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Air Passenger Duty

Volume 462: debated on Wednesday 4 July 2007

I am delighted to have secured this debate on air passenger duty double payments, which the Government and the airline industry should examine urgently. I welcome the Minister to her new position and am confident that, if anyone can help to find a solution to the problem, she can.

I have pursued the issue for some time and exchanged a great deal of correspondence with the Minister’s predecessor, but without securing a satisfactory outcome. That is not a reflection on the former Minister, who always listened carefully to my constituents’ concerns, but we never achieved the necessary firm action, and I hope that in the days and weeks ahead we shall be able to change that.

Most hon. Members know that air passenger duty is an excise duty that was introduced to help to address the increasing environmental damage resulting from increased air travel. The duty is charged on the carriage of passengers flying from any United Kingdom airport on an aircraft with an authorised take-off weight of more than 10 tonnes or with more than 20 passenger seats.

The purpose of this debate is not to question the nature of the duty. Like most people, I accept that some changes are necessary in the provision of services, but what concerns me and my constituents, and many other people who travel abroad and who live in areas outwith easy reach of London, is the double charge with which they are often hit. Many regional airports offer a limited number of international destinations, and passengers are often routed through Heathrow, which is the central hub for UK international flights, from a regional airport to catch a connecting flight. Those living in Scotland, the north of England, Northern Ireland and, in some cases, Wales are often hit with a double or even triple charge because they must take two domestic flights to and from London and their long-haul flight. The Government’s provisions to tackle that inequity and to ensure that passengers pay air passenger duty only once are fine in theory, but do not work so well in practice, resulting in many people being hit with the double whammy.

I congratulate my hon. Friend on securing this important debate. Many of his colleagues have tried to find an answer to the problem.

People in my constituency, which borders my hon. Friend’s, are charged £40 to go to London and then £40 to go to New York. They may have scraped and saved to obtain the most economic flight to New York, only to find that they must pay an extra £160 per person to travel both ways. Is it fair that those who can least afford it suffer the most?

I thank my hon. Friend for his contribution, which is absolutely right. He gave a detailed example of the costs that are inflicted on people, some of whom have struggled not just for a year, but for many years to be able to go on the holiday of a lifetime, and who then have to pay the additional tax.

The guidance on air passenger duty, published by Her Majesty’s Revenue and Customs, outlines the rules to assess whether a flight is connected and states that, if the departure of the second flight falls within 24 hours of the scheduled time of arrival of the first flight, it is connected. Airlines can also issue through-tickets whereby all flights on a journey are covered by a single air passenger duty payment. Unfortunately, those measures are not always compatible with the realities of modern air travel. For the most part, only larger airlines, such as British Airways and British Midland, offer through-tickets, and not everyone is fortunate enough to be able to pay the amount that those airlines charge on flights to and from London on top of their long-haul flight, particularly if they have young children travelling with them.

I congratulate my hon. Friend on securing this debate. Is he aware of the good example of our hon. Friend the Member for Midlothian (Mr. Hamilton), who has arranged the family holiday of a lifetime to Florida, including both his children and grandchildren? The extra payment just to get from Scotland to London will be approximately £1,000 on top of the price of the holiday.

My hon. Friend makes a valuable point, and I am sure that if my hon. Friend the Member for Midlothian (Mr. Hamilton) could have been here—he is occupied with other important business—he would have given a graphic example of just how the tax affects families north of the Watford gap.

Many families throughout the UK save for months to afford a holiday abroad and, to reach their holiday destination, they must travel via Heathrow. They have no choice. To save money, many of those families use budget, no-frills airlines such Ryanair, easyJet and Flyglobespan. It is often impossible to obtain through-tickets on those airlines because many of them fly to London’s other airports such as Gatwick, Luton or Stansted, rather than to Heathrow, to reduce their own costs. Travellers then make their way to their connection at Heathrow. That is not taken into account by the air passenger duty regulations.

I am concerned that families in Scotland, the north of England, Northern Ireland and Wales must pay more for their holidays simply because of where they live. The Government have long been the champion of the family, yet families are being hit hardest by the inequity of having to pay the charge for each member on each leg of their journey. I call on the Government to work with the airline industry urgently to review the regulations to ensure that people from northern areas of the UK are not discriminated against. If that is not done soon, there will be an increase in people travelling to European hubs to avoid paying double charges, which would impact negatively on our airline industry, and that was never the Government’s intention.

The financial gain brought into our capital by Heathrow and other airports will be threatened if that occurs, and I ask the Minister to meet all interested parties for a full and frank discussion of the many complex issues surrounding this problem. That may not be easy because obnoxious airline owners may be unwilling to sit round a table and find a solution, but it is important that the effort is made.

The air passenger duty was introduced for the best of reasons, and the Government should be commended for their long-term view. However, it is important that any action taken by the Government is fair for everyone we represent. Airline and travel industry representatives are present today, and they are as keen as anyone to try to find a satisfactory solution, but I am not suggesting for a minute that the task will be easy.

I have met Treasury officials a couple times to try to sort the matter out, and I am sure that they understand the problems that have been identified by my hon. Friends the Members for Glasgow, North-West (John Robertson) and for East Lothian (Anne Moffat), but there must be ambition, keenness and appetite to get heads together to find a solution so that families who have saved up for holidays are not hit by the double or triple whammy of the airport tax. I do not think that that was the Government’s intention when they introduced it.

I once again congratulate my hon. Friend the Member for Paisley and Renfrewshire, North (Jim Sheridan) on securing the debate and on his contribution. I shall broaden some of his points and discuss fairness. I have no doubt that the taxes had nothing to do with the Treasury’s wish to collect money; it was obvious that they were to do with climate change. However, the planes would fly whether the taxes existed or not and, in fact, with low-cost airlines, more and more flights take off from our shores daily.

I shall discuss the aspirations of my constituents. I do not have one of the most affluent constituencies in the land; in fact, it contains a couple of the most deprived and poorest areas of the country. However, those people have aspirations, too––aspirations to see the world and to sample the good things that other, much more affluent people, have the opportunity to sample. But suddenly, a family of four has to pay £160 extra if they wish to fly from Glasgow to New York via London. Why would they want to fly via London? The fact is that there are very few flights from Glasgow direct to New York. They could take them, but they would still pay extra money. Almost all the cheap flights go through London, and in some cases, through other European cities, too. When we are discussing fairness, I sometimes wonder whether we have considered this country’s hubs and the people who use them.

British Airways has cut many of its flights. It is trying to put its finances in order, and some of us believe that it is not so much interested in Britain anymore, but looking more towards the international market. That may or may not be true, but plenty of airlines wish to secure slots abroad. In doing so, they want to fly from the hub where most people are situated, so they attract their planes to those hubs. By attracting their planes to them, they make money for the airport that they leave from, for the airport that they stop at while waiting for the other plane, and for the destination airport on the way back. I do not think that that is fair to the people who can least afford it. I want my constituents to be able to fly from Glasgow direct to New York, thus saving half the tax money.

I also believe that the then Chancellor, now the Prime Minister, did not foresee the problem that such practice would cause outside London. The money that he receives affects the aspirations of my constituents. They want to go on holiday, and they want to take their family, but as my hon. Friend the Member for Paisley and Renfrewshire, North mentioned, they may have to save up for years to get that holiday. The people who have been saving for three or four years now find that they have to save for perhaps another year. However, people who have the money can go whenever they please, because they can afford it.

The aspirations of the poor are once again hit, but the aspirations of the rich are once again met, because they can afford to meet them. Our party is not in power to do that. We must consider the issue and think about the aspirations of every person in this country. We want to broaden their horizons just as the horizons of people who can afford it are broadened. My hon. Friend the Exchequer Secretary should reconsider the issue. I am not worried about the tax in general but people certainly should not have to pay twice, and if they travel from the isles or the far north, they certainly should not have to pay three times what somebody from London has to pay to take the same flight.

I congratulate my hon. Friend the Member for Paisley and Renfrewshire, North (Jim Sheridan) on his success in securing this afternoon’s debate, which is about an important topic. I also thank my hon. Friend the Member for Glasgow, North-West (John Robertson) for his contribution, and my hon. Friend the Member for East Lothian (Anne Moffat) for her earlier intervention.

I shall do my best to soothe some of the worries, although I am not sure that I can produce the solution that my hon. Friend the Member for Paisley and Renfrewshire, North would wish for. He was right, however, to acknowledge that air passenger duty was introduced to address the environmental concerns about air travel, and I welcome the fact that all my hon. Friends welcome the tax from that point of view. They have understandable issues, however, with the way in which it is being put into effect.

To put it on record, air passenger duty is a way of pricing aviation’s carbon emissions, and of helping to ensure that the industry pays the costs that it imposes on society at large with its pollution. The Government are committed to that principle, and I am glad that my hon. Friends agree with it. The air passenger duty will limit carbon emissions from aviation. They are a growing problem, and they are expected to grow in importance as more flights occur. The rate rise that was announced in the pre-Budget report will save the equivalent of 750,000 tonnes of carbon per year by 2010-11, which will be the equivalent of taking 400,000 cars off the road, so it will have a positive effect, for the purposes for which it was introduced.

Air passenger duty is paid by aircraft operators on all passengers departing from UK airports, with higher charges for flights outside the European Union reflecting the fact that longer journeys are more polluting. There is an exemption for passengers who are in transit—the issue for debate today—and transfer through the UK. There is a concession for passengers with connected tickets for more than one flight, but the way in which the concession works is causing the problems. For those passengers, the APD that they pay will depend on their eventual destination, but it will be paid by the carrier that provides the first leg of the journey.

I shall not explain the detail of that exemption, but if hon. Members are interested, it is set out in the Air Passenger Duty (Connected Flights) Order 1994. My hon. Friend the Member for Paisley and Renfrewshire, North correctly identified the way in which it works, and I do not intend to repeat it. However, it is important to emphasise that the concession is not restricted to passengers who book all their flights with one airline. Any airline can offer through-tickets, including for passengers who have connected flights with different airlines, if the airline collects enough information both to link the tickets and to account to Her Majesty’s Revenue and Customs for the connection between the tickets. Many airlines offer that service to their passengers, including a number flying from Scotland, such as BMI and British Airways, and if they do, the double payment, as my hon. Friend characterised it, does not occur.

However, I accept that for their own commercial reasons, not all airlines wish to offer the service to their customers. In the case of the point-to-point airline, the concession does not apply. Since I realised that I would be having this debate with my hon. Friend, I have thought about the issue and the way in which the concession could apply. I must confess that I have not come up with an answer yet, but I am interested to hear whether he has one.

Without the necessary information to link a passenger’s first flight to their second, which is the information that exists in through-ticketing, it simply is not possible to treat the flights as one journey for APD purposes. Aircraft operators are required by the law to account for the correct amount of APD to Her Majesty’s Revenue and Customs—whether or not they pass the charge on to their passengers. Unless the airlines can identify for themselves and assure Revenue and Customs that the flights are genuinely connected, it is clear that the concession cannot be used.

The existing framework allows the aviation industry to avoid what has been described today as double payments, and all airlines can use the concession if they are willing to collect the required information. Any airline or aircraft operator from any part of the UK can offer the concession to its passengers.

My hon. Friend the Exchequer Secretary has been extremely positive up till now, but the problem seems to be that the airlines are of the view that if they try to operate through-tickets, they would have to pick up any administration costs. Their view is that the taxes are Government-led, so the burden of administering them should not fall on the airlines. Therein lies the problem. I do not profess to be a professional in the travel industry, but if we can get the professionals together—that is, the Treasury team and the airlines—perhaps we can come to some sort of conclusion.

I am happy to keep thinking about that. However, the only way that I have so far been able to think of for point-to-point operators to provide the relevant evidence to Her Majesty’s Revenue and Customs is the collection of information and proof from each individual passenger who travels with them on the first journey about where, if anywhere, they are going to fly next, since some point-to-point passengers obviously do not take a further journey, while others catch connecting flights. From the point of view of getting tax revenues and liabilities correct, there must be proof of where all those passengers who travelled on the first stage of the journey subsequently went. Traditionally, that has been proved by through-tickets and linked tickets. I am not sure how most passengers would react to their point-to-point airline asking them where they were going next, even if it was willing to do so, or asking them for proof, for tax purposes.

I just want to get right what I think my hon. Friend the Exchequer Secretary is saying. What she is saying is that if somebody can prove that they are taking more than one flight, they can claim back—

They cannot, then. Just as people who buy goods in certain countries can claim the tax back before they leave the country, by submitting their bills, is there no way of doing something similar, so that somebody who can prove that they had made two flights and been charged twice could claim it back, not necessarily at the time, but in writing later on?

There is only one problem with that very good suggestion: the air passenger duty falls on the airline companies, not individual passengers. Therefore, it is up to the airline companies whether to pass that cost on to their customers. Although my hon. Friend makes an extremely good suggestion, it does not fit with the structure of the tax.

I should like to reassure my hon. Friend the Member for Glasgow, North-West that the amount of air passenger duty that would be payable on, say, an economy flight from Glasgow down to Heathrow or Stansted is £10, not £40. For long-haul flights, the air passenger duty rate is £40, so the extra cost for an individual who did not get a connecting flight from Glasgow to Heathrow and then on to Florida, for example, would be £10, not the £40 that my hon. Friend quoted. The extra costs are not quite as bad as those in the example that he gave, because flights in the European economic area are charged at £10 for economy and £20 for business class. The only way to get to his example of £40 would be for two adults to travel business class, which I suspect is not likely, given what he said about his constituents. The costs are there, but they are not as substantial as my hon. Friend indicated.

Also, all flights from the highlands and islands have been exempted already, because of the remoteness of the area. Therefore, there are not three payments of tax if one travels from the highlands and islands. The first flight, into Glasgow, is exempted, while the cost on the second flight, if it is a domestic flight in economy class down to London, is £10 and the cost for a long-haul flight is £40. The extra cost from the inability to through-ticket in that example is therefore just £10, or £20 if one goes the other way. We have to bear that in mind when we consider the administrative changes that it might be reasonable and relevant to introduce.

We know that some point-to-point airlines choose not to get involved with the extra administration and responsibilities implied in through-ticketing, particularly because they would have responsibilities for hotels and so on, if the ongoing flight were cancelled. From some of their business plans and niche marketing, I understand why point-to-point operators at the low-cost end of the market might not wish to get involved in those responsibilities and why they therefore do not offer through-ticketing.

I do not know whether it would be workable, but one simple solution could be for people to be given a receipt at the first point of travel—that is, at the regional airport—saying that they have already paid the tax, which they can then show during the second part of their journey.

I would have to think that through, but I am not going to do so on my feet—that would get me into significant trouble very quickly. I am happy to consider all my hon. Friend’s suggestions, but he must remember that the tax is organised so that it falls on the first carrier. In a point-to-point situation, there is only one carrier. We have discussed how difficult it is to get information about what a particular passenger may then do. With through-ticketing that is not a problem, because everything can be proved; but again, the point is that the tax falls on the first carrier. If there is an onward flight, we have to get evidence for the through-ticketing concession to bite. That is the nub of our problem.

As I said, I am quite happy to keep an open mind about the issue, but such matters often turn out to be more complex than people imagine. We need to remember that although the costs are there, they are not as high as some people thought. A person travelling to Florida will incur the £40 cost for long-haul flights anyway, wherever they travel from in the UK.

My hon. Friend the Member for Paisley and Renfrewshire, North also said that we need to keep the tax under review, and we certainly do. When the tax was first created, low-cost airlines and point-to-point operations did not really exist. Other issues have also arisen in the development of the airline industry that are beginning to challenge some of the categories for the cost of air passenger duty, particularly the economy and business class distinction. As a result of the increasing range of products being marketed by airlines—including business class-only flights and premium economy seating—we are consulting with the industry on definitions of classes of travel in air passenger duty. We must be careful to ensure that in responding to changes in the aviation industry we do not make air passenger duty more complex to operate.

On the increase in point-to-point services, we do not believe it appropriate to check and record the onward plans of each individual, to confirm whether they have connecting flights. For the amount of tax liability that that would save for individuals, it would be a big burden to place on point-to-point operators, many of which rely on their light touch and low costs to keep their operations profitable, according to their business models. If we require operators to do that, point-to-point carriers would, in effect, be compelled to become through-carriers.

I am grateful to the Exchequer Secretary for giving way again. As I understand it, there is an appetite in the travel industry to try to reach a satisfactory conclusion, because it is in the industry’s interests for people to travel. My hon. Friend is surrounded by some of the best brains in the civil service. If they had the same appetite for coming to a satisfactory conclusion, we could find a way forward. Will she agree to meet the travel industry?

I am more than happy to keep such issues under consideration, if anyone can think of a solution that does not impose business models that are not commercially welcome on particular airline operators. I have an open mind, and if anyone has any suggestions, I would be happy for them to get in touch and let me know about them.

Question put and agreed to.

Adjourned accordingly at Five o’clock.