Air Passenger Duty (Caribbean)

– in Westminster Hall at 12:30 pm on 26 January 2010.

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Photo of Roger Godsiff Roger Godsiff Labour, Birmingham, Sparkbrook and Small Heath 12:30, 26 January 2010

I welcome the opportunity to have this short debate on a subject of great concern to members of the Afro-Caribbean community in my constituency.

Let me make it clear at the start that I am not challenging the concept of the air passenger duty, which is charged on all passenger flights from UK airports. In 2008, the Government consulted on proposals to replace air passenger duty with a per-plane tax and subsequently chose not to go down that road. I have no complaint about that or about the Treasury's decision to retain air passenger duty and add a greater number of distance bands. The reason why I am raising this issue is that the changes in the banding system impact unfairly on the Afro-Caribbean community, whose members began coming to the United Kingdom more than 50 years ago, but who retain strong links with their extended families in the Caribbean and regularly travel backward and forward to maintain those links.

I acknowledge that aviation could account for 21 per cent. of total UK greenhouse gas emissions by 2050 and I totally support the Government's desire to address the problem as part of their commendable action to combat the effects of climate change. I am sure that the Minister will elaborate on that when she responds, but I repeat that I am not challenging the concept of air passenger duty or the way in which the Government chose to increase the number of distance-based bands. However, I cannot accept that it is fair or equitable for someone visiting family in one of the poor countries of the Caribbean to pay a higher rate of air passenger duty than someone visiting America, the richest country in the world, purely and simply because the capital of America, Washington, is on the east coast rather than the west coast of the USA.

The criterion on which the four new geographical bands are based is the distance from London to the capital city of the country to which somebody is travelling. That might appear sensible, but it depends solely on where the capital city is, even in a large country such as America. Washington is on the east coast of the USA, so the whole country falls into a lower band than the Caribbean countries. No account is taken of the fact that many states in the USA, such as California on the west coast, have larger GDPs than many Caribbean countries and are considerably richer. Furthermore, the criterion relating to the distance between London and the capital city of the destination country is not uniform throughout the world, and the Russian Federation is treated as two separate entities, one to the east and one to the west of the Urals.

Many Caribbean countries are extremely concerned about the impact that the inclusion of the whole Caribbean in band C could have on their tourist industries. Those industries are crucial to their economies, particularly when a competing destination- Honolulu in Hawaii-is in a lower band because Hawaii is part of the USA.

I am particularly concerned, however, about the effect that the new banding will have on the Afro-Caribbean community in my constituency and in the rest of the United Kingdom. The Afro-Caribbean community has been an integral part of the life of the United Kingdom since the first large-scale arrivals on these shores on the Windrush in 1948. Not long ago, we saw the 60th anniversary of the arrival of the Windrush, and the Government rightly recognised it and the continued contribution of the Afro-Caribbean community to the development of the United Kingdom.

Many of the first arrivals from the Caribbean started by working in poorly paid jobs in the public sector, and the Minister of Health in the Conservative Government of the 1950s actively encouraged young women from the Caribbean to come to the United Kingdom to take up nursing positions in the NHS. That they did, and it would be true to say that they have been crucial to the workings of the NHS ever since. The fact that the Minister of Health in question was a certain Mr. Enoch Powell, who subsequently became notorious for his "rivers of blood" speech in Birmingham in 1968, is one of the interesting contradictions of British history.

I make these points to emphasise the fact that the Afro-Caribbean community has played a huge part in the development of our society, and it continues to make a massive contribution. The Afro-Caribbean community, particularly the older generations, have a reputation for being law-abiding, religious and family-oriented. They travel regularly to and from the Caribbean in order to maintain contact with their extended families. Because the Caribbean is classified as band C, a family of four in my constituency who wish to travel to the Caribbean will pay £300 in air passenger duty for a return flight from November 2010. That is a lot of money for families living in my constituency, which has some of the largest pockets of deprivation in the country.

Even more bizarre, and it rightly angers the Afro-Caribbean community, is that other British families-such as David Beckham, his wife Posh and their three children, who are domiciled in California-can travel there from 1 November 2010 and pay the same £300 in air passenger duty as my constituent, his wife and their two children.

I accept entirely that the Government understand the problem. During a debate on the Finance Bill in 2009 the then Parliamentary Secretary to the Treasury, now the Minister for Pensions and the Ageing Society, my hon. Friend Angela Eagle, acknowledged that there were anomalies in the new four-band system. She said:

"We have gone for the rough-and-ready approach. I understand the points that are being made about some of the anomalies with capital cities, particularly Washington in relation to destinations in other US states and in Caribbean countries. However, I suppose that a rough-and-ready calculation is precisely that, and one can always find anomalies."---[Official Report, Finance Public Bill Committee, 2 June 2009; c. 165.]

The current Exchequer Secretary indicated during the Report stage of the Finance Bill on 8 July 2009 that the Government were looking again at how the new bands were impacting on Caribbean countries. We are now six months further on, and still the rough-and-ready approach has not been refined to rectify the unfairness on those in the Afro-Caribbean community in this country who wish to maintain their traditional family links with the Caribbean by travelling there regularly.

The Exchequer Secretary has been corresponding with me on this matter for nearly a year. She points out that resolving that unfairness against the Afro-Caribbean community is not as easy as it would seem. Bearing in mind that her predecessor made it quite clear that the banding system was a rough-and-ready approach, I suggest that all Commonwealth countries should be put in a separate band. We are continually told, rightly, that the Commonwealth is a special institution that is based on ties between all the countries, with the Queen as its head and the United Kingdom as the mother country. Such a suggestion may be rough and ready, but it is no more so than the current banding system. It has at least as much logicality, because up until the late 1960s every Commonwealth citizen had an automatic right to come to the United Kingdom and settle in the mother country, without any immigration controls being placed upon them. I therefore hope that the Minister will specifically indicate to our Afro-Caribbean community whether the Treasury intend rectifying the financial anomalies that have arisen through the rough-and-ready approach, and when they intend to do so.

The matter will not fade away, and anger in the community will become even greater if nothing is done and the increase in rates takes place on 1 November 2010. That is the sole reason why I asked for this debate. I appreciate that the Minister may want to talk about the principles behind air passenger duty and the banding system, but she does not need to do so. Instead, she needs to concentrate her mind, if she will forgive my saying so, solely on the question that I pose again and again: does she believe, as a fair-minded person- not as a Treasury spokesperson-that it is fair or equitable that a celebrity family, such as David Beckham, Posh and their three children, can travel to and from their adopted home in Hollywood and pay £300 in air passenger duty in November 2010, while a husband and wife in my constituency, working in low-paid jobs in the NHS, who take their two children to see their grandparents in the Caribbean have to pay exactly the same amount?

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Parliamentary Secretary, HM Treasury 12:41, 26 January 2010

I congratulate my hon. Friend Mr. Godsiff on securing this debate. This issue has been raised with both me and the Chancellor by my hon. Friend and many hon. Members.

Before I get into the detail, I should like to say that I agree with my hon. Friend about our relationship with the Caribbean, and with his excellent points about the contribution to this country of the Caribbean community and the many other people who have come to these shores.

My hon. Friend has already mentioned some of what I am about to say, but I would like to start by talking about the background in order to explain how we came to this point. I will come to the Caribbean specifics later, but it is important to put those in context.

Air passenger duty was introduced in 1994 to broaden the tax base. There was a two-band structure, charging a different rate for flights to European and non-European destinations. Since its introduction 16 years ago, rates have changed only four times, including a reduction in economy travel rates in 2001. Rates were frozen between 2001 and 2007 and again for 2008-09.

In 2008, the Government consulted on proposals to replace APD with a per plane tax, considered carefully its evidence and merits and decided against introducing it at that point. That is why we announced in the 2008 pre-Budget report that we would reform the existing APD regime from its two-destination band structure to a four-band structure. Several factors were behind that decision. We felt that we needed to ensure greater stability in tax policy at a time of great economic uncertainty and global challenges-the world was moving on. In addition, a unanimous agreement was reached by EU member states in October 2008 to include aviation in the EU emissions trading scheme. There was a need to maintain commitment to environmental objectives, especially to ensure that the structure of aviation tax sent environmental signals to passengers and the industry alike.

In the economic circumstances, we needed to mitigate the potential impact on the airfreight sector, and the impact on employment in this sector and on the wider business community that relies on airfreight services. We also needed to mitigate the potential impact in the regions on direct employment and connectivity. The need to avoid the disruption and costs associated with the transition to another tax had to be considered, as did the relative simplicity of reforming the existing APD regime better to reflect environmental impacts. Many respondents suggested that any banding system should have more than three distance bands and that tax should be levied on final destination. We implemented the reforms on 1 November 2009.

Compared with the previous system, the reform of APD raises revenue and strengthens the tax's environmental signal. Although the externalities arising from air travel are hard to calculate precisely, APD was not designed to be an exact match for this cost, but as a revenue-raising instrument. However, where possible and appropriate, it is right for the structure of revenue-raising taxes to reflect environmental benefits, as in the case of the reformed APD, which it is estimated will save an additional 0.6 million tonnes of carbon dioxide in 2011-12, contributing to reducing the risk of dangerous climate change.

The introduction of four bands into the reformed APD reflects the responses to the consultation on a per plane tax, which highlighted that aviation taxation should recognise distance flown as a factor. To strengthen the environmental signal in APD, destinations have been banded in a straightforward, transparent, and administratively simple way. The bands have been set at 2,000-mile interval, and what band a country falls within is determined by how far its capital is from London.

A geographical banding structure balances the aim of sending a stronger environmental signal with the need to make the reforms easy to implement. Ticketing systems are based on national territories, so it is easiest to base the tax on countries. Any banding system will contain some discrepancies, and although reform might remove some, it will create a set of others. Using capitals as a proxy for countries was, in our judgment, the most straightforward approach globally.

I recognise that my hon. Friend and the many hon. Members who have written to me feel that the reform of APD will affect travellers to the Caribbean. The tax on an economy class ticket to the Caribbean will rise by £35 per person after the two tax increases of 1 November last year and 1 November this year. That is not likely to be the only factor affecting ticket price, or the sole determining factor in the decision whether to purchase a ticket. The same £35 increase will apply to any other country whose capital is in the same band: that is, between 4,001 and 6,000 miles from London.

One point raised by my hon. Friend and in letters to me is that tickets to the western US attract a lower rate of APD than tickets to the Caribbean. However, APD rates to the US cannot be split into the eastern and western halves of the country without adding significant administrative complexity. Even if they could, of course, that would not affect the absolute rate of APD on tickets to the Caribbean.

My hon. Friend mentioned Russia. As I said, airline ticketing systems are based on national territories. In the case of Russia only, ticketing distinguishes between the eastern and western halves of the country. We have been able to design the tax to incorporate that distinction because it is administratively easy for the airlines to do so, but that is not the case in the USA. As I said, any banding system will contain some anomalies.

However, the Chancellor and I have committed to continue considering the issue to work out whether there is a way to mitigate the impact of APD reform on ticket prices to the Caribbean within the constraints of European and international law, as well as considering the effect on the public finances. Given the fiscal situation, the Government cannot accept options, such as just decreasing APD rates, that would reduce the APD revenue expected. We also cannot move the Caribbean countries alone to another tax band without objective justification. The Chicago convention on international aviation requires us to treat other countries equally.

My hon. Friend also raised the possibility of putting Commonwealth countries into a separate band. Unfortunately, such a move would be illegal under European Community law, as well as discriminatory and thus contrary to the Chicago convention. The Government have considered basing the tax or tax band on the exact distance of flights, rather than the distance to the capital. However, that would be illegal under the Chicago convention, to which the UK is a signatory. Some have suggested that moving to a per plane tax would help, but there is no reason to assume that moving to such a tax would result in less tax on flights to the Caribbean. In fact, implementing a per plane tax, as consulted on in 2008, would have resulted in more tax being paid on flights to the Caribbean than the reformed APD.

The UK and other like-minded states believe that the current practice of exempting aviation from taxation on fuel used for international services is anomalous and has succeeded in increasing the International Civil Aviation Organisation's focus on the environment. However, it has not yet been possible to reach consensus within ICAO regarding specific economic instruments.

Photo of Roger Godsiff Roger Godsiff Labour, Birmingham, Sparkbrook and Small Heath

I have listened with interest to what the Minister has said. I understand that administrative simplicity, over-ticketing and the Chicago convention are important. Does she think it fair that a family of two adults from the Afro-Caribbean community, working in poorly paid jobs in this country, who take their two children to the Caribbean, should after 1 November pay £300 in air passenger duty, whereas a celebrity family travelling with their three children to Hollywood would pay exactly the same?

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

The point I am trying to make is that unless we attach a specific tax to a destination any banding system will create anomalies, so that some people pay the same in one band as people in another. We are not, under international law or the Chicago convention, able to be exact about distance so as to bring about the fairness my hon. Friend wants. We are trying to devise a system as close as possible, within the constraints of international law, to an environmental system.

The reason why we cannot use the exact flight distance is that that is too close to using fuel as a proxy. That is the point I am trying to make with the International Civil Aviation Organisation, so that we can begin to address the matter. We are committed to engaging actively with our European partners to press for greater action on aviation's environmental impacts.

Air passenger duty is an important contributor to Government revenue, and we must remember that flying is a relatively under-taxed activity. No fuel duty is paid, and there is no VAT on tickets. The reform of APD is intended to ensure that flying contributes its fair share to public services, as well as to strengthen the environmental signal of the tax.

I assure my hon. Friend that we shall continue to consider the issue to work out whether there is a way to mitigate the impact of APD reform on ticket prices to the Caribbean within the constraints of European and international law.

J

I believe the Minister, Sarah McCarthy-Fry is wrong in saying that a per mile Air Passenger Duty (APD) tax would be illegal under the Chicago Convention. Nor does the Convention outlaw a tax on fuel. It merely outlaws a tax on fuel already in the tanks of arriving aircraft. This provision is designed to avoid taxing the same fuel more than once as aircraft fly from one country to another. Unfortunately this ban on taxing fuel in the tanks of arriving aircraft has caused governments to avoid taxing aircraft fuel altogether because, otherwise, their own fuel suppliers would be at a disadvantage. But this has distorted demand for aviation, compared with other goods and services, with damaging social and environmental consequences. The Government is therefore right to turn to other methods of taxation such as the APD and to tailor it to address environmental issues as well as revenue. ...

Submitted by John Byng Continue reading

Photo of Roger Godsiff Roger Godsiff Labour, Birmingham, Sparkbrook and Small Heath

As I said, I have been corresponding on the matter for quite a long time. The Minister gave assurances during consideration on Report of the Finance Bill that the Government were considering it. I am grateful, but when will the decision be taken? It is more than six months since the Minister said that the Treasury was considering it. For example, is it likely to happen before 6 May-to pick a date out of the air-or perhaps some time after that?

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

I can say only that as yet we have not found a way of mitigating the situation within the constraints of European and international law. I cannot give a time scale, because we are still looking. It is not as if we had found a solution and were deciding whether to implement it. We have not yet found a solution within the constraints of the law. The area is not straightforward; it is a very complex area of European and international law. All that I can say is that we shall continue to look for a solution.

Sitting suspended.