Examination of Witnesses (Questions 240
- 259)
TUESDAY 6 MARCH 2007
MR BARRY
HUMPHREYS AND
MR LAWRENCE
HUNT
Q240 Chairman: You have made a point
about the extent to which you, as a business, do pay tax. Can
you name another business in the transport industry which does
not pay tax on one of its three largest input costs?
Mr Hunt: Well, the global shipping
industry, as you know, has the same situation as us in that they
can fill up their fuel tanks wherever they want.
Q241 Chairman: Yes, we are going
to have an answer out of them soon!
Mr Hunt: So the answer is yes.
There are some more statistics flying around that the global shipping
industry actually contributes twice as much as the aviation business.
I would love to know what the hotel business contributes. There
is a huge, grey market in the hotel industry, as you know, it
is a cash business, and I would love to know. We have got lots
of friends in the hotel business obviously, but I would love you
guys to have a look at the hotel business and see how many emissions
they produce because buildings are the biggest contributor.
Q242 Chairman: We have buildings
in our sights too!
Mr Humphreys: Perhaps I may point
out that aviation also pays for all of its infrastructure which
many other modes of transport do not of course, so you cannot
just look at the taxation element.
Q243 Chairman: Coming back to Virgin's
enthusiasm for emissions trading as the best way to, as it were,
tax the industry, do I assume from that that you, therefore, would
support auctioning all the allowances for aviation because, otherwise,
it would not be a tax at all? If they are going to be presented
to you, we may be in a position we were with some of the power
generators, that actually they made a profit out of the national
grid(?), which is hardly a tax.
Mr Humphreys: The fundamental
point is that aviation should be treated the same as other industries.
A tonne of carbon saved is a tonne of carbon saved, no matter
where it comes from, so the same system which applies to power
generation, et cetera, should apply to us. There may be a role
for auctioning. We will accept whatever system is introduced,
but we do insist on being treated the same.
Q244 Chairman: You have obviously
had quite a lot of contact with the Office of Climate Change and
Defra in the last few months.
Mr Hunt: Not since January.
Q245 Chairman: No, prior to that.
Was it your impression that the Office of Climate Change was aware
that APD was about to double or not?
Mr Humphreys: I do not think they
were. I do not think anyone else in Whitehall, including the Department
for Transport, was aware. They seemed to be very surprised. That
was my impression.
Mr Hunt: I think I had an email
from someone in Defra and I pretty much concluded that they had
no idea and they were very disappointed.
Chairman: Well, that is an interesting
insight into the ways of Whitehall!
Q246 David Howarth: I have just one
more point on what has happened. It is interesting that Virgin
decided, despite what happened with APD and so on, that you were
going to go ahead with your offsetting scheme which presumably
is of benefit both from the point of view of customers and from
the point of view of staff, which you mentioned, so what do you
think is going to happen with the other airlines? Are they going
to give way to customer pressure and pressure from staff or are
we going to end up with a bifurcated airline industry where all
the staff and the customers who are concerned about climate change
end up with some airlines and the ones who do not care end up
with other airlines?
Mr Humphreys: I am not sure. I
think the trend is for airlines to introduce these schemes. There
will always be some, and I suspect a certain Irish airline which
has been mentioned will be one of them which will not, but I think
the overwhelming majority will eventually do this.
Q247 David Howarth: So the long-term
effect of this disagreement is not likely to be very great?
Mr Humphreys: I do not know that
it is a disagreement, it is just that we have different approaches.
In a way, it is good if you are a consumer, you can choose which
airline you want to travel with, so this might be a factor in
that choice.
Mr Hunt: I think the bigger debate
is that, if an airline is based in Dublin, it does not have an
offset charge and an airline based in Luton and which is orange
does have an offset charge. We have got the same, both Virgin
and ourselves, with American Airlines, United Airlines, Delta
and so on and clearly the US Government is far more supportive
of their airline industry than ours is, and I think it unlikely,
in fact I know it is because we met various senior people in the
US Administration, they have no intention of regulating the US
airline business at the moment because the poor US airline business
never makes any money anyway, so they will see this as a negative.
Mr Humphreys: I think I slightly
disagree with that to the extent that I think the policy in America
could well change over the next couple of years or so and we might
see a dramatically different approach.
Mr Hunt: But, as we know and as
you know to your cost, the aviation industry in the US always
manages to wriggle itself out of, and is usually the biggest beneficiary
of, any sort of tax change.
Q248 Mr Hurd: Is your fundamental
objection to the CER route around cost or, more specifically,
how much will a Silverjet ticket to New York have to rise in order
to accommodate the Government's recommendations here?
Mr Hunt: Depending on the weight
of the aircraft—
Q249 Mr Hurd: I understand the point
in principle, but for commercial travel it is about cost, is it?
Mr Hunt: No, if I am paying £11
for every passenger I fly into an offset scheme, I want to see
£11 going into the project. I do not want to see £5.50
going to a bunch of inspectors walking around with forms.
Q250 Mr Hurd: But, if you are paying
£11 now, what do you expect to have to pay if the threshold
is raised?
Mr Hunt: Sorry, what threshold?
Q251 Mr Hurd: If the Defra recommendation
becomes the policy?
Mr Hunt: It is another 50p in
the pound, so, instead of paying £11, it will be £16,
but the point is that that additional £5.50 goes into something
completely worthless, a bunch of bureaucrats.
Q252 Mr Hurd: But, if it is about
another £5, it is another £5 or £6 in your pocket,
but that is not a big deal for you in terms of your market?
Mr Hunt: Well, then you have got
APD increases on top of it, et cetera, et cetera, and it does
become a big deal, it has become a big deal and it made us think,
"Do we really want to go down this route if we keep getting
all these extra costs?"
Mr Humphreys: I think our issue
with CERs is not only cost, it is also the type of project they
undertake and the geographical areas they invest in, so there
is a multitude of issues.
Q253 Mr Hurd: It is not just cost?
Mr Humphreys: No.
Q254 Chairman: Is there not some
administrative or audit cost built into the voluntary offsets?
Mr Hunt: Sure.
Q255 Chairman: So there is an acceptable
percentage?
Mr Hunt: Sure. As we said earlier,
we have to police these schemes to prevent fraud and so on, and
I absolutely support that, but I would encourage you to look at
the way the FSA works. No, it has not always got it right and
there have been some disasters with pensions and so on and that
is not comfortable for anybody, but in general the FSA works very
well and it is well regarded by its industry participants, it
is pretty well regarded by the consumer and I think, interactive
with the Treasury, it has been successful, and why we cannot replicate
that for this kind of thing, I do not know. The other point I
would make is that long term the emissions trading schemes and
so on are all great, but actually what I really want this Government
to do is to help us to invest in new technology because ultimately
that is the answer. Boeing are talking about 75-80% reductions
in emissions if they can develop certain engine and wing technology,
composite technology and so on. In Britain, we have this huge
skills base, particularly in wing production, which is going to
disappear with the Airbus restructuring and we are going to lose
another skills base in this country which we all know is a massive
problem and we will lose a lot of jobs. There is a huge opportunity
here actually for the Government to get behind the new technology
projects and create breaks for people like BAE to invest in these
new technologies, which is what is happening in the US. The US
Government is actively participating in the development of new,
lower-emission technologies.
Mr Humphreys: I would not disagree
with those points at all, but I think it is important that we
do not lose sight of the fact that the industry is doing an awful
lot in this area. We are a member of Sustainable Aviation which
is a group of manufactures, airlines, airports, et cetera, and
we have entered into committed undertakings to improve fuel efficiency
by 50%, reduce NOx emissions by 80% and to reduce perceived external
noise by 50% by 2020 compared with 2000. Those are very big reductions
and we are committed to those as an industry.
Q256 Joan Walley: You implied earlier
on that there has not been any joined-up thinking between the
Treasury and Defra over the APD and the Defra consultation. You
also said it would perhaps be unlikely to get an EU ETS by 2012,
but nonetheless we could have, so where would that put each of
you in terms of Silverjet wanting to be carbon neutral? Will you
have an ETS and stay carbon neutral on your own things as well?
Mr Hunt: If you could find a way
of accelerating the implementation of the ETS for our industry,
fantastic.
Q257 Joan Walley: Well, that might
be one of the recommendations that we are likely to make actually.
Mr Hunt: Yes, but in the meantime
let us look at the history of the EU implementing these kinds
of things and actually I think you are going to find the European
aviation industry much more opposed and not as open as perhaps
Virgin and First Choice are and so on.
Mr Humphreys: We have been very
active in lobbying our fellow airlines in Europe and we have had
a lot of success. It has not been universal, but there has been
a sea change in approach on the Continent. I personally am not
as pessimistic about the chances of introducing the ETS by 2011.
I think it is less likely that we would have the wider ETS scheme
by 2012 which is the proposal, but for intra-EU air services,
I think there is a good chance of having it.
Q258 Joan Walley: Certainly when
we were out in Europe, we got the distinct impression that EU
officials felt that there was leadership from the UK in terms
of taking that whole agenda forward, so I think the pressure is
clearly not there, but how does that leave you in terms of the
offsetting that Virgin wants or is intending to do within a very
short space of time to those already very committed policies that
you are going to have for offsetting? Will that sit side by side
with the ETS when it comes in or will it be an additional thing
that you will be doing, or will you carry on doing it in the same
way so that you have a double bite at the cherry, as it were?
Mr Humphreys: That is one of the
reasons why we favour a more voluntary approach because, if we
have the ETS and it works efficiently, then that should cover
all of the airlines' emissions. If individuals want to do something
on top of that, then why not, but we do not think they should
be forced to because that would be double counting.
Q259 Joan Walley: What about Silverjet,
will you be wanting to keep your carbon neutral—Mr
Hunt: Well, by definition, the ETS will make us carbon
neutral, so our strategy is to be carbon neutral and there is
no ETS system that we can subscribe to at the moment that works
for us.
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