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Let us look at the extent of the proposed changes in air passenger duty in clause 17 and schedule 5 to try to understand the scale of the Governments proposals, because there is a link with the failure to move towards the per-plane tax. Because the Government had budgeted for raising revenue from freight and corporate and
other aircraft, and from transfer passengers, and that business did not deliver on that revenue, there was a huge shortfall that had to be made up in the air passenger duty figureshence the huge increases outlined in schedule 5 and clause 17.
Currently, there are two levels of APD. Roughly speaking, there is one rate for flying to a UK or other EU destination and another rate for flying elsewhere. As part of the climb-down, the pre-Budget report proposed replacing those two rates with four rates, making all flights more expensive but with the really big duty increases imposed on long-haul flights. The existing two-band regime becomes the four-band version laid out in schedule 5 and new schedule 5A, with all rates significantly higher than at present. Under the status quo, the first band is currently £10 per passenger for economy and £20 for all other classes. The long-haul band, which includes all the territories in parts 2, 3 and 4 under the new schedule, is £40 and £80 respectivelyfor economy class, on the one hand, and all other classes, including, interestingly, premium economy, on the other.
The four new bands start with part 1, which is similar to the existing short-haul band, with rates going up in November 2009 by 10 per cent. to £11 and £22. It now includes the Maghreb countries and Russia west of the Urals. New part 2 territories include north America, Egypt, the middle east, eastern Russiathat is, east of the Uralsand Pakistan. From November 2009, those rates will be £45 and £90a 12.5 per cent. rise on the status quo. Returning to the point raised by the hon. Member for Brent, East (Sarah Teather), part 3, which includes the Caribbean, will be banded at £50 and £100a 25 per cent. rise on the status quo. That band also includes India, China, Japan and much of Latin America. The rates for part 4it is not actually defined as such but covers all the territories not in parts 1 to 3, including Australasia, Argentina, Chile, Bolivia, Peru, some other smaller south American countries and the Falkland Islandswill be £55 and £110: a huge 37.5 per cent. increase on the status quo.
Even more importantly, the Government are programming further big risesfar bigger than those this coming Novemberfor November 2010. Part 1 charges will go up to £12 and £24, part 2 charges will go up to £60 and £120, part 3 charges will go up to £75 and £150, and part 4 charges will go up to £85 and £170. Those are huge increases. Air passengers from the UK will be cursing Labours economic mismanagement and the fact that owing to the Governments botched reforms and failure to opt for a per-plane duty, all aviation except commercial passenger aircraft will be exempt from APD. In the next 18 months, for economy class passengers, those flying to popular destinations such as France or Spain will face a 20 per cent. tax hike, those flying to Florida will face a 50 per cent. increase, those flying to the Caribbean and India will face an 87.5 per cent. increase, and those flying to Australia will face a whopping 113 per cent. increasea more than doubling of the tax take.
People who travel to India and the Caribbean often do so because they have family living abroadthey are not necessarily going on expensive holidays. That is not to say that people do not go on
holiday to those destinations, but a large proportion of those travelling there do so for family reasonsto attend weddings or funerals, or merely to see grandparents.
Mr. Hands: The hon. Lady makes a very fair point. That is why many of those routes are called VFR routes, standing for visiting friends and relatives. They are important for that reason. Of course, tourism is very important to the Caribbean and somewhat important to India, but we should not lose sight of the fact that for many people in our communities in this country, those are important routes for family or personal reasons as well.
Many will ask whether the increasesrates are being as much as doubled in some casesare really an environmental tax, or whether they are simply a stealth tax with the most tangential link to emissions. Let us examine for a moment some of the peculiarities of the Governments new four-band regime. The existing two bandsEurope and all other countriesat least make some kind of sense and possess simplicity. The new bandings have no justification at all, as they are based on the distance of a countrys capital city from London. The world is divided into four bands, of capital cities up to 2,000 miles away, up to 4,000 miles away, up to 6,000 miles away and beyond 6,000 miles away.
Some 20 years after the fall of the Berlin wall, the Governments division of the world into four zones reminds me somewhat of the arbitrary nature of the division of Berlin into four zones in 1945. That made sense at the time to someone taking a short-term view and poring over a map, but clearly only somebody with no idea about the geography and no familiarity with the facts on the ground, or indeed in the air, would not realise that the new bands will throw up a whole host of new problems.
Some countries and regions are big losers for no clear environmental reasons. We should remind ourselves that this is supposed to be an environmental tax. Because the US capital is on the east coast and within 4,000 miles of London, all flights to the US, including to the west coast, or even Hawaii or Alaska if there were direct flights there, are assessed as being in band 2. Meanwhile, as has previously been mentioned, the Caribbean is in band 3 and flights there will be subject to 25 per cent. more tax than those to the USA from November 2010. Flights to India will be taxed at 25 per cent. more than flights to Pakistan. Indeed, Bangladesh would be better off still being part of Pakistan, as APD would 25 per cent. lower.
Ms Diane Abbott (Hackney, North and Stoke Newington) (Lab): Does the hon. Gentleman agree that if so-called green taxes are to have public acceptability, they must be clearly based on environmental arguments rather than being crude revenue-raising devices?
Mr. Hands: The hon. Lady makes precisely my point, perhaps somewhat more succinctly than I am making it. By not creating an environmental tax but instead introducing an arbitrary and discriminatory schedule, the Government are making a huge mistake.
I have one final point about south Asia. Flights to Kashmir, if there were such thingsit is quite possible that there could be in future, or that there could be
charter flightswould leave the airline concerned having to make the intensely political decision as to whether its destination was in band 2, as part of Pakistan, or band 3, as part of India.
The schedule sets out a crazy scheme. Destinations such as the Caribbean, India, Bangladesh and Sri Lanka are some of the biggest routes for VFR passengers, many of whom have said that the Government are introducing deliberate discrimination against the Commonwealth. As has been mentioned, their approach has provoked uproar in the Caribbean. The Jamaican Prime Minister, Bruce Golding, whom I have mentioned, and Tourism Minister Ed Bartlett made a special visit to the UK purely about this one issue during the Committee stage, to urge against the Governments new four-zone banding scheme. They pointed out that there was no environmental or economic reason why flights to the Caribbean should be taxed 25 per cent. higher than those to Florida, or to the US or Canadian west coast.
Interestingly, the new 787 Dreamliner will be able to fly directly from London to Hawaii, yet those flights, which would be some 7,200 miles, will attract 25 per cent. less APD than flights to Kingston, Jamaica, which, at 4,693 miles, are 50 per cent. shorter in distance. As I understand it, 60,000 members of the UK Caribbean diaspora have signed a petition against the Governments plans, which are an extremely unpopular measure.
We debated this matter a little in the Public Bill Committee. The last but one Exchequer Secretary, the hon. Member for Wallasey (Angela Eagle), did not seem to understand what hurt and upset her comments about the Caribbean would cause. She said in response to my speech:
He mentioned Caribbean communities. We are aware of their circumstances and we are listening to their representations. Clearly, it mainly involves the anomaly of Hawaii.
I mentioned Hawaii merely because that is the most extreme version of the anomaly, but the anomaly is not Hawaii, but the four-zone schedule covering the whole world. Anyone who has a sizeable Caribbean community in their constituencyI have one of the largestwill know that the Caribbean tourism market, even ignoring VFR flights for a moment, competes mainly with Florida. The Caribbean will now be taxed at 25 per cent. more than its US competitor. Those who visit friends and family in the Caribbean will be similarly clobbered.
To return to the hon. Member for Wallasey and her shaky geography, she explained how we managed to have a position whereby Russia was divided into two zones. I asked her why we could not simply divide the US, for example, into two zones. She said:
Well, clearly the US is a slightly different issue as its main land mass is much shorter than Russias. If one includes Honolulu, it gets slightly longer.
If one did it on a line between Boston and Honolulu the split would be somewhere in the middle of the Ocean. [ Official Report, Finance Public Bill Committee, 2 June 2009; c. 166-167.]
I was thinking of getting out a globe, if we were allowed visual aids in Committee, to show that the halfway point between Boston and Honolulu was nowhere near any ocean, but right in the middle of the United States.
Mr. Jeremy Browne: Is it not the case that if one starts at Greenwichvery close to where we are todaythe far extreme of the United States at the end of Alaska and the far extreme of Russia are almost exactly the same distance away?
Mr. Hands: The hon. Gentleman makes a very good point. Interestingly, both those territories are in part 2, but logically they should be in part 4 because, by definition, they are the furthest points from Greenwich. Yet the Government are saying that they are as close as Egypt. That is some of the craziness involved in the schedule.
We also need to examine the environmental arguments for having a per-plane duty, which is the point of the amendment. The reaction of environmental groups to the abandonment of that policy has been mixed. Many welcomed the headline rises in APD, which they thought would combat excessive use of aviation, but, like us, decried the abandoned attempt to find a per-plane methodology. Friends of the Earth responded:
The rises in APD are welcome, but should be seen in the context of the abandoning of per-plane aviation duty.
Plans to tax flights instead of people would have encouraged the industry to fill their planes instead of flying half-empty jet liners around the world...Once again the aviation industry has been given a free pass at a time when its contribution to climate change is rising.
We had hoped to proceed with the per-plane tax, but we decided against it for a fair number of reasons...It was not thought to be the best time to shift from one tax to a completely redesigned one, given the uncertainty in the economy.
we wanted to avoid the disruption and costs associated with a transition to a new tax right in the middle of a period of economic uncertainty that did not exist when the original change was announced. [ Official Report, Finance Public Bill Committee, 2 June 2009; c. 164.]
Those are curious justifications, because to return to the point made by the hon. Member for Manchester, Blackley (Graham Stringer), apart from the state of the economy, no detail at all given was of why the per-plane duty had been rejected. In fact, the Government said that they had suspended the move because of the change in the global economy, but of course the credit crunch began many months before the original consultation was even launched.
When the Government were thinking about embarking on a per-plane duty, in the early months of 2008, the economic difficulties were already happening. The Northern Rock crisis had already taken place, some months earlier. The consequences of their decision are dire. The move to a per-plane tax, which would bring in most other forms of aviation, was slated to raise much more in revenue and be a genuinely environmental tax, but the Government choked in the middle of last year and were left to make up the revenue shortfall by clobbering air passengers. The result is what we are consideringthe huge hikes in clause 17 and schedules 5 and 5A.
The reason for the climbdown is that the Government were too busy elsewhere to drive through the necessary reforms once they had started the process. It is difficult to sell to the general public a big increasea huge increase, in the case that we are consideringin air passenger duty without reforming the system to make it a genuinely environmental tax.
We want the following to be done. First, we want the duty to be linked to the pollutantthe planerather than directly to the passenger. Secondly, empty or near-empty aircraft should be taxed at the same rate as full ones. Thirdly, the tax should logically be extended to transfer passengers, who fly in and out of a UK airport. There is no logic to a system whereby the only passengers who fly in and out of the UK tax-free are those who do not live, work or visit here. Fourthly, the Governments four-band system must be axed. It is arbitrary and discriminates against important UK partners such as India and the Caribbean for no good economic or environmental reason. Fifthly, other forms of polluting aviation need to be brought into the air duty regime, notably corporate jets, parcel services and other freight. Finally, the tax should encourage a move to cleaner aircraft. Ironically, higher APD will probably make that less likely as airlines become even more cash-strapped, and less able to invest because more of their money goes towards APD.
Ms Abbott: I want to speak specifically about the effects of the ill-thought-out proposal for air passenger duty on flights to the Caribbeana region with which this country has long-standing historic ties. Here and now in the 21st century there are big populations of Caribbean origin in our great cities and communities, who are looking to what we shall say and do about this matter.
Before I consider in more detail the problems with the APD proposals, I stress that I entirely accept the environmental argument for some sort of taxation on the sector. The environment is a huge issue in my constituency: I probably get more letters about the environment and climate change than about any other matter. For our children, it is vital that we in the House have the courage to make the right decisions for the future.
Climate change is also a big issue in the Caribbean, which has experienced hurricanes more regularly in the past two years than ever before. There is no question but that that is a consequence of climate change, which has also led to rising seas throughout the regiona real threat to a series of small island states. Of course, the environment is the Caribbeans biggest asset.
I am committed to fighting climate change and bearing down on carbon emissions, and so is the Caribbean. It is in the Caribbeans self-interest to do that. However, precisely because I am committed to combating climate change and to my Governments taking serious action on climate change and carbon emissions, I want any proposal for APD to be based fairly and squarely on genuine environmental arguments, not to be a mere device for raising revenue.
The Caribbean has historic ties to this country, and it is particularly hard hit by the proposed four-zone system. Perhaps when Treasury Ministers and the fabled Treasury civil servant with a compass were working out the system, the Foreign Office said, Well, I wouldnt worry too much about the Caribbean; its a middle-income region and it can take the hit. In my time in Parliament, I have heard time and again from Foreign Office officials that the Caribbean is a middle-income region and that the focus of UK attention should therefore be much poorer countries.
It is worth saying in the House that even though gross national product and so on may give the Caribbean the appearance of a relatively prosperous region, it has poverty to rival any on the globe. Furthermore, it faces a particular economic crisis after the collapse of its traditional commoditiessugar and bananasthrough globalisation. Apart from providing foreign exchange and helping businesses flourish, those traditional commodities meant the employment of unskilled and semi-skilled male labour, and the Caribbean is finding them difficult to replace. The problems of systemic unemployment among young males are known even in a developed country such as ours.
As well as the collapse of traditional commodities, which not only made money for the region but provided employment, the Caribbean also suffers from the current credit crunch and financial crisis. For example, bauxite, which is one of the main foreign currency earners in Jamaica, has collapsed. More than ever, the Caribbean is looking to tourism, not only to provide foreign exchange and not just as business, but to create work. If there is systemic worklessness among the population in countries such as the Caribbean, the ensuing social problems have the power to affect us here in Britain.
The Caribbean is relying on tourism as never before. Yet that is the point at which my hon. Friends are choosing to introduce an arbitrary system of zones, which hits the Caribbean and will result, as we have heard, in APD nearly doubling in the next 18 months. That puts the Caribbean at an arbitrary and unfair disadvantage in comparison with one of its key rivals for tourism from the UK, Florida. Clearly, not even the fabled Treasury official with a compass thought of that when the scheme was devised.
Ministers may say that the sums are relatively small for those flying to their villas on the north coast of Jamaica and ask, Why is there all this fuss? As we have heard, both Prime Minister Bruce Golding and Minister of Tourism Mr. Bartlett have been to London to explain to hon. Members and Members of the other House the effects of the changes in APD on tourism.
Let me say a little about the consequences for people from the Caribbean flying home. I speak with some feeling about that because I fly to Jamaica nearly every year at Christmas, and the planes are packednot with people like me, who can fairly well afford the fare from income, but with those who earn a fraction of what most Members earn and are trying to take home their entire family, perhaps four, five or six people. Some have saved for a couple of years out of small incomes.
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