Select Committee on Environmental Audit Minutes of Evidence


Examination of Witnesses (Questions 20-39)

WEDNESDAY 30 APRIL 2003

JOHN HEALEY, MP AND MR PAUL O'SULLIVAN

Chairman

  20. None the less, the scale of the problem which Mr Ainsworth underlines, the effect of air traffic and CO2 emissions in the environment means that if you are going to pursue an objective of limiting that, the effect on prices and on demand must be quite severe. You will not have an environmentally successful policy meeting your 60% reduction in emissions target by 2050 if Buzz is still flying people to Nice for £25. That is the point.
  (John Healey) To double back, the first step is clearly to meet our objectives to try to ensure that the aviation industry pays its way for the costs that it currently imposes. Secondly, in doing so, that should be done in a way that also encourages them to improve their environmental performance over time to contribute to that longer-term target, particularly over the next 50 years. If we are looking at the 2050 target, the sort of technological and environmental improvements that we may anticipate, I do not believe that it is necessary to be quite as pessimistic as you seem to be.

  21. You are being pessimistic about the technological impact.
  (John Healey) While there is an issue over the environmental impact of the aviation industry—what you describe as the problem, the proper focus for which is the Environmental Audit Committee—in making any judgments about policies for the future, the Government will also want to take into account some of the economic, social, fiscal and other policy considerations that I have touched on. That is part of the balance that we have to strike with any policy making.

  Chairman: As you agreed, at the moment we are subsidising air traffic.

Sue Doughty

  22. Turning away from the environmental costs of air travel, there is the subsidy through the absence of fuel taxation and VAT. Do you have any calculations of the amount of the subsidy that the industry receives through the absence of taxation?
  (John Healey) I do not support your starting point. VAT is not charged on any form of passenger transport in this country.

  23. Germany is planning to impose VAT on domestic flights. There is an opportunity to put VAT on there. Leaving aside VAT, there is the absence of a fuel tax on aviation fuel. There is tax on road fuel—petrol and diesel—therefore there is a subsidy. What is that subsidy worth?
  (John Healey) It is not a subsidy. There is a difference in the rates that are applied. That difference may be for a variety of reasons. The factors that go into the considerations that the Chancellor takes into account when he decides on fuel duties for road fuel go beyond the environmental. Certainly as far as aviation fuel is concerned, you will be well aware that our hands are tied in a way in which they are not tied in relation to road fuel duties and there are international conventions.

  24. That is a problem. We have the international conventions, which are long-standing conventions and we need some movement to be made on those. Earlier Mr Ainsworth pointed out the significant difference between the cost of travelling between the different modes of transport. The CPRE's calculations—I appreciate you may not accept these—show that with the absence of excise duty on aviation fuel there is a subsidy of £9.2 billion a year. They suggest that if there were VAT on aviation fuel that would be another £4 billion a year. Clearly there is a subsidy due to the absence of the kind of taxation that road travel incurs.
  (John Healey) It is not just that those calculations and policy options are not feasible. In my judgment those policy calculations are not valid either. There is a completely different set of factors that come into play when we consider what is an appropriate road fuel duty regime to what is an appropriate aviation fuel duty regime.

  25. Can you give me an example?
  (John Healey) Mr Ainsworth mentioned congestion earlier on. One of the concerns that comes into judgments on road fuel duty and taxation in relation to road transport may be a concern about congestion. The social inequality factors that are a consideration for the Government in terms of road transport are different from those for air transport.

  Sue Doughty: This is absolutely fascinating. If you went to anyone who lives around Heathrow and told them that on road fuel the fiscal instruments are related to congestion, those who live under the flight path and who suffer the pollution may not regard that as a strong argument to tax one kind of fuel but not the other.

Gregory Barker

  26. Are airports congested and is that why we are proposing to build more? Are they congested in the same way as roads which is why we could argue that we need more roads?
  (John Healey) The range of ways of dealing with congestion, flight management and demand management are different from road transport. You are right. Part of the analysis that underpins the Department for Transport's consultation on airport capacity at the moment is a response to increasingly attractive and increasingly used aviation travel. Mr Ainsworth went to Inverness by air not simply because it is cheaper by plane, but because it is a form of transport that is more convenient as well.
  (Mr O'Sullivan) On the point of congestion in relation to aviation, it may be worth explaining the reason why they may not be completely analogous. On roads you do not have a way of controlling how many people use the space, whereas in aviation you can decide how many air traffic movements there are and that is decided by the airlines and by NATS taking account of issues such as air safety. So you are managing the amount of demand in terms of air traffic movements in a way that you are unable to do directly for roads. The issue of congestion is different.

David Wright

  27. Minister, did I hear you say a few moments ago that there were some social and progressive taxation factors around this as well in relation to road traffic? Considering the social classes of those who use air transport, alongside the environmental impact of air travel, one realises that it is the more wealthy elements in our society who tend to use air transport because they have done so historically. The CPRE has suggested that that is so. More people use road transport yet we tax it more heavily than air transport.
  (John Healey) I did not make the point in order to draw a comparison between the two. But you make the point that within considerations about road transport, for instance, the kind of provision we might put in place for duties for bus transport, the social consequences of policies in relation to road transport are likely to have a very strong dimension, particularly for this Government that would be concerned about particularly lower paid people not being able to use buses. Those kind of considerations quite evidently will be different if you look at the balance of factors in the equation you may consider for aviation.

Mr Francois

  28. Minister, I think your argument is inconsistent. You are trying to say that road and air travel are very different. If you consider the congestion charge for people driving into London, you are not necessarily managing the supply of cars on the road, but the demand from people who want to pay the £5 to come into London. If you talk about air transport you are managing supply in terms of the number of aircraft that can use airports, and also to some degree the number of runways available for them to use. You manage that, but you are not actually managing the number of individual people who want to buy air tickets. That is demand. So theoretically and in principle you could tax the tickets and therefore you would be directly affecting demand. Mr O'Sullivan was talking about supply, in terms of the number of flights and the number of runways.
  (John Healey) You could do any number of things if you chose to.

  29. You are trying to argue that they are completely different. I do not think that you have convinced the Committee for one nanosecond that they are.
  (John Healey) This may be a view that the Committee takes, but it is not the Government's policy or objective to equalise the tax treatment between different forms of transport. The reason for that is that as you look at what might be an appropriate taxation regime as part of the policy which you may have for road, rail, aviation or any other form of transport, the considerations beyond simply the environmental, although they play an important part, are either economic, social or fiscal. The considerations will be different.

  30. I accept what you say that at present it is not the Government's policy intention, but, with respect, that was not my point. You are trying to argue that the two modes of transport are fundamentally different in principle in the way that taxation will affect demand. I am arguing that that is not right.
  (John Healey) I was not arguing that. I was trying to exemplify my general point that I have just made. That is all I was trying to do.

  31. Without wishing to do this to death, I think you have argued that these two modes of transport are different. Listening to what my colleagues have been saying, I do not think that you have convinced us.
  (John Healey) I am trying to argue that the considerations that will come into play when making policy decisions, including taxation policy decisions or decisions about other economic instruments, and how appropriate they might be, are not directly comparable. For that reason it is not a policy objective of the Government to equalise the tax treatment for different forms of transport which is where we started.

Sue Doughty

  32. I am still concerned about this because we are increasingly differing with you about the basis of where this argument is going. The Government are happy to use road tax to raise revenue. I appreciate that you say that air transport is different. What studies have you undertaken to identify the scale of distribution effects of introducing taxation on aviation or introducing fiscal instruments into the aviation business? How can we know what the social impacts are unless we know the effects of taxation?
  (John Healey) With respect we have not set out those calculations because we have not set out the policy purpose that you may wish us to pursue. The work that we have done is to support our analysis that allows us to examine the options to pursue the purpose that we have. I have gone through that already with the Committee. It is set out in the discussion document. First, it is to ensure that the aviation industry covers its environmental costs and the environmental consequences and, secondly, to do so in a way that encourages greater environmental efficiency and a better performance from the aviation industry over time. That will help us to contribute to the kind of long-term targets about which this Committee is properly concerned.

  33. I am still slightly confused. If I were carrying out a feasibility study about going in this direction or that, I would like to see a study that states that this is the effect of going in this direction which would vindicate going in that direction.
  (John Healey) You are right to the extent that if it were the direction that we wanted to go to equalise the tax treatment of aviation in relation to other forms of transport, I dare say that the kind of calculations about which you are asking me would be part of the evidence that we would want to put in place, but it is not.

  34. I take that point. We may not agree with it, but I do not think that we can go further along that line. What makes us particularly worried is reading that the Sustainable Development Commission notes that road transport fuels are taxed at over £150 per tonne of CO2. But in Aviation and the Environment the figure is suggested as £19 per tonne of CO2. That is not consistent. Is it that suddenly aviation is much cleaner and that the cost is much less on aviation fuel? I do not understand the discrepancy in those two figures.
  (John Healey) I am not familiar with those figures, but I have already explained that as things stand, the aviation industry does not contribute fully to the environmental impact that it causes, particularly on the kind of climate change pollutants to which you draw attention.
  (Mr O'Sullivan) It would be a matter of applying the tax on aviation and on road fuel and equating that to the CO2 costs. But that would imply, as the Minister has explained, there is not equal treatment of those factors. The factors that are taken into account in taxing roads go beyond the direct environmental impact and the climate change impact. The kind of figures we used for illustrative purposes for the discussion document have been the £70 per tonne cost of the carbon dioxide as indicative of the welfare cost of climate change.

Chairman

  35. To finish off this discussion, it would be useful to know what you would raise in terms of revenue if you applied duty at the standard rate of petrol to all aviation fuel and if you put standard rate VAT on aviation fuel purchased in this country. Can you do those two calculations? That would give us your idea of what revenue is lost by not taxing aviation fuel.
  (John Healey) It is possible to do those calculations. I am willing for them to be undertaken as long as the Committee understands that, first of all, those kind of measures are not feasible, and, secondly, as we have discussed at some length, we do not regard the policy basis of them as desirable or valid.[1]

  36. Would you be prepared to do those calculations?
  (John Healey) As long as it is understood that they are treated in that way, yes.

Sue Doughty

  37. As regards the aviation industry policy, the usual argument put forward is that aviation is good for the British economy. Have you undertaken any recent analysis of the economic impact of the aviation sector? Do we know how good it is or how bad it is as regards the economy and what the impact would be of the growth proposed in the aviation sector?
  (John Healey) I dare say that that has been done and to a large extent this is territory that is part and parcel of the Department for Transport's consultation. I do not have those facts and figures at my disposal. They are not part of the consultation that we are conducting as part of the discussion document on the use of economic instruments for aviation. However, I can establish those for you and write to the Committee.[2]

Mr Ainsworth

  38. I am surprised that the Treasury does not have a view of the economic importance of the aviation industry. That is what Mrs Doughty was asking about.
  (John Healey) Clearly the Treasury has a view and the Government have a view about how important the industry is. Mrs Doughty asked me for figures which I do not have at my disposal here. In terms of my responsibility which is to oversee the Treasury side of the discussion and policy development over economic and fiscal instruments in relation to the aviation industry for environmental objectives, that is not part of the discussion document that we have published.

Sue Doughty

  39. The problem that the Committee has is that on the one hand the Department for Transport is looking at the mechanisms of how people get around and it is their job to deliver them in as good or as bad a fashion as they feel able. Someone needs to take a view of the economic effect of those decisions. If it is not the Treasury, who should it be?
  (John Healey) Forgive me, but is this not part of the Department for Transport's consultation document that is going on at the moment.


1   See supplementary memorandum, Ev 11-15. Back

2   See supplementary memorandum, Ev 11-15. Back


 
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