Air Passenger Duty

Tuesday 11th January 2011 Lords Chamber

Question

14:46

Asked by

[Lord Borrie]

To ask Her Majesty’s Government what is their assessment of the potential effects on United Kingdom competitiveness of the announcement by the Chancellor of the Exchequer in June 2010 forecasting that air passenger duty revenue would increase from the current rate of £1.9 billion to £3.8 billion per annum by 2015–16.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, the Office for Budget Responsibility’s November forecast estimates air passenger duty revenue at £3.6 billion in 2015-16. The estimate reflects forecast growth in passenger numbers and the November 2010 rate increases as announced by the previous Government. It also assumes that duty rates are uprated by inflation each year—a standard forecasting convention. However, at the Budget, the Government committed to exploring changes to aviation tax and to consult on any major changes. We are considering evidence from stakeholders, including on the impact on UK competitiveness.

[Lord Borrie]

I thank the noble Lord for his answer. However, it does not deal with the great problem that so many countries on the continent of Europe either do not have any duty at all or have a much lower duty than in Britain. Therefore, the competitiveness of our airlines, airports and tourist industry is at a disadvantage. Apropos the last Question and Answer, this is surely one matter on which the Government have a measure of control. It is their duty that has been imposed and is suggested to be higher. I am sure that the Minister will agree with me that the UK tourist industry must be very disappointed with the Answer that has been given, especially when tourists from countries such as India and China—growth economies—are wanted yet are being turned away by this unduly high duty.

[Lord Sassoon]

My Lords, I do not believe that the tourist industry will be either surprised or disappointed because I have merely restated that we are consulting a wide range of stakeholders and listening to views of the tourist organisations, among others. On UK competitiveness, it is important to see the APD in the wider context. For example, we do not levy the APD on transit or transfer passengers. As the noble Lord, Lord Borrie, points out, other countries are introducing similar taxes—Germany introduced a similar tax on 1 January. In the wider context of competitiveness, the Government are reducing corporation tax very significantly from 28 to 24 per cent over four years from April 2011. If we talk about competitiveness, we should look at it in a much wider context.

[Lord Palmer]

My Lords, can the Minister explain why those in private jets are not subject to APD? This might be a very good point for his consultation paper.

[Lord Sassoon]

My Lords, I am listening hard to points that are raised this afternoon. Although I cannot tell noble Lords where the consultation will get to, I am very happy to listen to points, including that made by the noble Lord.

[Lord Rotherwick]

Is the Minister not concerned that by raising the airport passenger duty in the way that is proposed he will damage the Government’s objective of making this country one of the major tourist destinations? If a family of four from China travel to this country from their home, they will now pay £300, even though they are travelling economy.

[Lord Sassoon]

My Lords, it is certainly not the Government’s intention to damage the competitiveness of any sector of the economy, least of all the tourist sector. I should remind noble Lords that the duty increase that came in on 1 November was announced by the previous Government and is something we are looking at. All these factors will be considered but this is not an easy matter; the previous Government reviewed the system at least once since its introduction.

[Lord Clinton-Davis]

I declare an interest as the president of BALPA. How does this proposed duty improve the environment? I do not think that it will at all, but I want to hear the Minister’s response. Does not this duty impose a serious and further blow to the prospects of our beleaguered airlines, so why insist on this pernicious duty?

[Lord Sassoon]

My Lords, the Government have not proposed anything yet. The coalition agreement talks about a change from APD to a per plane basis. Clearly, different constructions of the duty have different effects on usage of aircraft and on the environment. However, as I say, the Government have not proposed anything yet. We are in listening mode. The effect on the airlines, environmental effects and competitiveness are all issues that must be considered.

[Lord Newby]

My Lords, is the Minister aware that the APD is seen to be particularly unfair on the Caribbean? Will he ensure that as part of the review which the Government are undertaking, particular attention is given to the effect of the APD on the Caribbean, not just on the tourist industry there, which is increasingly important as a proportion of its economic activity, but on the Caribbean diaspora who live in the UK?

[Lord Sassoon]

I am grateful to my noble friend for drawing attention to the Caribbean. The Caribbean Tourism Organisation has produced a very helpful report as a contribution to the debate. I have met the Heads of Government of the dependent territories in the Caribbean, so I have heard first hand their strength of feeling in respect of this issue. However, under the Chicago Convention we have to have an objective basis for distinguishing between one country and another.

[Baroness Liddell of Coatdyke]

My Lords, I declare an interest as a board member of VisitBritain. I take this opportunity to congratulate the Prime Minister on the very helpful speech that he made last week in which he recognised tourism as an engine of growth in the economy. However, will the Minister prevail on his officials to set up a monitoring committee with the Department for Culture, Media and Sport as APD will prove a significant challenge to the tourism industry at a time of huge opportunity, with everything from a royal wedding to the Olympics? Mitigating measures might well be introduced but only if there is a sufficiently adequate early warning system.

[Lord Sassoon]

I absolutely hear the point and I am sure that my right honourable friend the Prime Minister will be pleased that his commitment to the tourist industry has been noted. I say again that the previous Government increased the rates to where they are now, with the burden falling on tourists and all other passengers, but we are looking at the whole construct.