Examination of Witnesses (Questions 20-39)|
WEDNESDAY 30 APRIL 2003
MP AND MR
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
(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
(John Healey) While there is an issue over the environmental
impact of the aviation industrywhat you describe as the
problem, the proper focus for which is the Environmental Audit
Committeein 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.
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
(John Healey) I do not support your starting point.
VAT is not charged on any form of passenger transport in this
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 fuelpetrol and dieseltherefore
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 calculationsI
appreciate you may not accept theseshow 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
(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.
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.
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.
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
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
(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.
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.
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
(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.
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.
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.
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
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
See supplementary memorandum, Ev 11-15. Back