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Standing Committee Debates
Finance Bill

Finance Bill

Standing Committee F

Thursday 20 June 2002

[Mr. Joe Benton in the Chair]

Finance Bill

(Except clauses 4, 19, 23, 26 to 29, 87 to 92, 131 and 134, and schedules 1, 5 and 38)

9.30 am

The Economic Secretary to the Treasury (John Healey): On a point of order, Mr. Benton. For the record, I wish to draw the Committee's attention to a letter that I circulated to Committee members yesterday, clarifying a statistical point that arose during debate on clause 3. The Committee may recall that there was some discussion about the exact size of the increase in the retail price of spirit-based coolers, or alcopops, between 1999 and 2001. My right hon. Friend, now the Chief Secretary to the Treasury, undertook to clarify the figures supplied by the Office for National Statistics.

My letter explains that the Office for National Statistics has revised the original figures and we are pleased to set the record straight. It also explains that that statistical revision has no material impact on the rationale for the clause or its anticipated revenue yield. I hope that my letter and brief comments are helpful.

Mr. Christopher Chope (Christchurch): Further to that point of order, Mr. Benton. I am grateful to the Minister for having given me notice that he would raise it this morning and for his letter. I accept that the then Financial Secretary was unaware of the error when he told the Committee that there had been an increase in the retail price of coolers of 60p over two years when that increase was, as we now find out, only 20p.

The Economic Secretary said that that is not material and does not affect the substance of the argument, but you may recall, Mr. Benton, that much of the debate about clause 3 centred on the conflict between what the Treasury was asserting in relation to the retail price increase of coolers and what the industry was asserting through me and other Committee Members. The issue goes further than the Economic Secretary admitted. The explanatory notes to clause 3 state in paragraph 5:

    ''Consumption of spirit-based coolers has more than doubled between 1999 and 2001 and is continuing to grow at a rapid rate. However, over the same period the standard pub retail price rose by around 60 pence per bottle, despite the level of duty falling in real-terms. Tax as a proportion of the retail price is now lower for spirit-based designer drinks than for any other type of alcoholic drink, in both the on and off-trades.''

I do not know whether the Economic Secretary is telling us today that the second part of that is still correct in light of the recalculation. The figure was not peripheral but fundamental to the argument, which is why it was set out in the explanatory notes. Paragraph 7 of those explanatory notes states that

    ''the Government believe it is no longer possible to justify the concessionary duty treatment for this particular class of spirit drinks''


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    ''the light of these factors''—

including those set out in paragraph 5.

It would be regrettable if we did not have the opportunity to return to that debate in light of the new information; perhaps that could be done on Report.

Mr. Edward Davey (Kingston and Surbiton): Further to that point of order, Mr. Benton. I support what the hon. Member for Christchurch (Mr. Chope) said. Will it be possible to return to the matter on Report? I ask that because, as the hon. Gentleman said, the Government's whole argument on clause 3 was based on that set out in the explanatory notes that have just been read out. The Government made it very clear that their policy related to the fact that the retail price had increased so much. If one refers back to the Committee Hansard of that period, one can see that that was central to their argument. Because the information has changed so dramatically, I feel that there is a strong case for us to be able to discuss the matter further.

The Chairman: May I suggest to the Committee that I am not in a position, as Chair, to give any sort of instructions about what happens on Report? I think that the suggestion that the matter may be mentioned at that point, made by both Opposition parties, is a good one, but that is not a matter for me. What I am concerned about at the moment is that the Economic Secretary has quite rightly brought the matter to the attention of the Committee. It is not, I think, appropriate for it to be discussed again at this stage. What happens on Report, although I suggest that that is the right way forward, will not be a matter for me.

John Healey: For the record, may I say that I am grateful to the hon. Member for Christchurch for accepting that the discussion was based on error and that my right hon. Friend the Chief Secretary to the Treasury could not have been aware of the problem at the time of the debate on clause 3? I look forward to any discussion on the matter, should that prove to be in order, at a later stage. At this stage, I reassure the hon. Gentleman that the press notice on the website has been checked and revised to ensure that the date is correct. The explanatory notes for the clause have also been checked and will be revised accordingly, following this Committee sitting.

Mr. Chope: We now have a printed copy of the explanatory notes for the Bill in which the notes for clause 3 are totally wrong. Can the Economic Secretary say whether the Government intend to prepare a revised version of the explanatory notes or to publish a revised version of the notes on clause 3? For most people, their exploration of the Finance Bill does not go beyond looking at the explanatory notes. They will continue to take them as gospel and will not have regard to what has been said in Committee this morning.

John Healey: The hon. Gentleman may have been distracted by the hon. Member for Buckingham (Mr. Bercow) when I was making it clear earlier that the explanatory notes on this clause have been checked and will be revised accordingly, following this Committee sitting, in light of the comments that I

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have been able, with your indulgence, Mr. Benton, to place on the record.

Clause 118

Air passenger duty: extension of area

to which EEA rates apply

Question proposed, That the clause stand part of the Bill.

Mr. Chope: I wish to make some short points on the clause. Can the Economic Secretary explain why the Treasury is taking the power to amend the list of qualifying countries by order? That power could be very useful; it could have been very useful following 11 September. Circumstances can change and the market can change. Can he give the Committee an idea of what criteria the Treasury will use in exercising the power that it is taking under the clause to amend the list of countries? Were there to be, God forbid, a similar tragedy to that on 11 September, would the Government think of using that power to help compensate for a fall in trade between this country and certain destinations overseas? I should also be grateful for confirmation that the reduced rate will apply to flights to northern Cyprus.

John Healey: It may help the hon. Gentleman if I set out the purpose of the clause and some of its background. I shall deal with his specific points as I come to them. The answer to his questions will become clear in the course of my remarks.

Clause 118 introduces duty reductions for nearly 4 million air travellers a year by extending the areas in which airlines pay air passenger duty, APD, at the lower rate of £5 or £10, depending on which class of air travel passengers choose to use. The change will come into effect on 1 November 2002 to coincide with the start of the winter season.

At present, the lower rates of APD apply to passengers flying to European countries that are signatories to the 1992 agreement on the European Economic Area—the 15 European Union states plus Iceland and Norway—and to certain European Union member states' dependent territories. The clause's effect will be to extend the area to include Switzerland and countries that are applying to join the European Union. Therein lies the rationale for the power that the hon. Gentleman questioned. It will allow for expansion of the EU and an ability to make the provisions of the clause fit any future extension without resorting to primary legislation.

Passengers flying to Bulgaria, Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Romania, the Slovak Republic, Slovenia and Turkey will pay £15 or £30—depending on the class of flight—less per flight than at present. I shall return to Switzerland in a moment, which is the additional country under the provisions. We are introducing those changes in anticipation of EU enlargement, which was not catered for when the original air passenger duty legislation was drawn up under the Conservative Government in 1994.

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We are also taking the opportunity to standardise the duty treatment of passengers flying to Switzerland. Currently, there are two Swiss airports where passengers can exit in both Switzerland and France. Those airports are considered to be inside the European Economic Area for the purposes of APD, whereas other Swiss airports are not. The two airports that come within the APD provisions are Basel and Geneva, and the three airports that do not are Lugano, Zurich and Bern. The change means that a passenger flying to any Swiss airport will pay APD at the lower rates.

The changes have been widely welcomed. The Association of British Travel Agents said:

    ''This is very good news—passengers, airlines and tour operators will benefit''.

In response to the EEA rates to Switzerland, the British-Swiss Chamber of Commerce was warm in its welcome. Immediately following the Budget in April, it said:

    ''The British-Swiss Chamber of Commerce . . . joins airlines and business leaders in applauding the decision of the British Government to slash air passenger duty''.


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