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8 Oct 2008 : Column 107WH—continued
11.30 am
Aviation Duty
2.30 pm
Graham Stringer (Manchester, Blackley) (Lab): This afternoon provides an opportunity to help the Government by debating the aviation duty and helping them to come to a conclusion that is better than their original proposals. I know that they are listening, and along with colleagues from Greater Manchester I was able to have a meeting with the Chancellor of the Exchequer. I know that he is thinking hard about the matter, even if not at this very moment, when other things are going on.
Nobody likes taxes, but the aviation duty would be a particularly bad one. I understand the logic of replacing the air passenger duty, which was introduced in the early 1990s with no objective other than to raise funding. I understand the Government’s logic in asking what is the point of only £10 of tax being paid on a plane with one passenger on it, when a plane with a lot of passengers on it will pay considerably more. That seems to provide environmentally perverse incentives and objectives, and I understand why the Government thought that changing the basis of taxation to distance and to the plane itself would provide better environmental incentives. When we look at the details of the scheme, however, it becomes apparent that the proposed aviation duty will also have perverse incentives, and I hope that the Government will change their mind about it.
Before I turn to the details of the tax, it is always worth while reminding ourselves of the importance of aviation to the United Kingdom economy. I was on the board of Manchester airport for a number of years, and 44,000 jobs depend immediately on it. A number of other jobs—it is difficult to define how many—would not exist if it were not there, because having the facility to travel internationally helps firms to relocate to Manchester and the north-west. What is true of Manchester is true tenfold of Heathrow and Gatwick, and it is true of all the regional airports.
I do not know whether this is still true, but three or four years ago, British aviation was the second largest aviation market in the world. Without it, this country would find it difficult to earn its living in the world and we would have a lot fewer jobs than we currently have. Like many parts of the world’s economy, it is going through a particularly difficult time at the moment. Within the past 12 months, 30 airlines have gone to the wall and become bankrupt, which shows what a tough business it is. Although taxation may need to be raised, we want to do so as sensitively as possible and in a way that does not damage the industry.
I have three main concerns, which I shall list before going through them in detail. First, the proposed aviation duty will have a disproportionate impact on regional economies and regional aviation. Secondly, there will be a potentially disastrous impact on the air freight industry. Thirdly, it is likely that if the tax is brought in, it will be environmentally damaging—as opposed to environmentally helpful, which I believe is the Government’s intention.
I turn first to the regional issue. The Government stated clearly in their 2003 White Paper that their policy was to support regional airports, but if we examine in detail what will happen if the aviation duty is brought in, we see that it is likely to damage regional airports.
Airports such as Glasgow, Manchester and Birmingham have been trying very hard to build up international and, particularly, intercontinental routes over the past two decades or so. When those routes are started, aeroplanes often have a load factor of 40 per cent., which is not the case with a new route from, say, Heathrow to Shanghai or India, which are among the world’s improving economies. A major airline considering running such a route from a regional airport often has to invest in it for two or three years before it becomes viable. If the airline started with a tax disincentive because it was effectively paying a tax on empty seats, such a route would be much less likely to be established. One fact that I discovered when I prepared for the debate was that the 40 intercontinental routes that Manchester used to provide have been reduced to 17, partly because of the changes to, and reorganisation of, British Airways but partly because of the toughness in the aviation business itself.
Mr. Brian H. Donohoe (Central Ayrshire) (Lab): I welcome the fact that my hon. Friend has secured the debate. I, too, have had meetings with Treasury Ministers about this subject and expressed my concerns. He has mentioned the regional impact of the aviation duty, and it would have an enormous impact on my constituency, where Glasgow Prestwick airport accounts directly for almost 3,500 jobs. Across the whole of Scotland, it accounts for a phenomenal amount of earnings and capacity to earn from the trade that it brings. Does my hon. Friend think that the amount of money that is tied up in aviation makes it clear that Her Majesty’s Revenue and Customs will lose out in the event of the introduction of the tax? There will be a negative impact, rather than the positive one that the Government suggest will be the case.
Graham Stringer: My hon. Friend is right. Oxford Economics has done a study showing that, because of the loss of gross domestic product that is likely to be consequential on the introduction of the tax, less tax will be collected. He is right to bring to our attention the fact that the industry—airports, freight carriers and passenger airlines—is extremely concerned about the proposed tax.
Mark Pritchard (The Wrekin) (Con): The hon. Gentleman is absolutely right—in its current form, the tax will be a regressive, rather than progressive, environmental tax. I agree completely that we will see no lowering of emissions, just their displacement to other European hubs. There will certainly be no incentive for airlines to improve their overall performance, and I agree that there need to be more carrots than sticks. Does he agree that introducing the measure in its current form is likely to delay the modernisation of airline fleets? As he will know, as an expert who sits on the Select Committee on Transport, modernised fleets would be far more environmentally friendly than the current fleet.
Graham Stringer: I agree completely, and I shall make some of those points later. The hon. Gentleman is absolutely right.
Finally, on the impact on the UK regions, I was told by Flybe that it has a profitable route from Inverness to Belfast. It uses a new aeroplane, but it flies at 60 per cent. capacity. The route is vital to the economies of Inverness and Belfast and it seems ludicrous to impose on that aeroplane, which is doing a commercial job, as well as one that is economically important for those regions, a tax that a plane flying from London to JFK would not have to pay in the same proportion. There are other relevant issues about the regions, but I know that other hon. Members want to raise them.
Mr. David Wilshire (Spelthorne) (Con): On the subject of the regions, the hon. Gentleman started by saying that he wanted to help the Government. He will understand that I am not sure I go that far, but I go all the way in backing his desire to help passengers, freight companies, UK airports and UK airlines. I stand four-square on that. It is not just about the regions, although I can understand why someone from Manchester would focus on them. Does he agree that it is equally crucial for the UK’s hub airports that we do something about the matter? He spoke about transferring passengers out of the regions. The measures will give a price cut to people from the regions who go to a hub outside the UK, but not a British hub airport. I am sure he will understand why I am worried about that. It means redundancies for my constituents at Heathrow and a reduction in house values. I wish him well and cheer him on.
Graham Stringer: The hon. Gentleman makes a pertinent and important point. Heathrow, which is good for the economy of the whole United Kingdom, competes with Schiphol, Charles de Gaulle and Frankfurt, and increasingly with Copenhagen and Madrid, as a major European hub. The measures are likely to help those competitors rather than Heathrow. It will send regional flights into their systems and not the south-east.
David Taylor (North-West Leicestershire) (Lab/Co-op): My hon. Friend has studiously avoided mentioning East Midlands airport, in my constituency. It is group-owned by Manchester airport and is the largest freight airport by weight in the country. The points that he is making about the over-taxation of the aviation industry would bring tears to a glass eye, but since the Chicago convention between the wars, aviation has benefited from generous largesse in being free of VAT and fuel tax. No one would suggest for a moment that it is on a level runway with other forms of transport, because it is not. Something must be done about that, which is why I welcome the Government’s attempt to balance a small proportion of aviation’s environmental impact with the contribution—not a great one—that it will make when the duty is introduced.
Graham Stringer: I do not particularly want to go down that route, as there is a huge debate to be had about subsidies that go to other parts of the transport industry which aviation does not receive, and about how different parts of the aviation industry are taxed. I am not making an argument about differential taxation between aviation and railways or cars. I hope to make a point about the proposals before us, whose aim is to raise tax. I understand that and am not against it, but the way in which it is being done will have perverse consequences, both for the environment and the industry.
Moving to freight, I have been provided with quite startling information, which I have sent to the Chancellor of the Exchequer, about the profitability of a freight route between Manchester and Hong Kong. I can provide detailed documentation to show that if the proposals go ahead, a freight aircraft flying from Manchester to Hong Kong would go from making a profit of £5,600 a flight to making a deficit of nearly £3,000 a flight. It just will not exist. The companies are not in it for charity; they must make money. If that particular route were withdrawn from Manchester, it would damage the north-west economy by £28 million a year.
The proposals have stopped FedEx running a flight between Manchester and Memphis: that flight has gone. It was expected 12 months ago that the flights would double in frequency, but what has happened is that FedEx has moved them to Charles de Gaulle in Paris, which is not good for the economy. A lot of the manufacturing economy left not just in the north of England but elsewhere in the country depends on just-in-time delivery of high-value goods by air freight. If that is not available, costs go up, cars go by road from Paris to Manchester and the environment and the economy are damaged.
Mr. Donohoe: At Glasgow Prestwick, we have already had redundancies from freight companies that have withdrawn for those very reasons. The sad fact, to return to a point made in an earlier intervention, is that they are now landing their planes at either Schiphol or Charles de Gaulle and trucking all the goods into the United Kingdom, as far up as Scotland. On balance, it does not make a bit of sense for the environment. Trucking creates more emissions than flying. As a consequence, the Government should consider the matter if they are intent on doing something about the climate.
Graham Stringer: I agree completely. East Midlands airport was mentioned. Nearly 3,500 jobs are dependent on freight at East Midlands. If those jobs move to Brussels or Paris, where the main worldwide integrators’ huge hubs are located, they will be lost to the east midlands, and it will be difficult to get them back.
David Taylor: As the MP for that area, I think that that is grossly distorted. My hon. Friend is right about the number of jobs relating to freight; I accept that. There are 7,500 jobs in and around East Midlands airport, 10 per cent. or so of which belong to people living in my constituency, but a whole load of scaremongering is going on in relation to the impact of changed taxation on aviation, suggesting that somehow all those jobs would decamp to northern Europe. There is not a scrap of proof that that would be either economically viable or politically acceptable. It is highly unlikely to happen. It is just a false trail through the sky.
Graham Stringer: I hope that what I have shown so far is that some of it has already happened as a result of the proposals’ becoming public.
David Taylor: My hon. Friend said 3,500.
Graham Stringer:
I was saying how many jobs would be at risk. I was not saying that all of those jobs would go. However, in a marginally profitable business—the margins per ton of freight are tiny in those areas—jobs
are at risk. The viability of freight at East Midlands depends partly on critical mass as well as the individual profit that can be made on each route.
Mr. Robert Flello (Stoke-on-Trent, South) (Lab): Will my hon. Friend comment on the impact on British road hauliers? If freight is trucked in from overseas after having been flown into Charles de Gaulle or Schiphol, that will mean more overseas trucks on our roads taking work from British hauliers. Also, despite the good work done to seek agreement at the European level about such hauliers taking on domestic jobs once inside the UK, the greater volume coming in will mean that more overseas trucks can take domestic jobs, again taking work from British-based hauliers.
Graham Stringer: My hon. Friend makes his point well.
Turning to the issue of the environment, I shall try to speed up. I have tried to be generous in giving way, but I know that other hon. Members want to speak. One can dispute the overall environmental costs of aviation, but it is the view of the Department of Transport that the external costs of aviation to the environment in this country are about £1.6 billion. However, the industry pays £2 billion in taxation, so generally, aviation’s financial contribution to the environment is positive.
We have already touched on the fact that if someone is charged £40 to fly to New York, for example, from a regional airport, it would be cheaper for them to pay the £10 tax and fly through a European hub, and go through Schiphol or Frankfurt, or wherever is easiest from their local airport. There would be a significant saving, particularly if they are taking their family away for the weekend. That is self-evident. What is less obvious—this was mentioned earlier—is that if the basis of taxation is both distance and the maximum take-off weight, there is no incentive, when there should be, for airlines using old planes to invest in new ones with less environmental or noise impact. We have a perverse incentive to keep using the old aircraft, in which an investment has already been made, instead of moving to newer ones.
Let us compare the carbon dioxide emitted by similar airplanes of different generations—the Boeing 737-200 compared with the Airbus A319. The Airbus is a heavier plane, but gives off approximately 25 per cent. less carbon dioxide, both in flight and at take-off. We should want to incentivise people to use that plane, but on the basis of the proposals before us doing so would cost more in tax, which is not sensible.
Mr. Wilshire: I wish to make a brief point, before the hon. Gentleman moves on from environmental issues. Doubtless, he would agree that trying to sort out environmental issues arising from aviation is a noble cause, but is it not the case that we are trying to use national action to solve an international problem? Simply by taking national action, we will not help the environment, but we will damage the British economy.
Graham Stringer: I agree with the hon. Gentleman, who answers the point made by my hon. Friend the Member for North-West Leicestershire (David Taylor) very adequately.
Administratively, air passenger duty is collected by the airlines, and the collection system is very efficient—it costs a few pence per £100 to collect the duty. Transferring
responsibility to airports would result in an inefficient system; the set-up and administrative costs would be large, and there would be difficulties if an airline was diverted—say from Manchester to East Midlands—over who would collect the tax. Would it be East Midlands or Manchester? It is not sensible to move the tax collection from the airlines to the airports.
Mr. Gerald Howarth (Aldershot) (Con): Will the hon. Gentleman give way?
Graham Stringer: For the very last time, then I shall sit down, because I have just two more points to make after this one.
Mr. Gerald Howarth: I am extremely grateful to the hon. Gentleman for his remarks. I represent Farnborough, in Hampshire, which is the finest executive jet base in Europe, and has received many nominations to that effect. Is he aware that what he is saying about the airlines does not just apply to them, but to a very important sector of general aviation in our country—corporate aviation—and that the airport will be obliged to collect the duty perhaps from an infrequent visitor who comes from, say, the United States for one visit and then returns. The airport will incur the cost and angst of having to administer a very complex system in the place of what he rightly says is a simple system.
Graham Stringer: The hon. Gentleman makes a pertinent point.
I have a question that I would like the Minister to answer, but if she cannot do so, I would be grateful if she could make the information available in the House of Commons Library. UPS wrote to me—I dare say that it has written to other hon. Members, too—saying that the tax is unlawful, and in breach of the Chicago convention and the open skies agreement between the European Union and the United States of America, partly because it implies that this country will take tax in somebody else’s air space. Has she taken legal advice on that matter? If so, will she provide that legal advice, or a summary of it, so that we can come to a view on it?
Finally, I was not drawn into the debate on green issues. Today’s discussion is specifically about this particular aviation taxation, which will not do what it says on the tin. It will do something quite different: it will damage the economy, and it may well damage the environment. However, behind aviation debates often lies a general dislike of the high technology of aviation, which is used by some members, but not all—I accuse no one in this Chamber of doing so—of the lobby who tend to exaggerate the impact of aviation and who would actually prefer it if it did not exist at all. I found that to be the case when I chaired the board of Manchester airport and had to deal with some of the green campaigners protesting against the building of the second runway at the airport and its general development. One can argue about the details—whether the impact of aviation on global warming is 2 or 4 per cent.—but either way it is relatively trivial compared with other factors. It gets the attention of some in the green lobby, who like to point to it as a symbol of modern high-technology and because they would prefer lower-technology solutions.
Mr. Martin Caton (in the Chair): I have a list of five hon. Members who have indicated that they would like to speak. I shall be calling the Front Benchers for the winding-up speeches at 3.30 pm.
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