Examination of Witnesses (Questions 100-108)
Wednesday 4 June 2003
MR TIM
JOHNSON, MR
JEFFREY GAZZARD,
MR BRENDON
SEWILL AND
MR NIC
FERRIDAY
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
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