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Session 2007 - 08 Publications on the internet General Committee Debates Finance Bill |
Finance Bill |
The Committee consisted of the following Members:Alan
Sandall, James Davies, Committee
Clerks † attended the
Committee Public Bill CommitteeTuesday 17 June 2008(Morning)[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 147Air
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—
Justine
Greening: The Minister says, “The big boys.”
Nevertheless these are still airlines that have business class seats
with a pitch below 40 in. I wanted to ask her
what the thought process was for the cut-off at 40 in rather than
perhaps 38 in, which would have captured the overwhelming majority. Can
she also clarify what the revenue impact of the clause is? My
understanding is that, if we are looking at option three being
implemented—perhaps she can confirm that—the revenue
impact would be small. Unfortunately, given the demise of some of the
business-only airlines recently, it could almost be negligible. The
Government’s response to the consultation, published back in
January of this year, said in paragraph 4.34 that the impact of
introducing option three would be negligible and that,
currently,
“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. Current
definitions stipulate that the lowest cost of travel available on an
aircraft attracts the reduced rate of air passenger duty. On
mixed-class flights, that means that travel on anything other than the
lowest class attracts standard or higher rates of air passenger duty.
On a single-class flight, only one class of travel is available.
Consequently, that class meets the definition of being the lowest class
of travel. Travel on those flights therefore attracts the reduced rate.
The industry complained that under current definitions, on business
class-only flights all passengers meet the definition of travelling on
the lowest class available on the aircraft and receive the reduced rate
of air passenger duty. In contrast, premium products on mixed-class
flights attracted standard rather than reduced
rates. 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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