Finance Bill

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Mr. John Burnett (Torridge and West Devon): A true champion of Cornwall.

Mr. Davey: As my hon. Friend says, my hon. Friend the Member for St. Ives is a true champion of Cornwall. [Hon. Members: ``Where is he?''] He is not a member of the Committee, but he has helped me diligently with the clause. Hon. Members should salute him for that.

My hon. Friend often travels from the mainland to the Isles of Scilly to talk with his constituents, so he knows about the problems that they experience on that journey, and he explained them to me in detail. There are three ways in which to reach the Isles of Scilly. First, a boat called the Scillonian makes the trip during seven or eight months of the year. Secondly, a small fixed-wing aircraft called the Skybus flies from Land's End. Thirdly, a helicopter operated by British International flies from Penzance. It is estimated that for three or four months in the year, people are reliant on the Skybus or the British International helicopter service.

Mr. Timms: I am listening to the hon. Gentleman's argument with great interest. Does he happen to know how many seats there are in the two aircraft to which he has referred?

Mr. Davey: The Financial Secretary anticipates what I am about to say. Neither of those services is liable for air passenger duty. The service from Penzance, operated by British International, qualifies for exemption because its tonnage is 9.15, which is below the limit of 10 tonnes. The Skybus has up to 19 seats, and so qualifies on the seat exemption. However, the people running those services intend to expand and, as tourism grows and the island communities prosper under the careful representation of my hon. Friend the Member for St. Ives, they will wish to invest in and develop larger aircraft.

I had the privilege to speak to Captain Terry Nelson, who operates the British International service. He said that, in the next two years, the company intended to operate with a larger aircraft that would not qualify for exemptions based on tonnage or seats. If they invested in the larger aircraft, the duty would hit them because the exemptions that they currently enjoy would not apply. Therefore, exemption is acting as a ceiling on investment and a brake to developing services for the islands, which cannot be right. It is a false barrier to developing services, and I am sure that the Financial Secretary would agree that it is not a sensible one. I hope that he will look at it again with the Isles of Scilly in mind.

Much of what I said about the Scottish highlands and islands applies to the Isles of Scilly. Children in post-16 education are dependent on air services. There is a cottage hospital on St. Mary's, but that cannot deal with all the consultations that the population of the islands requires. First-class mail is dependent on air services, as are family and business visits for much of the year. It cannot be right that the services should suddenly become liable to APD.

I will describe the possible impact on prices of the imposition of APD. The single fare of 47 for the helicopter service would increase by 21 per cent. in one step. That is equal to three times the increase that British International has made over five years. It would be a huge increase in the cost of flying for the residents of, and visitors to, the islands. That is a clear signal of the barrier in the way of those who run such vital services.

My final point is related to competition. APD applies only to air services, which are in competition with the boat service, Scillonian. Therefore, if APD applies when it invests in new aircraft, there would be unfair competition with the boat service.

Amendments Nos. 31 and 32 are completely in line with the Government's thinking. They develop the objective criteria introduced by clause 19, and are relevant to Ministers' concerns, which they also expressed in opposition. They are a logical extension of the Government's position. If the Government will not accept the amendments today, I hope that the Financial Secretary will at least allow further consideration of the amendments, especially with regard to the detailed legal issues that relate to the Scottish highlands and islands. Like him, I would not want to change British law in a way that would contravene EU law. I have reflected on the matter, however, and merely extending the objective criteria should not cause a problem. If the Financial Secretary will not accept the amendments now, I hope that he and his officials will at least reflect on the matter further.

Mr. Letwin: I shall delight the Financial Secretary and the Committee by being brief. The Opposition fully support the burden of the amendments tabled by Liberal Democrat Members.

Amendment No. 32 relates to a point that I raised, inadvertently, when we were meant to be discussing clause 18. I have no doubt that the current exemption is unfair to a particular part of the United Kingdom, which is as remote, by any rational definition, as the highlands and islands. I am sure that the hon. Member for Kingston and Surbiton (Mr. Davey) will agree that whether that is addressed by amendment No. 32 or by other means is immaterial-it needs to be addressed.

On amendment No. 31, I should like to develop the hon. Gentleman's remarks on the feasibility of implementing such provisions as his amendment would entail, given the rulings of the European Court of Justice. Before I do so, I should point out that, as currently drafted, the exemption contains an asymmetry, which-I think-is unintended but clearly erroneous. As a result, some flights to the highlands and islands would be exempt on outward and inward journeys, because the journey is from and to places within the region. In other equally remote communities, which have differently configured air routes, only the outward journey from the highlands and islands would be exempt. There is no rational basis in public policy for giving a double exemption to someone who has to go to hospital in one place and a single exemption to someone who has to go to hospital in another place. If that became the law of the land, it could not be challenged in court-although it would be interesting to try to mount a challenge under the Human Rights Act 1998 on grounds of unfair discrimination. The purpose of Parliament is not to enact a Bill that manifestly and unfairly discriminates against one set of people who are exactly in the same position as another set of people. The matter is causing an awful lot of fuss and bother at the moment in the highlands, and clearly needs to be dealt with. I believe that the hon. Member for Kingston and Surbiton (Mr. Davey) would agree that whether that is done through the working in his amendment or otherwise is immaterial.

To return to the hon. Gentleman's argument, the legal crux of the matter is that either the test in proposed new subsection (4B)-that, in order to gain the exemption,

    the flight is to depart from an airport which is in a region designated by order

-is a good and objective test and hence does not fall foul of the ruling of the ECJ, or it is not. So far, so clear. If it is a good and objective test, the fact that the flight's destination is such a place is as good and objective a test and as unlikely to fall foul of the ruling as the test that the flight should originate from such a place would be.

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I am perfectly certain that the wildest imaginations of the judges of the ECJ do not extend to distinguishing between destination and origin as a means of distinguishing between objectivity and subjectivity. There is no rational basis for doing so. Either the provision is workable as it stands, in which case so too is amendment No. 31, or it is not, in which case we need a new provision. Either way, the Financial Secretary should do exactly what the hon. Member for Kingston and Surbiton suggests, and return on Report with a considered set of amendments that tackle the problem-unless, of course, he is happy to accept the amendments as drafted, which we shall certainly vote in favour of unless he suggests that he will return.

Mr. John Burnett (Torridge and West Devon): I rise to endorse each and every word of the powerful and compelling speech by my hon. Friend the Member for Kingston and Surbiton. He has researched his subject well, and knows it well. The amendments anticipate and would pre-empt problems that could arise in future, especially involving the Isles of Scilly and Cornwall, a county that I know well: my constituency adjoins it from north to south.

I draw the Committee's and the Financial Secretary's attention to the fact that, as I said from a sedentary position, Cornwall has, in my hon. Friend the Member for St. Ives, a true champion, like my other colleagues from Cornwall. However, it must be remembered that Cornwall recently qualified for objective 1 funding. My constituency and other constituencies in Devon have qualified for objective 2 funding. That is telling. It illustrates a fact that is little known in other parts of Britain-that the gross domestic product per head in Cornwall and parts of Devon is extremely low, and that those areas need the economic assistance of which they have been deprived for many years.

We are intent on reversing that economic decline. The amendments would go some way to do so, and I hope that the Government will consider them carefully and adopt them.

Mr. Timms: The group contains a third amendment that is similar in purpose to amendment No. 31, which the hon. Member for Kingston and Surbiton moved. The purpose of both amendments is to ensure that not only flights from the highlands and islands but flights to the region will qualify for the exemption. We have considered the matter carefully. The hon. Member for Kingston and Surbiton was right to say that many people have called for such a change; my hon. Friend the Member for Western Isles (Mr. Macdonald) has been especially vigorous in pressing the case for it. However, we concluded that the costs of the change would outweigh the benefits, as I shall explain in a moment.

I shall first explain how the highlands and islands will benefit from the changes in the Bill. At present, duty on a return ticket for flights made within the United Kingdom that involve an airport in the highlands and islands is 10. Following the abolition of the return leg exemption, which is necessary because, as we heard, the legislation that the previous Government introduced was defective, it would have risen to 20. However, the combined effect of the proposed exemption for departures from airports in the highlands and islands and the reduced rate for economy class fares will be to reduce the duty liability on most return tickets on flights between the region and the rest of the European Economic Area to 5.

As for return journeys within the highlands and islands, there will be no duty to pay. I always enjoy it when the hon. Member for West Dorset (Mr. Letwin) alights on something for which he says there is no rational basis. Invariably, he says that when he has found something that has been particularly well designed, which is certainly the case now. He is right: no air passenger duty will have to be paid for flights within the highlands and islands. That is a good feature of the clause. The changes are particularly helpful to the highlands and islands; they recognise the sparsity of the population and the necessary high reliance on air travel.

To be proof against legal challenge, any exemption must apply equally to any region in the European Economic Area meeting an objective set of criteria. The hon. Member for Kingston and Surbiton was right about using an objective test and that test is set out in new subsection (4C). Amendments Nos. 3 and 31 are both worded to apply to flights to United Kingdom airports only but, to avoid legal challenge, the exemption would also have to apply to flights to any part of the European Economic Area, thus meeting the sparsity threshold under new subsection (4C). The exemption would need to cover parts of Sweden, Finland, Norway and probably the whole of Iceland. That lack of targeting makes the proposed exemption pretty poor value for money. It is hard to argue that United Kingdom taxpayers should be subsidising flights to Iceland and Norway. It would be an expensive way in which to convey extra help to the highlands and islands because a large chunk of the money would support flights to other parts of the European Economic Area.

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