15:59 - divided: - Ayes: 217 / Noes: 276 - Question accordingly negatived.
16:13 - The Committee divided: - Ayes: 279 / Noes: 214 - Question accordingly agreed to.
17:59 - The House divided: - Ayes: 219 / Noes: 293 - Question accordingly negatived.
18:13 - The Committee divided: - Ayes: 217 / Noes: 286 - Question accordingly negatived.
19:38 - The House divided: - Ayes: 9 / Noes: 254 - Question accordingly negatived.
The Exchequer Secretary to the Treasury (Mr David Gauke)
It is a great pleasure to respond to the debate. I shall make some remarks on clause 11 and on amendment 3 and address some of the arguments that we have heard in this interesting and passionate debate on a subject in which many right hon. and hon. Members have taken a long-standing interest.
Clause 11 introduces a transferable tax allowance for married couples and civil partners. We have targeted the benefit of the measure on married couples and civil partners with the lowest incomes, when one member of the couple has an income below their personal allowance of £10,500. The clause allows individuals to transfer 10% of their income tax personal allowance to their spouse or civil partner, providing that neither partner is liable for income tax above the basic rate. For the year 2015-16, when the measure comes into effect, the amount of personal allowance that can be transferred will be £1,050, significantly higher than the £750 included in the Conservative party manifesto at the last general election. It is also higher than the £1,000 allowance announced at the autumn statement as a result of the Budget announcement that the personal allowance would be increased even further in 2015-16. That means that more people will now be able to gain from the measure and by a higher amount.
Let me remind the Committee of the purpose of the policy. Marriage is an important institution in this country and I have been struck by the contributions from both sides recognising that point. The hon. Member for Newcastle upon Tyne North (Catherine McKinnell) described marriage as a force for good. We have also recently had a debate about marriage in the context of single-sex relationships and, indeed, the first gay and lesbian marriages took place just over a week ago. In that debate, a variety of views were expressed but it was striking how those on both sides of the argument recognised the importance of marriage. Indeed, the hon. Lady made a powerful and persuasive speech on that very issue in the course of those debates. Whether or not one agrees with the decision that the House reached, the strength of views expressed in those debates makes it clear that people believe in the importance of marriage as a building block of our society. The policy we are debating today is about recognising it in the tax system.
That recognition in itself is not a new idea. People born before 6 April 1935 can still claim the income tax married couple’s allowance, which the previous Government abolished for everyone else from 2000, and marriage is already recognised in the tax system in inheritance tax and capital gains tax. I shall come back to inheritance tax a little later. Marriage is also recognised in the income tax system in most other developed countries, a point that has been made repeatedly this afternoon. In fact, the United Kingdom is the only G7 country not to recognise marriage in the income tax system in some form. Now we want to recognise it more widely in the UK income tax system. That formed part of the Conservative manifesto in 2010 and I am pleased that we have now introduced legislation for that policy.
Let me remind the Committee that that is not the only reason for the policy. It also provides a way of allowing lower income married couples and civil partners to feel more of the benefit from our increases to the personal allowance. As discussed in Committee yesterday, by 2015-16 our successive increases to the personal allowance will mean that a typical basic rate taxpayer will be more than £570 better off than under the previous Government’s plans. That could mean a tax cut of more than £1,000 for a couple, but that is the case only if both partners use all of their personal allowance. If one spouse is a low or non-earner, the couple will be able to benefit only from one personal allowance increase. Let me give an example. By April 2015, one couple with each spouse earning £15,000 will see more than £800 more benefit from the personal allowance increases this Parliament than a couple with one spouse earning £30,000 and the second earning nothing. The policy allows us to change that. It gives married couples and civil partners the opportunity to benefit from the £1,050 of the second unused personal allowance, and thus benefit from the increases to the personal allowance, providing further support to some households with a low or non-earner. That will help just over 4 million married couples and civil partnerships, with each couple gaining up to £210 a year.
Amendment 3, which was tabled by the Opposition, commits the Government to publishing a report on the impacts of the policy within six months of the Finance Bill receiving Royal Assent. I do not believe that such a report is necessary, as there are comprehensive arrangements to report on the impacts of Government policy. First, we have reported the impacts of the clause in the tax information and impact note, which was published on the Government website on 27 March. Secondly, as the Committee will know, the Government believe that the impacts of policies should be considered in the round. The Government regularly produce an analysis of the cumulative impact of changes on households across the whole income distribution. That analysis is published by the Treasury at every major fiscal event, and the analysis at autumn statement ’13 and at Budget ’14 will have included that policy. Thirdly, it is worth pointing out that the amendment requires a report on the impacts of the policy within six months of Royal Assent, but the policy will not be in effect then, so we will not have any additional information or data to analyse. For that reason alone, I hope that the Opposition will not press their amendment.
Let me deal in a little more detail with what the amendment would do. It requires a calculation of the proportion of married couples and civil partners eligible under the policy. We have said that we expect just over 4 million couples to benefit, which means that about 300,000 more couples are in a position to benefit than if we had just increased the personal allowance in line with the retail prices index, which was the approach taken by the previous Government. The 4 million couples who will benefit represent just over a third of married couples. The heart of the Opposition’s case seemed to be that two thirds of married couples will not gain from the policy, so what was the point of it? It is worth explaining how the policy is targeted. First, in 3 million couples, one or both partners are higher or additional-rate taxpayers. Some of them can benefit from the changes to the personal allowance, but if we had a policy that extended the transferable tax allowance to higher and additional rate taxpayers, the Opposition would complain that it was not well targeted and that it should be directed at low-earning households. I think that my hon. Friend the Member for East Worthing and Shoreham (Tim Loughton) made the point that the logic of the Opposition’s argument was that we should extend the policy. I know that he takes that view, but it would be rather strange for the Opposition to make that argument.
The second group that does not benefit is the 1.8 million couples in which both partners are non-taxpayers. It is worth pointing out that since 2010 about 350,000 couples have become non-taxpayers because we have taken them out of income tax. It is impossible to provide an income tax cut for people who do not pay income tax. The Opposition argue that what we should do instead is have a 10p rate of income tax, but a 10p rate would not help those married couples either.
Alison Seabeck
I have a genuine question for the Minister. Has his Department looked at the question of whether the change would stand up to a challenge in the European courts on the grounds that it is discriminatory?
Mr Gauke
There is no reason to believe that the measure is discriminatory. I will address that point in slightly more detail in a moment.
The third category of people who will not benefit is couples where both members are basic rate taxpayers, but those are the households that have benefited most from the very significant increases in the personal allowance that this Government have been able to deliver. One has to look at the overall package and what this Government have done in terms of cutting taxes. I come back to the point that couples with two earners have benefited significantly, more so than couples with one earner, as a consequence of the personal allowance increase.
I mentioned that the Opposition want to use the money to fund a 10p rate of income tax. They have complained in the course of the debate that the benefit is worth only £3.85 a week. This is about sending a signal. The benefit from the new 10p rate, assuming that it were funded from this, would be in the region of 50p a week, and I am not sure that that would change things significantly.
Mr Gauke
I am short of time so, if the hon. Lady will forgive me, I will not give way.
Let me deal with a couple more points. On support for women, it is worth bearing in mind that of the 3.2 million people who have been taken out of income tax, 56% of the beneficiaries are women, and we have done a lot to help with child care. On the practical points raised by the hon. Member for Newcastle upon Tyne North, only the transferor will need to make an election, which will make it administratively easier for couples. We also want to implement the measure through a digital process, but we recognise the need for support for those unable or unwilling to use that method. HMRC will be properly funded to deliver this policy.
Let me conclude by reiterating the purpose of the clause. It is to reinforce the important institution which is marriage—whether gay, straight or civil partnerships—while also providing support for many households that have not been able to benefit fully from our changes to the personal allowance. I therefore request that amendment 3 be withdrawn, and move that clause 11 stand part of the Bill.
Catherine McKinnell
We have had some sincere but variously aspirational speeches from Government Members today, dreaming of a world where marriages are stable and children thrive. Nobody can take issue with the aspiration, but we need to deal with the real world and what the Government’s policy will deliver. It purports to support marriage, but only certain marriages will qualify. Two out of three marriages will get no recognition at all. The policy purports to support children, but five out of six families with children will get no help whatever. It is a dud. It adds complexity to the tax system. Its implementation will add cost both for HMRC and for the employers who will have to deal with the complexity for highly questionable gain.
We will therefore oppose the clause, and we urge hon. Members on both sides of the House, particularly Liberal Democrat Members, whom we know are on our side of the argument on this issue, to vote against the Government’s proposals and for our sensible amendment.
Question put, That the amendment be made.
Mr Gauke
I just make the point that one has to examine the net yield from the bankers’ payroll tax, taking into account the revenue that is lost because there are lower receipts for income tax and national insurance contributions. Just to be clear, the number is £2.3 billion.
Cathy Jamieson
Yes, I hear what the Minister is saying and I shall deal with some of that in a moment, because I am concerned to ensure that we get all the sums right and reach figures that everyone would agree on. Again, that is one reason we want this report brought forward, because we are now being told that the levy will generate £2.3 billion in 2013-14, £2.7 billion in 2014-15 and £2.9 billion in each of the following three years. I would give way to him again if he were able to give the details, but perhaps it would be more appropriate if he did so his response later, as it may take time to get them. We do not have the detailed figures, the evidence or the workings to show how those figures are arrived at and whether things are on course to deliver them. That is why it is important to get the report we are calling for today.
Let me say something about the problems with the levy as we see them. As I have said and as my hon. Friend the Member for Nottingham East has in previous contributions, the Government’s levy lacks ambition. The argument is that the initial levy was set at a relatively low rate, both by international standards and when measured against the scale of the taxpayer subsidies received by the sector during the financial crisis and thereafter. In discussion of the Finance Bill in May 2011, he said:
“The bank levy is a sensible idea in theory, and we broadly support it. However, the yield suggested in the Bill—only £2.6 billion—is not just small but pathetic by international standards”.—[Official Report, 3 May 2011; Vol. 527, c. 482.]
I will happily give way to the Minister if he wants to comment on the international standards, but again, perhaps he will do so when he winds up.
One other problem with the levy is that its two objectives can be seen as a bit of a paradox or even somewhat contradictory. By setting the levy as a tax on bank liabilities in excess of £20 billion and charging a lower rate for more secure long-term liabilities, the Chancellor was actively encouraging the banks to reduce their exposure by moving towards more stable forms of funding.
Alison McGovern
I want to discuss the relationship between how the banks and bank bonuses are taxed and young people. I think that anyone who has just listened to the speech by my hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams) would agree that the two issues are intimately connected, even if they did not believe that to be the case in the past.
Levels of inequality in our global economy are unsustainable, but Members need not take just my word for that. It is not just me who thinks that inequality is a significant problem: no less than Christine Lagarde of the IMF has said that inequality is a huge challenge and a risk for the world’s future. If even the IMF, which is not known for taking lefty positions, is able to conclude that we must tackle inequality, I think that this House should be able to accept the challenge and seek to find ways to address the significant inequality in our own country.
The top of the economy in the financial services sector is fragile in terms of income distribution. Let me make a few remarks about the banks. The hon. Member for Warrington South (David Mowat), who, unfortunately, is no longer in his place, commented earlier on the issue of fixed versus variable income, which I will turn to later. Surely anybody who is trying to learn the lessons of 2008 would say that the financial services sector still has an unsustainable bonus culture and perhaps that is true of other parts of the economy as well.
Would not anybody who worries about that risk conclude that banks and the financial services sector rely on an implicit state guarantee, given what had to be done to ensure the economy kept working and people could still take cash out of ATMs? Would not anybody conclude that we must take very seriously the contribution to taxation that banks are expected to make, given the Government’s reliance on the financial services sector? I certainly think that that is the only obvious conclusion to draw from the global financial meltdown and the serious failures of the past. Banks cannot be allowed just to make their own decisions; we must take very seriously both the regulatory framework around the financial services sector and the contribution that the sector is expected to make to the Exchequer.
The corporation tax cut benefited a whole range of companies in the financial services sector, but small and medium-sized enterprises—especially those in my constituency that are struggling with, and wanting action on, business rates—find it hard to take or to understand why the Government have not looked more seriously at what banks are expected to pay to the Exchequer. I think the Exchequer Secretary said earlier that, by his calculation, the bank levy has brought in a net £2.3 billion.
Alison McGovern
For the purposes of Hansard, I thank the Minister for correcting me from a sedentary position. In any event, it is really evident that the bank levy is not good enough. We heard repeated claims about how much it would bring in, but it has failed to reach those levels. The public do not understand why that is, and they want us to take very seriously the position of the financial services sector, given the impact that we all felt and that people are still feeling from the events post-2008.
Bank bonuses are the best representation of the culture that led to the economic meltdown in 2008. A great deal of work on the culture has been done by Members of this House—I am thinking of my right hon. Friend the Member for Wolverhampton South East (Mr McFadden) and others who served on the Banking Commission—and we do that work no service if we give up the idea of a bank bonus tax.
The problem with bank bonuses is the clear connection between the fact that compensation balloons so greatly, and depends on a big bonus at a certain point in the year, and extraordinary risk-taking. A kind of groupthink develops in an organisation, with people forgetting their responsibilities to those outside it. The insider culture accepts reimbursements that are far and away above anything that people in society ordinarily expect. We in this House, if nowhere else in our community, should understand the danger of such groupthink. Have we not all seen it at times, and do we not all want to end it? Therefore, we should not give up the idea of a bank bonus tax.
I remind hon. Members of Martin Wheatley’s recent comments:
“Incentives are used ideally to reward ‘good’ performance. However, as we saw with the mis-selling scandals which have had such a profound impact on financial services…a poorly designed inducement can result in consumers ultimately being worse off.”
Even if we were not worried about the impact on the Exchequer of the bank bonus culture—given the responsibility to ensure that the financial system can continue to do business no matter what—we should absolutely be concerned about the impact on consumers. In the past, consumers of financial services often had a poor deal. The mis-selling of endowments and, more recently, payment protection insurance caused massive problems for families in our country. We cannot allow a culture to persist in which there are incentives that, as Martin Wheatley said, may result in consumers ultimately being worse off, as that would be very dangerous. That is why our amendment probes the issue and seeks to find a way to consider whether more could be done, which is important.
Although I am the first to say that simply bashing one part of our economy—financial services—is not the approach we should take, far from it, it does not mean that inequality is not a serious issue. I do not think that the inequalities in the financial services sector will pass by the people who earn the minimum wage cleaning a local bank branch and who are worried about whether that branch will be there for much longer or those who, if they are lucky, earn the London living wage from working in security or in other ways supporting banks in the City of London. We must address that inequality for people who work in banking and in the financial services sector.
Finally, I will follow up on the remarks on young people made so ably by my hon. Friend the Member for Oldham East and Saddleworth. We cannot lose sight of the difference between a jobs guarantee and work experience. We learned that lesson in the 1980s, when youth training scheme-style programmes were a revolving door for young people, who went in and out of businesses with no proper jobs. That was not fair then, and it certainly is not fair now. The future jobs fund worked with organisations such as Age Concern and other good third-sector organisations in my constituency to provide work opportunities that often led not only to growth in a young person’s skills, talents, self-esteem and self-respect but to growth in the organisations themselves.
I point Members in the direction of a report by the International Labour Organisation from as long ago as 2010 that compared a range of interventions for young people without work. The report said that the last Labour Government had a huge amount of which to be proud, such as the new deal for young people, the future jobs fund and the efforts to get people into work. I believe absolutely that we cannot offer young people only interminable work experience in which they turn up to the jobcentre week after week to be sent on CV writing courses or to gain work experience that does not get them a proper foot in the door. We need a true jobs guarantee so that people know that, however difficult the circumstances in which they find themselves, the situation will come to an end. We need to offer young people that guarantee, and of course we would expect them to take it up without much choice—[Interruption.] If Members wish to intervene, they are welcome to do so.
We still have insufficient numbers of apprenticeships, and we have genuine worries about the quality of some apprenticeship programmes. I am sorry if I repeat this so often that I bore Members—I try not to bore Members—but the issue is vastly important. The prevalence of zero-hours contracts in our society affects young people more than anyone else. Young people are much more likely to have less experience, which means that they cannot get a proper full-time, permanent job with the hours that they want. Of course students might want flexible hours that they can take up when they want, but that is not the case for many young people across the country who feel that they have no alternative but to accept a zero-hours contract.
I am afraid that Conservative Members have swallowed the Treasury’s rhetoric about the number of jobs that have been created and the claimant count, without learning the lessons of their economic policies of the past. Of course the claimant count will fall if there is a sanctions regime that makes going to the jobcentre so difficult and unhelpful that people will do anything not to claim.
Mr Gauke
It is a great pleasure to serve under your chairmanship, Mr Bone, and to respond to this debate. It is always a pleasure to hear the hon. Member for Wirral South (Alison McGovern) speak. I am tempted to respond to her characterisation of the labour market, which almost suggested that we had lost 1.3 million people from employment over the past four years, rather than increased employment by 1.3 million people, but in the interests of time, I will focus on the bank levy.
Clause 112 increases the rate of the bank levy that was set for 1 January 2014 to 0.156%, which will help to ensure that future bank levy receipts meet the Government targets. I also want to highlight the changes that we are making to the bank levy’s design following an operational review in 2013, which we will cover when we debate clause 113 and schedule 22 later in Committee. The changes will help to simplify the bank levy’s design and ensure that it continues to complement improvements in the regulatory regime.
I wish briefly to provide hon. Members with some background. In the June 2010 Budget, the Government introduced a permanent tax on banks’ balance sheet equity and liabilities, which took effect from 1 January 2011. It is designed to ensure that the banking sector makes a fair contribution that reflects its risks to the UK financial system and the wider economy. Alongside wider regulatory reform, the bank levy also provides incentives for banks to move towards more stable funding profiles, reducing the likelihood of liquidity shocks, which can trigger and propagate systemic banking crises. The Government believe that those overarching policy objectives remain appropriate, and the changes being made in clauses 112 and 113 and schedule 22 are in line with that.
In 2010, the Government set a target of £2.5 billion for annual bank levy receipts. We have since increased that target to offset the benefit of corporation tax cuts to the banking sector since the levy’s introduction. Bank levy receipts have fallen short of the targets to date, largely as a consequence of greater than anticipated deleveraging in the sector in response to regulation and the bank levy’s behavioural incentives. However, the Government have remained clear that the target for bank levy receipts is unchanged.
The banking sector needs to make a fair contribution that appropriately reflects its historical costs and future risks to the UK taxpayer. That is why the rate of the bank levy has increased from 0.075% in 2011 to 0.142% in January 2014, and why the changes being made in clause 112, which were announced in the 2013 autumn statement, will further increase the rate to 0.156%, which will be treated as having applied from January 2014. Based on those changes, the independent Office for Budget Responsibility forecasts that the bank levy will raise £2.9 billion a year from 2015-16, more than £8 billion in total over the Parliament and close to £20 billion in total by 2018-19.
When the bank levy was introduced, the Government announced that they would review its design in 2013 to ensure that it was operating efficiently. In line with that commitment, a formal consultation was published in July 2013. It considered changes to the levy’s detailed design to make it simpler, fairer and more aligned with recent regulatory developments. The consultation ran for 12 weeks and the views put forward helped to inform a number of changes to the bank levy’s design, which the Government announced in the autumn statement. They included the exclusion from the bank levy charge of protected deposits, which we limited to amounts insured under a deposit protection scheme, with effect from January 2015.
Also from January 2015, all derivative contracts will be treated as having a short-term maturity, the relief that banks receive for their high-quality liquid assets will be restricted to the rate applicable to long-term liabilities, and the bank levy definition of tier 1 capital will be aligned with the new capital requirements directive. Specific liabilities arising from the central clearing of derivatives will be excluded from the bank levy charge, which will be treated as having applied from January 2014. Those changes will simplify the levy’s application and help to ensure that it continues to apply consistently to banks of different size, activity and domicile. They will also strengthen the behavioural incentives for banks to move towards more stable funding profiles and more closely align the bank levy with recent developments in the regulatory regime.
The hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) touched upon the redesign of the bank levy. There is no intention to reduce the revenue raised by the bank levy. We are considering allocating banks to different bands on the basis of their balance sheet, equity and liabilities. Each band would correspond with a unique and predetermined charge for the year, paid by every bank falling within that band. We consider that that might provide a more predictable and sustainable model for the bank levy, but we are welcoming views on that as part of our consultation. The changes being considered would have no impact on the forecast yield from the bank levy, and the underlying tax base would remain unchanged and continue to provide incentives for banks to move towards more stable funding.
Cathy Jamieson
I thank the Minister for giving way—I appreciate it given the limit on his time. Will he confirm that his proposal will mean that some of the bigger banks will pay less in bank levy than they have paid previously?
Mr Gauke
The Government are consulting on how the measure will operate. The intention is for it to be revenue neutral. Assuming it has some effect, revenue neutral will mean that some banks will pay more and some will pay less. Which ones those will be depends on the precise design, which depends on the consultation.
Amendment 1 was described with customary reasonableness by the hon. Member for Kilmarnock and Loudoun but I will give the customary response, which is that the Government do not consider that there is much to be achieved by accepting it. It would add little to the Bill. HMRC already publishes each year statistics on PAYE, the bank levy, corporation tax and bank payroll tax receipts from the banking sector, although they are not broken down by different groups of banks. The most recent publication—from August 2013—showed that the relevant tax receipts from the banking sector were £21.7 billion in 2012-13.
In the time available, I want to make a point about the bankers payroll tax. In September 2010, the right hon. Member for Edinburgh South West (Mr Darling), the former Chancellor of the Exchequer, said
“it will be a one-off thing because, frankly, the very people you are after here are very good at getting out of these things and…will find all sorts of imaginative ways of avoiding it in the future”.
An attempt to repeat that tax would be a mistake.
I fear that, because of the time available, I do not have time to do justice to Opposition new clause 5. I have set out the reasons why the Government believe it is right to introduce a balance sheet tax as opposed to a tax on bankers bonuses. We see no reason to change that approach. The future jobs fund failed to create sustainable employment. Almost 50% of participants claimed benefits again within eight months of starting a future jobs fund job. This Government are doing much more. We have delivered more than 1.6 million apprenticeship starts so far this Parliament and are making it cheaper to employ young people.
In order to give the hon. Member for Kilmarnock and Loudoun a moment or so to speak at the end, I shall conclude. The changes made by clauses 112 and 113, and schedule 22, will help to ensure that future bank levy receipts meet Government targets while providing a simpler and fairer basis on which the tax applies. I therefore hope that clause 112 stands part of the Bill and urge the hon. Lady not to press amendment 1 and new clause 5 to a Division.
Cathy Jamieson
It was a pleasure to hear the valuable contributions of my hon. Friends the Members for Wirral South (Alison McGovern) and for Oldham East and Saddleworth (Debbie Abrahams) on the impact of the Government’s policies on ordinary people.
The Minister referred to my characteristic reasonableness and gave a characteristic response. I will give him the characteristic response from the Opposition—despite his best efforts, I will press the new clause and the amendment to a Division. Both reports are reasonable requests and would be important. I realise that he had a relatively short period in which to respond, but it is disappointing that he does not see fit to produce such reports. He referred to a number of statistics and figures produced by HMRC, and we know of other places where statistics are produced, such as the Office for Budget Responsibility. It would be useful to have all those reports put together in a report for the House to consider.
As I have said, I intend to press new clause 5 and amendment 1 to a Division. I hope that, even at this late stage, the Minister will reconsider his opinion, but I doubt it. I am sure that the Government will give their characteristic response once again.
Question put, That the clause be read a Second time.
Catherine McKinnell
As I said, the Wales Bill, which is currently going through Parliament, contains a number of devolved tax powers for Wales and is the appropriate place to debate these issues. That is why Labour will abstain on the issue of APD devolution tonight, but we look forward to the Exchequer Secretary providing clarity on the various queries that have been raised today, particularly about the regional air connectivity fund, which is clearly linked to the issues of certainty for investment, growth, which all Members are focused on, and the role that aviation plays in our economy.
Mr Gauke
In 2010, the Government inherited an air passenger duty system that needed to be fixed. The changes that the previous Government made in late 2009 caused aggravation to the UK’s overseas friends and frustrated diaspora communities. Clauses 72 to 74 will fix the system by implementing air passenger duty rates for this year and by reform of the rates for next year.
I will address new clause 2 and new schedule 1, tabled by Plaid Cymru Members, and new clauses 6 and 7, tabled by Scottish National party Members. The Plaid Cymru proposal broadly follows the form that was taken to devolve the duty on direct long-haul flights from Northern Ireland, and requests a similar devolution for direct long-haul flights from Wales. The SNP proposals seek the devolution of duty on flights to all destinations.
I remind hon. Members that the devolution of duty for Northern Ireland was in specific response to Northern Ireland’s unique circumstances. It shares a land border with Ireland, leading to a risk of flights relocating from one part of the shared land mass to another. We recognised that risk and acted to ensure that Northern Ireland was not disadvantaged.
The current situation is that airports on the Great Britain mainland face the same APD rates, but the SNP and Plaid Cymru proposals could well lead to the introduction of the same market distortions that our devolution to Northern Ireland sought to prevent, namely the reallocation of flights from one part of the UK to another, leading to distortion in competition, and winners and losers across the UK.
Regional airports are doing well: 2013 was the third consecutive year of passenger growth and our APD banding reform is another confidence boost for the air travel market. Relevant examples include Cardiff airport, which in 2013 saw a 4% increase, equating to around 44,000 extra passengers, with new routes announced to Germany and the Caribbean. In Scotland, there has been 3% growth at Glasgow airport, with almost 206,000 additional passengers. New routes have been announced for this summer to Croatia and Greece. Edinburgh airport has grown 6%, equating to more than 580,000 additional passengers. In the past six months, new routes to Qatar, the USA and Norway have been announced.
Mr MacNeil
Is the Minister happy, or does he agree with industry figures in Scotland, particularly the managing directors of airports, who believe that that growth has been constrained by APD?
Mr Gauke
My point to the hon. Gentleman is that the Government must reduce the deficit and APD is a valuable source of revenue. One cannot look at the effects of APD in isolation; one must look at the overall effects on the economy. We have taken measures in the Bill to reduce the burden of APD, but it is worth noting that airports in Scotland and Wales, and regional airports elsewhere in the UK, have been doing well in recent months.
Guy Opperman
I wish to praise Newcastle airport, which has welcomed the changes to APD. It is pleased that officials are indicating that the regional air connectivity fund will extend to airports beyond the 3 million passenger mark to those with upwards of 5 million passengers in certain circumstances. Does the Minister agree that that is a further example of the Government assisting regional airports and allowing them to grow as we know they can?
Mr Gauke
I am grateful to my hon. Friend because he brings me to my next point. I agree with him. The Government recognise the importance of aviation connectivity for all parts of the UK—for example, domestic flights are not subject to VAT. As he says, we are extending the scope of the regional air connectivity fund to include start-up aid for new routes from regional airports, and increasing funding to £20 million a year. Clearly, exactly how that works is a matter for the Department for Transport, but I welcome the fact that the Government are consulting the regional airports to see whether those that have more than 3 million passengers per year can receive extra support. That includes Newcastle airport, which has 4.4 million passengers. One could also mention East Midlands International, Liverpool John Lennon, Belfast International, Aberdeen, London City and Leeds Bradford, all of which have more than 3 million passengers a year. We are trying to do what we can to ensure that those airports can gain support from the connectivity fund.
Catherine McKinnell
Obviously, we broadly welcome any support for expansion and new routes from regional airports, but would the Minister accept that making an announcement without any details about the type of activity that will be covered by the funding can add uncertainty to the already difficult environment for the industry at present? It is imperative to bring some clarity to the issue as soon as possible. Will he tell us when he will be able to clarify what might qualify for the funding?
Mr Gauke
The hon. Lady is being uncharacteristically glass half empty. We have announced an expansion of the connectivity fund. We have said that we are seeking to take that beyond airports that have more than 3 million passengers per annum. As it happens, the Department for Transport is consulting on and developing guidelines for accessing support, and the results will be published in the summer. I am sure that the hon. Lady is as keen as my hon. Friend the Member for Hexham (Guy Opperman) to ensure that the best happens for Newcastle airport.
Guy Opperman
It is surely a relevant factor that the Budget was only a few weeks ago and the guidance on which we are consulting was published by the European Commission only at the end of February. One could hardly have done it any earlier.
Catherine McKinnell
Newcastle international airport is in my constituency—[Interruption.] However, I speak on behalf of all the regional airports. I am not being churlish about the potential funding that has been announced, but I hoped that the Minister would realise the increased commercial uncertainty that can be created by making announcements that lack clarity about what may or may not be included. The Government need to move as fast as possible to create—
The Temporary Chair (Mr Peter Bone)
Order. Interventions are getting longer than some of the speeches.
Mr Gauke
I am not sure that I can add much, other than to say that if the hon. Lady is concerned about uncertainty she might want to look at some of the anti-business policies pursued by her party.
We also recognise that air services in some of the more remote parts of the UK represent a vital connection to the rest of the country. That is why there is an air passenger duty exemption for flights from the highlands and islands of Scotland.
Mr MacNeil
I am grateful for the exemptions for the highlands and islands of Scotland, but does the Minister think that the devolution of APD to Scotland and Wales would result in an increase in the number of routes, flights, passengers, commerce, tourism and eventually revenue to the public purse? Does he see any advantage to the devolution of APD?
Mr Gauke
I wish to avoid running the risk of repeating myself, but I make the point that I made earlier: the devolution of APD within Great Britain would create unfortunate market distortions. As we said in our November 2013 response to the Silk commission, we are not convinced of the case for devolving air passenger duty to Wales, given the potential effects across the country as a whole. In the case of Scotland, the distortive effects across the country as a whole are harder to diagnose, given that it has more major airports with significant route connectivity. Our opinion remains that this requires careful evaluation if we are to be confident of its potential effects, so I ask hon. Members to withdraw their amendments.
Bob Stewart
Is it the Government’s intention to continue the trend of reducing air passenger duty across the country?
Mr Gauke
What I would say to my hon. Friend is that we have set out in the Budget and in the Bill significant changes that we think fix the problem we inherited from the previous Government.
My hon. Friend gives me the opportunity to turn to clauses 72 to 74. Ahead of our rates reform, clause 72 fulfils the commitment given in Budget 2013 on the rates of duty for 2014-15. This respects the air travel industry’s point that tickets are often sold a considerable time in advance of travel. The industry needs up to a year’s forward rates certainty to have sufficient time to prepare its accounting systems and set pricing ahead of advance ticket sales. The rates contained in clause 72 have therefore been anticipated by the industry.
The Second Deputy Chairman of Ways and Means (Dawn Primarolo)
Does Mr MacNeil wish to move new clause 6 formally?