Clause 118 - Air passenger duty: extension of area

Finance Bill – in a Public Bill Committee at 9:30 am on 20th June 2002.

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Question proposed, That the clause stand part of the Bill.

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Transport)

I wish to make some short points on the clause. Can the Economic Secretary explain why the Treasury is taking the power to amend the list of qualifying countries by order? That power could be very useful; it could have been very useful following 11 September. Circumstances can change and the market can change. Can he give the Committee an idea of what criteria the Treasury will use in exercising the power that it is taking under the clause to amend the list of countries? Were there to be, God forbid, a similar tragedy to that on 11 September, would the Government think of using that power to help compensate for a fall in trade between this country and certain destinations overseas? I should also be grateful for confirmation that the reduced rate will apply to flights to northern Cyprus.

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

It may help the hon. Gentleman if I set out the purpose of the clause and some of its background. I shall deal with his specific points as I come to them. The answer to his questions will become clear in the course of my remarks.

Clause 118 introduces duty reductions for nearly 4 million air travellers a year by extending the areas in which airlines pay air passenger duty, APD, at the lower rate of £5 or £10, depending on which class of air travel passengers choose to use. The change will come into effect on 1 November 2002 to coincide with the start of the winter season.

At present, the lower rates of APD apply to passengers flying to European countries that are signatories to the 1992 agreement on the European Economic Area—the 15 European Union states plus Iceland and Norway—and to certain European Union member states' dependent territories. The clause's effect will be to extend the area to include Switzerland and countries that are applying to join the European Union. Therein lies the rationale for the power that the hon. Gentleman questioned. It will allow for expansion of the EU and an ability to make the provisions of the clause fit any future extension without resorting to primary legislation.

Passengers flying to Bulgaria, Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Romania, the Slovak Republic, Slovenia and Turkey will pay £15 or £30—depending on the class of flight—less per flight than at present. I shall return to Switzerland in a moment, which is the additional country under the provisions. We are introducing those changes in anticipation of EU enlargement, which was not catered for when the original air passenger duty legislation was drawn up under the Conservative Government in 1994.

We are also taking the opportunity to standardise the duty treatment of passengers flying to Switzerland. Currently, there are two Swiss airports where passengers can exit in both Switzerland and France. Those airports are considered to be inside the European Economic Area for the purposes of APD, whereas other Swiss airports are not. The two airports that come within the APD provisions are Basel and Geneva, and the three airports that do not are Lugano, Zurich and Bern. The change means that a passenger flying to any Swiss airport will pay APD at the lower rates.

The changes have been widely welcomed. The Association of British Travel Agents said:

''This is very good news—passengers, airlines and tour operators will benefit''.

In response to the EEA rates to Switzerland, the British-Swiss Chamber of Commerce was warm in its welcome. Immediately following the Budget in April, it said:

''The British-Swiss Chamber of Commerce . . . joins airlines and business leaders in applauding the decision of the British Government to slash air passenger duty''.

Photo of Edward Davey Edward Davey Shadow Spokesperson (Office of the Deputy Prime Minister), Shadow Minister (Olympics and London), Liberal Democrat Spokesperson (Olympics and London), Liberal Democrat Spokesperson (Office of the Deputy Prime Minister)

I am pleased to hear how many people in other countries are applauding the change. During a previous Finance Bill, I raised the issue of flights between Penzance and the Isles of Scilly on which APD is charged. Those journeys do not enjoy the zero exemption enjoyed by flights to the Scottish highlands and islands. Has the Economic Secretary had a chance to consider that, and will the Government ensure that the exemption will apply to those other internal UK flights?

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

We always take careful note of the hon. Gentleman's comments in debate, but the clause does not cover what he proposes.

Passengers flying to destinations in northern Cyprus or the rest of the island will pay the new lower rates of either £5 or £10 depending on their class of air travel.

The revenue effect of the measures will be a loss to the Exchequer of about £25 million in the current financial year, which will rise to about £70 million in a full year. Despite that, we have decided not to raise the rates of APD. It has been a difficult year for the airline industry and although there are some signs of recovery we concluded that in the present circumstances increases in the APD rates would not be appropriate. Given that explanation, I invite the Committee to support the clause.

Question put and agreed to.

Clause 118 ordered to stand part of the Bill.