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Sir John Cope : The hon. Gentleman has described this as a semantic point. I am not sure whether he was present earlier, when I spoke more widely about the islands, but I assure him that my right hon. and learned Friend the Chancellor knew precisely what he was saying, and said it very clearly. Moreover, our intentions were made clear by the back-up pieces of paper that were issued on Budget day.

Mr. Wilson : In that case, I am extremely disappointed in the Chancellor, because what he said was deception. It is inconceivable that he meant to create the impression that roughly 5 per cent. of flights involving Scottish islands would be exempted. Let me add that, at a subsequent briefing given by the Scottish Office, the Scottish press were given--forcefully and specifically--the message that all Scottish island flights would be exempted.

If the Paymaster General is saying--I am surprised that he should say it in specific terms--that the Chancellor of the Exchequer knew that such a limited range of services was to be exempted, let me tell him that that was a shameful way in which to pull the wool over hon. Members' eyes, while raising false hopes in the communities affected. The first argument for exempting island flights is the spirit of what was said in the House that day, along with the Scottish Office briefing. Ministers are

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not allowed to mislead inside the House, and those who speak for them are not allowed to mislead in briefings outside.

A second argument differentiates the islands from all other areas : the social argument. In virtually every other part of Britain that has an airport, the choice between flying and other forms of transport is relatively marginal in terms of time and convenience. A train journey will probably take six or seven hours at the most ; a plane journey will take about an hour. Factors of cost and difficulty will, of course, be involved.

The arguments relating to islands in the constituencies of my hon. Friend the Member for Western Isles (Mr. Macdonald) and the hon. Members for Orkney and Shetland (Mr. Wallace) and for Argyll and Bute (Mrs. Michie) are entirely different. Someone travelling from Islay to Glasgow cannot simply say, "I can take the train or the bus, and travel for three hours rather than travelling for 40 minutes on the plane." He must take the ferry--whose timetable is quite sparse, especially in winter ; he must sail for about two and a half hours ; as there is no railway, that will be followed by a long and pretty uncomfortable bus journey, lasting nearly three hours, from the port of Kennacraig.

Most Conservative Members would not contemplate such a journey. My hon. Friend the Member for Western Isles, however, would have to sail for five and half hours by sea from Barra to Oban, in some of the most treacherous sea conditions that could be found around the British Isles--or, perhaps, much further afield. Those without personal transport are then faced with a long train journey--and an occasional service--from Oban to Glasgow.

That choice must be made by people who may be ill or travelling with young children. Surely no hon. Member would suggest that such people should be forced to go on such long and arduous journeys in this day and age if aeroplanes are available. That is the social argument which separates the Scottish islands from every other part of the United Kingdom.

I agree with what my hon. Friend the Member for Workington (Mr. Campbell- Savours) said about Carlisle. I have travelled to most of the regional airports in the country, and all have a story to tell ; but if lines are being drawn--in the spirit of what was said earlier--there is a valid case for drawing such a line around the mainland, and exempting the islands. That would be easily done. I am not persuaded by the argument of the hon. Member for Carshalton and Wallington (Mr. Forman), who suggested that the accountants would be unable to work out the arrangements, and that they would lead to enormous bureaucratic complexities ; this is a simple principle, which could easily be enforced.

7.45 pm

Mr. Macdonald : My hon. Friend is right. He knows the islands very well and, as he said, the island of Barra is five and a half hours from the mainland by ferry. Although there is an air service there, there is no aerodrome or airstrip as such : the plane lands on the beach when the tide is out. Under the Government's proposals, however, those who use that lifeline service will be taxed in the same way as business men travelling on the shuttle from Edinburgh to Heathrow.

Mr. Wilson : Indeed. I do not know anything about Carshalton--

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Mr. Darling : I do.

Mr. Wilson : My hon. Friend does, apparently ; but there is no reason why all hon. Members should know everything about every corner of the country.

But before imposing a blanket tax, the Government should--for heaven's sake --take account of the vastly differing circumstances in different parts of the country, and the different reasons why people need access to air travel. Having made that distinction, they should draw a sensible line ; in my view, they could draw it between the islands and other areas.

Mr. Forman : I have been to Barra, which is a lovely place. My plane landed on the very beach mentioned by the hon. Member for Western Isles (Mr. Macdonald). My point was simply that taxes involving too many exemptions were, on the whole, bad taxes, leading to problems of narrow base and high marginal rates.

Mr. Wilson : As others have pointed out, there are already quite a few exemptions. Some of my hon. Friends have drawn attention to the existing complexities. I do not think that, when the Chancellor gave the impression that he offered from the Dispatch Box, the first reaction of Conservative Members was "Oh dear, what a complexity he has just added"-- nor do I think that any particular complexity would be added now.

Air services are disproportionately important to the islands. Some people who would not dream of travelling by air from Glasgow to London must make a difficult decision when travelling from the islands, perhaps with young children or an elderly relative. Do they pay the significant extra amount to fly or do they endure the arduous sea crossing? People living on the mainland generally do not have to make such decisions, and to add the burden of this tax strikes me as gratuitous and wrong.

Some islands have lost their services because of the thin balance between what is economic and what is not. Skye lost its air service after being the last to lose Scottish Office subsidy. As a result, Skye is a much more difficult place to get to and from. Mull once had a scheduled air service, but it has lost it. If the balance is tipped a little more the other way, more services could be lost. That would be a regrettable and unnecessary consequence of this legislation. I am sure that the proposal was not dreamt up with that consequence in mind.

I strongly urge the Government to think again about amendment No. 3. No enormous point of political principle is involved. Considerable weight should be given to the fact that, in the view of hon. Members on both sides of the House, the Chancellor appeared to give a certain impression.

We are talking about a charge of £5 now. As I have said, that is a substantial sum for many of the people who use those services. We all know that the tax could become £10, £15 or £20 once it is established as a revenue-raising device. It is important that we do not think of it in terms of being only £5 now. We should establish the principle that the islands are different and should be treated differently. The hon. Member for Buckingham (Mr. Walden) said, roughly, that there are rich people in the islands and poor people in cities. Of course that is true, but one can work only in generalities. The generality has been established and recognised by the European Community : the highlands and islands are an objective 1 area. The social needs of the islands are generally recognised and I am sure

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that that applies to other islands around the British coast. There is a perfectly sound case for recognising them in the context of this legislation.

Mr. Dicks : I want to make a few very quick points to my right hon. Friend the Paymaster General. First, there is a solution to the problem that has been raised about the islands. Quite simply, the tax should not be imposed within the United Kingdom. The proposal was a nonsense from the outset and it should never have been considered. In a sense, the principle of an airport tax can be understood. However, the way in which the tax is to be administered is, as is so often the case with such things, wrong. We have little or no consultation and decisions are taken.

I cannot understand the thinking behind the idea that the airlines should have to administer the tax. If anyone had bothered to contact the airlines and those who work with them on a daily basis, as I do at Heathrow, it would have been clear how difficult and costly it would be to collect the tax.

There are customs officers at Heathrow now. Why cannot we impose on them, if there were additional staff there, a duty to collect the tax? When one leaves New Zealand from Auckland airport, one goes to the Bank of New Zealand desk, presents one's boarding pass, and pays one's money. The back of the boarding pass is stamped and one is allowed to board the aeroplane. The process has nothing to do with airlines. The device is simple and anyone going through the departure door must go through that procedure. It is simple and easy and there is no red tape. The boarding pass is stamped, the money is taken and everything is filed away.

Dr. Marek : The Government want the money and they do not care about the ill-effects that will result from getting the money. However, worse than that, the Government can be incompetent. At the moment, the Government are losing about £500 million through the escape of excise duties across the border because of the lack of harmonisation in excise duties on tobacco and alcohol. Basically, the Government are stupid. I am sorry that the hon. Gentleman is a member of that Government, but the stupid Government cannot get their tax policy right.

Mr. Dicks : I have been a Member of this place for too long for the hon. Gentleman to expect me to be caught by his intervention or to go down that avenue. The hon. Gentleman made a very pleasant intervention, but I will ignore it completely.

I cannot understand why the tax will not be imposed on those who use the ferry and the channel tunnel. What is so special about those people that they do not have to pay a tax to depart and so odd about people who want to fly on aeroplanes who have to pay the tax? The answer is for everyone to pay a departure tax, irrespective of the mode of transport or any other consideration. There should be no taxes for internal flights or movement.

The proposal is nonsense and a dog's breakfast. If there had been any consultations with the people who work with the airlines and who know about these matters, if British Airways and people like me had been consulted, we would have been able to say how damned stupid it would be to collect the tax as proposed.

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The principle is right, but the administration is a cock-up of the first order. As I have said, we need only have someone in one place, for example at every terminal at Heathrow, to collect boarding cards and to take the money and then to stamp those cards. The tax should be introduced for everyone departing by sea or via the channel tunnel in exactly the same way. We should then do away with the internal tax. The revenue from those travelling by ferry or through the tunnel would more than make up for the revenue lost in respect of this stupid internal tax. I say no more as I believe the case is made.

Mr. Thomas Graham (Renfrew, West and Inverclyde) : It is absolutely outrageous to have to come here to talk about a new tax when we consider that the Government approached the last general election on the platform of no new taxes. Lo and behold, we have been hit by a new tax.

I represent Renfrew, West and Inverclyde which includes Glasgow airport, The headquarters of Caledonian MacBrayne is in Gourock, which is in my constituency. The M8 runs right through my constituency. These points will become relevant later. The Erskine bridge is also in my constituency. Since the Government came to power and promised no new taxes, the Erskine bridge tax has been doubled and Caledonian MacBrayne has been forced to increase its fares because it serves the islanders.

Roughly 15,000 workers are employed at Glasgow airport. They rely on folk flying into and out of the airport because that is what attracts the money. That is what provides them with a job. Just the other week, Renfrew enterprise trust set up a programme which might mean a £400 million investment at Glasgow airport. A further 15,000 jobs could be created. The argument is that Glasgow airport is a good place for businesses to set up and work from. The British Airports Authority has invested £120 million in Glasgow airport. However, this very damaging and punitive tax is affecting BAA's attempt to make Britain a good place to come to, to stay and to work.

It is objectionable that the Chancellor can pick out the air industry and decide to tax it. The hon. Member for Hayes and Harlington (Mr. Dicks) was right when he asked, "What about the rest?" We should not be levying a tax which will affect Glasgow airport. The Government have got it wrong. Because of their mad, blundering economic policies, they are costing the country nearly £50 billion a year. The Chancellor is so desperate to raise money that he has decided to reach for the sky. The phrase, "Reach for the sky" used to be used by highway robbers who ripped money from people's pockets. The Chancellor is clearly the skyway robber of British politics. He is going to rip the bucks from holidaymakers. That is not in keeping with trying to encourage a dynamic air industry which is the envy of the world. The Chancellor has his beady eye on the industry. He hopes to rip off a few bob--some £330 million--from holiday folk.

I object to families having to find an extra tenner or £40 to go to Benidorm, for instance. It is the height of nonsense that we are to levy a tax that will rip off somebody going on holiday. My hon. Friends are right ; it is a sick tax. It is pie-in-the-sky stuff.

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8 pm

I have with me a book entitled "A Wee Dribble of Dross" by Walter McCorrisken--here is a wee plug for him--and I quote a section about a church collection. I am delighted that the Chancellor is present. The quotation epitomises the Government. It states :

"I put five pence into the bowl then carefully looked about, Nobody was watching me, so I took a fiver out."

The Chancellor has looked about and said, "I will take a fiver our of that." The channel tunnel is charged nothing. It is objectionable. The tax is utterly unfair to large families. Families are entitled to a wee holiday abroad, the same as anybody else.

The islands and highlands are dear to the people of Scotland. We saw the highland clearances by the lords and masters 100 years ago. The folk down here in the south did enough damage in those days. We are seeing another punitive measure on people who have tried to cultivate the highlands and make them live. I am sure that my hon. Friend the Member for Western Isles (Mr. Macdonald) will speak admirably about his constituents in the highlands. However, folk in my constituency need jobs.

Many people come to my constituency to use the local hospitals for operations and so on. Is the Chancellor going to guarantee that those folk will get the £10 paid? Will he ensure that for folk who need medicine or treatment the tenners will be paid, or is it that, because they live on an island, they will suffer once again? It is a disgrace. Islanders and highlanders live in remote areas that are important to the infrastructure and the economy of this country, and they are not being given due attention and support to live. Instead, rural areas are being turned into shooting estates for the lords and gentry whom the Chancellor seems to look after more than anybody else.

I am not a great lover of some of the folk who run some companies, but Sir Colin Marshall, chairman of British Airways, said : "The new air passenger duty proposed discriminates against this nation's most successful transport sector and penalises airlines while rail, coach and ferry companies will escape, as will the channel tunnel."

I certainly do not want a tax on services to the islands, but I am not too concerned about the channel tunnel. I would like to hear what the Paymaster General has to say about that. Sir Michael Bishop, chairman of British Midland, the country's second biggest scheduled airline, with 3.8 million passengers a year, said :

"Air travellers in and from Britain do not deserve to be singled out in this way. Why should they be forced to pay more and why should road, rail and sea travellers be exempt?"

The tax is not universal ; the Chancellor has singled out air travel.

By the way, the Government should be doing more to keep our airlines in the air. More important, they should also ensure that British Aerospace and other companies, which provide many aeroplanes for Britain, continue. The Government must not take too much out of the kitty.

I do not want to take up too much time, but, as I have said, Glasgow airport is in my constituency. It presently handles 5 million passengers a year--very welcome passengers. The projection is that, if the infrastructure is built and we keep flying high, the airport has a chance of reaching 8 million passengers a year. This measure will damage its chances of reaching that target, and, once again, that will inflict further unemployment on Scotland. The Government will take from the people of Scotland, especially those in the islands, money that they badly need

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to continue to develop the islands to make them a decent place to live. I am delighted that the Chancellor is present to hear my speech.

There is no doubt that the measure has been brought about because of the blunderland that is Britain now. There is no doubt that, because of their £50 billion blunder, the Government are looking everywhere to dip their hands into people's pockets. I am sure that Walter McCorrisken, the famous Scottish poet, will have somthing to say about the Chancellor's mad, wild plans to get Britain out of a hole. The right hon. and learned Gentleman should keep out of the sky. I am sure that he will damage Britain's prospects of communicating with the rest of the world by imposing this punitive tax.

Mr. Hoon : I congratulate my hon. Friend the Member for Renfrew, West and Inverclyde (Mr. Graham) on his wide-ranging contribution. I shall address four specific points in relation to the proposed new tax : first, the bureaucracy involved in what will clearly be a complicated tax for the airlines to administer ; secondly, the likely implications of the tax for the single European market ; thirdly, the effect of the tax on British airlines in competition with other airlines around the world, and the implications of that for the British tourist industry ; and, fourthly, the effect on regional airports.

On bureaucracy, the Chancellor's justification for the introduction of the tax, according to his Budget speech, is that air travel is undertaxed compared with other sectors of the economy. If that is the case, clearly it was open to the Chancellor to consider other ways of raising tax from the airline industry--perhaps simpler forms of revenue raising based on taxes that they pay already.

It would be helpful if the Paymaster General indicated what consideration was given to other courses and what was the administrative cost assessment of using that avenue of tax raising rather than increasing taxes elsewhere. Obviously, the Government must justify that in relation to the introduction of what all hon. Members accept is an extremely complicated tax to administer. If the Paymaster General does not accept the complexity of that from me, I hope that he will accept it from people in the industry.

Sir John Cope : It was not clear what other tax the hon. Gentleman thought we should use to raise money from the airline industry.

Mr. Hoon : I was suggesting that the airlines are likely to be paying taxes elsewhere and that, therefore, it would be possible to increase other taxes if the justification for this taxation were accepted, which is that the airlines are undertaxed. Presumably the Government could have embarked upon an exercise to determine the most efficient way of raising tax from the airline industry, and that must involve an assessment of the administrative cost of this tax. I wonder whether the right hon. Gentleman would enlighten the Committee on what alternative considerations were made, assuming that I accept the Chancellor's argument that the airline industry is undertaxed. The bureaucracy becomes clear to anyone who reads the Customs and Excise briefing that was prepared to assist hon. Members on the proposal. Paragraph 9 is entitled "Scheme of Control". I propose to read it in full because it is a useful indication of the glib way in which the

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Government have approached the problem. In due course, I shall contrast that with the reaction of British Airways to the proposal. I quote :

"Control arrangements for Air Passenger Duty will be systems audit based and airlines will be required to maintain records accordingly. The prime control will be a manifest list of passenger loads compiled from information on ticket coupons. Record keeping requirements will focus on several areas, including :

An account to provide a visible audit trail for duty declared on returns ;

Manifest or passenger load lists in suitable form ; and Commercial documentation, including information provided to airport authorities."

That is the glib outline provided in the briefing from Customs and Excise. Presumably that is what the Government now think will be required to introduce the tax.

It is necessary to contrast that superficial approach to the proposal with what British Airways says about it. It is a different approach because the Government assume that British Airways, together with 199 other airlines, will collect the tax. British Airways says :

"As proposed collection of duty from passengers will be by the airline selling the ticket but payment of the duty is by the airline carrying the passenger on the dutiable sector. There are no existing systems for airlines to identify at uplift which passengers are eligible to pay the duty. It would be very expensive to develop systems to do this, requiring computer and additional manpower resources. Even then the system could not identify all exempt passengers. Furthermore there are no systems by which one airline can collect from another duty which should have been collected ; indeed an airline cannot force another to collect a duty on its behalf." From the simplistic outline set out by the Government and their officials, which presumably will be defended by the Paymaster General, the reality is something different. An expensive computer system will be required with significant extra costs for airlines if they are to implement the scheme dreamt up by the Government.

If the Government are in any doubt about this difficulty, they should visit any major international airline at the airport, say on a Friday evening, especially at this time of year when there is the prospect of snow or fog which will disrupt services. They should watch the activities of people who are travelling from London to Paris, Brussels or any other major airport in the European Union. What happens is that passengers may turn up with a ticket issued by British Airways for a BA flight. When they discover that the BA flight is delayed for an hour because there is a problem with the inbound flight, they then see whether Air France can take them, and they will re-register on an Air France aircraft. If that aircraft is then delayed, they will perhaps see whether British Midland can get them across. That means that each trail must be followed from one airline to another simply to collecct the duty of £5. That is something which the Government need to consider.

Not only will the airline be required to follow through the arrangement. I shall give an example of something that happens routinely every day at airports around Europe. Airlines will have to ensure that they are in a position to offset the various costs. If British Airways collected the tax when it issued the ticket, it must ensure that it is in a position to get the money back from the airline that carries the passenger on that short journey. That is only one of the many difficulties that I anticipate will arise from this poorly-thought-out proposal.

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Other difficulties will be obvious to anyone who travels regularly by air. Increasingly, airlines are persuading people to fly only with them, and they offer discounts to people who buy multiple tickets. Many of the multiple tickets tend to be one way, so people buy a block of six tickets for journeys from one city to another and then a block of six tickets for the return. How will the proposals affect refunds with regard to the block purchase of tickets? I anticipate all sorts of problems with the proposals which the Government have not considered.

8.15 pm

Transfer passengers are referred to in the briefing, and there has already been some discussion about this matter. Many international flights start early in the morning, and it is commonplace for people travelling from a regional airport to stop overnight in London before taking their further flight. Does that mean that they will have to pay the tax twice? How does that differ from the position of someone who, for example, travels from a European destination through London to a regional airport? I frequently make such a journey. Frequently, I have broken my journey by arriving at Heathrow, going into London for a meeting, returning to Heathrow and continuing my journey north. Does that mean that I will have to pay the tax twice? How will anyone know that I chose to break my journey at Heathrow, came into London and then went out again?

There are all sorts of anomalies that the Government have built into the proposals. The matter of stopovers needs to be considered because it will have a significant impact on our regional airports. I hope that the Government have some concern about the impact of their proposals on airports outside London.

Mr. Macdonald : The problem with stopovers exposes some of the more ridiculous anomalies contained in this duty. For example, if one were to fly from Barra to Stornoway in my constituency, it would involve a stopover in Balivanish. One would have to change from a plane that carried fewer than 20 passengers to one that carried more than 20 pasengers. Halfway through a single journey, one is suddenly transferred from a category where one is not liable for the tax to a category where one is liable for it. How does my hon. Friend think that Customs and Excise will work out the complexities of such a conundrum?

Mr. Hoon : At the risk of testing my limited geographical knowledge, my hon. Friend has pointed out a further problem that the Government face in trying to make the proposal sensible, if they are bothered about that. It may well be that they are not too worried about making it sensible ; they are more concerned about simply raising revenue. If that is the answer that the Paymaster General gives us, I suppose that we must accept it. If the Government will not raise revenue by the one mechanism that they studiously avoid--increasing the basic income tax rate--we must face such bureaucratic tax systems, which involve an inordinate amount of effort by those who are charged with the responsibility for collecting the tax, and the Government will have to face up to the decisions that they are taking.

We have been told that this is all about revenue raising. Of course, it is not simply about revenue raising ; it is about the complexity of revenue raising and the difficulties in which the Government have got themselves. The previous Chancellor was proud that he abolished a tax each time he

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delivered the Budget statement. It appears that this Government's approach will be the reverse--not only to add new taxes to the portfolio of taxes facing taxpayers in the United Kingdom but to add new, inherently complex taxes.

I should be grateful if the Paymaster General would examine the suggestion that the tax is to be collected by the airlines and then effectively buried in the cost of the ticket. I hope that the Government intend to make it clear to the airlines that the tax must be displayed prominently on every ticket issued, otherwise the consumer--the taxpayer--will not be aware of the Government's additional cost of a holiday. I am sure that the Paymaster General will agree that, in the interests of openness, it is right that the taxpayer should be fully aware of the charge that the Government are imposing. I hope that the Government will make it clear in their instructions on how the tax will be collected that the full cost of the tax must be properly shown on each ticket.

The second matter that I mentioned was that of the single market. I sat with the Paymaster General through many hours of debate on the Finance Bill 1992, which was introduced specifically to establish consistent tax rules across the European Community as it was then, the European Union as it is now. We spent many hours debating the finer points of excise duty and VAT so that the 12 member states could begin to have some consistency in the rules which they applied for those two taxes. Perhaps the Paymaster General did not suffer as much as I did during those long hours in Committee. I tried to make him suffer occasionally, but obviously I was not as successful as I had hoped.

There is no attempt in the proposals to produce a common approach in the European Community. Instead, the Government are simply striking out on their own. They are saying that it does not matter what other countries are doing--they want to have this tax because they need to raise money. They are not concerned about the attitude of other countries to the proposal. I doubt whether the Government had any discussions with other member states about concerns that such taxes were anomalous in the European Community. I doubt whether any anxieties have been expressed by the Government on that question. When challenged, of course, they will say that other countries have such a tax and that therefore they are perfectly justified in introducing it.

Belgium charges a duty on all international flights but, because it is Belgium, the rate of duty varies between airports. The maximum rate, however, is about £9. Denmark charges about £6.50 on all international air departures, and Ireland has a duty of about £5 on all international departures with the exception of those to Northern Ireland. There is a precedent in the European Union.

The proposals, however, provide a different structure, with the tax applying both to domestic and to international flights. The structure is significantly different also from the way in which those three member states choose to impose their taxatioin and that will produce further anomalies. Perhaps the Paymaster General will next year make proposals to amend the tax to bring it into line with the other member states. It is unfortunate that, at a time when the Government are seeking to produce a standard approach in other areas of taxation with other European

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countries, they should strike out clearly on their own and introduce a tax quite different from any other in the European Union.

The third area upon which I should be grateful for the comments of the Paymaster General concerns competition with other airlines. The right hon. Gentleman has had drawn to his attention more than once today the letter from Sir Colin Marshall of British Airways. It does, however, repay serious examination. The point which he made on behalf of British Airways has been repeated by others in the airline industry. He was extremely concerned that the duty will not only hit airlines generally, but will hit British-based airlines particularly hard.

Sir Colin said in the letter that the tax will not apply to competitors, some of whom, unlike British Airways, are subsidised and do not meet the full costs of their infrastructure. He was also concerned that the tax will do serious damage to some of our services, particularly those domestic routes which are losing money. He also stated that he could not be sure that it would not precipitate the closure of some of the more difficult regional services.

If the Paymaster General is in any doubt about that, I suggest that he goes to Heathrow early on a Saturday morning and takes a flight to Amsterdam, as I had the opportunity of doing recently. I was expecting a comfortable service to Amsterdam on a virtually empty plane, because most of the passengers who travel from Heathrow to Amsterdam do so for business reasons. The truth is that Saturday morning flights to Amsterdam from Heathrow are packed, and it is extremely difficult to get a seat. The reason is that, increasingly, Amsterdam attracts large numbers of passengers who are using the airport as a stopping-off point before going elsewhere. Indeed, Amsterdam has made a virtue out of that for many years, and at one time described itself in an advertising campaign as the third London airport.

Amsterdam is increasingly competing directly with the London airports. It has much greater capacity because it has had a good deal of investment in terms of new building, and it has routes to elsewhere in the world. In terms of the proposals, I assume that the passenger choosing to go through Amsterdam will have only to pay the £5 tax for the internal service and not the £10 tax if the journey then goes on elsewhere outside the European Union. If that is not the case, it will create a further competitive edge as far as an airport such as Amsterdam is concerned and will further attract passengers away from using British airports and facilities. That will be to the benefit of our direct competition on the continent.

I am sure that the Government will simply say that that is a marginal consideration, but the fact is that it is a competitive industry and such marginal considerations are the difference between airlines and services going bust, or surviving and making a profit. The Government ought to address that point carefully.

Again, if the Paymaster General is unhappy to accept that argument from me, he should look carefully at what Sir Colin Marshall has said. He has said that it would be easy for foreign airlines to compete unfairly against British airlines by evading the proper duty, if the duty is collected as was proposed originally. A foreign airline would be able to route its passengers through its international base on the continent rather than directly to the United Kingdom. For passengers on long-haul services, that does not really pose

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much difficulty. If that gives foreign-based airlines which operate from the United Kingdom such a competitive edge, we will be seriously damaging our industry in the process.

In relation to the question of competition for British-based operations, it is also worthwhile for the Government to look carefully at the views of the United Kingdom-based tourist industry. The Government take some credit for encouraging tourism to the United Kingdom, and yet clearly the industry is extremely concerned about the impact of the tax on business.

The chairman of an extremely successful travel agency has said that the new tax will have a highly detrimental effect on Britain's tourist industry. In an extremely price-sensitive market, the chairman added that the United Kingdom is already seen as an expensive destination. He explained that increasingly in the provision of package travel holidays United Kingdom- based companies are competing with companies from France, Holland and other European nations. That kind of price differential may make a real impact on business.

Mr. Rupert Allason (Torbay) : Is the hon. Gentleman aware that the departure tax will not have the impact that he suggests? The British tourist industry has in fact advocated the extension of VAT to foreign package holidays so as to protect the domestic market. That would make the domestic tourist market much more competitive. Would not people who pay £500 to £700 for a foreign package holiday be perfectly able to afford a small amount extra if VAT were extended to that package holiday?

Mr. Hoon : I do not want to get into an argument about VAT. The Government are increasing taxation sufficiently as it is without my following the hon. Gentleman along that route.

If companies based in Britain are worried that they will be placed, however marginally, at a disadvantage in competition with tourist companies on the continent, the Government ought to take that carefully into consideration. The hon. Member for Torbay (Mr. Allason) used as an illustration a holiday costing £600 or £700, but the most fierce competition in the holiday business tends to be at the lower end of the package holiday market. So we are talking about holidays that may cost less than £200. When that expenditure is multiplied by, say, four or five, for a family the impact of the tax--whether it amounts to £25 for journeys within the European Union or £50 for journeys outside the European Union--will be a consideration in what is clearly a tight market.

The last of the four subjects that I said I wished to raise is the effect of the tax on regional airports. The type of taxation represented by the air passenger duty will have consequences for the regional airports. We tend to assume that regional airports are steadily growing. People look to airports such as Manchester as an illustration of a clearly successful airport that has attracted new services and is successful in competing against London.

8.30 pm

Let us contrast the position of Manchester airport with an airport rather close to home for me and for the Chancellor of the Exchequer. If the Chancellor wanted to fly from East Midlands airport to Heathrow--he might not choose to do so as a way of travelling to the House of Commons, but he might want to do so when travelling to

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an international summit somewhere--he would find that he would no longer be able to take that service. A service operated by British Midland for a long time has been withdrawn in recent months because British Midland now believes that it is no longer economic to run it. The company cannot justify the price to passengers of the service down to London.

The air passenger duty will add a further £5 to the journey cost. If people want to travel by air to Heathrow and carry on to some other part of the world, it will add £10. The duty will be a major factor in an airline's decision whether to operate a service such as East Midlands to Heathrow. Such taxation has a serious impact on a company. I know that because I have encouraged a variety of companies to offer routes from Heathrow. They all say that it is a matter of landing fees and the cost of getting the aircraft in the air. Those seem to me, as someone who pays the fare, relatively marginal considerations when they are spread across an aircraft with people all paying what seems to be a high fare. But the truth is that such services operate on extremely tight margins. The air passenger duty could mean the difference between operating or not operating a service or--of more concern to many regional airports--whether a service can continue to be operated.

If, instead of travelling from East Midlands to Heathrow, the Chancellor of the Exchequer chose to travel from Birmingham to Heathrow, again he would be disappointed. Still more recently, that service has been withdrawn.

Therefore, I hope that the Government will consider the effect on regional airports. As several hon. Members have said already in the debate, I hope that the Government will examine carefully the way in which the tax will hit services other than those from London. I repeat that air passenger duty will not simply be a tax of small impact for most people. Many people contemplating whether they can afford a holiday this summer, particularly if they are thinking of going to one of the destinations abroad for which there is fierce competition in the package holiday market, will wonder whether they can afford the extra cost. My constituents in Ashfield will wonder whether they can contemplate the extra cost imposed by the tax. If they have two or three children, the tax will make a significant difference. [Interruption.] Conservative Members seem to find that amusing and entertaining. It is a matter of great concern to people. Instead of going on holiday, people will sit at home and blame the Government for two weeks. Perhaps that is what I really want them to do.

Mr. Allason : The hon. Member for Ashfield (Mr. Hoon) has exaggerated the role of the air passenger duty. He should be aware that the domestic tourist industry has been disadvantaged in many different ways, and certainly by foreign competition. If one wanted to support the British tourist industry, the quickest solution would be to introduce a differential in value added tax to reduce, as in France, the level of VAT charged in restaurants, the catering business and hotels. That would give a tremendous boost to the domestic industry.

The domestic tourist industry is extremely successful and important. It is the largest earner of foreign currency in Britain. Therefore, it deserves some support. The simplest way of providing that support, and, indeed, benefiting the Exchequer, is surely to extend VAT to the purchase of

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foreign air travel and holidays. As the hon. Member for Ashfield said, the cost of a package holiday even at the lowest end of the market is about £200. If one multiplies that by the number of people in the family, it comes to exactly the figure that I suggested-- £600, £700 or £800. The imposition of VAT on that figure would not be significant. It would have been an imaginative approach on the part of the Government, and the measure would have been welcomed by the British domestic tourist industry, to impose VAT on foreign air travel.

I wish to take a moment to examine the problem of the British domestic tourist industry. At present, if people decide to come to Torbay for their holiday--which I strongly recommend--the difficulty is that any hotel bill or restaurant bill has VAT at 17.5 per cent. added to it. If exactly the same family goes abroad, say to Spain or France, they may find that part of their holiday is subsidised by a rather lower level of VAT. There is a differential in those countries.

For many years, the Government and particularly the Treasury have resisted the idea of two rates of VAT. In the good old days of Ted Heath, the dual rate of VAT--one forgets how high the rates were--was broadly accepted. The Government have introduced a different rate for the new VAT on fuel. We shall have a dual rate for at least a year. Why not extend that and help the domestic tourist industry, which is extremely important?

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