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Session 2007 - 08
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Finance Bill

Finance Bill

The Committee consisted of the following Members:

Chairmen: Frank Cook, Mr. Jim Hood, Sir Nicholas Winterton
Atkins, Charlotte (Staffordshire, Moorlands) (Lab)
Blackman-Woods, Dr. Roberta (City of Durham) (Lab)
Blizzard, Mr. Bob (Waveney) (Lab)
Bone, Mr. Peter (Wellingborough) (Con)
Breed, Mr. Colin (South-East Cornwall) (LD)
Browne, Mr. Jeremy (Taunton) (LD)
Cable, Dr. Vincent (Twickenham) (LD)
Chapman, Ben (Wirral, South) (Lab)
Eagle, Angela (Exchequer Secretary to the Treasury)
Efford, Clive (Eltham) (Lab)
Field, Mr. Mark (Cities of London and Westminster) (Con)
Gauke, Mr. David (South-West Hertfordshire) (Con)
Greening, Justine (Putney) (Con)
Hall, Patrick (Bedford) (Lab)
Hammond, Mr. Philip (Runnymede and Weybridge) (Con)
Hands, Mr. Greg (Hammersmith and Fulham) (Con)
Hesford, Stephen (Wirral, West) (Lab)
Hoban, Mr. Mark (Fareham) (Con)
Hosie, Stewart (Dundee, East) (SNP)
Joyce, Mr. Eric (Falkirk) (Lab)
Kennedy, Jane (Financial Secretary to the Treasury)
Morden, Jessica (Newport, East) (Lab)
Newmark, Mr. Brooks (Braintree) (Con)
Palmer, Dr. Nick (Broxtowe) (Lab)
Penrose, John (Weston-super-Mare) (Con)
Pound, Stephen (Ealing, North) (Lab)
Pugh, Dr. John (Southport) (LD)
Sharma, Mr. Virendra (Ealing, Southall) (Lab)
Simon, Mr. Siôn (Birmingham, Erdington) (Lab)
Thornberry, Emily (Islington, South and Finsbury) (Lab)
Todd, Mr. Mark (South Derbyshire) (Lab)
Ussher, Kitty (Economic Secretary to the Treasury)
Viggers, Sir Peter (Gosport) (Con)
Wright, David (Telford) (Lab)
Alan Sandall, James Davies, Committee Clerks
† attended the Committee

Public Bill Committee

Tuesday 17 June 2008


[Frank Cook in the Chair]

Finance Bill

(Except clauses 3, 5, 6, 15, 21, 49, 90 and 117 and new clauses amending section 74 of the Finance Act 2003)

Clause 147

Air passenger duty: class of travel with large seat pitch
Question proposed, That the clause stand part of the Bill.
10.30 am
Justine Greening (Putney) (Con): Since the clause was originally put into the Bill, we have been slightly overtaken by events on two fronts. First, we know that the air passenger duties that we currently have will be replaced by a per-plane duty at some point—I think in November 2009. We discussed that when we considered clause 146 last week.
Secondly, we know that, because of the rising oil price and other pressures on the industry, some of the key companies and business-only jets that the clause was aimed at are facing challenging circumstances. Some people would say that the Government are perhaps closing the stable door after the horse has bolted in that respect. Others may say that they are closing the stable door after the horse has died. Nevertheless, there are a few points I want to raise to get the Minister to talk a little more on record about the Government’s thinking and to clarify, in relation to the consultation document and the Government’s response to it, which option they are going for. My understanding is that it is option three, but it would be helpful for her to clarify that.
It seems a sensible step to amend the existing air passenger duty in this way, because the way in which the duty was structured meant that business-only flights were essentially able to have the duty charged at a reduced rate. The measure aims to ensure that they pay the standard rate.
I wanted to ask the Minister about the choice of 40 in for the seat pitch, at which seats can no longer be considered standard class. As she is aware, a number of airlines still have business class seats with pitches below 40 in. To give a few examples, Air Sahara, Aloha Airlines, Estonian Air, Icelandair, Jet Airways, Luxair—
The Exchequer Secretary to the Treasury (Angela Eagle): The big boys.
“only two of the 290 registered airlines provide a business class only service.”
Perhaps she can clarify whether either of those two airlines are still operating—otherwise, the clause becomes entirely academic. Obviously, the provisions that it brings forward will last only for 12 months while the per-plane duty comes in.
Those are the main questions. Perhaps the Minister could clarify whether, in the Treasury’s assessment, those business-only airlines that remain will have to bear any undue bureaucracy and administration as a result of the provision. Obviously, they will pay more tax, and I understand why the Government are bringing the clause forward, but, in the conditions of rising costs and challenging economic circumstances which all companies are facing at the moment, we do not want to put any additional pressures on them unnecessarily. At the end of the day, they are employing people and generating work in our economy.
Mr. Peter Bone (Wellingborough) (Con): It is a pleasure to serve under your chairmanship, Mr. Cook. I would like to declare two interests: the first is recorded in the Register of Members’ Interests and the second is that I am rather tall. This measure is an attack on tall people and it will discriminate against them—if only my hon. Friend the Member for Shrewsbury and Atcham (Daniel Kawczynski) were here. This is a nasty tax. It has always been simply a tax and has never been a green or environmental tax. I know that the Government realise that and will abolish and change it, but it seems rather strange to alter the rules now for business-only carriers. As far as I am aware, business-only carriers have gone out of business in this country, so I would be interested to learn which of those businesses are still flying.
The intention behind this tax is to catch business-only airlines, but it will of course catch many others as well. If I want to fly and ask for an emergency exit seat so that I have more leg room, will I now have to pay double the airport duty tax because the seat immediately in front of me is more than 40 in away? What about occasions when an airline is overbooked and puts economy passengers in business class or premium economy? More passengers would get on the plane, which is what the Government say should happen, but will they be asked to pay double the air passenger duty?
Many economy airlines want to have a seat pitch of more than 40 in because one of the obvious ways of avoiding deep vein thrombosis, which is an important issue, is to have a larger seat pitch so that people can exercise while in their seats. Therefore, everything that the Government are doing with regard to this tax is wholly wrong. As my hon. Friend has said, it is closing the door after the horse is dead. It is an attack on tall people and it will discourage airlines from flying at full capacity and economy airlines from increasing seat pitch.
In America, some economy airlines have a larger seat pitch as a selling point because of the problems with cramped conditions and deep vein thrombosis, but we are discouraging companies such as EasyJet and Ryanair from doing likewise. This change cannot have any significant revenue implications, and it must have been thought up in an office in Whitehall by a bureaucrat who knows nothing about the aviation industry.
Sir Peter Viggers (Gosport) (Con): I take an interest in flying matters, and I think that I am the only qualified fast jet pilot in the House. When I was a Minister in Northern Ireland, I flew 400 times between London and Belfast in three years, and I once worked out that I have spent six months of my life in the air. I do not understand how the clause came to be put forward, as it is remarkably unsophisticated to concentrate only on pitch. If one were genuinely trying to introduce environmental aspects into the cost of air travel, one ought to take into account the height and width of the cabin and the width, as well as the pitch, of the seat. If one were seriously trying to introduce an environmental aspect and cut back on air travel, one would have thought that it was possible to produce a far more sophisticated measure, such as a comparison between the weight of the passengers in an aircraft and the weight of the aircraft. I will be interested to hear how the Exchequer Secretary will explain and defend the clause.
Angela Eagle: I will seek to deal with some of the issues that have been raised. We seem to be in an interesting situation. The hon. Member for Putney said she is broadly in favour of the clause, but complained about aspects of it. The hon. Member for Wellingborough, albeit that he is very tall, is in complete revolt against the clause and the hon. Member for Gosport gave a more measured contribution. He was quite right to ask some technical questions. Before Committee members get carried away with the idea that this is some bureaucrat’s plan gone mad and that somebody in Whitehall is thinking of ways to tinker with taxes just for the sake of it to justify their own existence, I tell them that this issue was raised by the industry as part of the 2006 pre-Budget report process.
The industry raised the issue with the then Financial Secretary, my hon. Friend the Member for Wentworth (John Healey), because it had concerns about the definitions of classes of travel. Those matched broadly the classes of travel marketed when they were introduced in 2001. Since then, developments in the industry have meant that definitions have created market distortions, particularly in the area of business class and premium economy class seating. The industry raised the issue with us, not the other way around. I hope that the hon. Member for Wellingborough will put away his rather crude caricature of where the provision might have come from and recognise that it came from the industry.
In response to the worry from the industry that classes of travel distorted decisions, the Government announced in the last Budget that they were open to changing the definitions, provided that doing so was broadly revenue neutral and that any change was transparent and simple for Her Majesty’s Revenue and Customs and the industry to operate.
The plans to move to a per-plane duty make it even more important that we do not impose a burdensome change on what is left of the current system of air passenger duty. As the hon. Member for Putney mentioned, a number of options were discussed in the consultation, which was launched on 1 May last year and closed on 1 July. Following the consultation, the Chancellor announced in the 2007 pre-Budget report that changes would be made to the class of travel definitions so that travel on business class-only flights would attract the standard rate, rather than the reduced rate.
In answer to the hon. Lady’s question, that was not the most favoured option by the industry, but it had the benefit of affecting only a small number of carriers. She rightly pointed out that they are not in existence. There were three such carriers at the time of the consultation. Since then, the business class-only carriers have ceased to operate. That may be a dead horse or only a temporary stay. One does not quite know what the market will do, but it is quite possible that business class-only flights will return at some stage. That was why it was felt reasonable to continue with these changes.
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