The noble Lord, Lord Best, set out his amendment with great lucidity and very persuasively—he of course knows a great deal about this subject. I thoroughly agreed both with his analysis of the situation and with his rather ingenious compromise solution, which we may well want to adopt at this particular moment, having got as far as we have. I deeply regret for two reasons that the Government have decided retrospectively to waive Section 106 agreements. First, it will deprive a lot of people of affordable housing. That is a very bad day’s work. It is just the opposite of what we need in the present situation and an extraordinary reflection of the Government’s priorities. The noble Lord, Lord Deben, was concerned also about people who can afford to buy a house which is not designated an affordable house. He might dispense a little bit of his sympathy for those who could not dream of buying a house which was not deliberately built to be an affordable house and was in other words at the bottom end of the market and a good deal cheaper than average houses in this country.

The second reason why I regret what the Government have done is that it seems to falsify to whole system of planning in this country. As I have just explained, many Section 106 agreements result in land being designated for development which otherwise would be not be so designated. The local planning authority,

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normally the local council, has quite rightly to make a choice, an arbitrage, between considerations, on the one side, as to whether giving planning consent for, let us say, development on green belt areas or areas outside the existing curtilage of towns and villages represents the loss of an environmental amenity, but, against that negative public interest, as to whether there is a positive interest which outweighs that, which in present circumstances is the need for affordable housing. Therefore, the planning authority in the discharge of its responsibilities has quite reasonably weighed those different aspects of local communities’ interest and come out in that particular direction. Now, of course, if the Section 106 obligations are retrospectively withdrawn yet the development goes ahead, it becomes no longer a balance but entirely a one-sided gift to the developer and the community loses both ways. On the one side, it loses through the loss of the land, the loss of the environmental benefit, the loss of the amenity benefit and the visual impact of the development, whatever that may be; on the other, it loses the benefits of affordable housing or the other benefits of the Section 106 agreement which has been entered into. That is a doubly bad deal for the local community.

I dealt with a lot of Section 106 agreements when I was in the other House and on one occasion took the initiative in brokering a major Section 106 agreement between a landlord, a developer, a district council—South Kesteven District Council—and Lincolnshire County Council as the highways authority in order to finance the southern bypass of Grantham. There was no way in the world that the southern bypass was going to get into the then Government’s road programme—it would not have the met COBA thresholds—but it could and was financed in that way. It took a long time and a lot of negotiation, but it was well worth doing. However, it would have been most extraordinary if, retrospectively, we had said to the developer and the landowner, “Well, that’s alright. You can have the planning consent, but you do not need to build a bypass any more”. That is effectively the sort of deal which this Government are now offering developers.

I have to say that not many people are doing very well out of this Government in this country. People on benefit are obviously suffering; the public sector has suffered greatly; the private sector has suffered enormously; and our Armed Forces are suffering. Everybody is suffering except, as far as I can see, two categories of people: those who are lucky enough to be earning more than £150,000 a year, whose tax rate has been reduced from 50% to 45%, and now real-estate developers and speculative builders. I have nothing against real-estate developers and speculative builders—far from it—but it is an extraordinary set of priorities which are reflected in what the Government are doing.

As the Committee knows, I was for a number of years in the Tory party myself—far too many years, I have say; I am very sorry and repent of that particular sin—but, nevertheless, I know a little about how it works. I must say that if you went to Conservative associations up and down the country and did an analysis by sector of the business activities in which donors to local Tory associations are involved, you may well find that that particular section of the market comes out very high. I do not wish to establish a

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causal link between the two things; I have no evidence to enable me to do that. However, I simply state these two separate facts as an interesting coincidence.

I have considerable distaste for what the Government currently propose, but we need a way out of this situation that makes some sense and makes sure that these developments take place and affordable housing is built. In that spirit, I very much endorse the amendment of the noble Lord, Lord Best.

Lord Alton of Liverpool: My Lords, I will be brief. I should like to support my noble friend Lord Best. I declare an interest as a vice-president of the Local Government Association.

My noble friend set out a good case for the amendment and I hope that even if the noble Baroness, Lady Hanham, is unable to accept it today she will at least take on the general thrust of his arguments, not just for this amendment but also for those that he said are in later groupings. I believe that he was trying to help the Committee by discussing some of those at this time in order to save time later on.

I was also taken by the remarks of the noble Lord, Lord Tope, who said that it is really everyone’s desire to see the spades in the ground and housing being built. I was struck by a report in the Times today about how over the next four years many people in poorer categories will see their homes defaulted on because of their inability to pay interest-only mortgages. Therefore, this already difficult situation, with homeless people in this country and people unable to get on the home ownership ladder, as the noble Lord, Lord Deben, said a few moments ago, means that we have to do all that we can to try to find space for affordable housing. We must ensure that those who are in homes at the moment will not have to renege on their mortgages and become part of an issue that then has to be faced by local authorities because they are under other obligations to find them temporary accommodation.

I think back to my own time as chairman of a housing committee in Liverpool 30 years ago when we had vast amounts of derelict land and no money at all to build large amounts of new municipal housing even if we had wanted to. We came up with an innovative scheme at the time which met some of the points that the noble Lord, Lord Deben, addressed in his remarks. By retaining the ownership of the site—the land—in the hands of the local authority, we were able to pioneer the building of low-cost homes for sale in inner-city Liverpool—the first that had been built there in virtually a hundred years. Perhaps more importantly, we gave first priority for those homes to people who were already in existing council properties. This meant that, at the same time as encouraging people into home ownership, we freed up their accommodation—at no cost to the public purse—for people on the housing waiting list. Perhaps, therefore, we should look at something along those lines for first-time buyers and for existing council tenants, who would be able to free up their properties and therefore not only stimulate the building of new affordable housing but also create rented accommodation for people currently on waiting lists.

The other point I would like to make to the Minister concerns the issue of integration. I agree with what my noble friend said about how, particularly in rural

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areas, it has been very good to have a mixture of social housing alongside quite expensive housing. This has enabled people to stay in communities from which they would otherwise be driven. I think that many noble Lords from all sides of your Lordships’ House will have seen how, in rural areas especially, people have been driven away because they simply cannot afford the cost of homes, which are often taken up as second homes by people who live in cities or urban areas. Our first priority should be to allow those people to stay in, and contribute to, their own communities. Similarly, in urban areas, having a mixture of rented and owner-occupied property ensures that we do not create the municipal Bantustans that stretch facelessly and often aimlessly from the railway lines to the cemetery, and which in the past have caused so many of the social problems that we have to deal with today.

5.45 pm

Lord Burnett: My Lords, I remind the Committee that we have been through, and probably are still in, the most incredibly severe recession. It is an appalling recession and many building companies have gone broke. They have gone into liquidation. Unfortunately they and other companies have signed up to planning agreements which, because such almost impossible burdens are attached to them, sterilise the sites, development, and the ability to build on them. This clause, the thrust of which I very much support, recognises that fact, and some local authorities, to their credit, recognise it because they are already renegotiating these planning burdens. Local authorities recognise that they want some affordable housing rather than none. The quid pro quo argument made by the noble Lord, Lord Best, is well worthy of consideration as long as there are reasonable time limits.

Another thing that has not been mentioned sufficiently is that, even if you renegotiate a planning permission, that takes a great deal of money, time and effort. Let us get some planning done and let us get some houses built. We are building only about 100,000 homes a year. We need at least 200,000 a year. The noble Lord, Lord Deben, is absolutely right. Let us try to remove some of these burdens and get builders building again. There has been a fundamental change of economic circumstances. That is what the clause is trying to deal with and that is why I support it.

Lord Beecham: My Lords, the noble Lord, Lord Deben, made what Ministers are apt to call some interesting points, which usually presages a disinclination to approve them. However, he did make some interesting points, not least the thought that perhaps the Treasury should revisit the issue of how significant housing projects and more generally the construction industry, to take up the remarks of the noble Lord, Lord Burnett, might be supported. However, the argument of the noble Lord, Lord Deben, was too limited in some ways.

The assumption throughout the noble Lord’s speech was that we are talking exclusively about housing, but Section 106 agreements are not, of course, confined only to housing matters. Secondly, he assumed that affordable housing schemes are for owner occupation. Of course that is true of a greater proportion, but they are not necessarily confined to owner occupation. There

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is also a need—which is one of the reasons for these agreements in any event, as the noble Lord, Lord Alton, implied—for a mix of tenure which would potentially ensure that there is a social mix within the development. In addition, the noble Lord, Lord Deben, implied that we are talking only about first-time buyers. I do not know what the evidence is for that assertion. When new estates are built, wherever that is, there are certainly a number of first-time buyers, but equally there are people who are, as it were, trading up and who are not necessarily first-time buyers. The position is not quite as stark as he suggested.

It follows that we need to be very clear about what the policy objectives are. First, as everyone in this Committee and in the House generally would confirm, we need to build more houses. Secondly, they should be accessible, through one form of tenure or another, to a wide range of people, not least in order to meet the desirable aim of having the kind of social mix that would help avoid a divided society. There are different ways of doing this. Clearly, Section 106 agreements can facilitate matters, and we will debate that issue in greater detail later. However, I recall in the 1970s, when there was a collapse in the property market, that my local authority stepped in to buy up unsold new private housing developments. That may have happened in other places as well but I cannot say whether it did. They were taken into the municipal stock. Subsequently, of course, under right-to-buy, they virtually all left local authority ownership. However, this might be a way of freeing up the industry; if not properties that are currently built and standing empty, then at least local authorities or social housing organisations taking a share of a development, thereby providing initial purchases and helping to ensure that kind of social mix.

Lord Greaves: The noble Lord reminds me of what Pendle Council did when I was chairman of the housing committee, back in those days when we were all young. As the noble Lord may recall, it was possible because it was a central government initiative that provided the funding, by some means or other, whereby the councils could do that.

Lord Beecham: Precisely. I do not know whether the noble Lord, Lord Deben, would agree but that might be one of the lines of inquiry that the Treasury could pursue and the Government could adopt. The position is not quite as stark as the noble Lord was suggesting and I certainly support the amendment of the noble Lord, Lord Best.

Lord McKenzie of Luton: My Lords, let me say at the start that I support the amendment of the noble Lord, Lord Best. I was tempted to follow the Minister’s suggestion that we do not range more widely over this issue but I was sorely tempted by my noble friend Lord Davies, among others, to get into benefits policy, which I am very happy to talk about for a long time. I share my noble friend’s concerns.

Before I get into the detail of the amendment, I say to the noble Lord, Lord Deben, that the component that seems to be missing from the analysis is the value

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that accrues to landowners on development from the community granting planning permission and agreeing that they want their community to be in a certain way, as a mixed community. An alternative might be to have special taxes that you get from looking at the uplift in value from planning permission—I will come back on that point—and you might then have your national scheme. For as long as that does not exist, you surely need to recognise that by agreeing to grant planning permission the local community is giving value to the landowner and developer, and to those who are going to occupy the houses that are built on that land.

Lord Deben: There are two very quick things that the noble Lord has to take into account. One is: who pays that? I am merely saying that in our present circumstances, when people find it very hard to buy, first-time buyers and the rest of them are paying for that cost. Secondly, we have a little difficulty here because to have the view that planning permission is a privilege seems to be wholly against any concept of the right to property, which says you can do exactly what you like on it, if the community then decides that you are going to have that restricted. The noble Lord is entering a very much deeper philosophical discussion there. However, the crucial issue is: who pays it? If the person who pays is the one at the bottom end of the scale, as it very often is, we ought to ask whether it should be paid rather more generally. That is all.

Lord McKenzie of Luton: It seems to me that the value comes from the granting of planning permission in respect of the land. If you are going to argue that that has to be shared by the community as a whole, not just the local community, surely you need mechanisms to get that value raised and to redistribute it. You could not do it on the basis of the current tax system.

This takes me back to a point that I was going to make on the amendment. I recall that when I first went on Luton Council, in the mid-1970s, we had something called the Community Land Act, as I recall it, and the development land tax. It was then very much the name of the game for developers to go and dig a trench to demonstrate that they had started their development before those provisions kicked in. Normally, there was a photograph taken with somebody holding up a copy of the Times, or whatever, to validate that this was when they had actually dug the trench.

Lord Burnett: I wonder whether the noble Lord recalls that I referred to the development land tax at Second Reading. It was a good example of the fact that where you have prohibitively high rates of taxation—I think the rate of development land tax was about 80%—it actually sterilised development so that building just did not take place. That was the downturn to which I think the noble Lord, Lord Beecham, was referring.

Lord McKenzie of Luton: We did very well out of it in Luton, I am bound to say, but I should stress that it is not Labour Party policy to reintroduce this tax. We should get that clearly on the record.

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So far as the amendment is concerned, I agree with the provision to make sure that there are mechanisms to clearly identify when there is a commencement of development. What I was not sure about, having looked at Section 56 of the Town and Country Planning Act 1990, is whether that overrides all the other things listed there as the commencement of development. For example, that section says that,

“‘material operation’ means … the digging of a trench which is to contain the foundations, or part of the foundations”.

I think that the noble Lord, Lord Best, referred to that but I am not sure whether his amendment overrides it. It would technically seem to need to do that to get the solution that the noble Lord is seeking—a solution with which I agree.

There are a range of broader points but I will forgo the opportunity now for my clause stand part debate and come back there as we go through the amendments in due course.

Baroness Hanham: My Lords, we are back in the situation we were in last time. I am not sure whether I am answering a Second Reading speech that went totally away from the amendment, a clause stand part or just something that everybody has made up around this amendment. While it has not been made up, I think an opportunity has been taken to have a very wide-ranging debate on the back of the amendment moved by the noble Lord, Lord Best. He will understand that I was trying to confine this debate to his amendment, although I realise now that that was absolutely hopeless and was never going to happen.

If I may start on the philosophical aspect of our whole discussion, I will pin it immediately to my thinking that everybody recognises that we desperately need to build. We need to build housing in this country for several reasons. The first, and most important, is that we have an awful lot of people without homes. As my honourable friend at the other end, Nick Boles, has pointed out, if we are not to have people in their 40s still living with their parents and still unable to buy property in the near future, we have to start building. Secondly, we are not going to jerk the economy back into life if we do not jerk the construction industry back into life. Those are two fundamental reasons why we need to make sure that the growth of housing takes place.

There are many elements to housing: housing for sale; housing that goes to right-to-buy; housing for shared ownership; affordable housing; and housing for rent. A great number of projects are all buried within Section 106. Perhaps I could remind noble Lords that Section 106 is responsible for a very great proportion of the affordable housing being built at the moment. The noble Lord, Lord Davies, said that we were getting rid of that. We are not. In this clause we are not waiving the requirement to build affordable housing. What is being said here, and what we are recognising, is that negotiations which took place some time ago when there was probably a very high market may now not be viable because of the affordable housing element, which may be a very large part of the Section 106 requirement.

We are saying to all local authorities: do what many local authorities are already doing; that is, to look at that obligation to see whether it can be reduced to

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make the whole project viable. If it does not become viable, developers are not going to develop—and if they do not develop, we can all wring our hands and talk about housing forever but it will not be built. If a small reduction in affordable housing brings that back into viability, it seems an exceptionally good reason to have those discussions taking place.

6 pm

My noble friend Lord Deben set us off down an HS2 track, which I had not been entirely expecting. As I understood his argument as he developed it, he was actually totally against Section 106 in dealing with housing. He was saying that this was a matter for the Treasury—a matter for public funding—and not a matter for developers. He will forgive me if I am wrong, and no doubt will take his moment to put that right. Unless I am way down the wrong track, he will know, as I do, that the Treasury will not now commit great waves of money to the development of housing. There is already money going in from the Treasury, but not on the basis of the 400,000 houses which are already in the pipeline. It may be philosophical and it may be right or a good thought, but the reality of the situation is that one of the only ways we are going to get housing is through Section 106 agreements. That is right: it is a charge on the developers—who are going to make, or are expecting to make, a profit—and they should pay for that and pay something back to the community.

I hope that within that context, we can look at Clause 6—when we actually get to it—in a rounded way. Perhaps we can all agree across this House that we want and need housing at all prices, but particularly for those who are on lower incomes or first-time buyers—as my noble friend Lord Deben said—and those who will never get on to a buying ladder and will always need the support of social housing. There is a big demand here for that. As for the point made by my noble friend Lord Burnett, yes, part of the idea of renegotiating Section 106 is to bring it into a form that will allow the developer economically to be able to do this. I said that earlier on and do not want to repeat myself.

The noble Lord, Lord Beecham, is, of course, correct. Section 106 is not entirely about affordable housing; it can spread pretty wide over the elements. However, this clause deals only with affordable housing. It is a quick, in-and-out clause where the developer can come and say, “The affordable housing aspect of this particular Section 106 agreement actually means that I cannot start at all”. The amendment introduced by the noble Lord, Lord Best, could also mean that they could not start. It is trying to ensure that where developers are running out of planning permission time, they do not, as he said, just take a shovel and go and dig a hole and retrieve their planning permission.

While I understand the concerns set out by the noble Lord, I do not think that what he is doing and the way he is doing it are going to help. I am wholly sympathetic to the need for development, but I am not convinced that the solution is to impose new regulation that would lead to site-by-site variation in the legal definition of development. There is a real risk that this would lead to greater uncertainty, delays and disputes.

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We have not touched on the community infrastructure levy, which runs alongside Section 106, but it acts as a very powerful disincentive to the actions that we are discussing—the shovel in the ground and the waving of the Times—and which the noble Lord is trying to prevent. The commencing of a development would be the shovel in the ground; it would trigger the developer’s liability, so there is no advantage to just digging a hole, because that would start the requirement to make payments. We think that this is a potentially significant deterrent to what the noble Lord is trying to prevent.

I acknowledge that not all councils have got CIL in place at the moment, but they will do; the whole of London is already covered by that. As more councils adopt the community infrastructure levy, this non-negotiable payment—they cannot come back to negotiate what they are paying—will provide developers with even greater incentive to build out their permission once development has commenced. Local authorities can also introduce incentives to build out planning permissions through the terms of the Section 106 agreement and they can lay down the timescale in which development has to start.

The Government have also introduced a range of initiatives and financial incentives, such as the Get Britain Building fund, to encourage local authorities, communities and developers to start building. Local planning authorities can also deal with the problem of uncompleted development by issuing a completion notice. Where development has begun but the local planning authority considers that there is no prospect of it being completed within a reasonable time, the authority can notify the developer that planning permission will cease—that is, they will have to come back and start all over again and it may get worse—unless the development is completed within a specified period.

Local authorities now have a significant set of actions they can take to prevent developers starting developments—as we have suggested—with which they have absolutely no intention of proceeding. Therefore, we do not support the proposed new clause or the introduction of new regulations to allow the definition of development to be specified for each planning permission on a case-by-case basis. Such an approach is likely to lead to unhelpful legal inconsistencies and to run the risk of adding a layer of bureaucracy, confusion and cost, which could end up delaying the whole process even further.

Although I am not prepared to accept this amendment, I hope that I have been able to give some reassurance to the House that we understand completely the need for housing; we understand that Section 106 is a major contributor to that; we understand that Section 106 is valuable and there is no question of funding at least some of the affordable housing other than through Section 106—I am sure this is a debate that my noble friend Lord Deben will want to see us carry through at some other stage, but it is not for today; and that we are currently taking action to ensure that developers are encouraged to proceed with developments in a timely manner. I hope that having stirred a major and interesting debate, the noble Lord, Lord Best, will be

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willing to withdraw this amendment. I hope he will speak on the remaining amendments he has proposed, but we have had a real overview of those.

Lord Alton of Liverpool: My Lords, perhaps the Minister could comment briefly on the proposal that local authorities should be able to retain the land itself in order to reduce the cost of houses that are built, in order in turn to bring them within the pocket range of either first-time buyers or existing council tenants. Even if she is unable to give a response today, will she at least agree to write to me about it?

Baroness Hanham: My Lords, I would be very happy to write to the noble Lord, but my feeling is that, if the local authority owns the land and thereby gives it without cost to the developer, by definition everything ought to be lower cost and it ought to be able to have some more control over it. I think this justifies a further look and I will come back to the noble Lord.

Lord Best: My Lords, I am deeply grateful to all noble Lords who have joined in this debate. By covering a lot of the ground on this now, we have saved time later. I will respond briefly to some of the key points made. With regard to the powerful speech by the noble Lord, Lord Deben, I have been discussing these things with Housing Ministers and Planning Ministers for longer than I care to remember; it was the noble Lord, Lord Waldegrave—then William Waldegrave, the Planning Minister—who first introduced the idea of planning gain paying for new housing development. I remember those conversations. It started in Docklands, where there was a need for local people to see something for themselves when lots of new housing was being built that was much more expensive than they could afford; from that came this way of paying for affordable housing for a range of people.

Perhaps it would be better if one simply taxed more deeply the landowners, the house builders and the occupiers, and put the money in a pot to pay for affordable housing, but it would not then be produced in the way that the noble Lord, Lord Alton, was commending—on sites that are now a mix of owner-occupiers and people who are renting or in shared ownership, which are socially very valuable. In a way, the way in which planning gain operates is a tax, and there are really only three people who can pay it. As the noble Lord, Lord Deben, suggests, the purchaser—who may be a first-time buyer—will actually be charged what the market can bear and the market is determined by the 85% of properties that change hands in the second-hand market rather than those that are built new. The developer can charge only what the market will bear, and the purchaser will look at other properties as well. The purchaser is unlikely to see their price increase for that reason.

The house builder themselves cannot operate at a loss—they would just not be in business at all—so they cannot absorb all the cost of this tax themselves. It is, I think, the third party, the landowner, where the tax finally lands, because there is a very wide variation in the value of land for agricultural or other purposes

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and land for development, and that is where the tax really has been drawn over the years. That system has worked pretty well.

The noble Lord, Lord Davies, makes the point that this could be a double bad deal for local communities unless we get some changes. The noble Lord, Lord Burnett, noted that local authorities already renegotiated a lot of deals, and he approves of the idea of a quid pro quo now if we are to tamper with the Section 106 agreements.

Lord Burnett: I think that I said it was worthy of consideration.

Lord Best: I accept that with some gratitude. The noble Lord, Lord Alton, talked about the social mix on decent sites, which is an important part of Section 106. The noble Lords, Lord Beecham and Lord McKenzie, were supportive, for which I am grateful. The noble Lord, Lord McKenzie, wondered whether this way of approaching the issue would actually not work and one might require a different change to the Town and Country Planning Act. The point of this amendment is that it would enable a Section 106 voluntary agreement —yes, I agree, with some pressure—to be made between two parties, and that could specify the definition of what starting on site and getting going would mean. That would not require legislation; you can put anything into a Section 106 agreement. However, the inspectorate, in reducing the amount of affordable housing, would make that conditional upon agreement being reached about what it means to start on site. I think that it could work.

Clearly the Minister is not minded at this time to go for an amendment of this sort. She very properly applauds the way that Section 106 works and accounts for a lot of affordable housing today. Like her, I approve greatly of the work of Nick Boles, the Planning Minister, in energetically trying to ensure that we build more homes, not just to ease housing shortages but to help the wider economy. She brings some reassurance that the community infrastructure levy provisions might produce ways in which developers were obligated to get on with the job. I am not sure whether that is going to be enough and I reserve my position, but at this point I beg leave to withdraw the amendment.

Amendment 55ZA withdrawn.

Clause 6 : Modification or discharge of affordable housing requirements

Amendment 55A

Moved by Lord Best

55A: Clause 6, page 6, line 5, at end insert—

“(1A) This section only applies in relation to English planning obligations agreed prior to Royal Assent.”

Lord Best: Apologies, my Lords, it is me again. The amendments that follow set out further proposals to moderate the likely adverse consequences of Clause 6. Amendment 55A in my name and those of the noble Lords, Lord Tope and Lord McKenzie, make it clear

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that Clause 6 relates only to planning obligations agreed in the past, which would usually mean agreed prior to the economic downturn when the foolhardy believed that house prices could go on going up for ever. The amendment, somewhat indulgently, would mean that cases of Section 106 agreement signed right up until the enactment of this legislation could still be subject to appeal and a reduction in the affordable housing component previously agreed by the developer.

I sincerely hope that the Planning Inspectorate would show little sympathy for the developer who has only recently entered into an agreement and almost immediately wishes to renege on it on the grounds that the project is no longer viable. The amendment would fix a clear end date to ensure that appeals, as is obviously the Government’s intention, relate not to the future but to the problems created by the economic downturn of 2008 and the years immediately thereafter. I beg to move.

6.15 pm

Lord McKenzie of Luton: My Lords, we have a couple of amendments in this group, but perhaps I might make a few upfront comments now following our early discussions. Our concern about this clause generally is that it will lead to a reduction in the supply of affordable housing. Specifically on that point, I do not think that we have seen the equalities impact assessment for this clause; if we have, doubtless the Minister will let us know, but it would be very helpful if we saw that before we got much further into our deliberations.

The Government’s rationale for this clause is that there are sites where planning permission exists but where development has not started because the affordable housing obligation makes the development not economically viable. This obviously begs the question of how you define and calibrate viability and the extent to which it is the affordable housing obligation that is the cause of the project having stalled. We have received some data about estimates of the number of sites stalled and the housing that might be held up by this, but no real evidence of the extent—if at all—to which this is caused by affordable housing obligations, and our amendments seek to probe this. Can the Minister provide any further information? Will she provide us with a full report with a list of the sites involved and the numbers of affordable housing involved—that is, those sites where it is the affordable housing that is making them unviable?

We think that the clause is unnecessary because local authorities already have the power to renegotiate all aspects of Section 106 and they are using that power, as the Minister has previously accepted. Moreover, the Government have consulted on existing powers and the prospect of reducing the time—I think that it is currently five years—after which an appeal to amend the obligation can be made to the Secretary of State. What is happening with the Government’s response on that consultation?

This clause undermines and potentially discredits the local plan, a process that will have undergone public scrutiny and will have set affordable housing policies. In essence, judgments that have been made about meeting

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a locality’s housing need may be set aside for the economics of the here and now—set aside, indeed, for generations.

The Government have made play about providing additional funding—£300 million, I think—to support affordable housing. How is that to be applied? Could it not be used in whole or in part to move forward those sites that the Government claim are stored? Is that not a better way forward?

Amendment 55A in the name of the noble Lord, Lord Best, is one that we can support and to which, as the Committee have heard, we have added our name. It restricts the application of the clause to obligations that were entered into prior to Royal Assent. This would act as some restraint on developers overbidding for land and shutting out more responsible bidders that would adhere to local policies, with the prospect of being able to scale back commitments in future.

There is a wider point which we might pursue on Report if this clause remains. As I have said, the Government have been pursuing what they call a separate proposal to allow renegotiation of wider Section 106 planning obligations but only those agreed prior to April 2010. So far as I am aware, we have not seen the response to that. The consultation says:

“We consider that 6 April 2010 is an appropriate cut–off date for this change. New statutory tests were introduced for most planning obligations on 6 April 2010 which ensure that obligations agreed after that date must only cover what is necessary to make the development acceptable, must be directly related to the development and reasonable in scale and kind. It is also clear that a high proportion of stalled developments are dated prior to April 2010 when market conditions were different”.

It is surely the case that this logic applies to affordable homes obligations as to any other Section 106 obligations, so the Government should have no difficulty in accepting the cut-off proposed by the noble Lord, Lord Best, which is apparently less restrictive than the Government’s own thinking.

Amendments 55AA and 55CC provide that an application to modify an affordable housing obligation cannot be made within a certain time of its being entered into. The amendment sets this at two years from the beginning of the grant of planning permission or as may otherwise be prescribed. The purpose of the amendment is obvious. Clause 6 should not run when the Section 106 agreement is reasonably fresh. Consideration of economic viability is not without cost, time and expense and there should be encouragement on applicants and local planning authorities to get it right first time. Knowing that the affordable housing obligation cannot be unpicked for a period of time will at least help to concentrate the mind. It will also strengthen the role of the local planning authority in clearly establishing that its deliberations cannot be immediately brushed aside.

We have added our names to the sunset clause; it has not formally been moved but I will add my comments as I am on my feet. Our preference is for this clause to be removed in its entirety. Failing that, limited by the type of amendments that we have just discussed, time limit in the application of the clause would serve as a backstop to other amendments, giving it a limited life of three years. The rationale for a limited life for this

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clause was—I think—going to be set out by the noble Lord who was due to move it and follows the analysis in particular of the National Housing Federation. Over the next three years the NPPF should have bedded down and its focus on taking account of the viability of affordable housing should be well established. We are told that the clause is necessary in the first place because of the economic downturn. I presume—despite current GDP figures—that the Government would not argue that this will continue indefinitely. In any event, commitments made in better economic times are washing through the system.

The Government clearly see the clause as having some time limit as Clause 6(4) enables the Secretary of State to repeal by order Section 106BA and 106BB. Perhaps the Minister can say what the Government had in mind for the application of these provisions. What criteria will the Secretary of State have in mind when looking to activate this power and to repeal the clause?

Lord Tope: My Lords, I do not think that I can actually move the sunset clause. Amendment 55CD is in a group, so it would be a little premature. I will most certainly speak to it. I was offering the noble Lord, Lord McKenzie, the courtesy of allowing him to speak to the amendments in his name which are earlier in the group.

Amendment 55A is also in my name, and I am very pleased to support it. As both the noble Lords, Lord Best and Lord McKenzie, have spoken to it I do not think there is anything I need to add at this stage other than to listen with interest to the Minister’s reply. The noble Lord, Lord McKenzie, has inevitably done some of my job in speaking to Amendment 55CD and I welcome and endorse what he had to say on that. It is indeed a sunset clause. It would mean that this section will no longer have effect three years after the Bill is enacted. That is because it should no longer be necessary three years after the Bill is enacted.

The NPPF was adopted nearly a year ago and it stressed the importance of ensuring economic and financial viability in all affordable housing schemes. The NPPF should be doing that job and should continue to do that job. Local planning authorities in their negotiations of Section 106 agreements should be taking that very much into account with developers; Section 106 agreements from henceforth, as long as they last, should meet this requirement. Who knows when the current economic difficulties will come to an end? I hope that that will happen one day—they have certainly been in place for rather longer than a year or more.

It is our view that this clause, which has not found universal favour in your Lordships’ House, really should not be necessary after three years. By that time all the existing Section 106 agreements will have either been implemented or expired. Planning consents extant at that time will have been granted under the regime of the National Planning Policy Framework; therefore this clause should cease to be needed and cease to have any effect. That is the reason for the sunset clause which I now speak to, but do not move.

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Lord Beecham: My Lords, in September last year Housing Voice, which calls itself the Affordable Homes Alliance, published the report of an independent inquiry into what it termed—rightly, we would all agree—the affordable homes crisis. The inquiry was chaired by my noble friend Lord Whitty and part of its analysis was to stress:

“The social rented sector is becoming increasingly residualised”.

It pointed out that not enough local authority and housing association homes at social rents were being built to meet need. At that point the waiting lists in England stood at 1.8 million and there were concerns about the Government’s policy as to whether current social housing programmes were adequate. In particular, reference was made to the operation of the affordable rent model under which homes are let at up to 80% of market rates and the introduction of shorter-term, less secure tenancies. That again raises the question of what we are talking about in terms of affordable homes. What is the definition of affordability? In particular, what do we mean by affordable homes for rent?

I notice that the Secretary of State dominates the front page of the Daily Telegraph today with his denunciations of councils—some of them Conservative —for having the temerity to raise council tax to the extent permitted by the Government without having a referendum. The same Secretary of State had no hesitation at all in increasing council house rents by 5.1% which is two and a half times the maximum that a council could raise its council tax.

Leaving that aside, it would be interesting to get the perspective of the Government and that of the Minister on what the Government actually mean by affordable homes in terms of price and the income that might sustain that; rents and the income that might sustain them; and in particular the proportions within projects that should be devoted to the different types of affordable housing. The scheme in the ward that I represent in Newcastle—I hope that it is going to appear on the ground as opposed to being a rather subterranean task being discharged by the contractors—will see 25% of houses being allegedly affordable at the moment. Of that only a small proportion—10% or less of the total—will be for rent. In the economy of my city and several other places that strikes me as a rather low figure. Ironically the development will start with the affordable homes rather than the others because at the moment the market is unlikely to sustain those which even the developers would not regard as being within that category. A little enlightenment would be helpful.

6.30 pm

I also refer to the Town and Country Planning Association’s briefing, which many Members of the Committee will have no doubt received, expressing concern around the proposed changes to Section 106. It points out that, while the agreements extend—as we heard in the previous debate—to wider issues than just housing, the clause focuses only on affordable housing. The association’s concern is that, while negotiation may take place, it might delay delivery because negotiations might well be suspended until the Bill is enacted and comes into force. It also points out the potential delays

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with the appeals process and the like. It also refers to the fact that, as yet, there is no guidance on the residual evaluations that will have to be determined. That, I suppose, impinges on the question of viability to which we will return later. I will defer any further comments about that.

The association’s concern is that the combination of voluntary renegotiations and those which will follow under the government amendments to Section 106 will have the potential to reduce the amount of land allocated for affordable housing and, reverting again to the previous discussion, lead to less of a social mix in such developments. That would clearly be something which I take it even the Government would not wish to see, but may be an unintended consequence of what they are doing. It would be helpful for the Minister to develop rather more fully the Government’s view of what they mean by “affordable housing” in terms of both tenure and price, and how they will endeavour to secure it, given that what they propose is—in the view of the Town and Country Planning Association, at least—likely to lead to rather less affordable housing being provided, certainly in the short and medium term, than would otherwise be the case.

Lord Greaves: The noble Lord makes some good points. I will put a slightly different scenario to him and ask what he thinks. In an area where development is difficult to get under way because it is not a growing or economically buoyant area—I am obviously talking about my own area—clearance took place under the old housing market renewal scheme, so there are small brownfield sites. The council will provide those brownfield sites for free to the main local social housing landlord, the RSL which deals with the former council stock. The intention was to build mixed developments of affordable housing on there, some of which would be for sale and some for rent. However, when you take into account free land, the cost of developing the site and the rents which can be charged in a low-rent area over the next 30 years, as against the costs of developing and management during that period or the price that would have to be charged for affordable housing for sale, the figures just do not add up. Those sites remain undeveloped because they are not affordable to the RSL under the existing rules and regulations. Does the noble Lord have a solution?

Lord Beecham: If I did, it would not necessarily be one that has as yet been reached by my colleagues at the other end of the building. I cannot be writing Labour’s housing policy, much as I would like to.

We need to go back and consider the point which I thought that the noble Lord, Lord Deben, was implying: the Treasury and the Government have to look at the extent to which public investment is required to meet the housing crisis that we are facing, if only because that will have wider impacts upon the economy as a whole. It is as good and necessary a time for that kind of investment to take place, given low rates of interest in borrowing and the need on the construction and housing sides. I think an element of public subsidy would be desirable, but I emphasise that I am not authorised to make any such pronouncements.

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Lord Greaves: Of course, they were originally going to stack up because the relatively small gap funding required there was going to come through the housing market renewal scheme. Unfortunately, the coalition’s abolition of that scheme now makes it impossible.

Lord Beecham: There is, of course, also £300 million in the Government’s programme for affordable housing. I have today tabled a Question for Written Answer, which might be anticipated by the Minister, as to where that is going.

Baroness Hanham: My Lords, I apologise. I was not sure whether the exchange across the House had been totally completed.

Lord Beecham: Neither was I.

Baroness Hanham: My Lords, within this group of amendments we cover some of the ground we have already covered, so I will try only to fly over the top of that. These are important amendments and I want to do them justice.

Clause 6, as we have discussed, has a clear and specific purpose: to get houses built. It will deliver private and affordable homes where those homes are currently stalled. As I said at Second Reading, stalled sites represent no local growth, no community benefit and no new housing. Across the country, we have 1,400 stalled sites, with the capacity for 75,000 homes, including affordable housing. The noble Lord, Lord McKenzie, asked me whether we could say how much affordable housing was caught up in this. Local authorities hold that information; it is not necessarily passed back to central government. I therefore cannot give him a definitive response to that, except to say that we know that a good percentage of that 75,000 is affordable housing.

We know that many councils are voluntarily renegotiating to bring sites forward; we have discussed how this can be voluntary. We are in favour of this good practice. We are supporting this approach through a mediation service, bringing together local authorities and developers to help unlock sites, so that they can come together, discuss it and see how they can move on. But where authorities and developers are unable to come to agreement, developers should have a right to challenge. Current legislation prevents the developer appealing formally for five years. This is too long when we need homes.

There may need to be a fundamental review of obligations for those agreed at the peak of the market. We intend to make regulations in the coming weeks to allow earlier renegotiation of all planning obligations agreed prior to April 2010. That was a point made by the noble Lord, Lord Beecham: voluntarily, before 2010, you could do that but the regulations will make that part of legislation. These negotiations can take time and be costly and complex, so we are also ensuring that there is a rapid, focused mechanism for a review of the affordable housing element only, where the viability of the scheme is at stake, with a right of appeal to the Planning Inspectorate.

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Affordable housing often comprises the largest single contribution on residential schemes, which is why we have focused there. Research in 2007-08 found that about 50% of all planning obligations are for affordable housing. There should also be capacity to vary the affordable housing provision in most cases. The noble Lord, Lord Beecham, asked what we meant by “affordable housing”. That can be found on page 50 of the National Planning Policy Framework. I will give a snapshot and then the noble Lord can look it up for himself. Affordable housing is:

“Social rented, affordable rented and intermediate housing, provided to eligible households whose needs are not met by the market … Homes that do not meet the above definition of affordable housing, such as ‘low cost market’ housing, may not be considered as affordable housing for planning purposes”.

Those are the three major elements.

It is important to understand that we are not proposing that developers can somehow avoid their obligations, which was suggested by the noble Lord, Lord Davies, earlier. We are simply allowing a review to be made to ensure a viable and deliverable scheme as agreed. Furthermore, we are not proposing that developers can ensure blanket removal of affordable housing requirements for their schemes. We are requiring an evidence-based approach that will adjust the affordable housing requirement by only the amount necessary to bring the scheme into viability. This would not be wholesale removal except in the most extreme cases.

Evidence will be key to this process. Developers will have to submit revised evidence to the local authority to justify why their current planning obligation is not viable. The local authority will be free to respond to this proposal and be able to collect its own evidence if it wishes. Concerns are often expressed about the quality of viability evidence. However, robust evidence must be the best basis on which to make a judgment on the viability.

To assist as much as we can in ensuring consistency in how developers and councils approach this new process, we intend to issue guidance to support this clause. The guidance will not advocate a single methodology for viability assessment, but it will work with industry practice. It will be clear on what developers need to do to support their application for review. We will discuss the guidance with professional bodies and it will be published in due course, but I hope that we will be able to have a discussion about it before Report. The guidance will also be clear on the flexibilities open to local authorities to encourage developers to start on site and to get development going.

Overall, this measure presents a real opportunity to stimulate local housing growth by ensuring that consents are viable and realistic. The provision will not affect those affordable housing contributions that are planned on viable sites; in other words, where the costing stacks up, the developers cannot come back and suggest that they contribute less affordable housing. However, the measure provides for adjusting unattainable levels of affordable housing on unviable sites. Those values may have been estimated during a high point in the market, and we are clearly not there at the moment.

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I turn now to the amendments in this group. Amendments 55A and 55CD would limit the life of the clause to those planning obligations in place at the time of Royal Assent or three years after Royal Assent—this is the sunset clause. I understand the arguments being made that the intent of the clause is to address obligations made in different economic circumstances. It is about giving developers the opportunity to review affordable housing requirements and bring forward stalled sites. The difficulty that I have with the amendment, which allows applications in relation to existing obligations only, is that it assumes that we are now in a period of stability in the market and that any obligation made currently should not be challenged on the grounds of viability because we know that all is well in the property market. If we knew all the factors that were to be involved and their impact on a developer’s viability—namely, construction costs, sales values and borrowing costs—and if those were certain and fixed for the foreseeable future, we could focus on the past only. However, evidence from public sources, such as the Office for Budget Responsibility, indicates that we are not actually there yet. Evidence indicates varying performance up and down the country. House price growth remains subdued across most of the country. The recently announced 2.5% house price increases in England were driven by a 5% rise in London and a 3% increase in the south-east. Elsewhere across the country there is still a wide variation in house price growth.

There remains uncertainty in the housing market. The Government continue to provide strong support for housing growth—for example, the NewBuy and FirstBuy schemes—and we are making progress. Net additions are up 11%. Nevertheless, the wider market remains uncertain. While transactions are up year on year, they are down around 47% compared to pre-recession levels. So we do not yet have the certainty that we would like on the housing market and associated viability. The clause already includes, as noble Lords have said, a provision to allow the Secretary of State to switch off the provision by order. This has been drafted in a way that allows for a judgment to be made at the appropriate time, based on the state and stability of the housing market.

However, I am clear from the debate that we have had today that greater certainty on this would be desirable. I am also very conscious of the report published last week by the Delegated Powers and Regulatory Reform Committee of this House. We are giving the report and its recommendations very careful consideration, especially in relation to the suggestion that a sunset date should be considered. Therefore I think it would be more helpful if we return to this matter on Report, and I hope that I can have some further discussions with noble Lords before we get there.

6.45 pm

Amendments 55AA and 55CC, proposed by the noble Lord, Lord McKenzie, seek to prevent applications being made until the obligation is two years old. As I said, the purpose of Clause 6 is to ensure that stalled sites with planning consent, ready to provide much needed housing and jobs across the country, are brought

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back into viability and built on as quickly as possible. This clause introduces a swift, targeted mechanism for a review of affordable housing obligations.

A two-year wait before a developer can apply would mean that sites remain stalled for longer, which therefore reduces the opportunities for reviewing them. We are introducing a test of economic viability, where it can be clearly demonstrated that the site is not viable as a result of affordable housing contributions. An arbitrary time limit of two years serves no real purpose.

The noble Lord, Lord McKenzie, said that the NPPF focuses on viability and asked why this is not sufficient. Individual sites will change during the life of the planning consent, even if they were originally granted as a viable scheme. In practice, sites are not all going to be identical. The noble Lord also asked why the £300 million given by the Government for new affordable homes could not be used to contribute towards the reduction of the affordable housing element. The £300 million is a guarantee to deliver up to 15,000 new affordable homes; that is above and beyond what there is. We will publish further details of how the guarantee scheme will work. As part of that, we are examining how social housing landlords will be able to bid for it. So it does not really fit in with the measures that we are talking about at the moment. We cannot make a blanket commitment to fill the gap for aspirational affordable housing requirements with grants in the event of a Section 106 agreement being negotiated. However, we are continuing to work on the design and potential use of the guarantee scheme and its associated capital grant funding. I expect to issue further information on this shortly.

I hope that that lengthy response answers the questions that noble Lords have raised, lays out the Government’s position and assures the House that we are thinking carefully about the sunset clause, to which, as I have said, we shall return before Report.

Lord McKenzie of Luton: I am grateful to the Minister for her detailed replies. Perhaps I may follow up on one or two points. I asked whether an equality impact assessment of this clause had been produced and, if so, whether we could see a copy of it before Report. I did not quite follow the rationale about the £300 million of additional funding for affordable housing. The Minister said that it was for new housing. If we are talking here about less housing than there otherwise would have been, it seems to me that that itself is not a logical reason not to be able to apply it to supplement Section 106 agreements, which are assumed to make a particular site incapable of being economically viable.

The Minister helpfully talked about guidance for issues around viability. I was not quite sure—perhaps I missed it—whether she said that we are likely to see a copy of that guidance before we get to Report.

I revert to the issue of the extent to which sites are stalled by affordable housing obligations. Is the noble Baroness at least able to publish a list of the 1,400 sites where the 75,000 houses are to be built, and say whether it is those plans that are causing the sites to be unviable? Local authorities may have that information but is there no central collection of it that can be shared with us? That would be particularly helpful.

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Finally, perhaps I may come back on the cut-off point. As I understand it—and as I think the noble Baroness confirmed—the broader consultation on Section 106 agreements and the current five-year rule will have as its starting point agreements that were entered into prior to April 2010, on the basis that agreements entered into after that point would have recognised the current state of the market. If that logic runs for that scenario, why does it not apply equally to consideration of affordable housing? I am a bit unsure as to how those two different processes will interrelate.

Baroness Hanham: My Lords, I can deal with the final point first. As I have said a number of times, the clause is specifically about affordable housing. It is perfectly up to local authorities, even at the moment, voluntarily to renegotiate any aspect of Section 106 applications made before 2010. Regulations are coming out soon to make sure that that can be done anyway.

This clause relates only to affordable housing and the expectation is that this will be a pretty swift operation. Negotiating other aspects of Section 106 agreements may take quite a long time because there may be a lot of elements. However, affordable housing ought to be dealt with swiftly by the local authority or the Planning Inspectorate. We want decisions on this that generate affordable housing. That is why the issues have been separated; there is a single focus here. However, that does not discount other aspects of Section 106 being looked at voluntarily. Ultimately, there will be a statutory requirement.

Lord McKenzie of Luton: I understand why the Government are saying that the issues should be separated; whether I accept that logic is another matter. However, in relation to having one cut-off point of April 2010 because agreements entered into after that would have recognised the current market conditions, why does that issue not run for both scenarios—whether it relates to affordable housing or other components of Section 106 agreements? Why is it 2010 for one but an unlimited starting point for affordable housing?

Baroness Hanham: My Lords, I think that the answer is simply because affordable housing is such a significant element of this particular argument. I may have to write to the noble Lord about this pinch point and come back to him.

As regards the £300 million, I said that we will not make a blanket commitment to fill the gap regarding the aspiration of affordable housing, which is what we have been talking about—the idea of granting affordable housing requirements in the event of a Section 106 agreement being renegotiated. I have not ruled that out entirely but I have, more or less, said that I do not think that we could have such a provision. However, the matter is still being looked at.

Lord Greaves: On the question of the two types of Section 106 agreements, if renegotiation of non-housing Section 106 agreements can be done in regulations, why does it need to be in primary legislation in relation to housing?

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Baroness Hanham: That is because we are concentrating here only on affordable housing. Putting this in primary legislation means that the provisions come into effect immediately after Royal Assent and we do not have to spend time working out regulations. These provisions are in primary legislation because this is an important aspect of getting sites unlocked.

Lord Best: My Lords, this has been an important debate. My amendment and some of the others in the group are about there being a cut-off point for the provisions in Clause 6. We know that the Government’s target is, as it should be, agreements made before the peak of the market back in April 2010. I take the point that economic uncertainty—the possibility of things getting worse—prevails; however, one would hope that developers will not enter into agreements from now on without recognising the dangers that they can get into.

My housing association is trying to acquire sites even as we speak, and we keep being outbid by people who we think are paying ridiculous prices for the land. They are entering into Section 106 agreements with their local authorities. It would not be fair on those who are playing the game properly if, later, those who go out and pay far more than they should for a site come back and say, “Sorry, the scheme is not viable with this Section 106. Can we have it reduced?”. That is not a fair way to operate and I think that the Government accept that. I take comfort from the fact that on Report we will hear more about this matter. Therefore, at this stage, I am delighted to withdraw the amendment.

Amendment 55A withdrawn.

Amendment 55AA not moved.

Amendment 55AB

Moved by Lord McKenzie of Luton

55AB: Clause 6, page 6, leave out lines 11 and 12

Lord McKenzie of Luton: My Lords, I shall speak also to our other amendments in this group—Amendments 55AF, 55BB and 55BD.

Amendment 55AB would delete one of the options available to a person seeking easement of an affordable housing obligation—the complete removal of the obligation. To allow that would lead to less of a mix in our communities and less land available for affordable housing. We will come on in other amendments to adherence to the local plan, but I remind noble Lords of the NPPF requirement for local planning authorities to,

“use their evidence base to ensure their Local Plan meets the full, objectively assessed needs for market and affordable housing in the housing market area”.

The prospect of removing the entirety of an affordable housing obligation is not just a short-term issue. The consequences last for years, perhaps a century or more—the chance denied for the creation of inclusive and mixed communities.

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Amendment 55AF is the link to Amendment 55BB and is concerned with circumstances where the value of land on which planning consent has been granted with an affordable housing requirement has increased. If the requirement has not been met and the obligation not fulfilled within two years, the amendment would enable the local authority to initiate modifications to the obligation. The implication was that there could be an upward revision of the affordable housing requirement. This is consistent with Amendment 55B of the noble Lord, Lord Best, which would delete provisions that prevent modifications to affordable housing obligations that are more onerous. Such a provision would clearly encourage developers to make speedy progress on their affordable housing obligations and discourage them from sitting on their sites, waiting for land values to increase. This is an issue of basic fairness. If affordable housing is to take the hit when land values fall, why should the reverse not apply? We recognise the need for due process in this approach—perhaps a right to appeal to the Secretary of State—but this amendment seeks just to establish the principle.

Amendment 55BD addresses the timeliness of an implemented and modified affordable housing obligation that has been determined by the local planning authority —that is, an obligation that has not involved an appeal to the Secretary of State under new Section 106BB of the Town and Country Planning Act 1996. It requires the revised obligation to be met within two years; otherwise the original obligation will stand. This approach is consistent with that provided for in modifications determined by the Secretary of State, except that there is a three-year period in that case, which we will seek later to amend to two years. I beg to move.

7 pm

Lord Best: My Lords, Amendment 55B in this group, which is in my name and those of the noble Lords, Lord Tope and Lord McKenzie, would enable the planning inspector to rule, after looking at the situation, that the level of affordable housing should be increased, rather than only being able to decide that the affordable housing component must be reduced. Without this amendment, the housebuilders have a one-way bet. They cannot lose by going to appeal, and they might win. This is a recipe for developers to simply “have a go”. The amendment would ensure that there are appeals only where a robust and well evidenced case can be made for a reduction, so it should deter frivolous and unsupported applications.

Baroness Hanham: The noble Lord, Lord Best, has spoken to Amendment 55B, which seeks to allow the modified obligation on first applications to be more onerous than the original obligation. If a developer undertook a voluntary renegotiation, he would neither expect nor agree to more onerous terms. He would expect to come out with something better than he went in with. He would revert to the original, agreed obligation if the negotiation was unsuccessful. Under this application process, we want to replicate these circumstances for the first application. It provides an important incentive for developers to come forward

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and review their schemes. We need housebuilders to bring sites forward and I hope that this provision will ensure that they do this.

The clause also provides an important distinction between the first and subsequent applications to encourage the developer to proceed quickly. Under the first application, the affordable housing requirement must be reconsidered if it is found to be causing the scheme to be unviable. The local planning authority must modify or remove it so as to make the development viable, and the outcome must not be more onerous than the original obligation.

In relation to a second or subsequent application relating to the same planning obligation, the authority has more flexibility in amending the affordable housing requirement. Where it is justified on the basis of economic viability, the affordable housing requirement could be made more onerous than in the original obligation. The only restriction is that the amended obligation must not make the development economically unviable.

The distinction between first and second applications provides a real incentive for developers to reach a new agreement on their affordable housing requirements on the first application and to get on with building. It discourages repeat applications unless the developer is very clear that viability evidence supports their case. It also provides an important incentive for them to come forward and review their schemes. The purpose of these provisions is to ensure that development goes ahead and is not delayed because of unviable affordable housing requirements.

This amendment prevents a developer requesting the local authority to remove the affordable housing requirement, even if viability evidence justified this. It is not our intention that developers should remove all affordable housing requirements. We want affordable housing to be justified on the grounds of viability. In the clear majority of cases, we expect that evidence will demonstrate that some—probably most—affordable housing is viable

However, there will be some cases where evidence demonstrates that no affordable housing at all can be supported by the development. The developer must have the option to apply for this and the local authority must have the option to agree to this. Stalling development with unviable affordable housing requirements serves no purpose. Stalled development brings no local benefit to anybody. I hope that I can reassure the noble Lord that this clause does not encourage applications to remove all affordable housing but looks to ensure that viable applications are agreed to enable development to proceed.

Amendments 55BB and 55BD propose a review of affordable housing after two years where land value has increased. These amendments aim to put in place primary legislation incentives to ensure that developers build their schemes. They look to allow local authorities some control where obligations have not been delivered within two years. The drafting of Clause 6 does not prevent local authorities agreeing a mechanism with developers to increase obligations should markets improve.

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I am aware that this is the practice in many local authorities where obligations are “staircased” according to market conditions.

We will be clear in guidance on the options open to local authorities, and I urge that this be allowed to be negotiated locally, according to local circumstances. I do not agree that a fixed period for review in primary legislation would be helpful. I hope that the noble Lord will now think that the clauses are helpful.

Lord McKenzie of Luton: My Lords, I thank the Minister for her response. I would like to read the record on the issue between first and second applications, but I think that I have understood the point being made. I will take this opportunity to ask again for a response with respect to the equality impact assessment, which runs through all these groups. It cropped up earlier, and I do not think that we have had a response.

I accept that there is always an opportunity to negotiate an improvement in affordable housing numbers. However, it is the extent to which, under the provisions, the local authority has a right to drive that, just as the local authority has an obligation under these provisions when lack of economic viability suggests that these affordable housing numbers are too great. If that is the analysis, the local authority clearly must do something to modify that in a downward direction. However, where land values have increased, why on earth does it not have the right to reciprocal arrangements and to obtain increased affordable housing? I accept that one can always make these arrangements through negotiations and agreement. However, we are looking for something more positive to balance the other side of the coin. Otherwise, in the words of the noble Lord, Lord Best, this is a one-way bet for developers. Having said all that, does the Minister have any more news on the impact assessment?

Baroness Hanham: I enjoy Committee; there is always this bobbing up and down. It seems inconceivable that developers would want to renegotiate affordable housing at the first chance, on the basis that it might end up going up. They must produce a viability assessment to prove that it has gone down. If the assessment does not prove that, they go back to the original number. If they then rethink and decide to have another go with the second application, at that stage, if the local authority assesses that things have improved a lot it can require an increase in the amount of affordable housing. From a developer’s point of view, it is therefore a bit of a gamble to come back a second time. We suspect that it is better to stick to the original commitment and to get on with it. Regarding the equality impact assessment, I apologise. It will be available on Report, and I will see that the noble Lord gets a copy as soon as possible.

Lord McKenzie of Luton: I beg leave to withdraw the amendment.

Amendment 55AB withdrawn.

Amendment 55AC

Moved by Lord Tope

55AC: Clause 6, page 6, line 15, at end insert—

“(2A) An authority can only make a determination in accordance with subsection (3)(a) if it is satisfied, having regard to the

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development plan, that modifications to planning obligations other than the affordable housing requirements affecting the development or a reduction in the level of the community infrastructure levy payable would not be more appropriate.”

Lord Tope: My Lords, Amendment 55AC is in my name and that of my noble friend Lord Shipley. The intention of the amendment is to ensure consideration of all planning obligation costs, including possibly the cost of the community infrastructure levy.

The concentration of this clause solely on affordable housing has understandably caused a good deal of concern—which I am certain was not the intention—that in some way the Government are downgrading the importance of affordable housing and their commitment to providing it. I know that that is not the case. Nevertheless, that impression is inevitably given when a piece of legislation refers to only one aspect of a Section 106 agreement. The provision of affordable housing is often a very important part of a Section 106 agreement, but it is rarely the only part. There are many other aspects of such an agreement, such as contribution to transport and transport infrastructure, or to education in the local area, and the community infrastructure levy itself. Therefore, if consideration is to be given to the viability of a Section 106 agreement, surely it should take into account all those matters, not just one of them.

The purpose of this amendment is to ensure that all aspects contributing to the viability or otherwise of a Section 106 agreement are considered. Other aspects of it may be varied, not necessarily and certainly not only the provision of affordable housing. That seems to be a fair and equitable way of recognising that economic conditions have changed since the Section 106 agreement was agreed, and of finding the best and most equitable way of varying it, without necessarily focusing solely or even at all on affordable housing. I beg to move.

Lord McKenzie of Luton: My Lords, our Amendments 55AD, 55AE and 55CA are in this group. Amendment 55AD touches on the basis on which a local authority views economic viability. It requires the local authority to proceed to determination of the modified requirements if it assesses that the affordable housing requirement is the sole reason that the development is not economically viable. We will come on to discuss viability and how it is to be determined, but the reality under such a determination is likely to be that a number of factors influence economic viability. One problem with this clause is that it can lead to adjustment only of the affordable housing obligation, as we have discussed. This is unfair.

The Minister in the other place sought to differentiate affordable housing obligations from other Section 106 items on the basis that they were somehow discretionary and not in the same category as road improvements or school enhancements, the need for which might flow directly from the development. This gives scant regard to the validity of the local plan, and to the benefits of building sustainable mixed communities, by suggesting that somehow they are far less important than housing or having sufficient road capacity. Obviously, not having the benefit of proposed new Sections 106BA and 106BB does not mean that there are no other remedies for the

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developer. A negotiated arrangement with the local planning authority would be one, conducted without the Secretary of State’s powers looming large over the process.

Amendment 55AE requires that if a local planning authority determines to modify an affordable housing obligation, the modification must not materially conflict with the strategic policies of the development plan, and it must be the case that any other form of development that would accord with the development plan would not be economically viable. This is to emphasise the point that planning is not only about economic viability but should be anchored in the democratically derived local plan, with the intricate balances that this sometimes entails.

Amendment 55CA excludes from the definition of affordable housing that can be modified under the clause situations where an obligation would include land to be reserved and transferred to the local planning authority or RSL. The purpose of the amendment is to keep available land for affordable housing in the future. We support Amendment 55AC, moved by the noble Lord, Lord Tope, and Amendment 55BA, which would not preclude a modification being more onerous if there was a compensating, less onerous modification.

7.15 pm

Lord Greaves: My Lords, the noble Lord, Lord McKenzie, briefly spoke to my Amendment 55BA, which states that,

“a modification under this subsection may have an effect that the obligation is more onerous in one aspect in return for being less onerous in another or others without becoming more onerous overall”.

It is part and parcel of the feeling throughout the amendments in this group that there ought to be more flexibility in the system, and that if there are Section 106 agreements in relation to a development, they should be looked at as a whole, on the lines drawn by my noble friend Lord Tope, rather than simply in relation to obligations for affordable housing.

Earlier, my noble friend the Minister said that the question of non-housing Section 106 agreements would be dealt with by regulation, and that housing was in the Bill because it was quicker to get it into effect; regulations covering non-housing Section 106 agreements would take longer. That does not answer the question of why the Government have not done both together. Common sense suggests that they could either both be in the Bill or both be covered by regulation, whichever is most convenient. I do not understand the lack of logic in doing them separately.

Perhaps the Minister will tell me—I am not clear on this—whether the regulations for non-housing Section 106 agreements will be seen in the same light as those in the Bill. In other words, will developers be given a right to appeal against a local authority that refuses, or does not want, to relieve them of the obligation? Will the same sort of regime apply under the non-housing regulations, or will they simply state that there is an opportunity to ask the authority to look again at development plans, which of course exists at the moment? It would be interesting to know what the Government are intending.

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Common sense suggests that in some circumstances it might be better to look at non-housing obligations. For example, if there is a requirement to produce a park or a play area on the edge of a development or as part of the development, for some reason that may become impractical, or it could be thought in the light of viability studies that it is not absolutely essential, but that it is a less undesirable penalty to incur than having no or less affordable housing. There might be a situation in which a Section 106 agreement required a contribution to a local bus service. The way that local bus services are going at the moment, with some county councils cutting subsidies, by the time the estate is built, the bus service might not exist. It might be that that would be an appropriate let-off for the developer. Flexibility is a good idea.

It seemed to me that some noble Lords speaking in this debate were referring to a different world from that in which some of us are trying to make the best of things. In the case of new housing developments—greenfield housing developments in my part of the world—when planning applications come in, the local authority in general does not ask for affordable housing as part of the development, because an affordable housing requirement would very quickly make that development unviable. That is a fact of life. Local authorities in my part of the world—we will debate an amendment on this later—are finding it very difficult to set up a CIL regime, because imposing CIL on developments would make them unviable. Therefore, none of this applies if development is required or is thought to be reasonable.

Coming back to the point I raised earlier in an exchange with the noble Lord, Lord Beecham, what is a local authority supposed to do when it owns a brownfield site where housing or industry has been recently cleared and the site flattened and made reasonable, when development on that site for housing for sale or rent is simply not viable in present conditions, even if the local authority has put the land into the equation for free? It is simply not viable to develop given the current equation between local development costs and local house prices. The intention was that there would be a degree of gap funding to cover this; it was assured through the housing market renewal scheme, which has now been stopped. There is no gap funding.

What do the Government expect us to do in those circumstances when development of a perfectly good vacant site—for example, on the edge of a small town with wonderful views across Pendle Hill—is nevertheless not economically viable, so development cannot and will not take place? Somebody somewhere has to provide some gap funding to allow that development to take place if an area such as that is going to contribute to the Government’s aims of more housing. That is a slight variation on this amendment but it is a point that needs to be made and I will keep making it time and again because it is a question that nobody seems to be facing up to at the moment.

Baroness Hanham: My Lords, I shall start by trying to answer the points made by the noble Lord, Lord Greaves, because from what he says he will come back to them again. As I understand it, these sites are unviable but are not included within a Section 106 agreement; they are outside that.

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Lord Greaves: The sites are not viable on a commercial basis. It is not proposed to be affordable housing, it is proposed to be commercial housing sold at the market price in the local housing market. It is not possible to build houses in those locations that will sell for a price that will pay for the development. An organisation can build for virtually no profit but it is still not viable.

Baroness Hanham: For the moment I am going to say to the noble Lord that it is not quite relevant to this amendment but I would like to consider it further and perhaps come back to him at a later stage.

Clause 6 introduces a fast-track application and appeal process to ensure that quick decisions can be made on stalled sites. These amendments would undermine this simplicity and add complexity, for very little benefit. Amendments 55AC and 55AE seek to bring into the application process consideration of the development plan and strategic policies contained in it. The development plan will already have been taken into account when the decision to grant planning permission was first made and the development plan will presumably be the same at this stage as it was then. I am aware that local planning policies may include policies for the delivery of affordable housing to meet local needs. It is usual practice to apply these policies in the context of individual site viability. The effect of this clause is to help deliver those policies by bringing forward viable development. It does not require a revisiting of the local plan.

Amendment 55AE seeks also to require an assessment of whether an alternative form of development would be economically viable. This would tie the process into lengthy consideration of alternative schemes. The effect of this amendment would be to establish a complex and lengthy process and clearly act as a deterrent to developers. Similarly, Amendment 55AC seeks to prevent a determination to reduce affordable housing requirements if modifications to other planning obligations would be more appropriate. There is nothing to stop the local authority agreeing to vary any obligation on a voluntary basis, as has been said a number of times this evening. The authority could negotiate with the developer to alter the Section 106 agreement outside the process of this legislation if that would be beneficial to both parties. The purpose of Clause 6 is to provide a quick, targeted review process based on viability related to affordable housing only. The imminent regulation change, which provides for a full review of Section 106 agreements in pre-April 2010 obligations, will enable these older agreements to be reviewed across the piece.

I do not think it helpful to bring community infrastructure levy payments into this consideration. The community infrastructure levy has been introduced to provide a non-negotiable levy that is up front and predictable, and set at the local level in accordance with local viability. Local authorities do not have a general discretion to waive or reduce community infrastructure levy payments. The regulations make provision for exceptional circumstances relief but this is subject to strict criteria.

Amendment 55AD seeks to require that the authority must assess the affordable housing requirement to be the sole reason for the site being economically unviable before it modifies the requirement. This amendment is

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not necessary. The current drafting requires that if the affordable housing requirement means that the site is unviable, the council must vary the obligation. The applicant will have to present evidence to the authority to demonstrate this. The local authority will have regard to this evidence and have the opportunity to prepare its own evidence to justify any decision.

Affordable housing often comprises the largest single contribution on residential schemes, which is why we have focused there. Research from 2007 and 2008 found that about 50% of all planning obligations are for affordable housing. The local authority and the developer are free to renegotiate any aspect of a Section 106 agreement on a voluntary basis at any time. If an obligation which is not affordable housing is causing the site to be unviable, both parties are free to negotiate around that item.

Amendment 55CA would allow land transferred at nil cost to be excluded from the assessment of viability. I understand the importance that land transfers of this type play in creating mixed communities. This is particularly important in high-value areas. I can understand the temptation to think that we should exclude land transfers from the assessment of economic viability. However, the value of this land can be a significant cost to house builders. It is right that the value of this obligation is considered as part of the overall economic viability of the scheme. If the value of that land transfer is causing the site to be unviable, it should be adjusted; this does not necessarily mean removed completely but adjusted to suit economic conditions. Only where it is no longer viable to transfer the land at nil cost will an adjustment be made. Our policy for mixed communities will be upheld and delivered in a realistic and viable way by these clauses. With these assurances, I hope that the noble Lord will withdraw his amendment.

Lord Tope: I am grateful to the Minister for her reply. I am still struggling to fully understand why it is focused solely on affordable housing. Of course, local authorities and developers can agree voluntarily to vary any of the other planning obligations. They can agree voluntarily to vary the affordable housing obligation. We know that such negotiations are going on all over the country and we hope, believe and expect that the vast majority will be varied and agreement reached voluntarily without having to use this appeal mechanism.

However, I take it from what the Minister has said that what gets appealed to PINS—the Planning Inspectorate—can be only the affordable aspect of it and not any of the other planning obligations. For instance, would it be possible for the Planning Inspectorate to agree or determine that some other aspect of the planning obligation could be varied or reduced in order to make the scheme viable, but to retain all or the greater part of the affordable housing obligation? It is that element that is troubling us and to which I suspect we may return at a later stage, but in the absence of any further illumination on the point—

7.30 pm

Lord McKenzie of Luton: I wish to raise a number of points and to refer to the matter that the noble Lord has raised. I thought that the current rule outside

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these new provisions for affordable housing is that if a Section 106 agreement is not implemented within five years, there is a right of appeal to the Secretary of State. I am not sure whether the same criteria would have to apply to the Secretary of State in making a determination of that appeal, but I thought that it was that process which has been the subject of the parallel consultation. For example, it had a cut-off point of April 2010. That may be wrong and no doubt the Minister or her officials in the Box will tell me if that is the case. However, I thought that that was the issue.

I want to come back on the issue of the local plan and development policies. No one is suggesting that we need to revisit the local plan, but simply to ensure that any change to the affordable housing requirement as a result of these provisions is still consistent with the plan. That does not mean revisiting it.

Perhaps I may also come back on the issue of whether affordable housing is the sole reason for a development not being economically viable. Are we saying that if two reasons of broadly the same magnitude make a development not viable, nevertheless it is right and just that it is the affordable housing that is changed as a result? That does not seem to be particularly logical or fair. If the affordable housing component is the sole reason why a development is not viable, one can see how the logic flows for what the clause provides. However, when it is not the sole reason, why is it that only the affordable housing has to take the hit?

Baroness Hanham: My Lords, I have tried to say several times during the course of our debate that this clause relates only to affordable housing. It relates to the developer saying that what is holding things up and why he is not developing is that the affordable housing aspect, for whatever reason, is making it unviable. Any other aspect of Section 106 can be negotiated with the local authority. A developer does not have to do it. It is absolutely only the affordable housing element.

Lord McKenzie of Luton: Perhaps I may press the point. I understand that the clause is focused only on affordable housing and changes and modifications to it, but if the reality is that the assessment of viability shows that affordable housing and other things are making the project not viable, you will nevertheless look to the affordable housing component as that which has to take the hit and bear the adjustment. I accept that everything else can be negotiated under the current provisions, but if it is not solely the affordable housing component, why is it that, to the exclusion of everything else in this clause, the affordable housing component is focused on to bear the consequences of the modification?

Baroness Hanham: It is because that is what this clause is all about. It concerns situations where it is believed that affordable housing is causing the block. Every other aspect of Section 106 can be negotiated voluntarily. Under Section 106 in its totality consideration can be given to other aspects, but it is only where affordable housing is the only aspect that is said to be causing the lack of viability that this clause will impinge.

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Lord McKenzie of Luton: I think that that was a gem for which I am grateful to the Minister. I think she said that if the affordable housing component is the sole reason for it not being viable, that is when the clause operates. I think that that is a different position from that which I thought we debated earlier. Perhaps we should read the record because no doubt we shall come back to the issue on Report.

Baroness Hanham: My Lords, unless I have been deluding myself, I thought that that was what I had been saying the whole way through our debate this evening. We will check Hansard and make it clear that that is the situation. I will write to the noble Lord if I have said anything recently which does not bear out what I said before.

Lord McKenzie of Luton: I am most grateful to the Minister and, in the circumstances, I beg leave to withdraw the amendment.

Lord Tope: My Lords, I think that it will be me who begs leave to withdraw this time, and I was about to do that when the noble Lord intervened some minutes ago. It has been an interesting debate. I cannot help feeling that we have gone around in circles a little, but that is not unknown. I am equally certain that we will return to this issue at a later stage. In the mean time, I beg leave to withdraw the amendment.

Amendment 55AC withdrawn.

Amendments 55AD to 55BB not moved.

Baroness Stowell of Beeston: My Lords, before I move that the House be resumed, perhaps I may give some guidance to those involved in the next debate. Two noble Lords have scratched from the speakers list so we will go from the noble Viscount, Lord Montgomery of Alamein, straight to the noble Lord, Lord Davies of Oldham. With the reduction in the number of speakers, it is my pleasure to offer a little extra time for noble Lords to speak. With the exception of the noble Lord, Lord Palmer, and my noble friend the Minister, who will continue to have 10 minutes and 12 minutes respectively, all other speeches are now limited to four minutes. I shall be handing over shortly to my noble friend Lord Attlee and I know that he will assist the House by making sure that all noble Lords stick to four minutes. I beg to move that the House do now resume and, in doing so, I suggest that the Committee stage begin again not before 8.37 pm.

House resumed.

Air Passenger Duty

Question for Short Debate

7.37 pm

Tabled By Lord Palmer

To ask Her Majesty’s Government what plans they have for the future of Air Passenger Duty.

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Lord Palmer: My Lords, I am grateful for the opportunity to raise an issue that I know vexes many in this House and puts significant burdens both on British business and ordinary families. I must declare my interests. I open my home in Berwickshire to the public and I am a residual beneficiary of a banana plantation on St Lucia.

Air passenger duty has become an increasingly contentious issue over recent years and it is worth reflecting on the reasons. When it was first introduced back in 1994, the maximum that any passenger paid in air passenger taxes on departing a UK airport was just £10, and for those flying short haul it was half that. But, as is often the way with these things, once a tax has been established it is almost impossible for the Treasury not to resist the temptation to find ways to increase it—and what a truly astounding increase we have seen. From that modest beginning, the tax is now generating almost £3 billion each year for the Treasury and costing passengers who pay the highest rate more than £180 in tax alone for a single journey.

Some of the most dramatic increases have been introduced in the past decade. In 2006, a family of four flying to Florida paid £80 in APD—still a significant additional cost on a summer vacation but nothing compared with the £260 they now pay to fly to North America. That is an increase of 225% in just six years. Following the Chancellor’s Autumn Statement, we now have confirmation that APD is set to rise again in April. I offer this example because it illustrates just how rapid the increases have been and explains why there is a growing concern about its impact not just on families, but perhaps more importantly, on the UK’s business community. Indeed, there is a growing body of evidence that points to the damage the tax is having on jobs, growth and in various regions of the economy with various estimates, for example, that more than 90,000 additional jobs could be created were it to be scrapped.

It is tempting to say that the tax should be significantly scaled down. After all, we levy the highest APD anywhere in the world. We are one of only six EU countries to levy APD, the others having recognised the damage such a tax inflicts on economic growth.

As an island nation we depend on inbound air travel to carry three-quarters of overseas tourists into the United Kingdom. Yet, the World Economic Forum’s tourism competitiveness report ranked the UK 134th out of 138 countries for air ticket taxes and airport charges.

I could go on, but today I am merely asking not for the abolition of APD, not for a reduction of APD; not even for it to be frozen. I am simply asking Her Majesty’s Government to review the tax: a proper macroeconomic impact assessment into APD across the whole of the UK economy. That is all. No spending commitment implied, just good old-fashioned evidence-based policy-making.

The reason for this is quite simple: there is a growing body of evidence that points to the profoundly damaging impact of APD on our economy. Among the most compelling research that I have seen includes data from the British Chambers of Commerce which estimates that were APD to be increased by 5% in real terms every year—admittedly less than this year’s rise—there

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could be a loss to the economy of £3 billion by 2020. They add that this effect could reach £100 billion by 2030.

The World Travel and Tourism Council has estimated that removing APD altogether would result in an additional 91,000 British jobs being created and £4.2 billion being added to the economy in just 12 months.

Just as compelling is the documented damage that we know the tax is already having on airports and airlines across the UK. To give just one example: the BCC in a recent report states that, following the doubling of APD in 2007 and its subsequent rises, Liverpool’s John Lennon Airport has lost six domestic, five European and two long-haul services.

I strongly believe that Her Majesty's Government must take this grave situation into account. It is no wonder that this tax—which started out so modestly—is now one of the most hated indirect taxes that the Government levy, along with capital gains tax and inheritance tax. Indeed, part of the reason I wanted to raise this issue tonight is precisely because of the growing public anger at the tax, with which colleagues in the other place will be much more familiar

Last summer, an incredible 200,000 people wrote to their local MP asking for the Treasury to review the tax—as I am asking now. In addition to this, 100 MPs have publicly stated their support for a comprehensive Treasury review. The APPG on Aviation has also called for a review. Even senior members of the party, such as one of its former leaders, have joined the growing chorus of voices who back this. In other words, this is not the preserve of a few low-tax puritans—it has gained genuine cross-party support.

As expected, this proposal has been supported and championed from the tourism and aviation industry. Indeed, A Fair Tax on Flying, whose research and tireless campaigning have helped bring this issue to the attention of policymakers and the media alike, deserves to be praised for its work. This tide of support is irresistible—or so one would think. The Government have been—I know that the noble Lord, Lord Newby, likes his cricket—playing a rather repetitive game of forward defensive on this, if I am being kind, or stonewalling, if I am being a little more honest.

In almost all their responses to the request for a review—both to constituents and to MPs—the Treasury has, I am afraid, claimed that an impact assessment has already been carried out. Its response to the honourable Member for Crawley on 19 October is typical. He asked what research the Treasury has conducted to assess the impact of APD on the economy. He was told by the honourable Member for Bromsgrove, a Treasury Minister:

“Given that we recently completed a comprehensive consultation on the subject, we have no plans for further review”.—[Official Report, Commons, 19/10/12; col. 536W.]

There are plenty of other similar responses to very similar inquiries, yet there has never been such a consultation. It is a great phantom that has been created by the Treasury—a wonderful piece of misdirection of which the illusionist Derren Brown would be proud.

The fact is that the oft-cited 2011 consultation was to look at the merits of changing the banding of APD—a completely separate issue—and did absolutely

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nothing to review the macroeconomic impact of the tax. Indeed, even when they had this opportunity, the Government failed to address the gross unfairness of the banding structure. It is quite ridiculous that APD to the Caribbean—which is 6,000 miles from London—should be considerably more expensive than APD levied on passengers travelling to Hawaii, which is 10,000 miles from the United Kingdom.

I implore the Minister not to play the forward defensive on this. Perhaps he might consider playing to the stands and pavilion and giving the 200,000 constituents what they have asked for: a comprehensive review of APD.

On a more positive note, I am in fact supportive of one of the Government's increases in APD to finally, at long last, levy the tax on private jets—an omission that was an affront to reason and fairness, and was long overdue. It has taken 19 years since the introduction of APD for this change to be adopted. Can the Minister assure us today we will not have to wait another 19 years before the Government undertake a review of APD?

All the evidence suggests that our economy and the UK’s international competitiveness are being strangled by APD. If we want to send the message that the UK is open for business then I can think of no more damaging or perverse policies than year-on-year rises in this tax, making it prohibitively expensive for inbound tourists and overseas business travellers to come to Britain to spend their money and to do business —precisely the things we surely need to help grow our economy.

I urge the Minister to make representations to the Chancellor ahead of this year’s Budget. Surely a wise Government would accept that sometimes having money in the Treasury’s coffers instead of circulating around the economy has a damaging overall impact. A really comprehensive review would at least provide us with that evidence.

I hope that the noble Lord can offer us more today than his Treasury colleagues in the other place have been able to do thus far, and I look forward to his response.

7.47 pm

Lord Howell of Guildford: My Lords, I warmly commend the noble Lord, Lord Palmer, for promoting this debate, because there can be very little doubt at all that the UK air passenger duty at its present rate and in its present form is a damaging tax measure. It is also a tax of fantastic complexity, with pages of detail from HMRC as to which flights are liable, who is a chargeable passenger, how long between connections and so on. Heaven knows how much it truly costs to administer.

The very high levels are the real problem. Six European countries, as the noble Lord, Lord Palmer, has reminded us, levy a form of APD, but the UK level is double that of the next highest, which is Germany, and very probably the highest in the world. We have probably reached the stage where the damage to our national economy well exceeds the gains to the revenue.

The present banding discriminates directly against our Caribbean island friends, to many of whom we owe a special responsibility over and above our general

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duty as a richer nation to maintain our traditional concern for smaller states and their welfare. It creates a plethora of mad anomalies. First, it drives long-distance passengers from the UK to start from Paris or Amsterdam rather than London. Secondly, when I visited Glasgow last year, to view its dazzling and well on-time preparations for the Commonwealth Games in 2014, I was told that many of the tens of thousands of visitors from all over the world will fly into and out of Belfast and then hop across to Glasgow rather than flying to and from Glasgow direct. The reason is that Northern Ireland is exempt from the APD. Lucky Northern Ireland, but poor old Glasgow, considering that it has made such superb efforts to be the ideal host to the Games, which I hope it will be once visitors get there.

This is Treasury obfuscation and short-termism at its worst. Some claim that the APD is all about curbing aviation carbon emissions. We all know, and the latest BP energy projections confirm, that it will be China and India’s performance with their vast increases in coal burning which will determine whether we achieve the CO2 targets we want to see. I doubt whether APD will make a smidgeon of difference in combating global warming or climate volatility.

The only interest I have to declare in this matter is that I am chair of the Council of Commonwealth Societies and therefore very much aware of the vital need for this country to keep friends around the world, large and small. I have no hesitation in saying, after serving for two and a half years as Commonwealth Minister, that APD in its current inflated form is working against our friends, against our foreign policy goals and against the national interest. The alleged revenue loss from minor adjustments to make it less unfair will be far exceeded by the gains to the UK economy as a whole. It was meant to be a modest tax; it is now a massive tax. The damage caused by APD has increased, is increasing and ought to be curtailed.

7.50 pm

Lord Monks: My Lords, I rise to add my voice to the concerns that have already been expressed by other noble Lords in this debate. In doing so, I declare an interest as president of the British Airline Pilots Association. There can be very little doubt that the APD is an important revenue raiser for the Chancellor and substituting it would be an extremely difficult task. However, the rapid increases that have taken place in recent years make the UK stick out like a sore thumb, in the European airspace in particular, but rather more widely even than that. At present levels, it is unfair and regressive. It is one-tenth of the French level, and the Dutch have abolished this kind of duty at Schiphol, which is perhaps the major competitor to Heathrow. As other noble Lords have said, to fly to Australia via Amsterdam, which is a very viable option for much of provincial Britain, could mean a saving of about £85 in tourist class and more in the premium classes.

Given the other pressures that British aviation is under—particularly the shortage of capacity at Heathrow, as confirmed again by the recent snow, which demonstrates that the airport is always operating at the margin—we are adding further, self-inflicted damage to ourselves

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with this tax and we risk losing ground against major competitors. Airlines are being disadvantaged, and workers and employees of those airlines are also at risk. I understand that the Flybe redundancies that were announced just last week are being put down to the level of this duty and its effect on the business, which has one or two more marginal routes than perhaps some of the bigger airlines. I also understand that AirAsia recently abandoned the Kuala Lumpur to Gatwick route, citing the level of air passenger duty, as well it might. With those figures, it is difficult to be sceptical.

Civil aviation is a big British success story and we need big British success stories in the UK. Hobbling the industry in the way that this tax does is very unfortunate, and I strongly support the calls that are being made by noble Lords for a review of the tax. I do not think it has a major environmental impact, for reasons already expressed, and the anomalies make it a very difficult tax to defend, except as a valuable source of revenue. Justice demands that this tax is reviewed and that we find other sources of revenue, perhaps from all those whom the Prime Minister accused of aggressive tax avoidance, last week in Davos.

7.54 pm

Lord Foulkes of Cumnock: My Lords, along with other noble Lords, including the admirable noble Lord, Lord Palmer, I have had representations on the general issue, calling APD a tax on exports, on business, on inbound tourism and on families, and pointing out that it is the highest air passenger tax in the world. However, I want to concentrate on, and say just a few words about, a particular anomaly and to suggest a solution to the Minister.

First, I declare a non-pecuniary interest as president of the Caribbean Council, which is not as exotic as the banana plantation of the noble Lord, Lord Palmer. The Caribbean Council meets regularly with Caribbean high commissioners, and we recently met many of the Tourism Ministers from the Caribbean when they were in London. The unfairness of the APD in general, and the Caribbean anomaly in particular, is top of the agenda of all those meetings. The four bands, A to D, which have been described by the noble Lord, Lord Palmer, are measured by the distance to the capital of the country concerned, so because California is nearer to Washington, the capital of the US, it is cheaper in APD terms than the Caribbean, which is in the dearer band C. Travel to the Caribbean is disproportionately costly, yet the Caribbean is the most tourist-dependent region in the world; in Antigua and Barbuda, for example, 74% of their GNP comes from tourism. The high APD has resulted in British tourists choosing not to visit the Caribbean. Between 2008 and 2011, there was more than a 10% decrease in UK-Caribbean air traffic, in spite of a general increase of 1% in air traffic generally.

One of the groups most affected is the Caribbean diaspora. Agencies have suggested, for example, that the visiting friends and relatives, or VFR, market has been particularly hard hit. That is worrying. The

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Government have in fact admitted that the banding is arbitrary. The Chancellor—I am sure the noble Lord, Lord Howell, will use all the influence he can in relation to this—said in his 2011 Budget that he was,

“consulting today on how to improve the existing and rather arbitrary bands that appear to believe that the Caribbean is further away than California”.—[

Official Report

, Commons, 23/3/11; col. 963.]

However, by November 2011, the willingness to tackle the anomaly had petered out.

To help the Minister—noble Lords know that I am always keen to help the Government when I can—the Caribbean Council proposal is to reband the Caribbean from band C into band B by designating Bermuda as the capital of the Caribbean, for APD purposes only. There is no reason why that cannot be done; it can be done technically and it has been suggested to the Government. The cost to the Government would be just over £18 million out of a total projected revenue of £3 billion. The benefit to the Caribbean and the resulting benefit to the United Kingdom Government would be enormous. In conclusion, I ask the Minister whether he will say in his reply or give us a pledge—I am not expecting an answer today—that he will take this away, look at it sympathetically, discuss it with the Chancellor, remind him of his pledge in the Budget in 2011 and come back to the House with, I hope, a positive response.

7.57 pm

Lord Lee of Trafford: My Lords, first, I congratulate the noble Lord, Lord Palmer, on securing this debate. I want to focus my brief remarks on the deleterious effect that APD has on UK tourism. I declare an interest as the chairman of the Association of Leading Visitor Attractions. Tourism is our fifth-largest industry and arguably the number one industry in more parliamentary constituencies than any other single industry. In an Oral Question on 12 November last year, I pointed out that,

“a potential visitor from China must fill in a 30-page visa application form … and find £650 for a family of four in visa fees and air passenger duty. Is it therefore surprising that mainland Europe gets four times as many visitors from China as we do?”.—[

Official Report

, 12/11/12; col. 1273.]

Thankfully, there has been some improvement on the visa application front, but no give on the APD front.

What is the point of the Government putting an additional £22 million into the GREAT campaign, announced by the Chancellor of the Exchequer in his Autumn Statement, if this is countered by a further rise in APD on long flights and in premium cabins? Since 2007, APD increases have vastly outpaced inflation over the same period, which was 17%. Non-economy visitors in band C from China or India—potentially wealthy spenders—have seen APD increase by no less than 305%. From Australia, it is even worse, with an increase of 360%. In overall terms, the UK levies the highest level of APD of any country in the world. Why is that? Britain’s aviation tax is now so high that the Treasury will collect more than twice as much in passenger taxes in 2012—£2.5 billion—than the total of all other European countries combined, which is £1.2 billion.

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Other countries have realised the error of deterring passengers. Belgium, Denmark, the Netherlands and Ireland have all introduced APD charges lower than those now being applied in the UK and subsequently reduced or abandoned them, due to the adverse impact on their inbound tourism. In 2011, the Irish Government acknowledged the negative impact of APD on their economy and removed it to stimulate tourism revenue. Happily, our Government woke up the following year, removing APD from flights from Belfast when it was realised that it made those flights uncompetitive, compared with flights from Dublin.

Of course, we all appreciate that tax revenues must be generated, but why clobber tourism, a great world growth industry? Tourism and hospitality have the near-unique distinction of offering rising job opportunities across the range, from the skilled to the unskilled. It is surely madness to stunt their growth by excessive APD. The Manchester Airports Group tells us that in 2010 AirAsia X dropped plans for a Manchester-Kuala Lumpur service in favour of one from Paris Orly, purely because of the high APD. As the noble Lord, Lord Palmer, said in his opening speech, is it not high time that the Treasury instigated a full economic impact assessment of APD, which has not been done for 19 years?

8.01 pm

Lord Fowler: My Lords, I congratulate the noble Lord, Lord Palmer, on promoting this debate and on his excellent speech. I make one point, on the impact that air passenger duty has on jobs. All parties are agreed that it is a national priority to bring more people into employment, but we seem to be set on a policy with APD that destroys jobs, not creates them. I declare an interest as a non-executive director of ABTA, but also a past interest as Secretary of State for Employment. When I did that job, tourism was in the brief. My noble friend Lord Lee, who has just spoken, was my excellent Tourism Minister. The reason that tourism was in the Department of Employment was that it had one of the greatest potentials for creating jobs—and still does, particularly for young people.

Inbound tourism creates jobs, but so too, and this is often forgotten, does outbound tourism—the travel companies in the high street, the big internet companies and the aviation industry that is the transport carrier. We would be mad to turn our back on this source of employment. Yet that is precisely what we are doing. By piling more cost on the traveller, we deter people from coming to this country and at the same time price out many people who want to take a holiday abroad. We also hit the aviation industry and business itself. We seem to forget that we are in a competitive international market. There is an increasing demand for travel, which will come from countries such as China, Brazil and India, but it would be all too easy to price ourselves out of the market and lose jobs as a result.

Britain currently has the highest air taxation of all European Union and G20 countries. Britain’s aviation tax is now so high that the Treasury will collect more than twice as much in passenger taxes in 2012 than the total of all other European countries combined. What is interesting is that in 2009 the Netherlands followed

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Belgium by abandoning its equivalent to APD because, although it raised the equivalent of £266 million in one year, the Dutch calculated that the loss to the wider economy from the tax was more than £950 million. So I entirely agree with all those in this debate who have argued for an independent economic assessment of APD. My view is also that this needs to be done quickly, before more damage is done and more jobs are lost.

8.04 pm

Lord Morris of Handsworth: My Lords, on behalf of the humble and proud people of the Caribbean region, I thank the noble Lord, Lord Palmer, for securing this important debate. As someone born in Jamaica, I have more than a passing interest in this debate, which I declare. I will therefore address my remarks not to the APD tax in general, but to its specific impact on the Caribbean region. However, let me make it clear from the outset that the Governments and people of the Caribbean region do not seek favours from the Government. All they seek is fairness. As we have heard, APD was introduced in 1994. It was argued then that the duty would make a contribution to the overall cost of carbon emissions. It was a green tax. So let me say why the current banding system is unfair and offer a few words about its impact on the economies of the Caribbean.

As we have heard, the tax was originally introduced as a flat-rate charge for flights, but in 2009 it was changed to a four-band system, calculated on the distance between the capital city of the country of departure and the capital city of the country of destination. Let me remind the House of the anomalies of the banding system, which have already been given in this debate. Caribbean capitals, which are just over 4,000 miles from London, are in band C. The capital of the USA and London are less than 4,000 miles apart; consequently, every city in the United States is in band B. That includes Los Angeles, which is more than 5,300 miles from London and 1,300 miles further than any Caribbean-location flight—hardly a green tax.

The outcome of the rebanding means that the APD cost for a family of four flying to the Caribbean is £324. As we have already heard, for an equivalent family flying to the US it is £260. This unfairness will get worse when the inflationary increases announced in the 2012 Budget are introduced. They will not be applied evenly, which emphasises that the APD structure has no logic and discriminates against long-haul flights, particularly to the Caribbean region. The Governments of the Caribbean do not seek to challenge the right of the UK Government to impose this tax. What they seek is an equitable structure, a level playing field and a fair application of the tax.

It cannot be fair that the banding system discriminates against the Caribbean, the most tourism-dependent region in the world. It is not fair that the APD banding system favours the United States, which is a competitor destination. It cannot be fair that the UK takes no account of the impact that the tax has on the Caribbean economies which are still in transition towards being service-based economies. It is not fair, as suggested, that the APD will now be increased annually by the

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rate of inflation. Let us be clear: this is not a tax without victims. Data from the CAA make it clear that there was a 10.7% decrease in passenger traffic between the UK and countries in the Caribbean region. This is having a devastating effect on local economies, but it is not just having an effect abroad; it is having an effect here, at home, particularly among people in the aviation industry.

No wonder, British Airways has reduced its flights to the Caribbean due to APD and has switched its holiday focus from the Caribbean to the United States. The impact of APD can be felt by small travel operators up and down the high streets in London, Birmingham, Manchester and many of our cities in the UK. Above all, the APD is now becoming a barrier to inward investment in the Caribbean. No one intended that.

When the policies of one country knowingly damage the economy of another, it becomes a question not just of economics but of morality. That is why the review being asked for in this debate is largely supported in the Caribbean and elsewhere. Lest we forget, the Caribbean countries are not seeking favours; they seek only fairness.

8.10 pm

Baroness Gibson of Market Rasen: I thank the noble Lord, Lord Palmer, for instigating this important and timely debate. I declare my interests: I am a member of both the Air League Council and the Air Cadet Council, both of which obviously have an interest in this issue.

Air passenger duty affects every passenger travelling by air from a UK airport. It is a tax that we cannot avoid; it is imposed on us. As we have heard, it is a tax which causes considerable damage to the UK economy and which needs an urgent and thorough review.

I opposed the changes to APD introduced by the Labour Government and I oppose APD under this Government, who seem to be facing in two directions at the same time. There is little point in the Prime Minister saying that he wants more business investment in this country on the one hand and raising APD higher to make it more difficult for business on the other.

As the noble Lord, Lord Palmer, said, when APD was introduced in 1994, each travelling person paid £5 for a short-haul flight and £10 for travelling elsewhere. Passengers can now pay up to £184 on some long-haul flights. What an absolute nonsense.

I am not economist, but even I can see that, at a time when we should be doing all we can to encourage more foreign investment and increasing our efforts to encourage tourists to spend more in the UK, this tax is a barrier to both business and tourism. APD is the highest aviation tax in the European Union and among the G20 countries, thereby placing the UK at a direct disadvantage to its business competitors. Why can the Government not see this? Belgium, the Netherlands, Australia and Germany have all scrapped, or are in the process of scrapping, their own air travel levy. Why not the UK?

All that I have said so far has implications for employment in the aviation industry. A Fair Tax on Flying, a campaign group which consists of 40 leading

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travel organisations, including airlines, airports and trade associations, estimates that the aviation industry supports 963,000 UK jobs. Of those, 352,000 are directly supported by the sector, 344,000 are supported indirectly through the sector’s supply chain and 266,000 are supported by the spending of employees in the sector and its supply chain. The loss of such things as conference business, lost routes from our airports—both short-haul and long-haul—and loss of potential tourism because of APD mean the loss of employment for UK workers.

I support the call for an urgent review of the impact of APD on the UK economy. I support those in the other place and prominent organisations such as A Fair Tax on Flying in asking for a Treasury-led review. Organisations belonging to the campaign know what they are talking about, and I beg the Government to listen to them and to individuals who have written on these matters. How many more people will have to write before notice is taken? The Treasury has never sought fully to understand the impact of APD on economic growth, which speaks volumes. It is time for this anomaly to be rectified.

8.14 pm

Viscount Montgomery of Alamein: My Lords, it is a great pleasure to follow the noble Baroness, Lady Gibson, and I agree entirely with what she said. I thank my noble friend Lord Palmer for introducing this subject very fully and for making such a very cogent speech on it. I am afraid that I am going to join the chorus of opposition to this tax that has been revealed so far in this debate.

As has been pointed out by the noble Lords, Lord Morris and Lord Foulkes, most Caribbean islands live off tourism and earn foreign exchange by so doing. In fact, for some, it is their only foreign exchange earner. As things stand at the moment, it is cheaper to fly to Paris, Frankfurt or Amsterdam and change planes, thus avoiding the high tax in the UK. That has the effect of increasing emissions, which is contrary to EU directives on this subject, and causing further distress all round.

I suggest not only that this is an inefficient tax but that the best way to proceed would be to abolish it altogether, because, as has been said, it does not produce a great deal of revenue and causes a lot of irritation and hard work for the airlines. I therefore propose that the tax be abolished altogether.

8.15 pm

Lord Davies of Oldham: My Lords, I congratulate the noble Lord, Lord Palmer, on securing this debate and on introducing it in a speech which covered all points at issue. Each subsequent contribution highlighted some of those points with dramatic and significant effect. I thought that I would have a little sympathy for the Minister if most speeches were critical of the position which presently obtains. I am afraid that I have to inform him that every speech has been in that category. When one is on the Front Bench, one always thinks that one may be in a little trouble if one glances over one’s shoulder and sees not a soul behind. It is

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even worse if, as on this occasion, two privy counsellors and members of former Conservative Cabinets join in the criticism.

The Minister has a case to answer and that case has been very effectively deployed. The other place has of course been greatly exercised over this matter in recent months, having responded to a 100,000-signature petition by holding a debate. Again, scarcely a contribution was made there which supported the APD in its present form. It was also pointed out—the Minister would not expect me to ignore this fact—that the coalition agreement and the manifestos of the two contributing parties indicated that they intended to reform radically this tax.

The Minister has to realise that he has a major task ahead. I will make the most obvious point, which is that there clearly needs to be a review of a tax in circumstances where such a ridiculous anomaly as the Caribbean anomaly obtains. Several noble Lords emphasised that point with great force. My noble friend Lord Foulkes fitted into the category of not bringing on this occasion problems for Conservative Ministers but solutions for them with regard to the Caribbean position. We should not underestimate the degree of concern that obtains on that point in all parts of the House. The noble Lord, Lord Morris, who is so familiar with the background of the Caribbean, emphasised how much this anomaly represented.

I hope that when the Minister replies to the debate he does not simply reiterate that matters will be considered. Let us have a review. The case has been established that this tax is not working now in the way in which it was first intended, and it has also become increasingly onerous over the past two years. I therefore urge the Minister to take on board the representations that have been made from all sides of the House that a proper review is necessary and urgent.

8.19 pm

Lord Newby: My Lords, I join all other noble Lords in thanking the noble Lord, Lord Palmer, for securing this debate. I should perhaps declare a former interest as a former adviser to the Caribbean Banana Exporters Association. In addition, until I took this job, I was a regular traveller to the Caribbean in connection with the Sport for Life international educational programme, so I was a regular payer of APD to the Caribbean.

I will begin by acknowledging the important contribution that the aviation and tourism industries make to the economy. The United Kingdom’s aviation sector connects millions of consumers and businesses with international markets. The five airports that serve London offer at least weekly direct services to more than 360 destinations worldwide. That is more than Paris, Frankfurt or Amsterdam. Overall, the United Kingdom has the third-largest aviation network in the world, after the United States of America and China.

Tourism is our fifth-biggest industry and our third-highest export earner, worth around £116 billion to the economy, or roughly 9% of GDP. Despite the tough economic conditions, the UK’s tourism sector is growing at around 3% per year. As the noble Lord, Lord Lee, pointed out, we are seeking to promote

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tourism as part of the GREAT campaign—one of the most ambitious and far-reaching marketing campaigns ever undertaken by the UK. We have also, as he mentioned, made changes to the rules for Chinese visitors to make it easier for them to obtain visas for travelling to the UK.

Turning to APD itself, I would like to reiterate some of the history, which I know a number of noble Lords have already done to a certain extent. APD was introduced in 1994 as a pure revenue-raising tax. It was introduced in recognition of the fact that air travel was otherwise undertaxed compared to other sectors of the economy. Air travel is zero-rated for VAT, and the fuel used in air travel and in nearly all domestic flights is entirely free of tax. The initial rates of the duty were £5 for flights to destinations within the European Economic Area, and £10 for flights to other destinations.

In 2008, the previous Government announced a restructuring of APD, increasing the number of bands from two to four. The reason given was that this would improve the environmental signal given by the tax. As a result of that restructuring, the highest rate was increased to £170. These changes were enacted in the final Finance Act before the 2010 election.

In the period since the election, the Government have limited increases in air passenger duty to inflation only. During this time, rates have increased by only £1 for the majority of passengers. Budget 2012 set out rates from April 2013, which will also rise only by inflation. The real burden of the duty will therefore remain unchanged for at least a further year. Therefore, the fears of the BCC are, frankly, greatly exaggerated.

I will respond to the point made by the noble Lord, Lord Monks, that this is a regressive tax. This is not a regressive tax. In terms of its impact on deciles of income-earners, households in the highest decile pay more passenger duty as a proportion of their income than those in the bottom income decile. As the noble Lord, Lord Palmer, pointed out, to improve the fairness of the tax overall the Budget 2012 also confirmed the extension of air passenger duty to business jets from April this year.

Concern has been raised by virtually all speakers—I suspect it was every speaker—about the impact of APD on the competitiveness of the United Kingdom. There have been widespread calls for a cut in the level of the tax or for its abolition. The noble Lord, Lord Palmer, was kind enough to mention my interest in cricket. My boyhood cricketing hero was Geoffrey Boycott. I hope that the noble Lord will not be too disappointed if I proceed more in the manner of Boycott playing an innings on a troublesome Headingley wicket than Brian Lara at the Antigua Recreation Ground.

The Government’s view is that there can be a sustainable platform for economic growth only if we are willing to tackle our overspending. Demands for cuts in air passenger duty must therefore be balanced against the Government’s general revenue requirement and the need for a fair contribution from the sector towards reducing the deficit. Air passenger duty is forecast to raise about £2.9 billion in 2013-14. This revenue is essential if we are to maintain progress toward our

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goal of deficit reduction. If APD were reduced or abolished, other taxes would have to be increased or public expenditure cut by an equivalent amount.

The noble Lord, Lord Palmer, and many other noble Lords have asked the Treasury to undertake a study into the macroeconomic impact of air passenger duty. The Treasury keeps all taxes under review and considers them in the round. This is not the only tax that many people would like to see abolished. In fact, it is almost impossible to find a tax whose abolition would not be cheered to the rafters, so the fact that people would like this tax abolished is not in itself a good reason to abolish it. I am afraid that I must reiterate the context in which we are working. Our central goal as a Government remains tackling the fiscal deficit. This requires the aviation sector to make a fair contribution, which is what we believe APD does.

Lord Morris of Handsworth: The Caribbean Governments are not asking for the APD tax to be abolished. What they are asking for is equity of application.

Lord Newby: My Lords, the noble Lord, Lord Morris, anticipates me. I was just coming to the Caribbean but a number of noble Lords have called for the tax to be abolished tout court. There have been strong arguments—

Lord Howell of Guildford: We must have accuracy in this debate. I am aware of one calling for abolition; sensibly, none of the rest of us is calling for abolition. For the Minister to pin his arguments on the abolition plea alone really is to distort the debate and not to do justice to this House.

Lord Newby: My Lords, I was simply stating that I thought that several noble Lords—at least one—have called for abolition.

Noble Lords: One.

Lord Newby: Okay, one noble Lord has called for abolition. I am sorry if I exaggerated the opposition but it certainly felt as though a number of noble Lords were calling for the abolition of the tax.

On the Caribbean, there have been strong arguments presented tonight and over the years about the effect of APD there. I am aware of the strength of the arguments because in a former existence I made them myself. In response to these arguments, changes to the structure of APD were considered as part of the 2011 consultation. For a number of reasons, it proved much more difficult to do it than appeared at first sight. One of the main challenges is that if you adopt the pure principle of a distance-based tax, it would be seen— bizarrely, in my view—as a proxy to taxing fuel. That would be illegal under the Chicago Convention on international aviation, so the Government looked at a rather simpler restructuring. However, they found that the only way they could have done it that would have dealt with the disparity of treatment between the US and the Caribbean would have required an increase in the duty for about 90 per cent of passengers, including

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those flying to Europe and the USA. The Government felt that, in the current economic climate, it would not be fair to ask the majority to pay more to help fund a cut for the minority.

Lord Foulkes of Cumnock: I think the Minister has been listening carefully to the debate. He will recall that I gave him a suggestion; my understanding is that it was not considered in the review. It came up very recently from a meeting between the Caribbean Council and Ministers from the Caribbean. I asked the Minister for a very simple pledge to take this new suggestion back now and discuss it with the Chancellor: Bermuda should be designated the capital of the Caribbean for this purpose only. Surely that is the least he can do for the people of the Caribbean, on behalf of whom my noble friend Lord Morris spoke so eloquently.

Lord Newby: The noble Lord, Lord Morris, anticipated me two minutes ago and the noble Lord, Lord Foulkes, has anticipated me just now. I was about to say that I had not heard the Caribbean Council’s suggestion of designating Bermuda the capital of the Caribbean. My experience of the Caribbean does not fill me with hope that, when push comes to shove, there would be much agreement to designate anywhere as its capital. I am not sure whether you can designate somewhere as a capital for one purpose but not a capital for every other purpose. However, it is a new suggestion; I will certainly take it back and we will see whether it deals with the problem. My initial thought, not having heard the suggestion before, is that it is probably not quite as simple as that.

The Government recognise the mutual benefit of tourism and trade between the United Kingdom and the Caribbean. We welcome the work of the UK-Caribbean Forum to establish a new and improved strategic partnership to promote prosperity, growth and development within both regions. No doubt this topic can be discussed in that forum.

The noble Lord, Lord Howell, and other noble Lords referred to the devolution of air passenger duty to Northern Ireland. The Finance Act 2012 devolved to the Northern Ireland Assembly the power to set rates on direct long-haul flights leaving from Northern Ireland. The rate on short-haul flights will remain the same as that for the rest of the United Kingdom. In devolving direct long-haul rates to Northern Ireland, the Government responded to the wishes of the Northern Ireland Executive. We also recognised that Northern Ireland is in a unique position within the United Kingdom in that it shares a land border with another EU member state that has a lower rate of aviation tax. Further devolution of air passenger duty to Scotland or Wales is a subject that requires careful continued evaluation before we can be confident of its effects across the UK as a whole.

I return to my initial comment that I thank the noble Lord, Lord Palmer, for securing the debate. The Government want to ensure that aviation and tourism continue to grow to promote economic growth and support jobs across the country more generally. However, we also believe that aviation must bear its fair share of the fiscal burden so that we remain on course to

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address the record deficit. Air passenger duty makes an essential contribution to the public finances and to this Government’s plans to create a stable platform for growth.

8.33 pm

Sitting suspended.