§ Motion made, and Question proposed, That this House do now adjourn.—[Janet Anderson.]9.34 am
§ Mr. Bill O'Brien (Normanton)
It is a privilege to address the House on the future of duty free, which is a thriving and successful business which started in Europe 50 years ago and generates about 60 billion ecu within the European Union. The abolition of the trade would have a significant impact on the economy of the United Kingdom and on activity in many sectors, especially jobs. Keeping duty free would generate wealth which would help to achieve desirable outcomes within EU policy objectives.
A few people in the EU decided in 1991 that selling duty-free goods to people travelling within its territory was incompatible with its internal market and that sales should stop in June 1999. Many hon. Members, Members of the European Parliament and I are convinced that the decision to abolish the trade was based on a false premise. The European Commission claimed, and member states accepted, that the internal market would rapidly reach such a level of integration that duty free would be an unacceptable aberration; June 1999 was therefore nominated as the date for abolition.
Experience has shown, however, that the internal market has not developed on the lines predicted or reached the desirable level of integration, so we request that Ministers call for an impact assessment of the abolition of duty free and that no action should be taken on the current system until the report on the impact of abolition has been presented to Parliament.
I make that plea because of information received not only from the industry on the loss of jobs should duty free be abolished, but from our constituents and from our local regional airports. I can best refer to the situation facing Leeds-Bradford airport, which serves the Yorkshire and Humberside region. A note from the director informs me that the Leeds-Bradford airport committee forecasts a throughput of about 1.4 million passengers for 1998. Two thirds of the traffic is scheduled and one third is charter, and the overwhelming majority of international traffic is to the European Union.
The airport company has been profitable since its formation in 1987. In 1996–97, it recorded a pre-tax profit of £1.3 million, a high proportion of which can be attributed to revenues raised by duty-free sales. The Transport Select Committee took evidence from regional airport operators, and we were told that about 40 per cent. of the airport's income came from duty-free sales.
636 I am advised that, if duty free is abolished, airports will have to increase charges in addition to the taxes that have been levied recently. Furthermore, the independent consultants Symmonds Travers Morgan have recently estimated that the abolition of duty free at the Leeds-Bradford airport could mean the loss of 70 jobs. That was calculated by forecasting the number of on-airport retail jobs in 2005 with and without duty free. The difference between those two figures was grossed up to take account of jobs arising indirectly from the economic activity in the airport. The airport is a successful business which generates employment and, if duty free is abolished, people will lose their jobs and have to go on benefit.
Passengers through Leeds-Bradford airport, many of whom are my constituents, benefit in three ways: they enjoy using the duty-free shop; they are now enjoying the extended departure lounge, the new air-bridge and the upgraded check-in concourse, which duty-free revenues have helped to facilitate; and they benefit from the fact that airport charges have not increased since 1995 because resources from duty-free sales have enabled airlines to avoid passing on any increases in charges.
§ Mr. Andrew Mackinlay (Thurrock)
What my hon. Friend has said is very interesting, but who would not shout foul if they were to lose a state subsidy that they had enjoyed? It is unbelievable and indefensible that anyone should argue that some limited businesses should continue to receive this state subsidy. It is time that people who do not travel stopped having to pay for the boondoggles and beanos of those who do.
§ Mr. O'Brien
That is far from the real issue. No one loses out under the present system of duty free, but a substantial number of my hon. Friend's constituents could lose out if duty free were abolished. If my hon. Friend took a poll of people in his constituency, he would discover that a substantial number would argue for the retention of duty free because of the impact of the loss of revenue from duty-free sales on charges and services.
This morning, I received a letter from a constituent, Mrs. C. Eason from Stanley. She writes:
Dear Mr. O'Brien,I am writing to voice my concern regarding the planned abolition of duty free shopping in July 1999.Duty Free shopping is part of the fun of going on holiday, everyone likes to think that they are 'getting a bargain', notwithstanding the fact that if the shops shut down what will happen to all the staff? Another set of hard working people put out of work and for what?The general public will again lose out as it will cost extra to travel and maybe even longer journeys as I am led to believe that a loss of duty-free shopping will mean some routes closing completely.I hope that my views will be noted as I feel strongly that duty-free shopping should not come to an end.Yours faithfully,Mrs C Eason".I am sure that the view of my constituent is reflected in many areas, particularly by constituents of hon. Members present.
§ Mr. Roy Beggs (East Antrim)
That correspondence is similar to other letters that most of us have received. Has the hon. Gentleman received any request from a 637 constituent for duty free to be abolished? Does he agree that hundreds of thousands of employees are distressed by the prospect of duty free being abolished within the European Union? Where are those people to be employed?
§ Mr. O'Brien
I have not received any correspondence or pressure, except from Government sources, for the abolition of duty free. The majority of requests that I receive are for me to fight to retain duty free—hence this morning's debate.
I shall wind up my speech, as many hon. Members wish to take part in the debate. Will the Financial Secretary tell us what rules will be put in its place if duty free is abolished? I reiterate the call for an impact assessment of the abolition of duty free. I understand that there is no argument in the Treasury about that, so our Ministers should present the case for such an assessment. I ask the Financial Secretary to consider my points carefully and to agree to request an impact assessment. I will accept the result of that assessment whether it is to abolish or to retain duty free.
§ Mrs. Margaret Ewing (Moray)
I apologise to the hon. Gentleman, but I shall have to leave to attend another meeting. I fully support his call for an impact assessment, although the Government seem reluctant to consider that issue. Does he accept that in the single European market it is important to ensure that beverages are taxed at the same level according to alcohol content? A campaign has been run by the Scotch Whisky Association and other organisations to ensure that there is a level playing field throughout the European Union.
§ Mr. O'Brien
I hope that, if we cannot have the same level of charges throughout the European Union, we can at least narrow the gap, because the tax in some countries is 10 times higher than in others. I would find it acceptable to have a fairer application of charges. The impact assessment would help to provide information that could be used to determine that principle.
I hope that the Financial Secretary will give serious consideration to my points and that assistance will be given to help us to understand why duty free is being abolished and what social and economic consequences that could have on some of our regions.
§ Mr. David Wilshire (Spelthorne)
I remind the House of four points. First, this debate is not about the cross-channel trade, which is duty paid. I mention that because, when I have sought to persuade some of my colleagues that keeping duty free is a good idea, they have referred to the harm done by the duty-paid trade coming across the channel. I stress that that trade will continue whatever happens to the duty-free trade.
Secondly, in case Labour Members are tempted to say that it is all very well for a Tory to argue against abolition, the records show that I opposed the Conservative Government when they supported this decision in the first place. I am not trying to make party political points.
Thirdly, the northern boundary of my constituency is the southern boundary fence of Heathrow airport. My fourth point flows from that. Some people have suspicious 638 minds, so, for those who have not read the Register of Members' Interests recently, I want to make it absolutely clear that I have no financial interest and no financial links with British Airways, BAA or the tobacco and drinks lobbies. I do, however, have close links with large numbers of their employees—my constituents. My constituents, my local businesses and the whole economy of my constituency depend on the continued prosperity of Heathrow airport. In view of the strictures of the hon. Member for Thurrock (Mr. Mackinlay) against those of us who speak up for duty free, let me make it clear that, if speaking up for my constituents is a crime, I plead guilty, and I make no apology for it.
There is a powerful case for keeping duty free. My main justification, trivial as it may sound, has always been that it is a harmless bit of fun in an otherwise dull world that gets duller by the week.
§ Mr. Wilshire
I shall deal with the subsidy argument later.
It is a harmless bit of fun which we all enjoy, so why not keep it? There must be, and there are, other justifications that are just as powerful. First, I am convinced that duty free keeps ticket prices down. Anyone who does not believe that should consider why Heathrow airport has been given permission to raise landing charges by 7.5 per cent. in anticipation of loss of revenue.
Figures tell us that, if we lose duty free, £10 will be added to the price of a one-way ticket to anywhere in the European Union. At present, most of us probably spend £10 on duty free, but, under the current regime, we have a bottle of something to remind us of the pleasure. In future, we will simply part with £10, and have nothing to show for it. Duty free keeps prices down.
Secondly, the profits made at Heathrow—I make no attempt to speak for anywhere else—have been used to fund capital investment. The Heathrow express rail service has had £440 million spent on it, and it owes a lot to duty free. The improved terminal 2 has had £54 million spent on it, and it, too, owes a lot to duty free. Baggage handling, now that it works, is a plus for the airport, and £250 million has been spent on it.
Let me pick up a point made by the hon. Member for Thurrock about terminal 5. It is important that that terminal should be built at Heathrow. My constituents want it and, provided we get the environmental safeguards, duty-free profits will be needed to make it a going concern. At the last general election, when I said these things, neither my Labour nor my Liberal Democrat opponent criticised me; they, too, understood the importance of terminal 5 to my constituency.
It is vital that duty free should help to keep Heathrow as Europe's No. 1 hub. If it does not remain No. 1, my constituents and local businesses will suffer. The argument touches on the point made by the hon. Member for East Antrim (Mr. Beggs) about jobs. Inside the boundary fence at Heathrow, there are 55,000 jobs, and I represent many of those people. It is reasonable to estimate that, if duty free goes, about 1,200 of those jobs will be at risk. I do not know how to calculate the knock-on effect on associated jobs outside the airport.
I am realistic. I am aware that there is a case against duty free, but I find that case spurious. There are those who argue that duty free is not appropriate within the 639 European Union. Why ever not? Duty-free sales between sovereign, independent nations are well established. The nations of the EU are sovereign and independent, and anyone who argues that we should not have duty free within the EU is admitting that he wants a single country. I do not, and duty free helps to show that we are not one and the same place.
The second argument that I hear against duty free is that it is a silly anomaly, which no longer makes sense—it cannot be had on Eurostar, and one cannot do this or that. Perhaps it is an anomaly, but what is wrong with anomalies? Let me set out an alternative anomaly. Duty free is abolished, and you, Madam Speaker, decide to fly from Heathrow to Lisbon. British Airways will be anxious to continue to sell you something. You will have to decide, before leaving Heathrow, whether to buy from British Airways at British tax rates, or to wait until you are flying over France, when you can buy at French rates. Alternatively, if you are very lucky, the aircraft may fly for 30 seconds over Andorra, where you can buy duty-free goods. Would it be better to wait until Spain? Failing that, you may decide to buy just before you land in Lisbon, if the Portuguese rate is more attractive. To say that duty free is an anomaly may be correct, but there are other equally stupid examples of what will happen if we no longer have duty free.
A convincing argument for some people—the hon. Member for Thurrock rather likes it—is that duty free represents a loss of revenue to the Treasury. As the hon. Gentleman so prosaically put it, it is a subsidy. He is wrong; duty free is no such thing. Duty-free sales are based on what can best be described as a human weakness, from which I suffer more than most. I cannot resist a bargain. Hon. Members should do what I do. They should go to Heathrow, and talk to the people who run duty-free outlets. They should talk to my constituents who work in those outlets: they will tell amazing stories of what people will buy because it is cheap. I do not for one minute believe that, if we abolish duty free, all that purchasing will shift to duty-paid goods. If it does not, my constituents will lose their jobs, and manufacturers will have to lay people off because their sales will go down.
§ Fiona Mactaggart (Slough)
I, too, have a number of constituents who work at Heathrow. Does the hon. Gentleman agree that Heathrow estimates that only about 50 per cent. of air-side sales are of duty-free goods? The duty-free taster gets us to buy other goods on which tax is paid. The Treasury receives a lot of revenue from those sales, which would not be earned if the duty-free taster did not persuade people to shop at Heathrow.
§ Mr. Wilshire
I agree. I am conscious of the fact that, if I say too much, I shall take the hon. Lady's speech from her. She will advance the same arguments from the west of the airport that I advance from the south. If she will forgive me, I shall not go down that track, but she is absolutely right.
I realise that I need to be constructive. There are good arguments for and against. However, it behoves those of us who speak up to make a practical suggestion about what should be done. I would settle for another postponement. The real impetus behind the argument for abolition of duty free is the assumption that prices will be the same throughout the EU. Indeed, my reason for saying 640 that duty-paid sales across the channel are not relevant is that the power of different duties is driving massive vanloads of bootleg liquor into this country to be sold heaven knows where.
I would settle for a postponement until duties are the same throughout the European Union, and I urge the Financial Secretary to work towards that goal. I believe that she would be pushing at an open door. It may sound strange for a Tory to say this, but if she wants to improve her Government's poll ratings—perhaps she does not feel that that is necessary—keeping duty free would be a splendid way to do it. Like the hon. Member for Normanton (Mr. O'Brien), I have had a large number of letters saying, "Keep it," and not one representation from a constituent who wants to see it go.
Let us have a postponement. I would feel comfortable with that, because I believe that the day of harmonised duty is a long way off. Indeed, it is so far off that pigs may fly before we see that happy day. On the day that we see jumbo porkers land on the runways of Heathrow instead of jumbo jets, my constituents will know that duty free is finished.
§ Mr. Gwyn Prosser (Dover)
Hon. Members on both sides of the House will be raising their concerns about the negative impact that the abolition of duty-free and tax-free sales will have on their constituents and on travel industries in their constituencies. For my part, I was concerned about the effects of the abolition of duty free on cross-channel ferries in my Dover constituency long before I became a Member of the House. My first fears were alerted more than 10 years ago when I was sailing on cross-channel ferries in Dover and representing seafaring colleagues in NUMAST—the National Union of Marine, Aviation and Shipping Transport Officers, the Merchant Navy officers' union—and thousands of other people in Dover, Deal and east Kent, who opposed the Channel Tunnel Bill in this House and in the other place.
We opposed the Bill because of the unfair advantage that it gave to the tunnel, because of the huge impact that it would have on our successful ferry services and because thousands of jobs would be lost in our port-related industries. It was during the Bill's passage that we first heard of the European Commission's decision to abolish duty-free sales. We knew that abolition would cause more redundancies in Dover and east Kent than the channel tunnel, as a direct result of which 2,000 jobs would be lost.
The 1987 Conservative Government rejected all our forecasts of job losses, of viability and of building time. Of course, we know now that all their predictions have been proved wholly wrong, but they did at least conduct an impact study on the tunnel's effects on Kent before allowing it to proceed. Support for an impact study on the effects of the abolition of duty free is all that we ask of the Financial Secretary this morning.
Of course, we already have a fair idea of the impact from numerous independent studies. All the results have been hugely negative. Take the most recent study from the Centre for Economics and Business Research Ltd. Figures show that, in the whole of Europe, up to 130,000 jobs will be lost in the first two years after abolition, that, in the whole of the UK, up to 23,000 jobs will be lost by 2005 and that, in the whole of Kent, 5,000 jobs will be lost. 641 That report shows that the biggest burden will fall on Kent and that the biggest proportion of job losses will take place in my Dover constituency, which houses the busiest ferry port in the world, but still has areas of deep deprivation and high unemployment. However, Dover is fighting back. We have assisted area status, which we must retain, and important investment plans, and we are building our second cruise terminal, which will be the premier cruising port of Europe. Having lost thousands of jobs with the closure of the east Kent coalfield, the introduction of the single market and the opening of the channel tunnel, my constituents deserve better than to be penalised again by a decision that none of the member states seems enthusiastic about, that no member of the public wants to support and that has never been tested by an impact study.
As well as the social and economic impact that has already been identified in our studies, the impact of abolition on smuggling has to be considered. I know that my hon. Friend the Financial Secretary is aware of the bootlegging problem that my constituency faces, despite the excellent work by Customs and Excise officers, albeit under difficult circumstances.
It is important, and this was brought up earlier in the debate, that we differentiate between legitimate "on board" duty-free goods, which are carefully controlled and strictly limited, and shore-based duty-paid goods that are bought in France or elsewhere in the European Union, the sale of which is not controlled and all the limits on which are widely drawn. I have always taken the view that the availability of duty free has acted as a safety valve, relieving the pressure and temptation on most travellers to overload with duty-paid goods. On that basis, abolition will serve only to increase bootlegging and the loss to the Exchequer.
Duty free provides a simple, well-tested regime that everyone understands and is easy to administer. Zero tax plus zero duty equals zero. The industry wants to know what will replace duty free on the ferries sailing, for example, from Dover to Calais. Will goods be charged at UK rates, French rates or something in between? What about the ferries and aircraft that pass over three, four or even more different tax areas? What tax regime will be applied to them? When will it be applied and who will enforce it?
Those questions have been asked over a long period with no answers. It is little wonder that, with just 13 months to go, the industry believes that only chaos will reign if duty free is indeed abolished in June next year. Perhaps the Financial Secretary will have some answers for us this morning.
The industries and the jobs that they support are being damaged because they cannot draw up business plans, plan prices and forecast employment numbers and, of course, as has been said by all hon. Members who have spoken so far, duty free is tremendously popular. For some people, it is even more popular than motherhood and apple pie. The people would win any referendum on continuance hands down.
642 Continuance of duty free has scored about 75 per cent. in some opinion polls, which makes it even more popular than our Prime Minister. I am convinced that the people of these islands want both to continue for as long as possible.
§ Mr. Deputy Speaker (Mr. Michael J. Martin)
Order. An Adjournment debate is a Back Benchers' debate and hon. Members should follow the example of the hon. Member for Dover (Mr. Prosser) and be brief.
§ 10.5 am
§ Mr. David Chidgey (Eastleigh)
Your words, Mr. Deputy Speaker, have penetrated my head very clearly and I shall do my best to summarise my points.
There are four important points to consider and it is interesting that hon. Members on both sides of the House are showing genuine concern about this issue. What is the purpose of banning duty-free sales? As I understand it, it is part of a grand design for the single market, which was set down in the 1980s, the aims of which are perfectly laudable from where I stand. What would be the benefits? The benefits, we believe, would be the equalisation of taxes and duties across the borders of the independent states of the European Union and freedom of trade without barriers, which, again, is a laudable aim. There is the added advantage, as the hon. Member for Thurrock (Mr. Mackinlay) has continually reminded us, of increased taxes to the Exchequer—perhaps.
What would be the disbenefits? Already this morning, hon. Members have talked of their concerns for their regional and local economies, the threat to transport links and the effect on bootlegging of duty-paid sales, which is a far more serious problem than people have said. What would be the reasonable gains from banning duty-free sales to the economic stability of the European Economic Community, to the social and economic goals of the EU and to our citizens?
It was the view in the 1980s that a single market would rapidly reach such a level of integration that duty and tax-free goods would become an unacceptable anachronism and something of the past. The view was that, within a single market, indirect taxes would all obey the same rules and same tax rates, and that the same exemptions would apply throughout the EU. There would be steady progress towards fixed harmonisation throughout the EU.
Those aims are laudable. My party and I are happy to support them and have long supported them, but the reality is that little progress has been made in the past 20 years. There is no immediate prospect of uniform indirect tax systems or rates. In that context—we must consider this—banning duty-free sales in isolation has that great danger of putting the cart before the horse.
I am greatly in favour of removing any distortions that exist in competition because of duty free, distortions between different modes of transport—sea, air, road and rail—and distortions between duty-free and duty-paid goods that are on sale in our retail outlets. Abolishing duty free could strengthen the policy of freedom of trade throughout the European Union, removing the barriers that we have been trying to remove for so long. It could bring extra revenue to the Exchequer and remove the subsidy about which the hon. Member for Thurrock 643 chirrups in a sparrowlike fashion from a sedentary position. However, the reality is that we do not know how much. We could equally lose money to the Exchequer through loss of capital gains tax and national insurance contributions, and indeed through the cost of unemployment.
What would be the disbenefits of banning duty-free sales? There is genuine cross-party concern about the impact on our regional and local economies. Yes, we have seen the figures that have been thrown out by several studies, admittedly supported by people who have an interest in this: I accept that. However, the studies are there, and the figures show that perhaps 140,000 jobs will be affected. The business currently provides that number of jobs.
§ Mr. Chidgey
I will continue, if I may. Although we have enjoyed the hon. Gentleman's sedentary interventions in this debate, I will continue with my speech.
Some estimates show that 20,000 jobs are directly at risk. I do not pretend to know whether those figures are valid, but the concern exists. There is therefore a need to examine the matter in detail.
I should like to speak briefly on behalf of my own constituency. In Eastleigh, we have the headquarters of one of the best-known distributors of duty-free goods— [Interruption.] I accept that I am speaking on behalf of my constituency—as I think every hon. Member should do. Several hundred jobs are at risk in that firm.
Manchester airport is one of the few municipal airports in the United Kingdom to plough its profits back into investing in its infrastructure. I am told by employees there that there is one extra cabin crew member on every charter flight leaving Manchester airport to sell duty-free goods. Those jobs would go if such sales were abolished. Therefore, those at Manchester airport, too, have genuine concerns.
There is genuine concern also about the viability of many of the cross-channel ferry routes, and of ferries across Europe, if duty-free sales are banned. We must consider the possible impacts of ending the sales. In Hampshire, the Portsmouth and Southampton ferry ports have invested very heavily over the years in the operation of cross-channel ferry services.
I will not deal with the matter of bootlegging sales—as it has already been covered quite adequately in the debate—or with the anomalies that will arise because of the different duty rates applying on the continent of Europe and in the United Kingdom. Those anomalies are the real problem. We have made no progress in harmonising duty levels among the European Union member states—although we surely must try to do so.
I ask the Financial Secretary to realise that, although we may have set off with great ideas of harmonising tax and duty across the European Union, the harmonisation process has stalled. Although the European Parliament has brought that fact to the attention of the European Commission—which, in 1991, made promises to undertake an impact study of the effect on the regions of banning duty-free sales—many people across Europe are concerned that, when push came to shove, the Commission reneged on its promise, despite the fact that, 644 time and again, the matter was brought back to the Commission's attention by Members of the European Parliament.
When the matter was brought to the attention of the Financial Secretary to the Treasury, she said that she understood the point on jobs made by the hon. Member for Slough (Fiona Mactaggart), and that
The Government's position, therefore, continues to be to support the demands for a review of the impact of the duty-free regime ending in June 1999." —[Official Report, 15 January 1998; Vol. 304, c. 480.]That was a very sensible approach for the Financial Secretary to take, and I hope that she will today confirm it to the House.
Time is running out. There is growing acceptance in member states of the need for a review of the policy. I urge the Government to add their weight, while they hold the presidency of the European Union, to calls for a detailed study of the effects of abolition in advance of harmonisation of general taxes and duties, and for concrete proposals to deal with the disbenefits that regions may suffer from abolishing duty-free sales, which will severely affect local economies. Such action would be in the interests of the United Kingdom. It must be in the interests of the European Union, and also of common sense.
§ Mr. Ivan Henderson (Harwich)
I support an assessment of the impact that abolition of duty-free sales may have on constituencies and regions such as mine. My constituency contains Harwich international port, which operates ferries to and from Hamburg in Germany, Holland, Denmark and Sweden. Last year, 1.8 million passengers passed through our port. The average passenger spend on duty free was estimated at £20 per head, for a total of £36 million. Those figures show the impact of duty-free sales on the port's finances.
Duty-free sales do not benefit only shipping companies and airlines. In my constituency, local shops, regional tourism, restaurants, hotels, and bed-and-breakfast facilities all benefit from passengers who use the port and make duty-free purchases. If ferry ticket prices were to increase because of abolition, that would surely have an impact on the economy of both Harwich and the region.
In recent years, my area has suffered unemployment levels of more than 9 per cent., and things are only now starting to improve a bit. Although the Government's new deal is helping employment levels in my area, we cannot afford to allow anything to jeopardise that growth.
Ferries in Harwich carry freight, too. If that freight stops coming to Harwich, dockers' jobs will be affected. If shipping in Harwich is curtailed, seafaring jobs—which have been badly affected over the years—will be adversely affected. We finally have a Government who are examining ways of helping the shipping industry to grow—preserving a part of my constituency's, and our country's, proud heritage.
Let us make no mistake about the effects of abolishing duty-free sales. The evidence shows that, in my constituency, the first jobs that will go are British shipping jobs. My constituency once had hundreds, perhaps thousands, of seafaring jobs; we are now down to 58 such jobs. I do not want those remaining jobs to disappear, simply because an assessment was not made of the impact of abolishing duty-free sales. 645 Like other hon. Members who have spoken in the debate, I have received many letters not only from constituents but from employees working for ferry companies, dock companies and other parts of the industry that might be affected by abolishing duty-free sales. Those people tell me that they are concerned about keeping their jobs. I have not received one letter from someone at a local shop or supermarket saying that we should do away with duty-free sales or that they would benefit from abolition. Local business people realise the benefits that they receive from duty-free sales on ships and from passengers passing through our ports. Passengers visit our shops and stay in our hotels and bed and breakfasts, creating security for those working in those industries.
I urge the Government to support an assessment of the impact of abolishing duty-free sales, not only on United Kingdom employment but on European employment. I am certain that my constituency will be affected if duty-free sales are abolished, and that we will consequently suffer job losses.
§ Mr. John Wilkinson (Ruislip-Northwood)
This is a most instructive debate. It is rare—and very welcome—in this place to see such unanimity on both sides of the House. We must consider the origins of the bind in which the Government find themselves, as they lie with the European Union. I suspect that, over time, there will be ever more occasions such as this one, when hon. Members of all parties realise that the European Union is an instrument more for the destruction of jobs than for the generation of prosperity and the increase of our national wealth.
Mr. Murphy—one of the many scores of my constituents who have written to me—who is from Ruislip, put the matter very well. He wrote:
We are still a long way from a true single market and it seems ridiculous that this travel benefit is threatened when it provides so much for everyone in the EU, particularly in terms of employment. I find it incredible that UK is investing in employment schemes, but nothing is being done to save existing jobs.Of course nothing is being done, because the Government feel impotent.
Hon. Members, even in our unanimity, know in our heart of hearts that we probably are impotent. We cannot alter European Union directives; nor can we reject them. The directives are incorporated into British law, over our heads, and British people must suffer the consequences, with their jobs.
The job losses caused by incorporation of those directives are in addition to the jobs that have been lost in the convergence process—in the continent's search for a single currency—and the job losses that will ensue from the fudged criteria which have been adopted for economic and monetary union, which will lead to higher interest rates on the continent than would otherwise appertain. It is a tragedy and a scandal.
We have heard so much from the Government about the possibilities that are open to the United Kingdom because of our presidency of the European Union. Let us judge them by their rhetoric, and determine whether their rhetoric can bear fruit by saving jobs that will otherwise be needlessly lost.
646 I earnestly hope that at the forthcoming meeting of the Council of Ministers—I gather that the Economic and Finance Council is the only body that can reverse this extraordinary decision, and must do so by unanimity—the Government will take the lead and say that they will not impose this ridiculous measure. If we for once decided unilaterally that we would act in the interests of our country and of our constituents, our voters would be less cynical about British politics and about this place. The trouble is that successive Governments have been supine in their attitude towards the European Union.
In reply to a parliamentary question from me, the Financial Secretary told me that I should blame my own party when it was in government for what it acquiesced to back in 1991. It is no good looking back. From June 1999, jobs will be lost unless action is taken now. A study is necessary, but we already know the consequences of abolition. Countless academic studies have shown the damage in terms of revenue and jobs lost, and the damage to infrastructural support and to the economic prosperity which has been generated throughout the regions where ports of entry to the United Kingdom are located. We hardly need more evidence, but if the Commission has to be persuaded by such evidence, let it provide it. I urge the Government not to allow Commissioner Kinnock to stand in the way of such an investigation, as he has done in the past.
Notwithstanding the Government's assertion that there is no hope of unanimity, I believe that there is genuine hope. The Duty-Free Confederation states:
Last year the Irish and Greek Governments publicly announced their support for the continuation of duty-free.The German Government has publicly confirmed that it will work for the continuation of duty-free.The French Government have indicated their support for a study of the issue.The Finance Committee of the Italian Parliament unanimously passed two resolutions on 30 April (binding on their Government) calling for the continuation of duty-free sales.It is believed that the Spanish, Swedish and Finnish Governments would also support such a review.Indeed, all the indications are that no Member State would use its veto to preclude a study of the issue.So what is standing in the way of the Government? I hope that it is not dogma, preconceived ideas or the inertia with which they usually confront diktats from the European Union—and diktats they are, because no other trading organisation of this kind has such imperialistic ambitions. Mercosur, the south American free trade zone, allows duty free between the states, as do the North American Free Trade Area and the Association of South-East Asian Nations. Only the European Union does not want it, because it hopes for a time when there will be no fiscal differentiation between member states as they will form just one state—an empire which is looking increasingly malign.
§ Mr. Paul Goggins (Wythenshawe and Sale, East)
I shall be brief, but want to make four points. The first concerns economic regeneration. I represent many of the communities around Manchester airport, which have suffered above-average unemployment and poverty over the years. There are many positive aspects to the development and expansion of Manchester airport, 647 including the development of tourism—last weekend alone, 135,000 passengers passed through the airport—but the most important aspect is the creation of jobs.
Manchester airport is the employment lifeline for thousands of my constituents. Abolition of duty free would threaten the creation of jobs—indeed, it would mean the loss of jobs. I am advised that abolition would reduce income to Manchester airport in the first year by some £24 million, which would immediately lead to a reduction of 200 retail jobs and jobs with the airline companies that operate there. It is the fear of such job losses that has prompted dozens of my constituents to contact me directly.
As the hon. Member for Eastleigh (Mr. Chidgey) said, Manchester airport is indeed a municipally owned airport, and abolition would have some additional adverse effects on such airports. The loss of revenue would not only impact on day-to-day spending but would have a huge effect on investment in infrastructure, because publicly owned airports cannot borrow in the way that private companies can, and therefore have to invest out of revenue. Also, the ultimate beneficiaries of the municipally owned Manchester airport are the council tax payers of Greater Manchester, and a reduction in the airport's income reduces the potential for improving other local public services.
Secondly, I should like politely but firmly to remind the Minister—I am sure that she is already well aware of this—that the success of our Government in their first year is due to the fact that they have not followed dogmatic solutions but have instead pursued policies that work in practice. Duty free is a policy which works in practice. Essentially, it is a deal that splits the unpaid duty between the passenger, who benefits from cheaper goods, and the transport provider, who can provide cheaper journeys. It is a very popular deal. Indeed, Gallup recently conducted a nationwide opinion poll and three quarters of the people who responded in the north-west said that they supported the retention of duty free.
As my hon. Friend the Member for Normanton (Mr. O'Brien) said, the decision that forms the basis of this debate was made by only a few people and based on a false premise. It would indeed be dogmatic to carry on with abolition at this stage, even though other aspects of harmonisation are lagging way behind. Such dogma would add £10 to the cost of each airline seat, and the worst impact would fall on regional airports. In fact, many small airline companies might even face the prospect of going out of business altogether. If we want a policy that works, we ought at least to defer the decision on abolition.
Thirdly, if we are faced with a choice between dogma and what works, I suggest to the Minister that the worst of all worlds would be to try to split the difference—stopping duty free at ports and airports but continuing it on ferries and aircraft. That would be an unfair and confusing mix and would fail to deal with many of the concerns expressed today.
Finally, I join hon. Members from all parties in asking the Minister to call for a full impact study, into the social and economic consequences of abolition. We have been promised such a study but we have not had it. Given the concerns and uncertainties that exist, it would be unwise to proceed without a proper analysis. From what we hear, 648 it appears that a growing number of European countries may welcome such an impact study. It would be appropriate for the United Kingdom, which has a duty-free industry four times the size of the European average, to take a lead in making sure that the study is undertaken and in deferring the implementation of abolition.
§ Mr. Crispin Blunt (Reigate)
I add my voice to that of the hon. Member for Normanton (Mr. O'Brien) and all the other hon. Members who have requested the Government to support an impact study into the abolition of duty-free trade. There is no single market at the moment. There is a wide differential in duty and fiscal rates, and if we think we have a problem now with duty-paid cross-border shopping, let us see what happens from 1 July 1999 if we abolish duty free within the current legislative framework.
The decision in November 1991 to abolish duty free was taken in the light of an implicit assumption about harmonisation. Harmonisation has not occurred; indeed, in many cases, duty rates have diverged rather than converged. An impact study was promised by the Commission as far back as November 1990; now, eight years later, it has been requested by the European Parliament. All hon. Members who have spoken today have added their voice to that clamour to know what will happen.
My constituency is next to Gatwick airport. The livelihood of hundreds of my constituents depends on duty-free trade, and my constituents want to know why the Government are sticking so rigidly to this course. It is legitimate for them to expect the Government to know the consequences of the policies that they are pursuing. Ministers ought to be able to explain to hundreds of my constituents why the may lose their livelihoods.
I can put the case for duty free no better than my constituent, Miss Pierce, one of the scores of people who wrote to me:
The proposed abolition of duty/tax free 1999. Having worked in the duty free industry for over 5 years, I do feel very concerned that we may lose the right to work in or purchase duty free. I feel it will have a devastating effect on what has been a thriving and growing duty free business.As an employee and a holidaymaker travelling within the European Union, I see buying duty free as big part/perk of travelling as do many people, and something I do not wish to lose.In my view, the abolition of duty free goods within Europe will only cause harm and no good to our economy. Therefore I write to you today to ask for your support in preventing this happening.Miss Pierce hit the nail on the head. There is no economic case for abolishing duty-free sales. All the studies so far—admittedly, they have been financed by the duty-free industry in the absence of anything from the European Union—show that abolition will produce no economic benefit. One effect that will be very deleterious will be an increase in the cost of travel for people for whom travelling is an activity that is right at the margin. Charter airlines can offer cheap travel to holiday destinations to people who otherwise would not have the opportunity to travel. People do not have to buy duty free and create the implicit subsidy to the airlines and the travel industry that brings travel within the range of ordinary people, but its abolition will be regrettable. 649 It is not good enough for the Government simply to blame the previous Administration. If they take on the policies of the previous Conservative Government, those policies become their policies, and they must defend them if they believe them to be correct.
The British presidency provides an opportunity to review the issue. In two weeks' time, at the request of the Irish, ECOFIN will finally consider it under "any other business". It has taken three quarters of the British presidency to persuade the Chancellor, with the Deputy Prime Minister in the van, even to look at the matter. Our opportunity to protect the interests of our country has nearly gone. I hope that, having heard the debate. and hon. Members' unanimous views, the Minister will press the Chancellor to support an impact study and to open his mind about the policy.
§ Mr. Kelvin Hopkins (Luton, North)
I add my voice to the unanimous view expressed by hon. Members this morning. I am happy to do so. Many of my constituents work at London Luton airport, in duty free and other parts of the air travel sector. Many thousands of jobs in Luton depend on the airport's success and the economics of the airport's operations and the airlines that use it are crucially affected by duty-free shopping.
If duty free is abolished next year, as currently planned, jobs in Luton will be lost, directly in duty-free sales and indirectly elsewhere. The airport's income will be substantially reduced and landing charges will be forced upwards. The price of tickets will inevitably rise and passenger numbers will fall. Abolition will also affect domestic flights that are not involved in duty free and, most crucially, the new low-cost airlines, Easyjet and Debonair, which have made a major contribution to our airport's current levels of growth and prosperity.
The Duty-Free Confederation provides statistics which suggest that landing charges will increase by an average of 20 per cent. and that the cost of package holidays and fares on the new low-cost scheduled airlines will also increase by up to 20 per cent. Luton airport overwhelmingly caters for those two markets.
I speak on behalf of my constituents and the economy of the Luton area, but even if I did not have a constituency interest, I would still argue the case for retaining duty free. First, many thousands of jobs all over Europe will be lost if duty free goes. With 18 million people unemployed in the EU, killing off more jobs for no good reason makes no sense. Secondly, there will be chaos when it goes because no practical replacement regime has been proposed. Thirdly, the UK Exchequer will lose, as inevitably there will be a surge in duty-paid sales to UK travellers in France, Spain and elsewhere to replace duty-free purchases. Job losses in the UK will also adversely affect the Treasury.
The problem that the Government face is essentially political, yet a strong stand by the British Government at ECOFIN would be welcomed at home and on the continent. All the major EU nations will support a decision to make the necessary legislative change to require an impact assessment study of the abolition of duty free and to secure the necessary delay. The Italian Parliament has already proposed a delay until 2002. 650 Several smaller nations also support our position. The only nation that opposes it is Denmark, but the indications are that it would not use its veto at ECOFIN. The best evidence suggests that the United Kingdom would be very popular at ECOFIN if it took a strong stand on the issue. We would be rocking no one's boat by taking a strong stand during our current presidency of the EU. Indeed, it would be expected of us because Britain would be affected more than any other country by the abolition of duty free.
It is not just about Luton airport; it is about jobs in Britain and in Europe and I urge the Government to take a strong lead at ECOFIN in two weeks' time.
§ Mr. Syd Rapson (Portsmouth, North)
Let me first declare an interest as a member of Portsmouth city council, which still owns the port. I support the request for an impact study, which is not much to ask and was promised previously. Without an impact study, we will not know the effects of abolishing duty free and therefore we will not be able to ameliorate them, as is required by European legislation. One of the strengths of the EU is that it has put in place directives requiring the amelioration of the effects of the policy, as was mentioned by the hon. Member for Eastleigh (Mr. Chidgey).
I speak on behalf of my constituency, and I am sure that the hon. Member for Portsmouth, South (Mr. Hancock) would do the same. Portsmouth owns the port, which has two substantial operators, P and 0 and Brittany Ferries. Each year, the negotiations are very keen, as hon. Members would imagine. It is an excellent business. We squeeze as much as we can out of the operators, and the profits help to reduce the council tax, which is the lowest in Hampshire and no doubt in the south of England. The abolition of duty free would have the knock-on effect of forcing up our council tax and I could speak for about five hours on the resulting impact on the area.
The channel tunnel severely undermined our trade, which suffered a 15 per cent. drop last year. Having overcome that unfair attack, we now face the possibility of another 15 per cent. cut if duty free is abolished. Therefore, I hope that the Minister will listen to our requests for an impact study so that Europe can use its power to ameliorate the effects of the policy before it comes into force.
§ Mr. John Smith (Vale of Glamorgan)
If we are successful in getting an impact study, does my hon. Friend agree that it is vital that it should examine the role of regional airports in emerging regional economies throughout Europe, especially in the single European market? Air travel is the cutting edge of business communication and it may not be fully appreciated what effect any increase in costs to regional airports such as Cardiff international airport could have on the regional economy.
§ Fiona Mactaggart (Slough)
I recognise that the previous Government participated in the initial decision to abolish duty free. However, the present Government 651 will get the blame for taking the bad decision to get rid of something which people want and which creates jobs in constituencies such as mine. It is not being done on the basis of evidence. The evidence that has been produced suggests that continuing with the duty-free regime would be beneficial to the UK economy and would not damage the Treasury. This morning, everyone has been arguing for an effective impact study to find out whether or not that is true. If the duty-free regime is positive for the UK economy, let it continue.
Abolishing duty free will destroy the jobs of many of my constituents in Slough who work at Heathrow airport, which is probably one of the largest employment centres in the United Kingdom. Jobs in the duty-free regime carry on their backs other jobs that also generate income for the Treasury through taxed sales associated with duty free.
Duty free is not a subsidy from the taxpayer to the traveller; it is partly what oils the travel and tourism industry. About half of the £53 million of profit from sales at Heathrow is from duty-free sales. Those sales would generate about £5 million to the Treasury in duty. On that basis, it would take 88 years for the Treasury to receive the £440 million that Heathrow has already invested in the Heathrow Express.
The duty-free regime is a benefit to the UK economy and I hope that we will retain it, or at least have an impact study.
§ Mr. David Heathcoat-Amory (Wells)
There has been an impressive and almost unnatural degree of harmonisation across the Chamber on this subject. The only Labour Member who intervened to speak against duty free has since fled the field and left the Chamber entirely to hon. Members who appear to support the case for continuing the duty-free concession. The subject was well introduced by the hon. Member for Normanton (Mr. O'Brien), who made as good a case as possible for continuing duty free. His arguments have been supported on both sides of the House. Ending duty free will have consequences for employment, as well as wider trade, social and economic consequences.
The hon. Member for Dover (Mr. Prosser) made the point that duty free may reduce the incentive to smuggle by providing an alternative, legitimate concession. If that concession ends next year, there could be an additional wave of smuggling, with which the Government are already grappling.
The previous Government recognised that duty-free sales in a single market could not continue for ever. With the abolition of frontier checks and of the fiscal frontier, they had to end. We argued for a lengthy transitional period. Norman Lamont wanted that to be between 10 and 15 years, but an end date was agreed. However, it is fully consistent with that to argue at the very least for an impact assessment because certain trends and developments predicted at that time, and on which the decision was based, have not materialised. The main consideration is that the wide duty differential, particularly between the United Kingdom and the continent, has if anything widened.
652 The Government are partly responsible for that because, whereas we froze the duties on alcoholic drinks in our last two Budgets and cut the duties on spirits, they have increased the nominal rates. One could say that, with the strengthening of the pound, which makes it cheaper to purchase goods on the continent, legally or illegally, the problem has worsened and the differential has increased.
There is therefore a strong case for a study of those trends and developments and consideration of whether the member states that made that early decision would have done so if they had known what would develop later.
There are also practical measures, which have not been discussed as much as they might have been. For example, if duty-free sales end next year, it must be decided what duty rate will apply to sales on ferries and aeroplanes. Should sales on a ferry be priced according to the duty rate of the country from which the ferry leaves? That would mean that a ferry travelling between the United Kingdom and France would have to change its duty structure and prices depending on which direction it was sailing.
Another suggestion is that retailers should apply the duty rate of the country from which they purchase their supplies. That could also create severe distortions. A ferry company that wanted to purchase British goods would arrange for the goods first to be transferred to France to get the lower duty rate and then put on the ferry for sale.
All that is clumsy, inefficient, confused and distorting. I should like the Financial Secretary to tell the House whether those practical measures have been discussed with the Commission and other member states, and what were the conclusions. If those problems have not been resolved, that is, in itself, a case for a review.
§ Mr. Wilkinson
My right hon. Friend is making an extremely important practical point. What would be the position of passengers who wanted to fly, for example, to Basle in Switzerland? The airport for Basle is located at Mulhouse in France, so would those passengers be eligible for duty free by virtue of their tickets to Basle, because Switzerland is not in the European Union'? What would be the eligibility of passengers flying to a non-EU country, who were diverted to an EU country because of weather or technical reasons?
§ Mr. Heathcoat-Amory
My hon. Friend is applying his ingenuity to asking practical questions to which I do not have the answers. I know that the ending of duty free and the subsequent pricing decisions raise complex issues, which must be addressed well beforehand to give ferry companies and airlines the opportunity to make appropriate purchasing and pricing decisions.
There is an almost overwhelming case for a study. The Government said that they would not oppose a study and then said that they would support one. In the light of this debate, they need to press for a study. We know that some member states are sympathetic to that. I ask the Financial Secretary, on behalf of other hon. Members who have spoken, what discussions have taken place with the Commission and other member states with a view to obtaining an impact study to deal with the legitimate concerns raised in the debate, such as the economic and employment consequences and the practical issues that have been exposed.
§ The Financial Secretary to the Treasury (Dawn Primarolo)
I shall take no lessons from the right hon. Member for Wells (Mr. Heathcoat-Amory) in addressing the serious problems about which my hon. Friends have spoken. After the right hon. Gentleman's Government unanimously agreed with every member state that duty free should be abolished in June 1999, they increased tobacco tax every year from 1991; they increased the duty on beer in 1992, 1993 and 1995, and they increased the duty on wine in 1992, 1993, 1994 and 1995. He knows full well that the decisions on duty free were not predicated on an assumption of tax harmonisation. He has alleged that the Government are not taking responsibility for the position into which his Government locked this country—an allegation which is breathtaking in its contempt for my hon. Friends.
§ Dawn Primarolo
I have been given hardly any time to wind up the debate and I will attempt to answer the questions raised by my hon. Friend the Member for Normanton (Mr. O'Brien) and other hon. Members. I shall cover our inherited position; what is happening at a European level; what the future regime may hold for us; and smuggling.
The other issue on which the debate was predicated was that everyone likes a bargain, and that, somehow, duty-free goods are a bargain. I urge hon. Members to look in some of the superstores in this country, which sell, for example, perfume that is cheaper than that in duty-free shops. I also urge them to look through catalogues to compare prices to see whether people really are getting a bargain.
In congratulating my hon. Friend the Member for Normanton on securing this debate, I should remind the House that the unanimous decision to end duty free was taken in 1991 by the Council of Finance Ministers, which included the then Chancellor, Norman Lamont. The decision is not in this Government's gift. Strictly, therefore, duty free should have disappeared in January 1993 with the completion of the single market. Had it done so, this debate would not be taking place. It is true that the Government managed to get a concession and that the Council subsequently agreed to allow duty free to continue for another six and a half years until June 1999 in order to allow operators time to adjust and explore alternatives. The decision was not tied to any question of harmonisation. The matter is one of unanimity among member states; it is not a matter for the United Kingdom in isolation.
§ Dawn Primarolo
I should like to make my points. I shall not give way in the short time available.
The European Commission has already made the position clear. The EU Commissioner for taxation and the single market has said that he has no intention of making a proposal. Only Ireland is publicly supporting the case for extension.
Since the single market was established, the duty-free issue has been discussed on two occasions in the Council of Finance Ministers. On 11 November 1996, the question 654 of conducting a study—the very thing of which the Government will not stand in the way—was raised. In arguing for an impact study on behalf of the previous Government, the right hon. and learned Member for Rushcliffe (Mr. Clarke), the then Chancellor, knew that there was not even a consensus in favour of that.
The matter was discussed in the Council as recently as 9 March. The Government's position was that they would not oppose any moves by the Commission to undertake a study into the effects of abolition, particularly if it considered the successor regime. Whatever hon. Members have been told by those campaigning to keep duty free, it was made clear that there was no enthusiasm among the Finance Ministers of other member states to reopen the matter.
The issue was also discussed, under the British presidency, in the EU Transport Council on 17 March—which is more than happened under the previous Government's stewardship—at the request of the Irish, who pressed the case for a study. Although a number of Transport Ministers supported it— [Interruption.]
§ Mr. Deputy Speaker
Order. The debate has been good natured so far. Let us not spoil it in the last few minutes.
§ Dawn Primarolo
The Conservatives want to cover up their lack of action. They are being less than honest about the position that their Government took.
There was no consensus at the Transport Ministers' meeting. Indeed, the Netherlands and Denmark opposed the idea of a study. However, the matter is again on the agenda for the Council of Finance Ministers meeting on 19 May. The Government will again offer no objection to the study, but the likelihood is—[Interruption.] Conservative Members forget that we have the presidency and that we must ensure that it is used in order to forward decisions, not manipulate them. I must say in all honesty to my hon. Friends that the likelihood of a consensus on a study, let alone any desire to extend duty free beyond 1999, is very remote. Despite what my hon. Friend the Member for Dover (Mr. Prosser) and others have said, other member states are not clamouring for an impact study. Indeed, they do not support the suggestion, let alone the suspension of abolition. Having set out the position, I shall turn to how we can try to take forward this very important debate.
§ Mr. Gordon Prentice (Pendle)
What weight does the Minister give to the recent decision of the European Parliament?
§ Dawn Primarolo
I think that the question is, rather, what weight the Council of Ministers will give to that decision. My hon. Friends' points about the likely impact on jobs and the nature of the future regime are crucial. We should spell out that, although the industry was given six and a half years in order to help it adjust to the abolition of duty free, it has had no enthusiasm for actively pursuing the question of what a successor regime may look like. It is important that the Government, with the industry and the Commission, do not allow chaos to occur in June 1999, but address the very questions that have been posed in this debate. How do we have a successor regime? How do we ensure that we protect 655 jobs? How do we assess the likely impact on jobs? I shall return to those points with regard to the study on the matter undertaken by the Department of the Environment, Transport and the Regions after I have given way.
§ Mr. John McDonnell (Hayes and Harlington)
I welcome the Government's decision not to oppose the Irish proposal as a positive move. Heathrow is in my constituency, and 2,000 jobs are at risk. When we have experienced the loss of jobs in my constituency in the past as a result of Government and European policy on, for example, the arms and defence industry, we have been offered direct Government and European assistance through Konver. If we cannot block this measure, we should at least undertake an impact study. We should also be arguing for additional financial assistance to tackle potential job losses in constituencies such as mine.
§ Dawn Primarolo
I should make a number of points on the DETR study and the jobs issue. There is a huge range of speculation on how many jobs could be at risk.
The DETR study, which I am sure all my hon. Friends have studied very closely, estimates that, following abolition, 2,700 jobs could be lost, of which only one third would be in the UK, and that that would depend crucially on the nature of the successor regime and several discussions on it. Obviously, it is incredibly important that such discussions take place exactly to minimise the impact of the chaos that my hon. Friends have highlighted, which could ensue if the ostrich approach to policy—to pretend that duty free will not end in 1999 and that somehow, at the eleventh hour, there will be a suspension of a decision—continues. In the Government's assessment, there will not be such a suspension. We are moving to deal with all the possibilities, which is a darn sight more than the Conservatives ever did when they were in power. They are shedding crocodile tears about people's jobs, yet they failed to remind the industry that it had just six and a half years.
The Government take very seriously the issue that they have inherited from the previous Government. The Government will not promise miracles because we cannot deliver them. Even though we will not stand in the way of a study, and even though we want to see the impact of the successor regime on jobs, there is, in our estimation, no realistic prospect of an extension. If there is no consensus for a study at the Council of Finance Ministers in May, we should do our best to protect jobs and our interests, and make sure that we have a sensible regime after the chaos left behind by the Conservative Government.