Air Transport Duty (Hansard, 24 January 1994)

§ The Parliamentary Under-Secretary of State, Department of Employment (Lord Henley)
My Lords, the choice to fly rather than use a train, ferry or the Channel Tunnel depends on a variety of factors, including price. The Government do not consider that an extra £5 on the price of an airline ticket will materially affect these decisions.

§ Lord Brabazon of Tara
My Lords, I am grateful to my noble friend for that reply. I should perhaps declare an interest with an airline, although it is one that will not have to pay this duty. But can my noble friend tell me why someone who chooses to travel to Edinburgh or Glasgow by InterCity, or to Paris or Brussels by the new Channel Tunnel, should pay no tax, whereas somebody who chooses to make exactly the same journey by air has to pay the new duty of £5 or £10?
Secondly, will my noble friend say why my right honourable friend the Chancellor in his Budget Statement on 30th November said that, air travel is under-taxed compared to other sectors of the economy. It benefits not only from a zero rate of VAT; in addition, the fuel used in international air travel, and nearly all domestic flights, is entirely free of tax".—[Official Report, Commons, 30/11/93; col. 932.] Can my noble friend tell me what taxes and duties the airlines do not pay which railways and the Channel Tunnel do pay?

§ Lord Henley
My Lords, while it is true that there are no taxes as such on trains, we believe that taxing the railways would create other, more significant distortions. It would also mean taking into account some very short journeys where such tax would be disproportionate. We therefore believe that it is appropriate on these occasions to tax flights but not railways.

§ Lord Eatwell
My Lords, is the Minister aware that we support him in his desire to eliminate distortions in transport pricing; and is it not clear that the greatest distortion in British transport pricing is the unlimited access which the road transport industry has to the roads, while, bizarrely, British Rail is forced to fund out of current income investment in the permanent way? Is that distortion not set to increase with the folly of privatising British Rail?

§ Lord Henley
My Lords, that is another question. This Question relates to taxation on air flights.

§ Baroness Gardner of Parkes
My Lords, at every overseas airport that I have departed from the tax is 20 US dollars a head, so does the Minister have a comparison with other countries? Is their tax not considerably more than the tax that Britain will levy?

§ Lord Henley
My Lords, I could give my noble friend details at some length of all the duties charged by a number of different countries. For example, Denmark charges £6.50 on all international departures. That is the closest parallel to the United Kingdom tax. Belgium charges up to £9. Ireland adds £5 on passenger tickets in the Republic for sea and air travel to foreign destinations. I could go on. Some levies are a great deal more but, as I said earlier, we believe that £5 will not unnaturally distort the market.

§ Lord Marsh
My Lords, does the Minister accept that of the airports that he has just listed, virtually none has significant internal transport? The air transport system within the United Kingdom is an intense daily service used by a very large number of people. It competes with InterCity.

§ Lord Henley
My Lords, we believe that it is right that we should tax internal as well as external flights. That is in line with our commitment to the Community. As I said earlier, we do not believe that it will necessarily distort the market.

§ Lord Tordoff
My Lords, is this not another case of something that will grow like Topsy? Does the noble Lord not remember that Mr. Gladstone introduced income tax at a very small amount at one time, and now this Government are pushing it higher and higher? Is this not genuinely a serious distortion, as the noble Lord, Lord Brabazon, said, and something which will damage the workings of the market, which I thought the Government were in favour of?

§ Lord Henley
My Lords, how this grows is obviously a matter for my right honourable friend the Chancellor of the Exchequer. I can only repeat that we do not believe that the levy will have any serious distortionary effect.

§ Lord Mountevans
My Lords, my noble friend will be aware of the Treasury's forecast, given in a Written Answer elsewhere last Wednesday, that this tax will lead to a 2½ per cent. fall in the demand for air travel. What estimates have the Government made of the impact on tourism, and in particular on short-stay tourism—where the penalty is quite a high element in the fare—off-season tourism and out-of-London tourism?

§ Lord Henley
My Lords, I am not aware of any estimates of the effect that this will have on tourism. As I said in my opening Answer, people make a number of decisions as to how they choose any appropriate form of transport. We do not believe that the £5 tax on flights out 803 of this country will seriously distort their decision as to whether they choose to go by air, rail or the Channel Tunnel.

§ Lord Tordoff
My Lords, if the Government are not aware of the effect on tourism, is it not about time that they found out?

§ Lord Henley
My Lords, if the Government are aware of any such effect, I shall certainly let the noble Lord know. I was saying that I was not aware of there being any serious distortionary effect. I do not believe that there can be any distortionary effect on tourism. After all, the tax applies only to flights out of the United Kingdom.

§ Lord Desai
My Lords, does the Minister agree that it would have been better for the Government to have had a different rate of taxation depending upon the class of travel, with business class paying more than tourist class or charter passengers? Does he further agree that it is obviously more equitable to have the rich pay more than the poor?

§ Lord Henley
My Lords, the noble Lord has made a very interesting suggestion. We believed that it was necessary to keep the system as cheap as possible. We do not believe that the tax will be an unnecessary burden on any individual. In fact the tax burden will comprise a higher share of both income and expenditure for the higher income groups.

§ Lord Shepherd
My Lords, in the light of the noble Lord's Answer, will he confirm that this is another form of poll tax?

§ Lord Henley
My Lords, it is not another form of poll tax. I am not aware of any other forms of poll tax.

§ Lord Stoddart of Swindon
My Lords, does the noble Lord agree that this is yet another Tory tax which would not have been, and was not, introduced by a Labour Government?

§ Lord Henley
My Lords, fortunately it is a long time since we have had a Labour Government. We are all unaware of exactly the taxes that a Labour Government would impose. No doubt they would continue to tax spending just as they always have done.

§ Lord Eatwell
My Lords, is the Minister aware that the Question on the Order Paper refers to the distortion of competition between British Rail InterCity, the Channel Tunnel and Channel ferries, which are used by road transportation? In the light of that Question, will he be so kind as to answer my earlier question?

§ Lord Henley
My Lords, no, I believe that the noble Lord's earlier question was wide of the Question on the Order Paper.

§ Lord Campbell of Alloway
My Lords, does the Minister agree that this is another sort of tax without representation? Can he tell us the principle on which it was introduced?

§ Lord Henley
My Lords, it is not a form of taxation without representation. It was introduced by my right honourable friend the Chancellor of the Exchequer in his Budget Statement. He is answerable to another, elected House.

§ Lord Richard
My Lords, can the Minister tell the House how much revenue it is likely to raise?

§ Lord Henley
My Lords, in the first year, which will be a half year as it does not come into effect until October of this year, it will be £115 million; in 1995–96 it will be £330 million; and in 1996–97 it will be £355 million.

§ Lord Brabazon of Tara
My Lords, is my noble friend aware, following the question of the noble Lord, Lord Desai, that obviously a £10 tax on a first-class ticket to Australia will not make a huge amount of difference but it could be as much as 16 per cent. on, for example, a cheap fare from London to Dublin?

§ Lord Henley
My Lords, obviously the percentage involved will depend on the price of the ticket. But we believed that it was important to keep this duty as simple as possible and therefore that £5 was a fair rate to charge.