I beg to move,
That this House
believes that the UK’s air passenger duty acts as a barrier to economic growth and deters both inward investment and inbound tourism;
notes the financial impact on families of the rising costs of air passenger duty;
further notes the impact on British businesses wishing to export and take advantage of business opportunities overseas;
notes that the current air passenger duty regime is the highest air passenger tax in the world, which makes the UK less competitive than countries with lower aviation taxes;
further notes that over 200,000 members of the public are calling for a review of the economic impact of air passenger duty;
calls on HM Treasury to commission a comprehensive study into the full economic impact of air passenger duty in the UK, including the effects on jobs and growth, reporting in advance of the 2013 Budget;
and calls on the Government to use the evidence from the study to inform future policy-making.
I am grateful to members of the Backbench Business Committee for granting this timely debate in advance of the autumn statement next month, and I pay tribute to the outstanding efforts made by the fair tax on flying campaign in securing the support of more than 200,000 members of the public who have lobbied right hon. and hon. Members on the matter. The campaign has given families and businesses across the country a strong voice to express their opposition to air passenger duty.
I also pay tribute to colleagues on both sides of the House who have supported the call for this debate, including my hon. Friend Henry Smith and Graham Stringer, whose early-day motion influenced the wording of the motion. In addition, as part of its recent inquiry into the matter, the all-party aviation group, chaired by Mr Donohoe, has produced compelling evidence in support of an economic review into air passenger duty.
Of late, I have received more representations on this issue than on any other. It is important that the hon. Lady has been able to raise this issue, and she can count on considerable support.
I thank the right hon. Gentleman for his remarks. All hon. Members feel very strongly about the representations we have received. The purpose of the debate is to give the issue of APD a thorough airing and to make those representations to my hon. Friend the Minister.
The motion calls on the Treasury to respond to the concerns of 200,000 members of the public and business representatives about the air passenger duty system. It specifically calls on the Treasury to conduct a comprehensive study of the system’s full economic impact and urges the Government to use the evidence gathered from the study to inform future policy making on aviation taxes.
The evidence that I have seen, the views of families and businesses in my constituency, and views from the aviation sector, suggest it is time that the Government considered aviation taxes.
I commend my hon. Friend for introducing the debate. Is it not a question of making the UK competitive around the world? In the previous debate, the Minister said that if we cut taxes on one thing, it will mean either more spending cuts or increases in taxes elsewhere, but should not the message be, “Let’s cut air passenger duty and cut spending”? After last night’s vote, perhaps the Government could start with the EU.
APD has a detrimental impact on our competitiveness, which is why we are calling for the economic impact. I will come to competitiveness later.
I hope my hon. Friend the Minister will be open-minded to the concept of looking at the financials and to doing an economic impact assessment, because families and businesses feel that APD is a punitive tax. Research demonstrates that the costs to the wider economy are far greater than tax receipts for the Treasury. The World Travel and Tourism Council estimates that the cost to the economy in 2012 will be £4.2 billion, and as many as 91,000 jobs.
I commend the hon. Lady for introducing this extremely important debate. I represent Aberdeen airport. We are doubly disadvantaged, first because we are much more dependent on air travel—it takes seven and half hours to get from Aberdeen to London by train—and secondly, we must pay tax twice if we inter-line in London. That gives us an incentive to use continental rather than UK airports.
Is the hon. Lady aware that the Scottish airports consortium has published a report today that says that Prestwick airport, which is in the constituency of my hon. Friend Mr Donohoe, and which is very important to the whole Ayrshire economy, is the worst affected in Scotland in percentage terms? It will lose 14% of the traffic it currently hosts.
The hon. Lady demonstrates the scale of the challenge, and why we need a review.
I am sure right hon. and hon. Members are aware that Britain has been ranked 134th out of 138 by the World Economic Forum on air taxes and airport charges. We clearly have a major problem. I am unapologetic in my belief in lowering taxes, which is the most effective way in which to promote sustainable growth in the economy. The figures demonstrate how damaging and counter-productive air passenger duty is becoming to the Government’s growth agenda.
I recognise that the current APD system was introduced by the previous Government and note that it raises £2.9 billion for the Treasury, which is a significant sum of money. I do not doubt that it is an essential contributor to removing and reducing the Government’s deficit, but when taxes cause more harm than good, they need to be reviewed and reformed.
I completely agree with my hon. Friend. That is part of the challenge of our wider aviation policy and strategy.
Already in this Parliament, the Government have rightly recognised a number of counter-productive and damaging taxes, and scrapped a number of them, including the cider tax, the jobs tax and the broadband phone tax, and the planned increase to the small profits rate was replaced with a cut. On that basis, I urge the Minister to consider the economic impact of APD.
I am grateful to my hon. Friend, who is being generous in giving way. APD will be considered by the Select Committee on Transport when we begin our aviation inquiry. APD has an economic impact, but it is critical to the debate on the UK’s aviation capacity. Perhaps she will refer to that later in her speech.
The Davies commission has a role. When considering the future of APD, we must remember where we stand internationally in terms of competitiveness. Britain is in a global race, and competing in a global environment that is tougher and more competitive than ever before. Foreign businesses, which can bring much needed investment to our economy, can relocate to other countries. Our competitors in Europe and throughout the world are all too ready to recognise that. Prior to being elected to the House, I saw how our competitors were on standby to welcome new investment, particularly from emerging markets.
Businesses in Slough tell me that they have invested in the town I represent because of its proximity to Heathrow. Some international companies are thinking of disinvesting because of the insecurity of Heathrow’s future. That is a classic example of the importance of airports to inward investment in the UK, and particularly the importance of what used to be the premier airport in Europe.
The hon. Lady makes a valid point. I have no doubt that right hon. and hon. Members recognise the global trends and the direction of travel when they see the rise of super-hubs and big business destinations, such as Singapore, Dubai and Mumbai. There is certainty around their aviation and economic strategies, and we are competing against many big international centres. We must remain competitive to survive. Tax rates that are higher than those in other economic centres put businesses off when they are making investment choices and decisions. Attracting foreign direct investment is an essential component of the Government’s plan for growth, and current APD rates are a barrier to foreign investors who are looking to expand into the UK.
The hon. Lady is making a great speech. Does she agree that APD, as a gateway tax, sends a signal and puts down a marker, and leaves a bad taste in the mouth for many who are thinking of coming to the UK? Their first taste of the UK, and the first piece of information they have about it, is the very high-tax regime to get into the country.
The hon. Gentleman makes a valid point on how counter-productive taxes such as APD are when it comes to inward investment and the attraction of Britain as a place to do business.
Martin Craigs, chief executive of the Pacific Asia Travel Association, has stated:
“The UK is an island trading nation, air services are the vital lifeblood of modern global commerce. The UK Air Passenger Duty is now the world’s highest by a wide margin. It is certainly turning away tourism and trade from the world’s fastest growing economic region”, which, of course, is Asia-Pacific.
APD also acts as a deterrent to British businesses that are looking to exploit lucrative business opportunities elsewhere in the world, and particularly in emerging markets. Businesses in my constituency, including small and medium-sized enterprises, provide more than 80% of local jobs. They are hit hard by APD. They want to export more, but APD is a barrier.
Many of the businesses in my constituency are based there because of the proximity of Heathrow airport, like the businesses in the constituency of Fiona Mactaggart. Many of my constituents who work at Heathrow are concerned about the level of APD. It seems perverse that, at a time when our trade is becoming more non-EU, we are discouraging or making it more difficult to trade with those parts of the world that continue to grow.
I thank my hon. Friend for his intervention. As I said earlier, this tax is seen as counter-productive when it comes to inward investors, and we have to tackle that. One business man has written to me saying that the tax is having a major impact on both new business opportunities and maintaining current business. A reduction in it would bolster the aviation industry in the United Kingdom. Another has commented:
“I am a frequent business traveller trying my damndest to provide export business for this country and it grieves me to be paying such a punitive tax to travel on behalf of the country.”
A review of the economic impact of APD would show the true extent of the cost to businesses. In fact, the Government previously looked at the impact of APD on the Northern Irish economy and reduced APD to band A—currently, the standard rate is £26 and the reduced rate is £13—to ensure that Belfast could compete with Dublin’s air travel tax, which is just €3. Just as APD needed to be reformed to help Belfast compete with Dublin, APD should be reduced to help London’s airports compete not just with Amsterdam, Paris, Frankfurt and Madrid, but with many of the Asia-Pacific and other international hubs.
Order. We have a lot of Members who wish to speak and they should recognise that if they have already intervened, they will go down the list—and not be upset about that.
I take on board the hon. Lady’s point.
As well as compromising trade, the cost of APD is felt by the aviation and tourism sector across the country. Last year, more than 30 million visitors came to Britain and spent £18 billion in our economy. We all want to see that number increase, and I want to see more foreign tourists flying to our international airports and travelling to see attractions elsewhere in the country—including the county of Essex, where the tourist sector supports 54,000 jobs and adds £3 billion to our local economy.
I congratulate my hon. Friend on securing this debate. She talks about Essex with passion, which is fantastic. In South Derbyshire we are equidistant from East Midlands airport and Birmingham airport and we have a huge amount of tourism, as well as many jobs based in the airport industry. I hope that Ministers listen to my hon. Friend and think again about a tax that is holding back growth.
I thank my hon. Friend for her comments.
We would all like to see travellers from Brazil, Russia, India, China and a range of emerging markets choose to spend their dollars, rupees and other currencies here, but the current rates of APD are deterring inbound tourism, especially from developing countries with a growing middle class. Why would a family of four from China wishing to take a holiday in Europe come to Britain where APD would add a further £324 to their travel costs when they could hop on a flight to France and pay aviation taxes totalling £36 or to Germany where they would also pay less? The Government’s tourism strategy clearly warns that we are pricing ourselves out of the mass or middle market and will swiftly relegate Britain from being the sixth most popular destination in the world to the margins of the industry. The aviation sector supports more than 900,000 jobs and contributes more than £50 billion to GDP. I urge the Government to consider how APD can be reformed to support tourism as well as business.
In 1994, modest levels of £5 for short-haul travel in the EU and £10 for destinations beyond the EU were introduced. APD is now having a negative impact on our economy. When the then Chancellor of the Exchequer, the Minister without Portfolio, my right hon. and learned Friend Mr Clarke, announced the introduction of APD in November 1993, he said it was a small duty on all air passengers from United Kingdom airports. The predicted revenue was £330 million a year. It now raises 10 times more than that, and a family of four travelling economy class to Florida this winter will pay £260 in APD.
That figure would be a lot higher if the family were going via one of the regional airports and could not get the same carrier, because they would pay two lots of APD. It is now proving very difficult for many families to have a decent holiday abroad.
The hon. Gentleman makes his point clearly. APD is having a wider multiplier effect.
If that same family of four were travelling to Australia, they would have to fork out £368. Those figures are not small and are having a severe effect on households with modest incomes throughout the country, including pensioners who wish to visit relatives living abroad. We have all had correspondence from our constituents, and one of mine wrote to me on this point to say that she supports this campaign because both of her children and her grandchildren live overseas and flying is the only way to visit them.
Another has written:
“Having friends and family in the Caribbean we have to pay even more of this excessive tax than flying to the west coast of the USA although the distance flown is less.”
This tax is clearly having a negative impact on families. It is deterring foreign direct investment, it is holding back our businesses, and it is making our country less competitive. For those reasons, I hope that colleagues will support the motion and I urge the Minister to take on board the remarks that I have just made.
Order. I am introducing an eight-minute limit. I hope that I will not have to reduce that, but interventions cause problems.
I congratulate Priti Patel on securing the debate and leading it as ably as she has this afternoon. She described how APD, from relatively modest beginnings, has become a real monster because of the economic problems that it creates and the burdens that it places on the aviation industry and our constituents when they seek to take a holiday. This is a tax on holidays. It is also a tax on the aviation industry and, as the hon. Lady argued so effectively, it is a barrier to economic growth.
Like me, my right hon. Friend is a former Minister; in my case, I was a Minister for tourism. Is he worried by the representations we have received that indicate that APD at the current level—the highest in the world—is a disincentive for the kind of tourism that we expected after the Olympic games, the Paralympics and other events?
My right hon. Friend was a very able Minister for tourism and he did a superb job. He is right: APD is a tax on our constituents who seek to go on holiday, but it is also a tax on those who want to come here to enjoy the wonderful countryside and the great features of our society, with the associated benefit to our economy.
The APD, as hon. Members know, is the highest in Europe. Denmark, Norway and Holland have scrapped it. Ireland, as my hon. Friend Naomi Long pointed out, has all but scrapped it—it intends to do so in the near future.
As the hon. Member for Witham argued, we have to look at this in terms of the wider economy. I wish to look at it particularly from the perspective of the Manchester city region, and it is good to see Mr Brady in his place. I know that he has a great commitment to Manchester airport. I also see my hon. Friend Graham Stringer, who is a former chairman of the airport. It now serves more than 200 destinations, has 24 million passengers a year, and employs 19,000 people on the site, with many thousands more provided in the wider economy. It is estimated to bring in around £3 billion to the UK economy as a whole.
One of my principal concerns, which I have already mentioned, is that APD is a tax on our constituents. Let us reflect on that for a second. Hard-working families already paying tax on their hard-earned incomes have to pay tax again if they want to take their children on holiday. We ought to think about that. In particular, let us consider the economic problems that APD creates. There is clear evidence that airlines are not coming to Manchester airport because of APD. In particular, AirAsia X has dropped its plans for a route from Manchester to Kuala Lumpur and routed instead to Paris Orly. The airlines will go where the profits are greatest, and with those profits will go the jobs and all the additional economic value.
The hon. Gentleman makes it clear that this is an issue not only for Manchester but for other airports and therefore the whole economy.
I am particularly concerned about the barrier that APD might pose to Manchester’s ambitious plans for an airport city—a plan that fits squarely with yesterday’s report by Lord Heseltine, which locates the focus for economic development absolutely in the city regions, the ambition, skill and energy of which are the drivers of that development. Manchester is at the forefront of that. The plans would result in major investment in manufacturing, office development, retail, leisure and an ambitious plan for a medipark that would mean major international investment in health and biotech industries. All that would be in the area around the airport and, crucially, would be facilitated by the presence of that international airport. It could become an economic hub drawing in investment from across the world, bringing high-value investment, much-needed jobs and links to destinations throughout the world.
The vision for the airport city has the Government’s full support. They have given it enterprise zone status, which brings with it rate relief and access to superfast broadband. It is utterly contradictory, however, to have that plan in place but then to impose on every business passenger passing through Manchester airport a tax on that business. It is like saying to an investor from north America, “We’re very grateful for your business, and by the way it’s going to cost you an extra £65 every time you want to visit that investment.” It is preposterous, and it is a barrier to the kind of economic growth that we need and want.
We cannot wish APD away. As the hon. Member for Witham said, it brings nearly £3 billion into the Treasury, which of course helps to pay for our schools and hospitals, but one way or another we must think our way out of this creatively. I support—I suspect that not all hon. Members would—a further investigation into regional APD variations, because they could encourage the use of spare capacity at some of our regional airports and facilitate the kind of economic development, such as our ambitions for airport city that I have described.
The right hon. Gentleman is making precisely the point that I wanted to make. The way APD is implemented can harm the development of regional airports such as Newquay, so I hope that his idea has been heard by the Economic Secretary.
The Treasury has already considered the argument for regional variations, which has been made before, and I look forward to hearing what the Economic Secretary has to say. It seemed to park the idea after its review, but I hope that Ministers are prepared to reconsider it, particularly to encourage the use of spare capacity and to get behind the vision and drive for economic initiatives such as airport city.
We must recognise the need to accelerate the economic growth that can come from airports. With that growth would come higher tax returns. We have to get off this hook. The alternative is to keep overtaxing the aviation industry, which should be one of our best industries, and to watch it decline further and further under this burden we have placed on it, without facilitating economic development in and around our airports, which could put our constituents back to work and get our economy on the move again. I welcome this debate and hope that the Minister is listening, because this issue has to be addressed.
It is a pleasure to follow Paul Goggins, with whom I share an interest in the importance of Manchester as a key driver of growth, jobs and prosperity in the north-west of England, particularly in the part of Manchester that we both represent. I am pleased to follow the good and cogent case he made about the importance of the airport and of freeing it up to attract more investment into the UK.
I also congratulate my hon. Friend Priti Patel and others on securing this important debate. The case is unanswerable. We always want this country to be a world leader, except when it comes to the levels of taxation we impose on businesses and investment, and on our people when they have the modest aspiration of taking a foreign holiday. That is the position we find ourselves in. I am delighted to see the Economic Secretary in his relatively new position. He is a sensible man and a good Minister, and I hope that he will give this debate a good hearing.
I know that the Government believe in our key point, because they have set about reducing levels of corporation tax with the express intention of making us more competitive in the world and ensuring that businesses see the UK as a place to locate, rather than going to other places. The argument here is exactly the same. We do not want to be at the top of the international league table for aviation tax; we want to be towards the bottom, as that will help to bring in international business and investment.
I am listening carefully to this important debate and I have heard a lot from my constituents about it. I recognise the revenue-raising function, but should we not underline the importance of international competition in transport and capacity, and think more in terms of an holistic approach to this policy area?
That is absolutely right. It is also important to note, as Naomi Long did, that the Government have recognised the strength of this argument, not just in general terms about levels of taxation applied to business but specifically in relation to APD. They understand that in the case of Northern Ireland competing against the Republic there was an unanswerable case for a reduction in APD. It is apparent to us all that precisely the same argument applies to the UK and particularly to the regional airports—which many Members have mentioned—that compete with airports in continental Europe.
The hon. Gentleman seems to be talking as though every tax has a similar effect. It is quite clear that this tax is damaging industry, damaging our enterprise and damaging investment, particularly in the regions, although we have even heard from Essex, which is close to London. Would it not be better for the Government not just to rely on broad taxation, such as the 5p reduction for people earning over £100,000, which has no real targeted effect on industry and enterprise, but perhaps to take the revenue from that broad source and offer relief from this damaging tax?
I do not always agree with the hon. Gentleman, but I am pleased to agree with him about that. This tax precisely targets investment and international trade, which are exactly the things that the United Kingdom needs to focus on if we are to grow our way out of the problems we face.
The hon. Gentleman said that Northern Ireland is competing with the Republic of Ireland, but surely we are all competing with the Republic of Ireland and with each other. We had better make sure we have that mindset; otherwise we will be left very much in the slow lane.
That is absolutely right. Unlike the hon. Gentleman, I hope we will not be competing internationally with Scotland in the near future, but if we are, I hope we have lower aviation duty. The regional effects—on Scotland and Northern Ireland, but also on airports in the north of England—are clear. There is a plain and unanswerable case.
Like my hon. Friend Priti Patel and Paul Goggins, I want to touch briefly on the impact on families. Air travel should not again become a luxury that only the rich can afford. It is not a luxury in the modern world. Air travel, whether for business or leisure, is an essential part of modern life. It has opened up the world, opened people’s minds and enhanced the quality of life for us all.
I have said that I am confident that my hon. Friend, being such a good Minister, will respond warmly to the case we are all making. The final reason for that is that the proposers of the motion have been so modest in their aspirations. The motion highlights some of the damage that we think is being done by this tax, but we do not call for it to be cut or axed altogether. We are asking only for the Treasury to look carefully at its effect before next spring’s Budget. All we want is a proper detailed review and economic assessment of whether this tax does more economic harm than good. I think that all who have spoken so far believe it does.
I congratulate the hon. Members for Witham (Priti Patel) and for Crawley (Henry Smith) on securing this debate. As a co-sponsor of the motion, as well as a seasoned and regular air traveller, I apologise to the House: because of the inclement weather coming in from the Atlantic, I shall try to rush back to Scotland this evening rather than waiting, or having my constituents wait until tomorrow afternoon before they see me.
I do not know whether I was targeted, but as chairman of the all-party aviation group I certainly received my fair share of correspondence on the petition connected with this debate. Indeed, I do not believe I have ever been contacted by as many constituents on any subject in my time in this place, and I have been here for some 20 years. As has been mentioned, the all-party group instigated an inquiry, not only into this tax but into the whole question of aviation and its future in the UK. It was clear from that work—a fairly major inquiry, with some 50 submissions and two oral evidence sessions—that we are likely to damage the whole UK economy unless we get this tax right. That was clear to me and the all-party group, with all conclusions supported by all parties in the House that were part of the inquiry, which is a first when it comes to the future of air traffic.
A report is available, and if hon. Members ping me an e-mail, I will send them a copy, if they have not already read it. The report has been sent to the Prime Minister and a fairly sizeable number of Treasury civil servants have asked for a copy, as a consequence of which I presume that the Minister is aware that the report is in existence. If he has not done so already, I would ask him to look at it, because we still await a response from Treasury officials and the Minister. There is overwhelming support from all sections of the House; indeed, we have already heard—as I am sure we will hear again this afternoon as we approach 5 o’clock—about the disadvantages of air passenger duty, as well as the evidence for those disadvantages. The vast majority of submissions received stated that the UK was being placed at a significant competitive disadvantage as a result of the tax. That applied to 43 of the 51 submissions, which I suggest is overwhelming.
But—and it is a big “but”—it is impossible to draw a comprehensive picture of the national economic impact of air passenger duty without Treasury support in looking at the issue far more closely. I am looking for that support from the Government this afternoon, and I also hope to see their response to the report sooner rather than later. The report also mentioned reports from the British Chambers of Commerce and from Oxera. They were good reports with credible data sources, but they were selective. We need a comprehensive assessment of the effects of the tax, and that is a task for the Treasury to undertake.
There are examples of air passenger duty leading to direct commercial loss. We have already heard my right hon. Friend Paul Goggins talk about Manchester airport, and say that AirAsia X cited ever-increasing taxes as its primary reason for abandoning its flights to UK destinations. I have been given other examples as well. It is a matter of public record that Continental Airlines, now part of United Airlines, would have abandoned flights from Belfast to the United States had the level of APD not been reduced in October 2011.
If only some thought could be given to the idea of regional variation, as my hon. Friend Michael Connarty said. That would have the greatest effect on the regions in question. Only yesterday, Aberdeen, Glasgow and Edinburgh airports called for immediate action on the levy. They estimate that, by 2016, £210 million less will be spent each year in Scotland because of the tax. Glasgow airport’s managing director, Amanda McMillan, has said that APD
“will continue to damage Scottish aviation by making routes unviable and decimating Scotland’s links to the rest of the world.”
As my hon. Friend Sandra Osborne said, the problem is also affecting my own airport at Prestwick.
Given the quote from the managing director of Glasgow airport that the hon. Gentleman has just read out, does he support the Calman commission’s recommendation that air passenger duty should be devolved to Scotland?
The hon. Gentleman might well be shocked by this—indeed, I expect him to fall off his seat—but I do actually support that proposal. I would suggest, however, that any such duty should not be frittered away, as many of the tax receipts obtained by the Scottish Government are. I would suggest that, if it were devolved, it should be hypothecated so that the money could be put into the airports, rather than into some of the other high-falutin’ schemes that happen north of the border at present—[ Interruption. ] I do not know what the hon. Gentleman is saying from a sedentary position, but I will give way to him again if he wants to intervene.
Surely the idea behind devolving APD would be to cut it to make Scotland more competitive.
Order. I warned the hon. Member for Na h-Eileanan an Iar Mr MacNeil) that he would be at the bottom of the list, but there is a danger that he will fall off the list because the amount of time available is disappearing.
In order not to prolong the debate, and to give the hon. Gentleman time to speak later, I will not respond to his intervention.
The report suggests that, as a result of air passenger duty, 2 million fewer passengers will fly from Scotland from 2016 onwards. That is a fair number of passengers, given the number of people who fly. There are other reasons to believe that the problem is more serious in the regions than it is in the south-east of England, but I will not go into them in depth now. Our report recommended that the Treasury and the industry come together to undertake a comprehensive study. I would echo today’s calls that, until such an assessment is made, APD should be frozen.
I shall briefly mention VAT and fuel duty. If either were to be imposed on aviation fuel, the airlines—and not just those based in the UK—would go abroad for their fuel in order not to have to face that problem. Buying it here would simply no longer be an earner. I put it to the Minister that any suggestion of such an imposition should be studied in much greater detail. Indeed, fuel is not taxed for other forms of transport in the UK. There are a number of unconvincing arguments. One is that whereas the UK does not levy VAT on domestic flights, international air travel is generally VAT-exempt in many other countries. There are all sorts of other things that have to be brought into the picture. The aviation sector has no competitive advantage over other forms of public transport.
Let me look at the question of tax and tax avoidance. There is a good deal of evidence coming to the fore to suggest that families, instead of travelling out of the UK long haul, are travelling to other hub airports in mainland Europe and even further afield. As a consequence, the Treasury will lose the business and “Air UK” will lose the business.
Is my hon. Friend aware that travel agents throughout Scotland—and, I suspect, in the north-east, where the regional airports are based—are now actively encouraging people to go via Europe because it will save them quite a bit of money? For a family like mine, going to America otherwise means paying £1,000 extra.
I am very grateful to my hon. Friend, but he is eating into my time and I have to be careful in that what happens in that respect has already been mentioned. I am told that up to £380 extra per person might need to be spent in those circumstances.
In conclusion, as we know from the length of the Davies commission, the Government appear to be in no rush to address the competitiveness problems of the UK aviation industry, which are impacting on the whole of our economy. The abolition or reduction of APD has the potential to make the UK more internationally competitive. As a minimum, I urge the Minister’s Department to undertake research to find out what the impact of APD has been on the aviation industry and what it means for that industry.
This debate is most important for the well-being of the British economy. I would like sincerely to thank the Backbench Business Committee for allowing time on the Floor of the House for today’s debate, and I particularly pay tribute to my hon. Friend Priti Patel for helping to secure it.
It is perhaps of little surprise that I take a great interest in this subject, as I represent the constituency that contains Gatwick airport—the world’s busiest one-runway, two-terminal airport—and it is also the home of a number of aviation-related companies. We have tour operators, globally renowned companies such as TUI Travel and, of course, British Airways operating from Gatwick. We have the headquarters of Virgin Atlantic, an iconic British company that is innovative in the services it provides, and we also have easyJet, now this country’s largest airline with about 40% of the flights from the area—indeed, 1,078 easyJet flights go out of Gatwick airport every week. I am delighted to say that, from next spring, easyJet is starting a new route to Moscow. It is little surprise, then, that many of my constituents who work locally in the aviation industry are deeply concerned about air passenger duty. Mention was made of the number of e-mails that right hon. and hon. Members received from the fair tax on flying campaign, and I believe I received more than 1,000 such e-mails.
It is not for parochial reasons, however, that I speak in today’s debate and raise my concerns again about the level of APD that we charge. Almost a year ago, I was fortunate enough to be granted an Adjournment debate and warned that if APD were to be increased, as was suggested, we would do some real damage to this country’s economic prospects.
I entirely understand why the Treasury is seeking to bring in revenue. We are all acutely aware of what is happening to the national finances. The deficit that we are sustaining is deeply troubling, and although I warmly congratulate the Government on reducing it by a quarter in just two and a half years, it is little wonder that the Treasury does not view with enthusiasm the prospect of giving up an income of almost £3 billion in APD receipts.
Although the Exchequer may be raising between 2 billion and £3 billion from air passenger duty, it may be losing an equivalent amount, if not more, as a result of the reduction in trade and improved economics. Is it not for that reason that we should demand a forward view of the economic impact?
My hon. Friend has anticipated what I was about to say. The Netherlands scrapped air passenger duty after studies conducted by the Dutch Government established that it was costing the economy more than it was bringing into the Treasury. I think that it is for the same reason that only six European countries charge any form of air passenger duty, and the amounts that they charge are very modest.
My hon. Friend is making a very articulate case not only on Gatwick’s behalf but in favour of the change that we all want to see, but does he agree that air passenger duty is not just a London tax? If the Government are interested in supporting the regions of England, at the very least they should bear in mind the fact that a change in APD would make a huge difference to regions such as the north-east and the north-west.
The hon. Gentleman is making a very good case. It is estimated that air passenger duty raises £2.6 billion, which is nearly £1 billion more than the £1.76 billion that it raises in all the other European countries. It is a tax on tourism and trade, and the Government should act before it does more damage. It is estimated that up to £3 million will be lost in trade by 2016 if the present position continues.
The hon. Gentleman is absolutely right.
Members have suggested that we adopt some form of regional banding, but I think that that would be a mistake. I think that the solution is for us to get rid of air passenger duty altogether over time, or at least reduce it to a very modest level. I do not think that we should pit one part of the United Kingdom against another. We, as a relatively small country, achieved global dominance because we are a trading nation, and we either stand together or fall apart when it comes to trade. I think that we need to view the argument holistically, and to see this as very much a British issue.
In the remaining time available, let me deal with some of the misnomers that have been applied to air passenger duty. First, it is not an environmental tax. If it were I would support it, because I think it important for us to reduce our emissions whenever possible, but it is purely a revenue-raising tax—albeit a misguided one and a false economy, because it costs our economy far more than it raises. In fact, we are subject to double taxation when it comes to air duty. The European emissions trading scheme, which was introduced at the beginning of this year, is an environmental tax, and I have no complaint about it; but air passenger duty is almost certainly not.
I also want to debunk the myth that we need APD because aviation fuel and air tickets are not subject to value added tax. Under the conditions of the Chicago convention, it is impossible to charge VAT on aviation fuel and air tickets, but even if it were possible, the current APD represents a far higher amount than VAT would. We are, therefore, greatly overtaxed.
A year ago I had an Adjournment debate in which I asked the Government not to increase APD. I am sorry that I failed in that, and APD went up. Today, we are not calling for a cut in APD, however; we are simply calling for APD to be frozen at its current level until the Treasury assesses whether it is costing our economy more than it brings into the Exchequer, as I contend. The Treasury conducts surveys and studies all the time, and it is perfectly reasonable to ask it to carry out a study on this matter so that we can have some proper facts and figures and are able to make an informed decision.
The stakes are very high. We are a trading nation with competitors, not only in continental Europe but around the world, who are eager to take our business. We will lose out to them if we do not carry out an assessment so that we can understand APD’s impact on our economy and take action if necessary. I therefore hope the Government will respond positively to this reasonable motion. They should carry out a study of the effects of APD. Until that is done, we must not harm the British economy by increasing APD still further.
I support the motion in the name of Priti Patel and others. Aberdeen depends greatly on the airlines, and especially on connecting flights. If the hon. Lady thinks the situation is bad in Essex, she should consider what it must be like for my constituents. Her constituents—and others who live within easy reach of London—have some choice in how to get out of the country; they can travel by Eurostar, for instance. From Aberdeen, however, it is impossible to get out of the country without either flying or spending a very long time travelling.
APD’s great impact on my constituents’ lives is highlighted by the fact that I received more e-mails about the fair tax on flying campaign than any other MP. Although it is good that 800 or so constituents got in touch with me, I do not necessarily want to thank them, because I received half of those messages in a two-hour period one afternoon after British Airways sent out an e-mail to all its executive club members. I thought I was under cyber-attack because my computer went mad; it started constantly pinging. In all the years I have been an MP, this is the issue on which I have received the most e-mails.
Other Scottish Members have mentioned a report published today by York Aviation, which was commissioned by Scotland’s largest airports. Derek Provan, the managing director of Aberdeen airport, said:
“This report shows, quite simply, that APD is damaging Scotland. It is damaging our economy, our tourism potential and our ability as a nation to bounce back from the recession. It limits our opportunities for growth in the employment market, costing as much as £50 million in the process.
At Aberdeen Airport we run a real risk of losing around 200,000 passengers by 2016 through this damaging tax. Each recent increase in APD has had a dramatic impact upon what we, as airports, have achieved and could have achieved without APD. It is imperative that the UK government undertake a detailed and comprehensive review into APD with the utmost urgency, and at the very least freeze APD whilst that is taking place.”
So both Aberdeen airport and other airports in Scotland are being affected because of not only the level of APD, but its existence and the way it acts as a disincentive to those furthest from the hub airports.
Whether or not APD is devolved to Scotland, the problem we face is the level of APD and the way it is operating. Just because a tax is devolved, does not necessarily mean it would be treated any differently in Scotland—
It might be, but it could be treated differently down here, too. The problem I have with devolving some of the taxation that the hon. Gentleman would want devolved is that, as we know, the Scottish
Government have a huge hole in their budget. So in terms of their priorities and how they spend their money, there is a fear that they would see APD as an easy cash cow, as indeed the Westminster Government do. There is no guarantee that a devolved APD would be any different from the one we see here.
Mr Deputy Speaker is shaking his head, so perhaps I should not allow the hon. Gentleman to come back in, because we are getting away from the points I wish to make.
Most people who fly out of Aberdeen connect to other routes. Although lots of the flights from Aberdeen go to other domestic destinations, many of the people on the planes—the ones that Sir Malcolm Bruce and I are on every week—come to London to connect on to another route. I would like there to be a lot more direct flights from Aberdeen, but that, like the debate on the devolved nature of APD, is an issue for another day.
At the moment, most people in Aberdeen who want to travel abroad have to connect through one of the major hubs. The Government are making it particularly difficult to make Heathrow attractive as that hub. It is important for the British economy that Heathrow remains the main hub and that it is through Heathrow that all the traffic going out of the UK is filtered. There are two main reasons why Heathrow is becoming less and less attractive. The first is the system of APD, as anybody connecting through Heathrow is inevitably caught one way or the other. If they have booked their flights in separate lots they get a double-whammy, and if they have a through-flight, they still end up paying APD. Secondly, it would be remiss of me if I did not mention that part of the reason for Heathrow’s unattractiveness is the congestion there because of the lack of a third runway. People in north-east Scotland strongly support the building of a third runway at Heathrow.
Those two things, put together, mean that people in Aberdeen, and possibly in Edinburgh and elsewhere, are more attracted to using other airports as the hub through which to transfer. For people from Aberdeen that means going through Schiphol or Paris—and Lufthansa now has flights on to Frankfurt. Those who book the different parts of their journey separately pay only one part of APD—they do not pay APD on their full flight. So financially that approach becomes much more attractive. The consequence is business loss not only for Heathrow but for the UK carriers, who are suffering the most. That is a real problem and a shame.
We know that there is often no option other than to fly out of Aberdeen. We do not have an electrified rail service north of Edinburgh and we do not—and probably will never—have high-speed rail. It might get to Manchester, it might get to Scotland, but it is unlikely ever to get as far as Aberdeen. It takes too long for us to get a train to the Eurotunnel, so many people are affected by the rise in APD. This does not just affect business travellers. Aberdeen airport survives because we have a very buoyant economy in the north-east of Scotland because of the offshore oil and gas industry, but that economy will not be enough to support the airport if the Government are intent in undermining much of that travel through the increase in APD.
Many business travellers come through Aberdeen and they want to be connected to the whole world, not just part of it. They want to be able to fly through Heathrow and go on to some of the emerging markets, which often also have oil and gas. That is why it is important that the Government should listen to this afternoon’s debate.
Most Members have made the point about the value of the aviation industry to the UK as a whole. It is of considerable value to all the UK’s major conurbations, and particularly to the south-east. Historically, Heathrow has been one of the major—if not the major—hub airports in the world. The interlining that has gone on through Heathrow over decades has been worth almost incalculable sums of money, not merely to the aviation industry but to business as a whole through the people who hold business meetings in airport meeting rooms and the people who come through London and spend money doing business in the City or as tourists. That is what is at stake and it is difficult and dangerous to ignore those facts.
At the moment, the United Kingdom is losing business. Not in 10, 15 or 20 years—it is happening now, today. Every day we lose business to Schiphol, to Frankfurt and to Charles de Gaulle. Would not the French, give or take Mr Hollande, like to create in Paris the financial centre of Europe, to replace London? It is not a pipe dream on their part; it could happen if we drive the business travellers away from the south-east of England. I am sorry that this is to some extent a south-east problem, but that happens to be where the City of London is and we cannot change that.
There are two issues: airport capacity and air passenger duty. My friend Mr Donohoe and Dame Anne Begg both made the point that people are now travelling short haul to interline and take long-haul flights from Schiphol, Frankfurt and Charles de Gaulle. They pay APD on the short-haul flight and get a much cheaper and better deal on the long-haul flight to the far east, Brazil—a developing market—and, of course, the United States. It is happening now.
My hon. Friend is making an articulate case about the impact on the economy of Great Britain, but there is also an impact on overseas economies. For example, the APD banding is so arbitrary and wrong that the APD for somewhere such as the Caribbean is more than for somewhere as far away as Hawaii. Surely that shows the illogicality of this blunt tax.
If I wanted to use one word to describe the banding, it would be chaotic. That is what it is. We are losing business now.
We have an opportunity—I have a constituency interest in this—in Manston, Kent’s international airport. My hon. Friend the Economic Secretary to the Treasury is aware, I think, of the opportunity Manston presents. It has one of the longest runways in the country and also one of the widest—three runways wide—because during the war it was used for landing planes one after the other. There is no suggestion that it should ever become a fourth, fifth or sixth London airport, but it could be developed at very modest cost to take the pressure immediately—not in 10 or 15 years’ time—off Gatwick, which in turn, with released capacity, could take the pressure off Heathrow. That would create the breathing space we need while the Government work out whether to have a third runway at Heathrow, a second runway at Gatwick, a second runway at Stansted or Boris island—that is not the purpose of this debate. If we are to develop Manston and use its capacity, we must give it a chance to breathe commercially, and air passenger duty is damaging that chance.
We need a modest investment in infrastructure, and the Minister of State, Department for Transport, who has responsibility for aviation, will visit us very soon. As long as the air passenger duty element of travel from the United Kingdom is as high as it is, regional airports such as Manston, and the many others that Members across the House have represented this afternoon, will suffer. Because Manston is in the south-east, it will presumably be banded at a south-east price, which in itself is nonsense. We must take into account the nature and capacity of each individual airport. I want air passenger duty to go completely, but I believe that in the interim, as a short-term measure, we have to look seriously at banding, which has been referred to, and at some kind of variation between regional and hub airports.
The Economic Secretary to the Treasury might be new to his role, but he is very bright and he can do sums, which is why he got the job. It is very easy to say glibly that something is worth £2 billion, £5 billion or whatever to the Treasury without taking into account what my hon. Friend Adam Afriyie referred to as the downside. The real cost must be calculated in terms not just of aviation lost, but of lost business, tourism and all the other things that flow from being a world-class, international centre, which is what London is, always has been and must be allowed to remain.
There is a Treasury mantra—I am looking to the civil servants’ box—which says that more tax equals more money. That card was played earlier this afternoon with regard to beer duty. It is wrong. A modest amount of tax might raise a modest amount of money, but there comes a point, and my hon. Friend the Economic Secretary must recognise this, when a tax kills the goose that lays the eggs, whether they are gold, silver, bronze or straightforward eggs. We cannot go on killing this industry, and that is what is happening. Of course, another huge concern has been voiced by holiday travellers. The impact on family holidays is dramatic and costly.
My hon. Friend is making a powerful case. It strikes me that at the heart of the debate there is an absence of evidence; there is an evidence-shaped hole at its heart. All the points that have been made, including his points, could be dealt with cleanly and crisply if the review takes place.
My hon. Friend is absolutely right, and his point leads me swiftly to a conclusion. The sums have not been properly analysed and so we need the review. There is no evidence to support the case that the
Treasury is making. In the meantime, United Kingdom Ltd is being damaged. We need the review. I ask the Minister, please can we have it?
I do not know whether I should thank you for that, Mr Deputy Speaker, but I do thank you for allowing me to catch your eye.
I congratulate Priti Patel, who secured the debate and moved the motion. The debate is important; we can see that from the agreement on both sides of the House and from the number of e-mails, letters and postcards that we have all received. For the first time as a Member of Parliament, I have had more correspondence about a serious economic issue than about the welfare of animals—an extraordinary feat.
I have agreed with almost every word of every speech that has been made this afternoon. By and large I am not an angry person and do not lose my temper, but there should be anger about what is happening to aviation in this country, and air passenger duty is part of the problem. Aviation is absolutely vital to this country’s future; it represents about 4% of the economy when we add up the jobs and its overall impact.
However, aviation is much more important than that. Sadly, we have seen the cotton and other industries go and they have been replaced in the best places by newer, more modern industries. That cannot happen with aviation. This country’s economic welfare depends on its ability to get cargo and people in and out on aeroplanes. We are in a competitive situation to get those aeroplanes to land in this country. In many senses, we are losing that race. I know that the number of passengers expected in Manchester airport’s business plan 10 years ago is down. My guess is that that is true of most of the major airports in this country. They are under a double attack. One attack is on capacity in the south-east. Heathrow is our most important asset in this regard and the sooner the Government make a decision about it the better; I do not believe that any more information can be made available on the third runway at Heathrow. All the information is there and the Government need to stop dithering, make a decision and put some certainty into the issue. The lack of capacity at that hub means, of course, that passengers use other hubs in Europe; they are more profitable and invest in more runways while Heathrow gets less competitive.
Air passenger duty has the same impact. I do not want to repeat figures that have been given out previously, but it is worth going through the figures that show the damage being done. The £2.5 billion raised from air passenger duty is about twice as much as that raised in the whole of the rest of the European Union. A single person flying in the European Union pays about €16 in duty from here; they would pay €3 from Ireland, €4 from Italy, €7.5 from Germany, €5.2 from France and €8 from Austria. Our rates are more than double those of other European countries. We can see the impact of that, not only within Europe but outside it.
It is estimated that Stena Line Ferries is taking 20,000 extra passengers into this country who have flown from India alone. That is a loss to our airports and aviation business. Those are people who have bothered to fly on a plane and then get on a boat. Lots of people would not bother to do that. The trade from China has halved; that is not surprising when we consider how much duty a Chinese family must pay to come to the UK—£648, compared with zero in air passenger duty if they flew into the Netherlands or a number of other European countries.
Henry Smith is not in his place, but he must have hacked into my e-mails, because he made the same points about green taxes that I was going to make. I will not just reproduce what he said. Part of the camouflage for air passenger duty is that it is somehow an environmental tax. It is not—it takes no account of what sort of aeroplane is involved or of the levels of carbon dioxide or other gases coming out of it. It is simply a tax—and an unnecessary one, given that we have introduced the European Union emissions trading scheme. It is doing serious economic damage, and so this very moderate motion asks for an economic impact study. The World Travel and Tourism Council has carried out a study that shows that in 2012 it expects that damage to equate to over £1 billion more than the amount raised. That is an appalling figure, although it may have got its figures wrong. Perhaps we can rely on the Treasury to get the figures right when it undertakes a study.
I do not believe that our economy now, or in future, can afford to maintain this tax. I am happy to support this very moderate motion, but I hope that Members in all parts of the House will be increasingly critical of Government policies that damage one of our most important industries.
I add my congratulations to the Members who secured this debate, not least because the motion is supported by a large number of Members across the whole House. I should declare a particular interest, as Edinburgh airport—voted best European airport 2011 in the 5 million to 10 million- passenger category—lies within my constituency. As a result, I recently took part in the all-party aviation group’s inquiry, which was mentioned by Mr Donohoe. Its report made 15 recommendations, four of which related directly to air passenger duty and mirror the tone of the motion.
When APD was introduced in 1994, I do not think that anyone foresaw the likely levels that it would reach 18 years later. The problem is that in those intervening years insufficient notice has been taken of whether those levels were reaching what Gordon Dewar, the chief executive of Edinburgh airport, has described as a tipping point at which they have a detrimental impact on the economy as a whole.
As the hon. Members for Crawley (Henry Smith) and for Blackley and Broughton (Graham Stringer) said, it is sometimes argued that APD is an environmental tax. Perhaps before the inclusion of the aviation sector in the EU emissions trading scheme, that was a valid argument, but it is far more difficult to make it now. If the tax were levied on a per-plane basis to encourage higher occupancy, or if its levels reflected the fuel efficiency of the planes involved to encourage airlines to upgrade their stock, then perhaps that argument could be made again, but as it stands APD is simply a revenue raiser—and an attractive one to the Treasury, at that, because it is easy to administer, has low collection costs, and to a large extent it is hidden from the end consumer. Nevertheless, the Treasury must examine it to ensure that its overall impact on the UK’s tax take is positive, not negative, as seems to be the case.
Would the hon. Gentleman support the devolution of air passenger duty to Scotland, as some Labour Members seem to do?
I almost thank the hon. Gentleman for his question, but it is a bit of a broken record and tangential to this debate. Devolution of this tax would merely recreate the problem that existed between Belfast and Dublin; my constituents would get in their cars and drive for two hours to use Newcastle instead. We have already heard the argument about regionalisation of APD, which is a far better and more efficient way of dealing with the problem.
Levels of increase in APD over the past five years stand at between 160%, for the bottom rate, and up to 360% for band D long-haul flights. Many submissions to the APPG’s inquiry, and others made since, including one that I received yesterday from the Federation of Small Businesses, make the case that levels of APD are now putting the UK at a competitive disadvantage in relation to other European and global destinations. The evidence is that that shows itself in a number of ways.
First, APD acts as a disincentive to foreign carriers using UK airports as destinations. A number of hon. Members have mentioned the report by the Scottish airports on their perceptions of the effects of APD. It shows that Scotland’s connectivity grew from servicing fewer than 40 destinations in 2001 to almost 150 in 2009, but the figure has slipped back in recent years to about 130. That hampers not only establishing new business markets, but bringing in new tourists to Scotland. The figure also compares poorly with other small European states. Of course, some of those states have major hubs, but Belgium has links to 220 international cities and Denmark has more than 150 such links.
If APD levels hold back local airports and their connectivity, they will also hold back the surrounding local economies. The Edinburgh airport campus employs 5,000 people and its activities support a further 2,000 across Scotland. It estimates that its contribution to the Scottish economy is £146 million, of which £118 million entered the Edinburgh city regional economy. The question must be: could it do more, if allowed?
One of the key debates on the impact of APD is about price elasticity, a phrase that takes me back to 1984, when I was studying economics at Edinburgh university. Different products have different elasticities—the rate at which demand is lessened by an increase in price. On the impact of APD rises, the report prepared by the three Scottish airports estimates that, accumulatively, by 2016 Edinburgh, Glasgow and Aberdeen will carry 2.1 million fewer passengers each year than if APD had not risen since 2007. Price elasticity is lower in Aberdeen, so the impact would be less, but it might still lose
200,000 passengers. Edinburgh’s higher number of low-cost carriers will result in a far higher potential impact—it might lose 1 million passengers per year.
Those are not just numbers; they are business men making connections and sales, and tourists spending money. The 2009 Civil Aviation Authority’s passenger survey suggests that about 36% of international passengers are visitors to Scotland and that 40% of domestic passengers are similarly inbound to Scotland. If we combine the drop in actual and projected numbers with the CAA figures and apply VisitScotland’s average tourist spend, we will see that the results are very worrying.
The 2007 drop in passenger numbers appears to have amounted to a £90 million per annum loss with regard to Scottish tourism. Following the 2009 APD rise, that figure has risen to £160 million and, if projections are correct, it will rise to £210 million per annum by 2016. This simply cannot continue.
Much of what I have said has come from the industry and some might say, “Well, they would say that, wouldn’t they?”, so I did a small internet survey last night via booking sites. I imagined myself as a business man trying to establish trade with some of the BRIC countries and looked at flying direct to Sao Paulo. A flight on
If I was a tourist heading to Las Vegas—this is the worst example—I could get the 11.20 Virgin Atlantic flight for £644, but if I travelled to Dublin for £17 I could get the exact same flight from there for £453. That is a saving of £191, for which, once I arrived in Las Vegas, would buy me the “hound dog” package, whereby Elvis would sing three songs to me and I could get a rose bouquet and be walked down the aisle. That would be an interesting use of £191. I think we can do better. When the taxation system causes such anomalies, it is not only Elvis who has left the building; common sense has left as well.
I will be relatively brief, because many of the general arguments about air passenger duty have already been advanced. The UK has the highest air passenger duty in the world, twice the level of the next most expensive, which is that levied by Germany. Only five or six other countries in Europe levy APD and, as we have heard, the Irish Republic, which currently levies a €3 rate, is planning to abolish it altogether very soon as it believes that will help its economic growth.
When the tax was introduced it was relatively affordable, but there have been swingeingly massive increases in recent years. I suppose that highlights the danger of new taxes in general, because they are always introduced at a level that is seen as relatively modest and we are given all sorts of commitments about them, but very soon they start to ratchet up. That happens especially when they are perceived as not hitting people directly.
We know that income tax, national insurance and so on are sensitive matters, but insurance premium tax, APD and so on start by being seen as easy hits. Now, we have got to the stage at which APD is clearly hitting businesses, families, ordinary people and the aviation industry, and that is causing real damage. As Mike Crockart and others have pointed out, it is clearly not an environmental tax but purely a revenue raiser.
Lord Heseltine’s growth report was published yesterday. When one considers the effect of APD on the aviation industry’s economic prospects, it is clear that it is a tax on exports, businesses, tourism and families. Like other right hon. and hon. Members, I have received many representations about it. Many of them have come by e-mail—we have all received the e-mails—but more than a fair share have been made to me personally. I have been stopped at airports by business men, travellers and students, and people have come to my advice centre to raise the issue with me. It is a matter of concern to many people.
I will not go over the effect of APD on families and tourism, because the hon. Member for Edinburgh West has done his research on that and shown the price differences, but the aggressive nature of the tax is a real problem for families. What is most concerning is that it puts us at a severe disadvantage as a country, particularly in the part of the world where I come from, Northern Ireland. It helps our competitors and makes us more uncompetitive. It affects London, of course—as has been pointed out, it is often relatively cheap for people to go to Europe and then fly on long-haul from there—but the implications are particularly severe in Northern Ireland.
I acknowledge, of course, that the Government have granted a concession to Northern Ireland on long-haul flights, but there are other important considerations in Belfast. Sir Malcolm Bruce said earlier that it took seven hours to get from Aberdeen to London by rail or car, and of course it takes considerably longer to get from Northern Ireland to London or the south-east of England by rail or car and ferry. For businesses, there is no alternative to the air link between Belfast and London and the south-east, so that is a unique consideration. It is also now easy to get to Dublin using the new motorway links that have been created. It is therefore attractive and tempting to businesses, tourists and others to travel to Dublin to avoid the APD that is levied on flights out of Belfast.
The Belfast to London route is particularly important. To go off slightly at a tangent, but not too much, we all need to keep an eye on events following the recent merger of BMI and British Airways, which has raised real concerns in Northern Ireland now that Aer Lingus has moved its operation from Belfast International to Belfast City. There are concerns about future links between Belfast and London Heathrow in particular, which need to be monitored carefully.
I received an e-mail the other day from one of my constituents. He said that he flies often, and that his wife is director of a small company in my constituency that regularly sends its employees all over the world. He continued:
“We have both found it to be significantly less expensive to fly out of Dublin, and as I am sure you are aware, this is money lost to both the Exchequer and to our local economy.”
That is the problem in a nutshell. By holding tax on short-haul flights at its current level, we are losing revenue in Northern Ireland and across the country. The tax acts as a disincentive, and something needs to be done. I therefore welcome the opportunity to contribute to this debate, and I join others in paying tribute to those responsible for securing it. I look forward to hearing contributions from other hon. Members.
Of all campaigns in this Parliament, I have received the highest level of communication from my Windsor constituents about the air passenger duty, and that says a lot. My constituents are wonderful people. They are incredibly articulate and eloquent, and although they are extremely good at writing letters on all sorts of subjects, I was taken aback by the level of communication on this issue.
Although we love our noisy neighbour, Heathrow, do not wish to see it close and hope that its status will be maintained, the air passenger duty lies right at the heart of the airport’s future. We will need further capacity in the south-east, but Heathrow is not fully utilised at the moment, and I wonder whether part of our failure to use it to its full capacity is due to air passenger duty.
Let me make some brief observations about APD. First, it is an odd tax in its own right; it is a tax on the free movement of people and goods in our country, the European Union and the world in general. It is a harmful tax—it harms competition and trade—and it is damaging to our reputation and connections with the rest of the world. The tax directly affects people’s behaviour. I am sure that many hon. Members have had their mouse hovering over the online basket when buying air tickets, and then suddenly realised that on occasion, the tax is higher than the price of the ticket. That bizarre anomaly lies at the heart of today’s debate.
It strikes me that there is an evidence-sized hole at the heart of this debate. The Treasury may have conducted reviews into how much revenue is raised and how much money APD brings in, but the absence of a full review leaves a huge hole and lack of information about the overall economic impact of this tax on our nation.
I represent Portsmouth, which is quite a deprived area, and my constituents are concerned about keeping interest rates low and expect the Government to be watchful of the cost of living and life’s necessities. Much like my hon. Friend, however, the volume of mail that I have received on this issue suggests that my constituents are sceptical about whether air passenger duty produces a positive return for the Exchequer.
My hon. Friend puts her point incredibly well. This issue has led to more than 200,000 communications with Members of the House of Commons, let alone the House of Lords and other places. Interestingly, just 100,000 names on a petition would have, in any case, triggered a debate in this Chamber, and the Government would have had to listen closely to that.
APD is a very blunt tool. Mike Crockart referred to his days studying economics in the ‘80s. I also studied economics at that time, and it is clear that air passenger duty does not recognise the elasticity of demand, and potentially the elasticity of supply. It does not differentiate between different types of consumer or passenger.
The APD is also a blunt instrument and an anomaly because it does not deal with carbon emissions or global warming—the EU emissions trading system deals with them. The APD does not recognise opportunity cost. By raising revenue through the APD, the Exchequer might be forgoing a great deal more revenue from trade and travel, which might generate economic activity in other spheres.
The APD is an odd tax, but I should give a little credit to the Government, who had an opportunity to raise even more money from it in the past year or two. Thankfully, they contained the rate of increase. Nevertheless, it is beholden on them to consider the overall economic impact of the APD to ensure we have evidence and move forward on a rational basis and tidy up the matter.
The beauty of the motion is not just its presenter, but the motion itself and the fact that it is reasonable. It is not strident and does not attack the Government, and it is not party political. We have had a free and easy debate because all hon. Members recognise that we are talking about the rational outcome of tax. The motion is not party political or contentious; it is plain common sense. I urge my good and hon. Friend the Minister wholly to embrace the direction of the motion and to commission an overall review of the economic impact of this rather bizarre tax that is holding our country back.
I apologise in advance to you, Mr Deputy Speaker, and to the general public, for the repetitive nature of the comments I am about to make. I genuinely believe that the more people say these things, and the more often we say them, the more the Government will listen.
APD was introduced under the guise of an environmental tax, but all hon. Members know that it simply is not an environmental tax. No money from it goes back into the aviation industry or into the environment—nothing is ring-fenced. However, it is discriminatory against people who live north of the Watford Gap, because they have to pay twice, which is grossly unfair. From that point of view, will the Minister consider the possibility of ensuring that people do not pay APD twice, even if he does not abolish or freeze it, to ensure that it does not discriminate against people?
The APD has a significant cost impact on passengers, and therefore on the UK’s competitiveness and on the profitability of the UK aviation industry. The UK has the highest air passenger tax in the world. Taking air tax, air ticket taxes and airport charges together, the World Economic Forum ranks the UK 134th out of 138 countries. Only six European countries tax passengers for international air travel, and UK rates are twice the level of the next most expensive tax, which is levied in Germany.
A number of colleagues have identified examples of APD. A Chinese family of four flying to the UK must pay £648 APD to fly premium economy. They would pay only £134 to fly to France, and £141 to fly to Germany. A British family of four holidaying in Florida must pay £260 APD to fly economy. A German family of four would pay £141, and a French family would pay just £133.
We should also look at comparators from other European countries. Aviation duty considered by the Belgian Government was never implemented because of concerns about the impact on industry. In the Netherlands it has already been abolished. In Germany, it has led to a significant reaction from airlines, including the withdrawal of low-fare airline capacity. Denmark briefly introduced a ticket tax, but it has since been withdrawn, and of course we know what is happening in Ireland. In Malta, a duty was removed following a legal challenge from the European Commission, with the tax being described as “discriminatory”.
Several hon. Members have asked for an impact assessment, but that has been being carried out for the past 18 years. Currently, the aviation industry contributes £49.6 billion, or 3.6% to UK GDP, supports 921,000 UK jobs, and pays more than £7.9 billion in tax. Glasgow airport in my constituency provides 5,000 jobs both directly and indirectly.
As has already been said, the APD will cost Scotland more than 2 million passengers per annum. Up to 5% of long-haul demand may be lost. There will be a loss of competitiveness, which is important to the economy, and it will have an impact on the tourism industry, with more than 148,000 trips and £77 million in visitor expenditure lost over the next three years. By 2016, APD will cost the Scottish economy up to £210 million in lost tourism spend per annum. Those figures are from York Aviation.
The aviation industry is under severe pressure. Hon. Members may recall the recent terrorist attacks in Glasgow. BAA, the airport authority, has had to make extensive investment in security to make Glasgow airport more secure, and the airlines have also had to contribute. There are significant pressures on airports such as Glasgow to compete, and both management and the workers whose jobs are on the line are extremely concerned about the competitive nature of aviation. We have already heard about the competition from railways. Like Mr Dodds, I am approached by people in airport lounges who tell me that they have done an assessment of travelling from Glasgow to London and it takes almost the same time to fly—given the time it takes to get to the airport, go through security, get on the plane, get to London, get the Paddington Express—as it does on the train. The danger is that we could lose the aviation industry as it stands.
There are other arguments against the APD. Some 200,000 people have written to their MPs calling for an impact assessment, and that is crucially important. Some 90,000 overseas travellers have written to the Treasury asking for similar measures. APD does not do what it was supposed to do. It is not an environmental tax—it goes straight to the Treasury. The three largest airports in Scotland are putting pressure on Members of Parliament to ask the UK Government to look at the tax and do something to help the people in the aviation industry to retain their jobs.
I do not intend to rehearse the arguments that have been made so eloquently by several hon. Members, especially my hon. Friends the Members for Aberdeen South (Dame Anne Begg) and for Paisley and Renfrewshire North (Jim Sheridan) about the impact on Scotland and the wider aviation industry. Like colleagues on both sides of the House, I have had hundreds of e-mails on this subject, and I am delighted that it would appear that the Treasury is beginning to take heed of the arguments.
The issue that I wish to raise is one with which you are familiar, Mr Deputy Speaker. It was first raised with me at last year’s Commonwealth parliamentary conference by many of our colleagues from elsewhere in the Commonwealth, especially the Caribbean. You will be aware, Mr Deputy Speaker, of the excellent work that Sir Alan Haselhurst has been doing as the chairman of the Commonwealth Parliamentary Association to highlight to the Treasury the damaging impact that the current APD rules have on the Caribbean.
It is worth noting that some Caribbean countries, particularly our overseas territories, have not yet moved to a fully mature local economy, and in some the percentage of gross domestic product coming from tourism is astounding. In Antigua, it is 75%; in Anguilla, one of our overseas territories, it is 65%; and in the British Virgin Islands—I am the chair of that APPG—is 58%. The way in which APD is structured has a negative impact on those Caribbean countries, because their rather larger neighbour, the United States, is classed as single zone for travel, so regardless of whether someone is going to Washington DC or Honolulu they pay the same rate of APD. That has a significant impact on the Caribbean’s ability to compete. Of course, it is not just about tourism or business going from the UK to the Caribbean. My hon. Friend Fiona Mactaggart tells me that she has a vast number of constituents originally from Anguilla and that for those who wish to travel home to see relatives, loved-ones and friends the cost is prohibitive.
The right hon. Member for Saffron Walden has previously made representations to the Treasury about this matter, and the Economic Secretary, whom I welcome to his place, will be familiar with the representations made earlier this year by the Caribbean Council of Ministers. I would be grateful, however, if he could indicate whether in the near future he would be prepared to meet a cross-party delegation of Members with an interest in the Caribbean, led by me and the right hon. Member for Saffron Walden—I am sure that Andrew Rosindell and others would be keen to take part too—to discuss the impact of APD on the Caribbean, particularly the overseas territories. I would also be grateful if the Minister could indicate whether the Treasury plans to meet the Premiers and Chief Ministers of the Caribbean overseas territories affected when the overseas territories council meeting, which the Foreign Office holds every year, takes place in December.
Finally, I congratulate Priti Patel on securing this excellent debate. Almost every Member has been thoughtful and added something to the debate, and I look forward to hearing further contributions from other colleagues.
I am pleased to participate in today’s debate. I am a member of the Northern Ireland Affairs Committee, which has spent some considerable time considering this issue, and I am sure that more of my Committee colleagues would have been here today had they not been in Dublin on an official visit. I also congratulate Priti Patel on bringing this matter to the Floor of the House.
I am committed to rebalancing the Northern Ireland economy from its current overreliance on the public sector, but I believe that that must primarily be achieved by growing the private sector rather than cutting the public sector, and the current APD regime is a significant obstacle to that agenda. APD is a commercial challenge to Northern Ireland business and it conflicts with the positive measures being taken to boost tourism and related employment, and to encourage foreign direct investment. It adds to the cost of indigenous businesses, particularly those seeking to grow their export market. The Committee received evidence of that just last week from a large fish processor in Northern Ireland now exporting to the far east but finding APD a huge burden on business. At best, it adds to cost; at worst, it could jeopardise connectivity between Northern Ireland and other UK and international markets.
Although APD was originally relatively affordable, it has increased significantly, particularly on long-haul flights. The increases have been very steep since 2007—up to 260% for short-haul flights—and between 2008 and 2011, for example, the number of passengers carried by Virgin Atlantic decreased by 7.7%, but the amount of APD paid by its passengers increased by more than 45.5%.
Members will be aware that this is an issue I have raised frequently in the House. I apologise if what I say today has been heard before, but until it is fully acknowledged and acted on, it bears repeating. I concur with a lot of what other hon. and right hon. Members have already said, but I want to focus on the impact on Northern Ireland. Northern Ireland is unique, but it offers an effective demonstration in microcosm of the impact that APD can have more widely in the UK. The last time I raised the issue with Treasury Ministers, I was mildly scolded for not first acknowledging the work that the Treasury had done on APD for direct long-haul flights from Northern Ireland. In an attempt to be more charming and to heal those wounds, I will therefore refer to that first on this occasion.
The United Continental flight was hugely important, as our only long-haul direct route, for a number of reasons. First, of the 600,000 passengers it carried in the last six years or so, 40% were in-bound tourists and business visitors. Furthermore, the route’s success is a demonstration to others of the viability of Northern Ireland as a tourism and business destination for direct long-haul flights, and provides a base on which we can build. APD placed the flight in jeopardy because the rates are so much lower in Dublin, which is less than two hours away. I give credit to the Treasury for responding to lobbying by MPs, the Northern Ireland Assembly and businesses and to the report of the Northern Ireland Affairs Committee inquiry into air passenger duty by reducing APD for long-haul flights from Northern Ireland and indicating recently in the Budget that it would be devolved to the Northern Ireland Assembly.
Having I trust paid due regard to the progress made, I still have to acknowledge that the change does not assist with the unfair burden placed on Northern Ireland by air passenger duty on necessary regional flights or the double duty that is paid, as our access to the UK hubs often requires separate flights owing to the small number of through carriers. UK economic policy remains to focus development on the south-east;, so other regions need to access that market to develop. In addition, the main hub airports in the UK for international travel are based in the south-east. Connectivity to and through the south-east is therefore vital, yet for those of us living on an island off an island it can only be achieved by flying.
The case for a review of APD is strong across the UK. We are island nations and aviation is crucial. However, in Northern Ireland the situation is more acute, as we are the only region with a land border with another EU member. Price-sensitive advantage in the Republic has directly affected Northern Ireland, which is something we need to be conscious of. I have mentioned the Irish Government’s intention to abolish the tax. We should note that, despite the huge economic pressure on them to reduce their deficit, low rates of corporation tax and APD are two things on which the Irish Government refuse to budge because they recognise them as key economic drivers.
APD also has a detrimental effect on tourism in Northern Ireland. Ultimately, if people fly to Dublin, they stay in the Republic of Ireland and spend there. We are lucky in Belfast if we can extract a day trip out of their visit. We need people to come and have bed nights in Northern Ireland. We need them to spend their money in Northern Ireland, which is best achieved by getting people to fly there.
I recognise that APD is lower on regional flights, but it is also paid on both legs of a journey. When combined with passenger landing charges for those on regional flights for which Heathrow or Gatwick is the destination airport, APD significantly increases costs for travellers. There is a disproportionately negative effect on those travelling from Northern Ireland, and there are few practical travel alternatives for us.
I want briefly to reflect on two other key issues: the environmental impact of aviation and the financial impact of change. APD was introduced as a means of taxing aviation to reflect the environment impact. I have no objection to aviation paying its fair share in that regard, but APD has long since parted company with that objective and is now merely a revenue raiser for the Treasury. That may sound dismissive, but it is not intended to be. Raising revenue is hugely important, given the context of the deficit, but the international evidence suggests that taxation on aviation is such a constraint on other revenue that it outweighs its benefits. I am therefore pleased to be able to support the motion today, which seeks a proper review of the situation.
In the few seconds I have left, I would like to reflect on the need for us also to consider the impact on outbound travel—
I have a large Caribbean community in Mitcham and Morden, many of whom moved to Britain 20, 30 or 40 years ago. For them, air travel is not a leisure choice, but something they save up for over many years, often from low incomes, scraping together every spare penny to visit their friends and families. For most of us in the Chamber, the people we treasure live close by—my mum lives round the corner. We are not charged £81 in tax to see our friends and families, but to my constituents that is what air passenger duty really is: a tax on friends and family. Let us not forget that those constituents are also a lot less well off than we are. Many are pensioners; others are in low-wage jobs, having come to this country to do the kind of work that the rest of us did not want to do.
Earlier this autumn, I hosted a party here in Parliament to celebrate 50 years of Jamaican independence. Mitcham and Morden has a large Jamaican community, and I wanted to celebrate the role that people from that country and the rest of the West Indies play there. Most had never been invited here before, and I am pleased to say that hundreds of people came along. It struck me that this was a community that had had it hard, yet despite often encountering prejudice and discrimination, they had never stopped. They had worked hard to put food on their children’s plates, yet they also found time to help the community, whether through the church or by setting up local youth groups.
Most of all, it struck me that those people were not only proud to be British but determined never to forget where they had come from. They were proud of their culture, proud of the country that they were born in and proud of the country that they now live in. And they have every right to be proud, because they have improved this country, and Mitcham and Morden in particular. However, I am not proud of the effect that this tax has on them and their families.
I appreciate that when air passenger duty was introduced by the Major Government, it was done with the best of intentions. There are problems with emissions, and the aviation industry has an obligation to reduce them, just as every industry does, but I do not think that imposing a duty on every passenger is the best way to encourage airlines to make their planes produce fewer emissions. It is too crude, and regulating emissions achieves better results, as we are now discovering thanks to the efforts of the European Union—not a body that is often praised. At the time, however, APD seemed a modest way of tackling the problem and, right up until 2007, economy class passengers paid only £5 for flights to Europe, and £20 for flights beyond. Sadly, since then, under this Prime Minister and the previous one, air passenger duty seems to have become more about raising revenues than reducing emissions. In the past two years, APD on flights to the Caribbean has risen nearly two thirds, to £81.
What makes the tax so unfair is that it disproportionately targets poorer, ethnic minority communities. Because of the anomaly that says the capital of Jamaica is more than 4,000 miles from London, while the capital of the USA is not, passengers flying to Kingston have to pay more than people going to airports in the States that are further away. In 2010, that anomaly cost passengers to the Caribbean £5 more than passengers to the US. Now the difference has more than trebled, to £16.
What my constituents want to know is: how can it be fair that those travelling to Kingston should have to pay 25% more duty than much better-off passengers flying to Los Angeles, which is about 20% further away? If anyone were to look at this from an equalities point of view, they would be appalled. The impact falls disproportionately on the lower paid and on the black community. Like many Members, I have been petitioned by hundreds of people about this unfair tax, and the unfair anomaly that I have just mentioned is a major concern.
It was disappointing that the Government’s consultation did not respond to those legitimate concerns. It is already difficult and expensive to fly to Jamaica. I had a quick look on Expedia before coming here, and in the week starting
However, those differences show that the cost of travel for our low-income, ethnic minority constituents is already disproportionately high. Air passenger duty is a regressive tax that only makes that situation worse. If it is about cutting carbon, it should be based on real emissions, and it should not favour wealthy passengers travelling to developed countries such as Canada and the US over people travelling to developing countries in the Caribbean. This Government have failed to take advantage of the opportunity offered by their consultation to introduce a fair alternative, or to tackle emissions meaningfully. That is a source of considerable disappointment.
I was first alerted to the air passenger duty issue about four years ago, long before the fair tax on flying campaign. A large number of constituents were writing to me. Many of them, like the constituents of my hon. Friends the Members for Mitcham and Morden (Siobhain McDonagh) and for Dunfermline and West Fife (Thomas Docherty), had family in the Caribbean. They were concerned about the quantum level of the charging—and if they had known that the income from APD was going to double between 2010 and 2016 from just over £2 billion to almost £4 billion, they would have been even more concerned—but they were more concerned about the unfairness and the fact that under the ridiculous banding system, the capital city system, it costs more to fly to the Caribbean than to Alaska or the west coast of America.
I am grateful for that intervention. I was just going on to talk about the effects not only on families, which is often devastating, but on commercial organisations, and not just those in this country, but, to continue with an earlier example, in the Caribbean as well. I got to meet the Caribbean Tourism Organisation and Ministers from Caribbean countries—sadly, it was here rather than there, but there it is. We share a long historical tradition and we have not just family and cultural ties, but economic ties with the Caribbean. There was and still is a strong feeling that this country was letting the Caribbean down. It came up in many debates under the last Government, particularly during the passage of what became the Finance Act 2009. I found myself in the unusual and uncomfortable position of agreeing with the then Opposition Front-Bench team more than my own. I went to see the then Chancellor with a number of my hon. Friends, particularly my hon. Friend Ms Abbott, who took a strong stand on this issue. When we debated the Finance Bill, I was perplexed that the then Opposition did not push the issue to a vote, as I thought they might have won. I was a little suspicious about why they did not press it then.
Let me remind the present Government Front Benchers what their equivalent numbers were saying at the time, as it bears repetition. Mr Brazier, who was a shadow Transport Minister, gave an interview to The Daily Telegraph in late 2009. He said that his party supported
“a per plane tax rather than the existing one based on passengers” and that
“would scrap the much criticised system of distance bands, which have led to people travelling to the Caribbean paying more than those to the west coast of the US, which is further from Britain. A replacement system possibly using more bands and based on actual distance rather than distance between capital cities…would be introduced.”
“the reform would change APD to tax aircraft rather than passengers, apply to transfer passengers who are now exempt, and charge a lower rate for newer, more fuel efficient aircraft.”
Finally, he said the aim of the reform was to
“properly tax the environmental impact of aviation, not raise more revenue.”
Let us have a look at how many of those promises, made just three weeks before polling day, have been kept. Those same promises appeared in the manifestos of both coalition parties and in the coalition agreement. We are perhaps used to over-promising, particularly from this Government, but this is over-promising on a tuition fees scale. What happened as a consequence? We had the review during the Government’s moratorium on an increase, but after a year of engagement with the industry, the Government decided not to change the tax’s banding structure in regard to different classes of flights or in respect of the application of APD to the regions. The Government’s only proposed reform was to extend APD to business aviation from
“Today’s announcement on the APD is a slap in the face for all Caribbean people. It dismisses all of the research and information CTO has provided to the British Government over the past three years, and it contradicts the message sent by the UK Chancellor…in March 2011 when he cited the discrepancy between the USA and Caribbean APD rates as one of the reasons for holding a consultation on reform of UK APD. The Caribbean is the most tourism-dependent region of the world and the British Government’s decision totally ignores the negative effect that APD is having on our economies and the Caribbean’s business partners in the…travel industry.”
That is a good point.
The fair tax on flying campaign was organised very efficiently, but I do not think that the 200,000 UK residents and about half that number of people living abroad who have written to the Chancellor, either via their Members of Parliament or directly, have been treated terribly well. I have received letters from more than 500 constituents, and I note that Greg Hands has received 1,281. Perhaps there is some justice, as that is only 10 shy of the highest number received by any MP.
I have seen the standard replies sent by the Treasury and by Conservative MPs, and I am dismayed by them. They are positively insulting to the people who wrote those letters. They do not deal with the issues at all; they simply mention that VAT is not charged on domestic flights, which is almost entirely irrelevant when long-haul flights are the issue, and that the business jet loophole will be closed, which, as I have already explained, goes nowhere near dealing with the problem. I feel that my constituents and those of many others have been treated with contempt. They have been betrayed by the Government’s broken promises, and they have received a wholly inadequate response to the campaign that they mounted.
The demands made in the motion are very modest, and an economic case has also been presented. I urge the Minister to accept the proposals in the motion, and I urge the House to vote for it in the event of a Division. I hope that there will be a review which, unlike the consultation that has taken place so far, will enable us to address the real problems that air passenger duty is causing, not only for my constituents—and not only for the poorer constituents mentioned by my hon. Friend the Member for Mitcham and Morden—but for the economy of this country, and the economies of many regions with which we trade.
I note that no Member has spoken in favour of APD, which I think says a lot. In the midst of a recession, when the cult of austerity is starving the economy, taxes such as APD are bleeding the economy. That is not just my view; it is the view of those in the frustrated aviation and airport sector in Scotland, who see themselves as hostages of a Government policy here at Westminster that is damaging their sector and, by logical extension, the wider economy.
Amanda McMillan, the managing director of Glasgow airport, has said:
“Due to the size of the market in Scotland, we will always find it difficult to attain and sustain new routes, and this situation is compounded…further by APD which simply serves to artificially depress demand and dissuade airlines from basing aircraft here.
Unless APD is reformed, people travelling to and from Scotland—who must fly due to the lack of feasible alternatives—will continue to face some of the highest levels of taxation in Europe which is clearly a disincentive to travel.”
If APD were devolved to Scotland, the economy would grow. I should like all taxes to be devolved, so that the benefits of the policies introduced by the Scottish Government could go to the Scottish Exchequer. That is a logical extension, and it is what is happening in all the other countries. I am sure that, given the level of APD in the United Kingdom, no other country would be as foolish as the Government whom the hon. Gentleman supports at Westminster. He wants a Tory Government to have these powers over Scotland, and, given that he is a Labour MP, I find that quite shocking.
It is calculated that APD will have cost the Scottish economy £210 million in lost spending by 2016. So short-sighted is this policy that it will end up with our losing up to £50 million in other taxes through economic activity that will not take place. The Federation of Small Businesses has been damning of the UK policy on this tax:
“The Government’s determination to tax air passengers has resulted in a sustained negative impact on businesses as well as on leisure travel. IATA reported in June 2012 that UK passenger numbers have declined slightly over the past four years at a period when Germany, France and the Netherlands saw growth of between 2-4%.”
That must have damaged our economy.
The UK has embraced this tax in a helter-skelter fashion. It is regressive and it hits the poor disproportionately. It is a poll tax of the skies. It is felt less by millionaires in the Cabinet and elsewhere than it is by others.
Other countries have been wiser in their approach. Some countries that have introduced APD, such as Germany and Austria, have done so at a lower level. The Germans are economically canny, of course, and after they introduced it, they reduced it, rather than increasing it as the UK has done. We must welcome the fact that Aer Lingus is planning to fly to Edinburgh and therefore give us more choice, but there is still the handicap of high APD.
“The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the smallest possible amount of hissing.”
For the benefit of Members, I have translated that passage from the French. We have not had much of a sunny disposition from the Treasury for the past two years, but there has been plenty of hissing—and booing—in its direction.
“At Aberdeen Airport we run a real risk of losing around 200,000 passengers by 2016 through this damaging tax. Each recent increase in APD has had a dramatic impact upon what we, as airports, have achieved and could have achieved without APD. It is imperative that the UK government undertake a detailed and comprehensive review into APD with the utmost urgency, and at the very least freeze APD whilst that is taking place.”
Gordon Dewar of Edinburgh Airport adds:
“This tax has now hit its tipping point where the damage it is doing to Scotland far outweighs the benefits. This cannot stand and must be reviewed as a matter of urgency.”
“APD hits tourism and business and we need to have the power at Holyrood to maintain competitiveness with other countries and fairness to those travellers who have to use our airports.”
The economic mismanagement from Westminster is frustrating people, especially as this Parliament and Government will not devolve this policy to Scotland. I tell Parliament and the wider country, however, that in 2014 people will have a chance to have APD devolved and to give Scotland a competitive edge. After the independence referendum of 2014, I look forward to the devolution of APD, along with everything else, by one means or another.
I will not be churlish, so let me say only that it is a pleasure to follow Mr MacNeil, with whom I have shared a number of flights to destinations both within the UK and further afield. I have therefore heard him speak at great length on some of the issues he has just discussed, but he has still not persuaded me of anything other than that we are better together.
I congratulate those Members who secured the debate. By and large, we have had some helpful and thoughtful contributions, and I was very aware from the outset that a number of Scots were in the Chamber. I was glad to see that. Most of them are still here, although I note that my hon. Friend Mr Donohoe, who has an encyclopaedic knowledge of the airline industry and was warning of inclement weather, is no longer in his place. I am worried that the rest of us might be detained here for somewhat longer than we had wished—I hope that will not be the case.
Hon. Members have made the case for the motion powerfully and persuasively. I am not going to repeat everything that has been said, although some points are worth reiterating because the issue has clearly touched a lot of people. The fact that well over the 100,000 people needed to trigger a debate in this place were drawn to sign the fair flying petition is evidence of that. Although I perhaps did not receive as many e-mails as other hon. Members, I know from my postbag that the issue matters to people. It matters to those who fly for business purposes, for family reasons, and for leisure and holidays.
I undertook a short survey of those who responded to the fair flying petition, asking them for their comments. I heard from a 65-year-old woman who flies from Scotland regularly to see her elderly father, who lives in the south of England; from the mother of a young person who is working overseas as a teacher—she told me that she helps to pay for the flights to enable the visits; and from a grandmother who travels regularly to the other side of the world to see her grandchild, who has a long-term condition. Those are the real-life examples that people were bringing to me. It is important to recognise the strength of feeling on this issue.
There has been wider frustration at this Government’s lack of consistency or urgency on aviation policy, as well as concerns about APD. When the economy has been struggling, the family purse strings have been tightened and businesses are crying out for support, the lack of direction has not been helpful. A number of speeches have dealt with the issues of tourism and jobs. I can tell the hon. Members who mentioned the Caribbean question that I have agreed to meet a delegation to discuss that in more detail, just as I have agreed to meet a number of other organisations after this debate to see where we take things in future.
It is important to remember that when Labour was in government APD was restructured so that it would be based on four geographical bands set at intervals of 2,000 miles. It was intended that travellers flying further would pay a higher rate of duty, but I know that hon. Members have discussed some of the anomalies. The intention was that additional taxes on air travel would be targeted at the most polluting, long-haul flights—again, people have raised issues about that today.
As we heard from my hon. Friend Mr Slaughter, during the election campaign both the Conservatives and the Liberal Democrats argued for reforming APD further. The Conservatives argued that they wished to
“reform Air Passenger Duty to encourage a switch to fuller and cleaner planes.”
The Liberal Democrats’ manifesto contained more detail, suggesting that they would ensure that pollution was properly taxed by replacing the per-passenger APD with a per-plane duty—PPD—and that air freight would be taxed for the first time. They also said they would introduce an additional, higher rate of PPD on domestic flights if realistic alternative and less-polluting travel was available.
Those statements in the manifestos were supposed to be translated into action following the coalition agreement, which confirmed that the Government would
“reform the taxation of air travel by switching from a per-passenger to a per-plane duty” and
“ensure that a proportion of any increased revenues over time will be used to help fund increases in the personal allowance.”
Those allowances were referred to in an earlier debate, and they have been referred to again today.
The Chancellor announced in the 2010 Budget that major changes would be subject to a public consultation. We then saw speculation in the press that the Government had had a change of heart over per-plane duty. Indeed, that was what triggered the organisations coming together to launch the fair tax on flying campaign, to apply pressure in order at least to get some action or clarification on APD.
In the 2011 Budget, the Chancellor announced that the Government would consult on simplifying the structure of APD. He also announced that he was dropping the commitment made in the coalition agreement and not pressing ahead with a per-plane duty, and that APD rates would rise in line with inflation, although the next increase would be deferred for a year. After promises of wholesale reform, the industry and the public heard that he was not only keeping the current structure but raising the rates further.
I am always happy to try to give people credit where it is due, not that I have had to do that often in the Chancellor’s case. There was a consultation and it covered a number of areas, including private jets, different tax bands, premium economy flights, flights from regional airports and the devolution of APD—all the things that people have talked about today. However, having consulted, the Government failed to propose anything. They did not propose any changes to the tax’s banding structure, to how different classes of flights are taxed or to the application of APD to the regions. Instead, they seemed for some time to have given up on any reform of APD at all. They argued, as the Minister did again fairly recently, that although no action had been taken there was no reason for another consultation or review.
I have only a couple of minutes left to summarise the debate and I realise that this subject is very difficult, given the range of considerations that must be balanced—including those of industry and business, the travel trade, airlines, consumers and the Treasury. I recognise the Scottish issues and those in Northern Ireland, particularly those outlined as regards Scotland and the connections with the main hub airports.
My hon. Friend makes a valuable point and I know that he has raised that question on a number of occasions. A sensible review would allow us to consider such matters. For the Government to undertake a consultation and take no action, without even considering any further work on the issue, was disappointing and showed a lack of leadership. It did not go unnoticed by the aviation industry, and we have heard a string of comments from the travel organisations, airlines and consumers. The Select Committee on Transport stepped in, in a sense, with its inquiry into aviation. The Chair helpfully confirmed that that inquiry would consider APD issues and it has provided an initial focus.
In conclusion, I hope that the Chancellor and the Minister, who will relay this debate to him, will take note of what has been said today and will consider and act on the findings of the Transport Committee’s report when it is published. Many Members are arguing for action and a review. The motion is modestly worded, although at some points I might not have worded it in such a way. However, in the spirit of co-operation, we want to ensure that we have the opportunity to consider the issue in more detail. We recognise the significant economic issues in the UK that need tough decisions, but such decisions should be based on the best available evidence.
The consistent message coming from all sectors of the industry is that the lack of certainty is causing problems, delaying investment decisions, risking future development and, crucially, risking jobs. I hope that the Minister, who comes fresh to this issue—indeed, he is the third Minister I have faced across the Dispatch Box in the relatively short time for which I have been shadow Minister—will take account of the points that have been made today, take away the work that needs to be done and introduce the review asked for in the motion.
We had an excellent debate earlier on beer duty and now we are discussing APD. I am pleased that, as far as I know, there will be no debate on fuel duty this afternoon. After this debate, I would like a cold beer and a trip to the Caribbean.
I congratulate my hon. Friends the Members for Witham (Priti Patel) and for Crawley (Henry Smith) on securing the debate. I will address some of the specific issues raised by my hon. Friends and by all hon. Members —I believe that 15 spoke from the Back Benches.
As the Minister responsible for air passenger duty, I would like to acknowledge clearly the important contribution the aviation industry makes to the growth and development of the UK economy. The sector connects millions of UK consumers and businesses with international markets, enables tourism to and from the UK and makes long-distance visits between families and relatives possible. I also recognise that recent economic conditions and the global downturn have been challenging for both consumers and the aviation sector. However, there are positive signs for the industry, as evidenced by the recent increase in recorded passenger numbers. I believe that the aviation sector will continue to play an important role in helping the UK economy back to health and strong growth.
I would like to say a little about my own experience. Before being elected to the House, I spent 20 years doing business in emerging countries, and I did that from New York, London and Singapore. I relied very much on the aviation industry and on global international hubs. Therefore, I understand the importance of global aviation to the UK economy if we are maintain our position as one of the world’s leading financial and business centres.
Let me respond to the hon. Members who have expressed concern about the overall level of APD and the impact of recent rises in the duty. The real-terms increases in APD in 2009-10 and 2010-11 were legislated for by the previous Government. Despite the challenge of the budget deficit we inherited, this Government have limited the rise in APD to inflation over the period 2010-11 to 2012-13. Also, in recognising the sector’s need to plan ahead, we have sought to provide airlines and passengers with clarity on future rates. The 2012 Budget set out APD rates for 2013-14, and again the rise is limited to no more than RPI inflation. The real burden of APD will therefore remain unchanged for a further year, as my hon. Friend Adam Afriyie helpfully recognised.
Hon. Members have today raised concerns about the impact of APD on the UK’s competitiveness and ability to attract inward investment. My hon. Friend the Member for Witham described us, rather intelligently, as being in a global race, and she is absolutely right. The UK has the third largest aviation network in the world, after the USA and China. The Government wish to ensure that UK airports and airlines remain internationally competitive. In that regard, it is important to consider the tax system as a whole.
The Government are committed to creating the most competitive tax regime in the G20, and we have already made significant progress towards that aim. The corporation tax rate has already been reduced to 24% and will be cut to 22% in 2014, which is significantly lower than, for example, the rate in the United States, France and Germany. The further cut in the main rate of corporation tax was warmly received and has encouraged businesses that had previously left the UK to return, such as WPP. It is also encouraging new businesses to relocate to Britain. For example, Aon, one of the world’s largest insurance brokers, has announced plans to relocate its global headquarters from Chicago to London.
Changes to controlled foreign company rules have also been welcomed, with the CBI stating that the new rules will meet the Government’s objectives of simplification and greater competitiveness. As part of the Government’s ambition to increase exports, in July 2012 we also announced a £5 billion export refinancing facility, to be delivered through UK Export Finance as part of its UK guarantees. That will help banks to provide long-term trade finance for UK exports.
Let me say a little about the Government’s approach to APD. I know that some hon. Members have called clearly today for a cut in APD, or at least a freeze in cash terms, but let us be frank about the situation we find ourselves in. Let us not forget that when we came to office we inherited a fiscal deficit of historic proportions. We were burdened with the largest budget deficit in the developed world: £159 billion in the last year of the previous Government, which was more than 11% of the country’s income. At that rate, the previous Government were borrowing more in one week than we raise in one year with APD. The Government’s position is that there can be a sustainable platform for economic growth only if we are willing to tackle that overspending. The plan has earned credibility around the world. Our actions to reduce the deficit and rebuild the UK economy have secured interest rates at near-record lows, benefiting thousands of businesses and families alike. APD is forecast to raise about £2.9 billion in 2013-14. Those revenues will be important if we are to maintain progress towards our goal.
I also remind hon. Members that international aviation is generally not subject to tax on fuel and, in contrast to many other countries that apply VAT on domestic flights, no VAT is levied on international or domestic flights in the UK.
Let me also address hon. Members’ concerns about inbound tourism. The Government continue to place great value on the tourism sector, which makes an important contribution to the economy. Tourism is one of the largest industries in the UK and our third highest export earner, worth around £116 billion to our economy, or roughly 9% of GDP. The Government remain focused on building a long-term tourism legacy from the Olympic games, with Visit Britain investing £125 million in one of its largest international tourism campaigns. One ambition is to raise the number of Chinese visitors from 150,000 now to 500,000 by 2015. Visit Britain is developing a specific marketing plan for China to respond to that challenge.
Domestic tourism is also very important. Of course, for tourism to grow, it must remain affordable. We acknowledge that family budgets are being squeezed and we have to take action to help. The changes to the personal income tax allowances that the Government have already made have helped the budgets of more than 25 million individuals and taken 2 million people out of income taxation altogether.
Our action to reduce the deficit has led to near-record low interest rates, which have also made a contribution. We must not forget that. If interest rates today were just 1% higher than they are now, businesses—particularly small and medium-sized enterprises—would face an additional interest rate bill of almost £10 billion in total, and the average mortgage for a family would rise by almost £1,000 a year.
Let me also address concerns that hon. Members have raised about the 2011 APD consultation and calls for further research. The consultation examined whether reforms to the design of APD could improve the overall fairness of the tax. Following the consultation, we confirmed that APD would be extended to business jets, and the majority of people who responded to the consultation agreed with that.
However, in weighing up the case for reform, the Government recognised that no banding structure could be entirely free of anomalies. A number of hon. Members have mentioned flights to the Caribbean. They have made good points on that issue, which we have heard about before in the House. Thomas Docherty asked whether I would be prepared to meet him and a delegation; I would be more than happy to do so. The hon. Members for Mitcham and Morden (Siobhain McDonagh) and for Hammersmith (Mr Slaughter) also eloquently referred to flights to and from the Caribbean.
A revenue-neutral change would have required 90% of passengers—those who fly to band A destinations across Europe and band B destinations, such as the
US—to pay more for their flights. The Government felt that, in the current economic climate, it would not be fair to ask the majority to pay more to help fund a cut in APD for the minority. They therefore decided to retain the existing structure of four APD distance bands.
I hope that the Minister recognises that his words are extremely disappointing to many of my constituents who travel regularly to the Caribbean—[Interruption.] I have been watching the debate on television. Those constituents will be very concerned about the Minister’s words. Will he reconsider the issue and look at a more granulated banding system that would ensure that those from the Caribbean were not particularly disadvantaged? I recognise his point about asking others to pay more, but the situation is surely unfair for those who are travelling not very far—not as far as to the US.
I thank my hon. Friend for her intervention. I am pleased to hear that she has been glued to her television set watching this debate. I take her point about the Caribbean. Several hon. Members have made a similar point, and I have listened carefully.
The hon. Gentleman has spoken about having a revenue-neutral tax. When the Government cut taxation from 50% to 45% for millionaires, did the revenue-neutral consideration enter into that equation?
Absolutely. I can assure the hon. Gentleman that the effects on taxation were taken together and that the Government had determined that the extra 5% was raising hardly any tax whatsoever.
Given that we have recently completed a comprehensive consultation on the subject, we have no plans for further reform at this point.
Would it not be reasonable, though, to have a study, as proposed in the motion, to see the impact on the economy that air passenger duty is having? Surely a study by the Treasury is a reasonable thing to request.
I thank my hon. Friend. I will come to that point in a moment.
As I said, we have no plans at this point for further consultation, but we are keen to ensure that the aviation sector can continue to enable economic growth and support jobs across the country. APD makes an essential contribution to the public finances and to this Government’s plan to create a stable platform for growth.
This has been an excellent debate that has given me and the Government much food for thought. There have been excellent contributions from Members in all parts of the House, and I assure them that I have been listening very carefully. Should the motion pass; I have a feeling that it might well do so—
I thank the hon. Gentleman. We have looked at these issues in the consultation, and I believe that I have addressed them.
I have listened carefully to the debate, and the many thoughtful contributions from Members on both sides of the House have been very valuable. Should the motion pass, then of course the Government will take note of Parliament’s view; it is important that we listen to the views of Parliament. Let me conclude by thanking my hon. Friends the Members for Witham and for Crawley for raising this important issue with the House.
I thank all right hon. and hon. Members for their contributions to this powerful debate in which we have heard about the impact of this tax on hard-pressed families and businesses, and about its counter-productive nature. I thank my hon. Friend the Minister for his remarks. I hope that he and the Treasury will keep a very open mind about the call in the motion for an economic assessment and a full review and will not rule it out, because, as we have heard, this tax is having a counter-productive impact on the economy. All Members present will continue to press him and the Treasury to secure a review in future.
Question put and agreed to.
That this House believes that the UK’s air passenger duty acts as a barrier to economic growth and deters both inward investment and inbound tourism; notes the financial impact on families of the rising costs of air passenger duty; further notes the impact on British businesses wishing to export and take advantage of business opportunities overseas; notes that the current air passenger duty regime is the highest air passenger tax in the world, which makes the UK less competitive than countries with lower aviation taxes; further notes that over 200,000 members of the public are calling for a review of the economic impact of air passenger duty; calls on HM Treasury to commission a comprehensive study into the full economic impact of air passenger duty in the UK, including the effects on jobs and growth, reporting in advance of the 2013 Budget; and calls on the Government to use the evidence from the study to inform future policy-making.