Treasury Minister confirms APD is necessary and government has no plans to reduce it
On 23rd October there was an “Opposition day debate” in the Commons, on Air Passenger Duty -especially in relation to Northern Ireland. There were attempts by some MPs with no interest in environmental concerns, to make out that APD is a “green tax”, (and so, along with other “green taxes” should be cut, in the misjudged belief that would benefit the UK economy. The new Economic Secretary to the Treasury, Nicky Morgan, replied for the government, that “we must continue to work hard to reduce the deficit, so if we were to abolish APD, an alternative source for the revenue would need to be found. We never seem to hear any suggestions,” and “….the £3 billion that is raised by APD is a significant contribution to the Exchequer when we are tackling the deficit.” And “There is also no duty charged on the fuel used in international, and virtually all domestic, flights. …..despite the fiscal challenges, the Government have ensured that APD rates have been frozen in real terms since 2010, rising by just £1 for the vast majority of passengers since then. The Government therefore reject the suggestion that we have pushed taxes on aviation too high.”
MPs debate [Northern Ireland and] Air Passenger Duty
23 October 2013
MPs debated dealing with the past in Northern Ireland on Wednesday 23 October 2013 in the first of two debates to take place in the House of Commons on subjects chosen by the Democratic Unionist Party as Opposition day debates.
The debate was moved by Shadow DUP Spokesperson to the Treasury, Sammy Wilson. The Economic Secretary to the Treasury, Nicky Morgan, responded on behalf of the Government. The Opposition motion was negatived on division (Ayes 13, Noes 284 division 107).
- Watch Parliament TV: Opposition debate on Air Passenger Duty
- Read Commons Hansard: Opposition debate on Air Passenger Duty
- Read current Parliamentary material in Topics: Aviation
- Read recent Parliament News stories: Aviation
The whole debate can be seen at
The text of Sammy Wilson’s motion is:
Sammy Wilson (East Antrim, DUP)
I beg to move,
That this House
recognises that the UK has the highest rate of air passenger duty (APD) in the world;
believes that this is detrimental to attracting inward investment, encouraging exports, drawing more tourists to the UK and helping ordinary families to benefit from aviation;
notes research carried out by PricewaterhouseCoopers and others stating that abolishing APD would not only pay for itself but would be a permanent economic boost to the UK economy and create tens of thousands of jobs;
further believes that the abolition of this tax would be of benefit to all regions of the UK;
further notes that it is the intention of the Prime Minister to review green taxes;
and calls on the Government, as part of that review, to give high priority to the abolition of air passenger duty.
In a long and rather rambling debate, several MPs put forward their views about APD being a damaging tax etc
The reply for the Government was made by Nicky Morgan, The Economic Secretary to the Treasury,
Copied below are some of Nicky Morgan’s comments.
….”the Government have frozen APD in real terms since 2010, and since then APD rates have risen by only £1 for the vast majority of flights. Given the fiscal challenges we face, no responsible Government would simply relinquish nearly £3 billion of revenue.”
“As I have said, we must continue to work hard to reduce the deficit, so if we were to abolish APD, an alternative source for the revenue would need to be found. We never seem to hear any suggestions, but if we hear any today my hon. Friend the Exchequer Secretary will respond to them in his winding-up speech.
Some have argued that, in the case of APD, no such off-setting measures would be necessary and that abolishing the tax would pay for itself by increasing economic activity overall and thus receipts from other taxes. The motion cites the report by PricewaterhouseCoopers arguing exactly that. I will turn to the report shortly, but first let me address the general question of the impact of the tax system on the UK economy and the UK’s international competitiveness.”
“As a Conservative, I believe in the lowest tax possible, but I also believe in running the economy as responsibly as possible, meaning that what we get in, we spend out. That was put out of kilter by the legacy of the previous Government. We have been very clear about the reason for APD and the role it plays. We cannot choose to ignore £3 billion when we have to deal with the deficit and legacy left to us by the previous Government, of which the right hon. Gentleman [David Lammy] was at times a member.”
“When comparing different countries’ tax regimes, it is important to view the system as a whole. Comparisons between individual elements can be misleading, especially if companies’ decisions about where to invest are driven by the impact of the system as a whole, not its individual parts. As my right hon. Friend the Chancellor has made clear many times, the Government are committed to ensuring that the UK has the most competitive tax system of all advanced economies. We want to have a tax regime that supports the attractiveness of all parts of the UK as places to invest in and that ensures that the whole of the UK is open for business.”
“….if we were to abolish air passenger duty, as is called for in the motion, it would have to be replaced by something else to meet the Government’s commitment to put the nation’s finances on a sound footing and reduce the deficit. Although the hon. Gentleman makes an interesting point, I have not heard from him—indeed, I have heard from only one hon. Member—a suggestion as to how that revenue could be replaced. I will come on to talk about investment and the PWC report. [Which was rejected by the Treasury. PWC also work for EasyJet, so putting out this supposedly impartial report could be challenged. AW]. The hon. Member for East Antrim will not be surprised to hear that the Government have some questions about the assumptions that are made in that report.”
“….the £3 billion that is raised by APD is a significant contribution to the Exchequer when we are tackling the deficit.”
(Graham Stringer: “Will she meet an all-party delegation on behalf of regional airports to discuss these matters in more detail away from the heat of the Chamber?”
“I am always happy to meet hon. Members to discuss these matters. That sounds like an interesting idea. It might help me to learn more about these issues, as I am doing in this debate.
In order to make our tax system more competitive, we plan to reduce the rate of corporation tax to 20% from April 2015. At that point, the UK will have the joint lowest corporation tax rate in the G20 and by far the lowest rate in the G7. Increased rate relief on research and development, combined with the patent box, will make the UK one of the most attractive places to innovate. As a result, the latest KPMG annual survey of tax competitiveness rated the UK as the No. 1 most competitive tax regime internationally.
As well as supporting UK competitiveness, within the constraints of the need to repair the public finances, the Government are also supporting households to meet the cost of living. By April 2014 the Government will have increased the personal allowance to £10,000, which will take 2.7 million people out of income tax altogether. In Northern Ireland, since 2010 the rising personal allowance has already taken 75,000 people out of tax. In recognition of the impact of persistently high pump prices, the fuel duty increase that was planned for 1 September this year was cancelled, and the Chancellor has also announced his intention to cancel the September 2014 duty increase.
On aviation taxes, the House will recognise that the UK is one of only four EU countries that does not charge VAT on domestic flights. That stands in contrast to rates of VAT on those flights of 19% in Germany and 20% in the Netherlands. There is also no duty charged on the fuel used in international, and virtually all domestic, flights. Finally, as I have already said, despite the fiscal challenges, the Government have ensured that APD rates have been frozen in real terms since 2010, rising by just £1 for the vast majority of passengers since then. The Government therefore reject the suggestion that we have pushed taxes on aviation too high.
Let me turn to the report on APD published earlier this year by PricewaterhouseCoopers and to which today’s motion refers. The report claims that abolishing APD would give such a boost to the wider economy that it would make other tax receipts increase by enough to offset the loss of APD revenue—the £3 billion I referred to a moment ago. The report’s conclusions, however, are based on economic models that rely on a series of significant assumptions. In particular, the report makes a series of assumptions about the behavioural impact of scrapping APD—how much business air travel would increase by—and the resulting increase in overall UK productivity.
The Government have reviewed the report, its modelling and the underlying assumptions carefully. We do not agree with the assumptions needed to justify the claim that abolishing APD would be revenue neutral overall, and, in our view, abolishing APD would have a significantly smaller impact on UK economic activity than PWC has estimated. There would therefore be a smaller increase in other taxes than PWC predicted, with overall tax revenues falling as a result. We also note that under some of the less optimistic assumptions that PWC considered in its report, its models predicted a net loss of revenue in the longer term. As I have said, any revenue loss would either need to be made good by increased revenues from other sources, or would need to be compensated for by further reductions in public spending.
The Government dispute the claim by PWC that APD is a regressive tax—I am sorry that Mr Lammy is no longer in his place, as this goes to the heart of what he was talking about. PWC compared APD rates with average weekly household expenditure of different income groups, but its analysis took no account of that fact that not all households pay APD at all. A better measure of fairness would be to compare what households spend on APD, relative to their incomes. Using that measure, statistics from the Office for National Statistics show that lower-income households spend a lower proportion of their disposable income on APD than higher income households.”
“ONS statistics show that lower-income households spend a lower proportion of their disposable income on APD than higher-income households. We are looking at what people actually spend.”
“In relation to the Caribbean, APD must adhere to international rules on aviation tax, specifically the Chicago convention. The capital city convention on APD ensures that our APD complies with those rules.”
“The hon. Member for East Antrim spoke of the impact of APD on Northern Ireland in the context of recently announced changes to the rate of air travel tax in the Republic of Ireland. I thank him for saying that this is a listening Government and for his recognition of the moves we have made in that regard. We recognise the position of Northern Ireland as the only part of the UK that shares a land border with another EU member state with a different rate of aviation tax, which is why we have devolved to the Northern Ireland Assembly the power to set APD rates for direct long-haul flights. The Government and the Northern Ireland Executive recognise that decisions on further fiscal devolution of any taxes require careful consideration. We expect recommendations on further devolution to be put to the Government and Northern Ireland Executive by autumn 2014.
……….. but I cannot agree with his proposal that the tax should be abolished.”