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Session 2008 - 09 Publications on the internet General Committee Debates Finance Bill |
Finance Bill |
The Committee consisted of the following Members:Liam Laurence Smyth,
Committee Clerk † attended
the Committee Public Bill CommitteeTuesday 2 June 2009(Morning)[Mr. Peter Atkinson in the Chair]Finance Bill(Except clauses 7, 8, 9, 11, 14, 16, 20 and 92)10.30
am
Clause 17Rates
of air passenger
duty Question
proposed, That the clause stand part of the
Bill. Mr.
Greg Hands (Hammersmith and Fulham) (Con): Thank you,
Mr. Atkinson. Will it be convenient to discuss schedule 5 at
the same time as clause
17?
The
Chairman: No, we were going to debate schedule
5 separately. However, if it would assist the Committee, I propose to
employ considerable latitude and allow mention of schedule 5 on the
basis that we do not have an extended stand part debate on it. Is that
acceptable?
Mr.
Hands: I thank you for that guidance, Mr.
Atkinson. That is most acceptable, and I will refer to schedule 5 in
the course of my remarks on clause
17. The
Government have given us quite the runaround on air passenger duty. At
the beginning of last year, they appeared to agree with the Opposition
that taxing on a per-plane basis would be a better option than the
existing tax on a per-passenger basis—in the name of penalising
flights that run near empty. In fact, they proposed to go further than
some were suggesting at the time and extend their new per-plane tax to
freight and non-commercial civil flights. Then they got into problems
of their own making on questions of definition and administration.
Finally, they gave up altogether and decided to stick with the current
tax on passengers, which is generally paid, as we know, at the point of
ticket purchase.
So the 2008
pre-Budget report ran up the white flag, but with some diversionary
reforms that will hit existing passengers quite hard. Here we see a
story that is similar and familiar to other aspects of the Budget and
Finance Bill: a number of elements that the Government tried to
introduce, to increase predictability and durability in the tax system,
have been completely blown out of the water.
Currently, two
levels of APD are applied, according to the distance flown. Roughly
speaking, there is one rate for flying to an EU destination and another
rate for flying elsewhere. The pre-Budget report proposed replacing
those two rates with four rates, making all flights more expensive, but
with big duty increases especially on long-haul flights. Despite
protests from the industry, this time the Government have not changed
their mind and clause 17 and schedule 5 aim to put the pre-Budget
report plans into effect.
It is worth
taking a moment to examine the scale of the changes. The existing
two-band regime, as I said, becomes a four-band version as laid out in
schedule 5, with all rates significantly higher than those at present.
The two existing bands are, first, the UK-EU and other qualifying
territories such as Switzerland and Turkey, and, secondly, everywhere
else. That is the status quo. At present, the first band duty is
£10 per passenger for economy and £20 for all other
classes; the long-haul band is £40 and £80 respectively.
That is fairly straightforward at the
moment. However,
the four new bands, which will come into effect from November 2009,
start again with a similar band. Part 1 in schedule 5 is very similar
to the present short-haul band, but with the rates charged going up by
10 per cent. to £11 and £22. It now includes the Maghreb
countries and Russia west of the Ural mountains. The new part 2
territory, as outlined in schedule 5, includes North America, Egypt,
the middle east, eastern Russia and Pakistan. Duty rates from November
will be £45 for economy and £90 for other
classes, which represents a 12.5 per cent. rise.
Part 3 is
banded at £50 for economy and £100 for all premium
classes. That includes India, China, Japan and much of Latin America
and is a 25 per cent. rise. What I shall call part 4, but which is
defined legally as all those territories which are not in parts 1 to 3,
comprises Australasia and various parts of Latin America, including
Argentina, Chile, Bolivia, Peru and some other smaller South American
countries and the Falkland Islands. Duty will be £55 and
£110 pounds, which represents a huge 37.5 per cent. increase on
the status
quo. What
is more, the Government are programming big rises again in 2010, far
bigger than the rises I have just mentioned which come in this
November. Part 1 charges will rise to £12 and £24. In
each of these figures, the first is for economy and the second for
premium classes. Part 2 will be £60 and £120;
part 3 will be £75 and £150 and part 4 will be £85
and £170. These are huge increases. Those in the second wave
were a little bit hidden in those figures, but by combining the
November 2009 and November 2010 increases, we see the full magnitude of
what is proposed. Looking at economy class passengers only, those
flying to popular destinations such as France or Spain will face a 20
per cent. tax hike in the next 18 months. Those flying to
Florida and all other destinations in the States will face a 50 per
cent. hike. Those flying to India will face a huge 88 per cent.
increase in the tax element of their ticket and those flying to
Australia and New Zealand will face a whopping 113 per cent.
tax
hike. We
have a few questions on the methodology used in schedule 5A, which sets
up the four new bands. First, all territories not named in the schedule
are assumed to be in with Australasia and most of South America. As we
know, the world has seen significant changes in
boundaries
since 1989, perhaps bigger than any seen since 1919. We
cannot rule out future boundary changes and, indeed, the creation of
new states. Yet it would appear that any new state would be
thrown automatically into the band that does not include parts 1 to 3,
in other words the Australasia band. For example, Kosovo is listed
under part 1, but if a new county were to be set
up—[Interruption.]
I think I
heard the hon. Member for Taunton say “Scotland”. So let
us take the uncontroversial example of Scotland, which would be thrown
in with Australasia. Someone flying from London to Edinburgh would
suddenly be charged not £12 in APD, but £85, which is a
sevenfold increase. I note the absence of the hon. Member for Dundee,
East. He might be rather interested in this. It would appear that the
listings could be amended by statutory instrument. I suspect that they
would be. But this appears to be a cumbersome way overall of defining
these distances. What started out with an idea of relative
simplicity—all territories with capital cities
within 2,000 miles of London would be included in part
1—has become needlessly complicated as a result of the
Government’s
approach. We
briefly touched on Russian geography in our debates on tobacco duty. I
should be interested to know how the Government define “west of
the Urals”. There are currently no direct flights from the UK to
Ekaterinburg, which is a sizeable city in the Urals. Five other EU
airlines fly there so it is not impossible that this could be a future
destination. Is the city in band 1 or band 2? The Government say that
they are splitting Russia—the only country that is
split—because “it
is administratively simple to do so”.
I am not so sure. The Russians themselves
do not have a ready definition of the location of the Urals—a
mountain chain that begins about 400 miles north of the Caspian sea. So
precisely how would one define the cities there that could be
destinations? I have given the example of Ekaterinburg, which is quite
a likely future destination.
So if it is administratively simple to split Russia,
which I doubt, why is it not administratively simple to split the United
States, for example, where the Government are basically throwing into
the same band cities such as Boston on the one hand and Honolulu and
Anchorage on the other?
These points
might seem trivial, but elsewhere there could be political
repercussions, for example by charging flights to Pakistan 25 per cent.
less tax than flights to India. That would of course be drawn from the
Government’s schedule according to distance from London, but the
way it has been simplified into bands could cause political problems.
For example, how exactly will a chartered flight to Kashmir be defined?
The airline operator would basically have to decide which bits of
Kashmir were properly covered in schedule 3 as being part of India and
which bits belong to Pakistan and are therefore in part 2. I raise
those points because someone has designed the system with little
thought for some of the considerations
involved.
James
Duddridge (Rochford and Southend, East) (Con): My hon.
Friend has made an excellent point and raises a few things that I had
not considered but which the Minister and the Department clearly should
have considered
in more detail. Will he be pressing for a simple map of the world
outlining, pictorially and geographically rather than in words,
precisely what is and is not
covered?
Mr.
Hands: That would certainly be helpful, because it would
start to focus minds on some of the difficulties caused by simply
drawing up a list of existing countries and pretending that there are
no political ramifications in doing
so. Many
people are concerned that the Caribbean, which is most dependent on
tourism, will be included in the part 3 territories. A family of four
will pay £300 in APD from November 2010 for a return flight to
the Caribbean, which is a lot of money for a family holiday. Caribbean
Governments have reacted furiously to that proposal—I happen to
know that because some of their high commissions are located in my
constituency and around 10 per cent. of my constituents are of
Caribbean origin. Under the bands, Florida would be in part 2, but the
whole of the Caribbean would be in part 3. I have read in the Travel
Trade Gazette that the Governments of those countries have drawn up
lists of UK parliamentary constituencies where their voices can make a
big difference. The Jamaican tourism Minister, Ed Bartlett, speaking at
a reception here in the Palace of Westminster in April
said: “The
Caribbean communities in the UK are beginning to understand this will
hurt
them.” Moving
away from some of the geographical problems to which the schedule will
give rise, the Government’s change in policy has consequences,
and there is a need to examine in some detail the case for their
180-degree U-turn since they first set out their intention to move to a
per-plane tax in January 2008. When they originally launched their
consultation in that month, the intention to move to a per-plane tax
was absolutely clear. The Government
would “replace
air passenger duty with a duty payable per plane rather than per
passenger.” In
case of doubt, the consultation document was
unambiguous: “This
reform will take place on 1 November 2009, and has the objective of
sending a better environmental signal, and ensuring that aviation makes
a greater contribution to covering its environmental
costs” while
ensuring that a fair level of revenue continues to be raised from the
sector in order
“to support
public services.”
The document describes
as a principle the need to provide incentives for the more efficient
use of planes by taxing similarly sized aircraft the same, no matter
how full the plane. There we have it: in January 2008 they set out a
clear intention, with the reasons stated, to move to a per-plane tax
rather than a per-passenger tax.
Last
year’s Finance Act provided for certain powers to proceed in
that direction, and Ministers again committed to a per-plane tax this
time a year ago, with only the final scope and mechanism open to
change, and yet six months later the change was absolutely
total. Mr.
Jeremy Browne (Taunton) (LD): If I remember correctly, and
I may not, the original tax was introduced by Lord Lamont in the early
1990s. Will the hon. Gentleman speculate as to why the noble Lord
decided then not to go ahead with a plane tax and preferred a passenger
tax instead?
10.45
am
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