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8 Oct 2008 : Column 120WH—continued
“There has to be some degree of proportionality based on the number of seats to provide a smooth transition from APD to Aviation Duty.”
The market is seriously mobile: these people can up sticks and go somewhere else, which would be very bad news not only for the economy but for the Treasury.
I have discussed the process of collection, which will be much more complicated, and this afternoon I spoke to representatives of Farnborough airport in my constituency about the issue. Why impose another burden on that business? The airport is flourishing, so I hope that the Minister will attend to those concerns and ensure that the business aviation community is told exactly what plans the Government have for the implementation of the tax on a highly successful and enterprising part of the British economy which is vital to British interests. I hope that she will be able to do so in this debate.
In the meantime, I hope that everybody will take note of the events next Thursday. I have been asked by my hon. Friend the Member for Christchurch (Mr. Chope) whether the Vulcan bomber, of which I am a trustee and which I have helped restore to flight, will take part in the flypast. We hope that it will. I shall be in a smaller aeroplane in front of it, and I hope not to get overtaken by it. I hope, too, that the duty will not apply to the Vulcan, because we would just have to raise more funds from charitable sources.
3.24 pm
Mr. Mark Todd (South Derbyshire) (Lab): I shall rush through my speech.
Currently, aviation use is taxed through air passenger duty. A freighter carrying cargo alone bears no levy, but a passenger aircraft carrying belly freight, which many do, is disadvantaged against the dedicated freight carrier, which is clearly anomalous. I therefore support the principle of fiscal measures to equalise burdens between different carriers and payloads.
The second issue, however, is how any tax should be designed, which depends on its purpose, presuming, as one does, that revenue generation is not the only motivation.
The focus should be on the efficient use of aircraft capacity and the carbon impact of the flight itself. The tax should be used as an incentive to modernise carriers’ aircraft fleets. That has a particular bearing on the dedicated freight sector, which tends to use relatively old and less efficient aircraft. The tax should also remove perverse incentives towards particular transport choices. No rational integrator would move its operation without some long-term assurance about any marginal advantage that they would achieve through it. Bearing in mind the pressure that exists on all Governments to comply with carbon reduction targets, how realistic would any such assumptions be?
Sammy Wilson (East Antrim) (DUP): Will the hon. Gentleman give way?
Mr. Todd: It is a bit unfair to do so when someone else is coming up, I am afraid—particularly as I am his MP.
I represent a constituency adjacent to East Midlands airport and live under one of the flight paths. I also participated in an Industry and Parliament Trust attachment to UPS, but I think that Members will interpret that, in this debate, I do not necessarily represent its sentiments. The airport is not always the best neighbour to those who live close to it. It is the largest dedicated freight airport in the UK and the hub for two of the main freight integrators. Its carriers are modernising their fleets rather too slowly, and the duty could, if applied properly, incentivise that process. I conclude by saying yes to a tax, but design it properly, please.
3.27 pm
Mr. Bob Laxton (Derby, North) (Lab): I very much share the views of my hon. Friend the Member for Manchester, Blackley (Graham Stringer). My view is simply that the proposals for consultation are fundamentally flawed, that the new tax will not produce the environmental benefits that are claimed for it, that it is unlikely to provide any additional revenue to the Exchequer and that it will simply damage the UK’s competitiveness and, particularly, its employment.
I stand in the Chamber between two colleagues, my hon. Friends the Members for South Derbyshire (Mr. Todd) and for North-West Leicestershire (David Taylor), who may have slightly different views from me, but all three of us live close to East Midlands airport. Although I live well within the area where one picks up the noise that the airport generates, I believe that it is a very positive facility in the east midlands. It has been a real job-generator; it is a successful airport, with 6 million passengers passing through it; and, by volume, it is probably the largest parcel hub in the UK. The East Midlands Development Agency has stated in its regional economic strategy:
“In the context of international trade and competitiveness, the ongoing function and success of (the airport), particularly as a strategic express freight hub, is important as it is one of the region's key economic assets.”
The companies that operate out of the airport, such as UPS, DHL and other, smaller, freight-forwarding companies, have invested about £70 million, which has created a large number of jobs. I shall knock around a few figures, which my hon. Friend the Member for
North-West Leicestershire may contest, but if we consider the direct, indirect and induced impact of jobs, the number of jobs is about 9,000 to 10,000. Certainly, at the airport itself, about a couple of thousand people are employed on activities that are directly associated with incoming and outgoing freight, and a good number of them are my constituents and the constituents of my neighbouring colleagues, my hon. Friends the Members for South Derbyshire and for North-West Leicestershire.
I am concerned about the impact on jobs. The proposed aviation taxation is likely to lead to the danger of companies like UPS and DHL pulling out, retracting into Europe and back-shipping by road many of the parcels and bits and pieces that currently fly into the airport. That would be disastrous for the region, and it would also be disastrous environmentally. That is why I support the views of my hon. Friend the Member for Manchester, Blackley. The proposed taxation is bad news, and the Government should think again.
3.30 pm
Mr. John Leech (Manchester, Withington) (LD): I add my congratulations to those already given to my fellow Manchester MP, the hon. Member for Manchester, Blackley (Graham Stringer) on securing this important debate on the future of air passenger duty and its proposed replacement by aviation duty. When I found out this morning that the Treasury was responding to the debate, I thought that I had better check that I had not been transferred from the transport team to the Treasury team. I was relieved to hear that I am still a member of the transport team. However, I have been given the job of responding to this debate.
Air passenger duty is unsustainable. It provides no incentive for airlines to invest in more efficient and less environmentally damaging aircraft, nor does it incentivise against the use of half-empty planes. Hon. Members may recall a parliamentary question to the Prime Minister of 16 July in which the Liberal Democrat shadow Secretary of State for Transport, my hon. Friend the Member for Lewes (Norman Baker), highlighted the scandals of BMI’s intention to fly empty planes to keep its slots open and Flybe’s hiring of actors to fly between Norwich and Dublin to boost passenger numbers. Such things are clearly not acceptable. The Liberal Democrats therefore welcomed the consultation on aviation duty, and we welcome the principle of replacing air passenger duty with aviation duty as a positive step forward in cutting carbon emissions.
Since 1990, the proportion of total UK carbon emissions coming from aviation has more than doubled from 2.5 per cent. to 5.8 per cent. Since the Government have given the green light to the expansion of airports in the aviation White Paper, emissions are due to rise by up to 83 per cent. on 2002 levels by 2020. Greenhouse gases from aviation are expected to be responsible for 25 per cent. of the UK’s contribution to global warming by 2020. Bold steps must be taken to tackle that problem.
Aviation duty is only one part of the issue. We want a cap on airport capacity in the south-east, including no expansion of Heathrow or Stansted; the inclusion of aviation in the UK emissions target in the Climate Change Bill; an additional per passenger climate change charge on domestic, non-lifeline flights in the UK; and the development of an internationally agreed aviation fuel duty. At the same time, we want to encourage
domestic passengers away from flights and onto the railways. We support a new high-speed rail link to the north and beyond. I am glad to see that the Conservative party has followed our lead on that.
The Liberal Democrats have long argued for a change to a per plane aviation duty, but we support basing that duty on the carbon emissions produced by the aircraft rather than its take-off weight. That would encourage aircraft manufacturers not only to build lighter planes, but to invest in lower-emission engine technology. Will the Minister explain why the Government favours maximum take-off weight when that will not encourage the use of newer, more environmentally friendly engines?
Opponents of aviation duty have claimed that although it should in theory incentivise airlines to offset the cost of the tax by carrying as many passengers as possible on each flight, there will be little practical benefit, because over the past 20 years, planes have gone from being two-thirds full to three-quarters full. However, that does not take into account the sharp discrepancy between different flights and airlines, particularly between chartered flights, which are often busy and full, and scheduled services, many of which remain half full or less.
Manchester Airport Group has expressed concern that while air passenger duty is a transparent, fixed fee that can be shown clearly on the ticket as a green tax, aviation duty will be based on a number of variables. If it is not transparent, it will be perceived as simply a stealth tax. I have some sympathy with that argument, but it could easily be overcome by ensuring that passengers or freight carriers are made aware of the aviation duty that they are paying within their ticket price.
Concern has been expressed about the impact of including freight in aviation duty. Manchester Airport Group has suggested that that could lead to freighters introducing a stop en route from the UK so that they are taxed only for the first leg of the journey or that the UK will be bypassed altogether, with transhipments using mainland European hubs and with freight being brought to the UK by road instead. It is an anomaly that freight-only flights should have been exempt from paying a form of aviation duty, so we therefore support their inclusion. I pay tribute to the hon. Members for North-West Leicestershire (David Taylor) and for South Derbyshire (Mr. Todd) for making those arguments and countering those made by opponents of the proposal. It is vital that the air freight industry take into account the carbon cost of transporting goods by air.
Sammy Wilson: I have listened carefully to what the hon. Gentleman has said. I am interested to know the impact on passenger costs in the UK and internationally of all the proposals put forward by the Liberals. On freight transport, has he made any estimate of the impact on carbon emissions that would result from airlines switching from British to European airports and then carrying goods into the UK by road?
Mr. Leech: I cannot give any exact figures. It is vital that we know what the Government are doing to encourage other European countries to follow our lead and I hope that the Minister will say something about that. I do not accept the argument that we should not do something simply because no one else in Europe is doing it. We should be taking a lead on this issue and ensuring that the rest of Europe follows.
We believe that the Government have got these proposals horribly wrong, given their intention that airports rather than airlines should collect the duty. Manchester Airport Group estimates that it would be expected to collect about £400 million a year in aviation duty at Manchester airport alone, which is more than the combined turnover of the four airports in the group. That would make the group’s main business tax collection rather than running successful airports. Surely it is more logical for airlines to continue to pay HMRC directly, rather than adding an additional unnecessary tier of administration. There is great potential for airports to be saddled with unnecessary bad debts even though the tax will already have been paid by passengers and freight customers. Additional costs will be incurred for staffing and administration. Will the Minister explain what will happen if an airline that owes aviation duty to an airport goes bust? Will she assure the House that the debt will not fall on the airport?
Finally, I urge the Minister to look carefully at the proposed distance banding system. We support the introduction of more distance bands to ensure that a flight’s band better represents the distance travelled and its emissions. That would help to protect lifeline flights from areas like the highlands, where there is no real alternative to air travel on domestic or international routes.
3.39 pm
Justine Greening (Putney) (Con): I shall try to keep my comments brief. Because so much has been discussed in this debate, I want to ensure that the Minister has ample time to respond.
There is no doubt that people approach the whole area of environmental tax with a massive amount of scepticism as the result of things such as the road tax earlier this year. The Government introduced proposals which, on the face of it, could have had a positive impact on the environment and changed behaviour but were found not to work effectively when one considered their substance. Broadly, that is our concern in this case.
I congratulate the hon. Member for Manchester, Blackley (Graham Stringer), and I thoroughly understand his concerns. It is clear that there is consensus on some areas, including the methodology by which the charge will be levied—the maximum take-off weight—and the collection methodology. I shall briefly touch on those matters. As the Opposition spokesman, it is worth my reinforcing points that have been made.
Let us not forget that the Conservatives proposed reforming air passenger duty because of its impact on the environment. We recognised that, in some situations, planes were half empty. We have heard that some planes fly with virtually no passengers and pay no tax, yet they cause the same amount of environmental pollution as a full plane. There is clearly a need to reform the tax so that, from an environmental perspective, it works more effectively. The question is whether the Government proposals will achieve that.
Perhaps the Minister could discuss in detail whether Government thinking has moved on since the consultation. The current proposal, which is to use maximum take-off weight, simply will not achieve what they say they want to achieve in changing environmental behaviour. As we heard, it is not a good enough proxy for the environmental effect of the aircraft that will be subject to the tax, because it does not take emissions into account.
The hon. Member for Manchester, Withington (Mr. Leech) asked why maximum take-off weight had been chosen. My understanding is that the Treasury believes that the data on emissions from aircraft are not good enough for people to be able to use carbon dioxide or nitrogen oxide emissions, but, frankly, I do not accept that argument. Data are available, and if the Government are to reform air passenger duty, they must take responsibility for doing so and ensure that it works effectively.
As Members will be aware, I, too, have an airport near my constituency. I am constantly being told that the extensive and time-consuming work that was done by the Government and the Department for Transport on expanding Heathrow focused mainly on the environmental impact of the fleet—and the future fleet—using that airport. I would therefore be amazed if a Treasury Minister said in this debate that there was not enough information. I urge the Minister to live the joined-up government dream and start talking to the Department for Transport, because it has data that can be used efficiently and effectively to make an emissions-based pollution calculation which would work much better than the proposal to use maximum take-off weight.
On the collection system, I have not heard anyone, whether in discussions with the industry or in this debate, who thinks that it is a good idea for airports to take collection on board. The old saying, “If it ain’t broke, don’t fix it,” comes into play. Again, I would be interested to hear whether the Government are listening to representations from the industry and from Members, and whether they are considering changing the approach that they say they will push on with, which is getting the airports to collect. I shall not go into all the reasons why it would be difficult to do so. We all recognise that the proposal is, frankly, fraught with risk and danger. A much better approach is to leave collection to the airline operators, as is currently the case.
Freight is a much more contentious issue, and there was no agreement among Members who contributed to this debate. We must take care to find a balance between ensuring that freight pays its way, as it does emit pollution, and taxing freight companies out of the UK and thereby losing jobs. Finding that balance will be vital. To do so, the Treasury will need a carefully thought-through fact base if it is to understand exactly the likely impact of the pricing level of aviation duty on the freight industry.
At present, we do not know what level the Minister is proposing to place on freight. We will all look at that key issue with real interest, because there is a danger that levels of taxation that are too high will put at risk some freight operators’ logistics and operations in various regions of the country. That includes the Manchester region, which we have discussed today, but also airports such as Kent International. We must be extremely careful that we do not embark on a blunderbuss approach and, by overtaxing, achieve the exact opposite of what we want. Freight can be included in any new duty, but that needs to be done sensitively so that the industry is not, in effect, taxed offshore, which would not be good for anyone.
Mr. Leech: I have been listening carefully to the hon. Lady. So far, she has not said anything about Conservative policy. Does her party have a policy on whether to replace air passenger duty?
Justine Greening: My party drew up its policy before the Government. It was actually the Conservative party, in a relatively lengthy consultation document, that first proposed moving to per-plane duty. We obviously have a policy. Our concern is that any policy must be made to work effectively and efficiently, and we think that neither of those criteria is met by what the Government are proposing. That has come through clearly in comments made in this debate. It is important that the Minister tells us a little more about whether the Government are willing to take those concerns on board and make changes.
Finally, I urge the Minister to set out the Government’s time line for resolving the outstanding aviation duty issues. When will we hear final decisions on the exact tax? When will the industry find out what the proposal is, and will it have time to prepare for any change? Many of us are beginning to wonder whether we will hear about the proposal in the pre-Budget report—perhaps she could confirm that we will—or whether the Government are now thinking that it will take longer to reach a conclusion. If the Minister could explain the time line for finally getting a conclusion from the Treasury, it would be welcomed by everyone.
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