Select Committee on Environmental Audit Minutes of Evidence

Examination of Witnesses (Questions 100-108)

Wednesday 4 June 2003


  Q100  Sue Doughty: I think we are looking back again at the whole issue about calculations and costs. The Treasury has argued that aviation must pay for its external costs but do you think this is just a matter of calculating those costs accurately?

  Mr Johnson: I think we have partly answered that in an earlier question. No, is the answer. There will always be problems with identifying exactly what some of the environmental costs are. Nevertheless, we feel that some bodies other than the Treasury have made an attempt at doing that and have actually come up with a very big figure, certainly a figure which is greater in magnitude than the Treasury figures, and my colleague on my left will probably say a bit more about that in a moment. Ultimately we see all the forecasts that seek to internalise the environmental costs still resulting in significant growth, which is why we argue that not one single measure can actually protect the environment to the level that we feel is necessary. So we are looking beyond that to the role of regulation and other policy instruments.

  Mr Gazzard: The issue of external costs is not just what they are and how you identify them. We have submitted a report as part of our background documentation on the range of external costs which could be health impacts, the cost to the NHS of air pollution and noise treatments, the upstream and downstream processes in the refining industry. You get the picture. They are many and varied and that is a comprehensive report. The difference is that the Treasure figures are based on the DfT's figures, which are the somewhat mythical "We recognise the cost to add about 1% a year to ticket prices, therefore that will cause about a 10% drop in demand and over the life of the consultation document through to 2030 it does not really matter so it is business as usual." That, we think, is not very financially or intellectually coherent and that is why, as Tim has just said, there are external costs. To what extent can you identify them and capture them? What impact does that have on demand? What impact does that reduction have on reducing the environmental impacts and what are the other things in the menu that you need to do as well? But the fundamental thing that is missing from both the DfT's and the Treasury's argument so far is, what are the environmental policy targets?

  Mr Sewill: Could I just add a little bit to that. I do think that the Treasury figure of £1.4 billion for the external cost is far too low and I could expand on that if you wished. I think it is also a total nonsense to exclude the other tax concessions which the aviation industry receive, in particular that they pay no Value Added Tax, because when you are looking at external costs on the one hand and then giving them a subsidy with the other hand, the two cancel each other out. I did attend two of the stakeholder meetings with the Treasury in the last month and I have been extremely worried that they were ruling out any discussion of tax levels other than dealing with external costs and that they were only looking at what type of instrument, not what the magnitude of the external costs should be.

  Q101  Sue Doughty: So if the Treasury were actually to turn round and say—because we have asked the Treasury before about this and of course they did not—but the CPRE figure of say £4 billion a year on external costs, how would you see this playing if the Treasury actually accepted a much more realistic figure or an alternate figure that we have been given which is certainly very much higher than the Treasury's figure?

  Mr Sewill: Yes, I would agree with that figure. My own calculation is £5 billion rather than £4 billion but it would certainly totally alter the future demand for air travel and alter the whole calculations being put forward by the Department for Transport.

  Q102  Sue Doughty: Thank you. You have made the point as a group that limiting foreign travel could actually result in more spending in the UK. Do you think the Government has really carried out sufficient work in appraising the overall economic benefits of an expansion in air travel?

  Mr Gazzard: The short answer is no, they have not. Currently we have got the Queen doing her best to go around the country to get us all to holiday in Britain. This is a rather philosophical point but I will get it off my chest. It seems to me that according to the air transport industry you can only have a good holiday if you fly somewhere and that patently cannot be the case. I mean, some people prefer not to fly simply because it is the worst part of their holiday! But I think that is an important point and let us be quite frank about what we are saying. If we are limiting the growth rate and therefore people will not have as many opportunities to fly beyond those that they currently enjoy then that might mean a change in behaviour. It might mean flying abroad twice in three years and going, dare I say it, by train to a National Trust or an idyllic country cottage somewhere in the south-west. It can be done. I think the point about getting the right price for air travel is that of course there are economic effects and of course there are environmental effects and we are trying to strike a balance that allows the industry to grow within a sustainable rate.

  Sue Doughty: Thank you.

  Q103  Mr Challen: We all know that the airline industry is in quite a bit of trouble at the moment and has been for a couple of years now. Some companies are clearly about to go bankrupt or are staving it off. Would you agree with the proposition that this is perhaps not the best time to introduce new taxes and charges?

  Mr Gazzard: Well, there is never a good time according to the industry. The perverse thing is that parts of the industry in their submissions to the current round of consultation are actually campaigning for internalising the external costs over that 30 year period. So I am quite a cynic and I will often wonder why the industry is campaigning for a tax increase. That is because the analysis that has been done so far is that it is very low. So we join them in their call for a tax increase. We estimate the current big problems in the US and similar large but not quite the same scale problems in Europe account for about three, three and a half years of growth being knocked off the current forecast, but the industry has a great potential to grow very quickly out of an economic downturn. So that is the kind of place they are at, at the moment. We reckon they are about three, three and a half years behind where they otherwise would be and we certainly do not think, when we are looking at a policy for the next thirty years for the UK, that we should say "Well, the bets are off and of course we shouldn't discuss these taxation issues," because we should.

  Mr Sewill: I think the other thing is that there is a difference in timescale between the Treasury and the Department for Transport. The Department for Transport is engaged on a very ambitious thirty year plan and the Treasury normally does not look more than a year or so ahead and this is relevant to your question is about taxes, should you be increasing them this year or next year when there are problems for the aviation industry. The Department for Transport is proposing to take decisions looking thirty years ahead and indeed it is extraordinary that their figures for the economic benefits are based on a sixty year projection with the assumption that air travel is going to increase by over 3.5% a year for all the next sixty years with no change in the tax regime during those 60 years. So there is a quite different timescale.

  Q104  Mr Challen: Is there any consensus amongst environmental groups about the distributional equity argument, that is that perhaps air travel in remote areas should be subsidised? If you live in Scotland obviously it can be quite expensive to get to other parts of the UK and I imagine the argument works well in other parts of the remoter regions of the EU. Should these areas be subsidised in air travel?

  Mr Ferriday: Yes. We have had quite a lot of discussions about equity issues and I distinguish between the one that you mentioned, which was, if you like, outlying regions and then equity issues between the better off and the poorer. But just addressing the one that you mentioned, yes, where we are calling for things like a fairly hefty tax on aircraft fuel I think we would recognise that there could be exemptions, for example it might be sensible not to charge that for flights out to the outer islands of Scotland where, realistically, there are not alternatives. On the other hand, it is perfectly reasonable to charge it for people who are flying from London to the Edinburgh Festival and who could well go by train. So I think we do have to be pragmatic and build in, if you like, social and public policy considerations.

  Mr Gazzard: We do not have a main problem with this as an issue. The market deals with it in its own way, as you will see by some of these peripheral services falling out of Heathrow and going to Gatwick and maybe ending up at Southampton. So there is a question of access. It then becomes a question of convenience and certainly we have a relationship with groups in Scotland and with the Scottish executive in the Civil Service there and we do not have any problem with public service obligations because the scale of this is actually quite small in terms of its overall contribution. Already, for instance, in the UK there is an exemption from APD for Highland and Ireland flights. So it can be dealt with and we understand and accept that issue of the geographical equity nature.

  Q105  Mr Challen: How much consensus or difference of opinion might there be on the issue of hypothecation, that is if we introduced taxes or charges on certain aviation features, whether that money should be used for the general cost or whether it should be used to try and ameliorate environmental impacts? What would you prioritise? Would you just allow it to go into a general pot or would you want to see it spent on this particular issue?

  Mr Johnson: I think there is a degree of consensus between the environmental groups. The first issue on which there is that consensus is that the most important factor is actually to send the right price signal to the consumer and to the industry and that it is only a secondary decision whether or not you do that through taxes and whether those taxes are hypothecated or whether it is done through charges and you use the revenue directly for mitigation and prevention. We have a fairly open mind on it actually. We believe there is a good case for both, that it is quite reasonable for this industry to contribute more in the way of taxation to the Treasury for use on public services wherever they may best be spent. That is a quite legitimate use. Equally, we do appreciate that where we have specific environmental charges we would like to see at least a proportion of that money actually spent on improving the environmental performance of the industry, whether that is mitigation at the local level or whether it is spent to help local people deal with the issue themselves. So we say there is a broad range of options on the table but the central and fundamental point is that we do not really mind providing that right price signal is sent.

  Mr Sewill: If I could just add to that. I would have no difficulty with the money going to the Treasury because it seems to me, putting it in very simple terms, there is no reason why the air traveller should not help to finance the public services such as health and education just as much as the motorist. It seems to me a very good case for the money going to the Treasury, quite a lot of it.

  Q106  Chairman: Do you have any preference between a taxation approach on the one hand and a capping emissions and trading approach on the other?

  Mr Gazzard: The difficulty we have with emissions trading is that essentially it is long term just to develop a policy through the policy framework of ICAO and the way it is set up. As was mentioned by the previous witnesses, we are talking about international aviation emissions here and that involves the UNFCCC, its subsidiary body ICAO, their working group. This is a number of years off.

  Q107  Chairman: But taxation will involve an international dimension as well.

  Mr Gazzard: That is true, but we actually think on a European Union basis there is more than a commitment but less than a promise from the Commission to look at these issues on a Europe-wide basis if there is no sensible, pragmatic action or a timetable from ICAO on these issues and we do not think there ever will be because it is an industry-dominated body. So the answer is we would prefer to see, because of the scale of this problem that you have identified, some immediate short to medium term action—

  Q108  Chairman: Which must be taxation?

  Mr Gazzard: —by taxes or charges and then in a sense we view emissions trading as slightly dubious technically but nevertheless a mopping up operation when you have got your environmental targets and, particularly in terms of emissions, your pollution control and reduction strategy established and the target for that. At the moment the difficulty we have with emissions trading is that it is, you know, a piece of paper signed by Herr Hitler on the tarmac at Croydon Airport (to use an aeronautical and political analogy)! We do not quite know what its worth is and I suspect it is nothing. That may be a bit over the top, but we feel very strongly about emissions trading as a bit of a smoke and mirrors exercise in this industry sector.

  Mr Johnson: You were right about the international dimension to both approaches. One of the difficulties with trading is that it has to have something to trade with so therefore it involves other sectors and obviously there are processes and mechanisms being developed both at the EU level and at the Kyoto level which bring those other sectors in and, if you like, they set the timeframe that we are working to. So perhaps the earliest we could see an EU approach would be 2008 and maybe a Kyoto approach in 2012. Having said that, the international dimension to aviation environmental charges is largely a question of self-determination. If the Member States were willing this is something that does not rely on other sectors and it could actually be introduced in the fairly short term.

  Chairman: Thank you very much indeed. As you see, we have been rudely interrupted by the bell. I am sorry about that, but thank you very much indeed for giving us your evidence this afternoon.

Committee suspended from 4.53 pm to 5.12 pm


previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2003
Prepared 29 July 2003