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Taxation: Air Passenger Duty

Volume 689: debated on Tuesday 30 January 2007

asked Her Majesty’s Government:

What is the legal basis on which increased rates of air passenger duty will apply from 1 February 2007.

My Lords, the rate changes will be enacted in the Finance Bill in the normal way and will have the full force of the law. The way in which the Government have announced and implemented the change is in line with parliamentary conventions.

My Lords, we have counsel’s opinion that, unless and until Parliament actually approves the air passenger duty increases retrospectively, there is no obligation on the airlines to pay. It is therefore unsurprising that passengers are confused about whether they will have to pay the extra tax if the airlines ask for it. Will the Minister give clear advice from the Government to airline passengers when they turn up to fly from Thursday morning onwards? Should they pay the tax or not?

My Lords, it is the airlines which will pay the tax. They must decide whether to absorb the tax or to charge passengers. Is the requirement legal? Of course it is. Anti-avoidance measures that deal with illegality generally follow this form—namely, there is an announcement with immediate effect—otherwise they would not be effective. Other measures similar to the airline passenger duty have also been announced. Last year, the oil companies were subject to an additional tax in exactly the measure applied to the airlines.

My Lords, is it the Government’s intention that the tax should raise revenue or reduce carbon emissions by reducing the number of flights, and which does my noble friend expect to be more successful?

My Lords, my noble friend is well versed on taxation and will recognise that it can produce a dual benefit. It can increase resources for deployment on public transport and other environmentally worthy measures. It can also reduce demand because of the price increase. We estimate that by 2010, 0.75 million tonnes of carbon per year will have been reduced through the air passenger duty.

My Lords, to what will the revenues be devoted? Will all the money collected from the airlines go into the Treasury’s exchequer for general use or will it have a definite environmental purpose?

My Lords, this Government intend, as one of their crucial strategies for dealing with climate change, to increase the use of public transport. We will invest the resources available from APD in environmental measures and in increasing public transport. In the three years since 2004, we have increased in real terms expenditure on public transport by 4.5 per cent.

My Lords, is not the test of the worth of the opinion referred to by the noble Baroness, Lady Noakes, really whether an airline is prepared to push the matter in the courts?

My Lords, as I indicated, it is the airlines which are legally obliged to pay the tax. We are aware that the airlines have been concerned about how the tax has been imposed, but I have not yet heard any airline suggest that it would test the matter in court. If any did, there are precedents against it.

My Lords, the Minister has just stated that this tax will reduce the amount of carbon emitted by airlines, but this is on the same day that the second runway has been announced at Stansted. Does the Minister accept that the Government’s policy seems to be to raise revenue for this, but at the same time to increase the number of flights over British airspace?

My Lords, we have to strike a balance. I hear the Liberal Democrats laughing, but do they take seriously this proposition? We have to strike a balance between the necessary growth of the economy and the wishes of the people regarding aviation. There must be a balance between that and pursuing measures which guarantee that Britain fulfils its role in reducing areas of climate change and carbon emissions. The Government are on a strategy to do that. We can certainly see an increase in aviation, which, the noble Lord will understand, makes a very small contribution to emissions: 2.5 per cent of our total emissions. I would expect the Liberal Democrats to recognise that that is relatively small compared with other aspects that we have to tackle. We have to strike a balance between that and the needs of the economy.

My Lords, the noble Lord has been good enough to almost answer my question. Instead of making the airlines a whipping boy, would it not be more sensible to tackle the real causes of CO2, which are carbon fuels, and to try increasingly to make this, like France, an all-electric country? We could have electric trains, and electric heating and lighting, for which we have the technology already. If we were to go nuclear we could reduce CO2 emissions by so much that we would not have to restrict the cheapest and best form of travel of the 21st century by overregulation. There are better ways of tackling climate change than just fiddling on the periphery.

My Lords, tackling aviation is not fiddling on the periphery because aviation emissions are set to increase unless the expansion of air travel is moderated. Of course, air passenger duty will play a small part in that. I agree with the noble Lord that there are other areas vastly more important than aviation, which is why the Government are committed to pursuing strategies that deal with the big sources of emission.

My Lords, I do not disagree with the principle of increasing air passenger duty as a contribution to controlling climate change, but has my noble friend any comment to offer about the letter a number of Members of the House have received from the Association of Independent Tour Operators pointing out that, while the airlines are able to impose a surcharge to meet the increased duty, tour operators are bound by the European Union package travel directive and effectively prevented from doing so? As a result, they are being discriminated against. I declare an interest as the chairman of a consultancy that advises the travel industry.

My Lords, we recognise that there are some difficulties for the tourist industry as a consequence of the tax. British Airways, for example, is absorbing the tax and thus putting itself in the same position as tour operators. For most travel within Europe, which constitutes the vast bulk of travel affected by the tax, the sums involved will not be massive. However, my noble friend has articulated the need to deal with climate change and will recognise that, while the tax is marginal to that, it is nevertheless a contributory factor and sends a signal to people.