Mr.
Hands: I am not entirely sure of the background. I thought
that it was introduced in 1996, in which case it would have been under
the right hon. and learned Member for Rushcliffe (Mr.
Clarke). Either way, I am not sure of the reasons or the arguments used
at the time. Maybe the Minister can help
us.
The
Exchequer Secretary to the Treasury (Angela Eagle): It was
introduced in 1994.
Mr.
Hands: I thank the Minister for that important correction.
Either way, I am unable to reflect on the precise reasoning used at the
time. I am sure that it is available in Hansard, which is online
from 1989 onwards, so we could examine the background.
The
Government’s U-turn is set out in “Aviation duty:
response to consultation”, which was published alongside the
pre-Budget report last November. It makes for interesting reading and
includes sorry excuses, where they are provided at all. We can agree
that the member states’ decision in October to include aviation
in the EU emissions trading scheme was a significant development, but
the Government acknowledge the ongoing case for a UK tax alongside the
EU emissions trading scheme. The response claimed that the U-turn
was: “Consistent
with the Government’s objectives to provide additional support
to businesses and individuals in the short-term and maintain action on
climate
change”. However,
it was not consistent with their previous environmental analysis. One
might infer from the talk of supporting business that the U-turn was
welcome to the industry—one struggles to see how. The industry
has reacted furiously to the huge hikes, which are outlined in the
clause and the schedule. Hikes of anything up to 113 per cent. are
projected over the next 18 months on air passenger duty. That figure
obviously relates to Australasia and parts of South America, but these
are big, across-the-board increases. British Airways
said: “APD
was doubled two years ago, making air travel from the UK the most
heavily taxed in the world...The Government’s own figures
show that British airlines already meet their environmental costs, so
there can be no ‘green’ justification for these
additional
taxes.”
Mr.
Jeremy Browne: I would be grateful to know the hon.
Gentleman’s thoughts on whether this is more likely to make
aviation from Britain uncompetitive. I have heard arguments that some
people may choose a short-haul flight to a hub in the Netherlands or
France and a longer haul flight from there. Is that likely to have
consequences or will a wider EU application avoid that
hazard?
Mr.
Hands: I thank the hon. Gentleman for his intervention and
will explore that issue, but, at this point, we simply do not know. If
we put air passenger duty up by these three-figure percentage rates, we
cannot exclude the possibility that it will become economic to fly to
Amsterdam, for example, buy an additional ticket starting
there—luggage would have to be checked in there—board a
connecting flight to Bangkok, for example, and end up saving money. At
the moment, it is difficult to speculate. I think that the Minister
feels that she has
speculated on it and wants to intervene. If we put up APD to such a
level, that kind of transaction starts to appear
economic.
Angela
Eagle: Before the hon. Gentleman gets too carried away
with his argument, I want to point out that 70 per cent. of passengers
travel from the UK to band A destinations. The figures that he has
quoted demonstrate that APD for band A will go up by £1 in
November and then by a further £1 the following November; for
business class travel it goes up by £2 and then £4. He
should bear that in mind before he develops his argument too much,
instead of getting carried away with the larger increases for longer
haul
flights.
Mr.
Hands: First, the increases that the Minister quotes are
only the November 2009 increases and do not include the further
increases in November 2010. Secondly, one must look at the long-haul
flights. If one were to fly from London to Bangkok, which is the
example that I gave, it could well become more economical simply to buy
a flight for the London to Amsterdam leg. I believe that the
Netherlands has abolished air passenger duty, so there would then be no
tax on the ensuing flight from Amsterdam to Bangkok, if it was bought
as an entirely separate ticket. That is the point that I am trying to
make—it relates not to the 75 per cent. of people who fly to
Europe but to the 25 per cent. of people who fly further
afield. Mr.
Robert Syms (Poole) (Con): Of course, if the tax increase
for flying to Amsterdam or Paris is lower but the long-haul flight
increases are higher—in other word, the increases for flights to
Australasia—there is then an incentive to hop over the channel
to take a long-haul flight, because we are talking about an awful lot
of money. Therefore, there is a differential pricing arrangement here,
which may have a long-term impact on our airline
industry.
Mr.
Hands: My hon. Friend is absolutely right. That is why I
was looking at some of the increases. For example, the 113 per cent.
increase on the tax element of an economy flight to Australia, compared
to the 10 per cent. rise on the tax element of an economy
flight to Amsterdam, could well make the type of ticket
shopping that I have described much more
prevalent. I
want to return to the reactions given by the industry to some of these
changes. I mentioned British Airways and easyJet. If the Minister is
right, virtually all of easyJet’s flights would be affected. It
operates flights to a couple of places in Egypt, but virtually all of
its flights are to part 1 territories. If the Minister is right, one
would have thought that, because 75 per cent. of people go to part 1
territories, those airlines should not be too fussed about this change.
easyJet would be an obvious company that would not be too bothered, if
the Minister is right. However, the opposite is the case. easyJet says
this:
“The
Chancellor of the Exchequer has missed the opportunity to give air
passengers a much-deserved shot in the arm by refusing to ditch his
planned £1bn raid on the airline industry over the next two
years...In today's Budget he should have waived the planned
increases”— in
air passenger duty—
“in order to help
an industry which will be at the forefront of dragging the economy out
of recession”.
So, far from the
Minister’s response that those flying to the 75 per cent. of
areas that will be unaffected simply will not be that troubled by this
change, the example of easyJet says precisely the
opposite.
Mr.
Mark Field (Cities of London and Westminster) (Con): I
thank my hon. Friend for giving way. I am a great supporter of easyJet
and I use it. However, I think that it is a pretty contentious
statement to suggest that somehow the airline industry will be the
industry that will be “dragging” this country “out
of recession”. It is an important industry, but there are a
considerable number of other industries that will also be
important. I
want to ask my hon. Friend a question on this issue. Does he share my
overriding concern that there will inevitably be perverse incentives as
a result of this change? He has touched on some of them that were
rather ignored by the Minister. There will be some very perverse
incentives, along the lines that he has set out, that are likely to be
fairly catastrophic, both in financial terms and, probably more
important, in relation to the environmental targets of both this
Government and hopefully a future Conservative
Administration.
Mr.
Hands: I thank my hon. Friend for that intervention. I
will respond to the two specific points that he made. By quoting
easyJet, I was not necessarily endorsing its point of view. I was
actually answering the point that the Government made earlier; there
were a number of interventions and perhaps we lost the thread of the
argument a little bit. However, the Government said that their
justification for continuing with the status quo on APD was to provide
additional support to businesses. I was merely pointing out that a lot
of these businesses obviously thought that the opposite was the
case.
My hon.
Friend is absolutely right, however, on some of the perverse
incentives. We have already talked about one of them, which is the
possibility of passengers buying two separate tickets to reach a
long-haul destination. There is also nothing in this proposal that ends
the perverse incentive for airlines to fly empty airliners around. We
had thought, and in fact the Government told us, that that was one of
the reasons why we wanted to move to a plane tax in the first place. So
he is quite right about the perverse incentives that exist.
I will just
finish on the airlines with a brief word from the travel agents, who
are also important in the current economic environment. The Association
of British Travel Agents has also raised concerns about the impact that
APD will have on regional passengers who are forced to fly via London
and have to pay the tax twice when they travel with two different
airlines. Again, that is another perverse incentive and it is
significant for the viability of some of our regional airports. If, as
the Government say, the industry welcomes their proposals, the industry
has done an excellent job in suppressing its enthusiasm for the huge
tax rises.
The changes
will also have a negative impact on Britain’s competitiveness as
a tourist destination if passengers are forced to pay APD on their
return journey. I would appreciate clarification on whether APD can be
levied on transfer passengers or not. The Royal Aeronautical Society
tells me—I have not had a
chance to obtain independent verification of this, but I have no reason
to disbelieve it—that some US interests are taking their
Government to court for charging APD on some transfers, even though the
passengers and their luggage stay air side at all times. I believe that
other countries are also questioning such an approach. Will the
Minister inform us of the latest developments in those important court
cases, and what is the Government’s current position on transfer
passengers? The
reaction from environmental groups has been mixed. Many welcomed the
headline rises, 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.” Greenpeace
stated: “Plans
to tax flights instead of people would have encouraged the industry to
fill their planes instead of flying half-empty airliners 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.” Furthermore,
the National Society for Clean Air
noted: “Air
Passenger Duty is set to be doubled. However, in light of the
significant expansion in UK aviation announced in 2003’s
Aviation White Paper these changes are unlikely to have significant
impacts on overall emissions from aircraft.”
Charter
airlines are another group affected by the measure. The APD tax
structure pays no heed to a class called premium economy; it simply
lumps it together with business and first class, which is hard to
justify to those who simply need a small increase in leg room. We have
to understand how premium economy class works on charter flights.
Essentially, as I understand it, there is no difference in the seat;
premium economy class merely adds a small amount of leg room. The class
is particularly popular with families with young children who like to
move around on planes, especially on seven-hour charter flights to
somewhere like Florida or the Caribbean. It is very difficult to keep
children under control or entertained without a little bit of leg room
that allows them to move around. Premium economy class seats are
therefore very popular with families and, as I understand it, do not
cost an awful lot
more. However,
those travelling in premium economy class will now have to pay double
the APD of the regular economy class passenger. That will be especially
true for long-haul charter flights to Florida, for example, when a
family of four travels in premium economy class on a charter plane. I
am not talking about business passengers flying hurriedly from London
to a meeting in New York; I am talking about families on quite
reasonable charter package holidays to somewhere like Florida or the
Caribbean.
Mr.
Jeremy Browne: I anticipate getting letters on the issue
from two other groups in my constituency. The first is people with
disabilities that require them to move more than they might be able to
in a restricted space. The other—this may sound vaguely amusing,
but it is not meant to be—is tall people who quite often take
opportunities such as that under discussion and may feel unfairly
treated as a result of the
measure.
Mr.
Hands: I am not sure which tax regime applies to those
with disabilities, so I would be grateful if the Minister would explain
what kind of special rules, if
any, relate to them on flights. The issue of tall people was raised by
my hon. Friend the Member for Wellingborough during last year’s
Finance Bill debate. He referred to my hon. Friend the Member for
Shrewsbury and Atcham (Daniel Kawczynski), who was not a member of the
Committee, as an example of somebody who would need additional leg
room. The hon. Member for Taunton therefore makes a valid point.
However, for a family of four travelling premium economy in a chartered
plane, this will mean £600 in air passenger duty from November
2010, compared to £160 today. That is more or less a
quadrupling, an extra £440 on a family holiday to a state such
as
Florida. 11
am In
the present economic circumstances, the Government have baulked at
introducing a per-plane tax on the scale that they originally intended,
encompassing freight aircraft and other sectors. They have been forced
to try to recoup some of the revenue lost by not introducing the
per-plane tax from the existing per-passenger APD structure. That is
why the hikes are so steep and potentially punitive for air passengers.
The Government also began in the wrong place, not least when selecting
a yardstick for emissions when they began their consultation.
Conservative Members do not accept that a per-plane tax is unworkable.
On that, we are, I believe, of one mind with the Liberal Democrats, so
I look forward hearing what the hon. Member for Taunton has to say. I
am not sure whether I have surprised him by suggesting that I expect
him to say something on this subject, but I very much hope that he
will. There are
certainly difficulties in drawing up an all-encompassing system and, to
be fair, in launching the consultation the Government were aware of at
least a few of them; however, they have backed down through a
combination of a lack of will and poor starting points. As my
predecessor in this role, my hon. Friend the Member for Putney (Justine
Greening), pointed out in last year’s Finance Bill debate, the
Government’s lead options going into the consultation were far
from ideal.
To save the
Minister from later explanations, I point out that the obvious course
of taxing an aircraft’s emissions appears to be impermissible
under international agreements, such as the Chicago convention. Putting
tax on aviation fuel, even indirectly, is against the terms of that
convention. We welcome the Government’s attempts to get other
countries and international bodies to look again at the international
framework. However, under that framework, a per-plane tax, if it is to
be within the rules, has to find a proxy for emissions. That is where
the difficulties
start. The
Government hit upon the manufacturers’ declaration of an
aircraft’s maximum take-off weight—MTOW—as its
emissions yardstick. My hon. Friend the Member for Putney is something
of an expert on the aviation sector—a number of Members who have
constituencies around Heathrow airport have inevitably had to learn a
lot about emissions, noise and other environmental impacts from
aircraft. She warned Ministers last
year: “Emissions
depend not just on take-off weight, but also on the speed of flight and
the design of the plane.”——[Official
Report, Finance Public Bill Committee, 12 June 2008; c.
714.]
That is an obvious but
important point. Maximum take-off weight makes no distinction between
newer, cleaner aircraft and older, less efficient models, so no
incentive to upgrade fleets is provided. Nor do aircraft always operate
at their maximum take-off weight—in fact they rarely do. The
weight depends on how an aircraft is fitted out and how much fuel it
needs for a particular
journey. The
consultation mentioned some alternatives, which would account for
certain emissions in a flight’s landing and take-off cycle, but
the problem with those schemes was clear from the outset. Paragraph 3.7
of the Government’s response briefly lists some of the
alternatives that the industry suggested. Many of them appear to be
viable and to offer a more direct correlation with CO2
emissions, but, unfortunately, the Government provide no analysis
of those options. They are left there, hinting at what might have been
explored had the Government not begun the process with their flawed
fixation on maximum take-off
weight. The
consultation also toyed with having airports collect the per-plane tax,
which immediately raised the prospect of commercial airlines having to
pay administration fees on top. Indeed, a per-plane regime would
probably entail a whole new administrative set-up run by the airport
operators. Trying to bring non-commercial flights, such as private
business trips, within the scope of the tax—a laudable
objective, we would all say—while maintaining a
one-size-fits-all collection method always made such problems likely. I
shall not offer an extensive account of the plans that have now been
abandoned. The important point is that from, arguably, trying to go too
far, too quickly the Government have now retreated too far and have
taken harsh steps to compensate for their abandonment of their very
good intent to move to a per-plane taxation system.
One is left
with the obvious question: if the Government did not want to extend
taxation to other parts of the industry, such as freight operators, at
this time, why did they not introduce a per-plane tax for commercial
passenger aircraft only, which would only affect flights that already
pay APD? The commercial aviation sector favoured the existing
operator-HMRC collection model. The move would have solved the
administrative problem as well. Most of all, it would have introduced a
disincentive to fly empty planes, which everyone regards as sensible
and which will still be lacking now that APD is to be reformed and not
replaced. I
have read the Treasury’s November response carefully, but I
cannot see any compelling reason why the Government could not have
considered some of the alternatives to maximum take-off weight in more
detail. Now, we all have to pay the costs of the consequences. Instead
of taxing non-passenger commercial aircraft and taxing freight and
private jets and so on, there will be huge hikes in air passenger duty,
which will be felt by ordinary Britons, due to the Government’s
backing down and their lack of courage and persistence in looking for a
new regime. However, we are where we are following the
U-turn.
I should like
to go back for a moment to the Government’s original plans. The
Government added to their choice of maximum take-off weight as a proxy
for emissions another element: distance. The take-off weight was
intended, however crudely, to signify how dirty an aircraft was and
applying a distance measure
would then approximate emissions over the duration of a flight. They
consulted on two options. The first was the actual distance flown in
terms of great circle distance or GCD—the shortest distance
between point A and point B, after the earth’s curvature is
factored
in. I
was a student in the last year of O-level maths before studying great
circles was removed from the curriculum. I wondered at the time whether
I would ever find a use for that knowledge of great circles due to the
curvature of the earth. I have finally found it, some 28 years after
sitting my maths O-level. I do not want to digress too far, but I was
talking to a constituent who is a
teacher—
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