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Dr. Cable: I beg to move amendment No. 13, page 8, line 29, at end add—
‘(7) This section shall come into force on a day which the Treasury may by Order appoint.
(8) No order may be made under subsection (7) unless the Treasury has compiled and laid before the House of Commons a report containing an assessment of the impact of air passenger duty on the objective of reducing carbon emissions, and including an analysis of the comparative effectiveness in meeting that objective of the taxation of air passengers, on the one hand, and of aircraft according to their emissions levels, on the other.’.
In the debate that we have just had on retrospectivity, the discussion strayed into the environmental aspects of the tax, so some of the points that we are about to deal with have been covered already. I do not want to duplicate them, but this amendment would provide a mechanism obliging the Government to look more carefully at how environmental differentiation can be introduced into the taxation of the aviation industry.
In his reply to the previous debate, the Financial Secretary sought to justify the Government’s proposals in environmental terms, and I think that he said that the air passenger duty was introduced in 1994. I have not checked on that year’s Budget speech, but I should be very surprised if the word “environment” passed the then Chancellor’s lips. It was an era when politicians who thought at all about the climate thought about global cooling rather than warming, so the eloquent argument about carbon emissions is something that we have discovered in retrospect.
Mr. Paul Goodman: I am grateful to the hon. Gentleman for giving way. That word did not pass the Chancellor’s lips.
Dr. Cable: Indeed, and the tax being proposed at that time was not an environmental tax at all, but a revenue measure. However, the Financial Secretary was right to say that we now confront a different kind of world, where there is a legitimate and powerful concern about the environment, and particularly about global warming. As he rightly said, carbon emissions from the aviation industry are substantial and growing very rapidly. The question is whether the air passenger duty is a reasonable proxy for an environmental tax.
Can the environment be taxed in a better way? There is a strong argument that the air passenger duty is a very clumsy way to tax the environment. That point was made in a brief interjection by the right hon. Member for Suffolk, Coastal (Mr. Gummer), who was ruled out of order but whose point was nevertheless correct. The current duty penalises airlines that use their aircraft efficiently. The same aircraft travelling full pays twice as much duty as one travelling half empty, so there is no incentive to be efficient. Moreover, the duty is inequitable because it bears particularly heavily on low-cost airlines and their passengers.
That is compounded by the fact that this country has a very inefficient system for allocating slots for landing and take off. They are allocated free, and are grandfathered. No consideration of efficiency is involved, so airlines are under no pressure to use their aircraft efficiently in terms of passenger use. Very often, slots are acquired and retained so that competitors are kept out of the business but, were they auctioned in a more economically rational way, there is no doubt that aircraft would be used more efficiently. The combination of inefficient allocation of airport slots and the existing taxation system is pretty rough and ready, and an ineffective environmental measure. However, no doubt the Minister’s figures are right and he is working on Treasury assumptions about the elasticity of demand. Doubling the tax will no doubt have a rough and ready impact on carbon emissions. The question is whether it could be done significantly better.
This morning, the Treasury issued a ministerial statement. When I started to read it my heart jumped because the first sentence said that “air passenger duty”, as defined,
“could send inappropriate environmental signals and cause market distortions”.
At last, I thought, the Treasury has got the point and it will look at different options. However, it turned out that what was produced in a long and complicated consultation paper has nothing much at all to do with the environment; it would produce simply a more equitable sharing of the burden of air passenger duty between different categories of passenger. The Government have spotted that there are such things as airlines with only one travel class and their passengers may qualify for the lowest rate of duty. The Government are concerned about the anomalies and have produced a complicated consultation paper to deal with them. I have not yet had a chance to study it, but it does not seem at first sight—the Minister may correct me—to have much to do with environmentalism.
Mr. Gummer: Has the hon. Gentleman noticed that almost all the proposals will in fact increase the Treasury take with no noticeable environmental difference? Is not that all of a piece with the legislation?
Dr. Cable: The right hon. Gentleman has the advantage over me, because he has had the chance to read the consultation paper carefully. I am sure what he says is true and that when I study the document that conclusion will emerge.
Is there a better way of taxing the aviation industry that captures more effectively the environmental impact? If we were starting from scratch and did not have to worry about legal constraints, the obvious thing would be to tax the fuel. That could be done on domestic flights, although they are only a small percentage of the total, but it would be difficult to implement internationally, partly for treaty reasons and partly because airlines would simply hop from one low-fuel jurisdiction to another and fill up where the duty was lowest. There would thus be no point in pursuing that theoretically attractive option.
We suggest a simple mechanism, whereby the tax is applied in relation to the emissions produced by different types of aircraft. The model is the environmental differentiation in vehicle excise duty; different categories of vehicle are classified according to their carbon dioxide emissions and aircraft could be similarly banded. It would be a one-off tax at the point of departure, not at all complicated and probably simpler to administer than the present system. Because it would be a tax on departure and related to the CO2 emissions of a particular type of aircraft it would implicitly discriminate against short-haul flights. Paying the same duty whether the flight is to Edinburgh or Australia is not environmentally desirable because there are genuine alternatives to short-haul flights. There are no easier forms of public transport to Australia, but it is possible to switch to rail to travel to Edinburgh, Newcastle or even Cornwall, so a form of duty related to emissions makes more sense if it discriminates against short-haul flights. Environmentalists argue, too, that the greatest CO2 emissions are at take-off, when the booster impact of the engines is strongest.
No doubt there are technical problems that would have to be resolved, but we tabled the amendment to invite the Government to consider that option and to make a judgment about how such a system might operate before they proceed further down the route of more increases in air passenger duty. We merely ask them to study the feasibility of the alternatives. They are embarking on consultation about different methods of taxing aviation. I am surprised that its reach is so narrow and that the Government are not willing to look at the possibilities we have suggested, which are driven by environmental considerations.
Mr. Paul Goodman: It is a pleasure to see you in the Chair, Mr. Illsley. May I encapsulate what I want to say on behalf of the official Opposition about the amendment by saying to the hon. Member for Twickenham (Dr. Cable) that if his amendment had proposed only an assessment, we would have been tempted to vote for it? However, it does not do only that, so for that reason, as I shall explain, we do not propose to support it. Indeed, I shall explain why we believe that it is irresponsible.
Let me begin to consider the alternatives that the hon. Member for Twickenham referred to by making an assessment of air passenger duty itself. Perhaps the best way to start is to see what APD’s most enthusiastic supporters, including the Financial Secretary, say about it. Apparently, APD is “not an environmental tax” and is not related to “a concern about emissions” or more efficient aircraft and “not related at all” to “more efficient use” of aircraft that are flying.
Who said that? One might have thought that it would be the hon. Member for Twickenham, but it was, in fact, the Financial Secretary when he appeared before the Treasury Select Committee last year. He may have thought, in retrospect, that he was not clear enough, so he came back this year to remove any possible ambiguity. He said that APD was
“a blunt instrument as far as the environment goes. It is not the best policy instrument to try to deal with the environmental impacts of aviation”
“not even the best tax instrument to deal with the effects of aviation”.
That is the unvarnished view of the Minister whose task it is to sell the doubling of this tax to the Committee tonight. As the hon. Member for Twickenham said, the Financial Secretary has placed a consultation document in the Library today, which relates to the industry’s view that the way in which air passenger duty defines different classes of travel could send inappropriate signals and create market distortions.
In general terms, the Financial Secretary was very plain in his view of APD, so I think that we should return the compliment. We agree with the green critique that he set out. Indeed, we could scarcely put it better ourselves and I do not think that the hon. Member for Twickenham could put it any better either. The main points are well rehearsed: APD is not linked directly to emissions; it does not provide any incentives to use more fuel-efficient aircraft, and so forth.
The hon. Member for Twickenham referred to what my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) said when he introduced APD. Indeed, my right hon. and learned Friend did not use the word “environment” at all. He said at the time, rather baldly, that air travel was “under-taxed” compared to other sectors of the economy. In short, APD is not a green tax, but an aviation tax.
Julia Goldsworthy: Is it not also true that the inequality that the consultation document is attempting to resolve takes us back to the point for which air passenger duty was created? As well as airlines such as Eos today, back in 1984 we also had Concorde. Such airlines benefited from exactly the same differential impact.
Mr. Goodman: I must confess that I have not yet got to the bottom of the consultation document, but if the hon. Lady is saying that APD is an aviation tax, I agree with her. Where we part company is that we are not opposed in principle to an aviation tax. I could not credibly stand at the Dispatch Box and argue that we were when my right hon. and learned Friend the Member for Rushcliffe introduced it and set out the reasons for it so clearly. We support the principle of aviation taxation. We took that view in government, we have maintained it in opposition and we certainly do not intend to resile from it tonight.
That is a vital point when considering the Liberal amendment, which is designed to assess the merits of APD against the merits of alternative means of reducing emissions, while implementing a delay—a key point—in the APD increase proposed in clause 12. In other words, if the amendment were accepted, the increase would be delayed. It simply would not happen as envisaged.
There is no timetable in the amendment for when the study that the hon. Member for Twickenham referred to would report. The Liberal Democrats want an assessment and they want a delay. We certainly agree with them that there should be an assessment. Indeed, we are already making our own assessment. Our policy consultation document “Greener skies”, which quotes the Financial Secretary at length, confirms that, together with our quality of life policy group, we will consult the industry.
8.45 pm
Julia Goldsworthy: When it comes to not setting a timetable, does the hon. Gentleman agree that, if the Treasury is desperate for the money, that is all the more reason to make sure that the consultation is undertaken rapidly?
Mr. Goodman: I am worried about proposing a delay without proposing a firm alternative. I want to come to that point in due course.
Mr. Gummer: I wonder whether I can help my hon. Friend. It is certainly my view that any assessment that was going to hold water on this issue would take some time, because the Treasury has done little work on this matter. It is a great sadness that the Treasury is so Brown and not green. An assessment will take a long time. That adds weight to my hon. Friend’s argument—although I am in general sympathetic to the Liberal amendment.
Mr. Goodman: That is why I would be extremely pleased—as, doubtless, would the Liberals—if the Financial Secretary said tonight that, once the clause is passed, the Government will carry out an assessment of a replacement for APD. The Financial Secretary has never ruled that out. I am interested to know whether he will do so when he responds to the debate. We believe that there should be an assessment. What I find hard to understand is why the Liberals believe that there should be an assessment. They have already announced their policy on aviation tax. The document that sets out their so-called green tax switch, to which I will return in a moment, states that their policy is
“to replace the existing airport passenger duty with an aircraft tax based on the emissions of each aircraft”.
The hon. Member for Twickenham went into that. That is a perfectly sensible option. It is in our own policy document. But, for the Liberals, it is not an option; it is a firm policy commitment, as they know. A question naturally follows: if they want to replace APD with a new aircraft tax, why have they not tabled an amendment that proposes exactly that? Why do they need the Treasury to assess their own policy? [ Interruption. ] They may say that their proposals involve a tax increase and that one cannot table an amendment that is in order if it involves a tax increase. In answer to that, I would ask: why is it that last year—the hon. Member for Wolverhampton, South-West (Rob Marris) and I are veterans of these debates—they did exactly that in relation to vehicle excise duty?
Mr. Goodman: I would be grateful to the hon. Lady if she confirmed that that is exactly what happened.
Julia Goldsworthy: There is an issue about revenue-raising measures and whether they can be debated on the Floor of the House. Only the Government can propose revenue-raising measures. There is also an issue in relation to the Ways and Means resolution. The amendment has to be broadly within the scope of what is in the Finance Bill. On that basis, we were unable to introduce an alternative.
Mr. Goodman: But the hon. Lady did that last year in relation to vehicle excise duty.
Julia Goldsworthy: No. We proposed changes to vehicle excise duty; we did not propose an alternative to vehicle excise duty. The issue with air passenger duty is that we cannot change it to something entirely different, because that would be outside the scope of the Ways and Means resolution.
Mr. Goodman: They were both tax rises. The amendment that the hon. Lady tabled last year on VED was outside the scope of what was eligible to be tabled for debate. [ Interruption. ] Well, the Liberals will have to explain why they were so keen last year on tabling amendments that were not eligible for debate, but will not do so this year. I suspect that the real reason is that, according to independent commentators—I am not claiming that this analysis comes from us; it comes from the Institute for Fiscal Studies—their green tax switch figures simply do not add up. That means that their proposal is not ready to fly. According to the IFS, the Liberals would fund their £8.1 billion rise in green taxes partly by raising fuel duty in line with inflation. But according to the IFS, the Government have already pencilled that rise into their spending plans, leaving the future Liberal Government, which the Liberals presumably believe will take office after the next election, with a £3 billion annual black hole in the public finances.
That is just the start; according to the Liberals, that £8.1 billion green tax rise is actually a £20 billion green tax rise, but they will first have to produce an independent arbiter who supports their view that their new local income tax, house price tax and pensions stealth tax, which make up the remaining £11.9 billion of their £20 billion package, are somehow green taxes. I realise that the Liberals do not like to have those details ventilated in the Chamber, but it was the Institute for Fiscal Studies, and not us, that first raised those points. I would be out of order if I continued down that path, although I am certainly not out of order at the moment.
Rob Marris: Does the hon. Gentleman agree that amendment No. 13 shows the chaos of Liberal Democrat green tax policy? The Liberal Democrats want green taxes, not in order to change behaviour, but simply to enable a tax grab. They are not what most of us would think of as green taxes that change behaviour, and the amendment clearly shows that. The hon. Member for Eastleigh (Chris Huhne) has admitted to me in debate in the Chamber that the Liberal Democrats do not propose green taxes as a way of changing behaviour; they will carry on with green taxes regardless of any changes.
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