18:59 - The House divided: - Ayes: 0 / Noes: 0 - Question accordingly negatived.
The Economic Secretary to the Treasury (Nicky Morgan)
Madam Deputy Speaker, it is a real pleasure to speak in this debate, particularly given that you are in the Chair. It does not seem that long ago that we were meeting on the Terrace and you were giving me advice on how to become a Member of Parliament—and now look at where we both are.
It is a pleasure to respond to the hon. Member for East Antrim (Sammy Wilson). I thank him for raising the issues, which relate to the two greatest challenges facing the Government and Britain today—rebuilding the British economy and restoring the public finances. The House well knows the state of both challenges when the Government came into office. The economy was still reeling from the impact of the recent banking crisis and Britain had the largest fiscal deficit in our peacetime history.
The hon. Gentleman started talking about zealousness, particularly in respect of green taxes. I thought he was going to talk about zealousness in tackling the fiscal deficit, although I am not sure that I heard that from him. The Government have had to face up to those challenges and take tough choices. My right hon. Friend the Chancellor committed to tackling our budget deficit and getting our national debt under control. Fixing the public finances is vital to maintain confidence in Britain and the stability that is an essential condition of growth, as the hon. Gentleman mentioned, and recovery.
In recent months, the statistics on gross domestic product, employment, business investment and consumer confidence have all shown that our efforts are beginning to bear fruit. The process of recovery is, of course, far from complete, but, building on the stable foundations that the Government put in place, the economy is now healing. I am sure that the whole House welcomes the signs of recovery so far and looks forward to seeing them continue.
In particular, I am sure that the hon. Gentleman will join me in welcoming the recent good economic news from Northern Ireland. This year, Northern Ireland’s exports have risen by 4% in the second quarter of the year and in September they rose at the fastest rate in nearly six years. September also saw the third consecutive month of growth in Northern Ireland’s GDP, with activity rising in the manufacturing, retail and services sectors. It also saw the third consecutive month of rising private sector employment, while total jobs have grown by more than 5,000 over the course of the year. That has kept unemployment in Northern Ireland well below the UK average and the fourth lowest of the 12 UK regions. Just as Northern Ireland makes a key contribution to the UK economy overall, growth and recovery in Northern Ireland are making a key contribution to the UK’s wider recovery.
Supporting strong transport links is a key part of building our economic recovery. The Government are therefore bringing forward record investment in transport infrastructure, which the hon. Gentleman mentioned, to ensure the connectivity of all parts of the United Kingdom, including Northern Ireland. That is why in this year’s spending review we announced a £20 million fund to improve air connectivity between London and the rest of the United Kingdom. Where the case is made for a public service obligation, the Government will use this fund to support regional air links. Northern Ireland will be able to bid for that support. This would build on existing support for the Northern Irish economy—for example, the additional £94 million of capital spending power for the Northern Ireland Executive announced in this year’s Budget and the action plan set out in the Northern Ireland economic pact published this June.
Ensuring sound public finances is indispensable to economic recovery. With forecast revenues of £2.9 billion in 2013-14, air passenger duty—APD—makes an essential contribution to the Government’s strategy for tackling the current budget deficit and getting debt under control.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
I welcome the Minister to her post on the Treasury Front Bench. She will be aware that this time last year the Silk commission in Wales argued strongly that minor taxes such as airport duty should be devolved to the National Assembly and the Welsh Government with more or less immediate effect, to be implemented in the most recent Finance Bill. We are still waiting for the UK Government to respond to the first part of the Silk commission’s report. Is she able to enlighten us on when we are likely to have that response?
Nicky Morgan
I am afraid that I cannot give the hon. Gentleman a specific date. All I can say is that Ministers are continuing to evaluate all this and ask for his patience for a little longer. I do appreciate that this matter is part of those discussions.
Despite these challenges, the Government have frozen APD in real terms since 2010, and since then APD rates have risen by only £1 for the vast majority of flights. Given the fiscal challenges we face, no responsible Government would simply relinquish nearly £3 billion of revenue.
Ms Abbott
The whole House understands the fiscal challenges, but given the particular problems that APD zoning is causing in the Caribbean, why are Treasury Ministers not prepared even to consider a change in the arrangements that would maintain their total tax take, as I appreciate they want to do, but be fairer to millions of people in the Caribbean and millions of people who live here, who are British voters, and who are having to pay this tax to go backwards and forwards?
Nicky Morgan
First, I am not sure that all hon. Members do understand the fiscal challenges facing the Government, but I will assume that the hon. Lady does, very much so. I listened carefully to what she said about the Caribbean. I know that Ministers, including my predecessor, have engaged with representatives. I could be wrong, although I do not think the hon. Lady will be surprised if I said that I know more about air passenger duty today than I did this time last week, but I think that zoning for the Caribbean was introduced by the previous Government. All Ministers keep all taxes under review. However, I heard what she said, and we will listen to the representations that are made.
Mr MacNeil
I, too, welcome the hon. Lady to her new position. What are these fiscal challenges that the Westminster Government face? The hon. Member for East Antrim (Sammy Wilson), as Finance Minister in Northern Ireland, has to balance his books. The UK has not paid its way since 2001; in fact, in the past year it has borrowed £120 billion. There is a good argument that says that changing the management of APD will increase GDP and tax revenues. With that body of evidence behind it, is it not worth listening to the wise words on APD rather than ploughing on regardless?
Nicky Morgan
I thank the hon. Gentleman for his comments. I think that the fiscal challenges are very apparent. We still have a large debt and a deficit run up under the previous Government which this Government have said we need to tackle. Later in my speech I will talk about the PricewaterhouseCoopers report, the impact on GDP, and the assumptions that are made.
Mr Andy Slaughter (Hammersmith) (Lab)
I welcome the Minister to her post. She is at least the sixth Minister whom my hon. Friend the Member for Hackney North and Stoke Newington (Ms Abbott) and I have approached on this subject and I think she may have slightly misunderstood the point made by my hon. Friend, which is that it is possible to be fiscally neutral while also being fairer. Will she go away and consider issues related to the Caribbean in particular, although this does affect other countries as well? Before the last election, the then shadow Treasury Ministers were very eloquent in advocating per-plane taxes and readjusting banding so that many of my Caribbean constituents, as well as those of many of the other Members present, would not be disadvantaged. Will the Minister at least give an undertaking to look at the issue with a fresh pair of eyes?
Nicky Morgan
I assure the hon. Gentleman that I am keeping a very fresh pair of eyes on all areas of my Treasury brief. I look forward to meeting him and the hon. Member for Hackney North and Stoke Newington (Ms Abbott) to discuss the issue further. We will certainly keep it under review.
As I have said, we must continue to work hard to reduce the deficit, so if we were to abolish APD, an alternative source for the revenue would need to be found. We never seem to hear any suggestions, but if we hear any today my hon. Friend the Exchequer Secretary will respond to them in his winding-up speech.
Some have argued that, in the case of APD, no such off-setting measures would be necessary and that abolishing the tax would pay for itself by increasing economic activity overall and thus receipts from other taxes. The motion cites the report by PricewaterhouseCoopers arguing exactly that. I will turn to the report shortly, but first let me address the general question of the impact of the tax system on the UK economy and the UK’s international competitiveness.
Ian Paisley (North Antrim) (DUP)
I welcome the Minister to her place and congratulate her on her new post.
May I suggest that one way in which the Government could make money out of this and increase productivity would be to incentivise the 50,000 Australians who visit Northern Ireland every year to fly through Heathrow and use that as their hub, instead of flying to Dublin before travelling up to Northern Ireland and then leaving via Dublin and spending their money there?
Nicky Morgan
I welcome the hon. Gentleman’s suggestion and I will certainly think about it. My earlier remarks hinted at the existence of the Airports Commission, which will look at all the UK’s airports, the role they play for travellers and how we deal with those who come here by whichever means.
Nicky Morgan
I thank the right hon. Gentleman for his remarks. As a Conservative, I believe in the lowest tax possible, but I also believe in running the economy as responsibly as possible, meaning that what we get in, we spend out. That was put out of kilter by the legacy of the previous Government. We have been very clear about the reason for APD and the role it plays. We cannot choose to ignore £3 billion when we have to deal with the deficit and legacy left to us by the previous Government, of which the right hon. Gentleman was at times a member.
Mr MacNeil
On balancing the books and spending what we raise, if that were the case the UK would raise income tax by 8p to 10p in the pound, such is the size of the UK deficit in a country that has not paid its own way since 2001.
Nicky Morgan
This Government are making progress in making sure that we do pay our way. We also believe that people should keep as much as possible of the income they earn. I will come on to talk about household income and the impact APD has on it, but for now I want to address UK competitiveness.
When comparing different countries’ tax regimes, it is important to view the system as a whole. Comparisons between individual elements can be misleading, especially if companies’ decisions about where to invest are driven by the impact of the system as a whole, not its individual parts. As my right hon. Friend the Chancellor has made clear many times, the Government are committed to ensuring that the UK has the most competitive tax system of all advanced economies. We want to have a tax regime that supports the attractiveness of all parts of the UK as places to invest in and that ensures that the whole of the UK is open for business.
Graham Stringer
I welcome the hon. Lady to her position. What she is saying about inward investment may or may not be true. As the hon. Member for East Antrim (Sammy Wilson) said, if we reduced this tax, the Revenue would not lose any income. However, what she is saying cannot possibly apply to tourism. Tourists from all over the world are flying to Charles de Gaulle and Schiphol rather than to Heathrow because of air passenger duty, and certain routes are not coming to regional airports in this country because of air passenger duty. Routes such as Bangkok, Hong Kong, Delhi, Mumbai and Beijing could be coming into Manchester if we did not have air passenger duty.
Nicky Morgan
I return to my original point, which is that if we were to abolish air passenger duty, as is called for in the motion, it would have to be replaced by something else to meet the Government’s commitment to put the nation’s finances on a sound footing and reduce the deficit. Although the hon. Gentleman makes an interesting point, I have not heard from him—indeed, I have heard from only one hon. Member—a suggestion as to how that revenue could be replaced.
I will come on to talk about investment and the PWC report. The hon. Member for East Antrim will not be surprised to hear that the Government have some questions about the assumptions that are made in that report.
Nigel Mills
I welcome my hon. Friend to her new post. I accept that the Government cannot fully abolish air passenger duty, but will she consider a short holiday for new long-haul routes, especially at regional airports? For example, if there was a new route from East Midlands airport to India, it could be spared APD for the first three to five years to give it a chance to bed in and to become viable. That would have no immediate cost to the Exchequer, but it may well help to generate the growth that we need.
Nicky Morgan
I thank my hon. Friend for that suggestion. Like him, I know East Midlands airport very well as an east midlands Member of Parliament. The difficulty with regional holidays or variations is that they must be quite substantial to change passenger behaviour. That takes us back to my original point that the £3 billion that is raised by APD is a significant contribution to the Exchequer when we are tackling the deficit.
Mr Nigel Evans
I congratulate my hon. Friend on her new position. She said that the changes would have to be significant to alter passenger behaviour. Is not the fact that we have the most expensive APD in the world changing passenger behaviour, because people are taking short-haul flights to Schiphol, Charles de Gaulle, Dublin or even Belfast in order to take longer-haul flights, saving several hundreds of pounds for their families?
Nicky Morgan
I thank my hon. Friend for his remarks. The previous question was about regional variations within the United Kingdom. That is why I was talking about changing behaviour. As I said, this all goes back to my original point that air passenger duty raises £3 billion a year, which is a sum that cannot be ignored if we want to do what this Government were elected to do, which is to repair the nation’s finances. Obviously, my interest in this area is growing as every second of this debate passes.
Graham Stringer
The hon. Lady is being very generous with her time. I appreciate her difficulties because, as she says, she is a new pair of eyes on these issues. Will she meet an all-party delegation on behalf of regional airports to discuss these matters in more detail away from the heat of the Chamber?
Nicky Morgan
I am always happy to meet hon. Members to discuss these matters. That sounds like an interesting idea. It might help me to learn more about these issues, as I am doing in this debate.
In order to make our tax system more competitive, we plan to reduce the rate of corporation tax to 20% from April 2015. At that point, the UK will have the joint lowest corporation tax rate in the G20 and by far the lowest rate in the G7. Increased rate relief on research and development, combined with the patent box, will make the UK one of the most attractive places to innovate. As a result, the latest KPMG annual survey of tax competitiveness rated the UK as the No. 1 most competitive tax regime internationally.
As well as supporting UK competitiveness, within the constraints of the need to repair the public finances, the Government are also supporting households to meet the cost of living. By April 2014 the Government will have increased the personal allowance to £10,000, which will take 2.7 million people out of income tax altogether. In Northern Ireland, since 2010 the rising personal allowance has already taken 75,000 people out of tax. In recognition of the impact of persistently high pump prices, the fuel duty increase that was planned for 1 September this year was cancelled, and the Chancellor has also announced his intention to cancel the September 2014 duty increase.
On aviation taxes, the House will recognise that the UK is one of only four EU countries that does not charge VAT on domestic flights. That stands in contrast to rates of VAT on those flights of 19% in Germany and 20% in the Netherlands. There is also no duty charged on the fuel used in international, and virtually all domestic, flights. Finally, as I have already said, despite the fiscal challenges, the Government have ensured that APD rates have been frozen in real terms since 2010, rising by just £1 for the vast majority of passengers since then. The Government therefore reject the suggestion that we have pushed taxes on aviation too high.
Let me turn to the report on APD published earlier this year by PricewaterhouseCoopers and to which today’s motion refers. The report claims that abolishing APD would give such a boost to the wider economy that it would make other tax receipts increase by enough to offset the loss of APD revenue—the £3 billion I referred to a moment ago. The report’s conclusions, however, are based on economic models that rely on a series of significant assumptions. In particular, the report makes a series of assumptions about the behavioural impact of scrapping APD—how much business air travel would increase by—and the resulting increase in overall UK productivity.
The Government have reviewed the report, its modelling and the underlying assumptions carefully. We do not agree with the assumptions needed to justify the claim that abolishing APD would be revenue neutral overall, and, in our view, abolishing APD would have a significantly smaller impact on UK economic activity than PWC has estimated. There would therefore be a smaller increase in other taxes than PWC predicted, with overall tax revenues falling as a result. We also note that under some of the less optimistic assumptions that PWC considered in its report, its models predicted a net loss of revenue in the longer term. As I have said, any revenue loss would either need to be made good by increased revenues from other sources, or would need to be compensated for by further reductions in public spending.
The Government dispute the claim by PWC that APD is a regressive tax—I am sorry that the right hon. Member for Tottenham (Mr Lammy) is no longer in his place, as this goes to the heart of what he was talking about. PWC compared APD rates with average weekly household expenditure of different income groups, but its analysis took no account of the fact that not all households pay APD at all. A better measure of fairness would be to compare what households spend on APD, relative to their incomes. Using that measure, statistics from the Office for National Statistics show that lower-income households spend a lower proportion of their disposable income on APD than higher income households.
Sammy Wilson
I am amazed at the way the Minister is trying to deal with this issue. Surely we only measure the impact of a tax on someone who consumes a service. The PWC report looked at various income groups and found that the tax fell far more heavily on those with lowest income levels—that is 45% of travellers— compared with those with the highest levels. We are already comparing travellers. Indeed, the tax represented 28% of their average weekly income. If that is not regressive, I do not know what is.
Nicky Morgan
ONS statistics show that lower-income households spend a lower proportion of their disposable income on APD than higher-income households. We are looking at what people actually spend.
Siobhain McDonagh (Mitcham and Morden) (Lab)
How would the Minister explain that to my Caribbean constituents, many of whom come from Jamaica or other Caribbean islands and have lived here for 40 or 50 years on low incomes? They now find themselves being excessively taxed in order to stay in contact with their family and friends in their home countries.
Nicky Morgan
I do not know whether the hon. Lady has just arrived in this debate, but we have already discussed Caribbean issues [Interruption.] Well, I think I have dealt with that issue. [Interruption.] I am sorry—I had not appreciated that the hon. Lady was present, but there were questions on this matter from the hon. Member for Hackney North and Stoke Newington and the right hon. Member for Tottenham, and I have addressed the issue of the Caribbean. ONS statistics show that lower-income households spend a lower proportion of their disposable income on APD than higher-income households. In relation to the Caribbean, APD must adhere to international rules on aviation tax, specifically the Chicago convention. The capital city convention on APD ensures that our APD complies with those rules.
The hon. Member for East Antrim spoke of the impact of APD on Northern Ireland in the context of recently announced changes to the rate of air travel tax in the Republic of Ireland. I thank him for saying that this is a listening Government and for his recognition of the moves we have made in that regard. We recognise the position of Northern Ireland as the only part of the UK that shares a land border with another EU member state with a different rate of aviation tax, which is why we have devolved to the Northern Ireland Assembly the power to set APD rates for direct long-haul flights. The Government and the Northern Ireland Executive recognise that decisions on further fiscal devolution of any taxes require careful consideration. We expect recommendations on further devolution to be put to the Government and Northern Ireland Executive by autumn 2014.
The debate highlights some of the most important issues facing Britain today, including repairing the public finances and bringing debt under control, thus ensuring the stability on which economic recovery depends. APD makes a vital contribution to the Government’s fiscal strategy—it would be irresponsible of us to abandon it—and forms part of the wider tax system that we are making into one of the most competitive in the world. I thank the hon. Gentleman for giving us the opportunity to debate those important issues, but I cannot agree with his proposal that the tax should be abolished.
The Exchequer Secretary to the Treasury (Mr David Gauke)
We have had an interesting and wide-ranging debate, given that it has focused on one particular tax, and I thank hon. Members for their contributions. We began with the hon. Member for East Antrim (Sammy Wilson), who delivered a wide-ranging speech in which he made it clear that APD did not constitute a green tax but that, even if it did, he would be against it. He was described by various hon. Members as “trenchant”, “outspoken” and even “abrasive”—and those were the comments from his hon. Friends. However, he set out a strong case on behalf of Northern Ireland and, indeed, the UK more widely. Interestingly, the motion applies to APD across the UK; it is not specifically a Northern Irish issue.
We heard from the new Economic Secretary—I add my words of welcome to the many warm words already offered—who has already demonstrated that she will be a formidable Treasury Minister. We then heard from the hon. Member for Newcastle upon Tyne North (Catherine McKinnell), whom I also congratulate on her move to the post of shadow Economic Secretary, although I am saddened that she is no longer the shadow Exchequer Secretary. I am pleased, however, that we have had the opportunity to debate again so soon, and I am sure that we have many happy hours together in Finance Bill Committees ahead of us. She was very critical of Government policy although, as her history of APD pointed out, the regime in place is largely the one that we inherited from the previous Government. Despite her criticisms, she did not give us any examples of what she would change, but we were grateful for her contribution none the less.
My hon. Friend the Member for Spelthorne (Kwasi Kwarteng), who has a strong interest both in aviation and in lower taxes, made the point very strongly that we have to reduce the deficit. His injunction that we should not slacken on deficit reduction was sensible advice.
The hon. Member for Na h-Eileanan an Iar (Mr MacNeil) raised Scottish concerns, citing criticism that APD rates had rocketed since 2007. I should point out that, since 2010, APD has risen in line with inflation—it has been frozen in real terms. That means, for example, that since 2010, the price of an economy ticket for a short-haul flight—such tickets apply to the majority of passenger flights—has risen from £12 to £13. It is worth pointing out that that is an increase of £1. He also raised concerns about the impact of APD on Scotland, but the most recent figures I have—for 2010-11—show that passenger numbers at Scottish airports grew by 5.5%, so they are not being slashed by any means.
Mr MacNeil
I do not need to take the credit for the Scottish Government, because the Minister has already given the credit to them, for which I thank him. Can he discern any real difference between his position and that of the Opposition, because I cannot?
Mr Gauke
Is the implication of the hon. Gentleman’s question that he managed to identify the position of Labour Front Benchers, because I could not particularly?
My hon. Friend the Member for Brigg and Goole (Andrew Percy) delivered a thoughtful speech in which he set out the evolution of his own thinking and made the case for regional airports. The hon. Member for Mitcham and Morden (Siobhain McDonagh) raised a point on behalf of her constituents who originally come from the Caribbean. Such a point was also made in interventions, so let me reiterate that APD must adhere to international rules on aviation tax—a point that she acknowledged—specifically the Chicago convention. The capital city convention in APD ensures that the duty complies with the rules. She asked why we could not reform the bands. We could move to having two bands, and we did examine that as part of the 2011 consultation, but no banding structure can be entirely free of anomalies, and a revenue-neutral move to two bands would require an increase in APD for about 90% of passengers, including those flying to Europe and the United States. We were not attracted to that approach.
The hon. Member for Paisley and Renfrewshire North (Jim Sheridan) raised a point about Scotland, following on from the contribution by the hon. Member for Na h-Eileanan an Iar. He rightly said that there would be an implication if the tax were devolved to Scotland and then abolished, because the cost of that would have to be found from the block grant. We have not estimated what that would be, but such a decision would have consequences to comply with EU state aid rules. It is also worth pointing out that we would need to take into account any market distortions that would be created and that the cost would have to take into account any lost revenue for neighbouring English airports, for example. That is not an insignificant point.
The hon. Member for South Down (Ms Ritchie) spoke about domestic flights. It is worth pointing out that several European countries put VAT on domestic flights, whereas the UK does not—the rate is 19% in Germany, 21% in the Netherlands and 27% in Hungary. My hon. Friend the Member for Mid Norfolk (George Freeman) made the point that we would like to get rid of most taxes, but we are not in a position to do so. He also highlighted the fact that rates have increased with inflation. The hon. Member for Strangford (Jim Shannon) argued that there would be a net gain for the Exchequer if APD were abolished, but we do not agree—I shall set out the reasons why in a moment.
The hon. Member for North Antrim (Ian Paisley) spoke against the tax and also hoped that we could all unite behind the motion. I am terribly sorry to say that I have to disappoint him on both fronts. The hon. Member for South Antrim (Dr McCrea) summed up the debate, arguing that we should perhaps follow the example of the Republic of Ireland, which is not always an argument that I hear from him.
As I have made clear, APD makes a crucial contribution to tackling our fiscal challenges. The tax raises nearly £3 billion in annual revenue. Contrary to the claims of the PricewaterhouseCoopers report, which has been cited frequently, scrapping APD would not be costless; it would result in a significant loss to the Exchequer. Unless we were to give up on our fiscal goals—my hon. Friends have been absolutely right to highlight the need for us to maintain discipline on reducing the deficit—the lost revenue would therefore need to be found elsewhere, either by increasing other taxes or by further reducing our public spending. In the course of the debate, I have heard few realistic proposals as to how that could be done. Not only would scrapping APD create substantial costs to the Exchequer, but the benefits of such a step would be small compared with those of the policies that the Government have already put in place.
We are not persuaded by the case that has been put before us. We cannot take risks with the public finances, so we will not be supporting the motion.
Question put.
The House proceeded to a Division.
Madam Deputy Speaker (Dawn Primarolo)
I ask the Serjeant at Arms to investigate the delay in the No Lobby.
The House having divided: Ayes 13, Noes 284.
Mrs Anne Main (St Albans) (Con)
On a point of order, Madam Deputy Speaker. May I ask through the Chair whether any application has been made for a statement on the recent developments concerning the Arctic 30? I am sure that many of us will be pleased to hear tonight that the charges against them have been downgraded from piracy to hooliganism. Some are related to, or friends of, Members, and one is a constituent of the Prime Minister, as my right hon. Friend has said. Is there any chance of them now being granted bail, and what does the development mean in terms of the possibility of their being repatriated home to this country?