Examination of Witnesses (Questions 40-59)
WEDNESDAY 30 APRIL 2003
MP AND MR
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
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.
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.
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 benefitspositive and negativeof
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.
Chairman: That would be useful.
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.
48. I want to return to the discussionwithout
rehashing itthat 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?
(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 basisaccepting
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.
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?
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."
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 thatas, Mr Barker, I know you are awarethat
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
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
See Ev 24 of the Committee's Fourth Report of Session 2002-03
"Pre-Budget Report 2002, HC 167. Back
Ibid., Ev 31. Back