Select Committee on Environmental Audit Minutes of Evidence

Examination of Witnesses (Questions 40-59)



Mr Ainsworth

  40. No, it is not. Perhaps I can help the Minister with some information for the Treasury. The balance of trade deficit for tourism in 2002 was £15 billion. Is it the case that the current aviation policy, if it goes the way that we think, will contribute to exporting more people and pounds out of the UK economy to the benefit of other economies?
  (John Healey) With respect, Mr Chairman, we are ranging rather beyond the environmental policy aspects and the economic aspects.


  41. We take a joint view of questioning.
  (John Healey) Then I am happy to come back to the Committee with some of the figures that Mrs Doughty requested.

Mr Ainsworth

  42. The argument about aviation is an argument between, in essence, the economic benefits of the industry and the environmental impact that it has. It does not seem to me unreasonable that the Committee should be interested in the Treasury's views as to the economic benefits of the aviation industry. It is surprising that you have come here today without the relevant information.
  (John Healey) I do not have that relevant information with me today. If the Committee wants that wider view, I am happy to provide the figures that the Committee has requested. As we said earlier, the strands of work that are taking place within Government at the moment will be brought together in the White Paper on air transport towards the end of the year.

Sue Doughty

  43. As a Committee, we have a difference of view about who is in charge of what. When we looked at road tax versus fiscal instruments in aviation, what came into play was social policy and social instruments. We are now in a situation in which we do not have a view about the net worth of the aviation business. I appreciate that you have not come here to say that, but we are looking at the anomaly of taxation and we are taking into account other issues. We are at a loss to know how we join up the gaps between the benefits—positive and negative—of the aviation industry to the country which one would have thought would be serious Treasury issues. We would appreciate knowing what is behind this such as why you can say on roads that you know what you are trying to do but with the aviation industry you do not seem to know.
  (Mr O'Sullivan) Perhaps I can provide a context for the economic impact of aviation, and particularly airport capacity. If you look at the consultation document that the DfT published, you will see quite a bit of material concerning some of those issues. Some of it is quantitative and some of it is qualitative. We would happily go back to the DfT and to pull together the economic impacts and benefits if that would be useful.[3]

  Chairman: That would be useful.

David Wright

  44. That answers the point that I was going to make about the wider impact of new airport development. We have the twin processes going on about new airport capacity and your document about aviation and the environment. In terms of some things that are measured in terms of the economic impact of new airport provision, can you outline what has been measured so far? I understand there is the matter of noise and so on. How can you expand the scope of assessment to take on board other factors? I am thinking particularly of an economic assessment of the impact on biodiversity, local countryside loss, possibly considering issues about traffic around airports and whether we can assess the economic impact of those factors when considering new airport development.
  (John Healey) There are three types of environmental impact in our discussion document for which we have done our best to analyse the evidence and to put some kind of monetary cost on. The first is climate change, the second is air quality impact and the third is noise. We can do so with a degree of certainty but obviously in all three areas there is a degree of uncertainty and a margin for error. It is quite difficult to put a value on biodiversity loss and some of the other potential environmental impacts of airports and aviation. The sort of economic costs that we are trying to pull together in order to make some judgments about future policy instruments. We note that in the discussion document. It is also clear that within the consultation document on airport capacity, those local considerations will form part of the judgment that is taken about the appropriateness. In terms of being able to quantify them as precisely as we want in terms of developing policy work through taxation on economic instruments, it has been difficult to do that.

  45. That is a major weakness in terms of our overall strategy. If you look at one example, the cost of noise, Professor David Pearce has told us that your estimate of £25 million for the total noise impact seems to be based on an early version of his paper. He now estimates that the cost of Heathrow alone could be up to £66 million. Have you revisited your calculations on the impact of noise in relation to airport capacity? Perhaps Mr O'Sullivan could answer that.
  (Mr O'Sullivan) The original valuation was based upon work that David was doing, and there are uncertainties there. The DfT have continued to speak to him about how it should firm up some of those estimates in the context of valuation.

  46. It is half as much again. We are talking big numbers here. We are talking of wide variations in evaluation. What concerns me is that if we are to use these figures as guides in terms of development for new airports we need to get the figures right and not have them out by 50%.
  (Mr O'Sullivan) If one thinks about developments of new airports and airport capacity it is quite clear that decisions about that will be made taking account of a lot of factors. The monetary evaluation of noise is only one aspect about noise in connection with a new airport capacity. If you look at the consultation document you will see a discussion about those impacts and how they will be considered. It also goes into the issues of landscape and biodiversity which are difficult to put a monetary valuation on. It is part of the decision. Much of the major impact is associated with decisions about new airport capacity as opposed to the ongoing activity's impact on the landscape, and so on, will be tied to what happens to the airport infrastructure rather than the ongoing use of the airport. On the monetary valuation of noise, we shall continue to talk to academia as they firm up their estimates.

  47. I accept that it is a difficult area.
  (John Healey) The department set out in the discussion document a distillation of the best of the evidence available. We consulted on the approach and framework that we should take for the calculations. We drew on the studies and calculations done by a range of people. If other experts have suggestions about how we can improve the calculations, we are actively interested in knowing about that. What everyone will accept is that any of the calculations are to a degree illustrative; all these calculations have a degree of uncertainty about them.

Gregory Barker

  48. I want to return to the discussion—without rehashing it—that we have had already on this issue of aviation taxes and the scope for Government action. I appreciate the difficulties because of multilateral constraints in this area. Nevertheless, last month the EU agreed a community framework for taxation of energy products. I understand that that allowed specifically for taxation of aviation fuel for national use.
  (Mr O'Sullivan) I think the difficulties with the taxation of aviation fuel have always been with the taxation of international aviation fuel. Legally there are far fewer problems here. I was not aware how far that framework had taken us. I think that was clarifying what was pretty much the legal situation anyway.

  49. What about the domestic use?
  (John Healey) The energy products directive essentially does two things. First of all, as I indicated earlier, it will require that all Member States introduce a form of energy tax. We shall have political agreement once the formal consultation is dealt with by the European Parliament and by the Council of Ministers. The second thing it does is to set minimum rates for fuel duties. As Mr O'Sullivan says, we will check whether your information is correct, but the scope, as you were suggesting Mr Barker, for us to move to introduce fuel duties in aviation is very tightly constrained by international convention. Also, a lot of that is then underpinned by something like over 2,000 bilateral agreements which make the introduction of fuel duties in aviation quite a difficult project.

  50. I appreciate that, but what about on internal routes either within the EU or even domestically, which will not be constrained by international multilateral routes? Is this something that the British Government would actually be prepared to try and lead on?
  (John Healey) There may be more scope and less financial constraint in trying to do something European Union-wide. It is by no means straightforward whether we would want to go down that route. It is certainly one of the options that is being suggested to us as part of this consultation process that we are undertaking at the moment and that we will consider. Clearly the most effective way of taking a step like that will be to do it internationally. What we are aiming to achieve, after all, is a reduction in the sort of emissions which cause global climate problems. It may, nevertheless, still be viable to consider doing something on a European Union basis. Once you start reducing it to a national level and limit, notwithstanding whether or not it is legally or feasibly straightforward to do, the consequences for the competitiveness of the British aviation industry starts to become much more significant. That would clearly be a factor that we would take into account if we were considering that sort of option.

  51. What would be the impact if it was charged universally on domestic routes on competition? How would that affect British competitiveness?
  (John Healey) It would mean the costs of air travel in the UK will be potentially more expensive than elsewhere.

  52. Do you have any grounds for thinking that that is the case at the moment, or the fact that British domestic air travel is actually cheaper, is it not, than some other places? Low-cost airlines have reduced the cost of domestic air travel substantially in recent years.
  (John Healey) If you are suggesting or arguing that UK air travel is relatively cheaper than elsewhere and they could relatively easily bear an extra cost, that is something we could certainly look at in the course of the discussion and consultation period, as we consider the options.

  53. Have you looked at the possibility of simply raising air passenger duty in order to provide a long-term signal?
  (John Healey) We are at the stage in this process where we are having discussions with some of the key players. We have produced the analysis that the Committee has seen and so we have got no favoured options at the moment but we are really looking at all the suggestions that come to us over this process. We will aim to make some decisions and proposals about what we think is the best way forward as part of the publication of the White Paper towards the end of the year.

  54. Changing tack slightly to carbon trading, how do you see the development of the carbon trading system shortly going pan-European? Are there plans for the airline industry in the long term to be included within the proposed EU carbon trading—
  (John Healey) Do you mean the emissions trading system?

  55. Yes.
  (John Healey) It is interesting that British Airways is already, voluntarily, part of our trading system in the UK. Clearly with the agreement in Europe to introduce an EU-wide one, with the UK being the first in the world to do that on an economy-wide basis (although the EU system will not be-economy-wide, it will just be particular sectors that will be covered), we have got work to do, and we have started doing that, on how we implement a European system in a way that meshes what we have already successfully established this year in the UK.

  56. We have led very successfully, to date, on carbon emissions trading. That has given Britain a competitive advantage over our European partners. Do you think we could do something on that with the aviation industry on a comparable basis—accepting that BA are doing something voluntarily?
  (John Healey) The short answer is that it has been suggested in the process of discussion that we are now undertaking; it has been raised as a possibility, and it clearly merits the consideration which we are now giving it.


  57. We discussed these figures at the beginning of the session about aviation and carbon dioxide coming from aviation. Do you have a breakdown between domestic aviation as opposed to international? Is that a breakdown that you have on those figures? I was wondering whether the domestic element is tiny or whether it is quite substantial.
  (Mr O'Sullivan) I have not got the breakdown immediately to hand. It is significant; I think it is something of the order of 20 to 30% but we can give detailed figures on that. That may be out by 5%, one way or another.

  Chairman: Thank you. That is useful to know.

Gregory Barker

  58. As we have got a little bit of time, might I take the Minister back to a question that I asked him when he appeared before us before Christmas?[4] I asked you about the Treasury withdrawing support for the Home Energy Conservation Bill last summer, you did not have the details to hand and you undertook to let us have a written answer which you kindly have done and which was included in our pre-budget report. That answer was extremely succinct. I will read it out to you. It simply said: "The Government was compelled to withdraw support at report stage following the introduction of an amendment that established new binding targets for improvements of at least 30% in energy efficiency in residential accommodation by 2010. This amendment significantly changed the nature of the Bill and forced the Government to reluctantly withdraw its support."[5] That 30% actually just put back what was originally in the Bill, it did not add to the Bill, it was the Government that, through an amendment, took 30% out. So that 30% was not a surprise. Why did 30% present such a huge problem to the Treasury that it compelled them to kill this very important measure?

  (John Healey) It was a Government view not simply a Treasury view that was taken of the Bill. In essence, that was a Private Member's Bill trying to set statutory targets for an area of policy in which we are very shortly going to be producing some specific options for economic instruments that can help improve energy efficiency, particularly in the home. Given that we are at that stage in the Government policy making process and that—as, Mr Barker, I know you are aware—that follows a broader and wider consultation we had on this about the potential value of using such instruments last year, it was deemed by the Government not to be appropriate to support that specific statutory target set in that way through a Private Member's Bill.

  59. You seem to imply from this that had the level been 25% rather than 30% you would have supported it. What tipped the balance?
  (John Healey) It was not a question of the specific numbers, it was a question of the point and the process of policy development that had been reached within government in this area, as I have just explained.

3   See supplementary memorandum, Ev 11-15. Back

4   See Ev 24 of the Committee's Fourth Report of Session 2002-03 "Pre-Budget Report 2002, HC 167. Back

5   Ibid., Ev 31. Back

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