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2.45 pm

Mr. Jeremy Browne: The hon. Gentleman provides me with an opportunity to clarify my earlier point. I agree with him that it is perfectly possible to judge every single flight on the distance travelled. My point was that if the Government were attached to a banding system, there could be eight or nine bands representing 1,000 miles
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each, and we could judge individual flights within those bands rather than on the basis of the distance between London and the capital city of the country in question, which is even more ridiculous.

Mr. Gerrard: I understand that point. If a system were based on distance travelled, there would be alternative ways of charging; we could take the precise distance into account or have a banding system, for example.

As I was saying, I do not believe that there will be serious administrative problems; it should not be that complicated. I am also told that there is the problem that the measure might be seen as a proxy for fuel consumption, because the distance travelled would correspond quite closely to fuel consumption, and it is not permitted to tax that. That seems to be the root of the problem, because I would have thought that the amount of fuel consumed must be the best measure of emissions. That has to be the case. If we based the system on that, it would cover the issue of short-haul flights, where less fuel may be used in the air, but the amount used in take-off in comparison with the rest of the journey is disproportionately high. The root of our problem is thus the inability that I am told we have to tax fuel consumption. If that is the case—I assume that it is due to EU or other international regulations—we should take it up and argue about it in order to secure change towards a greener tax for the future.

Mr. MacNeil: The hon. Gentleman is making a sensible and cogent argument. Banding of any form will produce problems and anomalies. As he says, we are told that we cannot tax fuel, but does the answer not lie in finding some way to tax fuel and carbon emissions? We should describe the tax we need in those terms. The hon. Gentleman’s suggestion of taxing per mile is eminently sensible.

Mr. Gerrard: I thank the hon. Gentleman and agree that that is the direction we should be looking towards, irrespective of whether we have a banding system.

David Taylor (North-West Leicestershire) (Lab/Co-op): The roots of our inability to tax fuel probably stretch back as far as the inter-war Chicago convention—in the early ’30s, I believe. We need to make more progress on taxing fuel, as the aviation industry is especially lightly taxed—so much so that Al Capone would be proud to be associated with it. Something has to be done about the problem. The amendment may not be perfect; it may be a proxy for a fuel tax, as my hon. Friend says.

Mr. Gerrard: I thank my hon. Friend and agree that we should pursue this line for the future; it is ultimately where we need to be. Such an approach could also deal with the points raised about commercial flights, planes flying empty and so forth.

I shall not say much more, because I do not want to keep repeating things that others have already said. There is time for the Government to think again. I am not convinced by the amendment as it stands, but the big rises in air passenger duty will come not in 2009-10 but in 2010-11. I hope that, especially in view of what is happening to the Caribbean, India, Pakistan and other
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destinations that mean quite a lot to many people in this country, the Government will have produced some possible alternatives before the pre-Budget report is presented later in the year, and before the big rises that are due in 2010-11.

Mr. Bone: It is a great pleasure to follow the hon. Member for Walthamstow (Mr. Gerrard). He made a valid and powerful point about the need to bear the per-mile damage in mind rather than opting for a banding system. If we can adopt such an arrangement—or something nearer to it—the position will improve greatly, because it will be environmentally friendly.

Let me begin by referring the House to my entry in the Register of Members’ Interests, which states that I am a non-remunerated director of a travel company.

The Government have got themselves into a terrible tizz over APD. I think that they were right when, a year or so ago, they said that they would introduce a per-plane tax, but they got into an awful mix-up over premium and standard passengers. I remember that they discriminated against tall people last year: for some reason they thought that there were business-class-only aircraft flying around, when in fact all the companies concerned had gone out of business. The Treasury estimated that it would raise an extra £5 million from a class of airliners that did not exist. Having got into a terrible muddle in trying to define the distance between seats according to whether they were standard or premium, it has now included premium and economy seats in the premium APD.

The real question, however, is whether this measure is a stealth tax, designed purely to raise money for the Government. I fear that, in large part, it is just that. My right hon. Friend the Member for Witney (Mr. Cameron) has taken hold of the Conservative party and shaken it, as he has done in many other contexts: he has brought environmental issues to the top of the Conservative agenda. I fear that APD is not an environmental tax in any sense. If an aircraft is flying to Florida carrying two passengers, they will pay two lots of duty. If it is carrying 230 passengers, they will pay 230 lots of duty. That cannot be environmentally correct. It is as simple and as straightforward as that, and many other Members have made the same point.

The Board of Airline Representatives in the UK, known as BAR UK, has made a point that has not featured much in the debate about passengers coming into the United Kingdom. Let us suppose that an American says to a travel agent, “I want to go to Europe: where do you suggest that I fly to?” The travel agent will say, “It is several hundred pounds cheaper to fly to Schiphol than to fly to London.” I remember that a few years ago there was much talk of Schiphol’s being the third London airport.

It is crazy to put this country at a disadvantage. The Government need to come up with a taxation system that is based on environmental considerations. I agree with the hon. Member for Taunton (Mr. Browne) that there should be a tax on airlines to help to control emissions, but it should not be one that puts our airline industry and our cities at a disadvantage. If it is too high and out of synch with the rest of Europe, it will merely be a stealth tax, but I think that that is the direction in which the Government are moving.

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Mr. MacNeil: This may support the hon. Gentleman’s argument. Surely an environmental tax should have the desired effect of changing behaviour. If the intention is simply to raise revenue, the number of passengers and flights should remain the same. It would be interesting to hear from the Government which of those two options they prefer. Do they plan to change behaviour by reducing the number of passengers and flights, or are they merely using airlines as a cash cow? Banding or a per-mile tax would not be a sensible option environmentally, but it would be a very sensible option if the Government are trying to raise more money for themselves.

Mr. Bone: I hope that the Minister will answer that question.

Let me turn to a more local issue. Many of my constituents travel to the Caribbean, and many more travel to India. My constituency contains a large Indian community. One constituent wrote to me as follows:

For those people, visiting the Caribbean means visiting home. That is, I think, the point made by the hon. Member for Hackney, North and Stoke Newington (Ms Abbott). Generally speaking, such people are not the wealthiest of my constituents. I have a horrible feeling that we are returning to the system that operated when I was growing up, when air travel was only for the rich. This is a tax on the poor, and it is a tax on people who want to go home to visit their friends or want their friends to visit this country. I do not think that the Government have thought it through at all. I am not sure that they really want to discriminate against people travelling home to the West Indies and to India, but that is the effect of what they have done. Many of my constituents are very unhappy about it, and I ask the Government to think again.

The Exchequer Secretary to the Treasury (Sarah McCarthy-Fry): I thank all hon. Members who have contributed to the debate.

As has been mentioned, in 2008 the Government consulted on proposals to replace air passenger duty with a per-plane tax. The amendment proposes that they should bring forward plans for a per-plane tax again. I assure those who tabled the amendment that the Government decided against introducing a per-plane tax at this point only after fully considering the merits of, and evidence for, such a tax. Having considered the evidence and listened to respondents, we announced in the 2008 pre-Budget report that we would instead reform the existing APD regime and change the current two-destination band structure to a four-band structure. As has already been said today and in earlier debates, that decision recognised the need for stability in the tax system in difficult economic circumstances. The reform of APD strengthens the environmental signal of the tax, and raises revenue in comparison with the existing system.

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Ms Abbott: Will my hon. Friend give way?

Sarah McCarthy-Fry: I will in two seconds; I want to deal with a point that my hon. Friend made. We have always said that aviation taxation has a dual purpose, dealing with environmental impacts and also contributing to public finances.

Ms Abbott: My hon. Friend said that the Government rejected the idea of a per-plane tax. We know, because it is on the record, that they considered it very seriously, and my hon. Friend has not explained why they rejected it.

Sarah McCarthy-Fry: If my hon. Friend will be patient, I shall come to that in a moment.

Mr. John Gummer (Suffolk, Coastal) (Con): The Minister said that the Government had always recognised that the tax should be both environmental and revenue-raising. This measure is very damaging to the environment. The public will accept green taxes if they really are green taxes, and if they are clearly connected with green activities. If they are merely means for the Treasury to raise money, the public will think that they are frauds.

Sarah McCarthy-Fry: I think that I thank the right hon. Gentleman for his intervention. I shall explain later the way in which we are trying to achieve a balance and to send an environmental signal within the constraints presented by reform of the APD system.

Mr. MacNeil: The Minister talks about getting the balance right. By what percentage does she hope to reduce passenger and flight numbers as a result of her tax-raising measures?

3 pm

Sarah McCarthy-Fry: Somewhere in my papers, I have the figure for the reduction in carbon that we expect as a result of the measures. If I cannot find it in time, I will write to the hon. Gentleman.

We have increased rates for all lengths of flights, but it is right that the rates for those flying to the farthest destinations are higher. That point has, I think, been agreed by all hon. Members who spoke.

Following consultation with stakeholders, the Government decided not to go ahead with a per-plane tax. Proceeding with the per-plane tax would have raised more revenue, but it was not the right decision at the time. The Government proposed a per-plane tax in a very different economic climate, before the global economic downturn had really begun and before agreement was reached to include aviation in the EU emissions trading scheme. The decision to reform APD rather than proceed with a per-plane tax was taken after considering the potential impacts on regional connectivity and on air freight and the knock-on effects on employment, as well as the need to ensure greater stability in tax policy in times of economic uncertainty and to avoid the disruption and costs associated with the transition to a new tax.

I now have to hand the answer to the question of the hon. Member for Na h-Eileanan an Iar (Mr. MacNeil). We estimate that our reformed APD will deliver 0.6 MtCO2—million tonnes of carbon dioxide—by 2011-12.

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Mr. Hands: Can we get it absolutely clear that there are only two reasons for rejecting the per-plane tax in the Government consultation, which are that it would discriminate against regional airports—or so the Minister says, at least—and that she does not want to introduce a disruption in the tax gathering system during a recession? Are those the two reasons, and if so, are they the only two reasons?

Sarah McCarthy-Fry: They are certainly not the only two reasons. Another important reason was the point that I made about the EU ETS, which enables us to have some of the benefits that a per-plane tax would bring. That was another consideration that was taken on board. The full reasons are spelled out in the document, which I think the hon. Gentleman spoke about earlier.

Mr. MacNeil: I am grateful to the hon. Lady for her answer a few moments ago, but I seek a little clarification. Is that 0.6 per cent. of the total emissions from UK aircraft or 0.6 per cent. of a million tonnes of carbon? Also, will the efficiency of different plane models be taken into account so that some aircraft could be taxed more or less than others—in other words, will there be an incentive to use more efficient planes?

Sarah McCarthy-Fry: It is 0.6 million tonnes of carbon dioxide in 2011-12.

My hon. Friends the Members for Hackney, North and Stoke Newington (Ms Abbott) and for Walthamstow (Mr. Gerrard) and the hon. Members for Brent, East (Sarah Teather) and for Taunton (Mr. Browne) referred to the Caribbean. I assure hon. Members that I have carefully considered the many representations I have received in respect of the Caribbean, and I will respond later to some of the alternative suggestions that have been made in the context of our reformed APD. Without seeking to undermine the argument of the hon. Member for Brent, East, I would like to correct a point of fact. She said, I think, that there would be an additional sum of £300 in 2011-12, but it is, of course, an additional £140, and £300 is the total.

In the context of this amendment, there is absolutely no reason to assume that moving to a per-plane tax would result in less tax on flights to the Caribbean. In fact, implementing a per-plane tax, as consulted on in 2008, would have resulted in more tax being paid on flights to the Caribbean than under the reformed APD. As I have said, I will address later some of the alternatives that have been suggested such as distance flown, alternative bandings and proxies other than capital cities, but I shall first explain why we have chosen the banding system.

In retaining APD, the Government recognised that the system could improve the environmental signals it provides. The responses to the consultation for the per-plane tax highlighted that aviation taxation should recognise distance flown as a factor. As part of the strengthening of the environmental signal in APD, destinations have been banded in a straightforward, transparent and administratively simple way.

Mr. John Redwood (Wokingham) (Con): Can the Minister tell us which of the many tax proposals that the Government examined produced the biggest fall in the number of flights?

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Sarah McCarthy-Fry: I do not have that information to hand, but I am sure I will be able to get it to the right hon. Gentleman.

The reform of APD increases the number of destination bands from two to four. These have been set at 2,000-mile intervals, with the distance between London and capital cities determining what band a country falls within. There is a clear rationale that those travelling farther should pay higher rates of APD.

The hon. Member for Taunton said that short-haul flights are more damaging. Long-haul flights produce more emissions, and a band D long-haul flight on average would emit 14 times more than a band A flight.

Mr. Jeremy Browne: I acknowledge that long-haul flights cause more emissions than short-haul flights. My point was that short-haul flights cause more emissions per mile, and that is why we need to try to create alternatives to short-haul flights. I recognise, however, that a system in which the tax is greater for long-haul flights is reasonable because, overall, they cause greater emissions than short-haul flights.

Sarah McCarthy-Fry: I thank the hon. Gentleman for that intervention.

A geographical banding structure balances the aim of sending a stronger environmental signal with the need to make the reforms easy to implement. The hon. Gentleman and the hon. Member for Wellingborough (Mr. Bone) suggested that people might travel to cheaper destinations, or travel short haul and then get an onward flight. It is often said that people may do that, but there are a number of practical, as well as financial, consequences.

A passenger with two unconnected tickets for travel will need to land themselves at the first destination airport and then check back in for the second flight, and will be subject to any taxes or charges due for that country. Both airlines will incur handling charges for processing the passenger, and it is likely that they would be passed on to the passenger. Also, a passenger taking a connected flight enters into a contract for travel to their final destination. That offers a passenger some protection against unforeseen delays or cancellations as it is the airline’s responsibility to ensure that they reach their final destination. In some cases, that may mean rebooking a passenger on an alternative flight or providing, or paying for, accommodation until a flight is available. Unconnected flights do not carry that same protection, and an airline’s responsibility will cease once the passenger has reached the destination specified on the ticket.

Stewart Hosie (Dundee, East) (SNP): Surely the second airline would offer the same contract for the second flight. The level of protection would be precisely the same, it simply would not be provided by the original carrier.

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