Air passenger duty: rates of duty from 1 April 2019

Finance (No. 2) Bill – in a Public Bill Committee am 2:45 pm ar 16 Ionawr 2018.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Question proposed, That the clause stand part of the Bill.

With this it will be convenient to consider new clause 16—Review of changes to rates of air passenger duty—

“(1) No later than 31 March 2019, the Chancellor of the Exchequer must review the effects of the changes made by section 43 to rates of air passenger duty set out in Chapter 4 of Part 1 of FA 1994.

(2) The review under this section must consider—

(a) the effect on airplane usage as a result of the changes to air passenger duty rates, and

(b) the effectiveness of the changes to air passenger duty on reducing carbon emissions and meeting carbon emissions targets.

(3) The Chancellor of the Exchequer must lay before the House of Commons the report of the review under this section as soon as practicable after its completion.”

This new clause provides for a review of the effects of the changes to air passenger duty rates on airplane usage and carbon emissions.

Photo of Mel Stride Mel Stride Financial Secretary to the Treasury and Paymaster General

Clause 43 sets air passenger duty rates for the tax year 2019-20. All short-haul rates and the long-haul economy rate will remain frozen at the 2018-19 level. Only those flying long haul in business or first class, or by private jet, will pay more. The changes will ensure that the aviation sector continues to contribute to general taxation while also providing a freeze for more than 95% of all passengers.

Air passenger duty is a per-passenger tax levied on airlines. With no tax on aviation fuel or VAT on international or domestic flights, APD ensures that the aviation sector plays its part in general taxation, raising £3.1 billion a year. The aviation sector continues to perform strongly. The UK has the third largest aviation network in the world, and passenger numbers at UK airports have been strong: in fact, growth has exceeded 15% in the previous five years.

Clause 43 will set the APD rates for the tax year 2019-20. The Government are freezing all short-haul rates, as we have done since 2012. We are also keeping frozen the long-haul reduced rate, which affects all passengers travelling long haul in economy class. Together, this approach benefits more than 95% of all passengers. The changes being made by clause 43 therefore only affect the APD rates for passengers flying long haul in the premium bands.

The long-haul standard rate, which applies to premium economy, business and first-class tickets, will increase by £16 compared with 2018-19 levels, to £172. That means that a passenger purchasing a £1,000 premium economy ticket to New York will pay only an additional 1.6% and a passenger travelling to the same destination on a £4,000 business class ticket will pay only an additional 0.4%.

Clause 43 also increases the higher rate for passengers travelling long haul in private and business jets by £47. Together, the changes will affect less than 5% of passengers. To give the industry sufficient notice, we will announce APD rates for 2020-21 at autumn Budget 2018, legislating in next year’s Finance Bill.

The Opposition have proposed a new clause asking for a review of the effects of the changes on aeroplane usage and carbon emissions by 31 March 2019. I appreciate that hon. Members want to ensure that the Government continually assess their policies, but a review of that nature is unnecessary for a number of reasons. First, the Government already keep aeroplane usage under review. HMRC publishes passenger number statistics as part of the air passenger duty bulletin, which is updated yearly. As I have outlined, the data show that passenger numbers at UK airports have been strong, with growth exceeding 15% in the past five years.

Secondly, the Government have taken strong action at a global level to address carbon emissions from aviation. For example, the UK worked very hard through the International Civil Aviation Organisation to reach agreement on the carbon offsetting and reduction scheme for international aviation in October 2016. It is the first worldwide scheme to address carbon emissions in any single sector, and it sends a strong signal that international aviation is committed to taking action to tackle climate change.

Finally, airlines sell tickets up to a year in advance, so legislating now for 2019-20 APD rates provides certainty to operators. Undertaking a review of APD before 31 March 2019, as suggested in new clause 16, may reduce certainty for taxpayers. The new clause also asks us to review the effect of tax rates before they come into effect, which of course would be difficult. That is in the interests of neither companies nor consumers.

On that basis, I ask the hon. Member for Bootle to withdraw the new clause, and I commend clause 43 to the Committee.

Photo of Anneliese Dodds Anneliese Dodds Shadow Minister (Treasury) 3:00, 16 Ionawr 2018

It is a pleasure to be speaking with you in the Chair, Mr Owen. I thank the Minister for his clarifying comments. We on the Labour Benches still wish to have the review proposed in new clause 16. The review would, exactly as described by the Minister, examine the impact of the APD changes on the usage of aeroplanes and their emissions.

On one hand, it is helpful that we are shifting towards greater predictability for air operators and consumers around air passenger duty. It seems appropriate that we have the lag so that we can discuss and determine future rates, rather than having short-term change, but we would like a much stronger indication of the direction of Government thinking in relation to the tax.

The Minister offered the same argument for air passenger duty, to a word, as the one we were given in the previous Finance Bill discussion:

“With no tax on aviation fuel or VAT on international and domestic flights, APD ensures that the aviation sector plays its part in contributing towards general taxation, raising £3.1 billion per annum.”––[Official Report, Finance Public Bill Committee, 24 October 2017; c. 111.]

In our discussions in Committee on APD changes in the previous Finance Bill, we went on to talk about the potential environmental impact. I note that at that stage, the Minister said:

“Like all taxes, it will also change behaviour to some degree, and to the extent that it makes flying a little bit more expensive, it could be expected to have the effect of diminishing demand for air travel. The lower rates for economy, which takes up more space on aircraft than first class, assist in ensuring that flights are as full as they can be.”––[Official Report, Finance Public Bill Committee, 24 October 2017; c. 114.]

We would find it very helpful to have a review. I take on board the Minister’s point about regular information about the operation of APD, but what we do not have at the moment, to my knowledge—if I am wrong, the Minister can set me right—is an indication of the relative merits of this approach against potential others.

A number of transport economists and environmentalists have looked at the impact of levying duty on entire planes, rather than on individuals. The thought was that that would somehow lead to more incentives for more efficient use of space. I take on board the differential rates for private jets and small planes as against larger planes, which tend to be fuller during economy use, but it would be helpful to know whether there will be more impetus towards more intensive use of planes that are already in the air but all of whose seats are perhaps not being used. For the Opposition, that would be part of the stronger analysis of the impact of the duty, compared with other approaches. It would be part of the more general review that we feel we need on the overall impact of environmental taxes and reliefs, so that we can be sure that they are targeted as well as they can be for both economic and environmental purposes.

There are a couple of other issues on which we need clarification. We had a debate on the first during proceedings on the previous Finance Bill. My hon. Friend Kelvin Hopkins and others raised the matter when they talked about the extent of consultation on existing measures. There are higher rates for long haul in the proposals, as in the existing APD regime, but many Britons have no choice but to travel long haul if their family is in the Caribbean, the Indian subcontinent and so on. The Minister at the time made a commitment to write to my hon. Friend on the extent of consultation with groups of people who might be particularly affected. It would be helpful to have on the record the thoughts of the Minister in Committee on that issue, especially because, in many ways, short-haul flights are a lot easier for people to avoid than long-haul ones, because they can adopt other forms of transport instead. Any indications about that would be useful.

It would also be helpful to have an indication of the Government’s thinking about the extent to which they will be able to protect, or otherwise, revenue from APD. Arguably, we are seeing a race to the bottom on the duty. In previous Finance Bill Committees, we have discussed the new system in Scotland—the air departure tax. Clause 43 increases the band B multiplier in Northern Ireland. From the way in which it is written, I assume that that is happening in the absence of the Stormont arrangements coming back into play and giving the Northern Ireland Assembly control, so we are talking about an increase until the Assembly can make a determination.

Generally, however, the direction of travel appears to be downward, and it would be helpful to know the Treasury’s long-term thinking. We have a lot of pressure from airports, particularly those near Scotland, about whether they can protect their business given the potential reductions in the duty in Scotland. My hon. Friend Catherine McKinnell has made that point in the House.

Furthermore, we need consideration of the issue, given the discussion we had in the Chamber only a couple of hours ago, when a Minister—I appreciate that it was not the one in Committee, who is well apprised of all the issues relating to air passenger duty—seemed to indicate that we might change the extent to which we levy duty on incoming flights to the UK, departing from the existing practice under EU rules. That might be a possibility, but it would naturally have an impact on revenues. It would be helpful, again, if the Government indicated how the revenue—the £3.1 billion to which the Minister referred—will be protected.

Photo of Mel Stride Mel Stride Financial Secretary to the Treasury and Paymaster General

I need not repeat my earlier remarks about the reviews we already carry out, and I reiterate the point that the new clause, as worded, would implement a review of the possible impact of the taxation we are considering before such taxation had come into effect, which as an exercise is possibly not that valuable. Of course, we always keep all taxes under review. The hon. Lady talked about seeking beneficial behavioural change through mechanisms other than APD, for example. I am happy to receive any representations that she might make in that vein.

The hon. Lady mentioned her colleague, the hon. Member for Luton North, and the impact of APD on passengers who require a long-haul flight to visit relatives. I will certainly get back to her on that when I return to the Treasury. She also mentioned competition between different airports following the devolution of APD. Scotland will in due course bring in its own form of ADT. She also referred to the Northern Ireland situation. It will be for each of those tax jurisdictions to start to take whatever measures they think are appropriate to ensure that their particular airports and passengers are not disadvantaged. I suspect that, as with competing tax rates, the dynamics will probably be for those tax rates to come down, as a result of the competitive effect or the fact that there is a devolved Government. I commend the clause to the Committee.

Question put and agreed to.

Clause 43 accordingly ordered to stand part of the Bill.

Clause 44