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Mr. Pike : Is the hon. Gentleman arguing against the main plank of the Government's policy, which is to shift the balance from direct taxation to VAT? That is a policy with which I wholly disagree. But in the-- [Interruption.]
The Temporary Chairman (Sir David Knox) : Order. The hon. Gentleman is going much too wide. We are on a much narrower point than the one that he is raising.
Mr. Allason : It is a narrow point. I am grateful for your guidance, Sir David. I strongly support the extension of VAT to the purchase of foreign holidays and foreign transport. It would be a good way of raising revenue to put an extra amount on the purchase of package holidays.
I am sympathetic to the argument made by the hon. Member for Ashfield about regional airports. The blame for part of the problem lies not only with the Treasury but with the European Union. If there had been true competition between domestic carriers, Air France and other continental carriers would have been allowed to come into the United Kingdom and, if they saw a market, to take advantage of it. How can one believe that, following the creation of the single market and the European Union, we are members of a free trade club when British Airways cannot pick up passengers in, say, Madrid and fly them to Rome? Surely the point of a free trade club is that the existing players should be able to take advantage of a market if they see one.
Mr. Hoon : While I appreciate that the liberalisation of airline routes in the European Union continues to be difficult, the hon. Gentleman needs to concentrate on the real difficulty facing regional airports : they are not getting the competition. Competition implies more than one airline, but most regional airports are having difficulty finding even one airline to fly a scheduled route--for example, between the East Midlands airport and London.
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It is not a case of many airlines queuing up to compete--the airport cannot even persuade one airline to take on that responsibility.Mr. Allason : I accept that, but I am worried about the predatory nature of some of the airlines operating on the domestic market. I am especially concerned about routes from Exeter and Plymouth, which are regional airports on the brink of viability.
If we are members of a free trade club, why do so many restrictions remain? They mean that only a few airlines can come into the domestic market.
The Temporary Chairman : Will the hon. Gentleman keep to the point? He is getting far beyond it. We are discussing amendment No. 1.
Mr. Allason : I am grateful for your guidance, Sir David. This measure is certainly unimaginative because it does not grasp the problem. While it is a straightforward and obvious attempt to raise revenue, I urge the House to consider carefully going further and extending value added tax to foreign package holidays. That would be widely welcomed and I urge the House to accept that.
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Mr. Jim Cunningham : I and many of my constituents are worried about the implications of the air passenger tax. The amount of duty that the Government are introducing now is not necessarily the cause for concern--it is the amount that they might introduce next year or the year after. We are really concerned about the knock-on effects of the tax.
Travel agents are extremely worried about the tax and the implications for the future. In my constituency, the aero-engine business--especially Rolls- Royce--has gone through a lean time, as it has throughout the country--and today's announcement about Rover gives us food for thought. British Aerospace has sold off its holding in Rover to a German company and that should tell us a lot about the state of British Aerospace. It serves as an illustration that we should be concerned not only about the tax but about the future of the freight and aerospace businesses and, to a certain extent, the future of travel agencies.
My constituents and people in the west midlands will be wondering about the tax. They will not necessarily be worried by the amount at the moment, but they will wonder how much it will be in future and the effect that it might have on their jobs.
Mr. Pike : The tax will also cost something to implement, apart from the £5 or £10 initial duty. Is it not true that the cost of administering it will remain the same, even if the tax is increased? We have heard nothing to allay fears that the tax will not merely be £5 or £10 next year, but that once the door is open it will increase very quickly.
Mr. Cunningham : My hon. Friend's argument is far better than mine. He has summed up that area of concern very well.
Birmingham airport flies the flag for the west midlands. People in the west midlands will not have a lot of confidence in the industrial base there when they consider what is likely to happen to the airport and to the aerospace industry.
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We are constantly being told that there is a recovery, but that it is fragile. The business community are constantly telling us that the full effects of the Budget have not flowed through and are apprenhensive about that fact.Many people are worried about the tax and the effects that it will have on the morale of those who work in the travel or aero engine businesses. Many jobs have been shed in those industries during the past few years and it is the wrong time to introduce such a tax--it sends out the wrong signals to manufacturers and travel agents. The Government will not know the implications of the tax until they have introduced it, but has that not been the sorry tale of this Government? Whether in the implementation of value added tax or other measures, they have failed to consult adequately or to listen to people who would be affected by the measures.
It is not merely a question of £5 or £10--this tax and the increases in value added tax, coupled with cuts in benefits, will have a net effect on families. We must consider the tax and its implications against a broader canvas than the amendment allows. However, I do not want to deviate too much.
The tax will affect tourism and regional airports such as Birmingham. Many of the smaller airports, such as Coventry, are seeking partners in the private sector because of the cost factor, as many hon. Members with an involvement in local government know. The tax will not encourage such partnerships, because the private sector will think that there is no profit in them. Once again, small airports will find themselves on the breadline and jobs at such airports may be under threat. The tax, therefore, also has implications for jobs, as well as for the tourist and aircraft industries.
The tax is totally the wrong message to be sending to the employees of British Aerospace and Rolls-Royce in Coventry and to people throughout the country--especially at a time when many thousands of people in the west midlands and in my constituency want the industrial base to grow. They certainly want the aircraft industry to grow again and want more jobs to be created in it and in other industries throughout Britain. Psychologically, it is the wrong time to introduce the tax and I question the need for it. I should have thought that the Government would consider other ways to raise the necessary revenue, instead of introducing this tax at the wrong time.
Many people--particularly small manufacturers which do a great deal of work for British Aerospace and Rolls-Royce--will not be so concerned about the level of the tax now as about the cost in the future. Anyone who is extremely concerned about this country's future and especially its industrial base must worry about that. The effects of this tax, coupled with the results of the recent GATT round, on the aircraft industry and on companies such as Rolls-Royce give rise to extreme concern, because they could deter customers from buying engines. As I understand it, the GATT subsidy will be totally eradicated.
Another factor is that the last remnants of the British aircraft industry might be taken over by a company from abroad--whether German or American-- as happened with Rover.
Although the amount of the tax seems small, the effects will be devastating. We are playing into the hands of our competitors abroad. We are not helping to restore
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confidence in the British economy so that it can get out of recession. We are not restoring confidence in the business community to invest ; it fears that it cannot trust the Government over taxation. The Minister may give assurances tonight that the tax is a one- off and that it will not be increased in future, but nobody believes him, because we were given the same assurances about the introduction of VAT some years ago. We have now found out to our cost that one cannot believe what the Government indicate or say. Many in the travel and tourism trades will be concerned.Mr. Pike : Is not it a fact that, because of the tax, the travel industry and the air transport industry will fear that, within Europe, Frankfurt, Schiphol and other airports will develop at the expense of Heathrow and Manchester airports?
Mr. Cunningham : My hon. Friend is quite right. There is no doubt that some of our major airports will be under serious threat. In the longer term, the feeder airports will be under serious threat. Many people forget that some of the regional airports such as Birmingham rely on feeder airports such as Coventry. We need those feeder airports because they facilitate trade. When a business man or a company has to fly components to Frankfurt or anywhere else in Europe, those small airports are often the lifeblood of the regional airports, because a small company can fly its freight at short notice to meet the customer's needs. That boosts confidence abroad in British manufacturers and, in turn, means that one starts to build up the confidence and regenerate the British economy, particularly the industrial base of the west midlands, but, more importantly, cities such as Coventry, which is renowned not only for its ingenuity in motor manufacturing but for aircraft production in companies such as Rolls-Royce and electrical companies such as GPT. Those companies now need a morale boost. They do not need their path to trade expansion hindered by another new tax.
I am extremely concerned for the welfare of my constituents in terms of their jobs, whether in the aero-engine manufacturing industry, in travel agencies in Coventry, South-East, in the airframe industries in the peripheries of Coventry or the small companies that produce components for companies such as Rolls-Royce. Nobody can forecast future Budgets, but I hope that the Minister will pause before introducing the tax and start to talk to people who are involved in air travel and in the production of aero -engines, which are vital to the technology and craft of the country.
The Minister should think seriously about the consequences of the levels of the tax. He should think about the signal that he is sending to British industry, particularly in the west midlands, which has been on its knees for many years, and to companies such as Rolls-Royce, GPT and the small business men in Coventry and throughout the country.
The tax will have serious consequences. It is not a morale booster. I hope that the fears of small business men will not be realised when the full implications of the Budget are known after April. I hope sincerely that it does not dampen economic growth. It seems to me that measures such as this act as a deterrent to British manufacturers and workers, not an incentive. I hope that the Minister will think again about the tax.
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9 pmMr. Macdonald : I am pleased to be able to join the debate this evening. I shall speak in particular to amendment No. 3 to clause 28, which asks that
"This duty shall not be charged until the Government has presented a report to Parliament on its effects on the economies of the United Kingdom islands, on the travelling public and on the air transport industry and tourism."
I should like to focus in particular on the effects on the economies of the islands of the United Kingdom, but more specifically the Scottish islands and the more remote and distant Scottish islands.
I take on board what my hon. Friend the Member for Coventry, South-East (Mr. Cunningham) has said about the wider economic implications of the duty, its effects on industry in general, on the manufacturers of aircraft, on business confidence throughout the British economy and the way that it potentially disadvantages British carriers as compared with continental carriers. However, the valid point has been made that, with the differentiation between travel within Europe being charged at £5 a head and international travel at £10 a head, there is an open invitation for carriers to try to skirt around the £10 charge by trying to use continental airports as staging posts to divert international passengers from the United Kingdom. That could adversely affect British carriers. The Government have failed to take that into account. I hope that that matter will be addressed.
Apart from the wider economic implications for the British economy and industry, I shall refer specifically to its impact on the Scottish islands, which, after all, were one of the high points of the Chancellor's Budget speech. He said that the Scottish islands were to be exempted from the effects of the tax and he instantly won some cheap and easy applause from his hon. Friends on the Conservative Benches, not that that applause was in short supply, because his colleagues gave the Budget an astonishing reception. One wonders whether they appreciated its implications, given that it has introduced the biggest peacetime tax hike in history, which will lead, eventually, to the highest peacetime taxes. Despite that, each new tax and each new increase received delirious applause and cheers from Conservative Members.
Although that reception might have been misguided, the exemption granted to the Scottish islands was met with genuine pleasure. Suddenly it seemed as though inter-party and cross-party argument had been suspended for the moment, because both sides of the House recognised the special position of the Scottish islands. We welcomed the fact that the Chancellor, too, apparently recognised that by granting that exemption. The special position of the Scottish islands has been discussed at some length and it relates primarily to their geographical location. They are found on the ultimate fringes of the continent of Europe. Their sheer difference from the industrial and commercial hub of Europe and the United Kingdom is one of the main disadvantages with which they must cope.
The remoteness of the northern isles and the Western Isles is recognised not just in the House, but in the country and throughout Europe. They are a special case precisely because of their remoteness and their very distance from the Scottish mainland. It takes five and a half hours to travel by ferry to the island of Barra, in my constituency, from the Scottish mainland. I do not believe that most hon. Members appreciate the distances involved until they are spelt out. They know that the islands are a certain distance
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from the mainland, but when they realise that it takes more than five hours to reach a community, most of them are surprised, and even shocked.Mr. Wallace : I am not attempting one-upmanship, but just to illustrate the hon. Gentleman's point I should point out that to travel from Lerwick in Shetland to the Scottish mainland involves an overnight, 14 -hour journey by ferry.
The Temporary Chairman : Order. Although hon. Members can allude to such matters, the debate is not about the length of time it takes to travel from one point to another but about a tax.
Mr. Macdonald : I was simply trying to illustrate, with the help of the hon. Member for Orkney and Shetland (Mr. Wallace), the effects of the tax upon the economies of the United Kingdom and the islands, as outlined in amendment No. 3, which is one of the group of amendments selected for debate.
One of the defining characteristics of the economies of the Scottish islands is their distance from markets. That was the point I was trying to make until I was superseded, or perhaps I should say one-upped, by the hon. Member for Orkney and Shetland.
I do not need to give the specific number of hours that it takes to travel to each island, but their remoteness is a defining factor not just in the life style of the islanders, but of the economic difficulties that they face.
The other singular feature of the Scottish islands, with the happy exception of the Shetlands because of the relevance of oil to its economy, is their economic fragility. The per capita gross national product of Scotland is some way below the United Kingdom norm, but the lowest of the lot is found in the Scottish islands. The level of unemployment is higher than average while earnings are considerably lower than those found on the mainland.
It is precisely because of that distance that prices on the Scottish islands are higher than anywhere else in Scotland and probably than anywhere in the United Kingdom. That crucial economic factor must be taken into account, because until one appreciates the economic fragility of the Scottish islands, the full impact of the tax--the slap in the face--cannot be appreciated.
When one takes the factors of remoteness and economic fragility into account, one realises that the air service to the Scottish islands is by no means a luxury. It is not a businessman's perk to go by plane rather than train. Rather, the air service is a lifeline for the Scottish islands. When one is faced with a ferry journey of 14 hours or even five and a half hours, the air service is not simply weighed up on the grounds of convenience but becomes a vital link between the island communities and the outside world, connecting them with the rest of the United Kingdom. Although the islands are so many hours' steaming from the Scottish mainland, travelling time can be reduced to only an hour because of the air service.
The matter is illustrated by the fact that there are three airports in my constituency. I wonder how many other hon. Members have as many airports in their constituencies.
Mr. Macdonald : The hon. Member for Argyll and Bute (Mrs. Michie) says that she has a similar number, and the hon. Member for Orkney and Shetland probably has, too. That shows that the air service is a lifeline for the remote communities of the Scottish islands.
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The Government have recognised the extent to which the air service is a lifeline. When islanders need essential specialist medical care that cannot be provided on the Scottish islands because of their low population, they are flown to hospitals on the mainland, in cities such as Inverness, Aberdeen and Glasgow. That is a regular occurrence. One might expect that patients would be flown to the mainland if they need urgent medical attention, but close relatives, such as the mother of a young child who has been flown to the mainland, are entitled to Government assistance to visit their sick relatives in the mainland hospitals. The Government do not ask the relatives to take a ferry or bus from Ullapool to Inverness and all the way to Glasgow, but recognise the special nature of the Scottish islands and assist the relatives to fly, courtesy of the NHS, from the Scottish islands to the mainland.I am at a loss to think of any other constituency where that would be so. It certainly happens nowhere in the rest of the country. The Government recognise the special nature of the Scottish islands and the fact that such a service is no luxury but an essential aspect of maintaining a viable community on those islands.
The tax also has an impact on the viability of the air services to the Scottish islands. To impose this tax on passengers is bound to affect demand for the air services. Indeed, the Government have given us an estimate of how much the tax may affect demand. In an answer to the hon. Member for Argyll and Bute, the Paymaster General said : "Overall, the tax is expected to reduce demand for air travel by around 2 per cent. There is insufficient information available to estimate the impact of the tax on airports operated by Highland and Islands airports. No information has been received from other European countries on the impact of the introduction of such taxation on transport."--[ Official Report, 19 January 1994 ; Vol. 235, c. 643. ]
The Paymaster General seems to have been unable to estimate the reduction in demand for the highlands and islands, but I suggest that because of the economic fragility, the unemployment, the low earnings and the higher prices of the Scottish islands, the impact will be more severe there. Passenger demand is bound to be depressed. Taking into account the shuttle services between Scotland and the cities of England, I estimate that the decrease in demand for passenger services in the highlands and islands may be as high as 5 or 10 per cent.
I emphasise again that the air services to and between the Scottish islands are already on a knife edge of viability--just showing a profit. I might add that they receive no subsidies or assistance from the Government ; they all have to pay their own way, apart from some help from local authorities for inter-island flights. A reduction in passenger demand of between 5 and 10 per cent. could mean that some of these air services are no longer viable. British Airways may have to decide that no longer can it run these lifeline air services to the Scottish islands because of the effects of the tax and the consequent falling off in demand.
This explains why my hon. Friend and I are asking the Government, when considering the tax, to take the special circumstances of the Scottish islands into account. I believe that there are overwhelming social and economic grounds for exempting them. I have even estimated that the Government could do so without much impact on their revenue from the tax. A complete general exemption for the Scottish islands could be achieved, I estimate, with a loss to the Treasury of only about £800,000. I have based
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that figure on what I have been told constitutes the passenger traffic within the Scottish islands and between them and the mainland.I know that the Treasury is hard up these days and that the Government are in a bit of an economic hole, as the Chancelloer said before he became Chancellor. The sum of £800,000, however, out of a total budget of £280 billion, is one that I believe the Government could live with fairly comfortably. The Government need money so desperately that they are willing to put VAT on domestic fuel. This impost is a kind of poll tax of the air on lifeline services to the islands.
But the Government are willing to forgo certain revenues. For example, at the same time as they announced the biggest tax rise in history, they announced that they were abolishing sporting rates paid by landed estates in Scotland. That is an interesting contrast. Those sporting rates are not worth an enormous amount to local authorities, but a fair amount is involved.
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On 7 January the Minister of State at the Scottish Office told me that the total revenue accruing to Scottish local authorities from sporting rates in each of the past four years was estimated at about £2 million a year. The Government feel able to write that off to the benefit of the hunters, shooters and fishermen among the Scottish landed gentry, but they will tell us that £800,000 to rescue the lifeline services for the Scottish islands is beyond their means. We can draw our own conclusions from that.
My hon. Friend the Member for Cunninghame, North (Mr. Wilson) spoke about the international comparison and said that just because other countries had such a tax did not mean that one should be introduced here. I understand that the air duties in other countries tend to be for international and not domestic flights. The Government's air duty appears to be more sweeping in its catchment.
We have lessons to learn from other countries. In an intervention, I gave the example of the Republic of Ireland. The air route from Dublin to Kerry in the west of Ireland, a remote area on the edge of Europe, faces many of the same social and economic problems as the west coast of Scotland and the northern and Western Isles. But instead of imposing a tax on the people of Kerry and others who use that service, the Government of Ireland negotiated with the European Commission and was allowed to provide a subsidy to maintain that essential service.
The journey from Dublin to Kerry is equivalent to that from Stornoway to Inverness--about 200 air miles--but while the Scottish islanders will have to pay about £130 for the journey, because of the subsidy negotiated by the Irish Government, a person travelling from Dublin to Kerry will pay only half that, £70. That contrast rather shames the Government. The Government of the Republic of Ireland were able to fight and negotiate with the Commission to provide a subsidy for their remote areas but this Government ended such subsidies a long time ago. They prefer to impose a poll tax on each person travelling to and from the Scottish islands.
The Government maintain that they have provided some exemptions. As I said earlier, the Chancellor made much of that. At the time, he received some easy applause. Actually, it was genuine and well-meant applause, as hon. Members on both sides thought that it was reasonable and proper to exempt the Scottish islands. No Conservative Member protested. Nobody shouted "Shame" when the
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Chancellor appeared to be exempting the Scottish islands. All cheered, and I appreciate the sentiment that was thus expressed. Unfortunately, a look at the small print revealed what I might call a Dudley-type promise--the Chancellor having said that promises made on a rainy night in Dudley were not to be taken seriously. In fact, the exemption is not what it appears to be. The Paymaster General has tried to defend what the Chancellor said in his Budget speech. Indeed, the right hon. Gentleman's defence reflects worse on the Chancellor than did what we thought was the position. We thought that the Chancellor's speech had been written by civil servants and that the right hon. and learned Gentleman could not possibly have known the details, could not possibly have known that what he was reading out was highly misleading. But we have now heard from the Paymaster General that the Chancellor knew all along that what he was saying was misleading. That is regrettable and shameful.The Paymaster General himself has tried to be a little economical with the truth in his attempt to justify these apparent exemptions. For example, in an answer given to me on 6 December last, he said that, based on October 1993 timetables, it was estimated that about a quarter of flights to the Scottish islands from the mainland and about three quarters of inter-island flights would be exempt. That sounds very generous. The impression it gives is that most people will be included in the exemption. But what we have in those words is only one way of describing the situation. On the basis of flights per se, it may be so, but the number of passengers being carried, the number being taxed and the number exempted present a completely different picture. Indeed, the position is the opposite of that presented by the Chancellor in his Budget speech.
If one adds together the numbers of people carried on Loganair and British Airways flights between the Scottish islands and between the mainland and the islands, one arrives at a figure of more than 210, 000 passenger flights of the kind described in this legislation. Of these, only 42,000 would be exempted under the Chancellor's concession. In other words, 80 per cent. would be taxed, and 20 per cent. exempted.
We now find that the situation is even worse. On 22 December, Mr. Scott Grier, the managing director of Loganair, wrote to the Chancellor pointing out that, although at present 20 per cent. of passenger flights would be exempted, in the near future the number would be much smaller, as different kinds of aircraft would be used. Mr. Grier says :
"Only a small minority are going to be exempt. On your proposed basis, only those passengers flying the eight-seat Britten Norman islander aircraft used in the Orkney inter-island service and the Shetland inter-island service are likely to be exempt next October when the duty is due to be implemented. Services currently using 18-seat De Havilland Twin Otter and Jetstream 31 aircraft are likely to be upgraded in the next few months, due to the Twin Otter no longer being manufactured, and the Jetstream 31 being unsuitable for the common requirements of the Highlands and Islands services to carry freight, newspapers and mail in addition to passengers. It is likely, therefore, that perhaps only around 20,000 passengers per annum would be eligible for relief if your proposed exception criterion is applied."
An exception that was to apply to 20 per cent. of passengers when the Chancellor made his Budget statement will apply to only 10 per cent. next year. That is very different from the message that the Chancellor apparently tried to convey in his Budget speech.
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I want to explore not only that deception-- if that word is permissible--by the Chancellor, or his misleading statement, but an aspect that might cause concern to even the right hon. and learned Gentleman and the Paymaster General themselves. I refer to the enormous number of anomalies that will be thrown up when the duty is introduced late next year.To understand those anomalies, one must distinguish between the two types of aircraft used on Scottish island routes. One type is represented by the Jetstream 41 and the Shorts-360, which carry 29 and 36 passengers respectively. The other type carries fewer than 20 passengers. I mentioned the Jetstream 31, which carries only 17 passengers. The Islander carries six to eight passengers, and the Twin Otter carries 15 to 18 passengers.
The significant point is that aircraft that carry fewer than 20 passengers will be exempted, whereas those that carry more will be subject to the duty. The aircraft that carry more than 20 passengers also account for the highest number of passengers carried on the entire inter-island network.
Those two types of aircraft create a whole series of anomalies. I will give the example of one flight serving the Western Isles and another serving the northern isles. An inter-island flight in Orkney or Shetland using a Jetstream 31 or Islander will be exempted from duty. However, a flight from Barra to Balivanish in the Western Isles operated by the same company-- Loganair, involving no greater distance, and serving a community every bit as impoverished, economically fragile and remote as one in the Orkneys or Shetlands, will require that passengers pay the full whack of £5 per head. Surely that discrepancy cannot be justified.
The absurdities become even worse. I refer to the flight from Barra to Stornoway, or from there to Barra. As I have already mentioned, the inter- island flight from Stornoway to Barra, or vice versa, has a stopover half way up the island chain at the airport at Balivanish. Passengers travelling from Barra to Stornoway stop over at Balivanish and have to change plane. They have to change from a Twin Otter aircraft, which carries fewer than 20 passengers and is therefore exempt from the tax, to a Shorts 6 aircraft, which is tax liable and will carry them for the remainder of their journey. Half way through their journeys, passengers change from a tax-exempt aircraft to a taxable aircraft.
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I scratch my head about how the duty will be assessed in such a case. Will the significant factor be the direction in which passengers travel? If they come from Barra and start off in a tax-exempt aircraft, will that determine the tax status all the way to Stornaway? If they come from Stornoway, they will start their journey in a tax-liable aircraft, so will they be taxed all the way to Barra? Will passengers who get off at Balivanish have to fork out £5 extra on top of the fare that they have already paid at Barra? It is absurd and shows the ridiculousness of trying to base exemptions on the size of the aircraft.
There are also anomalies involving flights from the islands to the mainland. The social and economic need for protecting those flights is perhaps greater for island to mainland flights than for inter-island flights. The connection between the islands and mainland is economically, socially and psychologically important. Again, there are various anomalies. A flight from Kirkwall to Glasgow, which currently uses a Jetstream 31, will be
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tax exempt. A flight from Stornoway to Inverness, which is a shorter flight and uses a British Aerospace advanced turbo-prop aeroplane, will be taxed. What possible justification is there for that? Likewise, the flight from Sumburgh--an important oil station--to Edinburgh, the financial capital of Scotland, will be tax exempt. But the flights from Stornoway to Inverness and Balinvanish to Glasgow will be hit by the tax. There is no social or economic logic in that anomaly.Let us take a different sort of illogicality and anomaly, which is even more absurd. Some routes use different planes on different days--for example, the flights from Kirkwall to Wick and from Sumburgh to Edinburgh. If one takes one of those flights one day, one will be taxed, but on another day one will be exempt. That is clearly absurd and ridiculous. The Government have to consider the position more seriously.
Some days the Sumburgh to Edinburgh route uses an ATP and on others it uses a Jetstream 31. On some days the Kirkwall to Wick flight uses a Jetstream 31, which is below the 20-passenger limit and is tax exempt, but on other days it uses the Shorts 6, which is above a 20-passenger limit and is therefore tax liable.
That creates a real problem for the Government, whose intention is to tax people on return rather than single journeys. People will not be taxed twice if they take a genuine return trip, but what if they use different planes on different days? What happens if they go out on a Jetstream 31, but come back on a Shorts 6 or an ATP? What will happen to people who fly out on a tax-exempt aircraft and return on a tax-liable one? Have the Government even considered that absurd anomaly? The notion of providing exemptions based on the size is riddled with such anomalies, which makes the whole process nonsensical--especially in regard to the Scottish islands. The hon. Member for Buckingham (Mr. Walden) pointed out that there were rich people in the islands and poor people in the cities ; why should the islands be treated differently? It is widely acknowledged, however, that the islands are a special case, in both social and economic terms : hon. Members on both sides of the House have agreed that. Moreover, most rich people in the islands do not live there : they occasionally spend a weekend hunting, fishing and shooting on their estates, but most travellers on commercial flights to the islands will not find them in the neighbouring seat. Such people hire their own Jetstream 31 ; they are wealthy, busy business men, for whom time is money. They will hire a Jetstream 31 to Stornoway, and step off it tax exempt.
That is the real irony. An islander visiting a relative in a Glasgow hospital, using the air link from Barra, must walk across the sand to board the aircraft ; that person will be hit by a £5 tax. The millionaire jetting into his Hebridean estate for a weekend's shooting--on his Jetstream 31--will be exempt. We have come to expect such anomalies from the present Government, but they are not justified.
I wrote to the Chancellor raising some of those points. On 13 January, the Paymaster General wrote back to me, trying to defend the current illogical position ; I believe that he wrote to the hon. Member for Orkney and Shetland in similar terms. He wrote : "There is a logic to the proposed exception for flights in small aircraft These criteria relate to CAA licensing requirements whereby carriers exclusively involved in operations with aircraft below this size"--
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that is, with fewer than 20 passengers--"are subject to less rigorous financial obligations. It follows from the proposed exemption that all holders of this type of licence will know immediately they need not register for this duty." That is fine, but Loganair and British Airways do not exclusively use aircraft of that kind. It is completely and utterly beside the point to bring that aspect of Civil Aviation Authority regulations into the argument to justify exemptions in commercial flights to the Scottish islands. That is completely irrelevant and it is not germane to the argument about the Scottish islands.
The letter contains another argument for the exemption. That piece of logic states :
"Another consequence of this criterion, which Kenneth mentioned in his Budget speech, is that the majority of flights between the Scottish islands will be exempt from the duty as they use small aircraft. Many of these small aircraft use Avgas which is subject to excise duty and therefore, unlike most other domestic and all international flights are already subject to some indirect taxation."
That argument for fixing the exemption of planes with fewer than 20 passengers is that they already pay some form of tax and duty because they use avgas which is a different kind of fuel from that used by regular scheduled commercial flights. Therefore, to impose an extra tax would involve a double duty.
The only problem with that explanation is that none of the aircraft servicing the Scottish islands uses avgas. Only five of Loganair's planes use avgas and they are used for the air ambulance service. None of the passenger flights to the Scottish islands or between those islands uses avgas. That attempted justification for the duty also runs into the sand.
The lesson is that there can be no justification for this absurd, inequitable and deeply damaging tax. There can be no justification for this poll tax of the air. The weakest form of argument that the Government can advance is to suggest that if an exception were granted for the Scottish islands, somehow that would be a slippery slope towards the destruction of the duty in its entirety ; if the exception were granted, other areas would want similar exemptions. However, that argument ignores the obvious fact which is widely recognised by hon. Members on both sides of the House that the Scottish islands are a special case because of their fragility, remoteness and distance.
That point could be recognised by the Government in the structure of the new tax in a way that would be accepted by everyone inside and outside this place. The Air Transport Users Council wrote to Mr. David Hock of Her Majesty's Customs and Excise. It made the point that it would make
"economic sense to extend the exemption to embrace all island services".
The council does not believe that such an exemption would lead to a wider form of exemption. It recognises the special position of the islands. Loganair and British Airways are of the same opinion. In the notes which British Airways has given to hon. Members explaining its views on the new tax, it states that, instead of having a silly categorisation of below and above 20 passengers, it would be better to exempt specific journeys which have economic dimensions. I appeal to the Government, when we retire upstairs to deal with these matters in greater detail and, dare I say it, at even greater length, to reconsider the way in which the duty will operate and its impact on the Scottish islands. If they genuinely extend the exemption to cover all flights to
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and from and between the Scottish islands, they will again receive applause from all hon. Members, and deservedly so.Mr. Enright : I shall be very brief because I would like to see the Paymaster General wriggle. There is great excitement among waiting Conservative Members--all eight of them, one in semi-recumbent posture and two loitering with intent. I must not deprive them of their pleasure.
9.45 pm
The Government simply do not learn from history. I remind them of the tale of Daedalus and Icarus. Daedalus carefully designed wings so that Icarus would be able to fly, but he did not put enough planning into it, Icarus plunged into the ocean and drowned, and Daedalus mourned ever after. All that we are asking the Government to do is what Daedalus did not do--a bit of planning and a bit of examination to see what is wrong and what real effects the Bill will have. We are told that the measure will not involve many bureaucrats and that £5 and £10 are easy to collect, but that is not true. When hon. Members considered the Sunday Trading Bill in Committee, I suggested that those shops which opened on Sundays might pay the charge which they cost to local authorities. I was told that it was, in truth, not possible ; Ministers said that it was too difficult to collect such a small amount. Yet here we are talking about £5 and £10. Therefore, I cannot think that it is about the £5 and £10 : I must think that it is about the Government's future intention to tax even more than they are doing now.
The excise charge which at this moment is £5 or £10 will quickly leap to £25 and £50, and that is just judging by the Government's record. On interest payable to commissioners, schedule 6 paragraph 8(1) states :
"Where, due to an error on the part of the Commissioners, a person has paid by way of duty an amount which was not due and which the Commissioners are in consequence liable to repay to him"-- and so on. First, that is gobbledegook and the Government will not win any prizes in the plain English competition. Secondly, it is an almost impossible clause to administer, as the Government will see if they look at it carefully.
Over the page, we see "Preferential debt". Why should that be a preferential debt? We know perfectly well that other debts which are due to the Government are not preferential. For example, I refer to Unicorn plc, which not only does not have to pay back its debt of £200,000 but is given a tax rebate for the rest of the people who invested in it.
The measure will have a damaging effect, too, on regional airports. In particular, I refer to Leeds-Bradford airport from which people in my constituency depart on the holidays for which they have worked hard. For an average family of six there will be another £60 to pay. It is very difficult for people in an area such as mine to find £60. The measure is certainly not acceptable.
The problem with the Government is their philosophy on tax. They want to tax but they do not know why they are taxing, except to make sure that the rich pay less and the poor pay more. They have soaked the poor in order to pay the rich.
It is not just on their policy of taxing aeroplanes that the Government will perish, but on their general philosophy
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