are they the only two reasons?

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Parliamentary Secretary, HM Treasury

They are certainly not the only two reasons. Another important reason was the point that I made about the EU ETS, which enables us to have some of the benefits that a per-plane tax would bring. That was another consideration that was taken on board. The full reasons are spelled out in the document, which I think the hon. Gentleman spoke about earlier.

Photo of Angus MacNeil Angus MacNeil Shadow SNP Spokesperson (Scotland), Shadow Spokesperson (Culture, Media and Sport), Shadow Spokesperson (Environment, Food and Rural Affairs)

I am grateful to the hon. Lady for her answer a few moments ago, but I seek a little clarification. Is that 0.6 per cent. of the total emissions from UK aircraft or 0.6 per cent. of a million tonnes of carbon? Also, will the efficiency of different plane models be taken into account so that some aircraft could be taxed more or less than others—in other words, will there be an incentive to use more efficient planes?

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Parliamentary Secretary, HM Treasury

It is 0.6 million tonnes of carbon dioxide in 2011-12.

My hon. Friends the Members for Hackney, North and Stoke Newington (Ms Abbott) and for Walthamstow (Mr. Gerrard) and the hon. Members for Brent, East (Sarah Teather) and for Taunton (Mr. Browne) referred to the Caribbean. I assure hon. Members that I have carefully considered the many representations I have received in respect of the Caribbean, and I will respond later to some of the alternative suggestions that have been made in the context of our reformed APD. Without seeking to undermine the argument of the hon. Member for Brent, East, I would like to correct a point of fact. She said, I think, that there would be an additional sum of £300 in 2011-12, but it is, of course, an additional £140, and £300 is the total.

In the context of this amendment, there is absolutely no reason to assume that moving to a per-plane tax would result in less tax on flights to the Caribbean. In fact, implementing a per-plane tax, as consulted on in 2008, would have resulted in more tax being paid on flights to the Caribbean than under the reformed APD. As I have said, I will address later some of the alternatives that have been suggested such as distance flown, alternative bandings and proxies other than capital cities, but I shall first explain why we have chosen the banding system.

In retaining APD, the Government recognised that the system could improve the environmental signals it provides. The responses to the consultation for the per-plane tax highlighted that aviation taxation should recognise distance flown as a factor. As part of the strengthening of the environmental signal in APD, destinations have been banded in a straightforward, transparent and administratively simple way.

Photo of John Redwood John Redwood Conservative, Wokingham

Can the Minister tell us which of the many tax proposals that the Government examined produced the biggest fall in the number of flights?

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Parliamentary Secretary, HM Treasury

I do not have that information to hand, but I am sure I will be able to get it to the right hon. Gentleman.

The reform of APD increases the number of destination bands from two to four. These have been set at 2,000-mile intervals, with the distance between London and capital cities determining what band a country falls within. There is a clear rationale that those travelling farther should pay higher rates of APD.

The hon. Member for Taunton said that short-haul flights are more damaging. Long-haul flights produce more emissions, and a band D long-haul flight on average would emit 14 times more than a band A flight.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I acknowledge that long-haul flights cause more emissions than short-haul flights. My point was that short-haul flights cause more emissions per mile, and that is why we need to try to create alternatives to short-haul flights. I recognise, however, that a system in which the tax is greater for long-haul flights is reasonable because, overall, they cause greater emissions than short-haul flights.

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Parliamentary Secretary, HM Treasury

I thank the hon. Gentleman for that intervention.

A geographical banding structure balances the aim of sending a stronger environmental signal with the need to make the reforms easy to implement. The hon. Gentleman and Mr. Bone suggested that people might travel to cheaper destinations, or travel short haul and then get an onward flight. It is often said that people may do that, but there are a number of practical, as well as financial, consequences.

A passenger with two unconnected tickets for travel will need to land themselves at the first destination airport and then check back in for the second flight, and will be subject to any taxes or charges due for that country. Both airlines will incur handling charges for processing the passenger, and it is likely that they would be passed on to the passenger. Also, a passenger taking a connected flight enters into a contract for travel to their final destination. That offers a passenger some protection against unforeseen delays or cancellations as it is the airline's responsibility to ensure that they reach their final destination. In some cases, that may mean rebooking a passenger on an alternative flight or providing, or paying for, accommodation until a flight is available. Unconnected flights do not carry that same protection, and an airline's responsibility will cease once the passenger has reached the destination specified on the ticket.

Photo of Stewart Hosie Stewart Hosie Shadow Chief Whip (Commons), Shadow Spokesperson (Treasury)

Surely the second airline would offer the same contract for the second flight. The level of protection would be precisely the same, it simply would not be provided by the original carrier.

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Parliamentary Secretary, HM Treasury

Notwithstanding that, there is the gap in the middle at the hub point, because the protection is given to the hub and the passenger does not have the same protection going forward. I think the hon. Gentleman will accept that there is also the additional costs issue—the additional handling charges and airport charges, and the need to land and recheck baggage. That would not make it quite such an easy option, and would not necessarily make it a financially cheaper option.

Photo of Angus MacNeil Angus MacNeil Shadow SNP Spokesperson (Scotland), Shadow Spokesperson (Culture, Media and Sport), Shadow Spokesperson (Environment, Food and Rural Affairs)

I am a frequent air traveller. Unfortunately, I sometimes take between four and six flights a week. Are this Government saying that they are going to make life even more difficult for air passengers by ensuring that they have to check in again, and by not ironing out the rough edges? Their journeys are already stressful and annoying enough. Will they get even worse now as result of the consequences of the Government's measures?

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Parliamentary Secretary, HM Treasury

The measures do not apply within the UK. [Interruption.] What I am saying is in the context of passenger choice—if they think that, to avoid APD, it would be cheaper and more convenient to travel via a different hub. However, it would not necessarily be so practical and easy, and it would not necessarily be so cheap. If it is a through-flight, the measures do not apply; if they are unconnected flights, they will apply.

Photo of Peter Bone Peter Bone Conservative, Wellingborough

I think that the Minister is not quite aware of the practice. Travelling non-stop—direct—is more expensive, and airlines will try to attract people on an indirect route. Someone may well fly with Northwest airlines to Detroit and then down to the Caribbean, and that will be priced cheaper. That is because the airline is trying to attract people's business and that break in flight is not essential. Interlining happens all the time and there is no difference in protection, because the interlining protection continues through. In practice, the Minister has not got that point exactly right.

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Parliamentary Secretary, HM Treasury

I will certainly re-examine that, but my understanding is that the situation for two unconnected flights is different from that for a connected flight booked on one ticket.

Photo of Diane Abbott Diane Abbott Labour, Hackney North and Stoke Newington

On the incentive to use an interconnecting flight rather than a direct one, people going to the Caribbean—I am thinking, in particular, of families and Caribbean diaspora nationals—will find it tempting to break their flight in Miami. The Minister may not be aware that there is a large Caribbean community there. If it could be done more cheaply, it would make perfect sense to break a flight there and then go on to the Caribbean, and perhaps a couple of days could be spent visiting another set of relatives. I imagined that the environment was the underlying rationale behind the proposal, but a situation such as I have described will not help us with carbon emissions at all.

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Parliamentary Secretary, HM Treasury

I take my hon. Friend's point, but the point that I am trying to make is that such flights will not necessarily be cheaper because there may be other costs to take into account. It may not be quite as simple as some people have suggested.

Photo of John Gummer John Gummer Conservative, Suffolk Coastal

Will the Minister explain why it is sensible to have a higher tax on a flight to the Caribbean, given that such a journey can be made only by air, than on a flight to Manchester, which can be reached by train? Would it not be more environmentally sensible if things were the other way around? Has she not got it all upside down?

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Parliamentary Secretary, HM Treasury

I disagree. I thought that we had a consensus that long-distance flights were more environmentally damaging than short-distance flights.

Let us move on, because I wish to come to suggestions made to amend our APD system in order to avoid the anomalies. Ticketing systems are based on national territories. As such, it is straightforward to base the tax on countries, and we think that the capital city is the most coherent and principled proxy. Where it is administratively simple to divide a territory at an appropriate point, as in the case of the Russian Federation, the Government have done so. Of course it is possible to determine the exact distances of flights, and I take the point that my hon. Friend the Member for Walthamstow made about the administration of that. Such an approach would be slightly more complex because of the ticketing systems that airlines use, and any consequent increases in cost could be passed on to passengers.

My hon. Friend was right when he mentioned the Chicago convention and the fact that the distance link might be so closely tied to fuel consumption as to raise questions about legality. He asked that we should focus our attentions on that, and I assure him that the Government continue actively to support international action at the International Civil Aviation Organisation. It administers that convention, which, as someone rightly said, was signed in 1944 and created the framework. The convention has been revised frequently, but we think that it is now in need of modernisation, and that is particularly true in relation to the environment. The UK and other like-minded states believe that the current practice of exempting aviation from fuel taxation is anomalous and we have succeeded in increasing our focus on the environment, but it has not yet been possible to reach consensus in the ICAO on specific economic instruments. I assure all hon. Members that we are committed to engaging actively, together with our European partners, to press for greater action on the environmental impacts of aviation.

There will be instances in any banding system where a capital falls either just within or just outside a band, or a territory covers a large area. Calls for exceptions to be made for a specific country or group of countries can generally not be met without breaking international law principles of uniform treatment. Making changes in the banding system to change the impact on one group of countries in particular could reduce the revenue from APD, thus requiring the money to be found elsewhere. It could also undermine the environmental signals from the tax and, in addition to legal considerations, it could raise distortion issues with comparable destinations.

Photo of Andrew Slaughter Andrew Slaughter Labour, Ealing, Acton and Shepherd's Bush 3:15 pm, 8th July 2009

My hon. Friend makes some good negative points about why the Opposition proposals may not work or why, in the case of the per-plane tax, they may even be more expensive. However, she must understand that the anomalies need to be corrected. When my hon. Friend Ms Abbott and I saw the Chancellor earlier this week on the matter, he said that it would be re-examined to see whether some of the anomalies, such as those relating to the Caribbean, could be addressed. Will the Minister suggest how that might be done?

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Parliamentary Secretary, HM Treasury

I was about to come to that. I have asked my officials to consider the matter further. Although my hon. Friend said that my points appear to be negative, I was trying to explain the difficulties and why we have not been able to introduce the proposal until now. That does not mean to say that we are not still looking at it.

Photo of Diane Abbott Diane Abbott Labour, Hackney North and Stoke Newington

One of the arguments that the Minister made against doing anything about the zones was that to do so would reduce the revenue. I am genuinely committed to taking action on the environment and to green taxes. The Government must make up their mind about whether the measure is designed to reduce carbon emissions or to produce revenue. Leaving aside the broader question on the Caribbean, which is the thing that concerns me in this debate, I fear that if the Government devalue the notion of green taxes by using them as a cover for raising revenue, the public acceptability of such taxes in future will be much reduced.

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Parliamentary Secretary, HM Treasury

I certainly take on board my hon. Friend's point but, as I said, we must recognise that we want the aviation sector to pay its fair share towards the public finances. The sector is not highly taxed—it does not pay fuel duty or VAT on fuel—and we have a joint way of ensuring that we can secure a contribution to the public finances while trying to find a sensible way of strengthening the environmental signal. We consulted on the case for a per-plane tax and, as I have said, we decided not to proceed with that.

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The Minister is quite right to say that aviation is not highly taxed and should pay its fair share. The advantages enjoyed by aviation are at the expense of public services and of other economic activities. They have resulted in enormous growth in aviation at the expense of other discretionary purchases (such as...

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Photo of Angus MacNeil Angus MacNeil Shadow SNP Spokesperson (Scotland), Shadow Spokesperson (Culture, Media and Sport), Shadow Spokesperson (Environment, Food and Rural Affairs)

The hon. Lady is saying that this is a straightforward revenue-raising tax, but it is hoped that it might give an environmental signal. She is saying that the tax is simply about raising money and has nothing to do with the environment. Is that correct?

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Parliamentary Secretary, HM Treasury

My point is that we are trying to make our reformed APD system give a better environmental signal and better match the distance travelled. We cannot do that under the Chicago convention, which we are trying to change, if the proxy is too close to emissions. The banding system gives a better signal towards that.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

Before the hon. Lady finishes her speech, will she engage with my entirely constructive proposal, which is not to abandon her proposal—I understand that she might not wish to do that—but to modify it in a way that addresses the concerns raised by Ms Abbott, my hon. Friend Sarah Teather and others? The Minister could explore the possibility of having eight bands, rather than four, and the determination of which band a plane journey fell in would be made on the basis of the actual distance travelled, rather than the distance from the UK to the capital city of the country. That would ensure that the bands much more accurately reflected the actual distance travelled, while being less administratively complicated than measuring the distance of each flight. We could keep a band system—there would probably be more bands—but the determination would be about the actual journey made, rather than the journey to the capital city. Does she think that that would be a good way forward?

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Parliamentary Secretary, HM Treasury

We have examined many ways forward along those lines, but so far we have come up with negative reasons, as my hon. Friend Mr. Slaughter put it, as to why that is not a practical way to proceed. As I have said, I have asked my officials to continue examining the matter. We had consulted on the basis for a per-plane tax, but after careful consideration we decided not to proceed—our reasons are outlined in more detail in the document. I therefore ask Mr. Hands to consider withdrawing the amendment.

Photo of Greg Hands Greg Hands Shadow Minister (Treasury)

This has been a wide-ranging and extremely helpful debate on amendment 1, and we have heard from a significant number of diverse speakers on a number of different topics. A number of common themes emerged, the main one being the unworkability of the Government's clause and schedule that we are discussing. Ms Abbott spoke passionately and with great knowledge, making powerful points about Caribbean communities and the need to have a more environmental basis to this taxation that I had also made. Mr. Browne also made a number of important points about the crudeness of schedules 5 and 5A, as well as a number of more general points with which Conservative Members agree.

Mr. Gerrard commented on the actual distance flown, which I know we discussed at the meeting of the all-party group on the Caribbean. I was interested in the Minister's response that she is looking at ways of reforming the Chicago convention. I would be grateful if she could update the House, at an appropriate time, on how those negotiations are proceeding. My hon. Friend Mr. Bone made similar points about the Caribbean and India, well illustrated with a letter from his constituent, one of the 60,000 people who have signed the petition and written to their MPs.

The reasons given for rejecting the plane tax amendment are flimsy, as we have seen from the Minister's response and the Government's consultation document. We can have no confidence in the Government's reasoning, which shows a confused logic on whether this is an environmental tax or purely revenue-raising. Several hon. Members raised serious concerns about the particulars and the generality of the Government's proposals, and we would urge a rethink before it is too late. Having said that, we had a Division on this matter in Committee and we are not minded to do so again today, given that we are already two hours into today's proceedings and there are several more groups on the amendment paper. I therefore beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.