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1 May 2007 : Column 1420

Helen Goodman (Bishop Auckland) (Lab): I oppose the amendment—and will vote against it if the hon. Member for Christchurch (Mr. Chope) presses it—for seven reasons.

First, the position adopted by Opposition Members—this particularly applies to the Liberal Democrats—is Augustinian. They want to be good, but not yet, so they will take any opportunity to push back the increase in tax. Secondly, the tax cannot be described as truly retrospective, when people had more than two months’ notice of the increase. Retrospection surely means increasing tax on things that people have already done. Thirdly, the practice adopted is not significantly different from the traditional practice with excise duties.

Mr. Paul Goodman (Wycombe) (Con): Why does the hon. Lady think that the last time the Government substantially raised APD, they gave a year’s notice of the rise?

Helen Goodman: I have no idea. I did not know that the Government gave a year’s notice last time. It was obviously not for the reason suggested by the hon. Member for Christchurch, because it would not take a year to go through the process that he is calling for.

Mr. Redwood: Would the hon. Lady think it fair if the Government suddenly said that all the things that she had paid for over the past month would attract a special tax, which she had to pay although it had not been ratified by this House?

Helen Goodman: The right hon. Gentleman’s point is not significantly different from all sorts of taxes that we must pay. For example, the same applies to council tax—when the local council issues a bill, one does not have time to move house.

Several hon. Members rose

Helen Goodman: I will not give way, because some of the points being made by Opposition Members are wholly ridiculous.

Fourthly, Conservative Members have clearly forgotten the action that they took in February 1985, when they changed the tax treatment of gilts. When the decision was taken, the Bank of England said that it could not possibly trade in the gilts market if it knew that that tax change was forthcoming, so it could not possibly wait until the Budget. A press notice was issued at 7 o’clock in the morning, before the gilts market opened, so there were certainly no Budget resolutions on that occasion.

Stewart Hosie (Dundee, East) (SNP): Trading in gilts is market-sensitive, whereas the introduction of a retrospective tax is not. The hon. Lady’s fourth argument does not hold very much water.

Helen Goodman: No, the hon. Gentleman is wrong. Either the principle is important or it is not. Tory Members who support the amendment have clearly forgotten that they used precisely the same procedure in February 1985.

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Julia Goldsworthy: Returning to the hon. Lady’s third argument, she mentioned council tax. An analogous example would be if someone were issued with a council tax bill, which they paid, but was then asked to pay more on top of it.

Helen Goodman: Fifthly, another key point is the behaviour of the airlines. The airlines frequently add charges, such as fuel surcharges and changes in airport taxes, after people have bought their tickets. They have protested about this measure, but their position is weak.

Sixthly, 1 February is an extremely sensible choice of date, because that is the point in the year when the fewest people are flying, which means that the fewest people will be inconvenienced. My final reason is that airlines frequently put on other charges after people have taken such decisions.

7 pm

Dr. Cable: I wish to support the amendment. The hon. Member for Christchurch (Mr. Chope) was surprised that people might wish to support it on its merits rather than on the basis of their political alignments, but it seems perfectly sensible and I am happy to do so.

The hon. Member for Christchurch argued for the amendment primarily in terms of the principle of retrospectivity. It is fair to say that there is not a basic theology about retrospective taxation, which has happened in the past. Indeed, when my hon. Friend the Member for Falmouth and Camborne (Julia Goldsworthy) wrote to the Economic Secretary to ask him for examples, he came up with several, but they related primarily to anti-avoidance measures. Nobody would remotely suggest that the people turning up at an airport and being asked to pay a levy on their tickets are in any sense involved in tax avoidance. That is a completely different concept; the right hon. Member for Wokingham (Mr. Redwood) made the distinction earlier.

Two groups of people will be disadvantaged. The first comprises travellers who bought their tickets before 6 September without any awareness that this was going to happen and will travel after 1 February. There are many people in that category. They are not business travellers, who normally buy tickets fairly close to the point of departure, but people planning a family holiday, probably with a substantial cost involved. The other group comprises travel agents who have decided to carry the cost themselves because they have no alternative, or to avoid alienating their customers. Several travel agents have made that point to me.

David Taylor (North-West Leicestershire) (Lab/Co-op): Is the hon. Gentleman suggesting that those who purchase, long in advance, services or goods that they do not use or take possession of should always be able to avoid any increases in taxation on that good or service in the meantime, no matter how long a period is involved? That is the logic of his argument, is it not?

Dr. Cable: Of course, these are tickets that have been paid for in good faith. As I understand it, the purpose of this tax measure was to change people’s behaviour,
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but it is now being applied to decisions that have already been made. There is a basic lack of logic in the Government’s proposals.

The hon. Member for Bishop Auckland (Helen Goodman) made the reasonable point that a lot of money is at stake—£100 million or something of that order. Those who oppose the measure—Opposition parties, rebels or whoever—will be challenged on how they would fund the deficit. I do not have much of a problem with that, because our approach to aviation taxation is not that it should be tax-neutral. We believe—I do not know whether the hon. Member for Christchurch shares this view—that aviation taxation should be quite a lot higher to capture all the environmental externalities involved, and we have set out the case for that. Our proposals would raise substantially more revenue than the Government’s proposals, not less.

The amendment involves an important issue of principle that has been well expressed, and we are happy to support it.

Mr. Quentin Davies (Grantham and Stamford) (Con): I congratulate my hon. Friend the Member for Christchurch (Mr. Chope) on his principled approach to this difficult question, on the single-mindedness with which he has pursued his campaign for several months, and on his efforts throughout that time to draw to the attention of his colleagues in all parts of the House the importance of this issue.

The hon. Member for Bishop Auckland (Helen Goodman) is a distinguished Member of the House to whom I always listen with pleasure, but it did not sound as though she understood the concept of retrospectivity. She cited in defence of the Government’s proposals an occasion in 1985 of which I have no memory—although I do not dispute that it may have occurred in the way she describes—in which the Treasury announced at 7 o’clock in the morning that a new tax would apply thenceforth. That is not retrospectivity, because all the trades done after the market opened at 7 o’clock in the morning would be done in knowledge that a new tax then applied.

Retrospectivity is a very serious matter, and it is incorporated in a glaring or, I might say, an egregious fashion in the Government’s proposals. It occurs when a transaction is concluded between two or more citizens who believe that no tax applies, or a certain type of tax applies, and then find afterwards that a new tax is levied on them. It is exactly as if I had agreed today with the Financial Secretary to buy his tie for—what would it be worth? I suppose £5 or so— [ Interruption . ] No, that is unkind—I will make it £10 or so. I am not actually making him an offer, in case he is getting excited. It is as if I concluded with him today that I was going to buy his tie for £10, gave him the £10 and received the tie or was promised its delivery, and then we were suddenly told the next day, the next week, the next month or six months later that a new stamp duty or purchase tax was being imposed on ties and I had to come up with another £500 to give to the Treasury for having concluded the transaction with him some time before. That would be retrospectivity. I can see from the reaction on both sides of the House that we all think that that is a completely fantastical situation which, if it arose,
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would be utterly intolerable and unacceptable. However, it is precisely the situation that we face.

David Taylor: The hon. Gentleman makes my earlier point precisely. In his example, he takes possession of this hypothetical tie and would rightly feel aggrieved if there was a retrospective tax thereon. However, in the case of air passenger duty we are talking about advance payments for services—in this case, flights—that are not consumed at the point at which the tax bites. That is not retrospectivity.

Mr. Davies: It is indeed retrospectivity. The issue is whether the tax is known to apply by the parties involved when the transaction is concluded.

Helen Goodman rose—

Mr. Davies: Of course I will give way to the hon. Lady in a moment if she will be kind enough to let me respond to her colleague.

This is a matter of justice. It is also a matter of economic risks. The great question is whether we have a country—a free country, I hope, in our case—and an economy in which people can conclude transactions knowing what the tax regime is at the time that they do so. It is enormously important for the economy, and for justice, that that should be the case. If there is any retrospectivity, neither of those conditions applies. When the transaction takes place, the parties involved need to know what are the costs, risks and benefits to all concerned. If the Government subsequently, in a way that those parties could not have anticipated, change the rules of the game—the costs, risks or benefits emerging from the transaction—they have acted retrospectively. That is unjustified morally and extremely dangerous economically.

Helen Goodman: The hon. Member for Christchurch placed emphasis on whether the Budget resolutions had been passed—I took that to be the thrust of his argument—but the hon. Gentleman seems to be arguing a completely different case and to think that that is not at all relevant.

Mr. Davies: It is a curious way to conduct a debate to try to refute an argument by saying that it is different from what was said by another person who took the same line but used different arguments in support of the same cause. That may well be the case, but I take my stand on the matter of retrospectivity. Such an important principle is at stake here that I will vote to defend it whether or not I am joined by the majority of my colleagues. We have heard some other good arguments. For example, the hon. Member for Twickenham (Dr. Cable) made some points of a practical character that tend in the same direction. The fact that there are other arguments from different sources that tend in the same direction hardly undermines my argument, which is based on the principle of retrospectivity.

Julia Goldsworthy: The hon. Member for North-West Leicestershire (David Taylor) said that the point of consumption was the most important. However, if one buys a bottle of whisky before a Budget that
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increases duties on whisky, but does not open it until afterwards, one is not expected to pay an additional charge.

Mr. Davies: The hon. Lady is right and I thank her for that additional argument, which reinforces my case, as it was intended to do. The important point is the conditions that apply when the transaction is made. Transactions are irrevocable—one buys or one sells and, at that point, one must make a definitive calculation of the costs and gains. I repeat myself because I believe that the hon. Member for Bishop Auckland has some difficulty in grasping the notion of retrospectivity. If conditions are subsequently changed by a Government tax decision, which applies to the transaction, even though at the time no one could know that the change would occur, retrospectivity has clearly taken place.

If we vote for the amendment—and one never knows in a democratic Parliament how many colleagues will go through the same Lobby—we must act responsibly and accept that the consequence of voting for something is that it may pass into law. I recognise that, if that happens, the Government will lose revenue. I have not made the calculation but I take on board the figure of £100 million or £120 million, which is not insubstantial. I am always careful about voting for a measure that will cost the taxpayer £100 million to £120 million. Perhaps the phrase “cost the taxpayer” is a little unfair because the taxpayer had no more idea than anybody else that the Government were proposing the measure.

In every society that operates under the rule of law and in a market economy that is run on sound principles, the principle that there should be no retrospectivity is so important that establishing it is worth £100 million or £120 million. If the Government are defeated, that will convey a signal to them and subsequent Governments, who may be tempted by retrospectivity, that it is expensive because the House of Commons may rightly take a principled stand. Our predecessors for generations and centuries have upheld the principle that the House should not legislate retrospectively, whether for tax law or other laws. I leave aside the special circumstances of tax avoidance schemes.

We in our generation should uphold the principle that I have outlined. If the cost of doing that in the current circumstances is £100 million or thereabouts, I fear that it must be borne in the higher and longer-term national interest.

Rob Marris: We are debating two principles this evening. First, the hon. Member for Christchurch (Mr. Chope) raised what might be called the constitutional principle. I understand that and I will be interested in the Government’s response.

Secondly, we are considering retrospection. I understand the principle that the hon. Member for Grantham and Stamford (Mr. Davies) enunciated. However, he has got it round his neck when he tried to give practical examples. That also applies to the hon. Member for Falmouth and Camborne (Julia Goldsworthy), with her ridiculous argument about consuming a bottle of whisky. They both fail to
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differentiate the purchase of a physical artefact—whether a tie, a bottle of whisky or a car—and the delivery of a service.

For example, if the hon. Member for Grantham and Stamford looks back, he will realise that, when the Conservative Government, contrary to their electoral promises, raised the VAT rate markedly, that higher rate covered services, which were delivered after the change in the VAT rate, even though the agreement for providing them was made before the increase.

Mr. Quentin Davies: The hon. Gentleman used the word “principle”. I hope that he agrees that a good principle remains good even if someone in the past has breached it. If some past Government or Government of a different complexion have breached it, that in no way negates or reduces its importance. Surely he does not seriously suggest that different tax rules—in the case that we are discussing, different rules relating to retrospectivity—should apply to goods and to services. He has a background in economics and he knows that there is no foundation for such a distinction in the science of economics.

Rob Marris: Perhaps I am not making myself clear. I understand the principle that the hon. Gentleman outlines. I am trying to explain that there is no retrospectivity in air passenger duty. I understand the constitutional point—we will consider that shortly and the Financial Secretary will tackle it—but there is no retrospection in air passenger duty.

7.15 pm

Although I have an A-level in economics, my background is in being a lawyer. I therefore know something about contracts. The tax is not to do with when the contract is made but, in the case of a service, which often entails delay, when the transaction is concluded through the delivery of the service. The example that the hon. Gentleman gave of the tie was a concluded deal and ownership had passed before the tax change had occurred.

Mr. Davies: The important point about air passenger duty is that the economics of the transaction will be changed subsequently. I am sure that the hon. Gentleman agrees that any transaction is based on a balance of cost and gain. Each party has costs and gains. In the example that I cited, the Financial Secretary lost his tie and gained some money. If the state subsequently changes the economics of a transaction, the equation would be different and one or other party to it would probably not have undertaken it if he or she had known what was coming. That is the essence of retrospectivity and the hon. Gentleman cannot deny that that is the result of the Government’s actions in the matter that we are discussing.

Rob Marris: The hon. Gentleman says that I cannot deny it but I do.

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