|Previous Section||Home Page|
Column 653extensions of the exemptions--modest in terms of the impact on the Treasury, but very important indeed for people who live in the island areas of Scotland.
Mr. Phil Gallie (Ayr) : The hon. Member for Orkney and Shetland (Mr. Wallace) emphasised the serious aspects of the proposed tax and outlined the realities of island life. He said that many people's incomes depended on air travel. The proposed tax will affect people in the islands far more than it will affect anyone else in the United Kingdom.
The hon. Gentleman's words contrast with those of the hon. Member for Oxford, East (Mr. Smith), who spoke on a purely political basis. He said that, yet again, the Government are raising taxes. However, the Labour party continually stresses that it wants to spend more and more. That would inevitably lead to higher taxation. The hon. Member for Oxford, East made some valid points, but, if he wanted to be seen to be serious, he would not have made some of his opening remarks. I shall concentrate particularly on clause 28(3), which refers to clause 29. Clause 29(1)(b) refers to the 20- seat limitation. I have written to my right hon. Friend the Paymaster General and discussed the effects of the 20-seat limit on Jetstream aircraft and flights to the islands and the Western Isles. I, too, remember the words of my right hon. and learned Friend the Chancellor in his Budget speech. He said that most flights within the islands would be covered by the exemption in the Finance Bill.
The aircraft that are used in the islands range up to about 70 seats. I hope that my right hon. Friend will reconsider raising the 20-seat limit. I recognise the licensing issues and that perhaps there is logic in determining the 20-seat option, but there is room to move towards the Chancellor's intentions in his Budget.
Ms Eagle : Does the hon. Gentleman agree that perhaps the best way of dealing with the problem of travel between the islands and the mainland and between islands is to exempt the routes rather than mess around with the number of passenger seats?
Mr. Gallie : No. My preference is certainly to change the limit on the number of aircraft seats. Jetstream is located in my constituency, and I am very keen to promote the interests of turbo-prop aircraft. That is the basic reason for my opinion. Island services are provided by turbo-prop aircraft. We have an opportunity now to do some good for the islanders and also for Jetstream Aircraft in my constituency.
A 30-seat limitation would benefit the sale of Jetstream 41s, but a move to a 70-seat limit which included exemptions for advanced turbo-prop aircraft would be important to the islands and to the United Kingdom's manufacturing base.
The hon. Member for Orkney and Shetland said that a change from the Jetstream 31 up to the Shorts 360 involved a tax change. Perhaps that would be an inducement not to buy Shorts 360s and to spend a bit more on Jetstreams.
I should like my right hon. Friend to acknowledge what I have said and to make a commitment to continued consideration of the matter.
Column 654admitted is the equivalent of a 7p increase in basic income tax. Taken together, the increases amount to the largest tax increase in British peace-time history--
When we consider new taxes, we need to examine why the tax is levied, the way in which it is levied and whether it is the most sensible and efficient way of collecting money. I shall make some comments on each of those points.
The tax is being levied because of Tory economic mismanagement which led to a sudden scramble for revenue at the last minute. When we look at some of the administrative details and the way in which the tax was imposed, we see that all of the arrangements were made at the last minute. As to the administrative details of the collection of the tax, the lack of consultation before the announcement of the tax led to the promulgation of administrative arrangements which have caused many anomalies, some of which we are discussing today. Those anomalies need to be ironed out if the tax is to be efficiently and effectively collected and if it is to impact fairly on all those who pay it.
Why should airline travel, and no other form of public transport, be singled out when considering tax increases? Naturally, the airline industry has pointed that out in its reaction to the way in which the tax is levied. Indeed, while I do not say that we should tax other forms of public transport, it seems odd that the airline industry, out of all the systems of transport to get from one place to another, has been subjected to this tax.
When the Government announced the tax, and it was expected that value added tax might well be put on public transport, I received petitions from bus operators and representations from Mersey Rail expressing concern about imposing VAT on public transport. There was a great sigh of relief when VAT was not extended to public transport. Then the airline industry was hit with the sudden announcement of a new airline tax, even though it is set at a low level at present. Administrative arrangements are in the process of being put in place. My colleagues on the Front Bench have expressed concern that the scope of the tax will be increased in the years to come and that what we have now is the thin end of the wedge. We should bear in mind that, when value added tax was introduced, it was only a modest tax. In the past 15 years, its scope has been extended 14 times, and the level has increased from 8 per cent. to 17.5 per cent. The potential of VAT as a revenue- raising measure has been milked by the Government in a desperate search for cash.
As the Government continue to mismanage the economy and fail to balance the books, what guarantee do
Column 655we have they will not regard this airport tax as yet another way of increasing revenue in their desperate search for cash for the Treasury? We have had only one comment from the Minister on this matter. When he was asked whether the scope of the tax would increase in the years ahead, he made the usual coy Treasury comment that he could not possibly say what the Treasury's tax plans would be in the future but he thought that the tax was levied at a reasonable rate at present. All I can say is that we must look at the precedent of value added tax to see what sort of guarantee the Minister's assurances give us.
Why is the tax being levied? Obviously it is being levied to raise revenue. It seems to be a minor way of raising revenue. Indeed, some of the administrative problems that it will cause hardly seem worth the revenue that it will raise. Scott Grier, the managing director of Loganair, one of the airlines that will be affected by some of the exemptions in the tax, said that the exemptions were arbitrary and unrealistic. I refer to the loophole which exempts passengers on aircraft with fewer than 20 seats and weighing under 10 tonnes. Of course, that exempts executive jets. It was sold in the Budget statement as an attempt to ensure the viability of flights and services between Scottish islands.
Several of my hon. Friends have eloquently demon-strated that that argument is fallacious. Indeed, only 10 per cent. of passenger journeys between the islands, and between the islands and the mainland, will be exempt. I associate myself with the comments made earlier about how this tax threatens island life and lifeline services. The Government must look seriously at that matter. Unlike the hon. Member for Ayr (Mr. Gallie), I believe that the Government should look carefully at exempting routes, rather than attempt to levy the tax based on the size of an aircraft. Methods of avoiding tax are becoming increasingly ingenious these days. Listening to the hon. Gentleman, I suddenly had a vision of people taking seats from larger aircraft so that they could qualify for the exemption. People cannot avoid paying tax on routes and the Government should look seriously at exempting routes rather than using aircraft size.
The complicated nature of the administrative burdens in collecting the tax were captured impressively by a British Airways memorandum which was sent directly to the Minister by Sir Colin Marshall, the chairman of British Airways. In that memorandum, Sir Colin not only regarded the tax as unfair, which we would expect an airline to say, but made it clear that the application of the duty and the administrative arrangements which the Inland Revenue is in the process of working out will be very expensive for airlines to put into effect because they involve the development of entirely new systems.
The collection difficulties identified in the memorandum are interesting. Currently the Revenue is planning to collect the duty from the airline or the agency which sells the ticket, but payment of the duty will be made by the airline carrying the passenger. People who travel with any regularity on either charter flights or ordinary flights know that those two agencies are not always the same. At present, airlines do not have a system of identifying at take-off which passengers will be eligible to pay the duty if they have not already paid it. Therefore, British Airways
Column 656suggests that the duty from airlines should be collected from the airline carrying the passenger rather than from the agency selling the ticket.
British Airways also suggests that duty should be payable after the airline has received the duty. The administrative arrangements of agencies which sell tickets and places on airlines are such that in a large number of cases the airline will be liable to pay the duty before it has received the duty from the agency selling the ticket. That may cause financial problems, especially for smaller airlines. It is unlikely to affect British Airways to any large degree, but smaller airlines in the market could have significant cash flow problems accruing from that administrative arrangement.
One of the more difficult and hard-to-justify arrangements announced by the Chancellor in his Budget statement is the idea that the £5 or £10 duty, depending on whether one is going to Europe or further afield, should be levied only on the outward flight, not on the flight back. On a flight, whether one is going out or coming back is never identified. The tax discriminates against those people who have one-way or single tickets, as presumably they would have to pay the duty on each flight rather than just on their outward flight. It discriminates also against those who use automatic ticketing which, I am told, never involves a return ticket. Perhaps the Government should consider levying a £2.50 or £5 charge on the flight each way rather than simply attempting to do so on the outward flight. The way in which aircraft and ticketing systems operate means that it is often difficult to identify whether a passenger is flying out or coming back. The computer systems and the extra work which would be needed to try to identify that fact are not justified by the yield which the tax is planned to give to the Revenue.
The Paymaster General asserted that there would be no significant effect on tourism. I attempted to point out to him the fallacy of his argument. On the one hand, he was saying that not many passengers would be deterred from using air flights after the imposition of the duty, while on the other hand British citizens would stay at home and holiday here rather than go abroad. That would thus be of benefit to the tourist industry. After considering those arguments, I do not believe that the right hon. Gentleman can have his cake and eat it. Either there will be a significant effect on the number of people who use aircraft journeys, in which case the duty and the yield of the tax will go down--that is involved with price elasticities--or people will continue to use flights and presumably also fly out of the country to go on holiday.
It has been said that a £10 duty does not seem to be too much for a single person, but it is different if one is flying out with a family. Obviously, the larger the family, the larger the duty to be paid. In the midst of the on-going depression when money is tight, I do not believe that duties of £40 or £50 at an airport for a family holiday are insignificant. British Airways has estimated that it will cost passengers £75 million a year, and I do not believe that that is an insignificant cost.
The Paymaster General expressed his wish that airlines would not seek to pass on the cost to passengers, and that they would try to absorb the cost of the tax. That does not seem to be happening according to the reactions of airlines which I have read. Almost all airlines--except Virgin, I
Column 657believe--announced that they will be passing on the tax directly to their passengers in prices. That is yet another cost which will go directly on to the consumer.
The entire tax seems to have been hastily thought up and badly worked out in detail. The administration problems in the way in which the revenue is currently planned to be collected are particularly irksome, and contain anomalies which disadvantage particular groups. I believe that those problems need to be looked at again in some detail to see whether some of the anomalies can be ironed out to allow the tax to be more efficiently administered.
The economic mismanagement of the Government and the massive deficit which loomed before them meant that they were scrambling round for new ways of raising revenue. They came up with this one at the last minute, but clearly they did not do enough work to ensure that they had a reasonable, fair and well-administered tax with the minimum administrative burden and cost of collection. I do not believe that we have that yet.
The Government's motivation for introducing the tax is somewhat more sinister than they have so far admitted. This is one of those taxes which could be increased significantly. I do not believe that all of the administrative burden is being put on to air travellers merely to collect £350 million, which is the estimated yield of the tax in three years' time. I believe that there is a hidden agenda. There could be some significant increases in the scope and the level of the tax in the years to come.
The Government should try to iron out some of the anomalies in the administration of the tax. If possible, they should give us an assurance that they will not widen the scope of the tax. However, we know that assurances on the scope and the level of taxation--both direct and indirect --tend not to be worth the paper they are written on when they are given by the Government.
Mr. Forman : I rise briefly to support the clause and to oppose the Labour amendment, and I do so for a number of reasons. I was one of those who helped to write a pamphlet on the problems of London in the 1970s, when I first came to the House. The pamphlet was called "Maybe it's because we are Londoners" and I wrote it with my hon. Friend the Member for Harrow, East (Mr. Dykes) and other colleagues. At that time, we canvassed the idea of a tax or duty similar to that which my right hon. and learned Friend the Chancellor has decided to introduce. I can see no objection at all in principle to such a measure, for the obvious reason that it contributes to the broadening of the tax base, which is worth doing in itself. Over a period, the broader the base of tax from all sources, the more likely it is that one can get to a lower rate of tax and also to a simplified structure. Those propositions tend to go together. As my right hon. Friend the Paymaster General said in his opening remarks, the duty is very much in line with what other countries do. There is nothing outlandish or strange about a duty which is matched by Denmark, Belgium, Ireland, Greece, Canada and the United States, to mention just a few examples.
Mr. Geoffrey Hoon (Ashfield) : In Belgium, for example, the duty applies only to international flights. The difficulty that is faced by British Airways is that it has a substantial domestic operation. British Airways has to meet the infrastructure costs of its whole operation, and it will be placed at a disadvantage compared with the Belgian
Column 658state-owned airline, Sabena. Will not Sabena have to satisfy only the international aspects of the tax rather than the domestic ones which British Airways will face?
Mr. Forman : Whether that is a weighty concern depends on whether the tax itself constitutes a significant extra burden upon industry. I was moving on to make the point that I do not think that it does constitute a significant extra burden. I suspect that much of the tax or duty will be absorbed by the operators.
Mr. Hoon : We have heard that Sir Colin Marshall of British Airways has said that he feels strongly that the duty is unfair. Has not he also said that he is concerned about the effect that the duty will have on the competitive position of British Airways?
Mr. Forman : A number of hon. Members know Sir Colin well, and they will know that he bats vigorously for his industry. I could say, "He would say that, wouldn't he?" I do not think that the hon. Gentleman is right to put excessive weight on that argument. It is perfectly understandable that Sir Colin should defend his corner as the boss of British Airways, but my judgment is--we will see whether I have been proved right or wrong in a few years--that it will be quite easy for all of the major airlines to absorb such an increase.
I am glad that my right hon. Friend made it clear that the Chancellor has agreed to delay the full introduction of the measure until November 1994. That is sensible, because clearly one would always want to avoid anything which resembles a retrospective effect. It is likely that any administrative complexity which might flow from the introduction of the duty will have been sorted out by that time because of the extra time which has been made available. I believe that my right hon. Friend is right to resist the lure of hypothecation in this, as in other areas. That way lies extra complexity for any tax system. It makes it much more difficult to sustain public support for the tax system if people can pick and choose the taxes that they want to pay on the basis of the purposes for which the money will be used. My right hon. Friend was right to resist that.
The burden of the debate this afternoon has been about the extent and nature of the exemptions that are to be allowed. The hon. Member for Orkney and Shetland (Mr. Wallace) was eloquent on that subject. I understand that. The difficulty is that with a relatively small measure such as the air passenger duty, which will not raise a large sum of money, if we introduce many exemptions we will find precisely the sort of problems that we experienced with other aspects of our tax structure. We would have a narrow base because of the exemptions. There would be extra complexity, which costs the fiscal authorities and the private sector money. On the whole, it is not advisable. I declare an interest in the matter. The Committee will know that I am the parliamentary adviser to the Institute of Chartered Accountants. It is clear that the only people who would benefit from the introduction of a new duty that was excessively complex are those in the tax advice and accountancy profession. I am sure that those for whom I speak in that regard would not regret that, but it is not a good principle of tax policy that one should introduce too many exemptions in a new tax.
Mr. Forman : My short answer is, too many. The real reason why it is important to keep the tax structure for this or any other duty as simple as possible is that extra costs are incurred by both the public and private sector if there are too many exemptions. I was amused by what the hon. Member for Wallasey (Ms Eagle) said about the rather John Cleese possibility of changing the number of seats in a given aircraft. However, simplicity is something to which my right hon. and hon. Friends in the Treasury should cling. I hope that they will not go too far down the route of making detailed exemptions.
Mr. Wallace : Surely the hon. Gentleman accepts that, even on the Treasury's figures, £2 million out of an estimated annual take of about £350 million is very small? Indeed, far from seeing any administrative difficulty the airline companies believe that it is important to allow exemptions. As parliamentary adviser to the Institute of Chartered Accountants in Scotland, my comments are motivated entirely by constituency interests, not by regard for the accountancy profession in Scotland.
Mr. George Walden (Buckingham) : I simply wish to back up my hon. Friend's point. He is right about the question of complexity. One could also add that if one exempted a particular area, within that area would live people who are well off, not so well off and downright poor, so we would be into the business that we are already in on a macro scale in universal benefits of giving tax exemptions to well-off people.
Certain exemptions are already allowed for in the Finance Bill. Will my right hon. Friend say what is the justification for exempting, for example, transfer passengers? He mentioned that exemption in his speech. If we are to take a clean approach, that also needs to be justified.
This extra duty will constitute a small proportion of the total cost of the relevant sums of money spent by people on flights. Even if one takes the example of trips to the islands, which have already been mentioned, £5 in the case of United Kingdom flights is a small proportion of the more than £100 that was mentioned. As most of the journeys are essential and people plan for them, it should be possible for people to meet that cost. I see the air passenger duty as a fair, sensible tax which is likely to be absorbed by the operators in any case. If all that it does in terms of deterring extra travel activity is slow down the rate of growth of foreign or domestic travel, that is not anything about which the Committee should be unduly worried.
Ms Harriet Harman (Peckham) : The hon. Gentleman is warmly recommending the tax to the House. He says that it is fair and sensible. How does it square with his Government's promise at the election, and no doubt his
Column 660promise to his electors, to cut taxes? How does the introduction of a new tax that will affect his constituents square with his promise and his party's stance as a party of low tax and tax cuts?
Mr. Forman : That has already been made plain on several occasions by my right hon. and learned Friend the Chancellor, my right hon. Friend the Chief Secretary and others. I am happy to add to their arguments by simply saying that the priority, as the hon. Lady must know, in the two Budgets of 1993 was to restore public finances. Regrettably, that made it necessary to increase taxation by both introducing new duties such as the air passenger duty and increasing the impact of existing taxes. I regret that, but it was the responsible course to take. You would consider me out of order, Dame Janet, if I followed that argument too far.
Mr. Derek Enright (Hemsworth) : Will the hon. Gentleman look at schedule 6(8) on interest payable to the commissioners? Does he agree that such provisions will require horrific bureaucracy and, indeed, a contribution from the profession that he represents? Already, it is not a simple tax. The collection of this minuscule amount of money is simply not worth the candle. Even the hon. Gentleman's argument that it will reduce the public sector borrowing requirement seems nonsense.
While the hon. Gentleman is reading that schedule, will he comment on the clarity of the English? I do not think that it would win a plain English award.
Mr. Forman : On the latter point, I am very much in agreement with the hon. Gentleman. Indeed, one of the representations made by the president of the Institute of Chartered Accountants to my right hon. and learned Friend the Chancellor was about the lack of clarity in far too much of the legislative drafting. That is a point on which hon. Members on both sides of the House can agree.
On the point about the money raised, £350 million is a useful sum even in the context of the PSBR of towards £50,000 million. The Treasury should not regard that as inconsequential any more than it does the other new measure under the insurance heading, which we shall debate later.
In conclusion, the measure is sensible. It will have little impact on the volume of travel. Many of the arguments put before the Committee tonight by the Labour Front-Bench spokesman and others constituted a degree of synthetic indignation. I was interested to see that some of the measures, or similar measures, have already been canvassed by Opposition Members.
Mr. Malcolm Chisholm (Edinburgh, Leith) : The air passenger tax and the insurance premium tax that we are to discuss later are classic examples of the reckless fiscal opportunism of the Government as they flounder in the deficit that their economic incompetence has run up. Opposition Members might not be too worried if the air passenger duty represented the only tax increase in the Finance Bill. We should want to amend it nevertheless, but we would not be so worried about it. The new duty must be seen as part of the whole tax package--the biggest tax hike in British history.
People have said that the air passenger duty is a small tax, but we must bear in mind that in the past the imposition of new taxes has been the first stage. It has been
Column 661the foundation on which increases could be built in following years. So in opposing the new tax this evening, we are aware that the 3 per cent. could be greatly increased in the years ahead. Given the shambles of the finances of this country, and the difficulty that the Chancellor will have in meeting the targets that he has set himself, it is more than likely that the tax will be increased in the future. As many of my hon. Friends have said, there was no mention of the tax, or any new tax, in the Conservative election manifesto. All the talk was of the opposite--of reducing taxes. First, we are annoyed and concerned that the tax has been sprung on the electorate when no mention was made of it.
Secondly, we are concerned about the fact that there has been no consultation about the tax. My hon. Friends have described the many problems in the legislation that are a result of not consulting the airline companies. Now they are being consulted but they have been told that today is the final date. The Government cannot even get the consultation date right and I hope that we can have some sort of assurance about that.
Sir John Cope : I am not sure whether the hon. Gentleman was here when I spoke. I said that today is not the final date for consultation. Of course, it is not--it is not the final date for our discussion on the Bill ; discussions with the airlines and other interested parties will continue.
Not only was there no consultation but this must be the first new tax in recent history which was not even mentioned during Ministers' speeches on the Finance Bill. The Chief Secretary to the Treasury spoke for more than half an hour, but he did not mention this or the other new tax that he is about to impose. As far as I know, the only mention of the tax was a paragraph from the Chancellor in his Budget statement.
Hon. Members have referred to the way in which the tax was introduced. I would not like to accuse the Chancellor of being deliberately misleading about the Scottish islands. Perhaps we should put it down to the casual inattention to detail that has become his hallmark. However, his remarks have had a misleading effect and were not the only announcement in the Budget to do so. I can think of a direct parallel. Just as 90 per cent. of families on family credit cannot get the £28 that was emphasised in the Budget, so 90 per cent. of flights to the Scottish islands will not be able to claim the exemption which was suggested--to say the least--in the Chancellor's Budget statement.
The effect of the tax on island communities must be one of the main concerns of Opposition Members--not merely the Scottish islands, but the Isle of Man, the Channel islands and many others. The vast majority of flights to those islands have to be made by large aircraft. It seems strange that the Government are prepared to grant exemptions for people who dart from one island to another when most people on the islands are more concerned about visiting the mainland.
The amendment tabled by the Opposition asks--at the very least--for a report on the effect of the measure on island communities. Perhaps the best solution is to exempt flights to certain destinations. In the first instance we are asking for a report because once again the Government
Column 662appear not to have researched the effect of the measure on island communities. The hon. Member for Orkney and Shetland (Mr. Wallace) mentioned that many businesses in those islands have rather low profit margins and that the tax would seriously affect them. It will also affect ordinary people on the islands and those wishing to visit them. The report is one of the major demands in our amendment and I hope that the Government will consider it sympathetically. Apart from the islands there are other concerns. Several routes in this country do not make a profit and one or two others make only a slight profit. Some of those routes may be put under threat if additional costs have to be borne.
The possible effect of the tax on the tourist industry is another worry. In many ways we are already a less attractive destination because of other costs--or so I am told by the travel industry--and the tax could therefore have a disproportionate effect on tourists who come here from abroad. One would have thought that the Government would at least have done some research on that subject and borne it in mind when presenting this legislation.
The tax will also affect British families who want to travel abroad. If it were the only extra expense that they had to bear as a result of the Budget we would not mind too much, but the average family will face an enormous increase in their tax bill in April--£12.50 per week for a typical family. This tax is another burden ; a family of five will have to pay £25 extra to visit a European Community country and £50 extra if the destination is not in the Community. We must bear in mind the effect that that will have. Many people may not go abroad, as the Government have acknowledged by suggesting that there will be a 2.5 per cent. reduction in holidays abroad.
Finally, I am concerned about jobs. What effect will all the other tax changes in the Budget have on jobs? They will directly affect the airline industry, but will also have an impact on the tourist industry, among others, because they will take demand out of the economy and thus contribute towards making this Budget the most deflationary in the past 60 years.
I am worried about the cumulative effect of the measure on employment and particularly on the airline and tourist industries. I hope that the Minister will give me some assurances when he replies to the debate. He has said that he will listen to what people say and I draw his attention to the long submission from British Airways, which contains many detailed suggestions. For example, British Airways has said that the tax will be very expensive to implement--an expense over and above the tax. If the tax must be pushed through, the Government should consider implementing it in the most efficient and cost-effective way.
The Minister has already been asked about the possibility of future increases in the tax by my hon. Friend the Member for Wallasey (Ms Eagle). Can he state firmly that he has no plans to increase the tax next year or the year after? That may reassure one or two people, but I have my doubts about it reassuring many more.
Mrs. Anne Campbell (Cambridge) : I support the amendment. I must preface my remarks by saying that I find it surprising that people will have to pay an extra charge to get away on holiday or business trips at a time when more people than ever before are totally fed up with
Column 663the Government and would like to get away from this country and a Government who are imposing extra taxes that they had not expected. My hon. Friends have referred to a number of anomalies. The difference in charges is particularly peculiar. For instance, if the members of a family of four go on a skiing holiday and choose to fly to Salzburg they will have to pay £40 in airport tax, but if they fly to France they will have to pay only £20. That seems a little odd, and the Government should reconsider it.
Another problem is that people who land here unintentionally and have to stop over will have to pay the tax. It will not merely hit people who are trying to get away from this country to drown their sorrows abroad in places where they can relax ; people who come here unintentionally because they are diverted will also have to pay, and that seems unfair.
Several hon. Members have asked whether the tax will remain at a fairly low level. Significantly, the Paymaster General could not assure us that the tax would not be increased before the next general election. He gave me the usual answer that he was not able to predict what future Budgets would bring. Perhaps that illustrates the point that was so ably made on Second Reading : the Treasury's advice to Ministers is always that, when a new tax comes in, start it at a low level, nobody will object, then raise it later. With the present state of the country's finances and our large public sector borrowing requirement, it is likely that future Chancellors--or even the present Chancellor--will choose to raise the tax again and again and, in the present financial climate, see it as an easy means of raising money. 6.30 pm
Airlines lobbied hard against the imposition of VAT on flights. I suppose that there is a certain amount of relief that that has not happened, but British Midland said that it had won the battle but lost the war. That is a recognition that, having got as far as imposing the tax, it is open to be raised in future Budgets, and that airlines might pay just as much in future as they would have done had VAT been imposed.
Much has been said about whether airlines will be able to absorb the tax. British Midland estimates that it will cost it between £17 million and £20 million if it tries to do that. It has given no indication that it intends to do so. Virgin Atlantic Airlines is the only airline to have indicated that it may well absorb the tax. Even then, the estimated cost to it is some £15 million. That is by no means an insignificant amount.
The overall impression of the tax, as with so much of the Budget, is of a series of rather fiddly and complicated small taxes that have been added in a rather ad hoc way, quite against the trend of previous Chancellors--at least the previous two--who attempted to simplify the taxation system. That has not been continued by the present Chancellor. We now have a sophisticated and complicated taxation system that would be difficult to untangle by a future Labour Government. Perhaps that shows that the Chancellor has a certain lack of detail and finds it a rather difficult subject. I suppose that the issue whether the Chancellor is up to the job will be raised at some stage.
Much of the airlines' concern centres on the method and the cost of collection, so let me now look at the question of domestic flights and how the system will work. It has
Column 664been suggested that airlines are charged £5 on the outward journey and nothing on the inward journey. The problem that I can see is this. If I fly from Stansted to Edinburgh, how is the airline supposed to know whether I originated in Stansted on an outward flight or Edinburgh on an inward flight? There will be much bureaucracy for the airlines in identifying and distinguishing ingoing and outgoing passengers.
That is not all, because a passenger flying from Edinburgh to Heathrow and then Istanbul will pay £10 in Edinburgh and, as I understand it, nothing at Heathrow. But a passenger flying from Edinburgh to Heathrow and then to Paris will pay £5 in Edinburgh and nothing at Heathrow. A passenger travelling from Edinburgh to Heathrow on the return journey will pay nothing. There will be a number of passengers, all on the same flights, some of whom will pay £10, some £5 and some nothing at all. There will be a great deal of confusion, bureaucracy and administrative muddle in trying to levy the tax in the best possible way.
A further anomaly is this, as people in my area will find. I like to use my local airport whenever I can--it is not always possible--but if I decide to take a trip to Edinburgh and fly from Stansted early in the morning and decide to come back at a time when there is no convenient flight to Stansted I might have to fly to Heathrow instead. The problem is that I will not qualify for the £5 internal domestic flight, and would have to pay £5 from Stansted to Edinburgh and another £5 from Edinburgh to Heathrow. That is not a fair system.
In its detailed submission, British Airways asked that domestic passengers be taxed at £2.50 on each leg of the journey. Although I am not convinced that that will make life easier for it, it seems that it will be much fairer for the passengers, particularly those people in my part of the world who may wish to use Stansted but find that they are unable to do so because of the inconvenience of the timing of the flights.
BA made a number of detailed points in its response to the Government's consultation. Despite the fact that it has been done in a great hurry, I think that BA's submission has been well thought out and its points are worth noting. One of its suggestions was that all passengers whose journey commences and terminates outside the United Kingdom should be exempt from paying the airport duty.
I should like the Paymaster General to consider that point carefully and perhaps tell us in his reply whether he would consider amending the legislation, as drafted, to include that point. I think that BA is trying to make the point that the legislation distinguishes between transfers in the United Kingdom and stopovers. BA competes with airlines such as KLM, which offers stopovers in Amsterdam. On a number of flights, BA offers stopovers in London. The Dutch Government do a great deal to promote tourism to Amsterdam. BA is naturally worried about the adverse effect on its flights and also on the tourist trade in London if people who stop over in London are charged the tax.
Another point that BA made was that United Kingdom hotels are already more expensive than elsewhere in Europe, particularly at the bottom of the market, and that the £10 airport tax will add considerably to an already rather expensive hotel bill.
My hon. Friends have mentioned that there should be exemptions for passengers for whom no fare has been charged. I should like to endorse that, particularly for
Column 665airline employees who have to travel to start their work, but perhaps more seriously for the many charity flights that are carried out by BA, which has a number of flights in which it takes seriously sick children on holidays in different parts of the world. It would be extremely sad if those children were to be charged an airport tax.
I do not know enough about the highlands and islands to join in the argument about how the tax will affect journeys in that region. I have listened carefully to that argument, however, and I agree that exemptions should be offered on journeys to certain destinations rather than on small aircraft with a certain number of seats. The argument between direct and indirect taxes was rehearsed earlier. I find it a little surprising that the Government always argue in favour of indirect taxes by claiming that there is an element of choice as to whether people pay such a tax. They argue that income tax, a direct tax, is not so easy to avoid. I accept that I can choose whether to turn on my heating and whether I should pay VAT on fuel. The Government have used that argument in favour of the airport tax, but it does not apply in the highlands and islands. Passengers will not be offered a choice as to the size of aircraft in which they may fly. They may turn up at the airport to find that they are booked on a 40-seater aircraft rather than a 20-seater one ; they will therefore be subject to the airport tax. It is extremely unlikely that any airline will be able to offer a passenger the choice between a 20-seater or a 40-seater aircraft in order to allow that passenger to exercise choice about paying the airport tax. That lack of choice invalidates the argument in favour of levying an indirect tax rather than a direct one.
The cost difference for a family of four who fly to Salzburg rather than to France will be enormous. British Airways has argued that the £5 band could be extended for the entire European economic area and not just to countries within the European Community. That would be an infinitely sensible extension.
The Government could eliminate an unnecessary expense for airlines if they deferred implementation of the tax until after the holiday season. The reason behind that is simple : it would save airlines and tour companies the unnecessary cost of reprinting their holiday brochures. I hope that the Government will consider that argument.