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Air Passenger Duty

Volume 713: debated on Monday 12 October 2009


Asked By

To ask Her Majesty’s Government whether they have completed their review of the arrangements for increasing air passenger duty.

My Lords, my right honourable friend the Chancellor announced in the 2008 Pre-Budget Report that air passenger duty would be reformed from this November. That decision is not being reconsidered. If the noble Lord is referring to the effect of APD on the Caribbean, I can tell him that my honourable friend the Exchequer Secretary to the Treasury has asked officials to continue to consider this carefully. This consideration is still in progress. Any carve-out for the Caribbean with respect to this tax, such as a specific exemption or provisions, could raise questions about both legality and potential distortions between comparable destinations.

My Lords, I thank the noble Lord for that reply. However, I declare an interest as chairman of an all-party parliamentary group for one of the British Overseas Territories in the Caribbean. It is over three months since the Exchequer Secretary made the statement on 7 July. First, does my noble friend not believe that the matter should have been resolved by now? Secondly, does he not believe, as I do, that it is unfair that those travelling to the Caribbean have to pay a higher duty than those travelling to Hawaii, Alaska and the whole of the west coast of America, when going to the Caribbean is half that distance?

My Lords, my noble friend’s interest in the economy and people of the Cayman Islands is well known.

My Lords, on the Labour Benches nothing is closer to our hearts than the Cayman Islands. The Exchequer Secretary said that a reply would be given after due consideration. The new tax bands are due to come into effect from 1 November. Clearly, I expect a reply before that date.

On the bands for identifying travel distances, it is the convention to use the location of the capital city of the country. It is the good fortune of people travelling to Hawaii and Alaska that the capital of the United States is on the east rather than the west coast.

My Lords, the Minister says that the convention is to take the capital city as the basis of such a duty; does that not just prove that the convention is ridiculous and stupid? In this case, as the noble Lord has already said, one pays a lower rate of duty to go to Hawaii than to the eastern Caribbean—a series of countries that is suffering considerably with the downturn in the tourist market, and with which we have a long and strong historical link. Could the Minister ask his officials, when they are considering this, to look not at the precedent but at what makes sense now?

My Lords, the convention is one adopted by the airline industry. We seek to avoid a proliferation of different tax rates, which would represent an unreasonable burden on the air travel industry and on those taking advantage of the facilities offered by it. We have therefore gone for a model that is simple. The only exemption to the capital city rule is Russia, which divides into two zones to the west and east of the Ural mountains. The situation in the Caribbean economies is one of the factors being considered in the current review, the outcome of which will be announced prior to 1 November.

My Lords, will the Minister reflect on whether air passenger duty is levied basically as a tax-gathering exercise or whether there are real environmental concerns? Is the ability of the airline industry to play with fare rises and look at the elasticity of demand for air travel negating much of the effect?

The purpose of the air passenger duty is primarily fiscal but gives a strong nudge towards environmental considerations and will, we believe, lead to a reduction of some 0.6 million tonnes of carbon per annum as a result of the increase in the rates that is proposed with effect from 1 November. However, it is primarily a fiscal strategy and that, of course, is why it was introduced by the Conservative Government in 1994.

My Lords, the Minister confirmed to the noble Lord, Lord Davies, that the Government are not carrying out a review and has now confirmed that the only reason they have the measure in the form that they have it is fiscal. Does the Minister agree with me that those who care about the environment, and who therefore see a “per plane” duty as the only logical way to proceed, should now vote for the party that is committed to that; namely, the Conservative Party?

We consulted widely in 2007-08 on whether we should make a change to per plane or per passenger duty but, having listened very carefully to the detailed, vociferous and consistent representations from the business lobby, we concluded that a per passenger duty—it had been introduced, as I said earlier, by the Conservative Government in 1994—was the most effective way of introducing taxation in this area. Of course, a per plane duty would have an injurious effect on international commerce, when we—on our Benches, at least—are doing everything we can to ensure that economic activity recovers as quickly as possible. I am sure the electorate will bear that in mind when they decide how to vote in the forthcoming general election.