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As my pocket money probably would not have stretched to procuring any services when the change in VAT to which the hon. Gentleman
referred was made, will he clarify whether people were liable for the increase regardless of whether they had paid for the services and of whether the contract to provide them had been agreed?
Rob Marris: It happened when the service was performed. For example, if one engages a VAT-registered garden company and the VAT rate changes before the garden is done up, the higher rate has to be paid. It is not simply a matter of goods and services. The nature of the purchase of goods often means that ownership changes instantly whereas delivery of a service can be delayed.
The Financial Secretary to the Treasury (John Healey): My hon. Friend is making a typically well argued case. Does he agree that the point at issue, which is causing some confusion, is that the tax point in air passenger duty is that of departure, not of purchase?
Rob Marris: My hon. Friend is as perspicacious as ever. If a service has been bought in October 2006 but is performed by an aircraft company in April 2007, there is a duty on departure when the service is performedwhen the aircraft takes off with a passenger in it. There is therefore no retrospectivity in the provision.
Mr. Gauke: I was merely going to intervene on the hon. Member for Wolverhampton, South-West (Rob Marris). I thought that his VAT example was good, but as his argument developed it became clear that it was not. Value added tax is payable when the service is paid for, and if that happens before the increase in the rate, no further payment is necessary. That is the difference between VAT and air passenger duty, for which, as the Financial Secretary said, the tax point is later. I simply wanted to make the point that VAT is not an adequate example and that the Government experience great difficulty in providing examples of similar retrospective legislation
Mr. Gauke: I am grateful for your clarification, Mrs. Heal, of exactly what I am doing [ Interruption. ] And I thank the hon. Member for South-East Cornwall (Mr. Breed) for his retrospective clarification.
The difficulty for the Government is that the examples that they have produced generally relate to cases of a market-sensitive nature, such as the example given by the hon. Member for Bishop Auckland (Helen Goodman). No doubt we shall hear other examples from the Minister later in which there has been a delay before parliamentary ratification, perhaps because of a general election, for example.
As I am now making a brief speech, I will ask the Financial Secretary to clarify one point. I remember that, immediately after the pre-Budget report, there were strong rumours floating around that the Chancellor had received strong advice from Treasury officials that this rise in air passenger duty could be attacked and that it might be illegal. It was also rumoured that the Chancellor had been advised to delay its implementation until after the Budget in March. No doubt there will at some point be a freedom of information request from The Times seeking details of the advice that the Chancellor received, but I should be grateful if we could short-cut the process so that we do not have to wait two or three years for the answer. Will the Financial Secretary confirm or deny that the Chancellor received strong advice that this retrospective legislation could prove vulnerable in the courts?
Mr. Redwood: We are hearing the most extraordinarily convoluted legal arguments from the Government about why this measure is not retrospective, and why it is a good thing that people will have to pay this tax in spite of having paid for their tickets in advance of its imposition. Perhaps the House should think about the underlying realities of the people for whom we are legislating today. We know that it is the Governments policy that only the rich should travel. Clause 12 is part of their policy that those on low incomes should be priced out of travelling by air. That is the purpose of the duty. Clearly it will not price the rich people on expense accounts at the front end of the aircraft out of travelling; it will price the poor out.
Mr. Redwood: I see the hon. Lady disagreeing with me, but she should recognise that her Government wish to reduce the number of people travelling by air by taxing them, and that it will be the poor, not the rich, who get thrown out.
Helen Goodman: Surely the right hon. Gentleman can understand that the people in the top 25 per cent. of the income distribution take on average six return flights a year and that the people in the bottom 25 per cent. take on average one such flight a year. The benefit to the environment would be secured if those people on high incomes who take six flights reduced the number to, say, four. This would not reduce the opportunity for the rest of the population to go on their summer holiday.
The Conservative party is holding a consultation on this sensitive issue. One of the questions in the consultation asks whether there is a way of imposing taxes on air travel that would be less penal for those on low incomes, and that would get away from the obvious obstacle in clause 12. Perhaps even worse than the underlying reality of clause 12which is its aim of taxing the poor out of planesis that, although those people on low incomes have already bought their tickets and carefully calculated their family budgets, perhaps for a once-in-a-lifetime trip that they could not normally afford in other circumstances, the Government have suddenly
come along and said, We have bad news for you. All your family members have to pay this extra air passenger duty. The fact that those people have already paid for their tickets and that that is a done deal has no impact on the Government; they are stony-hearted men and women, and they are going to impose the tax anyway.
I will be guided by my hon. Friends on the Front Bench, and I suspect that they will suggest that we let the Government get on with this, because the reality is that I do not think that my hon. Friend the Member for Christchurch (Mr. Chope) has enough people crowding around the Chamber to defeat the Government on this measure. Either the Government must change their hard heart, and their mind, and find another way to raise this £100 million, or those people will be badly damaged. I shall give the Government some free advice, as I often do. They could make themselves considerably more popular on the eve of the local elections if they cancelled this tax on people travelling around and paid for it by cancelling the identity card scheme. Indeed, if they did that, we would be able to have other tax reductions as well
Mr. Redwood: I accept your advice, Mrs. Heal. I was illustrating that there are other ways of finding £100 million, and a lot more besides. We are discussing whether £100 million is absolutely essential to the future of the Government, and I was making the point that there are many popular ways for them to show that that £100 million is not essential to them.
My hon. Friends on the Front Bench are probably worried, because they have seen what the Government can do, about what would happen were they to recommend that we vote against the measure. It would be scored as £100 million that the Conservatives would not have when they come to power. The reality is completely different, however. We all know that the Government are going to take this £100 million tonight, and many more hundreds of millions of pounds through this tax in the run-up to the next general election.
Any sensible Government would accept the Oppositions position, which is that, in due course, nearer to the election, we will set out our tax proposals for a future Conservative Budget, but I hope that that will not get in the way of our vigorously opposing measures such as these, which are mean-minded and unpleasant. I hope that the Minister will think again, but I am sure that he is not going to. He obviously believes in retrospectively taxing the poor.
Mr. Brooks Newmark (Braintree) (Con): Thank you for calling me to speak, Mrs. Heal, and I appreciate the ongoing guidance that I have received from you. I have four brief points to make on amendment No. 3 and the deferral of the air passenger duty increase. I use the term increase advisedly because, in respect of economy fares, the Chancellor has merely undone his own handiwork.
First, I want to make it clear that air passenger duty has nothing whatever to do with forestalling. I do not want to get too bogged down in procedural intricacies
and precedents, but the precedent laid down by my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) when he originally introduced air passenger duty was to give the industry several months in which to adapt to the duty and to any subsequent rises. As I understand it, howeverperhaps my hon. Friend the Member for Christchurch (Mr. Chope) will correct me if I am wrongamendment No. 3 seeks partly to preserve that precedent which, until the Chancellor scrapped it, helped to prevent a good deal of unnecessary confusion to airlines, tour operators and passengers alike.
My second point is that air passenger duty is not at risk of forestalling precisely because it does not really help to effect behavioural change. APD was introduced on a clear pretext: to raise revenue from an under-taxed industry. The reason for the curious timing of the APD increase that appeared in the pre-Budget report was equally clear: it was to raise £100 million of additional revenue. That was certainly the view of Robert Chote of the Institute for Fiscal Studies when he gave evidence to the Treasury Committee. He said:
The fact that the Chancellor is in a tight position I think is clear...from the fact that he did not offset the rise in green taxation with a cut in other taxation, as he might have found appealing given the political debate.
is very much at the level where it is just an additional tax rather than really going at changing behaviour.
the APD change came in quickly because there were pressing environmental reasons for bringing that change in quickly.
I will not try to guess what those pressing environmental reasons were, but it remains my opinion that there were pressing economic reasons to grab the £100 million on offer from seven extra weeks of increased yield. What we need from the Chancellor now and in the future is a much clearer differentiation between taxation to change behaviour and taxation simply to raise revenue.
My third point concerns the anomaly that tour operators have faced regarding their ability to pass on the cost of increases to their customers, to which the hon. Member for Falmouth and Camborne (Julia Goldsworthy) referred earlier. I know that the matter is, embarrassingly, sub judice, and that the Financial Secretary gave some reassurance in February that he would have the Department of Trade and Industry consider reviewing the guidelines.
Has my hon. Friend seen that a consultation paper has been published today in relation to reviewing the guidelines? Having looked at that
consultation paper, however, I can say that any expectations that he had that the problem would be solved will be dashed.
I want to address, however, the damage that has been done to the reputation of environmental taxation by this debacle. The Treasury claimed that APD would save 1.1 million tonnes of CO2 annually, but it is left to the Environmental Audit Committee to remind us that that is a cut in projected growth, not a cut in absolute terms.
John Healey: The Treasury has at no stage said that the APD change will lead to a saving of 1.1 million tonnes of carbon each year. Its direct impact will be to save 0.3 million tonnes of carbon a year, as I and the Treasury have consistently made clear. Given the savings on other greenhouse gas-causing emissions, which are not CO2, its overall impact will be to save about 750,000 tonnes of carbon a year by 2010. I hope that that helps that hon. Gentleman, and does not damage his case too much.
Mr. Newmark: No, it does not damage the case. I appreciate the clarification, but it does not detract from my point that APD is effectively a blunt instrument to deal with the amount of CO2 being chucked out into the air.
There is a legal challenge against APD on the grounds that it is not a proper environmental tax, with the result that the entire industry is feeling less inclined to be co-operative with the Government. There is a growing sense among the general public that APD
The First Deputy Chairman: Order. May I remind the hon. Gentleman of the amendment under discussion, which is not about environmental taxation? His remarks might be more suited to the clause stand part debate.
Lastly, there seems to be no intention that APD revenue, especially the extra £100 million stealthilyor perhaps not so stealthilytaken from airline passengers should be hypothecated to investment in the environment, such as building more flood defences.
Mr. Edward Leigh (Gainsborough) (Con):
To be entirely in order, the debate should be about the implementation date. The Minister has made an intervention, however, giving an estimate of the
amount of carbon emissions that would be saved. Will my hon. Friend tell us what proportion of worldwide carbon emissions from aviation will be saved by varying the implementation date? I suspect that it would be infinitesimal.
As I was saying, the £100 million retrospective tax would be most beneficial if it could be hypothecated to building such things as more flood defences, which would be most welcome in my constituency, especially in the north end at Three Fields, in the south near the village of Coggeshall, and particularly in my own village of Bradwell.
Mr. Paul Goodman: You are policing the conduct of the debate as vigorously as ever, Mrs. Heal, which is entirely appropriate. Let me reassure you that I do not propose to be dragged away from considering the amendments of my hon. Friend the Member for Christchurch (Mr. Chope), either by the general debate about the clause or by the Liberal Democrat amendments, which we will deal with in due course. During the opening debate, I will confine my remarks to the amendments tabled by my hon. Friend.
I think that the record will reflect that, essentially, the hon. Member for Bishop Auckland (Helen Goodman) said that my hon. Friend was looking around for reasons to oppose the APD rise and had picked on the issue of retrospectivity as a kind of fig leaf. That is unfair to him: he has obtained an Adjournment debate on the subject, has campaigned persistently on the issueI have had dealings with him on itand takes the constitutional aspects of the business extremely seriously. Therefore, I had better have my wits about me in dealing with his amendments.
Although Conservative Front-Bench believe that the retrospective nature of the rise is dubious at least, are sympathetic to the intention behind the amendments tabled by my hon. Friend and fully share his concern about the principles of retrospectivity involved, we part company with him to some degree on the likely effect of the amendments if implemented, and cannot support them if he presses them to a vote. I hope to have something reassuring to say to him later, but in the meantime I shall examine in detail the points about retrospection.
As the hon. Member for Twickenham (Dr. Cable) said, these matters involve a certain amount of theology, and the whole question of whether the Chancellor, Treasury and Financial Secretary have acted retrospectively in relation to the clause has been closely considered, not least by the Treasury Committee, of which my hon. Friends the Members for Braintree (Mr. Newmark) and for South-West Hertfordshire (Mr. Gauke) are members. What it has said deserves some airing, because there has not yet been an opportunity to do so.
If we review the history of the doubling of APD, we see that it is not altogether a happy story. The last significant rise, as I pointed out to the hon. Member for Bishop Auckland, was announced in March 2000
and implemented in April 2001. At that time, therefore, Ministers gave roughly a years notice of the rise. They helpfully explained at the time that the delay
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