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The problem is brought into even sharper relief by an analysis of recent trends in the relative costs within the transport sector. The real costs of motoring have declined in the past six years while the average real cost of airline tickets is around the same as it was in 1996.
Mr. Mike Weir (Angus) (SNP): I accept much of what the hon. Gentleman says, but I noticed that in the Press and Journal on 19 September—after the Liberal Democrats adopted their new policy on aviation—the hon. Member for Orkney and Shetland (Mr. Carmichael), the party’s transport spokesman, said that he promised to ensure that Aberdeen and Inverness would not be disadvantaged by the party’s plans to curb cheap domestic air travel. He went on to say that Inverness airport would not be included because it was on a peripheral area and nor would Aberdeen because it was a long way from the centre. It seems to me that that argument could be made for a lot of airports in the UK. Is the hon. Gentleman going to tackle short-haul business flights, or is he only looking at cheap holiday flights?
Chris Huhne: As the hon. Gentleman knows, when the air passenger duty was introduced, an exemption was given to lifeline routes which exempted a large number of the smaller airports that are necessary to local communities in the north of Scotland and in peripheral areas. I shall return to that point later. It is important to maintain air routes that are crucial to smaller and sparsely populated communities.
Emily Thornberry (Islington, South and Finsbury) (Lab): I was heartened to see the Liberal Democrats’ green tax document, which said that Ken Livingstone’s congestion charge was a “successful environmental tax.” However, it goes on to say that the congestion charge had to be increased to maintain the reduction in the level of congestion that it first brought about. When she was chair of the London Assembly Transport Committee, the hon. Member for Hornsey and Wood Green (Lynne Featherstone)—I assume that the hon. Gentleman knows her well, given that she was his campaign manager—said that rise in the congestion charge was “a price hike” that had nothing to do with reducing congestion and everything to do with “raising a bob or two.” Which is it? Was the congestion charge raised in order to be more effective or to raise money? Can I offer the hon. Gentleman a third way—
Mr Deputy Spearker: Order. I can offer the hon. Lady the opportunity to retake her seat. That intervention was far too long, as indeed the first one tended to be too long. There is a limited amount of time available for this debate and I ask hon. Members to be sharp and concise.
Chris Huhne: The hon. Lady has enormous faith in my powers, but my powers to read the mind of Ken Livingstone do not extend to my being able to tell his precise motivations for raising the congestion charge. Both of the factors she mentioned are relevant.
David Taylor (North-West Leicestershire) (Lab/Co-op):
The aviation industry has created a tax-free zone of which Al Capone would be proud. Will the hon. Gentleman acknowledge, given his experience of labouring in the vineyards of Strasbourg and Brussels,
that to implement an aviation fuel tax would be a substantial challenge, not least because it needs to be implemented on a regional level? If not, it could easily be evaded or avoided.
Chris Huhne: The hon. Gentleman raises a good point and I entirely agree with the principle. I will return to what we can do at a national and at an EU level later.
Given that disposable income has increased appreciably—I was making a point about the real cost of motoring declining substantially—it has made driving and flying considerably more affordable than before. Meanwhile the real costs of bus and rail fares have increased sharply, by 31 per cent. and 16 per cent. respectively.
There are two potential policy instruments that could in time help us to resolve the problem. The first would be road user charging, based both on congestion and on emissions; the second would be personal carbon allowances, recently floated by the Secretary of State for Environment and Rural Affairs. However, both are some way off technologically and the key objective, faced with the urgency of climate change, is to move quickly. We have maybe no more than 10 years to reduce carbon emissions substantially and an honest policy should be based on existing technologies.
The experience of voluntarism in, for example, the car sector has not been a happy one. The voluntary agreement signed up to by the car makers to reduce average carbon emissions to 140g per kilometre by 2008 is, frankly, for the birds. At the current rate of progress, the UK would not achieve that until 2022. We have broken promises in the vehicle sector from manufacturers and the case for going beyond voluntarism is a strong one.
That is why we have added the proposal for changing the rates of vehicle excise duty on new cars, with an eye-catching and mouth-watering £2,000 a year on those gas-guzzlers that are emitting more than 220g of carbon per kilometre. The object of that policy is to change the cars that people buy so that we have a change in behaviour and a change in the effect of the system.
The Select Committee pointed out that, in particular, the new band G introduced by the Chancellor is ineffective and the rate charged needs to be much higher. As things stand, the VED paid by the owners of the highest emitting 4x4s and luxury saloons in band G represents a lower percentage of their sales price and works out at half the cost per gram of CO2 emitted than lower emitting hatchbacks in band C.
Mr. Tobias Ellwood (Bournemouth, East) (Con): I am trying to follow the arguments carefully. If green taxes are introduced and met, it will mean that people are still not changing their lifestyles to influence the climate change challenges. If people do change their lifestyles, that will mean that they do not pay those taxes, in which case will there not be a huge hole in the budget of the Liberal Democrats?
Chris Huhne:
I do not know how many times I will have to reply to this point. I thought that I had dealt with it in relation to a previous intervention. There is a section of my speech where I will attempt to spell things out in even greater detail. The hon. Gentleman
might be on sounder ground in criticising the proposals of others if his party were able to bring forward a single specific measure to deal with what it says is the greatest policy challenge of our time.
Chris Huhne: I am going to make more progress. The hon. Gentleman can come back to me when I reach that section of my speech if he wants to intervene again.
The higher £45 rate of the new band G is so feeble a deterrent to the purchase of the average gas guzzler that it typically represents the cost of half a tank of petrol or, in the case of an upmarket 4x4 such as the Porsche Cayenne, one replacement wiper blade. That is precisely what the reputation of the Chancellor as a green Chancellor hangs on. Our proposal is for a far sharper rise at the top end to deal with what the Department for Transport identified as the trend towards higher emitting cars outweighing the technological improvement in fuel efficiency. Otherwise our proposal is closely modelled on the proposals put forward by the Energy Saving Trust and the Sustainable Development Commission. The Department for Transport itself commissioned some work from MORI, the opinion polling organisation, to check on the likely impact of the different price bands for vehicle excise duty of the sort that we are putting forward. That study suggested that 72 per cent. of new car purchasers would alter their behaviour faced with the sort of rise in VED bands that we propose. That is a clear set of proposals for dealing with one rapidly growing element of carbon emissions in the transport sector.
Gregory Barker (Bexhill and Battle) (Con): Will the hon. Gentleman tell us how many fewer Porsche Cayenne Turbos will be sold as a result of that £2,000?
Chris Huhne: I realise that the hon. Gentleman drives a substantial 4x4 himself—
Chris Huhne: A hybrid, but nevertheless such a vast hybrid that it emits more than all 10 of the best-selling cars in the United Kingdom. I am afraid that I did not come prepared for the average car buyer inquiring into exactly what the effect on sales of the Porsche Cayenne would be—of enormous interest though that would clearly be to those on the Conservative Benches.
Chris Huhne: No, the hon. Gentleman has already intervened once. He can intervene later.
On aviation, we have seen extraordinarily rapid growth in carbon emissions. According to the International Civil Aviation Organisation, average annual growth over the past 10 years has been 4 per cent. In the UK, the growth in passenger numbers has been even higher: 6 per cent. a year over the past 10 years. Aviation emissions are growing so rapidly that at current growth rates aviation would use up the entirety of the UK’s carbon allocation by 2050, allowing nothing whatsoever for domestic heating, transport by
car or bus, or any other use. That is why it is essential to curb aviation growth—not necessarily to cut it back, but merely to slow its pace of growth. If people want to fly rather than carry out other carbon-emitting activities, it is not, in any Liberal Democrat view, the business of Government to tell them not to do so. However, people need to take those decisions on the basis of a level playing field.
At present, aviation is highly favoured. It is lightly taxed by comparison with other areas of spending and it is not clear, given the undoubted damage caused by carbon emissions, why that should be so. There is no kerosene tax and no VAT on airline tickets, although that would be possible both nationally and at an EU level. Aviation is not included in the emissions trading scheme and we are some way off that happening. The reality is that we need to work a little harder at a national level. I agree that, as has been pointed out, there are substantial constraints if we are not to make ourselves wholly uncompetitive. However, as we have seen before, when the Conservatives were in government and introduced air passenger duty, we can act at a national level.
The existing air passenger duty is an extremely weak reed in the context of this problem. Since 2000, for example, there has been a reduction in the revenue from air passenger duty of 35 per cent., even though there has been an 8 per cent. increase in passengers. The charge of £5 for short haul and £20 for long haul, at the lowest rate, needs to be replaced by an emissions charge based on the emissions of the aircraft over the flight. Although we aim to tax aviation as a whole more heavily—that is what would limit its growth—the extra burden on passenger flights would be mitigated by the extension of the emissions tax to freight. In each individual case, the charge would depend on the fuel efficiency of the aircraft and on its load factor. It is noticeable, for example, that the budget airlines tend to have younger, more fuel efficient aircraft in their fleet and they also fly with substantially higher load factors that the scheduled airlines.
We suggest that those two big changes would bring in about £8 billion of proposed revenue. The idea is to raise the rate at which green taxes are levied in the economy back up to the peak that existed in 1999, within the space of one Parliament.
Mr. Nick Hurd (Ruislip-Northwood) (Con): How much of that £8 billion will be re-funnelled into investment in the infrastructure to provide an attractive alternative to flying or driving?
Chris Huhne: I am grateful to the hon. Gentleman for his question. Judging from the experience of other countries that have gone down the road of the green tax switch, it is crucial that we make a firm commitment to the electorate that the money that is raised from green taxes is handed back to them and that the green tax switch is not about raising money for the state. There are other means by which one can handle infrastructure spending. I agree that there is a real problem, but the whole idea of the green tax switch is to guarantee that every penny piece raised in extra green taxes goes back into reductions in taxes on income, in particular. That pattern of policies, as I mentioned, has been applied in other countries that firmly believe in tackling carbon emissions to influence climate change—notably in the Nordic countries.
Dr. Alan Whitehead (Southampton, Test) (Lab): The hon. Gentleman is making points about the taxation of aviation with which I greatly sympathise, but I wonder whether he is clear in his own mind about what he wants to raise the money from his new aviation tax for. The Liberal Democrat tax documents states:
“We will increase the revenue from the new Aircraft Tax to approximately £3 billion above that of the current APD”.
However, the Liberal Democrat website today states:
“The new duty would be set to raise the same amount of money as the old.”
There appears to be a £3 billion hole there somewhere.
Chris Huhne: I do not know what the hon. Gentleman was quoting from, but the document that we voted on at our conference and the accompanying figures made it clear that there would be a substantial increase. We would be looking at getting roughly four times as much revenue out of the aviation sector as is currently the case. He may be confusing that with the fact that there are particular flights where, because of load factors and fuel efficiency, one would not necessarily expect anything like that increase—if any increase—in taxation. The burden of taxation will be different.
The most thorough report commissioned by the Nordic Council from the Danish National Environmental Research Institute in Copenhagen pointed out that Sweden, most notably, is undertaking an overall tax shift, replacing income taxes with taxes on energy, transport and pollution that amount to several billion Swedish kronor. The report says:
“The Nordic countries pioneered the introduction of carbon and energy taxes and recent studies have addressed their impacts on CO2 emissions. Despite different methodological approaches, the general result which emerges is that such taxes have made an important difference to emission levels. In Finland, CO2 emissions would have been 7 per cent. higher at the end of 1990s had the taxes not been introduced, while in Demark the tax-subsidy scheme on industrial CO2 emissions caused emissions to decline by 23 per cent. in just seven years, to a level 31 per cent. lower than would be the case under a business-as-usual scenario.”
Let me deal with possible adverse side effects. Inevitably, those of us of a progressive disposition worry about the impact of indirect taxes on income distribution. Of course, indirect taxes may prove to be regressive if, as is normally the case, expenditure on necessities represents a higher proportion of the income of the poor than that of the well-off. That is why Liberal Democrats have been careful not to propose the extension of the climate change levy, or a climate tax on households, before we have a far more successful scheme to improve energy efficiency.
The taxes that we propose are not regressive, and one can see that in the case of the vehicle excise duty. Poorer households do not own cars. Some 28 per cent. of British households are without access to any car. Moreover, even among those who have a car, it is rare to find families that buy new cars. However, the VED rates would apply to new cars. On aviation, too, the average income of leisure travellers from UK airports, which was surveyed recently by the Civil Aviation Authority, was nearly £50,000 a year, or more than double the national average. Labour Members might be especially interested to know that nearly 80 per cent. of leisure flights are taken by people in the top half of the income distribution, with only 20 per cent. taken by
those in the bottom half. There is also further evidence from the Nordic Council report:
“Another main result is that while energy taxes tend to be distributionally regressive, taxes on transport, fuels and pollution are, respectively, progressive and neutral.”
It is clear, however, as has been suggested, that such a policy might adversely affect those in rural areas if special considerations were not made. That was why we proposed during proceedings on the Finance Bill that there should be a 50 per cent. discount on a household’s first car in sparsely populated rural areas and why we believe that we should consider reducing excise duty rates on fuel to offset some of the disadvantages of remoteness for rural communities that rely on cars.
Overall, the package would aim to raise the yield from green taxes back to the share of national income at the peak of 1999. It thus represents a rise of 0.7 per cent. of gross domestic product. It would be a sensible first step, after which we should assess its effects and other measures that might be necessary to achieve the goals. I reiterate that the key promise of the package is that the revenue raised from green taxes should go back in cuts in taxes on good things, such as effort, risk and work.
I will now address precisely the point raised by the hon. Member for Bournemouth, East (Mr. Ellwood): will the revenue disappear? Certainly not any more than it does in the case of other sin taxes, such as those on alcohol and tobacco, or the congestion charge. There would be behavioural effects, which is what we would want, but we would not be trying to get rid of the behaviour altogether because the appropriate instrument to achieve that would be not a green tax, but a regulation to ban the activity entirely. I hope that Conservative Members will thus be sympathetic to a proposal that is a market-oriented measure designed to ensure that our carbon emissions are sustainable.
Mr. Ellwood: The hon. Gentleman is speaking with a lot of passion, which is important. I think that the whole House agrees on the direction in which we are trying to move. However, as other Conservative Members have pointed out, there is a problem. If the taxes were to work in the way in which the hon. Gentleman suggests, we would not have the impact on the environment that we want, so we would still be faced with the same levels of carbon, rising sea levels and the challenges that we are trying to address.
Chris Huhne: I do not want my response to the hon. Gentleman to become too technical. However, on aviation, for example, a lot of work has been done on the responsiveness of quantities to changes in price. The price elasticity of demand is shown to be about 1.1, which effectively means that a price increase of 1 per cent. leads to a 1.1 per cent. fall in activity, if other things are equal—obviously, one must take account of the growth trend. I am rather surprised that the hon. Gentleman questions this clear point. There is a very small selection of goods and services for which demand increases if the price is raised. If one raises the price of something, demand for it generally goes down. The measure would thus be effective.
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