Examination of Witnesses (Questions 220
- 239)
TUESDAY 6 MARCH 2007
MR BARRY
HUMPHREYS AND
MR LAWRENCE
HUNT
Q220 Mr Chaytor: Is there any evidence
that that point has been reached yet?
Mr Hunt: No, I do not think there
is.
Q221 Mr Chaytor: Otherwise, you would
not be in business surely? Presumably you made a judgment that
the level of taxation has not yet reached that point, otherwise,
you would not have established your business?
Mr Hunt: We are not in such a
price-sensitive business, but, if you look at Easyjet and Ryanair,
who have created huge economic wealth and development and allowed
lots of small businesses and people to travel who would not otherwise
have been able to do so, it is going to hit them hard and we have
not seen the evidence yet because this has just come in. It only
came in in February, as you know, but I do not think consumer
reaction to the APD increase was what we were talking about. I
was talking about the airline reaction to it, but please take
the fact that First Choice was prepared to do something about
its environmental footprint and is now not, partly because of
the Defra announcement with CERs which they do not support, they
were going down the voluntary route, and the second impact was
the APD. You have to take those things together because it shows
a lack of government joined-up thinking on the issue.
Q222 Mr Chaytor: So there is one
airline that uses APD as the reason, but there is another major
airline that would not have signed up without the APD.
Mr Humphreys: Can I clarify what
I meant about the public's reaction. I think it is a question
of timing and certainly our feedback, which was not scientific
feedback, but there was some feedback, was that the announcement
of the offsetting proposal and the doubling of APD created confusion
in the public's mind and a feeling with some that we are more
than paying for our emissions through the increase in APD, so
why should we join an offsetting scheme. Now, that was a temporary
issue and it has probably already passed and that is why we are
going ahead with offsetting now, but there was some kickback from
it.
Q223 Mr Chaytor: Is there any evidence
that the number of people flying has reduced since the increase
in APD?
Mr Humphreys: If you increase
the price, there will always be a reduction in demand.
Q224 Mr Chaytor: Is there any evidence
that the numbers have increased?
Mr Hunt: No, because it only came
in on 1 February and we have not got February passenger stats
yet. Actually, that is not true. The BA statement came out yesterday
and showed a significant fall, but we do not know whether that,
in the last quarter, is in Europe as well as long haul, but that
may have been because they keep cocking up the baggage handling
and all of that, but the reality is that you will see a reduction.
Easyjet are livid about this and they know, because they understand
their model far better than I do or you do, it is a different
business from my business, Easyjet, but they are livid about it
because it will significantly impact their demand and they are
trying to invest in this country and grow their own demand.
Q225 Mr Chaytor: But if Easyjet and
Ryanair are selling seats virtually for free, how can they argue
that a minor increase in APD is going to stop people flying?
Mr Hunt: How many people have
actually been on a Ryanair flight and paid zero for it? The average
is £40 we are talking, that is the economic data, and the
way the model works is that you start low and you build your price
and you pay more, so some Ryanair passengers pay £200.
Q226 Mr Chaytor: So it is a small
percentage of the actual cost of the flight.
Mr Hunt: Let us not return to
people flying for free.
Q227 Mr Chaytor: But if your argument
is that some of them are paying £200, then the rise in APD
is a small percentage increase. My argument is that there will
be some people who are flying for next to nothing and, therefore,
how can they object, if they have got a free seat, to paying a
slight increase in tax?
Mr Hunt: Because the average is
£40 and it is a 12% increase which is four years' worth of
inflation in one hit.
Q228 Mr Chaytor: Can I ask both of
you the general question: what do you consider to be a reasonable
system of taxation on airlines? As to the point about APD being
a fixed rate, would it be preferable if it were a percentage?
Mr Humphreys: Taxation to take
account of emissions or general taxation?
Q229 Mr Chaytor: Largely to take
account of emissions.
Mr Humphreys: We very strongly
support emissions trading.
Q230 Mr Chaytor: That is not taxation.
What I am trying to get to is: do you think there is a role for
taxation at all? Is it the structure of APD, is it the question
of VAT on fuel? Leaving aside emissions trading, do you think
there is a role for taxation in addition to emissions trading
and the technological improvements that we are all looking for?
Mr Humphreys: Airlines should
pay for their emissions, there is no doubt about that; it is a
question of how you pay for it. If you pay for it through emissions
trading, then I would argue that there is no justification for
additional taxation. If you do not pay for it through emissions
trading, then alternative means should be looked at, but the APD
is actually, as we have mentioned, a very poor environmental tax.
Q231 Mr Chaytor: Is there a way to
make APD a better environmental tax?
Mr Humphreys: Yes, you could charge
Mr Hunt more, for a start!
Mr Hunt: On top of my offset balance!
You can give me a credit for that!
Mr Humphreys: However, it is quite
complicated and it would need looking into, but, without a shadow
of a doubt, there is a much better way of doing it.
Q232 Mr Chaytor: Have you made a
submission to the Treasury as to how it could be improved as an
environmental tax?
Mr Humphreys: No.
Q233 Mr Chaytor: Would it be a good
idea if you did?
Mr Hunt: They do not listen.
Mr Humphreys: Well, the Treasury
are listening to us at the moment on a different subject about
APD and reforming it in other ways, but we have not addressed
that particular point.
Q234 Mr Chaytor: From Silverjet's
point of view, you are completely opposed to any kind of taxation
and you think it should be your own offset scheme or emissions
trading?
Mr Hunt: No, I think that, when
it comes to emissions, the Government should take the lead. I
think they should implement a mandatory offset charge based on
a proper assessment and through a light-touch regulated scheme,
as I have said, and I would completely support that. We also pay
corporation tax, we pay National Insurance for all our staff,
we pay obviously employment tax for all our people, we pay tax
on all of our input costs, except fuel, et cetera, et cetera,
so I am not in any way opposed to tax as a general principle,
but I want to make sure it is efficient and it is fair.
Q235 Mr Chaytor: Yes, but, in terms
of the environmental impact, are you saying that a mandatory offset
scheme should be the only government measure to impact on emissions
or is there a role for a form of taxation, an environmental tax?
Mr Hunt: What is the difference?
Q236 Mr Chaytor: That is the question
I am putting to you. Is there scope for something else?
Mr Hunt: Ultimately, when you
fly, your 90p an hour should go into a verifiable offset project,
and that is what I want to see until emissions trading comes in.
It is not difficult. That, we would actively support.
Q237 Mr Chaytor: You have made an
issue of the overhead costs of the Treasury or of any state bureaucracy
as one of your reasons for objecting to taxation. What are the
average overhead costs of the carbon offset schemes that you support?
Mr Hunt: Minimal, one to two%.
Depending on the project, one to two% is what Carbon Neutral cost
and that is one of the reasons we chose them, so almost 100 pence
in the pound when I invest in order to offset my flights goes
into the projects, and that is what we should all make sure happens.
Q238 Mr Chaytor: Given that you are
trying to position yourself as a green airline—
Mr Hunt: Silver actually!
Q239 Mr Chaytor:—should you
not be taking on Michael O'Leary a little bit more aggressively?
Mr Hunt: I am not interested in
taking on Michael O'Leary. I think it is great what he has done
and the way he is running around telling people they should shoot
cows, I do not think you can have really have debates with somebody
with that mentality! I would much rather engage with you, with
the Treasury, with Defra and the Environment Minister to talk
about what my proposal is which is to implement the system of
carbon points, light-touch regulation, and 90p per hour.
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