AIR PASSENGER DUTY

HC Deb 31 January 1994 vol 236 cc637-710 4.31 pm

Mr. Andrew Smith (Oxford, East)

I beg to move amendment No. 1 in page 22, line 26, after "Chapter", insert— but subject to (6) below.".

The Chairman of Ways and Means (Mr. Michael Morris)

With this, it will be convenient to take the following amendments: No. 2 in page 22, leave out lines 37 to 39.

No. 3 in page 22, line 43, after "aircraft", add— (6) This duty shall not be charged until the Government has presented a report to Parliament on its effects on the economies of the United Kingdom islands, on the travelling public and on the air transport industry and tourism.".

Mr. Smith

It gives me pleasure to move this amendment, which calls on the Government to submit to the House a report on the full implications of air passenger duty before the tax is introduced. It gives us an opportunity to debate the general principle of the tax in relation to our objections and those of many others outside the House.

Not only was this yet another tax which Conservative Members omitted to tell the electorate anything about in their election addresses, but it was brought forward with no prior consultation with those most affected, the travelling public, the island communities of the United Kingdom, on whom it has a particularly serious affect, the airline industry or the tourism industry.

Our call for a report to Parliament is all the more justified because the Government have no mandate whatever for this tax, any more than they have one for the other new impositions and tax increases which they are inflicting on the public. As we all now know, and as the country knows, the Conservatives fought the last election on a false prospectus, as the people are only too aware. Bitter experience has taught them that they can never trust the Conservatives on tax again.

It should worry Conservative Members that, according to a poll reported in yesterday's The Sunday Mirror, 69 per cent. answered with a resounding no when asked whether they would ever trust the Conservatives on tax again. Three quarters of the poll sample said that tax would be very or fairly important in determining how they voted next time.

The Opposition are most concerned about the air passenger tax because it will add to travellers' costs. It also risks destroying jobs in the airline and tourism industries, and it will add to industry's bureaucratic costs. It is discriminatory as between air and other modes of travel. It impacts unfairly on the people and economies of the smaller islands of the United Kingdom; and its imposition is the thin end of a wedge which threatens to drive the air tax sky high.

Even at the levels at which the duty is proposed now, there will be an unwelcome impact on passengers and holidaymakers and those on whose jobs depend on providing for them. As Keith Betton of the Association of British Travel Agents said, as reported in The Times of 1 December, the tax would mean higher air fares, lower passenger volumes and a reduction in air services, 'none of which will be to the consumers' advantage'". The same article pointed out that the tax on flying will push up fares on some routes in Britain by about 15 per cent., and it is feared that it will lead to the closure of several small airlines. On top of all that, we should note the cost to the airline industry, now conscripted as a tax collector, which will face the administrative burden of collecting the duty.

Airlines such as British Airways have warned that the duty could prove costly and complicated to administer. Aircraft operators with no business or fixed establishment premises in the United Kingdom will be obliged to appoint fiscal representatives to ensure compliance with the tax regulations, and that may discourage some marginal overseas airlines from flying out of the United Kingdom.

There are a number of other problems with the administration of the tax, such as the unfair asymmetry between the respective obligations of Customs and Excise and air operators, in respect of late payments and refunds of duty. It cannot be right that Customs should have to pay interest only if delay is due to its own errors, whereas the taxpayer has to pay interest for any reason, even if an error by the Customs causes a delay.

We shall be pressing these matters further in Standing Committee, but there are a number of other points on the administration of the duty which I should raise now. As I said earlier, the industry has had an inadequate time to respond to these proposals. I have with me a copy of a letter sent to the Paymaster General, dated 27 January 1994, from Sir Colin Marshall, the chairman of British Airways. He points out that he was asked to submit comments on 30 November and to supply them by 31 January. It is clear from the tone of his letter that he was a little taken aback by the fact that the deadline for reply that he was given sees the Government debating this clause on the Floor of the House. That shows just how inadequate the time has been for the industry to respond.

I take it that the Paymaster General has the letter and the submission with him today. He should tell the House and the wider public whether the Government intend to respond sympathetically to British Airways' sensible and pertinent points. The airline points out that the duty should be accounted for by the airline that collects it. It points that, as proposed, the collection of duty from passengers will be done by the airline selling the ticket, but payment of the duty will be done by the airline carrying the passengers on the dutiable sector. There are no administrative systems for airlines to identify at uplift which passengers are eligible to pay the duty. It would clearly be very expensive for British Airways or other airlines to put such systems in place.

These are the sort of matters which could and should have been gone into thoroughly if full consultation with the airline industry and all affected had taken place.

British Airways' second point concerns the timing of the collection of the duty. It says that the duty should be payable after it has been received by the airline responsible for paying it. That is not an unreasonable request, because, in many cases, the Bill requires airlines to pay the duty before they have received it. That is because of the delay in collecting the tax from agents or other airlines. Such a system would give rise to onerous cash flow difficulties.

British Airways suggests that duty on domestic journeys should be charged at £2.50 per direction rather than £5 per round trip. It states: if the duty is simply accounted for by the uplifting carrier, there are no systems to identify which leg of such a journey the passenger is really on". That would involve airlines in much additional administration. They would have to check the wording on millions of tickets, and that would be costly. BA suggests a constructive way around that.

British Airways says that all passengers whose journey commences and terminates outside the United Kingdom should be exempt from the duty. That is because of the importance to British Airways and other airlines of passengers who stop over in London or in other United Kingdom cities during an international journey. BA says that one third of its passengers through Heathrow are transfer passengers and that charging duty on them would render BA uncompetitive. It says that it is competing for business with foreign countries by offering stopovers in the same way as some other airlines, such as KLM which stops at Amsterdam. Having to add the duty to the fares of passengers coming through the United Kingdom would damage BA's competitiveness.

British Airways suggests that all passengers for whom no fare has been charged should be exempt from the duty and says that a number of passengers fall into that category. The obvious ones are the members of staff travelling for duty purposes. For example, crew members have to be in position to operate a service somewhere else. But BA says that there are other free flights for charitable or compassionate reasons. It states that it would seem inappropriate to impose the duty on passengers such as the seriously sick children that the airline carries each year on its "Dreamflight" charters to Florida. Those issues will have a great resonance with the wider public.

The legislation is indicative of the Government's hurry. It has been rushed without full consultation with the industry, and the full implications of its administration and the unfair and damaging effect of many of the provisions have not been thought through.

British Airways says that the effective date of the duty should be delayed until at least 1 November 1994 and preferably until 1 January 1995. The Association of British Travel Agents says that tour operators selling short-haul holidays generally have summer brochures running to the end of the season on 31 October. It says that imposition of the duty from 1 October will leave those operators having to pay the duty for a month without having collected it from the passengers. Moving the effective date back a month would remove that problem.

As I have said, another area of widespread concern in the industry is the discriminatory impact of the tax as between air travel and other forms of transport. I hasten to emphasise that we suggest that it would be better not to impose it on air travel, and not that it should be extended to other forms of travel. Plainly, the travel industry must be worried about such an extension. In The Independent of 1 December, Sir Colin Marshall said: The new air passenger duty proposed discriminates against this nation's most successful transport sector and penalises airlines while rail, coach and ferry companies will escape, as will the Channel tunnel. It will mean, in effect, higher fares for virtually everyone at a time when UK airlines have been working hard to keep ticket prices down. Sir Michael Bishop, the chairman of British Midland, Britain's second biggest scheduled airline, said: Air travellers in and from Britain do not deserve to be singled out in this way. Why should they be forced to pay more and why should road, rail and sea travellers be exempt? This will make air travel less competitive against other forms of transport and we greet the decision with great anger. I await with interest the Government's response to those angry complaints by the industry's leaders about unfairness.

4.45 pm

One of the most serious aspects of the unfairness of the tax is its impact on travel to and from the smaller islands of the United Kingdom. If the Government's argument is that the duty is some sort of luxury tax, it is particularly flawed in relation to travel to and from the Scottish islands, Northern Ireland and a number of other islands around the British Isles. In such cases, both for business and family travel, there is often no realistic convenient alternative to air travel. It has been estimated that the impact on prices on those routes will be particularly serious.

The article in The Times from which I quoted earlier put the possible increase as high as 15 per cent. Surely the Government must see that that would be serious for the communities affected and their economies. In a letter to the Paymaster General, dated 15 December, John Parr, the director general of the Air Transport Users Coucil, said: the Council would urge you most strongly to exempt passengers flying to and from Northern Ireland, the Scottish Islands, the Isle of Man and the Channel Islands from liability to the tax. On none of these routes is there any acceptable alternative to air transport for business purposes, so that the local economies are heavily dependent on the provision of adequate air services. Any significant reduction in the latter as a result of the tax would inevitably put frequency—a prime requirement of business flyers —at risk and might even cause some services to be withdrawn altogether. The economic consequences would clearly be extremely serious for the areas concerned. In a letter of response dated 13 January, the Paymaster General stated: While I note your argument about exempting all passenger flights to Northern Ireland, the Scottish Islands, the Channel Islands and the Isle of Man from the duty, it would be difficult to justify relieving flights in one or more particular areas but not elsewhere. The result of such concessions would undermine the principle of the duty and reduce the revenue to be raised from it which would have to be made good from elsewhere. There is no understanding of or even reference to the important point about the economic effect on the livelihood of the islanders, their tourism, economic development and family links and visits. It is abundantly clear that, as elsewhere in the Budget, the Government's desperation to pay the bills resulting from their incompetence counts for everything and the real needs of the economy count for nothing.

To rub salt in the wounds, in his Budget speech the Chancellor tried to have us believe that the exemption for journeys undertaken on aircraft of less than 10 tonnes take-off weight or with fewer than 20 passengers was somehow intended to help the islanders. When my hon. Friend the Member for Western Isles (Mr. Macdonald) said that 90 per cent. of air journeys in his constituency would still be caught by the tax, did the Government have a rethink? Of course not; they just forged on, doubtless feeling that a Government already tainted with so many broken promises need not worry about such details. After all, the Chief Secretary has told the nation that the little promises do not matter. The Opposition believe that it is imperative that flights to the other islands of the United Kingdom be exempted from this duty. We have tabled amendments to that effect and shall return to this crucial matter during later proceedings on the Bill, when the Government will rightly be put under very strong pressure to think again about this duty's very severe impact on the communities to which I have just referred.

The Government will undoubtedly argue that, notwithstanding its probable damaging effects and its unpopularity, the air passenger duty is being introduced at a modest level. No doubt they will ask what all the fuss is about. In answer, we need only refer to the danger—indeed, on Second Reading my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) referred to it as the likelihood—that, once the tax is in place, the initial levels will be the thin end of the wedge. What the industry and the travelling public fear is that a Chancellor pressed simultaneously by the fiscal deficit and the need for pre-election bribes on marginal income tax rates will not be able to resist putting the air passenger duty up as part of the process of year-on-year tax increases to which the Conservatives, in breach of all their election pledges, are now committed.

I invite the right hon. Gentleman to give the Committee an assurance that the air passenger duty will not be raised before the next general election. As it is, this tax promises to be just a part of the Conservatives' sky-high taxation. That is why Opposition Members will vote for the amendment and against the clause.

The Paymaster General (Sir John Cope)

I should like at this stage to make some brief preliminary remarks, although I hope to be called at a later stage so that I may reply in more detail to points raised during the debate, including some of those made by the hon. Member for Oxford, East (Mr. Smith).

The amendment draws attention to the potential effects of the new duty. These and all the other factors were considered when we were deciding to introduce the duty and were concerning ourselves with structure, rates and exemptions. As all hon. Members know, the purpose of the tax is to raise revenue—a matter that has been discussed at length in this Chamber.

Ms Angela Eagle (Wallasey)

I understand that when a tax is being introduced the Treasury examines its effects in particular areas. Can the Minister explain why he and his Department did not see fit to consult the airline industry? This tax came like a bolt from the blue. Why has the subsequent consultation been so quick? In fact, it is ending on the very day on which this clause is being debated. If the airline industry had been consulted, the Government could have been made: aware of some of the difficulties that the details of the tax will create.

Sir John Cope

No Chancellor of the Exchequer discusses proposed taxes in advance of a Budget statement. The consultation with the airlines and others involved, to which attention has already been drawn, was launched on Budget day with the issue of a considerable paper giving further details and inviting general and very specific comments from those most immediately involved. The consultation process has by no means ended. Hon. Members know, although people outside may not be aware, that this is only the first of a series of debates that we shall no doubt have during the Committee stage—to say nothing of Report stage. Indeed, we have already heard that we shall be returning to some aspects of this duty and I can assure the hon. Member for Wallasey (Ms Eagle) that even now the consultation process is continuing.

Mr. Keith Mans (Wyre)

May I take it from my right hon. Friend's answer that in the coming weeks or months the airlines will have an opportunity to make representations about the way in which the tax will be collected and the date on which it should become operative?

Sir John Cope

Yes, indeed. Discussions with quite a number of parties in the industry are proceeding and we are open to more general representations from the people affected by the tax as well as from hon. Members on both sides of the Committee.

The air passenger duty fits the Government's strategy of shifting the burden, in part, from direct taxation by broadening the indirect tax base and it falls on a sector where expenditure is currently subject to very little indirect taxation because of the VAT zero rating that it enjoys as well as the use of duty-free fuel for international services and all domestic services to which the new duty will apply.

Mrs. Anne Campbell (Cambridge)

I have been listening very carefully to the Minister's comments about low taxation in this area. Can he assure the Committee that the tax will remain at the level at which it is being introduced and will not be raised before the next general election?

Sir John Cope

We believe that the tax has been set at the right rate, but obviously I cannot give an assurance about future Budgets—nobody could do that.

This tax brings us into line with many other countries, including some of our European partners. Having decided that such a tax was desirable, we looked closely at how it might best be designed. The results are before the Committee in the form of the Finance Bill.

Mr. Nigel Forman (Carshalton and Wallington)

My right hon. Friend has indicated that by introducing this tax the United Kingdom will not be putting itself out of line with other countries. I have a great deal of sympathy with that point. Can my right hon. Friend give the Committee a few examples of other countries which have such a tax and the levels at which they levy it?

Sir John Cope

I shall be happy to do so, though in no particular order. Denmark has a tax very similar to ours; the rate for all international departures is roughly £6.50. In Belgium the amount is £9, depending on the airport of departure. Passenger tickets issued in the Republic of Ireland are subject to a rate of £5. Greece has a departure tax of £15, while in Canada Toronto has a transportation tax of approximately £10. In the United States—for instance, in Los Angeles or New York—the total figure for departure tax, federal taxes and customs fees is about £14. The situation is similar in Japan, New Zealand, Australia and Hong Kong. South Africa's figure is £6, and France has an airport tax of £2. One could give all sorts of examples. Obviously, there are differences of detail, including the detail of collection.

In deciding which way to go, we considered some of those models. We had to balance conflicting pressures. We wanted as much simplification and certainty as possible, and we wanted to impose the lowest possible costs on the Customs and Excise authorities and the business undertakings collecting the tax. We tried to secure the minimum disruption of established patterns and, above all, we sought fairness between the various people and interests concerned.

Mr. Mans

I am most grateful to my hon. Friend for giving way again, and I assure him that I shall not intervene a third time in his introductory speech. Can he confirm that in virtually all the countries that he has mentioned as examples of places in which taxes of this nature are imposed most of the funds raised are used for developing the infrastructure of the airline industry and do not simply go into the central treasury?

Sir John Cope

It varies. Some are straight departure taxes and others are federal taxes or customs fees. I readily acknowledge that some are closer to the example that I gave than others. As my hon. Friend knows, we have always been cautious about revenue being hypothecated to particular cases of expenditure.

I mentioned some of the factors that we took into account when designing the tax. They also applied—and this is relevant to the impact on the air transport industry —to the exemption of transfer passengers. We were concerned to maintain the international position of the British air transport industry and particularly that of Britain's hub airports, such as Heathrow, and to help the British airlines serving them by preventing the tax acting as a disincentive to passengers changing planes in Britain.

5 pm

Mr. Barry Porter (Wirral, South)

As to international comparisions, do other countries make any exemption or reduction in respect of small offshore islands? If so, have the Government addressed any such examples? If people have no alternative but to leave an island by air, and exemption were given, surely that would not upset the general principle.

Sir John Cope

I cannot give my hon. Friend an off-the-cuff answer, but I will endeavour to answer his point later.

My hon. Friend the Member for Wyre (Mr. Mans) made a point that has been raised in correspondence since the Budget, concerning the date of the duty's introduction. Many of the brochures promoting holidays to the end of October 1994 were published before the Budget, and a good number of holidays were sold from them before my right hon. and learned Friend's Budget statement. Accordingly, he has agreed that the date of the tax's introduction should be deferred to 1 November 1994. It would be unreasonable to expect tour operators to take the theoretical possibility of new taxes into account when entering into the price guarantees that they give their customers. The Government agreed to that special arrangement in 1994 to accommodate tour operators. I am sure that my hon. Friend, airlines, tour companies and others welcome that. It also allows us a little more time to prepare for the tax.

As to the Scottish islands, a number of people seem to have misunderstood my right hon. and learned Friend's Budget speech. Announcing the exemption for small aircraft, he said: This means, for example, that most flights between the Scottish islands will not bear tax."—[Official Report, 30 November 1993; Vol. 233, c. 932.] It was not his intention to relieve all flights to and from, as well as between the islands. He pointed out the consequences of the small aircraft exemption that he was proposing and documents published on Budget day made clear the precise details of the exemption that we had in mind.

Mr. James Wallace (Orkney and Shetland)

I do not quibble about the accuracy of that quotation as the exemption delivers exactly that stated, but the impression given by the Chancellor and in informal Scottish Office briefings was that the exemption was meant to cover many more cases. What inquiries were made of airline companies before the Chancellor presented his Budget as to how many people would be affected by the exemption? What estimate did the Chancellor have on Budget day of the number of passengers who would enjoy the exemption?

Sir John Cope

We made no direct inquiries of airlines or of anyone else outside the Government before Budget day, but a lot of public information was available to us about the number of flights, number of passengers, size of aircraft and so on which enabled us to make a fair estimate of the number of passengers who would be affected.

I said that there was misunderstanding in some quarters flowing from the phrase used by my right hon. and learned Friend in his Budget statement, but the detail was clear in the papers that we published on the day.

Mr. Alistair Darling (Edinburgh, Central)

If the Chancellor was right to give an exemption for travel between islands such as the Orkneys and Shetlands—I do not imagine that aircraft of the size that the Chancellor had in mind are used for the Western Isles—why would it be wrong to exempt passengers who want to leave an island to get to the mainland, which is the biggest communication difficulty? I do not see the reason for the difference in philosophy, unless the Chancellor believes that people want to travel only between islands and never to the mainland.

Sir John Cope

The effect will differ according to the particular flights that people use. My right hon. and learned Friend gave an example of one effect of exempting a small aircraft from duty, but the reasons went beyond that particular example. As I said, the aircraft affected by the duty do not pay excise duty on the fuel that they use, but most small aircraft—and many below the exemption limit —do pay it. Therefore, the tax will not apply to the smallest aircraft used by airlines. Incidentally, their value added tax position is also different.

Mr. Wallace

The right hon. Gentleman made that point to me in correspondence and it seems a wonderful post facto rationalisation of the situation in which the Government find themselves. The Paymaster General must know from the information available to him that the exemption would apply to the twin-engined Otter aircraft and to the Jetstream 31—both of which use kerosene and not avgas. Therefore, the rationalisation that the right hon. Gentleman just offered admits of exceptions. It has all the hallmarks of someone trying to justify an earlier statement.

Sir John Cope

If the hon. Gentleman will study the words that I used just now and on other occasions he will find that the lines of differential in respect of air passenger duty and the use of different types of fuel are not precisely coincident. Neither is the line of differential of VAT. Nevertheless, my remarks are true for a large number of the aircraft affected, as the hon. Gentleman acknowledged.

We remain of the view that it would not be appropriate to provide exemptions for certain parts of the country. It would be extremely difficult to distinguish between them and would add considerably to the complications of the tax for ourselves and for the airlines. However, there is obviously concern about the position of some services to the Scottish islands, and my right hon. and learned Friend the Chancellor and my right hon. Friend the Secretary of State for Scotland will continue to consider the impact of the duty on Scottish island routes. I do not want to pre-empt those discussions until the picture is clearer.

Mr. Andrew Smith

When does the right hon. Gentleman expect those consultations to be complete? It would be helpful if the Government could report the outcome of those deliberations before we vote on the matter in Committee.

Sir John Cope

I hope to report on those consultations in time for the convenience of members of the Standing Committee.

I wanted to give the reason for the special treatment of small aircraft. I have mentioned that many small aircraft, including air taxis, use dutiable avgas rather than duty-free avtur, so the argument about the low level of taxation in the air travel industry is not strong. The size criteria for exemption are based on the Civil Aviation Authority licensing requirements, which are taken from European Community agreements. They mean that under existing arrangements an airline which operates only aircraft below those sizes is subject to less rigorous requirements on its financial health than under existing arrangements. Those airlines, therefore, have a different sort of licence from airlines which operate aircraft above the size criteria. Linking those exemption criteria to the CAA licensing regime has the benefit that a large number of operators will know immediately, from the type of licence that they have, whether they will be liable to register. As well as that deregulatory benefit, levelling the exemption means that some of the flights mentioned will be exempt.

The threshold is sufficiently low to minimise the scope for distortion of competition on routes served by both exempt and taxable aircraft. If one studies the sizes of aircraft and their use on different routes, it is difficult to find any size criteria that have no effect on competition and cause no difficulty. That is not a reason to have no size exemption, but it means that it is difficult to choose one that is perfect in every respect.

Mr. Wallace

Can the Minister name one airline company in the United Kingdom which flies on scheduled routes in the United Kingdom and whose flights will all be exempt under the proposal?

Sir John Cope

I will not answer that off the cuff, but I hope to respond to the hon. Gentleman's question later. I assure him that there are quite a number of small companies that use only smaller aircraft and will be exempt.

The take-off weight and seating capacity of any aircraft will normally be determined by the aircraft's certificate of air worthiness, although there is a provision for Customs and Excise to examine such matters.

In moving the amendment, the hon. Member for Oxford, East (Mr. Smith) mentioned tourism. Most overseas tourists use aircraft only to travel to and from the United Kingdom and will be charged the £5 or £10 rate only on departure. The small number of United Kingdom and overseas tourists who take flights within the United Kingdom will be charged at the £5 rate. Even then, the duty is likely to be a very small proportion of the total cost of a holiday in Britain, so it will not be a significant influence on whether people choose Britain as a holiday destination.

The air passenger duty is, if anything, likely to have a small but positive effect on United Kingdom tourism. I understand that, among air passengers, three and a half times as many United Kingdom residents go on holiday overseas as overseas visitors come to take a holiday in the United Kingdom. Even if some overseas visitors were deterred from taking a holiday in the United Kingdom, it would be likely that more United Kingdom residents would be deterred from holidaying overseas. Many of those would choose to take a holiday in the United Kingdom, which would be of corresponding benefit to the United Kingdom tourist industry.

Ms Eagle

The right hon. Gentleman seems to want to have it both ways. A while back he said that the tax was so modest that it would not affect the number of passengers flying in. His Department has worked out the elasticity of those flights and has said that it is very small—only 2.5 per cent., as I recall. He has just argued, however, that people who may have gone abroad for their holiday will now abandon air travel and go instead to Bridlington, Bognor or Clacton. He cannot have it both ways. Does he say that the proposal will either affect or not affect the number of air passengers?

5.15 pm

Sir John Cope

I did not say that the proposal would have no effect on the number of air passengers. Nor did I say that it would have a large effect on the tourist industry. On the contrary, I said that it would have a small effect on the tourist industry and, in so far as it had an effect, it would be positive rather than negative for the reasons that I have given.

Mr. Forman

Have my right hon. Friend and his advisers considered the possibililty that the current rate of tax is so marginal that it could well be absorbed by the companies and not passed on to the traveller?

Sir John Cope

In some cases that may happen. It is difficult to be sure of the extent to which it will happen because the companies involved are competitive, need to make decisions about pricing and will no doubt make different decisions in different circumstances. The hon. Member for Wallasey (Ms Eagle) is right to say that we suggested that the best estimate that we could make was that air travel could be affected by about 2.5 per cent. She should consider that statistic in context: air travel would otherwise be expected to increase by 4 to 5 per cent. a year. Even if we are right about the 2.5 per cent., it means that there will be a slower rate of growth in the number of air passengers rather than a decline.

I find it slightly surprising that the Labour party should be so adamant about the matter because I have had drawn to my attention a copy of the report of the London Policy Forum. I understand that the hon. Member for Peckham (Ms Harman) was the chairperson of the economic working party of that organisation. It suggested a few months ago, just before the Budget, that it thought that a tourism tax should be considered. It seems that it was already in the process of accepting that a tourism tax might have some validity even before the Budget. The proposal was made in September 1993 by a leading member of the Labour Front Bench finance team —or at least in a document issued by an organisation of which she was the economic chairperson.

The same document also states that Labour will consider introducing an airport tax such as that levied in many other countries. I do not say that in moving ahead and introducing such an air passenger duty we have built on suggestions made by the Labour party—that would be going too far—but we are not unique in looking in that direction.

Mr. Wallace

Clearly, the Treasury's researchers have not yet come up with an airport tax such as they have proposed in the plethora of policy documents that we Liberal Democrats seem to put out. [Interruption.] The Paymaster General is welcome to have a look; if he finds any such reference, I shall be unpleasantly surprised.

I am concerned about the impact of the tax on the Scottish highlands and islands. Both this proposal and the proposed tax on insurance premiums remind me of occasions when former Chancellors—certainly Lord Lawson, and, I believe, the right hon. Member for Kingston upon Thames (Mr. Lamont)—announced the number of taxes that would be abolished with great flourish in their Budget statements; now, the Government are introducing new taxes.

As the hon. Member for Oxford, East (Mr. Smith) pointed out, there has not been much consultation, if any. Perhaps the Government thought that the fact they had not imposed VAT on passenger transport—there had been considerable speculation on that possibility before the Budget—the ground might have been softened for the introduction of some other transport-related tax.

I do not think that the general concept of an airport tax will get the adrenaline going and prompt the raising of placards outside every airport—although the islands are an important exception. It is common experience for a traveller abroad to turn up at the check-in desk and discover that he must pay airport duty before he can leave. Although this is not the most sinister of taxes, it is important to watch out when any new tax is introduced: it may start at a modest level, but once in place it can easily be increased without the debate and scrutiny that we are being allowed in this instance.

The hon. Member for Ayr (Mr. Gallie) may well share the anxieties expressed by Jetstream Aircraft Ltd., which is in his constituency. The tax is being introduced at a time when the airlines' figures could scarcely be described as buoyant. A rate of growth such as that mentioned by the Paymaster General would certainly bring a smile to the faces of airline executives, but I know that, in recent months, the traffic level has stagnated—or, at any rate, has not risen to the extent suggested by the right hon. Gentleman.

The tax also comes at an unfortunate time for the aircraft industry. If the airlines are in difficulty, and are not sure how the tax will affect passenger numbers, they may understandably defer decisions on investment in new aircraft, which would feed through into the manufacturing industry. That, in turn, would affect companies such as the one in the constituency of the hon. Member for Ayr—at a point when the aircraft manufacturing industry has not, by any stretch of the imagination, been going through good times.

The amendment has provided a useful peg on which to hang a debate about the impact of the duty on the economy of the islands, and remote parts of the mainland of Scotland. As the Paymaster General said, the Chancellor spoke in his Budget statement of air traffic between the islands, and—in the strictest sense—the proposed exemptions reflect that. However, the impression I gained at the time was that the Chancellor was conferring a much larger benefit, and similar vibes came from the Sottish Office.

The Paymaster General said that the Chancellor and the Secretary of State for Scotland were continuing to consider the impact of duty on the Scottish routes. I hope that he meant that the door had not been shut on the possibility of a future extension of the exemptions: perhaps he will even announce such an extension in this debate. My arguments, added to those of the hon. Member for Oxford, East, may help to persuade him. There is a good case for such a move. I know that the right hon. Gentleman has received representations from a number of sources in the airline industry, as well as from local authorities and many others who are concerned about the economy of the highlands and islands.

Mrs. Ray Michie (Argyll and Bute)

I agree that the Chancellor appeared to be very bountiful to the Scottish islands when he dropped the exemption proposal into his speech. A good deal of confusion was caused: we all thought that flights from the mainland to the islands, as well as flights between the islands, would be exempted. I was concerned to find that that was not the case.

In fact, there are very few inter-island flights—at least in my constituency. The Paymaster General should appreciate that return flights from Glasgow to Islay and Tiree already cost £100 and £124 respectively. The extra tax will impose a considerable burden—not on tourism; these flights are a lifeline for the islanders.

Mr. Wallace

My hon. Friend has made a number of important points. I know that she has been at the forefront in putting her constituents' case: her constituents and mine will be particularly affected by the tax and, indirectly, by any downturn in tourism.

My hon. Friend rightly pointed out that the exemption, as it stands, will not apply to a large number of people. I suspect that the overwhelming majority will be in my constituency, and I am thankful for small mercies; but I should like more to be helped. If any airline in Scotland has an idea of the likely impact of the exemptions, it must be Loganair, which has many years' experience of serving the Scottish islands. It estimates that about 20,000 passengers will benefit—only a small proportion of those who travel to and from the islands.

Once the tax is introduced in the autumn, it will apply to the Dash 7, which flies to the Isles of Scilly; but, in a Scottish context, it is likely to apply only to the Britten-Norman Islander, which carries eight passengers —or nine, if someone sits at the front with the pilot.

As my hon. Friend the Member for Argyll and Bute (Mrs. Michie) pointed out, a return ticket from Glasgow to Islay or Tiree costs about £125. The proposed tax constitutes a significant increase. The Paymaster General may not know quite how expensive it already is to travel to the Scottish islands. When people book their tickets to Orkney and Shetland at the travel agent, they are surprised at the cost. It is very expensive compared, for instance, with the cost of crossing the Atlantic.

I have here an airline ticket from Orkney to London, and the return from London to Shetland—for which I need not pay, courtsey of the Fees Office. It cost £447. Anyone who travels regularly within Europe would think that an exceptionally high fare—and the Government now propose to add duties to fares that are already extremely high.

We are not talking about travel for pleasure or convenience; we are talking about lifeline services which are an essential part of island living. To travel across the country rapidly, it is necessary to go by plane. I well remember the first time that I submitted a car allowance claim after becoming a Member of Parliament in 1983. I had travelled from my constituency to London on the ferry. I wrote down something like "9/10 September, Orkney to London". Someone from the Fees Office telephoned me and asked, "Was this a return journey, Sir?" I said, "Has it ever occurred to you how long it takes to travel by car from the Scottish islands to London?" If I always travelled back and forth by car, I would probably spend all my time on the road; I would seldom be here.

This is a serious point, however. We cannot simply hop on to a high-speed train or other means of public transport; airlines are crucial to livelihoods and island living. If the Government had sought to impose such a duty on train travel, commuters for whom trains are essential would be jumping up and down all over the country.

It is also important to emphasise that the flights about which we are concerned are very price sensitive. Passengers who travel through highlands and islands airports are more likely to pay their own fares. They do not rely on businesses to pick up the tab. They often comprise families who are travelling to visit relatives or to conduct their own family business.

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There is also much price sensitivity in respect of businesses in the highlands and islands. The very nature of business in the islands involves narrow profit margins. Those businesses cannot readily stand extra impositions. In addition, flights are very expensive for people who wish to visit the islands as tourists. The duty will be an added disincentive.

With regard to the tourism argument and the general imposition of air passenger duty, the Paymaster General said that what we might lose by way of people not travelling to the United Kingdom would be made up in respect of people from the United Kingdom not travelling abroad. However, those people will certainly not travel to Orkney and Shetland, to the Western Isles, or to Tiree or Islay if they have to pay the duty. It seems that we are going to suffer the full cost of the duty with none of the benefits.

Many people travel from my constituency to Aberdeen for hospital treatment. Although routine operations can take place in the islands, many people have to go to Aberdeen to have operations or to be treated as out-patients. Obviously, the air ambulance would be used for emergencies and that service is exempt from the duty. However, I am concerned about people who have to travel to Aberdeen for medical treatment on the scheduled flights. I often travel with such people on a Monday morning and sometimes travel with patients as they return to the islands on a Friday evening.

In a written reply, the Secretary of State for Scotland said: It is not expected that Orkney and Shetland health boards will require to purchase many tickets"— although my experience does not necessarily accord with that. Any additional costs would be more than offset by the 4.5 per cent. increase in funding for the NHS in Scotland which my right hon. Friend has announced for the next financial year."—[Official Report, 16 December 1993; Vol. 234, c. 892.] That may be so, but that funding was meant for health care. It was not meant to go on a circular journey back to the Treasury through air passenger duty. The money that will be lost will be lost to health care in the islands.

Perhaps the Government should examine the impact of the duty on their own pocket. The responsibility for the highlands and islands airports is about to be transferred from the Civil Aviation Authority to the Scottish Office. However, those airports are recipients from the public purse. If their passenger levels show a sizeable decline as a result of the duty, that will do them no good.

I am also concerned about the fact that the duty could lead to anomalies. Loganair has announced recently that it is restructuring its operation. During the past six weeks when travelling from Glasgow to Kirkwall and from Kirkwall to Glasgow, I turned up at the airport to board a Jetstream 31 which was the scheduled plane for that service. That plane has 18 seats, so I would not have been expected to pay the duty when I booked my ticket. However, I was told at the airport that, for operational reasons, I had to fly on a Shorts-360 which has 36 seats.

If the air passenger duty had been in place, I imagine that someone would have been standing on the tarmac demanding £5 from everyone before they could board the plane. I would probably have had the £5 on me. However, someone may have been returning from holiday with only £5 for the taxi fare from the airport into Kirkwall. That person would have had to spend his taxi fare before he could board the plane.

I may be taking things to extremes, but there is a potential anomaly. That anomaly is perhaps less likely as the Jetstream 31 is being withdrawn from that service. However, there will still be an anomaly in respect of passengers travelling from Kirkwall to Wick. Some of those journeys will take place on the eight-seater Islander aircraft which will be exempt from the duty. Others will be undertaken on the Shorts-360 and people will have to pay. A tax depending on the time of day one travels and on which plane the operator provides does not fulfil the criteria for the kind of taxes that should appear on the statute book.

The Liberal Democrat amendment which was not selected extended further than the islands. It would have taken account of remoter areas from which travellers possibly could catch trains. Although one cannot take a train from Campbeltown, I suppose that one could take a train from Wick. However, the distances and travelling time would be great. We should consider mainland airports in remoter areas where, like many islands airports, air travel is essential.

I want to consider part of the Government's response. The Paymaster General referred to the criteria relating to the CAA licensing requirements. In a letter to me last week, he said: all holders of this type of licence will immediately know they need not register for the duty. I asked the Paymaster General a question and I look forward to the answer. I do not know of any operators of scheduled services in the United Kingdom who would be fully exempt from the duty. Some will be partially exempt, but will have other services that will attract the duty.

The Paymaster General said that the Government do not want to disturb the airline operators. However, Loganair has made representations to the Treasury about the duty. It is clearly not terribly upset about the possibility of having some flights which might attract the duty while a greater number will be exempt. The operators believe that the extended exemptions are far more important for the viability of their businesses than any additional administrative difficulty in respect of being able to distinguish between the two types of flight.

Sir John Cope

Not many scheduled airlines will qualify wholly for the exemption as it stands, although Suckling, which flies from the constituency of the hon. Member for Cambridge (Mrs. Campbell), is one. Most of the air operators who do not run scheduled services will be below the limit. Those operators, of whom there are more than 100 including air taxi operators, will be below the level and will automatically be exempt as a result of the exception about which we are talking.

Mr. Wallace

I was careful and deliberately used the word "scheduled". I accept the Minister's point about unscheduled services. People may use an air taxi to travel from A to B or, for example, from Cambridge to London. That service is not a lifeline service, but people who use that service will benefit from the exemption. However, for people in my constituency and in the constituencies of my hon. Friend the Member for Argyll and Bute and of the hon. Member for Western Isles (Mr. Macdonald), those flights are lifeline services and they will not receive the benefit of exemption. I am not saying that the exemption should be withdrawn and I can see the administrative benefit. However, if people receive the benefit of the exemption on convenience flights and air taxis while the benefit is not extended to lifeline flights, that highlights a considerable anomaly and unfairness.

Sir John Cope

The hon. Gentleman should not forget what I said earlier. The people who use unscheduled services do, for the most part, pay VAT on their travel.

Mr. Wallace

I accept that. However, they will still benefit from this exemption while those who are not using the services as convenience services will have to pay the duty.

It has also been said that there may be anomalies elsewhere and other areas might call for a similar exemption. Where might that happen? I understand that the planes which currently service the Isles of Scilly would all fall within the exemption.

The same arguments apply to the Isles of Scilly as would apply to the Scottish islands in respect of lifeline services. The Paymaster General should say which other parts of the country depend on those services as lifeline services before he says that people all over the country will jump up and down, claiming that they want a similar consideration.

What would be the result of the concession? Again in correspondence, the Paymaster General said: The result of such concessions for all regions would undermine the concept of the duty and reduce the revenue to be raised from it, which might have to be made good from elsewhere. In a written answer to me, he mentioned £2 million as the likely loss of revenue. Indeed, £1 million was mentioned to my hon. Friend the Member for Argyll and Bute, but it was not clear whether that was in respect of one-way travel. Therefore, if we are talking about traffic in both directions, it might be £2 million. For heaven's sake, if the country's economy has reached the stage at which the Government cannot withstand the loss of £2 million, we are in a far worse state than any commentator has led us to believe.

Mr. Andrew Smith

Does the hon. Gentleman agree that that £2 million would do incomparably greater damage to the islands than it could possibly benefit the Government's finances?

Mr. Wallace

The hon. Member for Oxford, East has taken the words out of my mouth. Seen from the perspective of the Treasury, £1 million or £2 million—I will not say that it is irrelevant—is peanuts, but, from the point of view of the highlands and islands economy, it is a considerable amount. The withdrawal of that amount could have a serious economic impact. I hope that such matters will be taken into account when the Secretary of State and the Chancellor of the Exchequer consider the likely impact of the duty.

Jetstream estimates that, according to available information—that is, an ABC flight guide and Department of Transport statistics—the revenue would be £380 million in a full year, which significantly exceeds the Government's estimate. I understand that the Government estimate revenue of £115 million in the first part year, £330 million in 1995–96 and £335 million in 1996–97. I understand also that the figure of £380 million excludes charter operations. Allowing for the fact that there appears to be the possibility of greater revenue than the Government have estimated, the loss made by extending the exemption for the islands' routes would be more than made up if the other figures prove to be right.

Jetstream argues that if the Government exempt all turbo-prop aircraft, that would account for only 9.6 per cent. of revenue. For example, the limit up to 69 seats amounts to about £36.6 million, whereas a limit of 70 seats and over amounts to about £347 million. The contrast shows that there is considerable room for the exemption to be extended so that the economies of areas that depend on air travel as a means of earning a livelihood and living can be properly taken into account.

I am grateful to hear that discussions are still going on, and I very much hope that we can persuade the Paymaster General and his right hon. Friends to make modest extensions of the exemptions—modest in terms of the impact on the Treasury, but very important indeed for people who live in the island areas of Scotland.

Mr. Phil Gallie (Ayr)

The hon. Member for Orkney and Shetland (Mr. Wallace) emphasised the serious aspects of the proposed tax and outlined the realities of island life. He said that many people's incomes depended on air travel. The proposed tax will affect people in the islands far more than it will affect anyone else in the United Kingdom.

The hon. Gentleman's words contrast with those of the hon. Member for Oxford, East (Mr. Smith), who spoke on a purely political basis. He said that, yet again, the Government are raising taxes. However, the Labour party continually stresses that it wants to spend more and more. That would inevitably lead to higher taxation. The hon. Member for Oxford, East made some valid points, but, if he wanted to be seen to be serious, he would not have made some of his opening remarks.

I shall concentrate particularly on clause 28(3), which refers to clause 29. Clause 29(1)(b) refers to the 20-seat limitation. I have written to my right hon. Friend the Paymaster General and discussed the effects of the 20-seat limit on Jetstream aircraft and flights to the islands and the Western Isles. I, too, remember the words of my right hon. and learned Friend the Chancellor in his Budget speech. He said that most flights within the islands would be covered by the exemption in the Finance Bill.

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The aircraft that are used in the islands range up to about 70 seats. I hope that my right hon. Friend will reconsider raising the 20-seat limit. I recognise the licensing issues and that perhaps there is logic in determining the 20-seat option, but there is room to move towards the Chancellor's intentions in his Budget.

Ms Eagle: Does the hon. Gentleman agree that perhaps the best way of dealing with the problem of travel between the islands and the mainland and between islands is to exempt the routes rather than mess around with the number of passenger seats?

Mr. Gallie

No. My preference is certainly to change the limit on the number of aircraft seats. Jetstream is located in my constituency, and I am very keen to promote the interests of turbo-prop aircraft. That is the basic reason for my opinion. Island services are provided by turbo-prop aircraft. We have an opportunity now to do some good for the islanders and also for Jetstream Aircraft in my constituency.

A 30-seat limitation would benefit the sale of Jetstream 41s, but a move to a 70-seat limit which included exemptions for advanced turbo-prop aircraft would be important to the islands and to the United Kingdom's manufacturing base.

The hon. Member for Orkney and Shetland said that a change from the Jetstream 31 up to the Shorts 360 involved a tax change. Perhaps that would be an inducement not to buy Shorts 360s and to spend a bit more on Jetstreams.

I should like my right hon. Friend to acknowledge what I have said and to make a commitment to continued consideration of the matter.

Ms Eagle

We are considering just one of the 12 tax increases of the Budget—a tax-raising package that the Chancellor, in evidence to the Treasury Select Committee, admitted is the equivalent of a 7p increase in basic income tax. Taken together, the increases amount to the largest tax increase in British peace-time history—

The Chairman

Order. The Committee is debating amendment No. I, with which we are taking amendments Nos. 2 and 3 specifically on the airport tax.

Ms Eagle

I was about to come to the question of airport taxes. When we are dealing with individual taxes, it is important to consider the general taxation background.

The Chairman

I am grateful to the hon. Lady for giving me her thoughts. However, I am chairing the Committee, and I would be grateful if she went straight to the subject of airport tax.

Ms Eagle

I can assure you, Mr. Morris, that I have absolutely no ambition in that direction.

When we consider new taxes, we need to examine why the tax is levied, the way in which it is levied and whether it is the most sensible and efficient way of collecting money. I shall make some comments on each of those points.

The tax is being levied because of Tory economic mismanagement which led to a sudden scramble for revenue at the last minute. When we look at some of the administrative details and the way in which the tax was imposed, we see that all of the arrangements were made at the last minute. As to the administrative details of the collection of the tax, the lack of consultation before the announcement of the tax led to the promulgation of administrative arrangements which have caused many anomalies, some of which we are discussing today. Those anomalies need to be ironed out if the tax is to be efficiently and effectively collected and if it is to impact fairly on all those who pay it.

Why should airline travel, and no other form of public transport, be singled out when considering tax increases? Naturally, the airline industry has pointed that out in its reaction to the way in which the tax is levied. Indeed, while I do not say that we should tax other forms of public transport, it seems odd that the airline industry, out of all the systems of transport to get from one place to another, has been subjected to this tax.

When the Government announced the tax, and it was expected that value added tax might well be put on public transport, I received petitions from bus operators and representations from Mersey Rail expressing concern about imposing VAT on public transport. There was a great sigh of relief when VAT was not extended to public transport. Then the airline industry was hit with the sudden announcement of a new airline tax, even though it is set at a low level at present.

Administrative arrangements are in the process of being put in place. My colleagues on the Front Bench have expressed concern that the scope of the tax will be increased in the years to come and that what we have now is the thin end of the wedge. We should bear in mind that, when value added tax was introduced, it was only a modest tax. In the past 15 years, its scope has been extended 14 times, and the level has increased from 8 per cent. to 17.5 per cent. The potential of VAT as a revenue-raising measure has been milked by the Government in a desperate search for cash.

As the Government continue to mismanage the economy and fail to balance the books, what guarantee do we have they will not regard this airport tax as yet another way of increasing revenue in their desperate search for cash for the Treasury? We have had only one comment from the Minister on this matter. When he was asked whether the scope of the tax would increase in the years ahead, he made the usual coy Treasury comment that he could not possibly say what the Treasury's tax plans would be in the future but he thought that the tax was levied at a reasonable rate at present. All I can say is that we must look at the precedent of value added tax to see what sort of guarantee the Minister's assurances give us.

Why is the tax being levied? Obviously it is being levied to raise revenue. It seems to be a minor way of raising revenue. Indeed, some of the administrative problems that it will cause hardly seem worth the revenue that it will raise. Scott Grier, the managing director of Loganair, one of the airlines that will be affected by some of the exemptions in the tax, said that the exemptions were arbitrary and unrealistic. I refer to the loophole which exempts passengers on aircraft with fewer than 20 seats and weighing under 10 tonnes. Of course, that exempts executive jets. It was sold in the Budget statement as an attempt to ensure the viability of flights and services between Scottish islands.

Several of my hon. Friends have eloquently demonstrated that that argument is fallacious. Indeed, only 10 per cent. of passenger journeys between the islands, and between the islands and the mainland, will be exempt. I associate myself with the comments made earlier about how this tax threatens island life and lifeline services. The Government must look seriously at that matter.

Unlike the hon. Member for Ayr (Mr. Gallie), I believe that the Government should look carefully at exempting routes, rather than attempt to levy the tax based on the size of an aircraft. Methods of avoiding tax are becoming increasingly ingenious these days. Listening to the hon. Gentleman, I suddenly had a vision of people taking seats from larger aircraft so that they could qualify for the exemption. People cannot avoid paying tax on routes and the Government should look seriously at exempting routes rather than using aircraft size.

The complicated nature of the administrative burdens in collecting the tax were captured impressively by a British Airways memorandum which was sent directly to the Minister by Sir Colin Marshall, the chairman of British Airways. In that memorandum, Sir Cohn not only regarded the tax as unfair, which we would expect an airline to say, but made it clear that the application of the duty and the administrative arrangements which the Inland Revenue is in the process of working out will be very expensive for airlines to put into effect because they involve the development of entirely new systems.

The collection difficulties identified in the memorandum are interesting. Currently the Revenue is planning to collect the duty from the airline or the agency which sells the ticket, but payment of the duty will be made by the airline carrying the passenger. People who travel with any regularity on either charter flights or ordinary flights know that those two agencies are not always the same. At present, airlines do not have a system of identifying at take-off which passengers will be eligible to pay the duty if they have not already paid it. Therefore, British Airways suggests that the duty from airlines should be collected from the airline carrying the passenger rather than from the agency selling the ticket.

British Airways also suggests that duty should be payable after the airline has received the duty. The administrative arrangements of agencies which sell tickets and places on airlines are such that in a large number of cases the airline will be liable to pay the duty before it has received the duty from the agency selling the ticket. That may cause financial problems, especially for smaller airlines. It is unlikely to affect British Airways to any large degree, but smaller airlines in the market could have significant cash flow problems accruing from that administrative arrangement.

One of the more difficult and hard-to-justify arrangements announced by the Chancellor in his Budget statement is the idea that the £5 or £10 duty, depending on whether one is going to Europe or further afield, should be levied only on the outward flight, not on the flight back. On a flight, whether one is going out or coming back is never identified. The tax discriminates against those people who have one-way or single tickets, as presumably they would have to pay the duty on each flight rather than just on their outward flight.

It discriminates also against those who use automatic ticketing which, I am told, never involves a return ticket. Perhaps the Government should consider levying a £2.50 or £5 charge on the flight each way rather than simply attempting to do so on the outward flight. The way in which aircraft and ticketing systems operate means that it is often difficult to identify whether a passenger is flying out or coming back. The computer systems and the extra work which would be needed to try to identify that fact are not justified by the yield which the tax is planned to give to the Revenue.

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The Paymaster General asserted that there would be no significant effect on tourism. I attempted to point out to him the fallacy of his argument. On the one hand, he was saying that not many passengers would be deterred from using air flights after the imposition of the duty, while on the other hand British citizens would stay at home and holiday here rather than go abroad. That would thus be of benefit to the tourist industry. After considering those arguments, I do not believe that the right hon. Gentleman can have his cake and eat it. Either there will be a significant effect on the number of people who use aircraft journeys, in which case the duty and the yield of the tax will go down—that is involved with price elasticities—or people will continue to use flights and presumably also fly out of the country to go on holiday.

It has been said that a £10 duty does not seem to be too much for a single person, but it is different if one is flying out with a family. Obviously, the larger the family, the larger the duty to be paid. In the midst of the on-going depression when money is tight, I do not believe that duties of £40 or £50 at an airport for a family holiday are insignificant. British Airways has estimated that it will cost passengers £75 million a year, and I do not believe that that is an insignificant cost.

The Paymaster General expressed his wish that airlines would not seek to pass on the cost to passengers, and that they would try to absorb the cost of the tax. That does not seem to be happening according to the reactions of airlines which I have read. Almost all airlines—except Virgin, I believe—announced that they will be passing on the tax directly to their passengers in prices. That is yet another cost which will go directly on to the consumer.

The entire tax seems to have been hastily thought up and badly worked out in detail. The administration problems in the way in which the revenue is currently planned to be collected are particularly irksome, and contain anomalies which disadvantage particular groups. I believe that those problems need to be looked at again in some detail to see whether some of the anomalies can be ironed out to allow the tax to be more efficiently administered.

The economic mismanagement of the Government and the massive deficit which loomed before them meant that they were scrambling round for new ways of raising revenue. They came up with this one at the last minute, but clearly they did not do enough work to ensure that they had a reasonable, fair and well-administered tax with the minimum administrative burden and cost of collection. I do not believe that we have that yet.

The Government's motivation for introducing the tax is somewhat more sinister than they have so far admitted. This is one of those taxes which could be increased significantly. I do not believe that all of the administrative burden is being put on to air travellers merely to collect £350 million, which is the estimated yield of the tax in three years' time. I believe that there is a hidden agenda. There could be some significant increases in the scope and the level of the tax in the years to come.

The Government should try to iron out some of the anomalies in the administration of the tax. If possible, they should give us an assurance that they will not widen the scope of the tax. However, we know that assurances on the scope and the level of taxation—both direct and indirect —tend not to be worth the paper they are written on when they are given by the Government.

Mr. Forman.

I rise briefly to support the clause and to oppose the Labour amendment, and I do so for a number of reasons. I was one of those who helped to write a pamphlet on the problems of London in the 1970s, when I first came to the House. The pamphlet was called "Maybe it's because we are Londoners" and I wrote it with my hon. Friend the Member for Harrow, East (Mr. Dykes) and other colleagues.

At that time, we canvassed the idea of a tax or duty similar to that which my right hon. and learned Friend the Chancellor has decided to introduce. I can see no objection at all in principle to such a measure, for the obvious reason that it contributes to the broadening of the tax base, which is worth doing in itself. Over a period, the broader the base of tax from all sources, the more likely it is that one can get to a lower rate of tax and also to a simplified structure. Those propositions tend to go together.

As my right hon. Friend the Paymaster General said in his opening remarks, the duty is very much in line with what other countries do. There is nothing outlandish or strange about a duty which is matched by Denmark, Belgium, Ireland, Greece, Canada and the United States, to mention just a few examples.

Mr. Geoffrey Hoon (Ashfield)

In Belgium, for example, the duty applies only to international flights. The difficulty that is faced by British Airways is that it has a substantial domestic operation. British Airways has to meet the infrastructure costs of its whole operation, and it will be placed at a disadvantage compared with the Belgian state-owned airline, Sabena. Will not Sabena have to satisfy only the international aspects of the tax rather than the domestic ones which British Airways will face?

Mr. Forman

Whether that is a weighty concern depends on whether the tax itself constitutes a significant extra burden upon industry. I was moving on to make the point that I do not think that it does constitute a significant extra burden. I suspect that much of the tax or duty will be absorbed by the operators.

Mr. Hoon

We have heard that Sir Colin Marshall of British Airways has said that he feels strongly that the duty is unfair. Has not he also said that he is concerned about the effect that the duty will have on the competitive position of British Airways?

Mr. Forman

A number of hon. Members know Sir Colin well, and they will know that he bats vigorously for his industry. I could say, "He would say that, wouldn't he?" I do not think that the hon. Gentleman is right to put excessive weight on that argument. It is perfectly understandable that Sir Colin should defend his corner as the boss of British Airways, but my judgment is—we will see whether I have been proved right or wrong in a few years—that it will be quite easy for all of the major airlines to absorb such an increase.

I am glad that my right hon. Friend made it clear that the Chancellor has agreed to delay the full introduction of the measure until November 1994. That is sensible, because clearly one would always want to avoid anything which resembles a retrospective effect. It is likely that any administrative complexity which might flow from the introduction of the duty will have been sorted out by that time because of the extra time which has been made available. I believe that my right hon. Friend is right to resist the lure of hypothecation in this, as in other areas. That way lies extra complexity for any tax system. It makes it much more difficult to sustain public support for the tax system if people can pick and choose the taxes that they want to pay on the basis of the purposes for which the money will be used. My right hon. Friend was right to resist that.

The burden of the debate this afternoon has been about the extent and nature of the exemptions that are to be allowed. The hon. Member for Orkney and Shetland (Mr. Wallace) was eloquent on that subject. I understand that. The difficulty is that with a relatively small measure such as the air passenger duty, which will not raise a large sum of money, if we introduce many exemptions we will find precisely the sort of problems that we experienced with other aspects of our tax structure. We would have a narrow base because of the exemptions. There would be extra complexity, which costs the fiscal authorities and the private sector money. On the whole, it is not advisable.

I declare an interest in the matter. The Committee will know that I am the parliamentary adviser to the Institute of Chartered Accountants. It is clear that the only people who would benefit from the introduction of a new duty that was excessively complex are those in the tax advice and accountancy profession. I am sure that those for whom I speak in that regard would not regret that, but it is not a good principle of tax policy that one should introduce too many exemptions in a new tax.

Mr. Brian Wilson (Cunninghame, North)

How many accountants does the hon. Gentleman think that it would take to work out the effect of excluding the Scottish islands from the air passenger duty?

Mr. Forman

My short answer is, too many. The real reason why it is important to keep the tax structure for this or any other duty as simple as possible is that extra costs are incurred by both the public and private sector if there are too many exemptions.

I was amused by what the hon. Member for Wallasey (Ms Eagle) said about the rather John Cleese possibility of changing the number of seats in a given aircraft. However, simplicity is something to which my right hon. and hon. Friends in the Treasury should cling. I hope that they will not go too far down the route of making detailed exemptions.

Mr. Wallace

Surely the hon. Gentleman accepts that, even on the Treasury's figures, £2 million out of an estimated annual take of about £350 million is very small? Indeed, far from seeing any administrative difficulty the airline companies believe that it is important to allow exemptions. As parliamentary adviser to the Institute of Chartered Accountants in Scotland, my comments are motivated entirely by constituency interests, not by regard for the accountancy profession in Scotland.

Mr. Forman

I note the hon. Gentleman's point. I am sure that his colleagues in the accountancy profession will note it also.

Mr. George Walden (Buckingham)

I simply wish to back up my hon. Friend's point. He is right about the question of complexity. One could also add that if one exempted a particular area, within that area would live people who are well off, not so well off and downright poor, so we would be into the business that we are already in on a macro scale in universal benefits of giving tax exemptions to well-off people.

Mr. Forman

My hon. Friend makes a good point that strengthens the thrust of my arguments. I do not wish to add to it.

Certain exemptions are already allowed for in the Finance Bill. Will my right hon. Friend say what is the justification for exempting, for example, transfer passengers? He mentioned that exemption in his speech. If we are to take a clean approach, that also needs to be justified.

This extra duty will constitute a small proportion of the total cost of the relevant sums of money spent by people on flights. Even if one takes the example of trips to the islands, which have already been mentioned, £5 in the case of United Kingdom flights is a small proportion of the more than £100 that was mentioned. As most of the journeys are essential and people plan for them, it should be possible for people to meet that cost. I see the air passenger duty as a fair, sensible tax which is likely to be absorbed by the operators in any case. If all that it does in terms of deterring extra travel activity is slow down the rate of growth of foreign or domestic travel, that is not anything about which the Committee should be unduly worried.

Ms Harriet Harman (Peckham)

The hon. Gentleman is warmly recommending the tax to the House. He says that it is fair and sensible. How does it square with his Government's promise at the election, and no doubt his promise to his electors, to cut taxes? How does the introduction of a new tax that will affect his constituents square with his promise and his party's stance as a party of low tax and tax cuts?

Mr. Forman

That has already been made plain on several occasions by my right hon. and learned Friend the Chancellor, my right hon. Friend the Chief Secretary and others. I am happy to add to their arguments by simply saying that the priority, as the hon. Lady must know, in the two Budgets of 1993 was to restore public finances. Regrettably, that made it necessary to increase taxation by both introducing new duties such as the air passenger duty and increasing the impact of existing taxes. I regret that, but it was the responsible course to take. You would consider me out of order, Dame Janet, if I followed that argument too far.

Mr. Derek Enright (Hemsworth)

Will the hon. Gentleman look at schedule 6(8) on interest payable to the commissioners? Does he agree that such provisions will require horrific bureaucracy and, indeed, a contribution from the profession that he represents? Already, it is not a simple tax. The collection of this minuscule amount of money is simply not worth the candle. Even the hon. Gentleman's argument that it will reduce the public sector borrowing requirement seems nonsense.

While the hon. Gentleman is reading that schedule, will he comment on the clarity of the English? I do not think that it would win a plain English award.

6.15 pm

Mr. Forman

On the latter point, I am very much in agreement with the hon. Gentleman. Indeed, one of the representations made by the president of the Institute of Chartered Accountants to my right hon. and learned Friend the Chancellor was about the lack of clarity in far too much of the legislative drafting. That is a point on which hon. Members on both sides of the House can agree.

On the point about the money raised, £350 million is a useful sum even in the context of the PSBR of towards £50,000 million. The Treasury should not regard that as inconsequential any more than it does the other new measure under the insurance heading, which we shall debate later.

In conclusion, the measure is sensible. It will have little impact on the volume of travel. Many of the arguments put before the Committee tonight by the Labour Front-Bench spokesman and others constituted a degree of synthetic indignation. I was interested to see that some of the measures, or similar measures, have already been canvassed by Opposition Members.

Mr. Malcolm Chisholm (Edinburgh, Leith)

The air passenger tax and the insurance premium tax that we are to discuss later are classic examples of the reckless fiscal opportunism of the Government as they flounder in the deficit that their economic incompetence has run up. Opposition Members might not be too worried if the air passenger duty represented the only tax increase in the Finance Bill. We should want to amend it nevertheless, but we would not be so worried about it. The new duty must be seen as part of the whole tax package—the biggest tax hike in British history.

People have said that the air passenger duty is a small tax, but we must bear in mind that in the past the imposition of new taxes has been the first stage. It has been the foundation on which increases could be built in following years. So in opposing the new tax this evening, we are aware that the 3 per cent. could be greatly increased in the years ahead. Given the shambles of the finances of this country, and the difficulty that the Chancellor will have in meeting the targets that he has set himself, it is more than likely that the tax will be increased in the future.

As many of my hon. Friends have said, there was no mention of the tax, or any new tax, in the Conservative election manifesto. All the talk was of the opposite—of reducing taxes. First, we are annoyed and concerned that the tax has been sprung on the electorate when no mention was made of it.

Secondly, we are concerned about the fact that there has been no consultation about the tax. My hon. Friends have described the many problems in the legislation that are a result of not consulting the airline companies. Now they are being consulted but they have been told that today is the final date. The Government cannot even get the consultation date right and I hope that we can have some sort of assurance about that.

Sir John Cope

I am not sure whether the hon. Gentleman was here when I spoke. I said that today is not the final date for consultation. Of course, it is not—it is not the final date for our discussion on the Bill; discussions with the airlines and other interested parties will continue.

Mr. Chisholm

I thank the Minister for that assurance, which is what I was going to ask for. I hope that the comments of British Airways and other companies will be taken into account.

Not only was there no consultation but this must be the first new tax in recent history which was not even mentioned during Ministers' speeches on the Finance Bill. The Chief Secretary to the Treasury spoke for more than half an hour, but he did not mention this or the other new tax that he is about to impose. As far as I know, the only mention of the tax was a paragraph from the Chancellor in his Budget statement.

Hon. Members have referred to the way in which the tax was introduced. I would not like to accuse the Chancellor of being deliberately misleading about the Scottish islands. Perhaps we should put it down to the casual inattention to detail that has become his hallmark. However, his remarks have had a misleading effect and were not the only announcement in the Budget to do so. I can think of a direct parallel. Just as 90 per cent. of families on family credit cannot get the £28 that was emphasised in the Budget, so 90 per cent. of flights to the Scottish islands will not be able to claim the exemption which was suggested—to say the least—in the Chancellor's Budget statement.

The effect of the tax on island communities must be one of the main concerns of Opposition Members—not merely the Scottish islands, but the Isle of Man, the Channel islands and many others. The vast majority of flights to those islands have to be made by large aircraft. It seems strange that the Government are prepared to grant exemptions for people who dart from one island to another when most people on the islands are more concerned about visiting the mainland.

The amendment tabled by the Opposition asks—at the very least—for a report on the effect of the measure on island communities. Perhaps the best solution is to exempt flights to certain destinations. In the first instance we are asking for a report because once again the Government appear not to have researched the effect of the measure on island communities. The hon. Member for Orkney and Shetland (Mr. Wallace) mentioned that many businesses in those islands have rather low profit margins and that the tax would seriously affect them. It will also affect ordinary people on the islands and those wishing to visit them. The report is one of the major demands in our amendment and I hope that the Government will consider it sympathetically.

Apart from the islands there are other concerns. Several routes in this country do not make a profit and one or two others make only a slight profit. Some of those routes may be put under threat if additional costs have to be borne.

The possible effect of the tax on the tourist industry is another worry. In many ways we are already a less attractive destination because of other costs—or so I am told by the travel industry—and the tax could therefore have a disproportionate effect on tourists who come here from abroad. One would have thought that the Government would at least have done some research on that subject and borne it in mind when presenting this legislation.

The tax will also affect British families who want to travel abroad. If it were the only extra expense that they had to bear as a result of the Budget we would not mind too much, but the average family will face an enormous increase in their tax bill in April—£12.50 per week for a typical family. This tax is another burden; a family of five will have to pay £25 extra to visit a European Community country and £50 extra if the destination is not in the Community. We must bear in mind the effect that that will have. Many people may not go abroad, as the Government have acknowledged by suggesting that there will be a 2.5 per cent. reduction in holidays abroad.

Finally, I am concerned about jobs. What effect will all the other tax changes in the Budget have on jobs? They will directly affect the airline industry, but will also have an impact on the tourist industry, among others, because they will take demand out of the economy and thus contribute towards making this Budget the most deflationary in the past 60 years.

I am worried about the cumulative effect of the measure on employment and particularly on the airline and tourist industries. I hope that the Minister will give me some assurances when he replies to the debate. He has said that he will listen to what people say and I draw his attention to the long submission from British Airways, which contains many detailed suggestions. For example, British Airways has said that the tax will be very expensive to implement—an expense over and above the tax. If the tax must be pushed through, the Government should consider implementing it in the most efficient and cost-effective way.

The Minister has already been asked about the possibility of future increases in the tax by my hon. Friend the Member for Wallasey (Ms Eagle). Can he state firmly that he has no plans to increase the tax next year or the year after? That may reassure one or two people, but I have my doubts about it reassuring many more.

Mrs. Anne Campbell (Cambridge)

I support the amendment. I must preface my remarks by saying that I find it surprising that people will have to pay an extra charge to get away on holiday or business trips at a time when more people than ever before are totally fed up with the Government and would like to get away from this country and a Government who are imposing extra taxes that they had not expected.

My hon. Friends have referred to a number of anomalies. The difference in charges is particularly peculiar. For instance, if the members of a family of four go on a skiing holiday and choose to fly to Salzburg they will have to pay £40 in airport tax, but if they fly to France they will have to pay only £20. That seems a little odd, and the Government should reconsider it.

Another problem is that people who land here unintentionally and have to stop over will have to pay the tax. It will not merely hit people who are trying to get away from this country to drown their sorrows abroad in places where they can relax; people who come here unintentionally because they are diverted will also have to pay, and that seems unfair.

Several hon. Members have asked whether the tax will remain at a fairly low level. Significantly, the Paymaster General could not assure us that the tax would not be increased before the next general election. He gave me the usual answer that he was not able to predict what future Budgets would bring. Perhaps that illustrates the point that was so ably made on Second Reading: the Treasury's advice to Ministers is always that, when a new tax comes in, start it at a low level, nobody will object, then raise it later. With the present state of the country's finances and our large public sector borrowing requirement, it is likely that future Chancellors—or even the present Chancellor —will choose to raise the tax again and again and, in the present financial climate, see it as an easy means of raising money.

6.30 pm

Airlines lobbied hard against the imposition of VAT on flights. I suppose that there is a certain amount of relief that that has not happened, but British Midland said that it had won the battle but lost the war. That is a recognition that, having got as far as imposing the tax, it is open to be raised in future Budgets, and that airlines might pay just as much in future as they would have done had VAT been imposed.

Much has been said about whether airlines will be able to absorb the tax. British Midland estimates that it will cost it between £17 million and £20 million if it tries to do that. It has given no indication that it intends to do so. Virgin Atlantic Airlines is the only airline to have indicated that it may well absorb the tax. Even then, the estimated cost to it is some £15 million. That is by no means an insignificant amount.

The overall impression of the tax, as with so much of the Budget, is of a series of rather fiddly and complicated small taxes that have been added in a rather ad hoc way, quite against the trend of previous Chancellors—at least the previous two—who attempted to simplify the taxation system. That has not been continued by the present Chancellor. We now have a sophisticated and complicated taxation system that would be difficult to untangle by a future Labour Government. Perhaps that shows that the Chancellor has a certain lack of detail and finds it a rather difficult subject. I suppose that the issue whether the Chancellor is up to the job will be raised at some stage.

Much of the airlines' concern centres on the method and the cost of collection, so let me now look at the question of domestic flights and how the system will work. It has been suggested that airlines are charged £5 on the outward journey and nothing on the inward journey. The problem that I can see is this. If I fly from Stansted to Edinburgh, how is the airline supposed to know whether I originated in Stansted on an outward flight or Edinburgh on an inward flight? There will be much bureaucracy for the airlines in identifying and distinguishing ingoing and outgoing passengers.

That is not all, because a passenger flying from Edinburgh to Heathrow and then Istanbul will pay £10 in Edinburgh and, as I understand it, nothing at Heathrow. But a passenger flying from Edinburgh to Heathrow and then to Paris will pay £5 in Edinburgh and nothing at Heathrow. A passenger travelling from Edinburgh to Heathrow on the return journey will pay nothing. There will be a number of passengers, all on the same flights, some of whom will pay £10, some £5 and some nothing at all. There will be a great deal of confusion, bureaucracy and administrative muddle in trying to levy the tax in the best possible way.

A further anomaly is this, as people in my area will find. I like to use my local airport whenever I can—it is not always possible—but if I decide to take a trip to Edinburgh and fly from Stansted early in the morning and decide to come back at a time when there is no convenient flight to Stansted I might have to fly to Heathrow instead. The problem is that I will not qualify for the £5 internal domestic flight, and would have to pay £5 from Stansted to Edinburgh and another £5 from Edinburgh to Heathrow. That is not a fair system.

In its detailed submission, British Airways asked that domestic passengers be taxed at £2.50 on each leg of the journey. Although I am not convinced that that will make life easier for it, it seems that it will be much fairer for the passengers, particularly those people in my part of the world who may wish to use Stansted but find that they are unable to do so because of the inconvenience of the timing of the flights.

BA made a number of detailed points in its response to the Government's consultation. Despite the fact that it has been done in a great hurry, I think that BA's submission has been well thought out and its points are worth noting. One of its suggestions was that all passengers whose journey commences and terminates outside the United Kingdom should be exempt from paying the airport duty.

I should like the Paymaster General to consider that point carefully and perhaps tell us in his reply whether he would consider amending the legislation, as drafted, to include that point. I think that BA is trying to make the point that the legislation distinguishes between transfers in the United Kingdom and stopovers. BA competes with airlines such as KLM, which offers stopovers in Amsterdam. On a number of flights, BA offers stopovers in London. The Dutch Government do a great deal to promote tourism to Amsterdam. BA is naturally worried about the adverse effect on its flights and also on the tourist trade in London if people who stop over in London are charged the tax.

Another point that BA made was that United Kingdom hotels are already more expensive than elsewhere in Europe, particularly at the bottom of the market, and that the £10 airport tax will add considerably to an already rather expensive hotel bill.

My hon. Friends have mentioned that there should be exemptions for passengers for whom no fare has been charged. I should like to endorse that, particularly for airline employees who have to travel to start their work, but perhaps more seriously for the many charity flights that are carried out by BA, which has a number of flights in which it takes seriously sick children on holidays in different parts of the world. It would be extremely sad if those children were to be charged an airport tax.

I do not know enough about the highlands and islands to join in the argument about how the tax will affect journeys in that region. I have listened carefully to that argument, however, and I agree that exemptions should be offered on journeys to certain destinations rather than on small aircraft with a certain number of seats.

The argument between direct and indirect taxes was rehearsed earlier. I find it a little surprising that the Government always argue in favour of indirect taxes by claiming that there is an element of choice as to whether people pay such a tax. They argue that income tax, a direct tax, is not so easy to avoid. I accept that I can choose whether to turn on my heating and whether I should pay VAT on fuel. The Government have used that argument in favour of the airport tax, but it does not apply in the highlands and islands.

Passengers will not be offered a choice as to the size of aircraft in which they may fly. They may turn up at the airport to find that they are booked on a 40-seater aircraft rather than a 20-seater one; they will therefore be subject to the airport tax. It is extremely unlikely that any airline will be able to offer a passenger the choice between a 20-seater or a 40-seater aircraft in order to allow that passenger to exercise choice about paying the airport tax. That lack of choice invalidates the argument in favour of levying an indirect tax rather than a direct one.

The cost difference for a family of four who fly to Salzburg rather than to France will be enormous. British Airways has argued that the £5 band could be extended for the entire European economic area and not just to countries within the European Community. That would be an infinitely sensible extension.

The Government could eliminate an unnecessary expense for airlines if they deferred implementation of the tax until after the holiday season. The reason behind that is simple: it would save airlines and tour companies the unnecessary cost of reprinting their holiday brochures. I hope that the Government will consider that argument.

Mr. Forman

Does not the hon. Lady realise that implementation of the tax is being deferred until November 1994?

Mrs. Campbell

The airlines have made it clear in their submission that that deferral is not long enough. They would like implementation to be subject to a further delay to encompass the entire holiday season, because some of their brochures have been printed up until the end of December.

Airlines should be compensated for the cost of collecting the tax on the Government's behalf. Whatever means the airlines choose, the tax will be expensive to collect. It has been suggested that the tax should be levied on the ticket rather than collected at the airport. I thoroughly endorse that argument because of my recent experience in Japan, when I had to queue for some time to pay the airport tax.

If the tax is to be collected at airports, it will be necessary to erect a barrier at which people will have to queue. That means that airports will be faced with the additional expense of building a barrier and other necessary infrastructure. Barriers will cause congestion and great annoyance, because, as one of my hon. Friends has already mentioned, imagine how someone will feel who has spent his last £10 of English currency on a taxi to the airport only to find that he must find another £10 to pay the airport tax.

I believe that the tax is unnecessarily complicated. It is a niggling sort of tax which will be difficult to administer and collect. I hope that the Government will take my arguments on board. When the Paymaster General replies to the debate, I hope that he will make it clear that he will consider them.

6.45 pm

Mr. George Stevenson (Stoke-on-Trent, South)

I should like to speak in support of amendment No. 3, which is part of the clutch of amendments that we are now discussing. I support the demand for a report to be made on the effects of implementation of the tax which the House could consider before its imposition.

I am sure that all hon. Members, irrespective of their opinion of the airport tax, would agree that we have already had sufficient experience of the Government imposing taxes which were simply not thought through. The Government had to backtrack on the poll tax, for example, at immense cost to the public purse. I know that the House has considered the principle behind the airport tax, but we should think carefully before moving down that same path.

Mr. Hoon

Flight path.

Mr. Stevenson

Yes, indeed. I hope that any problems with the airport tax will not be on the same scale as those caused by the disastrous poll tax.

If hon. Members just took a cursory glance at the valid points made by the travel industry, they would be bound to share some of its concerns. I am sure that they, too, would then call for a full report to be made on the effects of the tax, which could be considered by the House. We could then avoid a repetition of expensive past disasters. Hon. Members should consider the amendments carefully before we embark on a course that could lead to further expense on the public purse and force the Government to backtrack.

I appreciate that the principle behind the tax has already been accepted, but it simply will not work because of its massive impracticalities. The Government have already accepted that the tax is bound to damage the travel industry. They estimate that it might lead to a 2.5 per cent. reduction in business, but I know from people who work in the travel industry that that is a serious underestimation. Those people believe that the estimate has more to do with the Government's attempt to show the tax in a favourable light than with reality. The Government must consider what that tax burden will do to an industry that is desperately fighting to attract more tourists to our country.

Mr. Forman

Is it not implicit in what the hon. Gentleman is saying that we are discussing estimates of damage to the industry? Nobody knows what it will be, and nobody will know reliably until there is empirical evidence. Is it sensible to have an amendment that says that duty should not be charged until the Government have presented a report on the effects of that duty? Unless the duty is charged, we cannot know the effects.

Mr. Stevenson

The hon. Gentleman has made my point for me, so I might as well sit down and rest on the laurels of what he has just said. He admits that nobody knows what the effects of the duty will be. The Government are imposing a serious tax which, by the way, they did not mention in their manifesto. Perhaps the hon. Gentleman told his constituents about it when he asked them to vote for him. I should like to see a copy of his election address saying, "I intend to support the imposition of an airport tax". He says, in support of the Government, that the tax will be imposed when the Government have not a clue about its effects. Having sat on these Benches for two years, I am sure that the Government do not know what the heck they are doing. But when Conservative Members say that they accept that, I should have thought that it would lead the hon. Gentleman to the conclusion that he should support the amendment.

Mr. Forman

The hon. Gentleman has wilfully misunderstsood the point that I sought to make. How can he expect the House to take seriously an amendment that says: This duty shall not be charged"— which means levied— until the Government has presented a report … on its effects"? Clearly, there is a logical inconsistency because we can reliably know the effects only once the duty has been in operation for a year or two.

Mr. Stevenson

I am grateful for the hon. Gentleman's further intervention. If the Government have no idea about the effects of the tax until it has been imposed, how can they assume that the damage to the industry will amount to only 2.5 per cent.? The hon. Gentleman seeks to argue all the way down the yellow brick road on which he has embarked and, the more he intervenes, the more he makes the case for me. If he would like to intervene again, I should be only too happy to allow him to do so.

That the tax will dramatically increase airlines' costs is beyond doubt. However, exactly what those costs will be in pounds and pence is another matter.

Mr. Terry Dicks (Hayes and Harlington)

I apologise for arriving late. The hon. Gentleman hits the nail on the head. For the life of me I cannot understand—neither can the airlines in my constituency at Heathrow—why the airlines should be responsible for collecting the tax. Abroad, either the airport authority or the Government collect it.

Mr. Stevenson

I share that view. However, that situation is perfectly consistent with the Government's policy of imposing a tax, getting others to collect it, and then blaming them for it. I do not simply make a party political point on that.

If an airline were to say that it could specifically identify the cost of the administration systems that the tax will impose on it, I should be dubious about that. But if the travel industry, and airlines in pariticular, said—as they do —that the tax would impose serious additional costs on them, I would accept that because the ticketing, monitoring and administrative implications of the Government making airlines into unpaid tax collectors are very serious.

I have studied the Bill and done what I can to examine the arguments. I have looked at the research done both by the industry and by the House of Commons Library, but I can find no reference by the Government to the significant costs that will be imposed on airlines as a result of the tax. That is another good reason why I hope that we can persuade the Government to take a step back on this. They can maintain the principle if they wish, but they must not go ahead and impose the tax when they do not know its effects, particularly on our airlines. Conservative Members may say, "He would say that, wouldn't he?", but it seems to be sheer common sense. If the Government do not know what effect the tax will have, why step off the cliff edge? Conservative Members may step off the cliff edge if they wish, but taking the airline industry with them would be going too far.

Mr. Dicks

Another nonsense about the tax is the fact that it is imposed only on travellers who go by air. Why is it not imposed on those who go by boat or through the channel tunnel? The airlines feel that it is grossly unfair.

Mr. Stevenson

I am grateful to the hon. Gentleman. I shall come to that point in a moment. The more Conservative Members intervene, the more I recognise that they will be joining us in the Lobby in support of the amendment and I look forward to continuing this exchange there.

Only recently, the President of the Board of Trade said that he was determined to cut a swathe through regulations and burdens on industry. Yet within a few days the same Government returned to the House and said that they intended to impose another burden on industry. This burden is unnecessary, impractical and will prove very damaging.

The industry has described its reaction to the proposal as "resigned pessimism". Is there any wonder? I have discussed the additional serious but unnecessary costs that will be imposed on the airline industry as a result of this tax, but there may be another way of looking at the matter. The airline industry had better establish a system to impose the tax now because it will not be long before the Government impose VAT as well. Some members of the Government may be saying privately—a secret agenda has been mentioned—that if they can get the airlines to put in the systems now it will be nice and easy when they come to impose VAT on them.

I understand that the Government intend to embark on "educational visits" to the industry by October 1994. I should be grateful if the Government would explain what they intend to do on those visits. Do they intend to educate the airline and travel industries or—dare I suggest it—to seek a little education themselves? If so, and if they learn about some of the difficulties faced by these industries and about some of the problems that the tax will entail, will the Government be prepared to admit that they have got it wrong in some ways and that they need to examine the problem a little further? Will they compile a report and put the issues to the House in the proper manner?

7 pm

I would certainly welcome any comments by the Paymaster General on the purpose of the educational visits. I hope that they will not consist of officials embarking on a propaganda exercise on behalf of the Government. I hope that this will be a two-way process in which the Government confront some of the problems that will result from the tax and that they will be prepared to consider their findings carefully.

Mr. Peter L. Pike (Burnley)

On these visits, might not the airlines point out to the Government the dangers of overseas airlines moving to use Frankfurt and other airports instead of airports such as Heathrow?

Mr. Stevenson

There is indeed a distinct danger of that. In other parts of Europe the collection of such taxes is the responsibility of Governments, so the administrative burden does not fall on the airlines. Such a move might well be attractive to certain airlines, the more so if this proves to be the thin end of a wedge. Although the tax may be only £5 or £10 today, before we know it the figure may be £15 or £20. I should like a clear commitment from the Minister that the Government have no intention of increasing these taxes once they are imposed. That is the feast that we can expect—

Mr. Gallie

Does the hon. Gentleman believe that his Front-Bench spokesman, the hon. Member for Oxford, East (Mr. Smith), would give a commitment that if his party ever came to power it would get rid of such taxes?

Mr. Stevenson

Any Conservative Member who talks about trust on taxation is on very thin ice. I am prepared to debate the principles of taxation with any Conservative Member but I fear that you, Dame Janet, would not allow me to today. In any case, the hon. Gentleman's intervention added not one iota to our debate.

Under the Government's proposals, journeys that start outside the United Kingdom will be generally exempt from the tax, provided that people re-embark on flights departing from United Kingdom airports. In other words, someone who starts a journey in Frankfurt and comes to London but goes on to New York will be all right. Somone embarking on an aircraft from Frankfurt, coming to London. but wanting to go on to the Channel Islands or the highlands and islands will not, however, be exempt—so far as can tell. Where is the logic in that? Why cannot the Government accept that it is illogical?

The Government will have to explain all this to people in the far reaches of Scotland, in the Channel Islands, in Northern Ireland and in the Isle of Man. It is quite illogical that those making onward journeys to those places should have to pay the tax. The Government may just think, "We've got you!"—a good headline for The Sun, and a vital point about the new tax. It is another anomaly to which the Government appear oblivious.

I know, since I am a regular traveller, that it is still a damned sight easier to go from Frankfurt to New York via London than from Frankfurt to anywhere else in the United Kingdom via London—

Mr. D. N. Campbell-Savours (Workington)

And cheaper.

Mr. Stevenson

Quite. Why are the Government prepared to build in such unworkable and anomalous systems? Why will they not reconsider? The tax will be in danger of losing all credibility because of the anomalies.

We are told that domestic tax will be levied on the first leg of a flight, but not on the return leg, provided that the return leg is from the original airport of destination. That, too, will need explaining. Who is to know whether the return journey is made from the airport of original destination? The complexities are huge. It is no good the Government fobbing off pleas from the industry on the ground that it is just moaning and groaning: there are real problems here, and they will face anyone trying to travel.

I promised to return to the point made by the hon. Member for Hayes and Harlington (Mr. Dicks), who asked—to use the Government's example—why someone who flies via London to somewhere else in the United Kingdom will be subject to the tax while a person coming through the channel tunnel by rail and travelling on to Scotland or Northern Ireland from a London airport will not. That seems to be a serious anomaly, too. What will happen to someone arriving by ferry who wants to come to a London airport and then travel elsewhere? He would have to pay the tax, but someone arriving in London from Frankfurt and travelling on to New York will be exempt.

The Government will never convince me that this tax is justified, practical or required, but they will have to explain it to the people who will have to pay the tax; or are the Government not bothered about what people think? I note that no one wants to intervene to answer that.

I note, too, that people starting their journeys in the United Kingdom will pay one amount, depending on their final destination. People who will have to pay an airport tax when leaving the continent will face the possibility, depending on where they are going, of paying another airport tax when they arrive in an airport in the United Kingdom. That looks like double taxation. It is no good saying that what people do in other countries is no business of ours. People who have to pay twice will not like it. Paying once is bad enough; paying twice will make them very angry.

Another problem arises with cancellations. People may pay this additional Tory tax only to find that their airline has cancelled the relevant flight. What will happen then? What will happen if they are transferred to other airlines? The Government information, so far as I can see, does not refer to that. Another airline will be responsible for collecting the tax and will say, "Hang on a second, we want to know through our system that the tax is payable by us. We cannot accept someone saying, 'It has been paid." Does the tax have to be paid again if there is a cancellation and a passenger is transferred to another airline, or will the Government introduce some scheme by which the second airline can be guaranteed that the tax has been paid?

Some hon. Members may think that this is just a bit of fun, but I am asking serious questions. What happens when people are rerouted? We have all had experience of turning up at an airport and being rerouted because of bad weather or goodness knows what. Presumably the tax has already been paid. Will the second airline say, "Hang on a minute, we will not take these people unless they pay their tax again." There is no point in saying, as the hon. Member for Carshalton and Wallington (Mr. Forman) said, that we cannot know the effect of the tax. The British people are entitled to know its effect; otherwise, they will encounter serious anomalies.

One of our most successful airlines, British Airways, has said—although I do not believe all that it says—that some of its loss-making domestic routes could be pushed over the edge. Have the Government considered that, or do they think that it is just a bit of drum banging by Lord King? After all, he tried to push Virgin over the cliff. Perhaps the tax will do that to some of his own routes.

I am coming to the end of my speech. Many hon. Members have said that there are serious practical problems.

Dr. John Marek (Wrexham)

I hope that my hon. Friend will not conclude just yet. He mentioned a great many things that are wrong with the tax and says that we should vote against it. Does he agree that there may be a case for levying the tax on airports that have benefited from infrastructure improvements paid for by the Government? For example, Heathrow has benefited from a great deal of concrete paid for out of the public purse. The constituency of the hon. Member for Hayes and Harlington (Mr. Dicks) is half covered by concrete. Should not the users of that airport pay the tax to recompense the public purse for the extra infrastructure? Of course, the highland and islands airports, which are on beaches, would not be subject to the tax.

The Second Deputy Chairman of Ways and Means (Dame Janet Fookes)

Order. This is a long intervention.

Dr. Marek

What does my hon. Friend think of that suggestion?

Mr. Stevenson

That is another issue that the Government have not considered.

This is a tax on success. I am sure that Conservative Members will recognise that phrase because they have used it often enough. The more passengers an airline carries, the more tax it will pay. However, the loss-making but vital routes will be in danger of being pushed into the financial abyss. This is the worst of all possible worlds. Perhaps a better way to impose the tax is to examine investment at airports to see how the public purse has been affected and whether European Community money has been involved. Such airports could be told that as they have benefited it is right for the Government on behalf of the British people to levy the tax in this way. However, I suspect that my hon. Friend's intervention will fall on deaf ears because it makes far too much common sense.

For the Government, this is a simple matter and they do not mind if it taxes success. It is like saying to the airlines, "Do not try to find more passengers because if you do, you will have to pay more tax." That is an interesting concept and I am sure that Conservative Members will wrestle with it before deciding whether to support the tax.

I accept that there are many disagreements on aspects of the tax. That is to be expected, but for the Government to go ahead and impose the tax in the light of serious anomalies and sheer impracticalities, and in the knowledge that it will impose additional burdens on airlines at a time when they are fighting in a market riven with overcapacity, makes no sense.

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I spoke to people in the airlines and in the travel industry and they have told me that there is massive overcapacity. British airlines are fighting tooth and nail for every passenger in one of the world's most viciously competitive markets, and all that the Government can do is impose an unnecessary tax on them.

I have seen many examples of the Government shooting not themselves in the head—they will do that eventually —but shooting the British people and many industries in the head. At a time when the airlines and the travel industry are facing such competition, it is sheer lunacy to impose a tax on them. It defies logic.

Mr. Campbell-Savours

When we were quietly discussing these matters another matter arose. What will happen to air miles? A person who wants an air miles ticket approaches the air miles operator, which is some company in Croydon. At what stage will the money be paid?

Mr. Stevenson

I do not want to take up too much time, but if I had sufficient time I could give an endless list of serious objections to the tax. My hon. Friend has mentioned one. I cannot answer his question, but the Minister should answer it. Such schemes were introduced by the airlines because of the vicious competition. To qualify for such a scheme a person has to buy an airline ticket and will pay the tax—depending on the journey—when he buys that ticket. Presumably when he collects the air miles and buys another ticket he will have to pay the tax again.

How do the Government propose to deal with schemes that are designed to attract the maximum number of passengers? Such schemes are presumably in line with the competitive ethos that the Government love to promote. When people go to collect their air miles do they have to pay the tax again? Should not this question be put to the Minister before Conservative Members go into the Lobby in support of the Government? These issues are not flippant; they are very serious. What we are talking about is double taxation imposed on services designed to attract passengers to British airlines, which are facing severe international competition.

Dr. Marek

I wonder whether my hon. Friend is absolutely right about this matter. I think that air miles, far from being subject to double taxation, are subject to zero taxation. Perhaps this is a matter that the Inland Revenue ought to look into.

Mr. Stevenson

If my hon. Friend is correct, he makes a valid point. Either way, the matter must be addressed. People claiming their entitlement under the various schemes initiated by the airlines have to present their tickets at an airport before they travel. Do they have to pay tax again? If so, surely that is double taxation. You are in enough trouble with single taxation: I expect that when you impose double taxation your already tattered reputation —whatever is left of it—will take another nose-dive.

The Second Deputy Chairman

Order. It is not my reputation that is in tatters.

Mr. Stevenson

If my words implied any such thing, I apologise unreservedly, Dame Janet. I am sure that you will allow me the luxury of making it clear, however, that I do not apologise to one Conservative Member.

This is an important point which must be addressed and I hope that in the summing up speech the anomalies that have been identified will be addressed. The more that is known about them, the more the tax will be under threat, and the clearer it will be that the amendment must be supported. These issues must be considered thoroughly and reported on to the House before this unnecessary, damaging and dangerous tax is imposed on the British people.

Mr. Wilson

I am grateful for the opportunity to make a few points in this debate, which concerns an issue in several aspects of which I have a particular interest.

This is one of the major taxation issues arising from the Budget. It is worth noting, in passing, that, the day after the Budget, it was seized upon by The Sun for its front-page headline as epitomising the whole spirit of the Budget. I would not dissent lightly from the populist touch of The Sun in making that selection. Perhaps Conservative Members should take the matter a little more seriously.

The local elections in May will be followed by the European elections in June, and this tax will come into effect in November. In other words, it will begin to operate just about a month after the new Prime Minister has been put in place. The first thing that he will be hit with is the introduction of the take-off tax. As The Sun and many hon. Members have pointed out, this tax will be resented by many. It is symbolic. People will realise that it has no rhyme or reason, that it is not fair or just, that it is simply another means of raising revenue. It is just another way of screwing people, and, for that reason, it will be deeply resented.

The whole Budget could be described as a fiscal Kama Sutra, but this measure will be the subject of very deep unpopularity. The levity with which Conservative Members have treated the matter in this debate will be shown to have been misplaced.

There is another preliminary point that I should like to make. It is the policy of airlines to charge for children from the age of two. As the father of two young children, I regard this as a fairly punitive policy. My little fellow of two and my daughter of five are charged half of what are very substantial air fares. One of the oddities of this tax is that it makes no distinction between adults and children. My hon. Friends and I have been trying to come up with another example of the imposition of a direct tax on two-year-olds.

Mr. Brian Sedgemore (Hackney, South and Shoreditch)

At full rate.

Mr. Wilson

Yes, at full rate.

Have the Government descended so far? Are they now reduced to charging two-year-olds £5 or £10 for the privilege of accompanying their parents? Is this the first toddler tax? If so, do the Government have plans to extend the taxation of two-year-olds?

Mr. Gallie

The tax on sweeties is probably a direct tax imposed on two-year-olds.

The hon. Gentleman has accused hon. Members of levity in this debate. Does he, like me, regret the fact that no member of the Scottish National party has been present for any of this debate?

Mr. Wilson

That is a matter between the hon. Gentleman and members of the Scottish National party. No doubt the hon. Gentleman will ensure that his words are noted in the appropriate quarter.

I do not accept the hon. Gentleman's parallel. I do not know many two-year-olds who go into a shop and buy their own sweeties. So far as I know, sweeties are not subject to VAT. [Interruption.] Apparently some are. We are back to the fiscal Kama Sutra. What we have here is a quite specific measure to introduce a personal tax that makes no distinction between two-year-olds and adults. This is an oddity which ought to be looked at.

As I indicated at the beginning of my speech, I have several constituency interests in this matter. I am privileged to have in my constituency the base of one of the biggest travel agents in Britain. I refer to the remarkable company of A.T. Mays, which operates from Saltcoats and has branches all over Britain. This is a company of which everyone in my constituency is extremely proud, and it provides several hundred jobs. It is axiomatic to say that any tax that hits the tourist industry, including package holidays, and business flights will hit A.T. Mays. This is one very sound reason for my opposition to the duty.

Secondly, many of my constituents are employed by Jetstream at Prestwick. As other hon. Members have said, Jetstream, which forms part of British Aerospace, has set out some very good reasons for objecting to this new tax. I shall come to these in a moment.

The most important of my constituency interests, however, is the same as that of every other hon. Member. For many working people a relatively cheap package holiday is no great luxury. It is something that is saved for and looked forward to, and in many cases paying for it involves considerable sacrifice. The gratuitous slapping on such holidays of a tax of £40, which bears no relationship to the value of the product being purchased—the holiday may have cost £199, or even less—is insulting and offensive and is very much to be regretted. This disproportionately high tax, on top of all the other extra taxes that people are being asked to pay this year, will be very unpopular indeed.

I should like to refer briefly to the Jetstream objections. Among hon. Members, it is no secret that Jetstream is going through difficult times, from which we hope very much that it will emerge so that it may continue to provide a very high level of employment in Ayrshire as the major engineering firm in Scotland.

Crucial to that company's success is the ATP airplane that services most of the regional routes in Britain and Scotland. Jetstream supplies both British Airways and Loganair—which recently placed an order for two aircraft. There is no reason why there should not be further orders in future. However, it is a marginal business. Anyone who flies those routes knows that the load cannot produce a large profit. If 5 or 10 per cent. of passengers are lost to those routes, some services will be unable to continue.

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The Government should take account of that strong point. It is not just a question of the travel industry or the social case but one of considerable importance to aircraft manufacturers. If regional services erode as a consequence of the tax and other factors that militate against them, there will be fewer aircraft orders and jobs—a point forcefully made by Jetstream.

Mr. Campbell-Savours

I draw my hon. Friend's attention to a number of conversations that I had with small airlines that want to operate between Carlisle and London. For them, Heathrow landing fees are a major preoccupation. That touches on the same principle as my hon. Friend's point.

Mr. Wilson

My hon. Friend is right. Although there are well-established regional routes in Britain—and most highlands and islands services fall in that category—everyone knows that new regional routes are constantly introduced, but fail because the margins are so tight. There will be less continuity of service or development of regional airlines if they have both to meet high landing fees and to suffer the consequences of the new tax.

It is not enough to defend imposing a new tax simply because that would be in line with other countries. The absence of such a tax in the United Kingdom has probably been a contributory factor in higher landing fees—a cost which airlines already absorb. In future, airlines will continue to pay high landing charges and their passengers will have to meet the new tax. The Jetstream brief states: The proposed APD, with the associated implications for fare levels and passenger traffic, will at the very least create uncertainty amongst airlines. In view of this and the substantial capital outlay and risk associated with the acquisition of new aircraft, airlines will be reluctant to commit to new orders until the full economic impact of the APD is known. This will result in the further delay of new aircraft orders and depress aircraft prices as manufacturers compete for scarce orders. Without new orders at profitable pricing levels, the recovery of the aircraft manufacturing industry will not take place and further reduction in manning levels will be inevitable. I want the Minister to answer that point tonight. This debate concerns not just air fares and the social consequences but jobs in aircraft manufacturing—particularly at Prestwick. That aspect is one to which the Minister should address himself. I hope that the hon. Member for Ayr (Mr. Gallie) will join us in the Lobby tonight—hope, but doubt.

Mr. Jim Cunningham (Coventry, South-East)

We heard today that British Aerospace has to sell Rover. Does not my hon. Friend agree that air passenger duty sends the wrong signal to manufacturers of air frames and aircraft engines? Is not the reason for BAe's sale of Rover the need for resources to develop its manufacturing activities? Has not the new tax been introduced at the wrong time? It also sends the wrong signal to airlines.

Mr. Wilson My hon. Friend is right. Different interpretations can be placed on the implications of today's statement for Jetstream and other parts of British Aerospace. British aircraft manufacturing is a fragile industry which needs encouraging, nurturing and every support from Government—rather than another kick in the shins. I hope that the case made by Jetstream will be given due attention. It is not the only manufacturer of the sort of aircraft used for regional services but it is certainly the principal one.

Mr. Calum Macdonald (Western Isles)

My hon. Friend said that the imposition of such a tax by other countries does not mean that the United Kingdom must follow. Other countries also subsidise certain services for social reasons—particularly those serving far-flung areas. The Republic of Ireland, for example, subsidises the Dublin to Kerry route, which is of an equivalent distance to that between Stornoway and Inverness, but, after the subsidy, the fare is half that from Stornoway to Inverness.

Mr. Wilson

My hon. Friend makes an extremely valid point. I want to present the islands argument, but I am sure that my hon. Friend will deal with it at considerable length if he catches your eye, Sir David.

Mr. Campbell-Savours

I will give my hon. Friend an example of how marginal is the profitability of certain routes. In six years, three separate airlines have operated between Carlisle and London, where every cost is critically important—and none of them can make a profit from that route.

Mr. Wilson

That is a good point. Such airlines are not looking for a large profit, and they are extremely vulnerable to any influencing factor. However, I will be slightly selfish and emphasise the islands argument, because it has distinctive facets. The most important of them is the words used by the Chancellor of the Exchequer in his Budget statement. It is not a matter of semantics. There is no doubt what was meant by the right hon. and learned Gentleman and what he was perceived by all hon. and right hon. Members to mean.

The Chancellor was not perceived to mean that exemption would apply only to some flights within islands, but to mean that he was announcing exemption for most flights involving the Scottish islands. For that, he raised a loud cheer from the Conservative Benches. Conservative Members cheered everything that he said that day, in a somewhat irrational fashion, but the cheer that was raised at that specific statement was due to the perception that the Chancellor was considerate enough to exempt Scottish island flights. That is the truth of the matter.

Good faith is involved as to whether the Government will renege on that undertaking. I am willing to be charitable and to believe that the Chancellor thought that he was doing as I said. It is not really his job to go around checking how many seats there are on the flight from Glasgow to Islay or on inter-island flights between Lerwick and Kirkwall. That is scarcely the job of the Chancellor of the Exchequer. We assumed that he had taken advice and that his perception was that if aircraft with fewer than 20 seats were exempted, most of the flights that hop to and from and between the Scottish islands would be exempted. But that is not the case.

In terms of what is now being rigidly applied, the Chancellor gave virtually nothing. If the Government proceed as they intend, the House will have been conned. In fact, the Budget statement exempted barely 26,000 passenger flights a year involving the Scottish islands; the only exempted flights will be the inter-island flights within Orkney and Shetland, and the little-used service between Wick and Kirkwall. Every flight to every destination on the west coast will be subject to the tax. I shall be very surprised if the Paymaster General can say that that is what the Chancellor thought he was telling the House.

Sir John Cope

The hon. Gentleman has described this as a semantic point. I am not sure whether he was present earlier, when I spoke more widely about the islands, but I assure him that my right hon. and learned Friend the Chancellor knew precisely what he was saying, and said it very clearly. Moreover, our intentions were made clear by the back-up pieces of paper that were issued on Budget day.

Mr. Wilson

In that case, I am extremely disappointed in the Chancellor, because what he said was deception. It is inconceivable that he meant to create the impression that roughly 5 per cent. of flights involving Scottish islands would be exempted. Let me add that, at a subsequent briefing given by the Scottish Office, the Scottish press were given—forcefully and specifically—the message that all Scottish island flights would be exempted.

If the Paymaster General is saying—I am surprised that he should say it in specific terms—that the Chancellor of the Exchequer knew that such a limited range of services was to be exempted, let me tell him that that was a shameful way in which to pull the wool over hon. Members' eyes, while raising false hopes in the communities affected. The first argument for exempting island flights is the spirit of what was said in the House that day, along with the Scottish Office briefing. Ministers are not allowed to mislead inside the House, and those who speak for them are not allowed to mislead in briefings outside.

A second argument differentiates the islands from all other areas: the social argument. In virtually every other part of Britain that has an airport, the choice between flying and other forms of transport is relatively marginal in terms of time and convenience. A train journey will probably take six or seven hours at the most; a plane journey will take about an hour. Factors of cost and difficulty will, of course, be involved.

The arguments relating to islands in the constituencies of my hon. Friend the Member for Western Isles (Mr. Macdonald) and the hon. Members for Orkney and Shetland (Mr. 'Wallace) and for Argyll and Bute (Mrs. Michie) are entirely different. Someone travelling from Islay to Glasgow cannot simply say, "I can take the train or the bus, and travel for three hours rather than travelling for 40 minutes on the plane." He must take the ferry—whose timetable is quite sparse, especially in winter; he must sail for about two and a half hours; as there is no railway, that will be followed by a long and pretty uncomfortable bus journey, lasting nearly three hours, from the port of Kennacraig.

Most Conservative Members would not contemplate such a journey. My hon. Friend the Member for Western Isles, however, would have to sail for five and half hours by sea from Barra to Oban, in some of the most treacherous sea conditions that could be found around the British Isles —or, perhaps, much further afield. Those without personal transport are then faced with a long train journey—and an occasional service—from Oban to Glasgow.

That choice must be made by people who may be ill or travelling with young children. Surely no hon. Member would suggest that such people should be forced to go on such long and arduous journeys in this day and age if aeroplanes are available. That is the social argument which separates the Scottish islands from every other part of the United Kingdom.

I agree with what my hon. Friend the Member for Workington (Mr. Campbell-Savours) said about Carlisle. I have travelled to most of the regional airports in the country, and all have a story to tell; but if lines are being drawn—in the spirit of what was said earlier—there is a valid case for drawing such a line around the mainland, and exempting the islands. That would be easily done. I am not persuaded by the argument of the hon. Member for Carshalton and Wallington (Mr. Forman), who suggested that the accountants would be unable to work out the arrangements, and that they would lead to enormous bureaucratic complexities; this is a simple principle, which could easily be enforced.

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Mr. Macdonald

My hon. Friend is right. He knows the islands very well and, as he said, the island of Barra is five and a half hours from the mainland by ferry. Although there is an air service there, there is no aerodrome or airstrip as such: the plane lands on the beach when the tide is out. Under the Government's proposals, however, those who use that lifeline service will be taxed in the same way as business men travelling on the shuttle from Edinburgh to Heathrow.

Mr. Wilson

Indeed. I do not know anything about Carshalton—

Mr. Darling

I do.

Mr. Wilson

My hon. Friend does, apparently; but there is no reason why all hon. Members should know everything about every corner of the country.

But before imposing a blanket tax, the Government should—for heaven's sake—take account of the vastly differing circumstances in different parts of the country, and the different reasons why people need access to air travel. Having made that distinction, they should draw a sensible line; in my view, they could draw it between the islands and other areas.

Mr. Forman

I have been to Barra, which is a lovely place. My plane landed on the very beach mentioned by the hon. Member for Western Isles (Mr. Macdonald). My point was simply that taxes involving too many exemptions were, on the whole, bad taxes, leading to problems of narrow base and high marginal rates.

Mr. Wilson

As others have pointed out, there are already quite a few exemptions. Some of my hon. Friends have drawn attention to the existing complexities. I do not think that, when the Chancellor gave the impression that he offered from the Dispatch Box, the first reaction of Conservative Members was "Oh dear, what a complexity he has just added"—nor do I think that any particular complexity would be added now.

Air services are disproportionately important to the islands. Some people who would not dream of travelling by air from Glasgow to London must make a difficult decision when travelling from the islands, perhaps with young children or an elderly relative. Do they pay the significant extra amount to fly or do they endure the arduous sea crossing? People living on the mainland generally do not have to make such decisions, and to add the burden of this tax strikes me as gratuitous and wrong.

Some islands have lost their services because of the thin balance between what is economic and what is not. Skye lost its air service after being the last to lose Scottish Office subsidy. As a result, Skye is a much more difficult place to get to and from. Mull once had a scheduled air service, but it has lost it. If the balance is tipped a little more the other way, more services could be lost. That would be a regrettable and unnecessary consequence of this legislation. I am sure that the proposal was not dreamt up with that consequence in mind.

I strongly urge the Government to think again about amendment No. 3. No enormous point of political principle is involved. Considerable weight should be given to the fact that, in the view of hon. Members on both sides of the House, the Chancellor appeared to give a certain impression.

We are talking about a charge of £5 now. As I have said, that is a substantial sum for many of the people who use those services. We all know that the tax could become £10, £15 or £20 once it is established as a revenue-raising device. It is important that we do not think of it in terms of being only £5 now. We should establish the principle that the islands are different and should be treated differently.

The hon. Member for Buckingham (Mr. Walden) said, roughly, that there are rich people in the islands and poor people in cities. Of course that is true, but one can work only in generalities. The generality has been established and recognised by the European Community: the highlands and islands are an objective 1 area. The social needs of the islands are generally recognised and I am sure that that applies to other islands around the British coast. There is a perfectly sound case for recognising them in the context of this legislation.

Mr. Dicks

I want to make a few very quick points to my right hon. Friend the Paymaster General. First, there is a solution to the problem that has been raised about the islands. Quite simply, the tax should not be imposed within the United Kingdom. The proposal was a nonsense from the outset and it should never have been considered.

In a sense, the principle of an airport tax can be understood. However, the way in which the tax is to be administered is, as is so often the case with such things, wrong. We have little or no consultation and decisions are taken.

I cannot understand the thinking behind the idea that the airlines should have to administer the tax. If anyone had bothered to contact the airlines and those who work with them on a daily basis, as I do at Heathrow, it would have been clear how difficult and costly it would be to collect the tax.

There are customs officers at Heathrow now. Why cannot we impose on them, if there were additional staff there, a duty to collect the tax? When one leaves New Zealand from Auckland airport, one goes to the Bank of New Zealand desk, presents one's boarding pass, and pays one's money. The back of the boarding pass is stamped and one is allowed to board the aeroplane. The process has nothing to do with airlines. The device is simple and anyone going through the departure door must go through that procedure. It is simple and easy and there is no red tape. The boarding pass is stamped, the money is taken and everything is filed away.

Dr. Marek

The Government want the money and they do not care about the ill-effects that will result from getting the money. However, worse than that, the Government can be incompetent. At the moment, the Government are losing about £500 million through the escape of excise duties across the border because of the lack of harmonisation in excise duties on tobacco and alcohol. Basically, the Government are stupid. I am sorry that the hon. Gentleman is a member of that Government, but the stupid Government cannot get their tax policy right.

Mr. Dicks

I have been a Member of this place for too long for the hon. Gentleman to expect me to be caught by his intervention or to go down that avenue. The hon. Gentleman made a very pleasant intervention, but I will ignore it completely.

I cannot understand why the tax will not be imposed on those who use the ferry and the channel tunnel. What is so special about those people that they do not have to pay a tax to depart and so odd about people who want to fly on aeroplanes who have to pay the tax? The answer is for everyone to pay a departure tax, irrespective of the mode of transport or any other consideration. There should be no taxes for internal flights or movement.

The proposal is nonsense and a dog's breakfast. If there had been any consultations with the people who work with the airlines and who know about these matters, if British Airways and people like me had been consulted, we would have been able to say how damned stupid it would be to collect the tax as proposed.

The principle is right, but the administration is a cock-up of the first order. As I have said, we need only have someone in one place, for example at every terminal at Heathrow, to collect boarding cards and to take the money and then to stamp those cards. The tax should be introduced for everyone departing by sea or via the channel tunnel in exactly the same way. We should then do away with the internal tax. The revenue from those travelling by ferry or through the tunnel would more than make up for the revenue lost in respect of this stupid internal tax. I say no more as I believe the case is made.

Mr. Thomas Graham (Renfrew, West and Inverclyde)

It is absolutely outrageous to have to come here to talk about a new tax when we consider that the Government approached the last general election on the platform of no new taxes. Lo and behold, we have been hit by a new tax.

I represent Renfrew, West and Inverclyde which includes Glasgow airport, The headquarters of Caledonian MacBrayne is in Gourock, which is in my constituency. The M8 runs right through my constituency. These points will become relevant later. The Erskine bridge is also in my constituency. Since the Government came to power and promised no new taxes, the Erskine bridge tax has been doubled and Caledonian MacBrayne has been forced to increase its fares because it serves the islanders.

Roughly 15,000 workers are employed at Glasgow airport. They rely on folk flying into and out of the airport because that is what attracts the money. That is what provides them with a job. Just the other week, Renfrew enterprise trust set up a programme which might mean a £400 million investment at Glasgow airport. A further 15,000 jobs could be created. The argument is that Glasgow airport is a good place for businesses to set up and work from. The British Airports Authority has invested £120 million in Glasgow airport. However, this very damaging and punitive tax is affecting BAA's attempt to make Britain a good place to come to, to stay and to work.

It is objectionable that the Chancellor can pick out the air industry and decide to tax it. The hon. Member for Hayes and Harlington (Mr. Dicks) was right when he asked, "What about the rest?" We should not be levying a tax which will affect Glasgow airport. The Government have got it wrong. Because of their mad, blundering economic policies, they are costing the country nearly £50 billion a year. The Chancellor is so desperate to raise money that he has decided to reach for the sky. The phrase, "Reach for the sky" used to be used by highway robbers who ripped money from people's pockets. The Chancellor is clearly the skyway robber of British politics. He is going to rip the bucks from holidaymakers.

That is not in keeping with trying to encourage a dynamic air industry which is the envy of the world. The Chancellor has his beady eye on the industry. He hopes to rip off a few bob—some £330 million—from holiday folk.

I object to families having to find an extra tenner or £40 to go to Benidorm, for instance. It is the height of nonsense that we are to levy a tax that will rip off somebody going on holiday. My hon. Friends are right; it is a sick tax. It is pie-in-the-sky stuff.

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I have with me a book entitled "A Wee Dribble of Dross" by Walter McCorrisken—here is a wee plug for him—and I quote a section about a church collection. I am delighted that the Chancellor is present. The quotation epitomises the Government. It states: I put five pence into the bowl then carefully looked about, Nobody was watching me, so I took a fiver out. The Chancellor has looked about and said, "I will take a fiver our of that." The channel tunnel is charged nothing. It is objectionable. The tax is utterly unfair to large families. Families are entitled to a wee holiday abroad, the same as anybody else.

The islands and highlands are dear to the people of Scotland. We saw the highland clearances by the lords and masters 100 years ago. The folk down here in the south did enough damage in those days. We are seeing another punitive measure on people who have tried to cultivate the highlands and make them live. I am sure that my hon. Friend the Member for Western Isles (Mr. Macdonald) will speak admirably about his constituents in the highlands. However, folk in my constituency need jobs.

Many people come to my constituency to use the local hospitals for operations and so on. Is the Chancellor going to guarantee that those folk will get the £10 paid? Will he ensure that for folk who need medicine or treatment the tenners will be paid, or is it that, because they live on an island, they will suffer once again? It is a disgrace. Islanders and highlanders. live in remote areas that are important to the infrastructure and the economy of this country, and they are not being given due attention and support to live. Instead, rural areas are being turned into shooting estates for the lords and gentry whom the Chancellor seems to look after more than anybody else.

I am not a great lover of some of the folk who run some companies, but Sir Colin Marshall, chairman of British Airways, said: The new air passenger duty proposed discriminates against this nation's most successful transport sector and penalises airlines while rail, coach and ferry companies will escape, as will the channel tunnel. I certainly do not want a tax on services to the islands, but I am not too concerned about the channel tunnel. I would like to hear what the Paymaster General has to say about that. Sir Michael Bishop, chairman of British Midland, the country's second biggest scheduled airline, with 3.8 million passengers a year, said: Air travellers in and from Britain do not deserve to be singled out in this way. Why should they be forced to pay more and why should road, rail and sea travellers be exempt? The tax is not universal; the Chancellor has singled out air travel.

By the way, the Government should be doing more to keep our airlines in the air. More important, they should also ensure that British Aerospace and other companies, which provide many aeroplanes for Britain, continue. The Government must not take. too much out of the kitty.

I do not want to take up too much time, but, as I have said, Glasgow airport is in my constituency. It presently handles 5 million passengers a year—very welcome passengers. The projection is that, if the infrastructure is built and we keep flying high, the airport has a chance of reaching 8 million passengers a year. This measure will damage its chances of reaching that target, and, once again, that will inflict further unemployment on Scotland. The Government will take from the people of Scotland, especially those in the islands, money that they badly need to continue to develop the islands to make them a decent place to live. I am delighted that the Chancellor is present to hear my speech.

There is no doubt that the measure has been brought about because of the blunderland that is Britain now. There is no doubt that, because of their £50 billion blunder, the Government are looking everywhere to dip their hands into people's pockets. I am sure that Walter McCorrisken, the famous Scottish poet, will have somthing to say about the Chancellor's mad, wild plans to get Britain out of a hole. The right hon. and learned Gentleman should keep out of the sky. I am sure that he will damage Britain's prospects of communicating with the rest of the world by imposing this punitive tax.

Mr. Hoon

I congratulate my hon. Friend the Member for Renfrew, West and Inverclyde (Mr. Graham) on his wide-ranging contribution. I shall address four specific points in relation to the proposed new tax: first, the bureaucracy involved in what will clearly be a complicated tax for the airlines to administer; secondly, the likely implications of the tax for the single European market; thirdly, the effect of the tax on British airlines in competition with other airlines around the world, and the implications of that for the British tourist industry; and, fourthly, the effect on regional airports.

On bureaucracy, the Chancellor's justification for the introduction of the tax, according to his Budget speech, is that air travel is undertaxed compared with other sectors of the economy. If that is the case, clearly it was open to the Chancellor to consider other ways of raising tax from the airline industry—perhaps simpler forms of revenue raising based on taxes that they pay already.

It would be helpful if the Paymaster General indicated what consideration was given to other courses and what was the administrative cost assessment of using that avenue of tax raising rather than increasing taxes elsewhere. Obviously, the Government must justify that in relation to the introduction of what all hon. Members accept is an extremely complicated tax to administer. If the Paymaster General does not accept the complexity of that from me, I hope that he will accept it from people in the industry.

Sir John Cope

It was not clear what other tax the hon. Gentleman thought we should use to raise money from the airline industry.

Mr. Hoon

I was suggesting that the airlines are likely to be paying taxes elsewhere and that, therefore, it would be possible to increase other taxes if the justification for this taxation were accepted, which is that the airlines are undertaxed. Presumably the Government could have embarked upon an exercise to determine the most efficient way of raising tax from the airline industry, and that must involve an assessment of the administrative cost of this tax. I wonder whether the right hon. Gentleman would enlighten the Committee on what alternative considerations were made, assuming that I accept the Chancellor's argument that the airline industry is undertaxed.

The bureaucracy becomes clear to anyone who reads the Customs and Excise briefing that was prepared to assist hon. Members on the proposal. Paragraph 9 is entitled "Scheme of Control". I propose to read it in full because it is a useful indication of the glib way in which the Government have approached the problem. In due course, I shall contrast that with the reaction of British Airways to the proposal. I quote: Control arrangements for Air Passenger Duty will be systems audit based and airlines will be required to maintain records accordingly. The prime control will be a manifest list of passenger loads compiled from information on ticket coupons. Record keeping requirements will focus on several areas, including:

• An account to provide a visible audit trail for duty declared on returns;
• Manifest or passenger load lists in suitable form; and
• Commercial documentation, including information provided to airport authorities."

That is the glib outline provided in the briefing from Customs and Excise. Presumably that is what the Government now think will be required to introduce the tax.

It is necessary to contrast that superficial approach to the proposal with what British Airways says about it. It is a different approach because the Government assume that British Airways, together with 199 other airlines, will collect the tax. British Airways says: As proposed collection of duty from passengers will be by the airline selling the ticket but payment of the duty is by the airline carrying the passenger on the dutiable sector. There are no existing systems for airlines to identify at uplift which passengers are eligible to pay the duty. It would be very expensive to develop systems to do this, requiring computer and additional manpower resources. Even then the system could not identify all exempt passengers. Furthermore there are no systems by which one airline can collect from another duty which should have been collected; indeed an airline cannot force another to collect a duty on its behalf. From the simplistic outline set out by the Government and their officials, which presumably will be defended by the Paymaster General, the reality is something different. An expensive computer system will be required with significant extra costs for airlines if they are to implement the scheme dreamt up by the Government.

If the Government are in any doubt about this difficulty, they should visit any major international airline at the airport, say on a Friday evening, especially at this time of year when there is the prospect of snow or fog which will disrupt services. They should watch the activities of people who are travelling from London to Paris, Brussels or any other major airport in the European Union.

What happens is that passengers may turn up with a ticket issued by British Airways for a BA flight. When they discover that the BA flight is delayed for an hour because there is a problem with the inbound flight, they then see whether Air France can take them, and they will re-register on an Air France aircraft. If that aircraft is then delayed, they will perhaps see whether British Midland can get them across. That means that each trail must be followed from one airline to another simply to collecct the duty of £5. That is something which the Government need to consider.

Not only will the airline be required to follow through the arrangement. I shall give an example of something that happens routinely every day at airports around Europe. Airlines will have to ensure that they are in a position to offset the various costs. If British Airways collected the tax when it issued the ticket, it must ensure that it is in a position to get the money back from the airline that carries the passenger on that short journey. That is only one of the many difficulties that I anticipate will arise from this poorly-thought-out proposal.

Other difficulties will be obvious to anyone who travels regularly by air. Increasingly, airlines are persuading people to fly only with them, and they offer discounts to people who buy multiple tickets. Many of the multiple tickets tend to be one way, so people buy a block of six tickets for journeys from one city to another and then a block of six tickets for the return. How will the proposals affect refunds with regard to the block purchase of tickets? I anticipate all sorts of problems with the proposals which the Government have not considered.

8.15 pm

Transfer passengers are referred to in the briefing, and there has already been some discussion about this matter. Many international flights start early in the morning, and it is commonplace for people travelling from a regional airport to stop overnight in London before taking their further flight. Does that mean that they will have to pay the tax twice? How does that differ from the position of someone who, for example, travels from a European destination through London to a regional airport? I frequently make such a journey. Frequently, I have broken my journey by arriving at Heathrow, going into London for a meeting, returning to Heathrow and continuing my journey north. Does that mean that I will have to pay the tax twice? How will anyone know that I chose to break my journey at Heathrow, came into London and then went out again?

There are all sorts of anomalies that the Government have built into the proposals. The matter of stopovers needs to be considered because it will have a significant impact on our regional airports. I hope that the Government have some concern about the impact of their proposals on airports outside London.

Mr. Macdonald

The problem with stopovers exposes some of the more ridiculous anomalies contained in this duty. For example, if one were to fly from Barra to Stornoway in my constituency, it would involve a stopover in Balivanish. One would have to change from a plane that carried fewer than 20 passengers to one that carried more than 20 pasengers. Halfway through a single journey, one is suddenly transferred from a category where one is not liable for the tax to a category where one is liable for it. How does my hon. Friend think that Customs and Excise will work out the complexities of such a conundrum?

Mr. Hoon

At the risk of testing my limited geographical knowledge, my hon. Friend has pointed out a further problem that the Government face in trying to make the proposal sensible, if they are bothered about that. It may well be that they are not too worried about making it sensible; they are more concerned about simply raising revenue. If that is the answer that the Paymaster General gives us, I suppose that we must accept it. If the Government will not raise revenue by the one mechanism that they studiously avoid—increasing the basic income tax rate—we must face such bureaucratic tax systems, which involve an inordinate amount of effort by those who are charged with the responsibility for collecting the tax, and the Government will have to face up to the decisions that they are taking.

We have been told that this is all about revenue raising. Of course, it is not simply about revenue raising; it is about the complexity of revenue raising and the difficulties in which the Government have got themselves. The previous Chancellor was proud that he abolished a tax each time he delivered the Budget statement. It appears that this Government's approach will be the reverse—not only to add new taxes to the portfolio of taxes facing taxpayers in the United Kingdom but to add new, inherently complex taxes.

I should be grateful if the Paymaster General would examine the suggestion that the tax is to be collected by the airlines and then effectively buried in the cost of the ticket. I hope that the Government intend to make it clear to the airlines that the tax must be displayed prominently on every ticket issued, otherwise the consumer—the taxpayer —will not be aware of the Government's additional cost of a holiday. I am sure that the Paymaster General will agree that, in the interests of openness, it is right that the taxpayer should be fully aware of the charge that the Government are imposing. I hope that the Government will make it clear in their instructions on how the tax will be collected that the full cost of the tax must be properly shown on each ticket.

The second matter that I mentioned was that of the single market. I sat with the Paymaster General through many hours of debate on the Finance Bill 1992, which was introduced specifically to establish consistent tax rules across the European Community as it was then, the European Union as it is now. We spent many hours debating the finer points of excise duty and VAT so that the 12 member states could begin to have some consistency in the rules which they applied for those two taxes. Perhaps the Paymaster General did not suffer as much as I did during those long hours in Committee. I tried to make him suffer occasionally, but obviously I was not as successful as I had hoped.

There is no attempt in the proposals to produce a common approach in the European Community. Instead, the Government: are simply striking out on their own. They are saying that it does not matter what other countries are doing—they want to have this tax because they need to raise money. They are not concerned about the attitude of other countries to the proposal. I doubt whether the Government had any discussions with other member states about concerns that such taxes were anomalous in the European Community. I doubt whether any anxieties have been expressed by the Government on that question. When challenged, of course, they will say that other countries have such a tax and that therefore they are perfectly justified in introducing it.

Belgium charges a duty on all international flights but, because it is Belgium, the rate of duty varies between airports. The maximum rate, however, is about £9. Denmark charges about £6.50 on all international air departures, and Ireland has a duty of about £5 on all international departures with the exception of those to Northern Ireland. There is a precedent in the European Union.

The proposals, however, provide a different structure, with the tax applying both to domestic and to international flights. The structure is significantly different also from the way in which those three member states choose to impose their taxatioin and that will produce further anomalies. Perhaps the Paymaster General will next year make proposals to amend the tax to bring it into line with the other member states. It is unfortunate that, at a time when the Government are seeking to produce a standard approach in other areas of taxation with other European countries, they should strike out clearly on their own and introduce a tax quite different from any other in the European Union.

The third area upon which I should be grateful for the comments of the Paymaster General concerns competition with other airlines. The right hon. Gentleman has had drawn to his attention more than once today the letter from Sir Colin Marshall of British Airways. It does, however, repay serious examination. The point which he made on behalf of British Airways has been repeated by others in the airline industry. He was extremely concerned that the duty will not only hit airlines generally, but will hit British-based airlines particularly hard.

Sir Colin said in the letter that the tax will not apply to competitors, some of whom, unlike British Airways, are subsidised and do not meet the full costs of their infrastructure. He was also concerned that the tax will do serious damage to some of our services, particularly those domestic routes which are losing money. He also stated that he could not be sure that it would not precipitate the closure of some of the more difficult regional services.

If the Paymaster General is in any doubt about that, I suggest that he goes to Heathrow early on a Saturday morning and takes a flight to Amsterdam, as I had the opportunity of doing recently. I was expecting a comfortable service to Amsterdam on a virtually empty plane, because most of the passengers who travel from Heathrow to Amsterdam do so for business reasons. The truth is that Saturday morning flights to Amsterdam from Heathrow are packed, and it is extremely difficult to get a seat. The reason is that, increasingly, Amsterdam attracts large numbers of passengers who are using the airport as a stopping-off point before going elsewhere. Indeed, Amsterdam has made a virtue out of that for many years, and at one time described itself in an advertising campaign as the third London airport.

Amsterdam is increasingly competing directly with the London airports. It has much greater capacity because it has had a good deal of investment in terms of new building, and it has routes to elsewhere in the world. In terms of the proposals, I assume that the passenger choosing to go through Amsterdam will have only to pay the £5 tax for the internal service and not the £10 tax if the journey then goes on elsewhere outside the European Union. If that is not the case, it will create a further competitive edge as far as an airport such as Amsterdam is concerned and will further attract passengers away from using British airports and facilities. That will be to the benefit of our direct competition on the continent.

I am sure that the Government will simply say that that is a marginal consideration, but the fact is that it is a competitive industry and such marginal considerations are the difference between airlines and services going bust, or surviving and making a profit. The Government ought to address that point carefully.

Again, if the Paymaster General is unhappy to accept that argument from me, he should look carefully at what Sir Colin Marshall has said. He has said that it would be easy for foreign airlines to compete unfairly against British airlines by evading the proper duty, if the duty is collected as was proposed originally. A foreign airline would be able to route its passengers through its international base on the continent rather than directly to the United Kingdom. For passengers on long-haul services, that does not really pose much difficulty. If that gives foreign-based airlines which operate from the United Kingdom such a competitive edge, we will be seriously damaging our industry in the process.

In relation to the question of competition for British-based operations, it is also worthwhile for the Government to look carefully at the views of the United Kingdom-based tourist industry. The Government take some credit for encouraging tourism to the United Kingdom, and yet clearly the industry is extremely concerned about the impact of the tax on business.

The chairman of an extremely successful travel agency has said that the new tax will have a highly detrimental effect on Britain's tourist industry. In an extremely price-sensitive market, the chairman added that the United Kingdom is already seen as an expensive destination. He explained that increasingly in the provision of package travel holidays United Kingdom-based companies are competing with companies from France, Holland and other European nations. That kind of price differential may make a real impact on business.

Mr. Rupert Allason (Torbay)

Is the hon. Gentleman aware that the departure tax will not have the impact that he suggests? The British tourist industry has in fact advocated the extension of VAT to foreign package holidays so as to protect the domestic market. That would make the domestic tourist market much more competitive. Would not people who pay £500 to £700 for a foreign package holiday be perfectly able to afford a small amount extra if VAT were extended to that package holiday?

Mr. Hoon

I do not want to get into an argument about VAT. The Government are increasing taxation sufficiently as it is without my following the hon. Gentleman along that route.

If companies based in Britain are worried that they will be placed, however marginally, at a disadvantage in competition with tourist companies on the continent, the Government ought to take that carefully into consideration. The hon. Member for Torbay (Mr. Allason) used as an illustration a holiday costing £600 or £700, but the most fierce competition in the holiday business tends to be at the lower end of the package holiday market. So we are talking about holidays that may cost less than £200. When that expenditure is multiplied by, say, four or five, for a family the impact of the tax—whether it amounts to £25 for journeys within the European Union or £50 for journeys outside the European Union—will be a consideration in what is clearly a tight market.

The last of the four subjects that I said I wished to raise is the effect of the tax on regional airports. The type of taxation represented by the air passenger duty will have consequences for the regional airports. We tend to assume that regional airports are steadily growing. People look to airports such as Manchester as an illustration of a clearly successful airport that has attracted new services and is successful in competing against London.

8.30 pm

Let us contrast the position of Manchester airport with an airport rather close to home for me and for the Chancellor of the Exchequer. If the Chancellor wanted to fly from East Midlands airport to Heathrow—he might not choose to do so as a way of travelling to the House of Commons, but he might want to do so when travelling to an international summit somewhere—he would find that he would no longer be able to take that service. A service operated by British Midland for a long time has been withdrawn in recent months because British Midland now believes that it is no longer economic to run it. The company cannot justify the price to passengers of the service down to London.

The air passenger duty will add a further £5 to the journey cost. If people want to travel by air to Heathrow and carry on to some other part of the world, it will add £10. The duty will be a major factor in an airline's decision whether to operate a service such as East Midlands to Heathrow. Such taxation has a serious impact on a company. I know that because I have encouraged a variety of companies to offer routes from Heathrow. They all say that it is a matter of landing fees and the cost of getting the aircraft in the air.

Those seem to me, as someone who pays the fare, relatively marginal considerations when they are spread across an aircraft with people all paying what seems to be a high fare. But the truth is that such services operate on extremely tight margins. The air passenger duty could mean the difference between operating or not operating a service or—of more concern to many regional airports—whether a service can continue to be operated.

If, instead of travelling from East Midlands to Heathrow, the Chancellor of the Exchequer chose to travel from Birmingham to Heathrow, again he would be disappointed. Still more recently, that service has been withdrawn.

Therefore, I hope that the Government will consider the effect on regional airports. As several hon. Members have said already in the debate, I hope that the Government will examine carefully the way in which the tax will hit services other than those from London.

I repeat that air passenger duty will not simply be a tax of small impact for most people. Many people contemplating whether they can afford a holiday this summer, particularly if they are thinking of going to one of the destinations abroad for which there is fierce competition in the package holiday market, will wonder whether they can afford the extra cost. My constituents in Ashfield will wonder whether they can contemplate the extra cost imposed by the tax. If they have two or three children, the tax will make a significant difference. [Interruption.] Conservative Members seem to find that amusing and entertaining. It is a matter of great concern to people. Instead of going on holiday, people will sit at home and blame the Government for two weeks. Perhaps that is what I really want them to do.

Mr. Allason

The hon. Member for Ashfield (Mr. Hoon) has exaggerated the role of the air passenger duty. He should be aware that the domestic tourist industry has been disadvantaged in many different ways, and certainly by foreign competition. If one wanted to support the British tourist industry, the quickest solution would be to introduce a differential in value added tax to reduce, as in France, the level of VAT charged in restaurants, the catering business and hotels. That would give a tremendous boost to the domestic industry.

The domestic tourist industry is extremely successful and important. It is the largest earner of foreign currency in Britain. Therefore, it deserves some support. The simplest way of providing that support, and, indeed, benefiting the Exchequer, is surely to extend VAT to the purchase of foreign air travel and holidays. As the hon. Member for Ashfield said, the cost of a package holiday even at the lowest end of the market is about £200. If one multiplies that by the number of people in the family, it comes to exactly the figure that I suggested—£600, £700 or £800. The imposition of VAT on that figure would not be significant. It would have been an imaginative approach on the part of the Government, and the measure would have been welcomed by the British domestic tourist industry, to impose VAT on foreign air travel.

I wish to take a moment to examine the problem of the British domestic tourist industry. At present, if people decide to come to Torbay for their holiday—which I strongly recommend—the difficulty is that any hotel bill or restaurant bill has VAT at 17.5 per cent. added to it. If exactly the same family goes abroad, say to Spain or France, they may find that part of their holiday is subsidised by a rather lower level of VAT. There is a differential in those countries.

For many years, the Government and particularly the Treasury have resisted the idea of two rates of VAT. In the good old days of Ted Heath, the dual rate of VAT—one forgets how high the rates were—was broadly accepted. The Government have introduced a different rate for the new VAT on fuel. We shall have a dual rate for at least a year. Why not extend that and help the domestic tourist industry, which is extremely important?

Mr. Pike

Es the hon. Gentleman arguing against the main plank of the Government's policy, which is to shift the balance from direct taxation to VAT? That is a policy with which I wholly disagree. But in the—[Interruption.]

The Temporary Chairman (Sir David Knox)

Order. The hon. Gentleman is going much too wide. We are on a much narrower point than the one that he is raising.

Mr. Allason

It is a narrow point. I am grateful for your guidance, Sir David. I strongly support the extension of VAT to the purchase of foreign holidays and foreign transport. It would be a good way of raising revenue to put an extra amount on the purchase of package holidays.

I am sympathetic to the argument made by the hon. Member for Ashfield about regional airports. The blame for part of the problem lies not only with the Treasury but with the European Union. If there had been true competition between domestic carriers, Air France and other continental carriers would have been allowed to come into the United Kingdom and, if they saw a market, to take advantage of it. How can one believe that, following the creation of the single market and the European Union, we are members of a free trade club when British Airways cannot pick up passengers in, say, Madrid and fly them to Rome? Surely the point of a free trade club is that the existing players should be able to take advantage of a market if they see one.

Mr. Hoon

While I appreciate that the liberalisation of airline routes in the European Union continues to be difficult, the hon. Gentleman needs to concentrate on the real difficulty facing regional airports: they are not getting the competition. Competition implies more than one airline, but most regional airports are having difficulty finding even one airline to fly a scheduled route—for example, between the East Midlands airport and London.

It is not a case of many airlines queuing up to compete —the airport cannot even persuade one airline to take on that responsibility.

Mr. Allason

I accept that, but I am worried about the predatory nature of some of the airlines operating on the domestic market. I am especially concerned about routes from Exeter and Plymouth, which are regional airports on the brink of viability.

If we are members of a free trade club, why do so many restrictions remain? They mean that only a few airlines can come into the domestic market.

The Temporary Chairman

Will the hon. Gentleman keep to the point? He is getting far beyond it. We are discussing amendment No. 1.

Mr. Allason

I am grateful for your guidance, Sir David.

This measure is certainly unimaginative because it does not grasp the problem. While it is a straightforward and obvious attempt to raise revenue, I urge the House to consider carefully going further and extending value added tax to foreign package holidays. That would be widely welcomed and I urge the House to accept that.

8.45 pm

Mr. Jim Cunningham

I and many of my constituents are worried about the implications of the air passenger tax. The amount of duty that the Government are introducing now is not necessarily the cause for concern—it is the amount that they might introduce next year or the year after. We are really concerned about the knock-on effects of the tax.

Travel agents are extremely worried about the tax and the implications for the future. In my constituency, the aero-engine business—especially Rolls-Royce—has gone through a lean time, as it has throughout the country—and today's announcement about Rover gives us food for thought. British Aerospace has sold off its holding in Rover to a German company and that should tell us a lot about the state of British Aerospace. It serves as an illustration that we should be concerned not only about the tax but about the future of the freight and aerospace businesses and, to a certain extent, the future of travel agencies.

My constituents and people in the west midlands will be wondering about the tax. They will not necessarily be worried by the amount at the moment, but they will wonder how much it will be in future and the effect that it might have on their jobs.

Mr. Pike

The tax will also cost something to implement, apart from the £5 or £10 initial duty. Is it not true that the cost of administering it will remain the same, even if the tax is increased? We have heard nothing to allay fears that the tax will not merely be £5 or £10 next year, but that once the door is open it will increase very quickly.

Mr. Cunningham

My hon. Friend's argument is far better than mine. He has summed up that area of concern very well.

Birmingham airport flies the flag for the west midlands. People in the west midlands will not have a lot of confidence in the industrial base there when they consider what is likely to happen to the airport and to the aerospace industry.

We are constantly being told that there is a recovery, but that it is fragile. The business community are constantly telling us that the full effects of the Budget have not flowed through and are apprenhensive about that fact.

Many people are worried about the tax and the effects that it will have on the morale of those who work in the travel or aero engine businesses. Many jobs have been shed in those industries during the past few years and it is the wrong time to introduce such a tax—it sends out the wrong signals to manufacturers and travel agents.

The Government will not know the implications of the tax until they have introduced it, but has that not been the sorry tale of this Government? Whether in the implementation of value added tax or other measures, they have failed to consult adequately or to listen to people who would be affected by the measures.

It is not merely a question of £5 or £10—this tax and the increases in value added tax, coupled with cuts in benefits, will have a net effect on families. We must consider the tax and its implications against a broader canvas than the amendment allows. However, I do not want to deviate too much.

The tax will affect tourism and regional airports such as Birmingham. Many of the smaller airports, such as Coventry, are seeking partners in the private sector because of the cost factor, as many hon. Members with an involvement in local government know. The tax will not encourage such partnerships, because the private sector will think that there is no profit in them. Once again, small airports will find themselves on the breadline and jobs at such airports may be under threat. The tax, therefore, also has implications for jobs, as well as for the tourist and aircraft industries.

The tax is totally the wrong message to be sending to the employees of British Aerospace and Rolls-Royce in Coventry and to people throughout the country—especially at a time when many thousands of people in the west midlands and in my constituency want the industrial base to grow. They certainly want the aircraft industry to grow again and want more jobs to be created in it and in other industries throughout Britain. Psychologically, it is the wrong time to introduce the tax and I question the need for it. I should have thought that the Government would consider other ways to raise the necessary revenue, instead of introducing this tax at the wrong time.

Many people—particularly small manufacturers which do a great deal of work for British Aerospace and Rolls-Royce—will not be so concerned about the level of the tax now as about the cost in the future. Anyone who is extremely concerned about this country's future and especially its industrial base must worry about that. The effects of this tax, coupled with the results of the recent GATT round, on the aircraft industry and on companies such as Rolls-Royce give rise to extreme concern, because they could deter customers from buying engines. As I understand it, the GATT subsidy will be totally eradicated.

Another factor is that the last remnants of the British aircraft industry might be taken over by a company from abroad—whether German or American—as happened with Rover.

Although the amount of the tax seems small, the effects will be devastating. We are playing into the hands of our competitors abroad. We are not helping to restore confidence in the British economy so that it can get out of recession. We are not restoring confidence in the business community to invest; it fears that it cannot trust the Government over taxation. The Minister may give assurances tonight that the tax is a one-off and that it will not be increased in future, but nobody believes him, because we were given the same assurances about the introduction of VAT some years ago. We have now found out to our cost that one cannot believe what the Government indicate or say. Many in the travel and tourism trades will be concerned.

Mr. Pike

Is not it a fact that, because of the tax, the travel industry and the air transport industry will fear that, within Europe, Frankfurt, Schiphol and other airports will develop at the expense of Heathrow and Manchester airports?

Mr. Cunningham

My hon. Friend is quite right. There is no doubt that some of our major airports will be under serious threat. In the longer term, the feeder airports will be under serious threat. Many people forget that some of the regional airports such as Birmingham rely on feeder airports such as Coventry. We need those feeder airports because they facilitate trade. When a business man or a company has to fly components to Frankfurt or anywhere else in Europe, those small airports are often the lifeblood of the regional airports, because a small company can fly its freight at short notice to meet the customer's needs. That boosts confidence abroad in British manufacturers and, in turn, means that one starts to build up the confidence and regenerate the British economy, particularly the industrial base of the west midlands, but, more importantly, cities such as Coventry, which is renowned not only for its ingenuity in motor manufacturing but for aircraft production in companies such as Rolls-Royce and electrical companies such as GPT. Those companies now need a morale boost. They do not need their path to trade expansion hindered by another new tax.

I am extremely concerned for the welfare of my constituents in terms of their jobs, whether in the aero-engine manufacturing industry, in travel agencies in Coventry, South-East, in the airframe industries in the peripheries of Coventry or the small companies that produce components for companies such as Rolls-Royce. Nobody can forecast future Budgets, but I hope that the Minister will pause before introducing the tax and start to talk to people who are involved in air travel and in the production of aero-engines, which are vital to the technology and craft of the country.

The Minister should think seriously about the consequences of the levels of the tax. He should think about the signal that he is sending to British industry, particularly in the west midlands, which has been on its knees for many years, and to companies such as Rolls-Royce, GPT and the small business men in Coventry and throughout the country.

The tax will have serious consequences. It is not a morale booster. I hope that the fears of small business men will not be realised when the full implications of the Budget are known after April. I hope sincerely that it does not dampen economic growth. It seems to me that measures such as this act as a deterrent to British manufacturers and workers, not an incentive. I hope that the Minister will think again about the tax.

9 pm

Mr. Macdonald

I am pleased to be able to join the debate this evening. I shall speak in particular to amendment No. 3 to clause 28, which asks that This duty shall not be charged until the Government has presented a report to Parliament on its effects on the economies of the United Kingdom islands, on the travelling public and on the air transport industry and tourism. I should like to focus in particular on the effects on the economies of the islands of the United Kingdom, but more specifically the Scottish islands and the more remote and distant Scottish islands.

I take on board what my hon. Friend the Member for Coventry, South-East (Mr. Cunningham) has said about the wider economic implications of the duty, its effects on industry in general, on the manufacturers of aircraft, on business confidence throughout the British economy and the way that it potentially disadvantages British carriers as compared with continental carriers. However, the valid point has been made that, with the differentiation between travel within Europe being charged at £5 a head and international travel at £10 a head, there is an open invitation for carriers to try to skirt around the £10 charge by trying to use continental airports as staging posts to divert international passengers from the United Kingdom. That could adversely affect British carriers. The Government have failed to take that into account. I hope that that matter will be addressed.

Apart from the wider economic implications for the British economy and industry, I shall refer specifically to its impact on the Scottish islands, which, after all, were one of the high points of the Chancellor's Budget speech. He said that the Scottish islands were to be exempted from the effects of the tax and he instantly won some cheap and easy applause from his hon. Friends on the Conservative Benches, not that that applause was in short supply, because his colleagues gave the Budget an astonishing reception. One wonders whether they appreciated its implications, given that it has introduced the biggest peacetime tax hike in history, which will lead, eventually, to the highest peacetime taxes. Despite that, each new tax and each new increase received delirious applause and cheers from Conservative Members.

Although that reception might have been misguided, the exemption granted to the Scottish islands was met with genuine pleasure. Suddenly it seemed as though inter-party and cross-party argument had been suspended for the moment, because both sides of the House recognised the special position of the Scottish islands. We welcomed the fact that the Chancellor, too, apparently recognised that by granting that exemption. The special position of the Scottish islands has been discussed at some length and it relates primarily to their geographical location. They are found on the ultimate fringes of the continent of Europe. Their sheer difference from the industrial and commercial hub of Europe and the United Kingdom is one of the main disadvantages with which they must cope.

The remoteness of the northern isles and the Western Isles is recognised not just in the House, but in the country and throughout Europe. They are a special case precisely because of their remoteness and their very distance from the Scottish mainland. It takes five and a half hours to travel by ferry to the island of Barra, in my constituency, from the Scottish mainland. I do not believe that most hon. Members appreciate the distances involved until they are spelt out. They know that the islands are a certain distance from the mainland, but when they realise that it takes more than five hours to reach a community, most of them are surprised, and even shocked.

Mr. Wallace

I am not attempting one-upmanship, but just to illustrate the hon. Gentleman's point I should point out that to travel from Lerwick in Shetland to the Scottish mainland involves an overnight, 14-hour journey by ferry.

The Temporary Chairman

Order. Although hon. Members can allude to such matters, the debate is not about the length of time it takes to travel from one point to another but about a tax.

Mr. Macdonald

I was simply trying to illustrate, with the help of the hon. Member for Orkney and Shetland (Mr. Wallace), the effects of the tax upon the economies of the United Kingdom and the islands, as outlined in amendment No. 3, which is one of the group of amendments selected for debate.

One of the defining characteristics of the economies of the Scottish islands is their distance from markets. That was the point I was trying to make until I was superseded, or perhaps I should say one-upped, by the hon. Member for Orkney and Shetland.

I do not need to give the specific number of hours that it takes to travel to each island, but their remoteness is a defining factor not just in the life style of the islanders, but of the economic difficulties that they face.

The other singular feature of the Scottish islands, with the happy exception of the Shetlands because of the relevance of oil to its economy, is their economic fragility. The per capita gross national product of Scotland is some way below the United Kingdom norm, but the lowest of the lot is found in the Scottish islands. The level of unemployment is higher than average while earnings are considerably lower than those found on the mainland.

It is precisely because of that distance that prices on the Scottish islands are higher than anywhere else in Scotland and probably than anywhere in the United Kingdom. That crucial economic factor must be taken into account, because until one appreciates the economic fragility of the Scottish islands, the full impact of the tax—the slap in the face—cannot be appreciated.

When one takes the factors of remoteness and economic fragility into account, one realises that the air service to the Scottish islands is by no means a luxury. It is not a businessman's perk to go by plane rather than train. Rather, the air service is a lifeline for the Scottish islands. When one is faced with a ferry journey of 14 hours or even five and a half hours, the air service is not simply weighed up on the grounds of convenience but becomes a vital link between the island communities and the outside world, connecting them with the rest of the United Kingdom. Although the islands are so many hours' steaming from the Scottish mainland, travelling time can be reduced to only an hour because of the air. service.

The matter is illustrated by the fact that there are three airports in my constituency. I wonder how many other hon. Members have as many airports in their constituencies.

Mrs. Ray Michie

I have.

Mr. Macdonald

The hon. Member for Argyll and Bute (Mrs. Michie) says that she has a similar number, and the hon. Member for Orkney and Shetland probably has, too. That shows that the air service is a lifeline for the remote communities of the Scottish islands.

The Government have recognised the extent to which the air service is a lifeline. When islanders need essential specialist medical care that cannot be provided on the Scottish islands because of their low population, they are flown to hospitals on the mainland, in cities such as Inverness, Aberdeen and Glasgow. That is a regular occurrence. One might expect that patients would be flown to the mainland if they need urgent medical attention, but close relatives, such as the mother of a young child who has been flown to the mainland, are entitled to Government assistance to visit their sick relatives in the mainland hospitals. The Government do not ask the relatives to take a ferry or bus from Ullapool to Inverness and all the way to Glasgow, but recognise the special nature of the Scottish islands and assist the relatives to fly, courtesy of the NHS, from the Scottish islands to the mainland.

I am at a loss to think of any other constituency where that would be so. It certainly happens nowhere in the rest of the country. The Government recognise the special nature of the Scottish islands and the fact that such a service is no luxury but an essential aspect of maintaining a viable community on those islands.

The tax also has an impact on the viability of the air services to the Scottish islands. To impose this tax on passengers is bound to affect demand for the air services. Indeed, the Government have given us an estimate of how much the tax may affect demand. In an answer to the hon. Member for Argyll and Bute, the Paymaster General said: Overall, the tax is expected to reduce demand for air travel by around 2½ per cent. There is insufficient information available to estimate the impact of the tax on airports operated by Highland and Islands airports. No information has been received from other European countries on the impact of the introduction of such taxation on transport."—[Official Report, 19 January 1994; Vol. 235, c. 643.] The Paymaster General seems to have been unable to estimate the reduction in demand for the highlands and islands, but I suggest that because of the economic fragility, the unemployment, the low earnings and the higher prices of the Scottish islands, the impact will be more severe there. Passenger demand is bound to be depressed. Taking into account the shuttle services between Scotland and the cities of England, I estimate that the decrease in demand for passenger services in the highlands and islands may be as high as 5 or 10 per cent.

I emphasise again that the air services to and between the Scottish islands are already on a knife edge of viability —just showing a profit. I might add that they receive no subsidies or assistance from the Government; they all have to pay their own way, apart from some help from local authorities for inter-island flights. A reduction in passenger demand of between 5 and 10 per cent. could mean that some of these air services are no longer viable. British Airways may have to decide that no longer can it run these lifeline air services to the Scottish islands because of the effects of the tax and the consequent falling off in demand.

This explains why my hon. Friend and I are asking the Government, when considering the tax, to take the special circumstances of the Scottish islands into account. I believe that there are overwhelming social and economic grounds for exempting them. I have even estimated that the Government could do so without much impact on their revenue from the tax. A complete general exemption for the Scottish islands could be achieved, I estimate, with a loss to the Treasury of only about £800,000. I have based that figure on what I have been told constitutes the passenger traffic within the Scottish islands and between them and the mainland.

I know that the Treasury is hard up these days and that the Government are in a bit of an economic hole, as the Chancelloer said before he became Chancellor. The sum of £800,000, however, out of a total budget of £280 billion, is one that I believe the Government could live with fairly comfortably. The Government need money so desperately that they are willing to put VAT on domestic fuel. This impost is a kind of poll tax of the air on lifeline services to the islands.

But the Government are willing to forgo certain revenues. For example, at the same time as they announced the biggest tax rise in history, they announced that they were abolishing sporting rates paid by landed estates in Scotland. That is an interesting contrast. Those sporting rates are not worth an enormous amount to local authorities, but a fair amount is involved.

9.15 pm

On 7 January the Minister of State at the Scottish Office told me that the total revenue accruing to Scottish local authorities from sporting rates in each of the past four years was estimated at about £2 million a year. The Government feel able to write that off to the benefit of the hunters, shooters and fishermen among the Scottish landed gentry, but they will tell us that £800,000 to rescue the lifeline services for the Scottish islands is beyond their means. We can draw our own conclusions from that.

My hon. Friend the Member for Cunninghame, North (Mr. Wilson) spoke about the international comparison and said that just because other countries had such a tax did not mean that one should be introduced here. I understand that the air duties in other countries tend to be for international and not domestic flights. The Government's air duty appears to be more sweeping in its catchment.

We have lessons to learn from other countries. In an intervention, I gave the example of the Republic of Ireland. The air route from Dublin to Kerry in the west of Ireland, a remote area on the edge of Europe, faces many of the same social and economic problems as the west coast of Scotland and the northern and Western Isles. But instead of imposing a tax on the people of Kerry and others who use that service, the Government of Ireland negotiated with the European Commission and was allowed to provide a subsidy to maintain that essential service.

The journey from Dublin to Kerry is equivalent to that from Stornoway to Inverness—about 200 air miles—but while the Scottish islanders will have to pay about £130 for the journey, because of the subsidy negotiated by the Irish Government, a person travelling from Dublin to Kerry will pay only half that, £70. That contrast rather shames the Government. The Government of the Republic of Ireland were able to fight and negotiate with the Commission to provide a subsidy for their remote areas but this Government ended such subsidies a long time ago. They prefer to impose a poll tax on each person travelling to and from the Scottish islands.

The Government maintain that they have provided some exemptions. As I said earlier, the Chancellor made much of that. At the time, he received some easy applause. Actually, it was genuine and well-meant applause, as hon. Members on both sides thought that it was reasonable and proper to exempt the Scottish islands. No Conservative Member protested. Nobody shouted "Shame" when the Chancellor appeared to be exempting the Scottish islands. All cheered, and I appreciate the sentiment that was thus expressed.

Unfortunately, a look at the small print revealed what I might call a Dudley-type promise—the Chancellor having said that promises made on a rainy night in Dudley were not to be taken seriously. In fact, the exemption is not what it appears to be. The Paymaster General has tried to defend what the Chancellor said in his Budget speech. Indeed, the right hon. Gentleman's defence reflects worse on the Chancellor than did what we thought was the position. We thought that the Chancellor's speech had been written by civil servants and that the right hon. and learned Gentleman could not possibly have known the details, could not possibly have known that what he was reading out was highly misleading. But we have now heard from the Paymaster General that the Chancellor knew all along that what he was saying was misleading. That is regrettable and shameful.

The Paymaster General himself has tried to be a little economical with the truth in his attempt to justify these apparent exemptions. For example, in an answer given to me on 6 December last, he said that, based on October 1993 timetables, it was estimated that about a quarter of flights to the Scottish islands from the mainland and about three quarters of inter-island flights would be exempt. That sounds very generous. The impression it gives is that most people will be included in the exemption. But what we have in those words is only one way of describing the situation. On the basis of flights per se, it may be so, but the number of passengers being carried, the number being taxed and the number exempted present a completely different picture. Indeed, the position is the opposite of that presented by the Chancellor in his Budget speech.

If one adds together the numbers of people carried on Loganair and British Airways flights between the Scottish islands and between the mainland and the islands, one arrives at a figure of more than 210,000 passenger flights of the kind described in this legislation. Of these, only 42,000 would be exempted under the Chancellor's concession. In other words, 80 per cent. would be taxed, and 20 per cent. exempted.

We now find that the situation is even worse. On 22 December, Mr. Scott Grier, the managing director of Loganair, wrote to the Chancellor pointing out that, although at present 20 per cent. of passenger flights would be exempted, in the near future the number would be much smaller, as different kinds of aircraft would be used. Mr. Grier says: Only a small minority are going to be exempt. On your proposed basis, only those passengers flying the eight-seat Britten Norman islander aircraft used in the Orkney inter-island service and the Shetland inter-island service are likely to be exempt next October when the duty is due to be implemented. Services currently using 18-seat De Havilland Twin Otter and Jetstream 31 aircraft are likely to be upgraded in the next few months, due to the Twin Otter no longer being manufactured, and the Jetstream 31 being unsuitable for the common requirements of the Highlands and Islands services to carry freight, newspapers and mail in addition to passengers. It is likely, therefore, that perhaps only around 20,000 passengers per annum would be eligible for relief if your proposed exception criterion is applied. An exception that was to apply to 20 per cent. of passengers when the Chancellor made his Budget statement will apply to only 10 per cent. next year. That is very different from the message that the Chancellor apparently tried to convey in his Budget speech.

I want to explore not only that deception—if that word is permissible—by the Chancellor, or his misleading statement, but an aspect that might cause concern to even the right hon. and learned Gentleman and the Paymaster General themselves. I refer to the enormous number of anomalies that will be thrown up when the duty is introduced late next year.

To understand those anomalies, one must distinguish between the two types of aircraft used on Scottish island routes. One type is represented by the Jetstream 41 and the Shorts-360, which carry 29 and 36 passengers respectively. The other type carries fewer than 20 passengers. I mentioned the Jetstream 31, which carries only 17 passengers. The Islander carries six to eight passengers, and the Twin Otter carries 15 to 18 passengers.

The significant point is that aircraft that carry fewer than 20 passengers will be exempted, whereas those that carry more will be subject to the duty. The aircraft that carry more than 20 passengers also account for the highest number of passengers carried on the entire inter-island network.

Those two types of aircraft create a whole series of anomalies. I will give the example of one flight serving the Western Isles and another serving the northern isles. An inter-island flight in Orkney or Shetland using a Jetstream 31 or Islander will be exempted from duty. However, a flight from Barra to Balivanish in the Western Isles operated by the same company—Loganair, involving no greater distance, and serving a community every bit as impoverished, economically fragile and remote as one in the Orkneys or Shetlands, will require that passengers pay the full whack of £5 per head. Surely that discrepancy cannot be justified.

The absurdities become even worse. I refer to the flight from Barra to Stornoway, or from there to Barra. As I have already mentioned, the inter-island flight from Stornoway to Barra, or vice versa, has a stopover half way up the island chain at the airport at Balivanish. Passengers travelling from Barra to Stornoway stop over at Balivanish and have to change plane. They have to change from a Twin Otter aircraft, which carries fewer than 20 passengers and is therefore exempt from the tax, to a Shorts 6 aircraft, which is tax liable and will carry them for the remainder of their journey. Half way through their journeys, passengers change from a tax-exempt aircraft to a taxable aircraft.

9.30 pm

I scratch my head about how the duty will be assessed in such a case. Will the significant factor be the direction in which passengers travel? If they come from Barra and start off in a tax-exempt aircraft, will that determine the tax status all the way to Stornaway? If they come from Stornoway, they will start their journey in a tax-liable aircraft, so will they be taxed all the way to Barra? Will passengers who get off at Balivanish have to fork out £5 extra on top of the fare that they have already paid at Barra? It is absurd and shows the ridiculousness of trying to base exemptions on the size of the aircraft.

There are also anomalies involving flights from the islands to the mainland. The social and economic need for protecting those flights is perhaps greater for island to mainland flights than for inter-island flights. The connection between the islands and mainland is economically, socially and psychologically important. Again, there are various anomalies. A flight from Kirkwall to Glasgow, which currently uses a Jetstream 31, will be tax exempt. A flight from Stornoway to Inverness, which is a shorter flight and uses a British Aerospace advanced turbo-prop aeroplane, will be taxed. What possible justification is there for that? Likewise, the flight from Sumburgh—an important oil station—to Edinburgh, the financial capital of Scotland, will be tax exempt. But the flights from Stornoway to Inverness and Balinvanish to Glasgow will be hit by the tax. There is no social or economic logic in that anomaly.

Let us take a different sort of illogicality and anomaly, which is even more absurd. Some routes use different planes on different days—for example, the flights from Kirkwall to Wick and from Sumburgh to Edinburgh. If one takes one of those flights one day, one will be taxed, but on another day one will be exempt. That is clearly absurd and ridiculous. The Government have to consider the position more seriously.

Some days the Sumburgh to Edinburgh route uses an ATP and on others it uses a Jetstream 31. On some days the Kirkwall to Wick flight uses a Jetstream 31, which is below the 20-passenger limit and is tax exempt, but on other days it uses the Shorts 6, which is above a 20-passenger limit and is therefore tax liable.

That creates a real problem for the Government, whose intention is to tax people on return rather than single journeys. People will not be taxed twice if they take a genuine return trip, but what if they use different planes on different days? What happens if they go out on a Jetstream 31, but come back on a Shorts 6 or an ATP? What will happen to people who fly out on a tax-exempt aircraft and return on a tax-liable one? Have the Government even considered that absurd anomaly? The notion of providing exemptions based on the size is riddled with such anomalies, which makes the whole process nonsensical —especially in regard to the Scottish islands.

The hon. Member for Buckingham (Mr. Walden) pointed out that there were rich people in the islands and poor people in the cities; why should the islands be treated differently? It is widely acknowledged, however, that the islands are a special case, in both social and economic terms: hon. Members on both sides of the House have agreed that. Moreover, most rich people in the islands do not live there: they occasionally spend a weekend hunting, fishing and shooting on their estates, but most travellers on commercial flights to the islands will not find them in the neighbouring seat. Such people hire their own Jetstream 31; they are wealthy, busy business men, for whom time is money. They will hire a Jetstream 31 to Stornoway, and step off it tax exempt.

That is the real irony. An islander visiting a relative in a Glasgow hospital, using the air link from Barra, must walk across the sand to board the aircraft; that person will be hit by a £5 tax. The millionaire jetting into his Hebridean estate for a weekend's shooting—on his Jetstream 31—will be exempt. We have come to expect such anomalies from the present Government, but they are not justified.

I wrote to the Chancellor raising some of those points. On 13 January, the Paymaster General wrote back to me, trying to defend the current illogical position; I believe that he wrote to the hon. Member for Orkney and Shetland in similar terms. He wrote: There is a logic to the proposed exception for flights in small aircraft … These criteria relate to CAA licensing requirements whereby carriers exclusively involved in operations with aircraft below this size"— that is, with fewer than 20 passengers— are subject to less rigorous financial obligations. It follows from the proposed exemption that all holders of this type of licence will know immediately they need not register for this duty. That is fine, but Loganair and British Airways do not exclusively use aircraft of that kind. It is completely and utterly beside the point to bring that aspect of Civil Aviation Authority regulations into the argument to justify exemptions in commercial flights to the Scottish islands. That is completely irrelevant and it is not germane to the argument about the Scottish islands.

The letter contains another argument for the exemption. That piece of logic states: Another consequence of this criterion, which Kenneth mentioned in his Budget speech, is that the majority of flights between the Scottish islands will be exempt from the duty as they use small aircraft. Many of these small aircraft use Avgas which is subject to excise duty and therefore, unlike most other domestic and all international flights are already subject to some indirect taxation. That argument for fixing the exemption of planes with fewer than 20 passengers is that they already pay some form of tax and duty because they use avgas which is a different kind of fuel from that used by regular scheduled commercial flights. Therefore, to impose an extra tax would involve a double duty.

The only problem with that explanation is that none of the aircraft servicing the Scottish islands uses avgas. Only five of Loganair's planes use avgas and they are used for the air ambulance service. None of the passenger flights to the Scottish islands or between those islands uses avgas. That attempted justification for the duty also runs into the sand.

The lesson is that there can be no justification for this absurd, inequitable and deeply damaging tax. There can be no justification for this poll tax of the air. The weakest form of argument that the Government can advance is to suggest that if an exception were granted for the Scottish islands, somehow that would be a slippery slope towards the destruction of the duty in its entirety; if the exception were granted, other areas would want similar exemptions. However, that argument ignores the obvious fact which is widely recognised by hon. Members on both sides of the House that the Scottish islands are a special case because of their fragility, remoteness and distance.

That point could be recognised by the Government in the structure of the new tax in a way that would be accepted by everyone inside and outside this place. The Air Transport Users Council wrote to Mr. David Hock of Her Majesty's Customs and Excise. It made the point that it would make economic sense to extend the exemption … to embrace all island services". The council does not believe that such an exemption would lead to a wider form of exemption. It recognises the special position of the islands. Loganair and British Airways are of the same opinion. In the notes which British Airways has given to hon. Members explaining its views on the new tax, it states that, instead of having a silly categorisation of below and above 20 passengers, it would be better to exempt specific journeys which have economic dimensions.

I appeal to the Government, when we retire upstairs to deal with these matters in greater detail and, dare I say it, at even greater length, to reconsider the way in which the duty will operate and its impact on the Scottish islands. If they genuinely extend the exemption to cover all flights to and from and between the Scottish islands, they will again receive applause from all hon. Members, and deservedly SO.

Mr. Enright

I shall be very brief because I would like to see the Paymaster General wriggle. There is great excitement among waiting Conservative Members—all eight of them, one in semi-recumbent posture and two loitering with intent. I must not deprive them of their pleasure.

9.45 pm

The Government simply do not learn from history. I remind them cif the tale of Daedalus and Icarus. Daedalus carefully designed wings so that Icarus would be able to fly, but he did not put enough planning into it, Icarus plunged into the ocean and drowned, and Daedalus mourned ever after. All that we are asking the Government to do is what Daedalus did not do—a bit of planning and a bit of examination to see what is wrong and what real effects the Bill will have.

We are told that the measure will not involve many bureaucrats and that £5 and £10 are easy to collect, but that is not true. When hon. Members considered the Sunday Trading Bill in Committee, I suggested that those shops which opened on Sundays might pay the charge which they cost to local authorities. I was told that it was, in truth, not possible; Ministers said that it was too difficult to collect such a small amount. Yet here we are talking about £5 and £10. Therefore, I cannot think that it is about the £5 and £10: I must think that it is about the Government's future intention to tax even more than they are doing now.

The excise charge which at this moment is £5 or £10 will quickly leap to £25 and £50, and that is just judging by the Government's record. On interest payable to commissioners, schedule 6 paragraph 8(1) states: Where, due to an error on the part of the Commissioners, a person has paid by way of duty an amount which was not due and which the Commissioners are in consequence liable to repay to him"— and so on. First, that is gobbledegook and the Government will not win any prizes in the plain English competition. Secondly, it is an almost impossible clause to administer, as the Government will see if they look at it carefully.

Over the page, we see "Preferential debt". Why should that be a preferential debt? We know perfectly well that other debts which are due to the Government are not preferential. For example, I refer to Unicorn plc, which not only does not have to pay back its debt of £200,000 but is given a tax rebate for the rest of the people who invested in it.

The measure will have a damaging effect, too, on regional airports. In particular, I refer to Leeds-Bradford airport from which people in my constituency depart on the holidays for which they have worked hard. For an average family of six there will be another £60 to pay. It is very difficult for people in an area such as mine to find £60. The measure is certainly not acceptable.

The problem with the Government is their philosophy on tax. They want to tax but they do not know why they are taxing, except to make sure that the rich pay less and the poor pay more. They have soaked the poor in order to pay the rich.

It is not just on their policy of taxing aeroplanes that the Government will perish, but on their general philosophy—

The Chairman of Ways and Means (Mr. Michael Morris)

Order. So far as I am concerned, the debate will be only on the airport tax.

Mr. Enright

I accept that absolutely, and I shall speak only to the airport tax.

In conclusion, I remind the Government of the closing words of the film "King Kong": Oh no! It wasn't the aeroplanes. It was Beauty killed the beast.

Mr. Andrew Mackinlay (Thurrock)

Sir Michael—

The Chairman

Order. The hon. Member should use the terminology "Chairman" or "Mr. Morris". Either of them is appropriate.

Mr. Mackinlay

I am much obliged, Mr. Morris.

My constituents will not immediately notice the impact of this tax because, unhappily, a high proportion of them never have the opportunity of travelling on aircraft. However, they are concerned about any dampening of enterprise and commerce in this country, because it has an impact on their capacity to get employment.

They are also conscious of the fact that close to my constituency is the underused airport at Stansted, which has a great opportunity for enterprise and creating work. However, the opportunities for Stansted to expand will be affected by the imposition of this tax. Clearly, Stansted airport relies on the creation of new routes from inland airports in the United Kingdom and the islands. This tax will deter airlines and those wanting to create new routes into London from expanding or creating new enterprises.

The imposition of the tax, and the work and duty that it places on airlines to collect it, and do all the paperwork, makes a nonsense of the Government's claim that they are in the business of deregulation and making life easier for commerce and enterprise. It is nonsense when an Essex Member of Parliament who is the Minister of tourism, the hon. Member for Harwich (Mr. Sproat), says in documents released to us that he will take a personal interest in promoting tourism and then sees his colleagues imposing a tax which will have an immediate impact on those who want to expand tourism and mobility in the United Kingdom.

I am the Secretary of the all-party Manx group. My comments are not made on behalf of the group; nevertheless, I am pleased to take an interest in the fortunes of the Isle of Man and the people there. It is wrong for some hon. Members to assume that people who live on the Isle of Man are wealthy. For many, the position is quite the reverse. Many ordinary, working people on the Isle of Man depend on the opportunity of travelling to the United Kingdom, especially those who have children following further and higher education in the United Kingdom. The cost of travelling to universities and colleges in the United Kingdom is a heavy price for parents who live on the Isle of Man to pay. I am sure that the same is true with regard to Jersey, Guernsey and the other islands.

The proposed tax is unfair. Have the Governments on the Isle of Man and the Channel Islands been consulted about the impact of this tax? I believe that there is a convention that they should have been consulted. It seems that the Government have not complied with the spirit of that convention. I hope that the Minister was paying attention to my question so that he can reply to it. There is a customs arrangement in relation to the Isle of Man, and it seems to me that there is a danger that the Government of the Isle of Man may well feel forced to react to this tax by imposing a similar tax within their jurisdiction. Again, I hope that the Minister is paying attention and that he will be able to respond to that point.

There have been speeches from Labour Members on behalf of the highlands and islands, and I have been pleased to refer to the interests of the people who go to and from the Isle of Man and the Channel Islands. Many of those people reside in the United Kingdom and they will take note that it is a Conservative Government who are imposing the tax, and I hope that that will be remembered in future. The tax will also affect those who use Liverpool airport to go to the Isle of Man. The fares for students from Liverpool to Douglas will increase by 25 per cent. as a result of the tax, and that will have an impact in Douglas and at Liverpool Speke airport.

I am also aware that there have been no speeches in the debate from hon. Members from Northern Ireland, none of whom is present. I hope that it will be noted in the six counties that Labour Members have spoken up against the tax on behalf of the people, not just of the mainland but of the six counties of Northern Ireland. The airports at Belfast, Belfast City and the new airport at Derry, or Londonderry, will be hit by the impact of the tax, and the beneficiaries of that will be airport enterprises in Dublin. That will be the effect of the tax, and the Minister should be aware of that, having previously been a Northern Ireland Minister. It will put at a grave disadvantage those whose incomes and enterprises depend on their work at the Northern Ireland airports.

Mr. Andrew Smith

We have had a full and thorough debate on the issue, thanks to the excellent speeches of my hon. Friends who have launched a battery of attacks on the iniquities and the administrative burdens of the tax.

There has been a special emphasis and strength of feeling throughout on the position of the Scottish islands, and the damage which the tax would inflict on their economy, culture and family visits. There is one significant point of which the House and the country will want to take note. There have been speeches from around 14 Labour Members, six Conservative Members—that stretches it, because two of them were not happy with the tax and one was the independent hon. Member for Torbay (Mr. Allason)—and two speeches from Liberal Democrat Members. Is not it extraordinary that, on an issue which so concerns the people of the highlands and islands of Scotland, not for one instant have we heard the sound or seen the sight of the Scottish National party? When the people for whom it claims to speak needed it to speak on their behalf, it was absent and that fact will not be lost on the electorate of Scotland.

The imposition of the tax is damaging to communities that depend on air transport for a lifeline. It is bad for the airline industry and it imposes an administrative burden which, in any other circumstances, Conservative Members would describe as a job-killer. The legislation shows every sign of having been rushed forward without the consultation which should have taken place. The Government have no mandate for this poll tax on wings, and we shall be pressing our amendment to a vote.

10 pm

Sir John Cope

We have had a long and sometimes repetitive debate running over many of the points that arise from the air passenger duty. I spoke about some of those points in my opening speech. Other points will arise later in the Standing Committee stage, as will some of the same ones.

All sorts of things have been mentioned, including Daedalus and Icarus, referred to by the hon. Member for Hemsworth (Mr. Enright). I was not sure whether I was cast as Icarus or Daedalus, but never mind—he moved on to Sunday trading fairly quickly. That did not seem to matter.

The first point that I wish to make is that consultation on the air passenger duty has not finished. Some hon. Members tried to make out that it had. Quite a few hon. Members quoted the letter from the chairman of British Airways. That letter was part of the consultation process with British Airways. One of the arguments that hon. Members made in quoting that letter was in favour of a sales tax. They argued that it would be easier to collect. That is wrong. It would be more difficult to collect and control, particularly when sales took place outside the United Kingdom.

The taxable event would be outside United Kingdom jurisdiction. It would be difficult to collect the tax from a large number of traders who have no presence and no business in the United Kingdom It would mean, in turn, that the tax would bite more heavily on United Kingdom citizens because foreign travellers who purchased their tickets outside the United Kingdom could escape the charge.

Many other points were raised in the debate, including transfer passengers, stopovers and so on. If hon. Members care to consult clause 30, they will see that the detailed arrangements for connected flights, and the definitions which affect the matter, will be found in secondary legislation, about which we are also consulting.

All sorts of other combinations of flights were also mentioned by various hon. Members, including the hon. Member for Stoke-on-Trent, South (Mr. Stevenson). They are summarised in the document that was issued on Budget day, but the detailed arrangements will be found in the secondary legislation in due course. We even had a reference to air miles, which are simply another way of paying for a ticket. Such tickets will be dealt with in the same way as any other.

Many more detailed points came up—

Mr. Wilson

Will the Minister give way?

Sir John Cope

I will not give way to the hon. Gentleman. He spoke earlier and I gave way to him in my opening speech.

Mr. Andrew Smith

Will the right hon. Gentleman now give me the assurance that he refused to give earlier? Will he assure the House that the Government, who have no mandate for the air passenger duty, will not raise the tax before the next general election?

Sir John Cope

I said clearly earlier in the debate that we believe that we have set the right rate for the tax. Of course, as the hon. Gentleman and the House know perfectly well, I shall not forecast future Budgets.

The hon. Member for Cunninghame, North (Mr.

Wilson) made a point about children, particularly children under two. We shall use the airlines' definition. I am sure that that is the best thing to do. There was—

Mr. Wilson

Will the Minister give way?

Sir John Cope

I will not give way. There was a series of other points—

Mr. Wilson

Will the Minister give way?

The Chairman

Order. The hon. Member who has the Floor is not giving way. That must be painfully obvious to the hon. Member for Cunninghame, North (Mr. Wilson). I should be grateful if he would recognise that fact. Perhaps I- may also say that the House should listen to the Paymaster General, who is responding to some interesting speeches made this evening.

Sir John Cope

Several other detailed points were raised which will come up during discussions in the Standing Committee. Several hon. Members spoke about the Scottish islands. I referred to them at the beginning of the debate. The matter will also come up later.

Mr. Wilson

Will the Minister give way?

Sir John Cope

No, I will not.

In all the speeches made by Labour Members this evening, no one responded to the point that I made about Labour's interest in such taxes, expressed in the London Policy Forum headed by the hon. Member for Peckham (Ms Harman). 'The report clearly said: Labour will consider introducing an airport tax such as that levied in many other countries. At another stage, it said: This could mean examining options such as a tourism tax". That is another of the attacks that has been made on the tax. Her Front-Bench colleagues seemed not to listen to the hon. Member for Peckham's views in that report, but she may find that the Government have listened to her more on this occasion.

I reject the amendment, but we will consider much of the detail that has been raised during further debates later in Committee.

Question put, That the amendment be made:—

The Committee divided: Ayes 278, Noes 312.

Division No. 94]	[10.4 pm
AYES
Abbott, Ms Diane	Betts, Clive
Adams, Mrs Irene	Blair, Tony
Ainger, Nick	Blunkett, David
Ainsworth, Robert (Cov'try NE)	Boateng, Paul
Allen, Graham	Boyes, Roland
Anderson, Donald (Swansea E)	Bradley, Keith
Anderson, Ms Janet (Ros'dale)	Bray, Dr Jeremy
Armstrong, Hilary	Brown, Gordon (Dunfermline E)
Ashdown, Rt Hon Paddy	Brown, N. (N'c'tle upon Tyne E)
Ashton, Joe	Bruce, Malcolm (Gordon)
Austin-Walker, John	Burden, Richard
Banks, Tony (Newham NW)	Byers, Stephen
Barnes, Harry	Caborn, Richard
Barron, Kevin	Callaghan, Jim
Battle, John	Campbell, Mrs Anne (C'bridge)
Bayley, Hugh	Campbell, Menzies (Fife NE)
Beckett, Rt Hon Margaret	Campbell, Ronnie (Blyth V)
Beith, Rt Hon A. J.	Campbell-Savours, D. N.
Bell, Stuart	Cann, Jamie
Bennett, Andrew F.	Carlile, Alexander (Montgomry)
Benton, Joe	Chisholm, Malcolm
Bermingham, Gerald	Clapham, Michael
Berry, Dr. Roger	Clark, Dr David (South Shields)

Clarke, Eric (Midlothian)	Howells, Dr. Kim (Pontypridd)
Clarke, Tom (Monklands W)	Hoyle, Doug
Clelland, David	Hughes, Kevin (Doncaster N)
Clwyd, Mrs Ann	Hughes, Robert (Aberdeen N)
Coffey, Ann	Hughes, Roy (Newport E)
Cohen, Harry	Hughes, Simon (Southwark)
Connarty, Michael	Hutton, John
Cook, Frank (Stockton N)	lllsley, Eric
Cook, Robin (Livingston)	Ingram, Adam
Corbett, Robin	Jackson, Glenda (H'stead)
Corbyn, Jeremy	Jackson, Helen (Shef'ld, H)
Corston, Ms Jean	Jamieson, David
Cousins, Jim	Janner, Greville
Cox, Tom	Johnston, Sir Russell
Cryer, Bob	Jones, Barry (Alyn and D'side)
Cummings, John	Jones, leuan Wyn (Ynys Môn)
Cunliffe, Lawrence	Jones, Lynne (B'ham S O)
Cunningham, Jim (CovySE)	Jones, Martyn (Clwyd, SW)
Cunningham, Rt Hon Dr John	Jones, Nigel (Cheltenham)
Dalyell, Tarn	Jowell, Tessa
Darling, Alistair	Kaufman, Rt Hon Gerald
Davidson, Ian	Keen, Alan
Davies, Bryan (Oldham C'tral)	Kennedy, Charles (Ross,C&S)
Davies, Rt Hon Denzil (Llanelli)	Kennedy, Jane (Lpool Brdgn)
Davies, Ron (Caerphilly)	Khabra, Piara S.
Davis, Terry (B'ham, H'dge H'I)	Kinnock, Rt Hon Neil (Islwyn)
Denham, John	Kirkwood, Archy
Dewar, Donald	Leighton, Ron
Dixon, Don	Lestor, Joan (Eccles)
Dobson, Frank	Lewis, Terry
Donohoe, Brian H.	Litherland, Robert
Dowd, Jim	Livingstone, Ken
Dunwoody, Mrs Gwyneth	Llwyd, Elfyn
Eagle, Ms Angela	Loyden, Eddie
Eastham, Ken	Lynne, Ms Liz
Enright, Derek	McAllion, John
Etherington, Bill	McAvoy, Thomas
Evans, John (St Helens N)	McCartney, Ian
Fatchett, Derek	Macdonald, Calum
Faulds, Andrew	McFall, John
Field, Frank (Birkenhead)	McKelvey, William
Fisher, Mark	Mackinlay, Andrew
Flynn, Paul	McLeish, Henry
Foster, Rt Hon Derek	Maclennan, Robert
Foster, Don (Bath)	McMaster, Gordon
Foulkes, George	McNamara, Kevin
Fraser, John	Madden, Max
Fyfe, Maria	Maddock, Mrs Diana
Galloway, George	Mahon, Alice
Gapes, Mike	Mandelson, Peter
Garrett, John	Marek, Dr John
George, Bruce	Marshall, David (Shettleston)
Gerrard, Neil	Marshall, Jim (Leicester, S)
Gilbert, Rt Hon Dr John	Martin, Michael J. (Springburn)
Godman, Dr Norman A.	Martlew, Eric
Godsiff, Roger	Maxton, John
Golding, Mrs Llin	Meacher, Michael
Gordon, Mildred	Meale, Alan
Gould, Bryan	Michael, Alun
Graham, Thomas	Michie, Bill (Sheffield Heeley)
Griffiths, Nigel (Edinburgh S)	Michie, Mrs Ray (Argyll Bute)
Griffiths, Win (Bridgend)	Milbum, Alan
Grocott, Bruce	Miller, Andrew
Gunnell, John	Mitchell, Austin (Gt Grimsby)
Hain, Peter	Moonie, Dr Lewis
Hall, Mike	Morgan, Rhodri
Hanson, David	Morley, Elliot
Hardy, Peter	Morris, Rt Hon A. (Wy'nshawe)
Harman, Ms Harriet	Morris, Estelle (B'ham Yardley)
Harvey, Nick	Morris, Rt Hon J. (Aberavon)
Hattersley, Rt Hon Roy	Mowlam, Marjorie
Henderson, Doug	Mudie, George
Heppell, John	Mullin, Chris
Hill, Keith (Streatham)	Murphy, Paul
Hoey, Kate	Oakes, Rt Hon Gordon
Hogg, Norman (Cumbernauld)	O'Brien, Michael (N W'kshire)
Home Robertson, John	O'Brien, William (Normanton)
Hood, Jimmy	O'Hara, Edward
Hoon, Geoffrey	Olner, William
Howarth, George (Knowsley N)	O'Neill, Martin

Orme, Rt Hon Stanley	Snape, Peter
Parry, Robert	Soley, Clive
Pendry, Tom	Spearing, Nigel
Pickthall, Colin	Spellar, John
Pike, Peter L.	Squire, Rachel (Dunfermline W)
Pope, Greg	Steinberg, Gerry
Powell, Ray (Ogmore)	Stevenson, George
Prentice, Ms Bridget (Lew'm E)	Strang, Dr. Gavin
Prentice, Gordon (Pendle)	Straw, Jack
Prescott, John	Taylor, Mrs Ann (Dewsbury)
Primarolo, Dawn	Taylor, Matthew (Truro)
Purchase, Ken	Thompson, Jack (Wansbeck)
Radice, Giles	Tipping, Paddy
Randall, Stuart	Turner, Dennis
Raynsford, Nick	Tyler, Paul
Redmond, Martin	Vaz, Keith
Reid, Dr John	Walker, Rt Hon Sir Harold
Rendel, David	Wallace, James
Robertson, George (Hamilton)	Walley, Joan
Robinson, Geoffrey (Co'try NW)	Wardell, Gareth (Gower)
Roche, Mrs. Barbara	Wareing, Robert N
Rogers, Allan	Watson, Mike
Rooker, Jeff	Welsh, Andrew
Rooney, Terry	Wicks, Malcolm
Ross, Ernie (Dundee W)	Wigley, Dafydd
Rowlands, Ted	Williams, Rt Hon Alan (Sw"n W)
Ruddock, Joan	Williams, Alan W (Carmarthen)
Salmond, Alex	Wilson, Brian
Sedgemore, Brian	Winnick, David
Sheerman, Barry	Wise, Audrey
Sheldon, Rt Hon Robert	Worthington, Tony
Shore, Rt Hon Peter	Wray, Jimmy
Short, Clare	Wright, Dr Tony
Simpson, Alan	Young, David (Bolton SE)
Skinner, Dennis
Smith, Andrew (Oxford E)	Tellers for the Ayes:
Smith, C. (Isl'ton S & F'sbury)	Mr. Peter Kilfoyle and Mr. Jon Owen Jones.
Smith, Rt Hon John (M'kl'ds E)

NOES
Ainsworth, Peter (East Surrey)	Bums, Simon
Aitken, Jonathan	Burt, Alistair
Alexander, Richard	Butcher, John
Alison, Rt Hon Michael (Selby)	Butler, Peter
Amess, David	Butterfill, John
Arnold, Jacques (Gravesham)	Carlisle, John (Luton North)
Arnold, Sir Thomas (Hazel Grv)	Carlisle, Kenneth (Lincoln)
Ashby, David	Carrington, Matthew
Aspinwall, Jack	Carttiss, Michael
Atkins, Robert	Cash, William
Atkinson, David (Bour'mouth E)	Channon, Rt Hon Paul
Atkinson, Peter (Hexham)	Churchill, Mr
Baker, Nicholas (Dorset North)	Clappison, James
Baldry, Tony	Clark, Dr Michael (Rochford)
Banks, Matthew (Southport)	Clarke, Rt Hon Kenneth (Ruclif)
Banks, Robert (Harrogate)	Clifton-Brown, Geoffrey
Bates, Michael	Coe, Sebastian
Batiste, Spencer	Colvin, Michael
Bellingham, Henry	Congdon, David
Bendall, Vivian	Conway, Derek
Beresford, Sir Paul	Coombs, Anthony (Wyre For'st)
Biffen, Rt Hon John	Coombs, Simon (Swindon)
Blackburn, Dr John G.	Cope, Rt Hon Sir John
Body, Sir Richard	Cormack, Patrick
Bonsor, Sir Nicholas	Couchman, James
Booth, Hartley	Cran, James
Boswell, Tim	Currie, Mrs Edwina (S D'by'ire)
Bottomley, Peter (Eltham)	Curry, David (Skipton & Ripon)
Bottomley, Rt Hon Virginia	Davies, Quentin (Stamford)
Bowden, Andrew	Davis, David (Boothferry)
Bowis, John	Day, Stephen
Boyson, Rt Hon Sir Rhodes	Deva, Nirj Joseph
Brandreth, Gyles	Devlin, Tim
Brazier, Julian	Dickens, Geoffrey
Bright, Graham	Dicks, Terry
Brooke, Rt Hon Peter	Dorrell, Stephen
Brown, M. (Brigg & Cl'thorpes)	Douglas-Hamilton, Lord James
Browning, Mrs. Angela	Dover, Den
Bruce, Ian (S Dorset)	Duncan, Alan
Budgen, Nicholas	Duncan-Smith, Iain

Dunn, Bob	Kilfedder, Sir James
Durant, Sir Anthony	King, Rt Hon Tom
Dykes, Hugh	Kirkhope, Timothy
Eggar, Tim	Knapman, Roger
Elletson, Harold	Knight, Mrs Angela (Erewash)
Emery, Rt Hon Sir Peter	Knight, Greg (Derby N)
Evans, David (Welwyn Hatfield)	Knight, Dame Jill (Bir'm E'st'n)
Evans, Jonathan (Brecon)	Kynoch, George (Kincardine)
Evans, Nigel (Ribble Valley)	Lait, Mrs Jacqui
Evans, Roger (Monmouth)	Lamont, Rt Hon Norman
Evennett, David	Lang, Rt Hon Ian
Faber, David	Lawrence, Sir Ivan
Fabricant, Michael	Legg, Barry
Fairbaim, Sir Nicholas	Leigh, Edward
Fenner, Dame Peggy	Lennox-Boyd, Mark
Field, Barry (Isle of Wight)	Lester, Jim (Broxtowe)
Fishbum, Dudley	Lidington, David
Forman, Nigel	Lightbown, David
Forsyth, Michael (Stirling)	Lloyd, Rt Hon Peter (Fareham)
Forth, Eric	Lord, Michael
Fowler, Rt Hon Sir Norman	Luff, Peter
Fox, Dr Liam (Woodspring)	Lyell, Rt Hon Sir Nicholas
Fox, Sir Marcus (Shipley)	MacGregor, Rt Hon John
Freeman, Rt Hon Roger	MacKay, Andrew
French, Douglas	Maclean, David
Fry, Sir Peter	McLoughlin, Patrick
Gale, Roger	McNair-Wilson, Sir Patrick
Gallie, Phil	Madel, Sir David
Gardiner, Sir George	Maitland, Lady Olga
Garnier, Edward	Malone, Gerald
Gill, Christopher	Mans, Keith
Gillan, Cheryl	Mariand, Paul
Goodlad, Rt Hon Alastair	Marlow, Tony
Goodson-Wickes, Dr Charles	Marshall, John (Hendon S)
Gorman, Mrs Teresa	Marshall, Sir Michael (Arundel)
Gorst, John	Martin, David (Portsmouth S)
Grant, Sir A. (Cambs SW)	Mates, Michael
Greenway, Harry (Ealing N)	Mawhinney, Rt Hon Dr Brian
Greenway, John (Ryedale)	Mellor, Rt Hon David
Griffiths, Peter (Portsmouth, N)	Merchant, Piers
Gummer, Rt Hon John Selwyn	Milligan, Stephen
Hague, William	Mills, lain
Hamilton, Rt Hon Sir Archie	Mitchell, Andrew (Gedling)
Hamilton, Neil (Tatton)	Mitchell, Sir David (Hants NW)
Hampson, Dr Keith	Moate, Sir Roger
Hanley, Jeremy	Monro, Sir Hector
Hannam, Sir John	Montgomery, Sir Fergus
Hargreaves, Andrew	Moss, Malcolm
Harris, David	Needham, Richard
Haselhurst, Alan	Nelson, Anthony
Hawkins, Nick	Neubert, Sir Michael
Hawksley, Warren	Newton, Rt Hon Tony
Hayes, Jerry	Nicholls, Patrick
Heald, Oliver	Nicholson, David (Taunton)
Hendry, Charles	Nicholson, Emma (Devon West)
Heseltine, Rt Hon Michael	Norris, Steve
Hicks, Robert	Onslow, Rt Hon Sir Cranley
Higgins, Rt Hon Sir Terence L.	Oppenheim, Phillip
Hill, James (Southampton Test)	Ottaway, Richard
Hogg, Rt Hon Douglas (G'tham)	Page, Richard
Horam, John	Paice, James
Hordem, Rt Hon Sir Peter	Patnick, Irvine
Howard, Rt Hon Michael	Patten, Rt Hon John
Howarth, Alan (Strafrd-on-A)	Pattie, Rt Hon Sir Geoffrey
Howell, Rt Hon David (G'dford)	Pawsey, James
Howell, Sir Ralph (N Norfolk)	Peacock, Mrs Elizabeth
Hughes Robert G. (Harrow W)	Pickles, Eric
Hunt, Rt Hon David (Wirral W)	Porter, Barry (Wirral S)
Hunt, Sir John (Ravensboume)	Porter, David (Waveney)
Hunter, Andrew	Portillo, Rt Hon Michael
Jack, Michael	Powell, William (Corby)
Jackson, Robert (Wantage)	Rathbone, Tim
Jenkin, Bernard	Redwood, Rt Hon John
Jessel, Toby	Renton, Rt Hon Tim
Johnson Smith, Sir Geoffrey	Richards, Rod
Jones, Gwilym (Cardiff N)	Riddick, Graham
Jones, Robert B. (W Hertfdshr)	Rifkind, Rt Hon. Malcolm
Jopling, Rt Hon Michael	Robathan, Andrew
Kellett-Bowman, Dame Elaine	Roberts, Rt Hon Sir Wyn
Key, Robert	Robertson, Raymond (Ab'd'n S)

Robinson, Mark (Somerton)	Thompson, Sir Donald (C'er V)
Roe, Mrs Marion (Broxbourne)	Thompson, Patrick (Norwich N)
Rowe, Andrew (Mid Kent)	Thurnham, Peter
Rumbold, Rt Hon Dame Angela	Townend, John (Bridlington)
Ryder, Rl Hon Richard	Townsend, Cyril D. (Bexl'yh'th)
Sackville, Tom	Tracey, Richard
Scott, Rt Hon Nicholas	Tredinnick, David
Shaw, David (Dover)	Trend, Michael
Shephard, Rt Hon Gillian	Trotter, Neville
Shepherd, Colin (Hereford)	Twinn, Dr Ian
Shersby, Michael	Vaughan, Sir Gerard
Sims, Roger	Viggers, Peter
Skeet, Sir Trevor	Waldegrave, Rt Hon William
Smith, Sir Dudley (Warwick)	Walden, George
Soames, Nicholas	Walker, Bill (N Tayside)
Speed, Sir Keith	Waller, Gary
Spencer, Sir Derek	Ward, John
Spicer, Sir James (W Dorset)	Wardle, Charles (Bexhill)
Spicer, Michael (S Worcs)	Waterson, Nigel
Spink, Dr Robert	Watts, John
Spring, Richard	Wells, Bowen
Sproat, lain	Whitney, Ray
Squire, Robin (Hornchurch)	Whittingdale, John
Stanley, Rt Hon Sir John	Widdecombe, Ann
Steen, Anthony	Wiggin, Sir Jerry
Stephen, Michael	Wilkinson, John
Stern, Michael	Willetts, David
Stewart, Allan	Wilshire, David
Streeter, Gary	Winterton, Mrs Ann (Congleton)
Sumberg, David	Winterton, Nicholas (Macc'fld)
Sweeney, Walter	Wolfson, Mark
Sykes, John	Wood, Timothy
Tapsell, Sir Peter	Yeo, Tim
Taylor, Ian (Esher)	Young, Rt Hon Sir George
Taylor, John M. (Solihull)
Taylor, Sir Teddy (Southend, E)	Tellers for the Noes:
Temple-Morris, F'eter	Mr. Sydney Chapman and Mr. James Arbuthnot.
Thomason, Roy

Question accordingly negatived.

THE CHAIRMAN, being of the opinion that the principle of the clause and any matters arising thereon had been adequately discussed in the course of debate on the amendment proposed thereto, forthwith put the Question, pursuant to Standing Order No. 67 (Debate on clause or schedule standing part), That the clause stand part of the Bill.

Question agreed to.

Clause 28 ordered to stand part of the Bill.

To report Progress and ask leave to sit again. —[Mr. Conway.]

Committee report Progress; to sit again tomorrow.