House of Commons Northern Ireland Affairs Committee
Air Passenger Duty: implications for Northern Ireland
Second Report of Session 2010–12
Report, together with formal minutes, oral and written evidence
Ordered by the House of Commons to be printed 5 July 2011
HC 1227 Published on 8 July 2011 by authority of the House of Commons London: The Stationery Office Limited £0.00
The Northern Ireland Affairs Committee
The Northern Ireland Affairs Committee is appointed by the House of Commons to examine the expenditure, administration, and policy of the Northern Ireland Office (but excluding individual cases and advice given by the Crown Solicitor); and other matters within the responsibilities of the Secretary of State for Northern Ireland (but excluding the expenditure, administration and policy of the Office of the Director of Public Prosecutions, Northern Ireland and the drafting of legislation by the Office of the Legislative Counsel).
Current membership Mr Laurence Robertson MP (Conservative, Tewkesbury) (Chair) Mr Joe Benton MP (Labour, Bootle) Oliver Colvile MP (Conservative, Plymouth, Sutton and Devonport) Mr Stephen Hepburn MP (Labour, Jarrow) Lady Hermon MP (Independent, North Down) Kate Hoey MP (Labour, Vauxhall) Ian Lavery MP (Labour, Wansbeck) Naomi Long MP (Alliance, Belfast East) Jack Lopresti MP (Conservative, Filton and Bradley Stoke) Dr Alasdair McDonnell MP (SDLP, Belfast South) Ian Paisley MP (DUP, North Antrim) David Simpson MP (DUP, Upper Bann) Mel Stride MP (Conservative, Central Devon) Gavin Williamson MP (Conservative, South Staffordshire)
The following Member was also a member of the Committee during the Parliament:
Stephen Pound MP (Labour, Ealing North)
Powers The committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the Internet via www.parliament.uk.
Publication The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the Internet at www.parliament.uk/niacom.
Current Committee staff The current staff of the Committee are Mike Clark (Clerk), Duma Langton (Inquiry Manager), James Bowman (Senior Committee Assistant), Becky Crew (Committee Assistant), Karen Watling (Committee Assistant), Becky Jones (Media Officer) and Ravi Abhayaratne (Committee Support Assistant).
Contacts All correspondence should be addressed to the Clerk of the Northern Ireland Affairs Committee, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 2173/1341; the Committee’s email address is [email protected].
Air Passenger Duty: implications for Northern Ireland 1
Contents
Report Page
Summary 3
1 Introduction 5
2 The significance for Northern Ireland 6 The UK rate of APD 6
3 Resolving the problem? 9 Devolving responsibility for APD to Northern Ireland? 9 Abolishing APD in the UK? 9 Is Northern Ireland a special case? 10 How to mitigate the impact of APD on Northern Ireland 11 Conclusion 12
Annex 13 The Dutch experience 13
Conclusions and recommendations 15
Formal Minutes 16
Witnesses 18
List of printed written evidence 18
List of Reports from the Committee during the current Parliament 19
2 Air Passenger Duty: implications for Northern Ireland
Air Passenger Duty: implications for Northern Ireland 3
Summary
There is little doubt in our mind that the opportunities to expand Northern Ireland’s economy through exports and tourism are being threatened by the continuation of Air Passenger Duty (APD). We recognise that for many people in Northern Ireland travelling by air is not a luxury, but is an essential element of family and economic life. Arguments similar to those we heard advanced during our inquiry into Corporation Tax were again to the fore: Northern Ireland was unique because, as part of the UK, it had the highest rate of aviation duty in Europe but, unlike Great Britain, it shared a land border with another EU state which levied aviation duty at a minimal rate, and even that minimal amount was soon to be abolished entirely.
It may well be that, sometime in the future, setting the rate of APD could be devolved to the Northern Ireland Executive; but that would be a long-drawn out process, and Government action is needed now. Continental Airlines’ transatlantic route from Belfast to Newark is under threat, and could be withdrawn in a year or so. After all, why travel from Belfast International when you could take the short journey to Dublin and pay £60 per person less for your ticket? As we say in Paragraph 9 of our Report, this point seems to have been conceded by the Chancellor of the Exchequer himself.
As far as we are concerned, and assuming that APD is not abolished for the whole of the UK, there is only one solution – abolish APD on all flights departing Northern Ireland’s airports and likewise abolish APD on direct flights into Northern Ireland from Great Britain. In that way, Northern Ireland’s business, enterprise and tourist industry stands a chance of being able to compete with the Republic of Ireland.
Air Passenger Duty: implications for Northern Ireland 5
1 Introduction
1. On 23 March 2011, in a Press Release entitled Reform of air passenger duty, HM Treasury announced that:
At the June 2010 Budget the Government undertook to explore changes to aviation tax, including switching from a per-passenger to a per-plane duty. Budget 2011 announced that the Government will not proceed with a per-plane duty but will work with our international partners to build consensus for this approach in the future.
The Budget also launched a consultation on reform of air passenger duty (APD).1 The consultation document sets out the Government’s proposals for reform of the current APD banding system and plans to extend APD to passengers aboard ‘business jets’ for the first time .... Other issues covered in the consultation include APD in relation to: ‘premium economy’ passengers; regional impacts; and devolution for Scotland, Northern Ireland and Wales.
2. APD, the duty charged on a per-passenger basis on flights departing UK airports, was introduced in the UK in 1994 as a way of raising revenue. As the Environmental Audit Committee states in its Sixth Report of this Session:
Environmental objectives were not part of the rationale for the tax’s introduction. However, in 2009 rates were re-structured around four distance bands ‘as an effective way of reducing emissions from aviation’, aiming for those that travel further ‘and have a larger environmental impact [to] meet the cost’. There has been much criticism of the bandings for not reflecting the actual flight distance, and even taxing some shorter journeys more than longer ones. 2
3. The other EU countries currently imposing a duty on air travel are the Republic of Ireland, Germany, Austria and France, whereas the Netherlands, Sweden, Denmark and Malta have abolished their air passenger taxes already and the Republic of Ireland has announced that its Air Travel Tax (ATT) will be abolished as part of a raft of measures being introduced to, for example, further encourage tourism.
1 Reform of Air Passenger Duty: a consultation. The consultation period closed on 17 June 2011. 2 Sixth Report from the Environmental Audit Committee, Budget 2011 and environmental taxes, HC 878, para. 49.
6 Air Passenger Duty: implications for Northern Ireland
2 The significance for Northern Ireland
4. APD has particular significance for Northern Ireland as the CBI points out in its written submission:
Northern Ireland is geographically isolated from the rest of the UK, meaning that as a region it is particularly dependent on strong air transport links, Air Passenger Duty poses a very specific challenge to Northern Ireland’s economic development. Viable alternatives to air travel to and from other regions in GB, by way or rail or road, are not available to travellers. While sea routes form an important part of the economic life of the province, they cannot provide the same speed and frequency of access.3
5. This Committee had earlier identified the importance of APD for Northern Ireland; in its First Report of Session 2010–12, we commented that:
Another matter which puts Northern Ireland at a disadvantage is Air Passenger Duty. The one direct transatlantic flight from Belfast to the US, carrying 100,000 passengers a year to New York is currently at risk due to increases in the Air Passenger Duty — adding near £60 per passenger to the US compared to €3 rate in the Republic, although recent reports indicate that the Irish Government is preparing to scrap even this small amount as part of a package of measures being introduced to encourage tourists to the Republic. The service was referred to by one of our witnesses, NYSE Technologies, as a factor important to their location in Northern Ireland. If Belfast and Northern Ireland are going to compete with Dublin and the Republic of Ireland for investment from the US then it is important that the direct service is not lost. 4
6. On 13 June 2011 we announced that we would be holding a short enquiry on the implications for Northern Ireland of Air Passenger Duty. Due to the timescale we set ourselves to publish our Report before the House rose for the Summer Adjournment, we were regrettably somewhat constrained in the number of witnesses called. Nevertheless, we took evidence in Parliament Buildings, Stormont, from the Managing Director of Belfast International Airport and the Chief Executive of George Best Belfast City Airport; and at Westminster from the Northern Ireland Executive’s Department of Trade, Enterprise and Investment, the Consumer Council for Northern Ireland, British Midland International, easyJet, Flybe, Continental Airlines, the Northern Ireland Hotels Federation, the Aviation Environment Federation and HM Treasury. We are grateful to all those who gave oral evidence and to those submitting written memoranda.
The UK rate of APD 7. The current rate of APD is set out below, together with the rate of the Republic of Ireland’s ATT.
3 Ev 50 4 First Report from the Northern Ireland Affairs Committee, Corporation Tax in Northern Ireland, HC 558-I, para. 128
Air Passenger Duty: implications for Northern Ireland 7
APD Band Economy Class Business/First class Republic of Ireland ATT A (0 – 2000 miles) e.g. flights to UK and £12 £24 €3 Europe B (2001 – 4000 miles) e.g. flights to USA £60 £120 €3 C (4001 – 6000 miles) e.g. flights to Thailand £75 £150 €3 D (over 6000 miles) e.g. flights to Australia £85 £170 €3
8. In its document setting out its views on APD on flights departing from Northern Ireland airports the Consumer Council for Northern Ireland (CCNI) sets out the potential implications of the duty for Northern Ireland.5 It argues that the disparity between UK APD and the Irish ATT is undermining the Northern Ireland aviation sector with passengers preferring to travel via airports in the Republic of Ireland, rather than from Northern Ireland, in order to save money. Given Northern Ireland’s geographic location, the CCNI noted that travellers were more heavily reliant on air travel.
9. The CCNI’s comments appeared to be endorsed by the Chancellor of the Exchequer, Rt Hon George Osborne MP, when visiting the Wright Group in Ballymena on 17 June 2011. The Chancellor was reported as saying that APD was a “particular issue” in Northern Ireland since “it was a place where it was possible to travel via road to a different jurisdiction to avail of lower taxes and fly from Dublin Airport.”6
10. Echoing arguments advanced during our recent Corporation Tax inquiry, the CCNI also pointed out that Northern Ireland was unique because, as part of the UK, it had the highest rate of aviation duty in Europe whilst also sharing a land border with the sovereign state (the Republic of Ireland) which levied aviation duty at the lowest rate of the five European countries that imposed such a tax.
11. In the Treasury’s paper, two options for reformed Banding are suggested:
(A) Moving to a Two Band Regime:
Proposed APD Band From 1 April 2012 (Distance in miles from UK) Reduced rate (in lowest class Standard rate (in other than of travel) lowest class of travel) Band A (0-2000) £13-£16 £26-£32 Band B (over 2000) £65-£75 £130-£150
(B) Moving to a Three Band Regime:
Proposed APD Band From 1 April 2012 (Distance in miles from UK) Reduced rate (in lowest class Standard rate (in other than of travel) lowest class of travel) Band A (0-2000) £13-£16 £26-£32 Band B (2001-4000) £60-£69 £120-£138 Band C (over 4000) £72-£83 £144-£166
5 Ev 52–53 6 “Wrightbus ‘a great example of the future of the UK’ — Chancellor” Ballymena Guardian, 23 June 2011
8 Air Passenger Duty: implications for Northern Ireland
12. Both the options above would result in passengers in Band A who, the Economic Secretary to HM Treasury, Justine Greening MP, said contribute some 78% of the total of APD raised in the UK, having to pay an increase in APD. 7
7 Q284
Air Passenger Duty: implications for Northern Ireland 9
3 Resolving the problem?
Devolving responsibility for APD to Northern Ireland? 13. In Paragraphs 5.12 and 5.13 of the Treasury’s consultation document, under the heading “APD and devolution”, it states:
5.12 In regard to APD, the Government agreed that it should consider the issue of devolution for Scotland as part of its wider review of aviation taxation .... Before making a final decision, the Government would therefore like to understand the potential impact of devolving APD in Scotland.
5.13 In a similar way, the Government would also like to understand the case for devolving APD in Northern Ireland and Wales. 8
14. We have considered the option of whether responsibility for setting the rate of APD should be devolved to the Northern Ireland Executive. Devolving such a power would be a long drawn-out legislative process, and a short-term solution is required. We are not convinced of the viability of pursuing the option of devolving the power to set Air Passenger Duty at this time.
15. In our First Report of this Parliament, we recommended that the power to set the rate of Corporation Tax should be devolved to the Northern Ireland Executive and Assembly. Should legislation to achieve this end be passed by Parliament, we will watch developments with much interest. If the results of such a devolution are positive, we may decide to look again at whether setting the rate of APD could also be devolved.
Abolishing APD in the UK? 16. An argument could be made for APD to be abolished. The Government receives some £2.5 billion in revenue from APD,9 of which the Treasury forecasts some £60 million to be collected from Northern Ireland in 2012–13.10 We raised with the Economic Secretary the decision of the Government of the Netherlands to scrap its version of APD. The principal argument for doing so had been the cost to the Dutch Exchequer of travellers preferring instead to use airports in Belgium or Germany, where APD did not apply.11 In response, Ms Greening pointed out that the Dutch had only had their version of APD for about 18 months before abolishing it,12 but confirmed that HM Treasury will be looking at what the long-term effects would be of abolition of the UK’s APD.13
8 Reform of Air Passenger Duty: a consultation, op. cit. 9 Q270 10 Q277 11 See Annex, p.12 12 Q293 13 Ibid.
10 Air Passenger Duty: implications for Northern Ireland
17. The Treasury is clearly unlikely to remove APD across the UK in the near future. We must therefore consider whether there could be local measures to mitigate the local effects of the tax in Northern Ireland.
Is Northern Ireland a special case? 18. The situation in Northern Ireland needs addressing. Of particular concern is the Continental Airlines transatlantic route from Belfast International to Newark Airport. This is a vital link between Northern Ireland and North America. Mr John Doran, Managing Director of Belfast International Airport, gave evidence to the Committee that:
In the six years that that service has been operating, a conservative estimate by the inward investment authorities and the tourism authorities suggests that about £20 million of benefit has accrued to the Northern Ireland economy each year. So, in and around £100 million of benefit has accrued from that one route alone.14
19. The route is the only direct transatlantic service to Northern Ireland, and offers opportunities for tourism from North America, ease of access to current and prospective industrial and business investors, and wider social and political linkages. If the route were to be ended, or relocated to Dublin, it would be a significant blow to Northern Ireland. In order to support the route, Continental Airlines has been paying the APD itself, expecting to pay some £3.2 million out of its own income in the current year.15 Asked whether the company would be able to continue to pay the APD for a further year, two senior representatives of the airline, Mr Bob Schumacher and Mr Conor McAuliffe, gave evidence to the Committee that a required solution was “more immediate than that.”16
20. Moreover, it was very concerning to hear from the Chief Executive of the NI Hotels Federation, Ms Janice Gault, that the occupancy level for Northern Ireland’s hotel rooms in 2010:
.... was 58%; that is down from a high in September 2008 that was about the 78% mark. The average room rate last year was about £58; it has fallen away to about £55 or £56 this year. We have seen the gross profit on hotels fall from a figure in 2008 of about 27.8% down to just under 20% as of the first quarter of this year. That is not taking into account any other taxes or anything else. We are in the position where we simply need more tourists. That is basically what it boils down to. There is no simple answer to that; that is simply what the economy needs.17
21. Northern Ireland needs more tourists; not only can Northern Ireland offer history, heritage, stunning scenery — and now a golf course now made world-famous by Rory McIlroy - there are many upcoming events in Northern Ireland to attract visitors over the next couple of years, such as the 100th anniversary commemoration of the launch and remembrance of the sinking of the Titanic in April 2012 and the World Police and Fire Games, one of the world’s largest sporting events, in 2013. There is also, of course, the
14 Q4 15 Q172 16 Q167 17 Q199
Air Passenger Duty: implications for Northern Ireland 11
possibility that members of the Ulster diaspora may wish to take the opportunity to discover their roots when they attend the 2012 Olympic Games in London.
22. We welcome the recent announcement by the Department of Enterprise, Trade and Investment that, for the period January to March 2011, there was “an increase of 4 per cent on the number of overseas visitors to Northern Ireland, compared to the same period last year” and hope that this increase can be built upon. 18
23. The Consumer Council for Northern Ireland has proposed that APD on flights departing from Northern Ireland airports be reduced to mirror the rate of the Republic of Ireland ATT, pointing out that HM Treasury had already set a precedent of sorts by exempting certain flights departing from airports in the Scottish Highlands and Islands from paying APD. However, the idea of an exemption from APD for Northern Ireland has been raised in the past. In April 2000 the late Lord McIntosh of Haringey argued on behalf of the Government that:
The exemption from Air Passenger Duty for flights from airports in the Scottish Highlands and Islands is being introduced in recognition of the reliance on air transport by many people in this remote region. It is the only UK region with population density less than 12.5 people per square kilometre. The people of Northern Ireland do not depend on air transport for aspects of everyday life to the same degree.19
The Government continued to resist calls to extend the relief to flights from Northern Ireland:
the exemption from Air Passenger Duty given for flights from airports in the Scottish Highlands and Islands was introduced in recognition of the importance of air transport given the low density of population in the region. Population density in Northern Ireland is greater. 20
How to mitigate the impact of APD on Northern Ireland 24. The Managing Director of Belfast International Airport and the Chief Executive of George Best Belfast City Airport put forward their own suggestions to ease the burden on travellers. Belfast International’s proposal was that the existing Band B be scrapped and merged with Band A.21 Belfast City proposed that both Bands A and B be zero-rated.22 Belfast International’s suggestion would offer some relief to passengers on the transatlantic route, whereas Belfast City’s more radical proposal would also benefit passengers travelling within the UK and within the rest of Europe.
25. Our evidence suggests that it is mainly business and enterprise, including opportunities for expansion in exports and tourism, that would be damaged by continuation of APD in
18 “Foster welcomes increase in overseas visitors to Northern Ireland”, DETI News Release, 30 June 2011 19 House of Lords Debate, 19 April 2000, col. 106WA 20 House of Lords Debate, 24 April 2001, col. 219WA 21 Q9 22 Qq 41–42
12 Air Passenger Duty: implications for Northern Ireland
Northern Ireland. It may well be that other regions of the UK are similarly hindered by APD, but we are clear that Northern Ireland’s unique position — separated by sea from the rest of the UK and sharing a land border with a another EU Member state that has a materially lower rate of APD, which it will shortly abolish entirely — means there is a very strong case for some form of mitigation of APD for Northern Ireland.
26. The precise nature of that mitigation is complex. We consider that there is merit in building on the proposals advanced by the two local airports, and recommend that for flights departing from Northern Ireland airports, Bands A and B should be merged, with the resulting merger being zero-rated all for flights departing from Northern Ireland airports, and for those direct flights to Northern Ireland from Great Britain.
Conclusion 27. The detrimental impact of Air Passenger Duty on the Northern Ireland economy is, we believe, significant, and continuation may threaten the viability of Northern Ireland’s connections to Great Britain and to North America. We recommend that, as a matter of urgency, HM Treasury examines options for the mitigation of these effects by local adjustments to the application of APD in Northern Ireland, including zero-rating flights out of Northern Ireland airports, and flights into Northern Ireland from GB. Such examination would have to include whether such adjustments are permitted under EU state aid rules, which the Economic Secretary drew attention to during her evidence.23 In the longer term, the devolution of the power to set, or vary, APD might be considered.
23 Q281
Air Passenger Duty: implications for Northern Ireland 13
Annex
The Dutch experience 1. On 1 July 2008, as a measure designed to ‘green’ the tax system, the Government of the Netherlands implemented an air passenger tax for passengers departing from Dutch airports. The tax had two rates: for destinations in EU member countries, and other destinations located a maximum of 2,500 flight kilometres from the Netherlands, the tax rate was €11.25; for all other destinations the tax rate was €45.00. This tax did not apply to transfer passengers or to freight shipments. Initial Ministry of Finance estimates had predicted some €350 million annually in tax revenues to be generated. A later Government study estimated that the tax had cost the Dutch economy some €1.3 billion in lost revenue.
2. Prior to implementation, it was estimated that the new tax would result in the number of passengers using Amsterdam Airport Schiphol dropping by 8% to 10%. Following the introduction of the air passenger tax the number of passengers using Schiphol did, in fact, decrease and that decrease in passenger volumes rapidly intensified as a result of the global economic crisis. The air passenger tax had proved controversial from its introduction, and these two events prompted the aviation and tourism sectors to intensify their protests against the tax. The Dutch Government responded by initially setting the air passenger tax at zero (€0.00) as of 1 July 2009 and subsequently abolishing the tax on 1 January 2010.
3. Implementation of the tax in July 2008 occurred shortly before the global economic crisis led to a decline in air travel worldwide. Passenger numbers at Schiphol, however, fell further than in other countries. Reports from airports across the border in Germany and in Belgium showed that the number of Dutch residents taking flights from those two countries had risen dramatically.
14 Air Passenger Duty: implications for Northern Ireland
4. A study undertaken by KiM Netherlands Institute of Transport Policy Analysis (an independent Institute within the Dutch Ministry of Infrastructure and the Environment), published in February 2011, concluded that:
air passenger tax has had a decidedly negative effect on the number of Dutch passengers departing from airports in the Netherlands; specifically, from Amsterdam Airport Schiphol. Passengers have instead opted to primarily use Düsseldorf, Weeze and Brussels airports. The air passenger tax served to reinforce two developments that were already occurring: passengers, especially those from the Netherlands’ eastern and southern regions, increasingly depart from foreign airports, and passengers increasingly use low-cost airlines, such as Ryanair and easyJet. The expectation is that not all Dutch passengers who use foreign airports will ‘return’ to Dutch airports, although this could change owing to the recent implementation of a ‘ticket tax’ in Germany,24 as well as by measures taken by Amsterdam Airport Schiphol to help lower costs. 25
24 On 1 January 2011, the German Government introduced a tax of €8 per traveller for domestic and European flights,€25 for mid-range flights and €45 for long-haul flights. 25 Effects of the Air Passenger Tax. Behavioral responses of passengers, airlines and airports.
Air Passenger Duty: implications for Northern Ireland 15
Conclusions and recommendations
1. We are not convinced of the viability of pursuing the option of devolving the power to set Air Passenger Duty at this time. (Paragraph 14)
2. In our First Report of this Parliament, we recommended that the power to set the rate of Corporation Tax should be devolved to the Northern Ireland Executive and Assembly. Should legislation to achieve this end be passed by Parliament, we will watch developments with much interest. If the results of such a devolution are positive, we may decide to look again at whether setting the rate of APD could also be devolved. (Paragraph 15)
3. The Treasury is clearly unlikely to remove APD across the UK in the near future. We must therefore consider whether there could be local measures to mitigate the local effects of the tax in Northern Ireland. (Paragraph 17)
4. We consider that there is merit in building on the proposals advanced by the two local airports, and recommend that for flights departing from Northern Ireland airports, Bands A and B should be merged, with the resulting merger being zero- rated all for flights departing from Northern Ireland airports, and for those direct flights to Northern Ireland from Great Britain. (Paragraph 26)
5. The detrimental impact of Air Passenger Duty on the Northern Ireland economy is, we believe, significant, and continuation may threaten the viability of Northern Ireland’s connections to Great Britain and to North America. We recommend that, as a matter of urgency, HM Treasury examines options for the mitigation of these effects by local adjustments to the application of APD in Northern Ireland, including zero-rating flights out of Northern Ireland airports, and flights into Northern Ireland from GB. Such examination would have to include whether such adjustments are permitted under EU state aid rules, which the Economic Secretary drew attention to during her evidence. In the longer term, the devolution of the power to set, or vary, APD might be considered. (Paragraph 27)
16 Air Passenger Duty: implications for Northern Ireland
Formal Minutes
Tuesday 5 July 2011
Members present:
Mr Laurence Robertson, in the Chair
Mr Joe Benton Dr Alasdair McDonnell Oliver Colvile David Simpson Mr Stephen Hepburn Gavin Williamson Kate Hoey
Draft Report (Air Passenger Duty: implications for Northern Ireland), proposed by the Chair, brought up and read.
Ordered, That the draft Report be read a second time, paragraph by paragraph.
Paragraphs 1 and 2 read and agreed to.
Paragraph 3 read, amended and agreed to.
Paragraph 4 read and agreed to.
Paragraphs 5 and 6 read, amended and agreed to.
Paragraph 7 read and agreed to.
Paragraphs 8 to 10 read, amended and agreed to.
Paragraph 11 to read and agreed to.
Paragraph 12 read, amended and agreed to.
Paragraphs 13 to 15 read and agree to.
Paragraph 16 read, amended and agreed to.
Paragraphs 17 read and agreed to.
Paragraphs 18 to 21 read, amended and agreed to.
Paragraphs 22 and 23 read and agreed to.
Paragraphs 24 and 25 read, amended and agreed to.
Paragraph 26 read and agreed to.
Paragraph 27 read, amended and agreed to.
Annex agreed to.
Summary amended and agreed to.
Air Passenger Duty: implications for Northern Ireland 17
Resolved, That the Report be the Second Report of the Committee to the House.
Ordered, That the Chair make the Report to the House.
Ordered, That embargoed copies of the Report be made available, in accordance with the provisions of Standing Order No. 134.
Written evidence was ordered to be reported to the House for printing with the Report.
[The Committee adjourned to a date and time to be fixed by the Chair.
18 Air Passenger Duty: implications for Northern Ireland
Witnesses
Tuesday 21 June 2011 Page
John Doran, Managing Director, Belfast International Airport Ev 1
Brian Ambrose, Chief Executive, George Best Belfast City Airport Ev 6
Wednesday 22 June 2011
David Thomson, Deputy Secretary, Policy Group, Department of Enterprise, Trade and Investment, Northern Ireland Executive Ev 11
Antoinette McKeown, Chief Executive and Aodhan O’Donnell, Director of Policy and Education, Consumer Council for Northern Ireland Ev 16
Huw Hopkins, Manager, Industry and Government Affairs, British Midland International, Paul Simmons, UK Director, EasyJet, and Niall Duffy, Head of Public Affairs Flybe Ev 20
Wednesday 28 June 2011
Conor McAuliffe, Managing Director, Europe and Industry Affairs, and Bob Schumacher, Managing Director, Sales, UK and Ireland, Continental Airlines Ev 26
Janice Gault, Chief Executive, Northern Ireland Hotels Federation Ev 31
Jeff Gazzard, Board Member, Aviation Environment Federation Ev 36
Justine Greening MP, Economic Secretary, and Shona Riach, Deputy Director, Environment Tax, HM Treasury Ev 40
List of printed written evidence
1 ABTA Ev 56 2 Belfast International Airport Ev 47 3 CBI Northern Ireland Ev 50 4 Consumer Council for Northern Ireland Ev 52
Air Passenger Duty: implications for Northern Ireland 19
List of Reports from the Committee during the current Parliament
The reference number of the Government’s response to each Report is printed in brackets after the HC printing number.
Session 2010–11 First Report Corporation Tax in Northern Ireland HC 558
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Northern Ireland Committee: Evidence Ev 1
Oral evidence
Taken before the Northern Ireland Affairs Committee on Tuesday 21 June 2011
Members present: Mr Laurence Robertson (Chair)
Mr Stephen Hepburn Dr Alasdair McDonnell Lady Hermon Ian Paisley Naomi Long Mel Stride ______
Examination of Witness
Witness: John Doran, Managing Director, Belfast International Airport, gave evidence.
Q1 Chair: This is the first time that the Committee Mr Doran: There is no doubt that the fairly steep has met in formal evidence session outside ramp-up in rates of air passenger duty (APD) over the Westminster since the general election last year. I past couple of years has led to a situation where thank Speaker Hay for agreeing to allow us to hold demand has been dampened somewhat, although it is the session here in Stormont and also the Assembly very difficult to separate that from the general officials who facilitated this meeting. Thank you very economic conditions that have prevailed for the past much to them. I welcome our first witness, Mr John couple of years. We estimate that the general Doran, managing director of Belfast International dampening effect of APD is somewhere in the region Airport. This is the beginning of our inquiry into the of two to three percentage points of traffic. However, impact on Northern Ireland of air passenger duty the problem becomes more acute when you move policy. It is the case that the Government’s deadline from band A, which covers the UK and Europe, into for submissions has passed, but, as this is a Select band B, which covers long-haul traffic. In band B, the Committee, the Government will respond to any rates start at £60 and go up to £120 depending on report that we put together. It is going to be a fairly which class you fly, and the situation becomes penal brief inquiry, largely due to the fact that, in not too in many respects. We see it as quite a significant many weeks, the parliamentary recess will kick in. disincentive to air carriers to expand existing However, we are going to take quite a bit of evidence operations or, indeed, to new carriers in long-haul from a number of different people. markets to come into this market. We have to bear in John, you are very welcome this morning. Thank you mind that Northern Ireland is a fairly peripheral region very much for coming. Perhaps you would like to in the UK. It depends very heavily on inbound tourism make a brief opening statement and then we can ask and inbound business that is brought on the back of you a few questions. long-haul routes. Therefore, anything that puts a Mr Doran: Good morning, Mr Chairman and barrier in the way of developing that market has to members of the Committee. I am very pleased that the be taken seriously, and we have to find some way of Committee has taken time from its busy calendar to overcoming that barrier. take evidence on this very important issue. No doubt, similar to myself, you heard it mentioned this morning Q3 Chair: Presumably your main rival for long-haul on the news media; it is indeed the topic of the flights is Dublin? moment. I am very pleased that the Executive have made a submission to HM Treasury, coming on the Mr Doran: That is very much the case. In the long- back, as it does, of representations made by the First haul market, Northern Ireland benefits from a single daily connection to New York with Continental and deputy First Ministers, the Finance Minister, the 1 Enterprise Minister and the Regional Development Airlines, whereas, in Dublin, there are about 18 Minister. That is all very helpful in trying to find a daily services to the United States and Canada. We solution to this fairly significant economic problem have been in discussion with other carriers in the that we face. Because of our unique geography, we North American context—the US and Canada—and share a land mass with another European Union state have looked eastwards over, for example, Dubai and that works to a different set of rules when it comes to onwards to Australia and New Zealand. They say with the taxation of aviation. That is all that I would like regularity that they believe that the market is there but to say in opening. the big issue is that the current air passenger duty is a significant disincentive to them when compared with Q2 Chair: Thank you very much. Perhaps I could the situation in Dublin, where the flat rate at the € € ask the first question. Do you feel that anything in moment is 3. It has gone down from 10 recently. particular is deterring regional airports, particularly Indeed, the new Government in the Republic have your own, from expanding? Is there anything that you announced plans to take that away altogether. would like to see happen in order to facilitate 1 Note from witness: There are 15 daily services from Dublin expansion? to the United States and Canada. cobber Pack: U PL: COE1 [E] Processed: [07-07-2011 09:58] Job: 013271 Unit: PG01 Source: /MILES/PKU/INPUT/013271/013271_o001_th_Uncorrected 21 June 2011 (after reformatting by Hansard).xml
Ev 2 Northern Ireland Committee: Evidence
21 June 2011 John Doran
Q4 Mel Stride: Welcome to the Committee; thank Q7 Lady Hermon: What sort of amount is that? you for coming to see us. You touched on the impact Mr Doran: It is somewhere in and around £2 million of inadequate air passenger services on inward a year. Continental is absorbing that, and obviously investment. Can you point to any specific evidence, that is coming off its bottom line. That is an reports or studies to inform us a little bit more on unsustainable situation for the long term. that issue? Mr Doran: I will submit a memorandum of written Q8 Ian Paisley: I wish they would pay my tax bill; evidence as well. However, let us look at the could you maybe have a word with them? Continental Airlines service as a case in its own right. Mr Doran: Likewise. However, my tax bill is not In the six years that that service has been operating, a quite that large. conservative estimate by the inward investment It certainly is an unsustainable situation for the long authorities and the tourism authorities suggests that term, and that is why we would like to find a about £20 million of benefit has accrued to the sustainable and long-term solution to the problem, to Northern Ireland economy each year. So, in and get to a situation in which we have a level playing around £100 million of benefit has accrued from that field in taxation with our near neighbours. one route alone. It is not beyond the bounds of reason There is a range of scenarios as to what could happen to imagine that other routes could bring a similar if we are unable to find a solution. There is a real benefit to the economy. In the context of the amount possibility that Continental may decide that absorbing of investment in the route, it is a very good return, a couple of million pounds worth of taxation each year because something like £1 million of funding was put is unsustainable and that therefore it cannot continue into that route to get it up and running. Effectively, it with its service. I am not saying that that will be the has repaid 100-fold at this point. So, that is the sort case. Continental has gone to pains to make it clear of economic benefit that will be forgone if we are that it has no plans to do that at this point in time. unable to find a good solution to the problem. However, the economic reality is staring us in the face. If that were to happen, many scenarios could Q5 Mel Stride: You mentioned a £20 million benefit result from that. Obviously, an aircraft would be going on that one route. If you were to extrapolate that spare, and another home would have to be found for across all the activity at the airport, what sort of figure it. It may end up with our near neighbours, or it may might you come up with? go somewhere else. That would be only speculation Mr Doran: The airport is the principal aviation at this point in time. gateway to Northern Ireland. We employ—not directly but directly and indirectly on the airport Q9 Ian Paisley: I must say, for the record, as a site—somewhere in the region of 4,000 people, and person who has used that link, its service standard is that puts about £250 million of salaries and wages into the local economy each year. We also put in probably very good and its people are exceptional. The route is about £20 million of bought in goods and services a very positive one. I hope that it is not under threat annually, so it is a fairly significant economic in any way. In fact, I hope it grows. I hope that we generator. However, that is taking the benefit that can do something to encourage the growth of those comes from routes generally, not necessarily links. In your paper, you outline a number of options specifically long haul on its own. as to how the issue could be addressed. You indicate that one of the options might be to bring band A and Q6 Ian Paisley: John, you are very welcome. It is band B lines together or to use a special rate, which good to see you and your team here. I want to put on the highlands and islands have identified. Will you record the importance of the airport in the Northern elaborate on how that would operate? It is important Ireland economy. It is a vital link, and it is vital for to note that band B accounts for only 1.5% of air employment. So, it is good to see you here. traffic. We also have to take account of the needs of Let me cut right to the chase with regards to the the other 98.5%. international links. I listened this morning on the radio Mr Doran: That was only one of a number of options to Bob Schumacher of Continental. He said that, if that I suggested. There is no point in complaining this tax continues to rise, it threatens the viability of about something if you do not provide some sort of his route. Give us an update. Where are we with potential solution to the problem. I was alluding to the regards to that route? Is it in danger? If it is in danger, fact that the highlands and islands do indeed benefit is it likely that it is going to go to our nearest from a derogation from band B because of their competitor, the Republic of Ireland’s airport in peripherality in UK terms. If it were deemed that APD Dublin? was causing a particular problem to Northern Ireland, Mr Doran: To answer your question, I need to as we believe that it is, one way of addressing that is describe what is happening at this point in time. to say that Northern Ireland only—we would be Effectively, because we have a very transparent and pleading a special case—would benefit from a lower porous land border with the Republic of Ireland, the rate applying to band B. That may be the equivalent comparison between fares out of Belfast and fares out to band A. Of course, Treasury may say that, to do of Dublin is very apparent to the consumer. To that, the money would have to be found from maintain competitiveness for this region, Continental somewhere. It is only a small amount of money—a has been absorbing almost all the air passenger duty couple of million pounds a year. That could come that should properly be paid by the passengers and from hypothecating an equivalent amount out of the paying it on to Treasury itself. Northern Ireland block grant, for example. cobber Pack: U PL: COE1 [O] Processed: [07-07-2011 09:58] Job: 013271 Unit: PG01 Source: /MILES/PKU/INPUT/013271/013271_o001_th_Uncorrected 21 June 2011 (after reformatting by Hansard).xml
Northern Ireland Committee: Evidence Ev 3
21 June 2011 John Doran
The alternative that I put forward, which is maybe a key factor in making their decision. We would not like better alternative, is that power in relation to the to see the opportunity to create more business off the setting of air passenger duty rates in Northern Ireland back of this or a similar route being forgone for the should, perhaps, be devolved to the Northern Ireland lack of doing something about the problem that we Executive. That would allow them the latitude to work face. out how to deal with the problem, thus finding a local solution to a local problem. Q12 Lady Hermon: It would be helpful for the Committee if you could identify some of the Q10 Ian Paisley: You accept that people will not be companies that were persuaded to come and set up incentivised to get into their car and drive to Dublin business in Northern Ireland because of the route. if the duty is set at £12. However, if they are paying Mr Doran: One of the key companies is NYSE something between £60 and £120 in taxation at the Technologies, which has said very publicly that it is moment, they do have an incentive to drive to Dublin here because of the direct links to New York. There for a flight. are others, which I cannot name here and now, but I Mr Doran: That is absolutely the case. I do not think can give you a list at a later stage, if that would help. that there are many of us who would drive an hour Lady Hermon: That would be very helpful in and a half to Dublin to take a flight to London, for persuading the Treasury that we have to win the example, for the sake of a £12 rate of duty. However, argument on this. if we are faced with a bill of £60, or £120 if you are lucky enough to be travelling in first or business class, Q13 Dr McDonnell: My question is nearly the same to take our business elsewhere becomes a realistic as Naomi’s question, which you have answered. Your proposition. The problem that that creates, of course, thesis is that the issue is not so much the passenger is that the more that people are inclined to do that, the less support that there is for the route. As you said, it fare—it is the same from Dublin and Belfast—as the is a route that we should support. Eventually, the route fact that Continental is absorbing a loss, or a potential may wither on the vine, and that cuts off our conduit loss, of £2 million a year. for direct inbound tourism and investment. Mr Doran: Yes.
Q11 Naomi Long: John, it is good to see you. I want Q14 Dr McDonnell: Do you have any indication as to ask you two very simple questions. It is really to to whether that is being lost on the flight overall or put some stuff on the record, because I know that we whether it is a loss of profit? have discussed this at length before. In respect of the Mr Doran: Operationally, the flight is more than competitiveness of the Continental flight when paying for itself. As regards covering direct compared with its competitors in Dublin, it is the case operational costs and making a contribution to that it is a competitive and sustainable flight, but the overhead, it is a very successful service. Load factors issue is the level of duty. That is the one question are quite high. In the airline industry, if you are hitting mark hanging over the flight currently. It would be an 80% load factor, you are doing very well. helpful if you could clarify that. It would also be Continental consistently hits the high 80s and maybe helpful if you could put it in context. I know how into the 90% load factor. So in that respect, it is doing important the acquisition of that transatlantic service very well. It is purely the impact of having to absorb was and the support that went through from the the air passenger duty that makes the route, at the Assembly to make that happen. What impact would very bottom line, unprofitable, as far as the airline is the loss of that transatlantic link have on the airport concerned. As I understand it, if that were to be taken and its future development? away, the route would have no profitability issues. Mr Doran: I will take your first question initially. I can confirm that at the net fare level, which is the Q15 Dr McDonnell: Do you see other potential amount paid if all taxes are stripped out, the fares out routes as a no-no while the tax exists at that level? of Belfast are indeed competitive with Dublin. In fact, Mr Doran: I know that other potential routes are a if you go in and look to make a booking now, that no-no. We have been in discussion with airlines about will still be the case, because the effect of tax is being re-establishing links to Canada that were lost a stripped out and taken by the airline itself in order to number of years ago. We have been in discussion with keep the fares competitive. You asked about the airlines looking further afield and eastwards, as I said, impact on the airport operation. It is about 1.5%—it over to Dubai and Australia and New Zealand. They is probably even less than that—of our total operation. keep saying that air passenger duty is a major Operationally, it does not have a huge impact on the disincentive to them even looking at Northern Ireland airport. Where it does have an impact is economically at this point in time. for the region as a whole. That is why we have been campaigning for such a long time that we need to take the matter seriously and to do something about it. Q16 Mr Hepburn: Does Belfast International What it effectively says is that we are closed for Airport make an annual profit? business with regard to looking beyond these shores Mr Doran: Yes. to try to pull in tourism from key source markets and to pull in business. Quite a number of businesses have Q17 Mr Hepburn: What is it? set up in Northern Ireland directly off the back of this Mr Doran: Our last reported profit before tax was, I route. They have cited the presence of the route as a think, just over £1 million. cobber Pack: U PL: COE1 [E] Processed: [07-07-2011 09:58] Job: 013271 Unit: PG01 Source: /MILES/PKU/INPUT/013271/013271_o001_th_Uncorrected 21 June 2011 (after reformatting by Hansard).xml
Ev 4 Northern Ireland Committee: Evidence
21 June 2011 John Doran
Q18 Mr Hepburn: Is there any chance of absorbing been very quiet for quite a while. Is that the effect of some of the weight off Continental as far as that is the recession or is it due to passenger duties? concerned? What about a subsidy of some sort? Mr Doran: Like other regional airports, we are seeing Mr Doran: We already do that. We do what is fair the direct impacts of the downturn in consumer and reasonable within the contribution that we, as an confidence. When consumers are concerned about the airport, get from that route versus what the economy roof over their head, their job and putting food on the gets. In fact, we probably do more than our fair share table, air travel goes to the very bottom of their list. of that. Obviously, we cannot continue to do that So, we are not alone in that respect. If you were to without end. ask other regional airports, they would report the same thing: over the past couple of years, business has been Q19 Mr Hepburn: All things being equal, if the quiet. There is absolutely no doubt about that. passenger duty was not an issue, what would be the relative advantages and disadvantages of Belfast Q23 Lady Hermon: Is your airport expecting, as I International Airport and Dublin Airport? am, an increase in the number of people coming Mr Doran: In terms of the market? across from America to play golf in Northern Ireland Mr Hepburn: In terms of the business. courtesy of Rory McIlroy’s tremendous win in the US Mr Doran: Looking at it from a regional perspective, Open? Presumably, the airport is preparing for an the key advantage of having a service such as influx of people. Continental or any long-haul service directly into the Mr Doran: I would like to think that that will happen. market is that you bring footfall directly to the region. Yes, we are. There are a number of events coming up. That is very important on the tourism front. There are Certainly, Rory McIlroy’s victory earlier in the week enough statistics knocking about to demonstrate that, has done us nothing but good on the world stage. if you bring tourists directly into a particular destination, they will spend the majority of their time Q24 Lady Hermon: Right around the world, it has and, by deduction, the majority of their money in that meant great headlines for Northern Ireland. region. If we look at a situation where a tourist could Mr Doran: It is a very good headline for Northern come into Belfast or Dublin for a 10-day period, we Ireland. Over the next couple of years, we are going see that they will probably spend eight of those 10 to have a number of other events that are of note. We days in the region where they make first landfall and, have the Titanic celebrations next year and the City therefore, will spend proportionately that amount of of Culture the following year. So, there are a number money there. If we expand that and look at the of very positive messages out there on the world objective of growing the Northern Ireland economy— market. We would like to think that we will benefit as one of the key factors that will help us to grow is a region from an influx of tourism off the back of all inbound tourism—we see that it is vital that we are those events. able to get that sort of footfall directly into this region, as opposed to it going into Dublin with the Q25 Lady Hermon: Is there someone in the airport consequence that those tourists may well make their who gathers statistics and watches the number of way to Belfast eventually, but they may spend one bookings? night, if that, in this region. Mr Doran: We collect those statistics from the airlines on a forward basis and a post basis, looking at how Q20 Mr Hepburn: Those are the advantages to the numbers will go into the future as well as how we did region, but what would be the advantages to the in the past. company of people preferring to use Belfast International Airport? Q26 Lady Hermon: In other words, there is Mr Doran: Every route that we have makes a immediacy here. If we are to capitalise on the great contribution to our overheads and profitability— success of Rory McIlroy, we need the Treasury to make a decision fairly quickly. We have had airport Q21 Mr Hepburn: Sorry, I mean Continental. What passenger duty since 1994, and I presume that advantages does Belfast have to Continental that arguments have been made to Governments over a Dublin does not? number of years. Mr Doran: Belfast serves a discrete market in the Mr Doran: The argument is becoming even more Continental network. Northern Ireland has an outsized acute. Air passenger duty started in 1994 as an image, for good or ill, as far as North America is environmental taxation measure to create some sort concerned in the overview of places to go for business of a brake on uncontrolled expansion of the aviation or tourism. It is a market that is important to industry and, by deduction, emissions from it. Continental and one that it would like to maintain. It However, as we approach 2012, the aviation and will maintain it for as long as we can find a airline industry will be joining the European Union sustainable solution to the issue. emissions trading scheme, which is the mechanism Chair: Can we make sure that mobile phones are right across the European Union that will tax turned off? Apparently, they are interfering with the emissions from aviation and from other sources. sound system. It is probably mine. Come 1 January 2012, we will be in an invidious situation where, on the one hand, airlines are being Q22 Mr Hepburn: I flew into Belfast International taxed or levied through the European scheme and, on Airport yesterday, and it was very quiet. The taxi the other, passengers are being taxed through the driver who took me into Belfast confirmed that it has aviation duty scheme, which is no longer an cobber Pack: U PL: COE1 [O] Processed: [07-07-2011 09:58] Job: 013271 Unit: PG01 Source: /MILES/PKU/INPUT/013271/013271_o001_th_Uncorrected 21 June 2011 (after reformatting by Hansard).xml
Northern Ireland Committee: Evidence Ev 5
21 June 2011 John Doran environmental measure and is just a way of raising significant an impact on the propensity to use aviation taxation. That is a bit of a double hit, and the sooner as a means of travelling. That is simply because we we are able to do something about it the better. are the northern part of an island off another island. Lady Hermon: That is very helpful to us. Thank you. There are only two ways to get here. You either fly or take a boat, and most people tend to fly rather than to Q27 Mr Hepburn: There is one last question that I take a boat. The big issue is band B. That is where want to get on record, and you just alluded to it. What the disincentive lies. If I were to make a proposal, I impact do the European scheme and air passenger would appeal to the Committee to make duty have on your growth forecasts? representations to Treasury that band B needs to be Mr Doran: We have published a 25-year master plan dealt with. We believe that the only way to deal with in terms of how we see passenger numbers going over it is to bring band B down to the level of band A. That that time. That takes into account whatever impacts has a price tag of about £2 million a year—maybe will result or have resulted from the general economic less than that—which should be quite easily absorbed conditions as well as external factors such as the within whatever slippage there is in the block grant. emissions trading scheme. Within that master plan forecast, we are looking at compound annual growth Q30 Dr McDonnell: Are you saying to bring it down somewhere in the region of 4.5% to 5%, which does right across the UK? not sound like a whole lot. That means that by 2030, Mr Doran: For Northern Ireland. This is a Northern which is a long way away, we may be seeing in and Ireland-specific issue. No other part of the UK shares around 12 million passengers a year. The road to that a land border with another European Union state that will be bumpy over the next few years while the does not have the tax. airlines sort out how they are going to deal with the Lady Hermon: On the basis of the periphery emissions trading scheme. The inevitable result will argument. be a rise in airfares. There is no doubt about that. It Mr Doran: It is purely geography. It is by accident looks as though the emissions trading scheme will of geography. place additional cost burdens on airlines, and there is only one way that they can defray those cost burdens, Q31 Lady Hermon: Yes. May I push you a little on which is by appealing to the consumer by way of that point? Earlier in your evidence, you gave us two higher airfares. options, and the other one was devolving the power to the Northern Ireland Assembly. Do you have a Q28 Mel Stride: If we took air passenger duty out preference? Are you telling us that using the band A of the equation for both Dublin Airport and Belfast charges is your number one preference and the other International Airport, would I, as an airline operator, is the second preference? Or are the two options of find that the cost associated with doing business at equal weight? those two airports was similar? Or is one more Mr Doran: If I was to weight the options, I would say expensive than the other, irrespective of the duty? that devolution to the Executive is the preferred Mr Doran: You will find that Belfast International option, mainly from the point of view that the Airport’s charging regime is very competitive. In the Executive can then make a value judgement as to how last quinquennial review carried out by the Civil they are going to structure aviation duty as it applies Aviation Authority, we were probably the second to Northern Ireland. They may decide that they want lowest in the entirety of the UK. That puts us on a a different way of levying aviation duty, so long as very competitive footing with Dublin, so that is not the outcome will deal with the issue that we currently an issue. The aviation duty is the key issue. face, which is a competitiveness issue for this region.
Q29 Dr McDonnell: Are you suggesting that, Q32 Lady Hermon: If that were to be pursued by because of our semi-isolation, Northern Ireland routes the Executive and by the Assembly generally, I take should be supported through a public service it that there would be state aid implications from the obligation, like the highlands and islands? What are EU. In fact, the equivalent take would be deducted you suggesting that the outcome should be? It is from the block grant—a bit like corporation tax. complex for us. We are unlikely to persuade the Mr Doran: Under the Azores ruling, that would be Treasury to wipe out the tax altogether throughout the the case. UK. What arguments should we put forward for Chair: We have studied this for several months. Northern Ireland? Ian Paisley: May I come in on that? Mr Doran: I do not think that there is any mileage in Chair: I remind members that we are running slightly going down the public service obligation route, over time, but please carry on. because the UK generally does not look favourably on public service obligations with regard to aviation. Q33 Ian Paisley: It can be politically unattractive for There is no doubt that the current band A rate of £12 a regional Parliament to set or vary taxes. I am leading has a dampening effect on aviation. That is you here, but might it be better for our national particularly the case for aviation between here and Parliament to set the taxation rate and take account GB, because you are hit at both ends—it is £12 on the of regional needs? Do you see the attractiveness of way out and £12 on the way back. That is not the that argument? situation if you fly to or from Dublin, where it applies Lady Hermon: For corporation tax and air only one way—from the UK to the Republic. passenger duty? However, even with that, I do not think that it has as Chair: Let us stick to air passenger duty. cobber Pack: U PL: COE1 [E] Processed: [07-07-2011 09:58] Job: 013271 Unit: PG01 Source: /MILES/PKU/INPUT/013271/013271_o001_th_Uncorrected 21 June 2011 (after reformatting by Hansard).xml
Ev 6 Northern Ireland Committee: Evidence
21 June 2011 John Doran
Mr Doran: Thankfully, I am not a politician and I longer see it as a green tax but as a way, “To send out do not have to deal with that issue. However, from a messages.” I think that was the phrase. layman’s point of view, I would have thought that the Mr Doran: There is a study, which I can pass on to Treasury may find it difficult to set a specific rate for the Committee, that indicates that the aviation Northern Ireland without other regions of the UK, industry is more than paying its way in the amount of which I am sure all of you represent— tax that it renders up to Treasury when compared with the emissions it produces. That will be brought more Q34 Ian Paisley: They set a different rate for the into focus come 1 January 2012 when the industry Scottish highlands and islands in the last Budget enters the European Union’s emissions trading statement. scheme. That scheme will put a price on carbon, and Mr Doran: Yes, and resisted rolling out that trading will take place on whether airlines do well or derogation to other regions ever since. We have to poorly against their emissions budgets. The economic be realistic. impact of that will ultimately flow down to passengers through the fare mechanism. Placing VAT on aviation Q35 Naomi Long: I apologise for having had to step fuel and its associated issues would bring us into the out briefly. One of the arguments that is made when realms of international treaties. That is way above my we discuss the issue is that air passenger duty is head and I could not possibly comment on it. simply a fair alternative to VAT and fuel duty, which Chair: I think that we would struggle with that as the aviation industry does not pay. Do you have a well. We will draw this particular session to a close view on that? You talked a bit about how you would and invite Mr Ambrose to join us. Thank you very restructure airport duty, but what impact do you think much for your evidence, Mr Doran, it was very useful. that duty, as it is currently structured, has on Mr Doran: Thank you, Chairman. emissions? The Government indicated that they no
Examination of Witness
Witness: Brian Ambrose, Chief Executive, George Best Belfast City Airport, gave evidence.
Q36 Chair: Good morning, and thank you very much government interventions, but now moves by for joining us. You probably heard the introduction government are making life more difficult. that I gave earlier, so I will not repeat it. It is good to If possible, I would like to keep the debate wider than see you. Would you like to make a brief statement the single route. John mentioned that our main market before we ask one or two questions? is Great Britain. We talk about the £60 duty on a flight Mr Ambrose: Thank you for the opportunity to appear to the US, but the duty is £24 return on a flight to before the Committee. You have heard that air anywhere in Great Britain. That is pretty material, it passenger duty is an important issue for this region, is not insignificant, and that is our main tourism and for our business and the businesses at the airport. business market by a huge factor. That was just to set The contextual point that I want to make before taking the context. questions is that air passenger numbers doubled between 1997 and 2007, which was quite exciting for Q37 Chair: Thank you. What specific factors led to Northern Ireland as a region and Belfast in particular. the increase in passenger numbers at your airport, and We went from four million passengers to eight million what specific factors led to the subsequent decrease? between the two airports, and that had a phenomenally Mr Ambrose: We enjoyed the period of economic positive impact on the region and on an island that growth. In part, that was thanks to people around this depends on tourism and business links. However, over table because we had political stability. Northern the past three years or so, those passenger numbers Ireland had come out of a very troubled period and businesses responded. There was inward investment, have reduced by approximately one million. You had tourism increased significantly, and there were a discussion about having a single route to New York, favourable government interventions, such as the air and I have sympathy with Belfast International route development fund, to try to stimulate the market, Airport and Continental Airlines and wish them every which it did. There was significant competition, and success. It is an important route for Northern Ireland, low-cost carriers were entering and helping to grow but for me the real issue is how we, between us, the market. As an important aside: try to think of the recover the one million passengers that we have lost, impact of what we are talking about—low-cost and APD has a role to play in that. It is important to carriers were largely responsible for the growth. They remember the context. This region has a population of stimulated the market and created a scenario in which 1.7 million, so the loss of one million passengers has people could make a choice between buying a pair of had a significant effect. The positive thinkers could jeans and flying to Glasgow for the weekend. They say that there is a great opportunity for us and a goal brought fares down to that very achievable level. to go after and that we can recover that and more. On Teenage kids started going for breaks to places that the good days when we were growing, a number of were previously out of their reach. things worked in our favour. However, a lot of those Air passenger duty of £24 can become 50% of the things have turned around and are now working value of the ticket, so we would lose that stimulus. against us. For example, we had favourable An average fare of £40 return, which low-cost carriers cobber Pack: U PL: COE1 [O] Processed: [07-07-2011 09:58] Job: 013271 Unit: PG01 Source: /MILES/PKU/INPUT/013271/013271_o001_th_Uncorrected 21 June 2011 (after reformatting by Hansard).xml
Northern Ireland Committee: Evidence Ev 7
21 June 2011 Brian Ambrose were achieving, becomes £60 to £70. Therefore, that effect is probably more marked with business travel. stimulus is gone and the market starts to go into Are you really looking less at the business consumer decline. The very things that led to the growth are and more at the consumer who uses flights because now working against us. As John said, like every other they are cheap and for fun breaks away? region, we have suffered from the economic Mr Ambrose: In the heady days of 15 years ago, we downturn. These taxations are not helping at all, but it all flew business class at the front of the plane and would be irresponsible to suggest that they are solely somebody else worried about how much that cost. accountable for the issues that we face. These things Businesses have had to take a harder look at their can have a downward spiral or a positive impact. The overheads. A lot of people who used to fly at the front positive impact was that, as passenger numbers grew, of the plane now fly at the back. A lot of people ask hotel occupancy went up, hoteliers invested in new themselves harder questions before they fly at all, for stock, and businesses came here and found that it was example, “Can I have meetings four times a year easy to get to. The same works in reverse. The loss of rather than six times a year?” Business is being one million passengers is felt by local hoteliers and affected, and people have to cut back and save money. some of them go out of business while others trade at However, the stimulus that came from low-cost a margin or a loss. carriers created a whole new market, and we still have My main thesis is that we can do one of two things: it. You get the wave of football supporters who can we can play at the fringes of this game, which will now afford to fly frequently to Manchester, Liverpool not recover those one million passengers; or we can and Glasgow, and particularly to see their teams down realise that, as a region, the local Executive have in London. The tax is affecting those people as well. repeatedly mentioned the economy and tourism, but They are the people paying the extra £24 every time government policy is now working against both. We they book a trip to watch a football team. So, the thing want to attract business and make access easy and that stimulated the market and got people taking these tourism easy, but APD is working against the very trips is now working against them. They have less objectives that we are setting. disposable income, and taxation is just another of the factors working against us. Q38 Mel Stride: I am interested in the one million passengers that have been lost over the three-year Q40 Mel Stride: What impact do you see that period. Clearly, increased tax puts people off buying dynamic having on inward investment for the those particular goods, but is it your opinion that those Province with regard to the people you are describing? one million passengers simply stopped travelling Mr Ambrose: One benefit we find for our airport is altogether, or do you feel that there was a substitution that we are right in the heart of the city, so we find effect in terms of them going to Dublin, for example, businesses use us just because of that convenience. where the tax was far lower? However, it is a wider issue. As the economy Mr Ambrose: No, I think you will see the decline recovers, those business people, despite still tough across Europe, so we are not unique in having that times, have to travel, and that sector has been less decline in passenger numbers. For many people in impacted upon than the more discretionary leisure Northern Ireland, the domestic APD would not sector. We talk about load factors, namely the number encourage them to drive to Dublin. However, there is of passengers, but the airlines would talk about yield, now a very good road network to Dublin, so £24 could namely how much people are paying, and, of course, be the trigger for people in the border regions, such fares are very competitive. That is good if you want as Newry, going to Dublin rather than to one of the to grow the market, but an airline has to make a Belfast airports. It is a combination of such things, but return. They are probably finding that they have to be if you do not start to find ways of growing tourism more and more aggressive with their fares to keep the and making your product competitive, you will not loads up in the 80% territory where they want to be. make any material impact. You may get a sluggish return. We, too, have set our goals for 2030, for what Q41 Ian Paisley: Brian, it is good to see you here. they are worth, but we are much more concerned Thank you for what was a compelling argument, about survival over the next two or three years. namely that the recession, combined with taxation Northern Ireland is not unique in having economic policy and government policy, are no longer acting challenges but it is unique in having the land border as stimuli to the economy. How do we stimulate the with the Republic of Ireland. We are also unique in economy? How do we get those one million being an island off an island. You cannot do a day’s disappeared people back to using airlines? The figures business in Great Britain going by ferry, and you in band A show us that flights from the UK into cannot jump onto a train. Those options are available Europe account for 98.5% of all people travelling. in other parts of the UK. However, they each pay the Chancellor from £12 to £24 for the privilege of travelling. Is it your argument Q39 Mel Stride: When you talk about that one that it should be zero-rated? million, it seems to me that what you are driving at is Mr Ambrose: It comes back to whether we go for that the lost passengers are people who view these something such as intervention, something material or flights as a discretionary expenditure. In other words, take an incremental approach. As an optimist, I think they may or may not take the flights, but they do not that all those things can be addressed. There will be have to take them. They are not, therefore, going to no single answer; it will be a combination. We all go to Dublin as an alternative; they will just spend want to use the name Rory McIlroy, so I will use it as the money somewhere else. However, that substitution well. We have a fantastic profile around the world cobber Pack: U PL: COE1 [E] Processed: [07-07-2011 09:58] Job: 013271 Unit: PG01 Source: /MILES/PKU/INPUT/013271/013271_o001_th_Uncorrected 21 June 2011 (after reformatting by Hansard).xml
Ev 8 Northern Ireland Committee: Evidence
21 June 2011 Brian Ambrose from the US Open. We have a fantastic golfing material impact for the region. John mentioned some product. We have the £100 million Titanic visitor figures. We are a small business. We have fewer than attraction that will open in Belfast in April next year. three million passengers; employ 1,600 people and We have the city of culture. The World Police and have 35 different businesses on-site. That is without Fire Games 2013 will come to Northern Ireland. All mentioning hotels and other interested parties. When that can be capitalised on by giving compelling we had the volcanic ash problems, some of the local reasons for tourists to come to Northern Ireland. All hotels had a 70% reduction in occupancy. So, if we that I am saying is that we could do without all those do not something about it, it will have an effect right other issues that are creating a drag. Removing APD across the region, way beyond the parameters of is the only stimulus that will have any impact; nothing greater Belfast. short of that will do. If you want to play around with band B to save the Q44 Mr Hepburn: Have you any idea how much the Continental route, that is fine. Subsidising it by £1.5 loss of one million passengers is down to an increase million or £2 million a year is a judgement call that in airfares, how much is down to the recession and someone must make. That route is important to the people not travelling and how much is down to the region. I support John in his thesis, but it does not aspect that you mentioned about businesses cutting bring back the one million passengers; it stops us back? losing 100,000 of the seven million passengers that Mr Ambrose: I think that it is a combination. we have coming into Belfast airports. With its 350,000 passengers, the City of Derry Airport has its own Q45 Mr Hepburn: Can you put a rough percentage challenges. I say clearly that it is an issue for all of us. on each aspect? We are not naive. There are many pressures on Mr Ambrose: No. national and local government for funds. However, if the Government do not take a bold step, I can see a Q46 Mr Hepburn: Did you do a survey to ask sluggish recovery. It is questionable whether people about it? businesses will be there in three years to see it Mr Ambrose: We took the most material issues into through; whether hoteliers can hold out; and whether consideration. One airline that carried 900,000 we lose out on the golfing opportunities. We either passengers exited the region in November last year make decisions in a timely manner by starting to because of frustrations over decision-making in this address the issue strategically or we debate it and play Building. Some people have decided that this region on the fringes, in which case we will not have that is not a good place to do business, and that did not prize of recovering at least one million passengers, help. Given that those statistics are spread throughout which I think is achievable. the UK, the island of Ireland and into wider Europe, I guess that you would have to conclude that the Q42 Ian Paisley: It will cost me €3 in tax to travel economic downturn has had the biggest impact. The out of the Irish Republic to anywhere in the world, be regions that make the earliest interventions will it Australia, Australasia or anywhere in the UK. To recover the quickest. travel from Northern Ireland to anywhere in the UK I am not an economist. You could analyse this thing or Europe, the lowest tax rate is £12. Are you saying to death. Half a dozen positive factors led to the that bands A and B should be zero-rated? growth, and the half dozen negative factors that are Mr Ambrose: Yes. affecting the decline now need to be addressed. I think Ian Paisley: Thank you. that we are well positioned and that Invest Northern Mr Ambrose: Tourism Ireland’s statistics show that Ireland will have further successes. Companies see there is a direct correlation. If, in any given year, you this as an attractive region in which to invest. I think lose 10% of access, visitor numbers will go down by that the tourism product is compelling, and we have 10%. There is a direct correlation. The Irish to redouble our efforts to make sure that we fully Government have recognised that. They have lost a optimise that. Without giving a percentage, I think that lot of capacity over the past years; they too have lost APD is one of those critical elements. If we fail to get their west coast connections. They have woken up to any improvement on that, it will continue to be a drag. the fact that, unless they intervene, they will not However, it is difficult to honestly define whether that recover. You cannot wish the market into recovery; is 10% or 15% of the problem. you have to do something specific if that is to happen. Q47 Mr Hepburn: Is the percentage loss in business Q43 Lady Hermon: I presume that there have been that you informed us of today similar to that which many opportunities for you to speak your mind to other regional airports, such as the one in Newcastle, Secretary of State Owen Paterson, as you have to us have experienced? this morning. How did he respond? Was he Mr Ambrose: Yes. UK airports in general have had sympathetic? How did he say he would take this double-digit reductions, particularly in the past couple forward with his Treasury colleagues? He champions of years. Belfast City Airport has fared somewhat Northern Ireland at the Cabinet table. He must better for a variety of reasons. I am keeping this more recognise your arguments. generic and am referring only to Belfast airports. It Mr Ambrose: We have made the case and I think that has clearly been a painful couple of years for us. My he recognises the size of the goal to pursue. He has goal is to be very selfish, and I believe that Northern not been explicit about how he will respond to that, Ireland and Belfast can outpace the recovery in other but I expect him to be supportive because this has a regions, but only if we make the right strategic cobber Pack: U PL: COE1 [O] Processed: [07-07-2011 09:58] Job: 013271 Unit: PG01 Source: /MILES/PKU/INPUT/013271/013271_o001_th_Uncorrected 21 June 2011 (after reformatting by Hansard).xml
Northern Ireland Committee: Evidence Ev 9
21 June 2011 Brian Ambrose decisions. If we do not do so, we will simply lag volumes of people come to the city and celebrate?” behind with everyone else. The Titanic centenary is the same. We need 350,000 people to come through the doors to make this thing Q48 Mr Hepburn: What profits are you making a work, so we cannot wait for three years. We want this year? to happen now. The problems are current. The Mr Ambrose: We are consolidated, but we are making hoteliers who are hanging in there do not have a five- a profit of about £2 million before tax with a turnover year horizon. They will not be here to take part in the of about £20 million. debate if we cannot get the recovery under way in the next 12 months. Q49 Dr McDonnell: Thanks, Brian, for your lucid Lady Hermon: So, to repeat your description: the comments. I will ask you the same question that I Treasury has to make a “critical” decision. asked earlier: do you think that we should be supported here, similar to the way in which the Q52 Dr McDonnell: I want to follow that through highlands and islands were, through a public service for absolute clarity. Your argument is similar to that commitment? Should our airports and air travel be of Belfast International Airport: the duty should be subsidised? reduced to zero in Northern Ireland. Are you arguing Mr Ambrose: That is not where I would put my for any UK-wide change? energy. You must decide which fights to pick and Mr Ambrose: No. which ones you are most likely to win. I do not think that that one has a good percentage chance of a Q53 Dr McDonnell: Right, OK. The argument is positive outcome. At the end of the day, you have to simple. You focus entirely on Northern Ireland. stand back. In our business, unless a route is Mr Ambrose: My argument is based on the fact that sustainable in its own right, you are going to have we have a land border with the Republic of Ireland, to subsidise it forever. There are some public service we are an island and rail links are not an option. obligation (PSO) routes on the island of Ireland where the Government have intervened and subsidised them Q54 Naomi Long: Brian, I hope you are well. It is because they were not economically viable. If that is good to have you with us. I will ask the same question the case, you do it for ever. Government stimulus in that I asked earlier about the counter-argument, the form of the air route development fund was able namely that air passenger duty is a fair alternative to to get a number of things across the line at both VAT and so on. What is your response to that? It is Belfast airports that we could not quite get across the good to address the challenges that will be thrown line. We then made those things work and stand on back at us. You mentioned that Northern Ireland their own two feet, and we ensured that they made a airports have fared slightly better than those in other contribution. So, I would much prefer to take the line regions. Is that because you have a captive audience? that we are a region within the United Kingdom with If people need to travel to the UK, they do not have unique challenges and there should be intervention to many alternatives. They cannot hop on a train as an recognise that recovery is critical to the region. We alternative to flying to London, like people who live cannot afford for despair to set in and the positive in Newcastle upon Tyne can. So, to some degree, news of the past decade to turn into the negative necessary travel will continue in a more sustained images that you picked up from the radio or television way. We are focusing on the extra charge for which this morning from Short Strand. It is imperative that the Government is responsible. However, that is we show a bit of vision. We should not go down the obviously compounded by the passenger landing PSO route. charges that are levied at Heathrow and Gatwick. Dr McDonnell: You argue for a reduction in People who fly from Belfast pay an additional charge passenger duty? in those cases. What impact does that have when you Lady Hermon: Abolition, I think. combine the passenger landing charges and the duty? Ian Paisley: A zero rate. Mr Ambrose: That is a famous thing. You go on a website and see a flight for a tenner. By the time you Q50 Dr McDonnell: Rather than any subsidy? have reached your final click, it has cost you £100. Mr Ambrose: Yes. The Airport Operators Association has a Dr McDonnell: Okay. comprehensive paper that demonstrates that aviation pays its way, and more, with respect to overall Q51 Lady Hermon: It is important for the taxation. That is probably the paper to which John Committee to think about the timescale. We are referred; I will circulate it to the Committee. We have thinking about 2012 and the marking of the Titanic nothing to be embarrassed about. As an industry, we centenary. There is a huge investment in that and in pay our way and more on taxation. the World Police and Fire Games in 2013. When we You mentioned necessary travel. Although you are report to Treasury, what would you like us to say right, my concern is that businesses are trading under about the importance of making a decision sooner thinner and thinner margins. The danger is that, rather than later? although such business people have to travel and Mr Ambrose: That is critical. I have worked on the absorb those additional costs, the evidence is that a city of culture project. It is helpful when you are number of them have folded over the past number of outside the region. People will say, “OK, you are years and a prolonged extension of the current passionate; but what practical steps are you taking to economic situation means that a lot more businesses optimise this opportunity and make sure that huge will not make it through. cobber Pack: U PL: COE1 [E] Processed: [07-07-2011 09:58] Job: 013271 Unit: PG01 Source: /MILES/PKU/INPUT/013271/013271_o001_th_Uncorrected 21 June 2011 (after reformatting by Hansard).xml
Ev 10 Northern Ireland Committee: Evidence
21 June 2011 Brian Ambrose
Q55 Naomi Long: I am sorry to cut across you, Mr Ambrose: The majority of people leave Northern Brian. On that particular point, basically, it has one of Ireland to come back, so they go to Great Britain for two effects: it makes people reassess what travel is business or to go to Parliament and then come back. necessary, which is one aspect that impacts on your Some people commute. They find it more affordable business, or it acts as a drag on businesses that feel and preferable to live in Northern Ireland and that they have to continue to travel, because they have commute. A squad of them go to London on Monday to sustain that extra cost. So, it is having a negative morning and, usually, come back on Thursday night. effect, whoever feels the impact. Our challenge is in the tourism sector. We want to Mr Ambrose: That is right, it impacts either way. As fill aircraft on the return journey. I will give you one far as the build-up of additional charges on a £10 fare powerful example, although it is anecdotal. We are is concerned, you will find that regional airports owned by a Swiss company that is headquartered in charge for the services that they provide. People call London, where there is a core staff of 20. As a bit of it an airport tax, but I call it a charge. Regional a novelty, because they had bought us, they brought airports employ firefighters, air-traffic controllers and the team from London to Belfast for their Christmas baggage handlers, so, typically, you pay £5 on your dinner. They went to a nice restaurant—James Street ticket for those charges. Some charge a little bit less South—walked around the continental market, walked and some a little bit more. When you get to hubs such through Victoria Square and flew home. Of those 20 as Heathrow, you pay £20. So, for a return fare to people, who have high disposable incomes, 19 had Belfast, you pay £5 from this end and £20 from that never been to Northern Ireland. That is the market that end, and you then have to add on £24 in taxes. we need to capture, and that is why we need to drive Therefore, before you even get started and before the the tourism market. airline has put a dollar on the table, you have racked For reasons of perception or otherwise, so many up £50 in charges. That is why I am saying that it is people have never seen or sampled what we are a compounding issue. Consequently, airports have had familiar with in Northern Ireland. So, although at the to become pretty lean, mean machines. We now moment most of our flights bring back the people who employ fewer than 100 staff directly. Although we flew out, we need the tourism sector. We do have lots keep our overheads way down, those other charges, of business traffic. For example, Bombardier Shorts particularly at London Heathrow, are a major issue has a supply base throughout the UK. People fly in on for us as well. When you load all that on, people get a daily basis to visit the big companies. The problem frustrated. They start off with a cheapie, but end up is that our economy does not have enough large forking out a lot more than they envisaged. private sector companies to create sufficient inbound volume. That is why I am saying that a combination of Q56 Mel Stride: If you look at the traffic from your growing the economy, attracting inward investment, airport to other airports, and vice versa, what developing tourism and making the whole thing more proportion of people live locally in Northern Ireland affordable would allow this region to outgrow others, but spend their money elsewhere, as opposed to and that is perfectly possible and doable. people doing the reverse and coming into Northern Chair: We had better draw the session to a close. Mr Ireland to spend their money? Ambrose, thank you very much for that. It was extremely useful and helpful. cobber Pack: U PL: COE1 [SO] Processed: [07-07-2011 09:58] Job: 013271 Unit: PG02 Source: /MILES/PKU/INPUT/013271/013271_o002_th_Uncorrected 22 June 2011 (after renumbering by Hansard).xml
Northern Ireland Committee: Evidence Ev 11
Wednesday 22 June 2011
Members present: Mr Laurence Robertson (Chair)
Oliver Colvile Naomi Long Mr Stephen Hepburn Dr Alasdair McDonnell Kate Hoey Mel Stride ______
Examination of Witness
Witness: David Thomson, Deputy Secretary, Policy Group, Department of Enterprise, Trade and Investment, Northern Ireland Executive, gave evidence.
Q57 Chair: Thank you very much for joining us, Mr how she responded and if there were any specific Thomson. Sorry to keep you waiting. points where there was real agreement or real David Thomson: No problem. disagreement? David Thomson: I am very glad I have got my Q58 Chair: As you know, we are carrying out an notebook with me. I have just found my scribbled inquiry into the effects of air passenger duty and in notes of it. Most of the discussion was around the particular its impact on Northern Ireland. We are issue that you have been considering, namely going to respond to the Government’s consultation corporation tax and Enterprise Zones. Certainly the paper even though technically we are going to be out chairman opened up on that. The next Member talked of time, but it being a Select Committee report that a bit about tourism; the next Member talked about we will present, they will take notice of that. So we economic strategy and Enterprise Zones; the next are very grateful to you for joining us today. Perhaps Member also talked about Enterprise Zones, I could start the ball rolling and then my colleagues unemployment and procurement. Then there was a will ask a few questions, if that is okay. Perhaps you little bit of a discussion about tourism and what more could just give us a general idea, from your point of Tourism Ireland could be doing to promote Northern view, of how the levels of air passenger duty are Ireland. Then there was a discussion on the US flights affecting business, investment and tourism in in particular and the rate that APD has on those band Northern Ireland. B flights. The Minister expressed a view that she David Thomson: Thank you, Chair, for the invitation wanted something done with that. But really it was an here. I am pleased to be here. It is very difficult to do initial meeting and the committee was just asking the a direct correlation between air passenger duty and Minister, having recently come back, what her what has been happening either as far as inward priorities were and what the issues were. Clearly, investment is concerned or as far as tourism is corporation tax and the economy were up there as concerned. Certainly over the last few years tourism being key issues. numbers have dropped quite considerably, especially from GB. There are lots of things driving that, but our Q61 Kate Hoey: It sounds like people see this just view is that air passenger duty is clearly one of them. from the tourism point of view. Are we talking here It is now the highest rate in Europe and, as I think about tourism from England, Scotland and Wales as you heard from the folks yesterday, it does affect low well, not just from America? We are talking about cost and low fares. It is not just the rate. I think what people travelling? really concerned Ministers was what happened in David Thomson: Yes. APD impacts on two things, November last year. certainly as far as Arlene Foster is concerned. One is business, because we believe the economy in Northern Q59 Chair: Ministers being Northern Ireland Ireland will grow with export-led growth. You cannot Ministers? export if you do not have transportation links. David Thomson: Northern Ireland Ministers. The Therefore, air access is very, very important in that. APD band A went up by 9% and the band B rate went As far as tourism is concerned, excluding tourists up by a massive 33%. Then buried in the Treasury’s from the Republic up to Northern Ireland, 85% of the forecasts is a forecast that APD across the UK is going tourists into Ireland come by air. Therefore, air access to rise from £2.2 billion in 2010–2011 to £3.6 billion is important and the fares that you pay are important. by 2015–16. That is a 64% increase on top of where we are at the moment. I think that is what was Q62 Kate Hoey: What about what I would just call triggering the concern for Northern Ireland Ministers. ordinary people who have families working and living There is not a lot of statistical correlation you can in England and go back and forth a lot? It takes a very carry out but you just know that is a very, very high long time, as many of us discovered when the airports rate of tax. were closed at Christmas, to go via Stranraer on a boat and a train. Do you not think that that is an argument Q60 Kate Hoey: Minister Foster appeared at the as well, the whole issue that we have to fly back and Assembly committee and gave evidence recently. forward? Could you just give us a little synopsis of what the David Thomson: You have to fly, because we are an real concerns were of the Assembly committee and island off an island. Again, as was pointed out cobber Pack: U PL: COE1 [E] Processed: [07-07-2011 09:58] Job: 013271 Unit: PG02 Source: /MILES/PKU/INPUT/013271/013271_o002_th_Uncorrected 22 June 2011 (after renumbering by Hansard).xml
Ev 12 Northern Ireland Committee: Evidence
22 June 2011 David Thomson yesterday, you pay APD on both legs, so you are David Thomson: Yes. There are far more flights into paying £24 APD on an economy fare. For a return trip the Republic of Ireland. for a family of four, you are talking about £100, even to visit friends and relations. And you do not have the Q67 Oliver Colvile: Yes, but do more people go to alternative of either getting in your car or on a train. southern Ireland, in proportionate terms? You said The point about tourism is if we are trying to attract there has been a reduction, so what I am trying to someone from Birmingham, London or Manchester ascertain is has there been an increase in southern for a short break, we are competing against Ireland? Are people flying into southern Ireland in Edinburgh, the Cotswolds and the Lake District, order to then drive up into Northern Ireland? where you can get in a car and you can get on a train David Thomson: There has been a reduction across as well as flying. We have to rely on the flight. the whole of Ireland in tourism numbers and flight access. The only airport across the whole of Ireland Q63 Mel Stride: One quick question on this issue of that has seen an increase over the last few years is the correlation between APD and tourism coming in Belfast City. That is why I say it is a little bit difficult by air. One of the critical aspects would be, would it to do the correlation between numbers and APD not, where people are travelling? Whether most of this because it is happening in the Republic as well. market is taking people out of Northern Ireland to somewhere else, where they spend their money, and Q68 Kate Hoey: Was City’s increase not because then bringing them back home again, rather than easyJet moved its flight to Luton? It has moved it back bringing people in from outside to Northern Ireland, again now to International, but it moved it and there where they spend their money in the hotels etc., and were some other flights that moved in. It is not more then taking them back. Could you comment on what people. the mix is of those two different types? Because that David Thomson: Yes, there is certainly a would be fairly critical, wouldn’t it, in terms of displacement between the International airport and the improving tourism rather than just looking at the City airport. number of tourist flights? Kate Hoey: They keep going back and forward. David Thomson: There were about 1.4 million David Thomson: The stats show City airport was the tourists from outside the island of Ireland coming into only airport in Ireland that saw an increase last year. Northern Ireland last year, with another 500,000 from the Republic. Most of those 1.4 million came in by Q69 Naomi Long: One of the statistics that might be air. Clearly there are a lot of people like myself who quite useful for the Committee to be aware of is about would use flights for either business or travelling when people fly into Dublin, because when people fly across to visit. I do not have the direct stats for the to Dublin they tend not to come north when they are volume. My gut feeling is it is about 50/50, but I do tourists. So tourists who enter through the Republic not have the stats. Maybe the airlines could provide tend to stay there and tourists who enter through one you with those. of our own airports then will tend to travel around Ireland more generally. There are probably statistics that can back that up. Our fear would be if people Q64 Mel Stride: Yes, I did ask that question choose to use Dublin because it is the cheaper yesterday of the CEO of the George Best Airport and alternative that they will not actually then come north his indication was that there were more people going with all the other spend. That is another issue that is out of Northern Ireland and back again rather than of concern. coming in as tourists. David Thomson: Yes, that is true. Stats show that of David Thomson: I suspect on the sun flights that are American visitors, over 30% who fly into Dublin will going to places like Spain and so on, the majority of stay in the Dublin area. The rest tend to go down people are going outward, rather than attracting towards the south-west, rather than north. For short Spanish tourists back. Although having said that, there breaks, it is a much, much higher percentage; has been an increase in tourists from Spain over the somewhere around 50% or 60% of people stay close last year, which is quite encouraging. That low-cost to the airport they arrive at, which makes sense when flight might be doing something to do that. you think about a short break.
Q65 Mel Stride: Would it be possible to provide that Q70 Oliver Colvile: Is it cheaper to fly into southern kind of information to the Committee? Would you be Ireland than it is to Northern Ireland? able to do that? David Thomson: Yes, it is. David Thomson: I do not have it, but I will— Oliver Colvile: That is quite curious. It is the Mel Stride: Not now, but subsequently. competition issue, then, coming back once again. We David Thomson: Yes. It is the sort of information have had long discussions about that. airlines would have. The stats I have got are on the Dr McDonnell: The other thing is, Chair, there is a global. But I will try to get that. long tradition in Kerry, Limerick, Bunratty Castle and places like that of an American tourist industry going Q66 Oliver Colvile: I am quite curious to know first back 60 or 70 years when we in Northern Ireland were of all how the expense of flying into Northern Ireland not taking tourism seriously. So there are linkages compares to flying into southern Ireland. Secondly, are there where fathers and parents and grandparents did there more people who fly into southern Ireland than that journey. So we are playing catch-up in Northern they do into Northern Ireland? How is that worked? Ireland. cobber Pack: U PL: COE1 [O] Processed: [07-07-2011 09:58] Job: 013271 Unit: PG02 Source: /MILES/PKU/INPUT/013271/013271_o002_th_Uncorrected 22 June 2011 (after renumbering by Hansard).xml
Northern Ireland Committee: Evidence Ev 13
22 June 2011 David Thomson
Q71 Naomi Long: David, it is good to have you businesses that have huge fixed costs and they are here. The Department of Finance and Personnel therefore volume businesses. If you can get your submitted a response to the consultation and that was volume higher than your fixed costs, then every really in lieu of a formal Executive Paper on the issue. additional flight is sheer profit for you. If you are not How much opportunity did DETI and DEL and other meeting your fixed costs you are in bother as an Departments have to have input into that submission airport. So if an airport is covering all its fixed costs— before it was submitted to Treasury? the running of the runway and all those fixed David Thomson: We had extensive discussions with overheads—then it can offer whatever discounts for DFP. Last year we engaged consultants. I know we whatever it wants. The ability of Governments or are not meant to do that very often, but we engaged regions to give public money to either airports or aviation consultants to help us look at the whole airlines is very, very constrained by EU rules. It is impact of APD and we produced quite a detailed virtually impossible. You can give some limited paper, which we gave to colleagues in DFP and the assistance to new inter-European air routes for start-up paper that the Finance Minister submitted to the marketing; you can give some limited assistance to Treasury drew largely on the stats and information very small regional airports such as City of Derry; but that we provided. I have to admit that I formerly spent apart from that it is virtually impossible for public 16 years in DFP and only recently returned to DETI, money to go to either an airline or an airport. so I have a very close working relationship with former colleagues there and the paper that the Finance Q75 Dr McDonnell: Very simply, do you believe Minister produced was done in collaboration with us. that air passenger duty should be a devolved matter? Do you feel we could work it better if it was devolved Q72 Naomi Long: You mentioned specifically DETI. to the Executive and to the Assembly? Are you aware of whether other Departments also had David Thomson: That is an interesting point. I think feed-in? For example, the Department of Employment where Ministers are at the moment is if something was and Learning has a Skills Strategy, which involved done on a UK basis then why take a sledgehammer to tourism, hospitality and so on, and it is based around crack a nut? You may not need to devolve it. In other certain passenger numbers and figures. Were they words, Northern Ireland Ministers believe that the involved in that consultation process as well? band A is now getting very high. I think they are David Thomson: Not directly, but separately Arlene realistic enough to know the Treasury see air Foster chairs a ministerial subcommittee on the passenger duty as a revenue-raising tax. When a economy and I chair an officials’ working group on country is running those deficits it is quite reasonable the economy; we are the group that is working on the to raise taxes; they just think it is too high in this case. economic strategy. Again, separate to that we have But if that came down, then you would not need to regular formal meetings with DEL and we cover these devolve it. The other concern is the band B, which is things. So yes, while it was not formal on that having a particular impact on Northern Ireland, as was particular paper, there is very regular engagement with discussed yesterday. Say the Treasury said, “Okay, we DEL and other Departments. have heard all you are saying and we are now going to move to one band and it is going to be £8”. I should Q73 Naomi Long: You mentioned that it drew not, as a civil servant, say what Ministers would largely on the research that had been done by DETI decide, but I think that Ministers may well say, “That in terms of the DFP consultation. Were there any is fine. We can live with that. We do not want it aspects of that that you felt were not included or any devolved”. additional issues that you felt it would have been helpful to raise? Or do you feel that everything that Q76 Chair: So it is the level that is important? was relevant was covered in the DFP paper? David Thomson: Devolving it creates lots of David Thomson: We think all the points were covered difficulties in its own right and if they can be avoided, in the DFP paper. There was a difference of emphasis I think the preference would be not to devolve it. But and my Minister wrote to the Finance Minister and if the Treasury come out of this consultation with they had a discussion about that—those sorts of things something that is not attractive to us, then I think the happen. But no, the key points were all covered. pressure will be on to devolve it.
Q74 Mr Hepburn: What are the typical incentives Q77 Dr McDonnell: Have you had any dialogue, that airports in provincial places like Newcastle and discussion or otherwise with colleagues in Scotland Southampton provide, whether financial or otherwise, and Wales on the Treasury consultation? Is there any to attract airlines? Are the Northern Ireland airports collaboration? matching that or outdoing that? Do you think they David Thomson: Not from the DETI perspective. I could possibly be doing more in that way out of their cannot talk for DFP colleagues, who may well have profits? We heard that City Airport is making done. £2 million profit a year and International £1 million profit a year. Q78 Dr McDonnell: Does anybody in the system David Thomson: I think that is more a question, believe that we should have an air transport strategy Chair, for airports rather than me. Airports charge for for Northern Ireland? landing planes, processing passengers, dealing with David Thomson: That is really a responsibility for security and that sort of thing. The airport business colleagues in the Department of Regional model is an interesting one, because airports are Development. I mentioned earlier that we are devising cobber Pack: U PL: COE1 [E] Processed: [07-07-2011 09:58] Job: 013271 Unit: PG02 Source: /MILES/PKU/INPUT/013271/013271_o002_th_Uncorrected 22 June 2011 (after renumbering by Hansard).xml
Ev 14 Northern Ireland Committee: Evidence
22 June 2011 David Thomson an economic strategy for Northern Ireland. We have Q83 Oliver Colvile: Do the majority of people who consulted on a framework and that contains six fly either into Dublin, or for that matter into Belfast, themes. Infrastructure is one of those themes in the do so because they are going there for business or are economic strategy. I said that I am leading an they doing so because they are going there for tourism interdepartmental group; DRD is on that. But whether or leisure? You may not be in a position to answer it, they think there should be an aviation strategy as a in which case I quite understand. separate issue I cannot comment on. David Thomson: I do not have the stats.
Q79 Mel Stride: I know you were at our hearing Q84 Oliver Colvile: No. But do you have a hunch? yesterday and you will have heard the comments that David Thomson: No, I do not have a hunch. Belfast International and Belfast City said about the Kate Hoey: Civil servants do not have hunches. changes that they would be thinking should be put David Thomson: No, I do not think I have got those forward, which as I recall were that Belfast stats as to the breakdown as to the purpose of the visit. International were looking to scrap band B and everything become band A and Belfast City were a Q85 Oliver Colvile: I think it would be helpful from little more ambitious and wanted to see everything at our point of view if we could understand that much zero, effectively. Could you comment to us on how more closely, because I am curious that you feel that realistic you think those positions are in terms of what the number of tourists going into Ireland as a whole you think the Treasury might be minded to feel is down. After all, it is a much more peaceful place favourable to? than it was, certainly 10 or 15 years ago, and I would David Thomson: You never want to second-guess the have thought that that would have encouraged people. Likewise, I would have thought that President mind of a Chancellor, but I suspect the Chancellor Obama’s visit to Ireland recently and tracing back his will not say, “Okay, you do not like this tax. We will family and all of those kinds of things would have get rid of it”. He may do. I suppose if you don’t ask, been quite a fillip to try to encourage people to go you don’t get. But my gut feeling is that some sort of into Ireland. travel tax will probably stay, in which case what is the David Thomson: I have got the ROI figures. The total best way that should be done? Our preference would number of passengers coming into Ireland in 2008 be that it certainly should be a reduced rate and should was 23.5 million. In 2009 it was 20 million, so it was be a single rate. down by 3 million. In 2010 it was 18.5 million, so it dropped by a further 2 million last year. The Q80 Oliver Colvile: Forgive me; I am going to indications are at the start of this year that it is diverge a little bit. But first of all, in the United beginning to reverse. Tourism across the whole island Kingdom, we decided to privatise the airports and the of Ireland has been hit quite badly over the last few ownership of it in the 1980s. Has that happened in years. southern Ireland as well? David Thomson: No. The airports are— Q86 Oliver Colvile: Hopefully with Rory McIlroy having just won the great championship over in the Q81 Oliver Colvile: Still owned by the state? United States, America will be flocking to go and play David Thomson: They are semi-state, but the the Irish golf courses. semi-state bodies in the Republic are very David Thomson: Actually, tourists from America are independent. up quite considerably in the first three months alone, Chair. Q82 Oliver Colvile: My understanding is that the Q87 Oliver Colvile: Do you want to see the same costs of flying—you have the fuel and taxation and regime apply across the UK or on the flights to and you have also got the cost of the aeroplane and all from Northern Ireland only? that, then you have also got the landing charges and David Thomson: Again, that is ultimately up to those can end up changing from one part of the United Ministers and I think it depends on what comes out of Kingdom to another or, for that matter, from one this consultation and what the Treasury agree. If the country to another. So in Northern Ireland, is it more Treasury said, “We are going to keep APD at the same expensive to land your aeroplane in Northern Ireland rate and the same bands”, I think our Ministers would than it is necessarily at Heathrow, Gatwick, Prestwick want to seek devolution. If the Treasury said, “We will or wherever? combine the bands and we will reduce it by £4”—I David Thomson: Again, that is something for the am only using that as an indicative figure—as I said airlines or the airports. My understanding is that those before, I think they would say, “The UK rate is fine. charges are cheaper, certainly than Gatwick and Let’s not devolve it”. Heathrow. The charges in Gatwick and Heathrow are quite high, as you would expect, but they are cheaper. Q88 Chair: Obviously one of the concerns is with Until recently the charges at Dublin were quite low. the comparison with the Republic. I know they have Dublin has an issue, because it has to recoup what has just scrapped their passenger tax altogether—from a been very, very, very heavy capital expenditure with a very low level, but they have scrapped it. Can you new terminal and so on. I have heard—and I do not give us a very brief summary of what their VAT have any evidence—that the Dublin charges are now position is on anything to do with airlines? I know increasing quite considerably as an airport. they looked at it a couple of years ago. cobber Pack: U PL: COE1 [O] Processed: [07-07-2011 09:58] Job: 013271 Unit: PG02 Source: /MILES/PKU/INPUT/013271/013271_o002_th_Uncorrected 22 June 2011 (after renumbering by Hansard).xml
Northern Ireland Committee: Evidence Ev 15
22 June 2011 David Thomson
David Thomson: I do not know about airlines, but For example, the United Kingdom Government would they have just reduced their VAT as well on tourism, have to ask it, or the Northern Ireland— hotels and restaurants, because they see the David Thomson: Yes, or the Northern Ireland importance of the tourism industry. So again, there Executive. is another competitive pressure that we are facing in Northern Ireland. Q98 Oliver Colvile: Forgive me for asking that question, because I have an interest down in Plymouth Q89 Kate Hoey: Public service obligations allow the where we have an issue with our airport at the Highlands and Scottish Islands to be treated moment. One of the things that someone suggested to differently. You said earlier Northern Ireland is an me was that there should be some form of subsidy island off an island, in a sense. Is the Department’s or rather similar to there is in the Scottish Highlands. But your feeling that it is really very important that we get my understanding was that it was the local authority the same treatment in Northern Ireland? that ended up doing it; it was not down to Central David Thomson: Well, we can always apply for it. Government. Most certainly, Central Government has PSO is very, very hard to get. said that they are not in a position to be able to do anything and that the subsidy, if it is going to come Q90 Kate Hoey: Who ultimately makes the from anywhere, has to come from the local council decision? taxpayer. David Thomson: Europe. David Thomson: I do not know the details of how PSO works. Q91 Kate Hoey: So this is a European issue, not a Treasury one? Q99 Kate Hoey: It would be really helpful for this David Thomson: No, it is not Treasury. You would Committee to have a little bit of background briefing need to get state aid approval and any PSOs are on PSO, because I have always felt that it is generally to out-of-the-way airports like, as you said, completely unfair that you can fly to an island off the Scottish Highlands. I think the route from Dublin Scotland and get a PSO and yet people who have to to City of Derry is a PSO. fly—and this is the point: it is not that people choose to fly out of love and pleasure; they choose because it Q92 Kate Hoey: Then why is Stansted Airport to is the only really viable option if you are coming to City of Derry not? London and some other parts of England. Why should David Thomson: Nobody has ever approached us. we have to pay? David Thomson: PSO is not there to subsidise Q93 Kate Hoey: You can fly from those. commercial routes that are operating. Stansted to David Thomson: Yes, but nobody has ever Derry is operating. PSO is there to provide a service approached us on PSO. that an airline otherwise would not touch. Q94 Kate Hoey: This is really interesting and I need Q100 Oliver Colvile: And is there no other to do a bit more work and look into it myself, but as competition, because you can only fly in? Or have you far as you are concerned, no-one has ever asked for it seen the number of people taking the ferry across go from Northern Ireland? Whose job would it be to ask up? How long does it take to take the ferry from for it? The Northern Ireland Assembly? The Minister? Liverpool or wherever? David Thomson: No. Airlines are very commercial beings. They are very, very commercial and they will Kate Hoey: It took me 19 hours. put planes and routes in where it makes sense and David Thomson: Liverpool to Belfast is an overnight they will take planes and routes out where it does not or an all-day crossing. Stranraer across is two and a make sense. It is very easy to do and that happens all half hours but a hugely long drive. the time. PSO is generally in where an airline has said, “Look, we cannot sustain this” but there is a really, Q101 Dr McDonnell: Is the PSO on the Derry- really important sub-regional impact for an area, such Dublin route paid by the Irish Government, by the UK as the Highlands and Islands. Government or by both? David Thomson: My understanding is that it is the Q95 Kate Hoey: But you were just saying—I did not Dublin Government that pays. know that—you get special treatment if you are flying Dr McDonnell: Yes. I think that is the question that from Dublin to the City of Derry. Kate was not— David Thomson: No, you are not getting special Kate Hoey: Yes. So in other words, it is up to the treatment. Government of the country to make the first moves to get something recognised. Q96 Kate Hoey: You are not having to pay the— David Thomson: No, a public service obligation is Q102 Dr McDonnell: The Irish Government sees it where the member state subsidises a route because as a vital infrastructure connection with Donegal. It they think that there is a special public interest in just so happens the airport is in the centre. I realise maintaining that route. fully that you are coming from Enterprise, Trade and Investment, but is there anything else that could, Q97 Kate Hoey: And the European Union has to might or should be done to improve our airport agree with it, but they have to be asked by the state? infrastructure? Is there any way that we could do cobber Pack: U PL: COE1 [E] Processed: [07-07-2011 09:58] Job: 013271 Unit: PG02 Source: /MILES/PKU/INPUT/013271/013271_o002_th_Uncorrected 22 June 2011 (after renumbering by Hansard).xml
Ev 16 Northern Ireland Committee: Evidence
22 June 2011 David Thomson things better or easier? I am looking at this stage not David Thomson: I do not think we would look very just at tourism; I am looking at getting people access. favourably at that either. I can understand why a very, David Thomson: I think if you were to ask folks in very commercial airline might say that, but, especially Northern Ireland, access and transport to the as we mentioned earlier the VAT down south and so International would be the one thing that crops up. I on, to put a tax on hotels does not sound a great idea presume you have all flown into the City. The City either. Airport is a very good little piece of infrastructure very close to the city centre. It is a bit of a drag out Q104 Chair: That would be going against what they to Aldregrove and there isn’t a train service. I suspect are doing in Ireland, then, according to the evidence that is the one thing. But it is for Ministers to decide you have supplied. the priority of that. David Thomson: Yes. It is not an issue that Ministers Kate Hoey: And then you pay your £1 to be dropped or ourselves have given any consideration to, I have off and your £1 to be picked up—goes to a Spanish to be honest. That was an off-the-top-of-my-head owner. response. Chair: Mr Thomson, that is very useful. Thank you Q103 Mel Stride: What do you think of Michael very much for joining us. O’Leary’s idea that APD should be replaced by some kind of hotel occupancy tax?
Examination of Witnesses
Witnesses: Antoinette McKeown, Chief Executive, and Aodhan O’Donnell, Director of Policy and Education, Consumer Council for Northern Ireland, gave evidence.
Chair: I think you sat in the previous session, so a domestic market but also through hub airports—for perhaps there is no need to repeat everything, but we example Heathrow—on to onward destinations are very grateful to you for joining us. We will go throughout Europe. So there is a great dependency and straight into questions. need for the connectivity and sustainability of the routes that consumers are telling us need to be Q105 Mel Stride: As we heard in the last session maintained. there, one thing that may be going on is that there are more tourists leaving Northern Ireland to go and Q106 Mel Stride: Do you have any feel for the spend their money elsewhere and coming back in than breakdown between those that are making what we the other way around, which obviously has an might term essential flights, for example to see family implication for the local economy. Do you think there in other parts of the UK, as opposed to discretionary is even a perverse factor that might come into play expenditure? In other words, it is so cheap—I think here, which is that if you reduce APD and therefore the expression was used yesterday—for the price of a increase traffic generally, what you will be doing is pair of jeans, I can go to Madrid and have a great taking more money out of the local economy because weekend. What is the balance? more people leave on cheap flights to spend their Kate Hoey: Only if you go in the middle of the night money elsewhere than would actually be coming in as and book way in advance. Most people are working a consequence of that drop? back and forth. Antoinette McKeown: I think the issue for us is the Aodhan O’Donnell: Some of the information that we issue that Kate pointed out earlier. It is about the have picked up from consumers over the last couple ordinary people in Northern Ireland and the fact that of months would show that it is predominantly leisure they quite often, because of the peripherality of and social travel. Around 84% of the research that we Northern Ireland, need to travel. 98.5% of people have done, both quantitative and qualitative, said that travel within band A, as we heard yesterday, which is passengers were travelling for leisure purposes. 14% to and from the United Kingdom. The other issue that were mixing leisure and business. We did not delve I would point out is that based on the number of any further, but that was what they were telling us. passenger journeys per head of population, Northern But I think where we would have issues around APD Ireland consumers travel by air 14% more than the is that if you are travelling back and forward to UK UK average. So we would say that there might be airports, you are paying the £12 one way and £24 people going out and coming back in, but they are return. We would also be conscious that because of going out because they have to, because it is the the airline make-up in Northern Ireland, a lot of them easiest way of travel. are low-budget, low-fares airlines, where you do not Aodhan O’Donnell: Just to add to that, some of the often buy a through ticket; you are buying two research that we have undertaken was asking separate tickets, so they are not connecting. So if you consumers how often they travel by air—this was are flying on from, for example, Heathrow, you have local consumers in terms of Northern Ireland. 50% of paid the charge to Heathrow and back but then you them have flown three to 10 times in the last two years are also paying APD again to go on to an onward and 40% of the consumers have flown once or twice destination. So there is a bit of a double charge there in the last two years. So that reinforces the for Northern Ireland consumers in the fact that if you dependence that we have in terms of connectivity to are on a true connecting ticket, it is from your cobber Pack: U PL: COE1 [O] Processed: [07-07-2011 09:58] Job: 013271 Unit: PG02 Source: /MILES/PKU/INPUT/013271/013271_o002_th_Uncorrected 22 June 2011 (after renumbering by Hansard).xml
Northern Ireland Committee: Evidence Ev 17
22 June 2011 Antoinette McKeown and Aodhan O'Donnell destination airport to your final airport, but because of Q109 Kate Hoey: Thanks, I assumed you did. Just the mix that we have, often people will buy different on the general issue, it is really welcome to hear you tickets and often fly with different airlines on different speak—because it sounds like you are coming from legs of their journey. That means that they are often where I am coming from—not just about tourism per paying more than they would have to in terms of se or even business per se; it is about the life of APD. ordinary Northern Ireland people who need to travel Antoinette McKeown: To add to that, quite often back and forward quite regularly for work or whatever people in Northern Ireland—an island off an island, who are paying more because of where they live. the most westerly corner of Europe—are using that Have you felt that there is an upcoming campaign on because they cannot use high-speed rail. They do not this in Northern Ireland? Are the politicians and have InterRail as we do in Europe, so the choice is yourselves working closely on it? Is it something that, not there. We have got a double whammy there for united with the airlines and the airports, you really Northern Ireland consumers, who are paying the hop feel is a big issue? Or is it just something that happens over to Heathrow and then the additional amount. We to be topical at the moment? are paying the highest in Europe. Even if you reduced Antoinette McKeown: The Consumer Council first it to £8 per passenger journey, it is still the highest in raised this issue in 2008. We have been raising it now Europe and it is still £5.44 higher than what you for the past three years. We have raised it through the would pay if you decided to drive down to Dublin and Northern Ireland Executive, through Assembly take a flight from there. They are real key issues for scrutiny committees and through our local MPs. We us at the minute as to Northern Ireland consumers. have written a number of political briefings in relation to it. So this has been an ongoing issue for us for some considerable time. Again, consumers in Q107 Mel Stride: Do you have any thoughts on Northern Ireland have told us, and our research Michael O’Leary’s suggestion of the hotel occupancy highlights, that cost is a significant factor when they tax replacing this? are booking a flight. In fact, it is the highest factor. Aodhan O’Donnell: I think if you look at what is APD does make a dramatic difference and does make happening, for example, in the Republic of Ireland, the choice between Dublin and the Northern Ireland there is a range of different incentives or initiatives airports a very, very real choice for people in Northern that are being taken to encourage passengers and Ireland. So for us it is not a topical issue, and we are encourage people to travel. We have talked about the seeing so much pressure on Northern Ireland tourism tax being reduced to 9%; you also have the consumers at the minute, as our local representatives rebate that is going to come in if passengers exceed € will show. In fact, we are not seeing the economic 2010 passenger numbers, where 11.50 is being growth that is being seen in the rest of the UK; we do rebated to airlines; and you have got the possibility of have that lag behind, significant pressure on air travel tax being reduced completely. So when we household incomes in Northern Ireland at the minute look at the alternatives that are coming forward, I and this is just adding to it for the ordinary consumer think what we are looking for for Northern Ireland who has to travel. consumers is a fair or level competitive environment that allows Northern Ireland consumers the choice. Q110 Dr McDonnell: One of the other things that The research and findings that we have undertaken comes up from time to time is a tax per plane. In other to date shows that many consumers living in Newry, words, do not charge the individual, just charge the Enniskillen and different areas of Northern Ireland plane and in turn the airline would pass that on into look towards Dublin anyway because they have better the fare structure. Do you think that would give public transport links to Dublin Airport than they have consumers a better deal? to the Belfast airports. So there already is an incentive Aodhan O’Donnell: I think some of the concerns to travel to Dublin Airport. The cost issue would make around the tax per plane as opposed to per passenger that incentive even greater. I think there is still a very were first voiced back in 2008. I think we were of the high dependency from Northern Ireland. Consumers position that it should be taxed on a per-passenger do want to see sustainable routes from Northern basis—because of the types of travel that Northern Ireland; they want to see routes developed and they Ireland consumers do, and the fact that they do want to see them maintained. But I suppose there is connect through other airports—so that they are not the risk there that if the incentives all start to weigh double-charged. Where they are buying two different towards routes from Dublin Airport, that could put tickets again, they are paying it twice instead of per those at risk. passenger throughout the whole journey.
Q108 Kate Hoey: Thanks to the Consumer Council Q111 Dr McDonnell: So you are not in favour of the for all you do in raising the voice of the consumer in per-plane tax? Northern Ireland. Did you say anything about the £1 Aodhan O’Donnell: No. drop-off charge at the International Airport at the time? I presume you did. Q112 Naomi Long: It is good to see you both again. Antoinette McKeown: We were very vocal on that, I In terms of air passenger duty, if it is to remain in think. Yes, we made a number of representations and some form there are two options, one put forward by met with management at the International Airport and the International Airport and one put forward by the made representations to our local representatives as Belfast City Airport, largely due to the different well. patterns of flights that they would be dealing with. cobber Pack: U PL: COE1 [E] Processed: [07-07-2011 09:58] Job: 013271 Unit: PG02 Source: /MILES/PKU/INPUT/013271/013271_o002_th_Uncorrected 22 June 2011 (after renumbering by Hansard).xml
Ev 18 Northern Ireland Committee: Evidence
22 June 2011 Antoinette McKeown and Aodhan O'Donnell
The International suggested that band B would be in Europe? These are the issues that we want to look scrapped and that band A would apply to all the at. Yes, we accept the need for environmental taxes, destinations covered by band B and that would be one but we want a fair deal for Northern Ireland way of resolving their particular issue. Belfast City’s consumers, who are already hard-pressed because of view was that both bands A and B should be zero- other household pressures at the minute and we think rated in terms of airport duty. Which of the two do you that is fair. think, from your perspective on behalf of consumers, Chair: A very good answer, if I may say so. would be the best way to take this forward? Aodhan O’Donnell: I suppose if you look at the mix Q115 Kate Hoey: Is there a group in Northern of passengers in Northern Ireland, band B represents Ireland campaigning against you on this on green about 2% of the passenger traffic and 98% is domestic grounds? and European, which would be band A. I think if the Antoinette McKeown: Not that we are aware of. changes are only made around band B, then there is not much change for the majority of passengers. We Q116 Oliver Colvile: I should know this, I am sure, have talked before about the high cost. If you look at but is there quite a large amount of competition band A, it is £12 one-way; for all the other countries among airports in Northern Ireland? In fact, how that apply it, it is between £2.60 and £7.10. So I think many airports are there in Northern Ireland? the debate on APD needs to be broadened out to look Antoinette McKeown: There are three Northern at band A and the pricing of it, to look at the Ireland airports: Derry, George Best Belfast City competition that we have with the Republic of Ireland, Airport and the International Airport. where it is €3 at the moment. I think it needs to go Aodhan O’Donnell: There are 10 scheduled airline further than just looking at band B; it needs to be services; they are operating around 49 routes and 24 looking at band A because of the cost impact it has of those routes are competitive. They are competitive on Northern Ireland consumers. The majority of the between airports but also within airports, so you may people who are travelling are in that band and if have different airlines operating to similar nothing changes around that they will still be paying destinations. the high rates. Antoinette McKeown: And there will still be an Q117 Oliver Colvile: Does the majority of trade that incentive to drive down to Dublin, where some of the goes into those three airports just principally come public transport access rates are better, and that puts from the United Kingdom or does it come from at risk the sustainability of the existing routes and the America and other places too? Where does it come opportunity to open up new routes for Northern from? Ireland consumers in Northern Ireland airports. Antoinette McKeown: UK and Europe predominantly.
Q113 Naomi Long: And it becomes more attractive Q118 Oliver Colvile: So what people have a when we go from €3 to zero, which is on the cards tendency to do is fly in here into Heathrow or as well. Gatwick— Aodhan O’Donnell: Yes. Kate Hoey: Or Stansted. Antoinette McKeown: That is exactly it. So we are Oliver Colvile: Or Stansted, or even City for that looking for the reduction and exploration of removal matter, and then they fly into one of the three airports in line with the taxes in the Republic of Ireland. in Northern Ireland. Okay, that is very helpful. Why do you believe that Northern Ireland routes should be Q114 Chair: You are quite rightly concerned about supported through public service obligations in the the competition between the Republic and Northern same way as some routes from the Scottish Highlands Ireland. We will at some point meet an and Islands, which were introduced as a specific environmentalist group, who may argue that it is right recognition of the importance of air transport given to impose fairly high taxes in order to discourage the low density of the population in that region? I travel that pollutes the atmosphere. How would you might say I have a personal interest in all this, because respond to that? Because at the same time, we also my constituency also feels very peripheral and slightly have to build up the economy in Northern Ireland and out of it, and we have appallingly bad railway indeed in all countries. What is the best way of connections as well. So I have an enormous amount balancing those? of sympathy with what you are going through. Antoinette McKeown: I think sustainability is a key Kate Hoey: It is Plymouth he is talking about. issue and, as you say, it has to be balanced with Aodhan O’Donnell: I think the point in the briefing economic growth. We recognise air passenger duty in our response to the consultation was that we were was brought in as a contribution to environmental not explicit in saying we would support a PSO for issues. I think the issue that we are arguing is that ours. I suppose what we were pointing towards was, Northern Ireland consumers, because of our location if there was a variation or a difference within the UK and our peripherality, are actually being penalised on APD rates, that—I know there are restrictions in because of where we sit in the United Kingdom. We terms of the take-off weight and the number of do not think that is a fair environmental tax, given passengers—there was almost some type of precedent that. I think the other thing is the EU ETS coming in set there in terms of looking at what taxation rates in 2012. We need to take account of that. Are we could be within a region of the UK. So it was not actually doubly taxing Northern Ireland consumers, getting to the stage of saying that we want a PSO to who are already paying the highest environmental tax support that; it was more or less getting to the point cobber Pack: U PL: COE1 [O] Processed: [07-07-2011 09:58] Job: 013271 Unit: PG02 Source: /MILES/PKU/INPUT/013271/013271_o002_th_Uncorrected 22 June 2011 (after renumbering by Hansard).xml
Northern Ireland Committee: Evidence Ev 19
22 June 2011 Antoinette McKeown and Aodhan O'Donnell that there has been imagination put to this issue before hold a mirror to that and look at the fact that, if this and there have been changes applied that supported is a disincentive for people travelling from Northern communities that were peripheral and had limited Ireland, it could potentially then act as a disincentive access to other routes. So I think that is more of the for people travelling in, especially from the UK issue than calling for an outright PSO to support it. destinations where you will be paying £24 extra in tax when you have a choice to go to another city for a Q119 Chair: How far have you studied the concept weekend break or whatever. Maybe for one person it of the possibility of devolving the power to raise that is not an incentive, but when you add up the numbers sort of tax? I understand there are discussions with the of passengers travelling, it does get significant. For a Scottish Parliament about perhaps that arrangement. family of four you are quickly up to £100 in tax. So I Obviously Scotland, through the Scotland Bill, is think, looking at people who are coming in, that is getting a lot more fiscal responsibility. How would money that could be spent elsewhere on a weekend you view that possibility? break or on another reason. So it could potentially Antoinette McKeown: Devolution, or the decision to act that way but there is no specific evidence to back devolve, is a political issue. The Consumer Council is that up. neutral on that. I think the issue for us would be that, if it was devolved and there was no change to the air Q122 Chair: Are there any other comments you wish passenger duty, that would be a continued detriment to make? Any other evidence you wish to provide that to Northern Ireland consumers. So our focus is, we have not asked about? whether it is devolved or not, that it has to be reduced Antoinette McKeown: Thank you. In more general and reduced significantly to make a difference. I think terms, just to commend the Northern Ireland Affairs that would be the key focus for us; we are neutral. If Committee for looking at this, and for your there was a decision to devolve, we would want it responsiveness and your timeliness. We would say with the condition that there had to be some reduction that APD is a critical issue for Northern Ireland in the current amount paid. consumers at the minute, but it is one of many critical Aodhan O’Donnell: On a broader issue for consumers issues in relation to aviation policy, which, as you around APD, not just an issue specific to Northern know, is a reserved matter, which is why we are here Ireland, one of the enquiries and complaints that we today. We know the Aviation White Paper is being often receive from passengers is if they have booked developed and we are very keen to engage with the to travel and they do not fly, they have still paid their Northern Ireland Affairs Committee to look again at APD. We often find for consumers that the cost to get the unique position of Northern Ireland consumers in reimbursed for that can be more than the tax they paid relation to that Aviation White Paper and perhaps to in the first place. So there is a real disincentive to give you some general information in relation to the claim back that tax and I suppose the issue is about consumer experience on that. The Consumer Council where that sits, how it is administered and how it can has long called for an aviation policy for Northern be more cost-effective for people to get money back Ireland and we would like your support on that. on a tax that they have paid for a service they have not taken. Q123 Chair: Okay. In a very short amount of time, what are the other issues? Just very, very briefly. Q120 Oliver Colvile: One of the comments made Antoinette McKeown: They range from unfair added was that having an airport tax is prohibitive in charges, the lack of connectivity in relation to public encouraging people to come into Northern Ireland. Do transport and airports in Northern Ireland—fair you think that is the case as well? treatment for disabled passengers, for example. We Aodhan O’Donnell: I suppose we would argue it is a handled over 1,000 complaints in the last year in good place to come to. relation to airlines; it is our highest level of complainant areas. For those passengers seeking Q121 Oliver Colvile: No, I know, but given that financial recompense we have returned on average there is an airport tax, one of your predecessors £321 per passenger per complaint in the last year; we suggested that that was a discouragement for people know that that is only the tip of the iceberg. We know flying into Northern Ireland. Do you think that is or that the majority of passengers who do not have good do you think there is something else that is more treatment do not complain and they are the issues we important that turns people off from coming into would like to bring back to you. Northern Ireland? Kate Hoey: easyJet is very good. Advertising, am I? Aodhan O’Donnell: From our focus, we have always Chair: Thank you very much for your evidence. You been outward-looking in looking at the impact that it have been very useful and very interesting. has on consumers that are travelling. I suppose if you cobber Pack: U PL: CWE1 [E] Processed: [07-07-2011 09:58] Job: 013271 Unit: PG02
Ev 20 Northern Ireland Committee: Evidence
Examination of Witnesses
Witnesses: Huw Hopkins, Manager, Industry and Government Affairs, British Midland International, Paul Simmons, UK Director, easyJet, and Niall Duffy, Head of Public Affairs, Flybe, gave evidence.
Chair: Mr Hopkins from British Midland fares—certainly of the lead-in fares, as we call them— International, Mr Simmons from easyJet and Mr being tax does make life a lot more difficult to launch Duffy from Flybe, you are very welcome. Thank you and sustain new routes. very much for coming to see us today. I think you Huw Hopkins: Yes, we are profitable on the route, heard the earlier evidence, so no need for me to give just. That is why we continue to operate it. But of a long introduction. We will go straight into questions, course, all these routes are under scrutiny at all times if we may. and APD will not help, especially if the increase that comes in next year is so punitive. On a number of Q124 Mel Stride: Welcome to the Committee. A routes, we will have to pass on some of the tax, less question really for the three airlines, I think, more than people will fly and some routes will struggle. At the anything else. We heard yesterday that the suggestion moment we are okay. was that Continental, in flying from Belfast to Niall Duffy: We fly 19 routes from Northern Ireland Newark, are effectively absorbing the APD rather than as well. Ours is a slightly different business model to passing it on to the consumer. Is that something that some of the others in that, although easyJet have more you are doing in the context of any of your flights in passengers, we are the biggest airline in terms of flight and out of Belfast? By that I mean that you would numbers because we operate smaller aircraft. So I charge the same amount for the tickets even if APD think we were 23,000 to easyJet’s 22,000 last year. were at zero, for instance. Like easyJet, we have a portfolio of routes. Some will Niall Duffy: I think it is true to say that yes, we do make money, others will be marginal and others are absorb a lot of that cost. Some of the lead-in fares— less marginal. I think it is such a price-sensitive the up-front offer fares that we advertise for places industry that it would be reasonable to say that at any like Manchester and Birmingham—are as little as given point external cost pressures like taxation do £25.99 and that is 10% of what is on offer in that make some routes beyond the pale. particular aircraft. Now if you are looking at £12 of that immediately going to tax, think of all the other Q126 Mel Stride: Just thinking about these particular fixed costs that we have on top of that. I think it is routes into Ireland and taking away for a moment the fair to say that a decent percentage of what we all overhead of running the airline and just looking at the take from the customer goes in tax. To answer your income that is coming in for the ticket and then the question, yes, we do end up subsuming it. various variable costs that you have got associated Paul Simmons: I think that might be true for easyJet with that—charges to airports, the fuel, the planes and as well, so we have a similar kind of pricing policy, the APD itself, so going down to the contribution to so we would have a similar number of fares at that overheads line, if you like—could you just break kind of low price in the 20s as a lead-in fare. So as a down for us what those various costs are in that proportion of the total fare, clearly it is a large amount calculation of contribution to overheads and how and it is a big issue. significant APD is there on an average ticket? Do you Huw Hopkins: The same. We absorb some of the have that kind of narrative you could provide? costs; we pass on some of the costs. If APD is reduced Huw Hopkins: You could argue that APD is not the to zero, that will be reflected in the fares that we offer. biggest problem that we have in terms of costs. Fuel, for example, is a huge cost to us. But as Niall said, Q125 Mel Stride: And with the routes, looking at aviation fares are very price-sensitive and increases in Belfast in particular, are all those flights profitable? APD can make the difference. From Northern Ireland Are those routes profitable? If they are not, is there obviously there is not much choice. There is the ferry, some degree of cross-subsidisation between the but it is not much of a choice. People have to fly and various routes and schedules that you are flying? for what you might call non-essential flights, people Paul Simmons: We have 19 routes out of Belfast. To will not fly. That is the risk. give some perspective, we have flown over 30 million people in the last 12 years through Belfast and about Q127 Mel Stride: Sorry, just to rephrase my 2.5 million every year, so by passenger numbers we question, I suppose if we are saying you absorb all the are the largest airline in Northern Ireland by quite APD in the price of the ticket—let’s assume that— some way. In that mix of 19 routes, some are more how much of the price of that ticket on average does profitable than others and you look at things on a that represent if I am flying on those routes? Is it an portfolio basis. So you may well launch a route order of a few percent or quite a few percent? knowing that it will take a period of time to gestate Niall Duffy: Well, perhaps I could add Northern and grow to become profitable and therefore it is Ireland is—and you have all said it already—a unique being co-funded by some of the other routes that are case for lots of reasons. One in particular is the fact more profitable. That is just the way of the airline that we will obviously burn less fuel flying from world, that as you grow your business, some are good, Northern Ireland to Glasgow. A flight of 104 miles some are not so good, some you are growing for a would not be economically viable anywhere else in definitive reason and some may not be economically the United Kingdom, but because of that water—so as viable and you have to stop flying them. That is just a percentage, APD is more. But if you are looking at one of the ways of the airline business. However, I something like Belfast to Jersey, which we operate, it would say that having such a high proportion of the will be less. I think everything is down to the cobber Pack: U PL: COE1 [O] Processed: [07-07-2011 09:58] Job: 013271 Unit: PG02 Source: /MILES/PKU/INPUT/013271/013271_o002_th_Uncorrected 22 June 2011 (after renumbering by Hansard).xml
Northern Ireland Committee: Evidence Ev 21
22 June 2011 Huw Hopkins, Paul Simmons and Niall Duffy individual nature of the route. But it goes back to what more economically advantageous to fill your planes, Kate and Naomi were saying earlier on. It is not about you would be more likely to fill them at the margins. luxury flying; it is about necessity. It is about not Huw Hopkins: Yes, possibly. spending nine hours going to Manchester via the ferry and the train but doing it in a 45-minute hop. Q130 Chair: Mr Simmons, what is your company’s Paul Simmons: I think that is true. The key drivers thinking behind it? of cost for airlines are fuel, the cost of running the Paul Simmons: I think it is worth mentioning that the plane, the employment costs, the airport costs, landing APD still appears as an environmental measure in the at the airport, navigation charges and then tax. If you Budget, so by definition still has some linkage to the look at what we said earlier that if some of our lead-in environmental impact of flying. It is clear to us that a fares are in the mid-20s then half of that is taxed per-plane tax is a much better link to the cause and immediately. So as a proportion, in terms of the effect of flying in terms of if you fly a full plane, you Northern Ireland flights, which tend to be shorter and are causing the same amount of pollution as if you fly also therefore cheaper, tax is a greater proportion. The an empty plane. Effectively encouraging people to fly other thing to say is, as I am sure you are very well half-empty, or even less, is not great. So we think that aware, that the double hits people get flying to Britain if a per-plane tax was introduced, it would encourage from Ireland. 74% of our passengers are flying on airlines to make sure that planes are full when they domestic flights, so 74% of the 2.5 million passengers take off and therefore the environmental impact is we fly are being hit twice, which seems to be doubly spread across a larger number of passengers. It seems unfair. to make perfect sense. So is this an environmental tax Niall Duffy: This is very consensual, isn’t it? If I or not? It appears that it is still, because that is where could add to that, at the moment you have what I it is classified. If it is, then why not have a per-plane frankly think is a scandal, that a family flying from tax? I could go on and bore you for quite a while. I Belfast to Glasgow pays £12 both ways. It is 104 will try not to. But it was disappointing for us that it miles. The same family flying on the longest was in both the Government party manifestos and also scheduled flight from Northern Ireland—to Larnaca in in the coalition agreement that a per-plane tax was the Cyprus—will pay £12 going and nothing coming way to go, for exactly the reasons I have just back, but it is about 2,300 miles. I do not think that is articulated, yet it has not transpired. We have not seen necessarily equitable, particularly for a community the legal advice that it would fall foul of the Chicago such as Northern Ireland where flying is a necessity Convention—that has never been published—so it rather than a luxury. would be useful to see that.
Q128 Naomi Long: In terms of the issue of a per- Q131 Naomi Long: You talk about the incentive to plane tax, which I think has been raised by easyJet as fly with the plane full and obviously there is a one way of reorganising APD, would the other two financial incentive to do that as things stand anyway. airlines share that view—we’ve said that it’s been Would the incentive not actually be to reduce your consensual—that a per plane tax would be preferable schedule to ensure that your planes were full and to a passenger tax? therefore that could have a detrimental impact if there Niall Duffy: I think it is probably a non-starter, so it was a per-plane tax on the availability of flights for is a rhetorical question, but we have always been on consumers? record as saying that tax should be in direct proportion Paul Simmons: We do ensure that our planes are full. to the emissions that the aircraft make. So a per-plane Last year our load factors were 87%. Over the tax that takes into account lifeline flying and lower summer, our load factors will be in the 90 percents. load factors from the regions by necessity of So we do tailor our flying programme to make sure population would be something that we would support that our planes are full when they take off, which is as well. We do pollute. You will not find any why we believe so strongly that we are, to the best of O’Leary-like phrases from any of us. To get that lump our ability, acting responsibly from an environmental of metal off the ground, you need to burn some perspective. I also believe that a taxation policy kerosene and that creates CO2. We need to pay our should encourage other players to do the same. fair share. But Flybe’s belief is very strongly that the Huw Hopkins: You are quite right. We all want to fill tax we pay should be in relation to the emissions that our planes. If we do not, then you are right to say that we create. we would look at our schedule and possibly reduce it Huw Hopkins: We are not in favour of a per-plane because we are not filling them enough. Quite tax. As Niall has alluded, the legality of it is in possibly. At the moment we are okay, as I said before, question anyway, so it is probably not a starter. But in terms of profitability as well, but if our load factors we do not really need any incentive to fill our planes; did dip significantly, then it is just the sort of thing it is what we try to do all the time to try to make a that we would have to consider. profit. So we are trying to fill our planes. Understandably, some other airlines, such as charters, Q132 Naomi Long: Would a per-plane tax be more do not fly until they have filled their planes. It is a likely to drive you in that direction than a per- different mind-set. We have a schedule to live up to passenger tax? and we do try to fill our planes as much as we can. Huw Hopkins: I don't think so. Niall Duffy: I think there is a possibility it could. As Q129 Mel Stride: You would nonetheless accept, I said at the outset, ours is a slightly different business presumably, that if the tax were rejigged to make it model because we run six or seven services a day cobber Pack: U PL: COE1 [E] Processed: [07-07-2011 09:58] Job: 013271 Unit: PG02 Source: /MILES/PKU/INPUT/013271/013271_o002_th_Uncorrected 22 June 2011 (after renumbering by Hansard).xml
Ev 22 Northern Ireland Committee: Evidence
22 June 2011 Huw Hopkins, Paul Simmons and Niall Duffy from Belfast City to various points in the UK and we its fair share in terms of our environmental impact and know that the business passenger will jump on the I think the added benefits of social cohesion, half past six and in the middle of the day it will be a employment, mobility and business travel, particularly different kind of passenger. Now the loads in the from Northern Ireland, means that there is a case to middle of the day are by definition smaller and this is be said that aviation needs as much help as it can not a population size that can maintain huge numbers possibly get in terms of helping the Northern Irish and of shuttle bus services, if you like, in the sky without other UK regional economies. a level of low load factor in the middle of the day. That is why I prefaced what I said. Flybe supports a Q136 Oliver Colvile: Do you have an estimate of, if per-plane tax, but there has to be a regional element you had to pay VAT and other aviation fuels, what the to it. There is not the level of population that there is difference would be between that and what is being in the south-east that can maintain high load factors suggested at the moment? necessarily outside of all those 39 airports that we fly Niall Duffy: I personally do not. I do not know if the from, from Inverness right down to Jersey. other guys do. Paul Simmons: It is not something we have looked at. Q133 Chair: Another question is really more for Government than for you, but, for example, I have Q137 Oliver Colvile: Might you have a look at it? UPS and also DHL branches in my constituency. They Huw Hopkins: Yes. have made a lot of representations to me about the Paul Simmons: I think the other thing to say that has danger of extending the per-plane duty onto freight not been mentioned yet is the EU ETS, the emissions transportation, which again, given Northern Ireland’s trading scheme that aviation will come into in the next situation, would potentially have a rather detrimental year, which we have lobbied for for the last few years, impact on business, would it not? So if we went down to actively put all the environmental impact into one that route, is there not the danger it just slides over place. We are very much in favour of that form of, into freight as well, which they certainly feel would effectively, taxation to cover the impact of aviation be very damaging? and therefore I think paying twice would be Paul Simmons: I suppose our perspective would be: questionable. is it an environmental tax or not? If it is an environmental tax, then the polluter pays, so everyone Q138 Oliver Colvile: No, I am not suggesting that. should be treated the same, including business jets, What I am just trying to find out from you is this. If which are also excluded. We feel quite strongly that you were expected to pay VAT on fuel and other taxes there should be a level playing field based on the were to go, I am just trying to find out what the environmental impact that you are having. difference is. Niall Duffy: Flybe’s view is the same, in that it is Niall Duffy: I am sure we could do the sums. I cannot well known that the freight industry do fly some of speak for the other guys, but my suspicion is that our the older aircraft up there working in the sector. If it number-crunchers back at base are probably dealing flies, it should be taxed. It would perhaps even with the reality of what we have to come up with incentivise them to invest in some newer aircraft as every day rather than that. If that were to become an well. issue, we would do our sums. Huw Hopkins: I cannot really speak for the cargo carriers, but I understand why they say what they have Q139 Chair: Just going back to Oliver’s earlier said. But I did think that the pretence that APD was an question about the difficulties or otherwise of flying environmental tax had been dropped some time ago. I to Northern Ireland, we have just visited Londonderry do not think that it really is. However it is packaged and I know one or two colleagues had some difficulty by the Treasury, it is not an environmental tax and organising convenient flights. Have you any plans to nobody has said it is for at least 18 months, I think. fly from Gatwick or Heathrow to City of Derry Chair: I do not know how you define it, really. airport? Income tax is not an environmental tax, but we still Paul Simmons: We do not have any plans. have it. Niall Duffy: We have just launched a service from Manchester to City of Derry. We will see how that Q134 Oliver Colvile: Do you find that flying into goes, but, like Paul, no plans that I am aware of at Northern Ireland is one of the more challenging places the moment. to fly into financially, or not? Huw Hopkins: Nor ourselves. Huw Hopkins: No more than anywhere else and a lot less than some of the places we fly to. Q140 Naomi Long: In terms of the impacts on flights and the number of flights taken, obviously the Q135 Oliver Colvile: Is air passenger duty not recession will be having an impact. To what degree simply a fairer alternative to VAT and fuel duty, which have you noticed that impact in terms of your own the aviation industry does not pay? business and to what degree would your arguments Huw Hopkins: And thank goodness for that. You around this be altered by an upturn in the economy? could argue that. It is just a take for the Treasury Paul Simmons: In terms of the economic downturn, coffers as far as I am concerned, but I would say that, clearly life across all industries has been more wouldn’t I? difficult. The technical phrase for the way that we Niall Duffy: I think that aviation—as does this place, work is that we price to load. In other words, we drive who have done work on it—already pays more than on the load factor how full the plane is and then the cobber Pack: U PL: COE1 [O] Processed: [07-07-2011 09:58] Job: 013271 Unit: PG02 Source: /MILES/PKU/INPUT/013271/013271_o002_th_Uncorrected 22 June 2011 (after renumbering by Hansard).xml
Northern Ireland Committee: Evidence Ev 23
22 June 2011 Huw Hopkins, Paul Simmons and Niall Duffy price is almost a function of wanting to have the is competition. We here are fairly consensual on some plane, say, 85% or 87% full. So in a difficult economic things but we compete tooth and nail and I suspect time, the yields start to suffer but we still fill the that is probably why PSOs are a long shot for planes. It is just our business model is different to Northern Ireland. most of the other guys, but that is just the way that we work. So we would see the impact on our bottom Q143 Kate Hoey: As you talked about competition, line through the pricing that people pay, but we would there is something I have always wanted to ask you. still fly the same number of people to and from How often do you all get together and sort out a cosy Belfast. deal about ticket pricing? There certainly used to be a Niall Duffy: It is a game of revenue—of yield versus cartel operating between BMI and British Airways. Of volume. There will be routes that we operate from course British Airways are no longer there, although places other than Northern Ireland where, because of I have to say Aer Lingus does not seem to be part of the nature of the market, we will be able to charge a it. But do you get together and say, “Look, I think we higher yield. But in other areas we make up that same could probably afford to put it up a bit more here and end point by charging less but having more travellers. you do that and we’ll do that but we’ll not say so”? I am four years in this industry and I have worked in Huw Hopkins: I think that is illegal. a number and it is the most price-sensitive but Niall Duffy: Yes. It is illegal. quickest on its feet I have ever worked with. Huw Hopkins: I would repeat what Niall has said. Q144 Kate Hoey: It may well be illegal. I did not Yes, the downturn has had an effect, fortunately not ask if you were breaking the law; I said how often do disastrous in terms of Belfast, and that is probably a you get together and discuss these things about the reflection of a captive market that has to fly across the special nature of Northern Ireland and what you can water to do business, to see friends and family and so get away with? Having said that, can I just say I think on and so forth. But yes, there has been an effect. As the airline service on the whole to Northern Ireland is I say, not disastrous, and if there is a serious upturn, excellent? I am someone who does not get my way we look forward to it. paid back and forward. I use it a lot and I think it Naomi Long: We all do. is excellent. Chair: I think what Kate means is I am sure you get Q141 Kate Hoey: You heard the discussion earlier. together to discuss how you can best provide services What is your view on the whole public service to people in Northern Ireland. obligation aspect relating to Northern Ireland? Do you Paul Simmons: We do not. We do not talk to other think it is a goer if people were united behind it or do airlines about services in Northern Ireland or you think it is not really relevant? anywhere else for that matter. We just do not do that. Huw Hopkins: Northern Ireland is isolated to an As I have tried to explain, our pricing is based on extent, but I think the Commission tends to look at demand and is completely transparent in that regard. rather more isolated communities—Greek islands, the Highlands and Islands in Scotland—where the Q145 Kate Hoey: Yes, you do tend to operate alternatives are very limited. They call them lifeline separately. What about BMI and Flybe? services on the basis that an airline would not operate Niall Duffy: All three of us are members of the British a service between A and B unless they were Air Transport Association—BATA—as are BA, Virgin subsidised. That is the crucial point that the and others and there are lots of far better qualified Commission considers. people than I there who, if ever we even get very close to discussing any competition issues, jump on us all. Q142 Kate Hoey: easyJet? There are plenty of airlines who have fallen foul of Paul Simmons: I think the tax is an unfair tax overall, that and none of them are sat at this table. but particularly unfair for people in Northern Ireland and an increase will, we believe, have a detrimental Q146 Kate Hoey: Just one final question, because it effect of around 104,000 visitors. We have run some is a thing that bugs me a lot. Did any of the airlines independent research through a company called who fly into the International make a formal Frontier Economics, which I think our Chief complaint about the £1 drop-off and pick-up charge? Executive, Carolyn McCall, sent to every MP. If you Paul Simmons: We registered our disquiet. have not got it, we can refurnish you with a copy. But Chair: It is the same at Birmingham. we went through some scenario planning based on what would happen and we think it is about 104,000 Q147 Oliver Colvile: What is your level of people if it goes from £12 to £16 that will not visit. investment in Northern Ireland? So that is material. Whether you choose to consider Niall Duffy: We have 237 staff there. In terms of their the model of Inverness being in the APD apron or not GVA I am not sure what it would be. If you go to I think is really a matter for you guys, the politicians, George Best Belfast City, you will see the branding but it is an interesting thing to note, at least. that Flybe does is pretty significant. We have been Niall Duffy: I think Huw summed up the PSO nature there since 1986. We have got nine aircraft based of it pretty well. There are certain European there, which makes it our biggest base along with governments—I think of Italy in particular—where Southampton and therefore I would say a pretty some of the trade associations that we are members of sizeable amount. I could put a number to it with a bit have challenged some of the PSO routes exactly on of scribbling, perhaps, once we have finished here. the basis that Huw explained, particularly where there Oliver Colvile: It would be helpful to know. cobber Pack: U PL: COE1 [E] Processed: [07-07-2011 09:58] Job: 013271 Unit: PG02 Source: /MILES/PKU/INPUT/013271/013271_o002_th_Uncorrected 22 June 2011 (after renumbering by Hansard).xml
Ev 24 Northern Ireland Committee: Evidence
22 June 2011 Huw Hopkins, Paul Simmons and Niall Duffy
Niall Duffy: It is very interesting. I used to travel to Paul Simmons: But it would be the largest element Northern Ireland a lot for family reasons and it is now of operating cost. I should also say we do have a evident how much over the last 15 to 25 years services similar focus on smart equipment. The average age of have adapted to meet what is a very clear need. our planes is less than four years old. We have got George Best Belfast City Airport is transformed and 200 Airbuses in the fleet now, average age less than that is on the back of the investment that the likes of four years, so we have got new planes, efficient ourselves have put in there and brought passengers. engines and so we are doing the best we can to We are flying 1.1 million people out of there every mitigate the impact. year. That is not flyaway tourism to the Caribbean or Huw Hopkins: Yes, the figure sounds about right. It to Orlando, which the Government does seem to be will increase as a percentage for longer mid-haul particularly concerned about. 1 million people flying flights that we do, but the figure sounds about right to the Caribbean are going to get their band shifted; for the peak about two years ago. 18 million people flying domestically—they are not going to do anything about them. I feel very strongly Q151 Chair: It would increase for long-haul, would about domestic aviation and I think that the three of it? us put an awful lot of care, assessment and finance Huw Hopkins: Yes, as a percentage. into places like Belfast. Paul Simmons: We have around 200 direct employees Q152 Chair: Perhaps briefly each of you would like servicing our Belfast International operation and to just sum up your position and what you would like probably roughly about the same again in terms of to see happen from here. indirect, so ground-handling-type people who are not Niall Duffy: Yes. I am slightly surprised you did not direct employees but work on behalf of easyJet in the ask us what our views are on devolving APD to airport and surrounding areas. We have six Airbus Northern Ireland, because you will not get consensus A319s based permanently at the airport. on that. We are in favour of it. Because Flybe flies to Huw Hopkins: I do not have the figures. I would have 39 UK airports, there is barely, outside of Heathrow, to do some scribbling as well. City and Stansted, a bit of tarmac that we do not touch so we feel very strongly about the regions having Q148 Oliver Colvile: Would you do that? Would you control of their own agenda. So we would be in favour scribble please? of it, with some checks and balances to ensure that we Huw Hopkins: Yes, certainly. But the commitment did not get some silly vanity route to Dubai on the that we have to Belfast is significant and long-term. I basis of regional aviation. I think for us and for want to repeat what Niall has said about domestic Northern Ireland, the Government has to get the flying, which the Government seems rather banding right. I do think it is a scandal that domestic determined to punish, almost as if the high speed rail aviation, where it is a necessity as it is in Northern link had been built when it will not happen for 30 Ireland, does seem to take a much heavier hit and years and of course it is not going to Belfast. So passengers pay twice. So for those reasons we would people still have to fly internally. be in favour of Northern Ireland, being as it is the Oliver Colvile: Nor is it coming to Plymouth either, only part of the UK with a land border with another I am afraid to say. nation who really is very competitive in terms of Niall Duffy: Or Exeter. aviation. We would be in support of that, but we want Oliver Colvile: Or, for that matter, to Exeter. the UK Government to sort out the banding to make domestic aviation a little bit fairer. Q149 Chair: You mentioned about the cost of fuel Paul Simmons: We think it is an unfair tax overall, earlier. I know it changes all the time, so you probably but particularly unfair to people in Northern Ireland cannot answer, but what sort of a percentage is it of and we think it will have a material impact on tourism your operating cost of each flight? I know it is difficult if increased from £12 to £16, which is the proposal. to say because you have got fixed overheads and So as I said before, we think it is about 104,000 everything else, but just how significant is it? people that will not come to Northern Ireland as a Niall Duffy: When fuel was at $147 a barrel at its result. We also believe that the banding issue is very peak a couple of summers ago, I know that the critical. Effectively, the proposal to reduce banding is percentage of our expenditure overall on fuel was passing a subsidy from short-haul to long-haul. So in actually still less than 30%; it was 29%. We are effect, the short-haul passenger is paying more for the blessed by having a very new fleet, but even at that benefit of the long-haul traveller and the majority of point, 30% of your total budget being spent on fuel is passengers from Northern Ireland are flying a lot. It has obviously come down and, like the others short-haul—in fact, the majority of passengers from I am sure, we have a hedging policy. The next few the UK are flying short-haul. So that shift in taxation months will be very interesting to see, but fuel is a to cross-subsidise people who are going to the large part of all our expenditure. Caribbean or other places is, in our view, questionable. Why is that fair? Q150 Chair: Is that of operating costs or entire Also, under the Government’s own request for company costs? commentary and comments, which we clearly Niall Duffy: Operating costs. welcome, there is an inherent view that this change Paul Simmons: It would be similar for us. If you need will not help CO2 emissions; in fact it will hurt CO2 the exact figures, I can happily go off and get them. emissions. So I go back to the original point about Chair: No, no. whether this is a green tax or not. It is about the cobber Pack: U PL: COE1 [O] Processed: [07-07-2011 09:58] Job: 013271 Unit: PG02 Source: /MILES/PKU/INPUT/013271/013271_o002_th_Uncorrected 22 June 2011 (after renumbering by Hansard).xml
Northern Ireland Committee: Evidence Ev 25
22 June 2011 Huw Hopkins, Paul Simmons and Niall Duffy
Government’s own logic in making these changes and trying to give constructive views, but I think especially the changes to the banding will actually particularly, as I have said before, people from increase CO2 emissions. It also, we believe, will be Northern Ireland are getting the real rough end of the harmful to the UK economy overall because fewer stick in terms of this double-dip effect. As I said people will come. The majority of travellers come before, 74% of our passengers are paying it twice. If from Europe or within the UK; they come short-haul. they are paying it twice on £16 rather than £12, that So there will be less net tourism income or business is a real hit to the average family and it is just not fair. income into the UK. So for a large number of reasons Huw Hopkins: On the devolved APD, we are agnostic it is not a great idea. about that, but we would be happy if Northern The final point is on transfer passengers. We have Ireland—or Scotland or Wales, for that matter— talked about cargo, we have talked about private decided to reduce unilaterally, if they were allowed to, aviation but we have not talked about transfer their levels of APD. Just as a general point, the passengers. Under our calculation, by not charging Treasury, in their consultation document, talked about transfer passengers, at Heathrow alone there is another the value of aviation to the economy generally and subsidy of about £400 million. In other words, if the how tourism and the aviation industry can be part of transfer passengers through Heathrow, for example, the kick-starting of the economy. Yet they seem to paid APD, it would net about £400 million. Because want to tax us into submission, as a general point. that is not being levied, everyone else has to cover Chair: It has been a very useful session. Thank you that cost. It is very hard to see how this is fair. We are very much for coming. cobber Pack: U PL: COE1 [SE] Processed: [07-07-2011 09:59] Job: 013271 Unit: PG03 Source: /MILES/PKU/INPUT/013271/013271_o003_th_Uncorrected NIC 29 06 11.xml
Ev 26 Northern Ireland Committee: Evidence
Wednesday 29 June 2011
Members present: Mr Laurence Robertson (Chair)
Mr Joe Benton Dr Alasdair McDonnell Oliver Colvile Ian Paisley Lady Hermon David Simpson Kate Hoey Mel Stride ______
Examination of Witnesses
Witnesses: Conor McAuliffe, Managing Director, Europe and Industry Affairs, and Bob Schumacher, Managing Director, Sales, UK and Ireland, Continental Airlines, gave evidence.
Q153 Chair: Mr McAuliffe, Mr Schumacher, thank Q154 Oliver Colvile: First of all, can I thank you you very much for joining us. Sorry we have kept you very much for coming to see us? It is very good to waiting a little while, but we are very pleased to see see you. How much impact do you think this duty is you. As you know, we are conducting an inquiry into having on the Northern Ireland economy? the effects of air passenger duty on Northern Ireland, Bob Schumacher: Anything that prejudices its so we are very glad to have you here to talk to us. connectivity, by definition of us being here and Because we are being televised, there is a constant speaking to you on this subject and passionately doing buzz from the units, so it is not always easy to hear so locally too, cannot be good for the economy of in this room. Maybe if we could speak up a little bit it Northern Ireland. We are not here to speculate and, as will help. We are an ageing Committee, so we cannot Conor has suggested, we are committed to the service, necessarily hear what is being said. but we are constantly seeing this leak out of our Lady Hermon: Speak for yourself. pocket of approximately seven weeks’ worth of Chair: I am speaking for myself, yes. Perhaps I could revenue on that service—running that aeroplane seven start. What was it that drew Continental to invest in times a week across the Atlantic back and forth. Seven the route to Newark? How has it gone? Have your weeks’ worth of total revenue on that aeroplane is expectations been fulfilled? Have you been happy written in a cheque to 11 Downing Street. So we do with what has happened? the first seven weeks of the year just for APD, and Bob Schumacher: Good afternoon; thanks for inviting us. Yes, we started six years ago, so we put a then we start trying to pay for fuel and utilisation of lot of blood, sweat and tears into pre-start-up, start-up the aeroplane and everything else. It is the equivalent, and then running it through to profitability ahead of if I can put it in very parochial terms, of two shops the world economic downturn, where many routes for on the high street, one at one end—perhaps we can many airlines have suffered. But it has fulfilled our do north and south here—and one at the other, and expectations. We do not make these decisions lightly one having to apply the equivalent of about a 14.5% and we have got a pretty good track record around the sales tax to the same product. You can imagine which European theatre where we fly of going into markets shop would go out of business first. and staying in markets, bar exceptional circumstances. Conor McAuliffe: We are very committed to the route Q155 Oliver Colvile: Do you feel the same way? at this point in time. The problem we are seeing with Conor McAuliffe: Yes. You can answer the question the route is that the proximity to Dublin is causing by saying, “What would happen if the service was not enormous problems. We believe that the full there?” This is the only air link between North responsibility for the financial losses that are being America and Northern Ireland. The Northern Ireland suffered now lies squarely on the shoulders of the Government has calculated that in tourism revenue APD. If you take your classic family of four who are alone it brings in £20 million annually. That does not travelling on our Belfast service to Dublin, they are count the inward investment; we have a lot of paying £240. If they go on the modern road to Dublin corporate customers that have established bases in airport, they are paying €12. So in other words they Northern Ireland, including, for example, the New are paying 20 times more in departure tax in Belfast than they are in Dublin. That differential is going to York Stock Exchange, Caterpillar and various other increase when the Irish Government gets rid of the tax corporate customers, who value the service because altogether. We are forced as a result to absorb the APD it provides them with that connection. We have not in Belfast to ensure that passengers do not leak over calculated what benefit they bring to Northern Ireland, the border to services in Dublin. It is no coincidence but it is significant. at this point that the amount of APD that we remit to Bob Schumacher: Some suggest they are there the Treasury is roughly the same as the amount of our because of that service. That may be an exaggeration, current losses on the route. If APD was eliminated, because of course there are always other ways, this would give the route a good chance of long-term including getting in a car and driving to the South. viability. However, I think we know intuitively that transport Chair: Perhaps we could look into that in a bit more connectivity is a fundamental when it comes to 21st detail. century business. cobber Pack: U PL: COE1 [O] Processed: [07-07-2011 09:59] Job: 013271 Unit: PG03 Source: /MILES/PKU/INPUT/013271/013271_o003_th_Uncorrected NIC 29 06 11.xml
Northern Ireland Committee: Evidence Ev 27
29 June 2011 Conor McAuliffe and Bob Schumacher
Q156 Oliver Colvile: How many passengers use it needs to be found somewhere else. We are not going Continental’s Belfast to Newark service annually? to continually lose money on the service in the Conor McAuliffe: It is approximately 100,000 a year. medium term. Conor McAuliffe: We oppose the APD as a general Q157 Oliver Colvile: Do you see that as mainly matter, because it is a regressive tax that is bad for business people or do you see it as tourists and visiting aviation and bad for the UK economy. But we see it families and things like that? as a particular circumstance here in Belfast, because Bob Schumacher: It is a mix, and it has to be a mix. of its proximity to Dublin, where action is urgently We have to have a balanced cabin. We have to have a needed for the service to be sustainable. We have been proportion of our traffic coming in the front cabin, losing money for quite some time now and we cannot which travels at typical business times of year, i.e. not justify to shareholders continuing indefinitely to do so. at Christmas, not at Easter and not during the school holidays, but conversely we need the back cabin, Q161 Lady Hermon: If I were a customer thinking which is full of tourists and VFR—visiting friends and about buying my ticket with Continental Airlines, relatives. All of that traffic happens in the peak what reassurance could you today give customers that holiday seasons, typically the schoolchildren being in fact you will continue to keep your airline open away from school. into Belfast International Airport? If we again look at the context of what we see—and Bob Schumacher: We are committed to the service. we see it just down the road there in Dublin—we carry What we are seeing and what we are doing here and a load factor out of Belfast that is equivalent to the what we have also been doing through the Northern European average and, within one percentage point, it Ireland Assembly is having people understand the is the same as what we carry out of Dublin. That tells conundrum that we will have. At some point, us that everything else is right. There is the market someone, somewhere will say, “Enough is enough.” there, which we saw six and a half years ago to go We are not on the cusp of “Enough is enough”; we into that market, and there is the customer base there. are saying that anything that mitigates that removes The reason why the economics are so prejudiced all prejudice to future operations. If oil goes up to against us is because we leak over $5 million in tax $150 a barrel, who knows who will be flying where on one service that we do not on the other. On the anyway. All of these factors have to be put in, but if other it is effectively a rounding error and, as Conor we can get this issue resolved we are quite literally on suggested, the €3 is about to go away in the a level playing field with the Republic, which is where Republic anyway. we want to see this go. If it does not go, I think some people would question our sanity: “Why would you Q158 Oliver Colvile: Just remind me, when was the continue to operate just 120 miles north into an airport first time you introduced this service? where you continue to lose money because of air Bob Schumacher: It was on 27 May 2005. passenger duty, when you could operate out of Dublin and have done for many more years than you have Q159 Oliver Colvile: Would you be interested in operated out of Belfast, successfully and profitably?” making it to other places as well—to Washington and maybe Chicago and places like that? Q162 Kate Hoey: So passengers in Northern Ireland Bob Schumacher: We would like to get this one right who want to fly can book up quite happily as far ahead first. We have had this one right in the past, and as as you allow them to book at the moment, with we have seen air passenger duty escalate over recent absolute certainty that the flight will still be going? years—the last increase of course being in November Bob Schumacher: Absolute certainty is something no of last year, which was an increase of one third, from one can say in business, let alone in the business of £45 to £60 and from £80 to £120 in the front cabin— airlines. We have seen the tragedy of Fukushima; who that is where you start to see that money just gush out would have put that into a business plan? of the route. Q163 Kate Hoey: But you have no plans at the Q160 Lady Hermon: It is very nice to have you moment being discussed at any level within here. Can I just pick up and ask what you actually Continental to stop the service? mean when you say, “When we get this one right”? Bob Schumacher: No. The only plans we have are to Translate that phrase to us as a Committee, please. address this issue and to bring this to the fore in Bob Schumacher: We are a business. We have Government. shareholders. We are not a utility. We have one of the most flexible means of transportation in terms of Q164 Ian Paisley: Again, you are very welcome; it where we fly aeroplanes to. We also have a is great to see you here. You have used very commitment to a market that we have grown and interesting words that you have a record of staying in developed on both sides of the Atlantic. Just over half markets, which is absolutely great, but that the the traffic comes from Northern Ireland; the other half payment of this tax will not last for the medium term. comes from the US. So we don’t do that for fun, and Could you just unpack that? What time frame are you we have built that up, but at some stage, particularly, chaps talking about? as Conor has said, when you run at a loss equivalent Bob Schumacher: It is very difficult. It is not a to what we are paying in tax to 11 Downing Street, decision that Conor and I are making. we need to get a rate of return on that aeroplane, and that rate of return either gets found in that market or Q165 Ian Paisley: Will you be here at Christmas? cobber Pack: U PL: COE1 [E] Processed: [07-07-2011 09:59] Job: 013271 Unit: PG03 Source: /MILES/PKU/INPUT/013271/013271_o003_th_Uncorrected NIC 29 06 11.xml
Ev 28 Northern Ireland Committee: Evidence
29 June 2011 Conor McAuliffe and Bob Schumacher
Bob Schumacher: It is in the schedule to be operating on any aeroplane, whether it is out of Heathrow here through Christmas. or Belfast or Dublin, is correlated to the world economy. We believe we have tapped pretty much our Q166 Ian Paisley: Will you be here into spring? corporate clients; Conor has mentioned some of them Bob Schumacher: We are booking for spring. We in the marketplace in Northern Ireland. They know have a 330-day booking window. We cannot be who we are; we know who they are, and we get as categorical. There are so many factors in the cost of much business as we can out of them. The running an aeroplane, and what we are saying is that performance of the global economy is clearly a over $5 million of the cost of running that aeroplane background count to how any airline does in any is taxation. We cannot deal with oil prices; we cannot market. So we believe we have got that strongly deal with natural occurrences and events that may, covered; we are seeing a recovery in all markets as the God forbid, get in the way of the economics of world gets off its knees and GDP starts to grow again. running any route. So we cannot be held either to sit in front of you or anyone else as a company and say Q170 Mel Stride: Just to press you on that specific we will be guaranteed to be operating any service. point, are you saying that, even with APD as it is, it is conceivable you could go into profit in a year or Q167 Ian Paisley: Politically, to politicians— so’s time because of these other factors? because we have to negotiate this; and let’s be clear: Bob Schumacher: It is conceivable. That is why we I want to see an end to this tax as well—you are are there. Ultimately we are looking for a rate of basically giving us notice that we have probably got return on the aeroplane, and that is what any business about the guts of a year to sort this out before you would do. We have made profit in that market before. chaps are beyond the cusp. Would that be right? Is What we have suffered from is not only the global that a fair interpretation, how I am unpacking what downturn but, during the global downturn and a slow you are saying? It is useful for us to know the time recovery, an increase of 30% in air passenger duty at scales we work in. the drop of a hat in November. We have no control Bob Schumacher: It is more immediate than that. over that. We are very comfortable that the market is there. We Q168 Ian Paisley: More immediate than that? did not mistake the market. We do our homework Bob Schumacher: Yes. The taxation issue cannot live vigilantly before we go into markets such as Belfast, to the Treasury’s timetable of getting a reformation. as we have done in new markets like Stuttgart, which As you may be aware, there was a consultation that we started a few weeks ago in Germany and is one of closed a fortnight ago. We cannot live to an artificial 33 routes that we serve into Europe. So we know what Treasury timetable, which may or may not go one way we are doing; what we cannot account for is someone or another anyway, because it is a consultation. who arbitrarily changes the tax regime in which you Conor McAuliffe: If I could just add to that, people are operating. are extremely nervous when I tell them what the time line is for deciding, because the Treasury has told us Q171 Oliver Colvile: Do you have some idea as to that they will produce a report sometime in the fall what the revenue to the Treasury is from this tax in for implementation of any changes—which may or Northern Ireland? may not include changes to the Belfast APD rate—in Bob Schumacher: To the last pound I do, yes. April 2012 and possibly not even until November 2012, because some airlines have been asking for Q172 Oliver Colvile: What is it? Can I ask? additional time to reprogramme their systems to take Bob Schumacher: I don’t think it’s a great state into account the new changes. So that makes people secret, and I am sure you can find out one way or nervous. What we would like to see is a shorter-term another. We have paid just over £1 million so far, year resolution of this issue. to date, and seeing as we tend to carry the largest load factors across the summer period, that would mount Q169 Mel Stride: Welcome to the Committee. You up to just over £3 million—£3.2 million—for the total have this loss-making route. Is there anything apart year. That is where my $5 million, depending on from the removal of APD that is likely to be pushing which rate of exchange we are using, comes from. Per you up towards profitability in the future? Maybe an head, depending on whether it is in the front or the increase in demand for the service that would back cabin, we pay £60 or £120. naturally occur irrespective of APD? Secondly, is there any reason for being in that market other than Q173 Oliver Colvile: Is it fair to say that you pay it medium- to long-term profitability? Thirdly, if APD on other flights as well? It is not just literally for were equalised across Dublin and Belfast, do you have Northern Ireland; you pay it for other places too. a projection as to what you would expect business to Bob Schumacher: Indeed. rise by? What would you expect your 100,000 passenger base to go up to as a consequence? Q174 Oliver Colvile: So what you are really Bob Schumacher: Of course it is a revenue and cost saying—which I think is quite difficult to do—is that game. As I suggested earlier on, we are happy with you think Northern Ireland should be a special case? the load factor we carry on that service. We see a Bob Schumacher: I am sure there is an argument for difference in the average fare that we carry out of corporation tax as well, but I cannot answer for that. Belfast to Dublin, and the difference is—you guessed But absolutely. It is almost like a mini-Amsterdam, it—air passenger duty. The health of the load factor for those of you who saw what the Dutch authorities cobber Pack: U PL: COE1 [O] Processed: [07-07-2011 09:59] Job: 013271 Unit: PG03 Source: /MILES/PKU/INPUT/013271/013271_o003_th_Uncorrected NIC 29 06 11.xml
Northern Ireland Committee: Evidence Ev 29
29 June 2011 Conor McAuliffe and Bob Schumacher did in terms of air passenger duty, which they Airways and Virgin, who have to pay the same tax— introduced in 2007 or 2008. They saw all the traffic out of the same tax regime, whether it is called leak away over the border to non-air passenger duty Heathrow or Manchester. The difference is the sea that tax regimes in neighbouring countries. Very soon stops most people going anywhere else to start their afterwards, the Dutch Government rescinded that, long-haul journey. Out of Northern Ireland we are the because they saw traffic levels drop by 12% out of only band B operator—the only one paying the higher Schiphol. This is the only example in the UK where rate of tax there—and there is, as Conor suggested, a we have a land border with a different tax regime. very good road now North-South, which will have you at Dublin Airport in an hour and a half. Particularly Q175 Oliver Colvile: And are you seeing some of for anyone living in Belfast and south, it is almost a that going down to Dublin? no-brainer to go south, except in situations where Bob Schumacher: No, because as Conor suggested, carriers like ourselves are absorbing the difference we are stemming that by eating the difference. We are where the price is the same. making sure that the final price paid by the customer in euros in Dublin is equivalent to the final price paid Q180 Dr McDonnell: To go back to the question, by a customer in pounds out of Belfast, give or take how does your price out of Manchester to Newark the rate of exchange. So we are equalising it, but in or London to Newark compare with your Belfast to doing so we are taking that off the average fare, which Newark price? is turning what is a profitable service in Dublin into a Bob Schumacher: Price-wise? loss-making service out of Belfast. Dr McDonnell: Yes. Conor McAuliffe: There was a further study like the Bob Schumacher: That is a good question. Our Amsterdam study earlier this week about passengers average fare is lower because we are compensating out of Germany to the Spanish market. Passengers for the tax out of Belfast to remain competitive with have fallen off as a direct result of eco-taxation, so ourselves out of Dublin. So we get a lower average taxation has a very diluting effect on passenger fare, is the answer to your question. numbers. Oliver Colvile: Don’t worry; I think that taxation Q181 Dr McDonnell: Out of Belfast? should be reduced as much as possible everywhere. Bob Schumacher: Bob Schumacher: Thank you very much. Out of Belfast. The lowest average fare in the UK. Q176 Dr McDonnell: I think we have gathered from your earlier evidence that you cannot see yourselves Q182 Ian Paisley: It is quite significant, Bob. I sustaining this beyond a year. How would you feel understand if you were to fly from terminal one in about it being reduced back to the previous level it Heathrow to Dulles in Washington or from Aldergrove was at? What can you sustain and for how long? In in Belfast to Newark, in business class it is about other words, if it was halved, could you cope with £1,200 of a difference. You are making a significant that? The other thing I did want to probe, so I will investment to keep this route going. throw two or three questions at you, is what your load Bob Schumacher: We are. We will not dispute that. factor is exactly. Is it 85, 87, 90? Bob Schumacher: As this is being televised I think Q183 David Simpson: You are very welcome, we are not privy to say that, but it is the European gentlemen. You can hear from the different questions average; in fact, it is just over the European average that this route is a lifeline for a lot of areas. My on the island of Ireland. constituency in the Craigavon area is the second largest manufacturing base in Northern Ireland, so I Q177 Dr McDonnell: Are the numbers stable? Is that know a lot of companies there use that line for flights stable? Is it going down or going up? to the States. I could not attend the Committee last Bob Schumacher: It is recovering with the economy. week, but they took evidence from the two airports— We look at 12-month averages because you can take International and Belfast. I think, Bob, you mentioned one month and a moving Easter and suddenly you the issue of the bands. I am looking at the research have got numbers that are contradicting each other. papers. Whenever they interviewed both, Belfast But everything there looks fine and is recovering well. International suggested that band B be scrapped and merged with the band A rate and the City’s view was Q178 Dr McDonnell: So then let’s take another that both bands A and B should be zero rated. What angle on this. How do you cope with the tax out of would your preferred option be on that? London? You have a London-Newark route, don’t Conor McAuliffe: This goes to your question of how you? And Manchester? far you can reduce. The greater the reduction, the Bob Schumacher: We fly to several destinations out better. As we were saying, we are paying the APD of London. directly out of our own pockets to the UK Government, so a full reduction to zero, not only in Q179 Dr McDonnell: How does the tax affect you Belfast but everywhere else as well—but Belfast there? Do you increase the fares at those other being the subject here. destinations? Bob Schumacher: It is a level playing field, because Q184 David Simpson: So zero would be your as Continental and United—we are merging into a preferred option? new company, new United—we are up against British Conor McAuliffe: Absolutely. cobber Pack: U PL: COE1 [E] Processed: [07-07-2011 09:59] Job: 013271 Unit: PG03 Source: /MILES/PKU/INPUT/013271/013271_o003_th_Uncorrected NIC 29 06 11.xml
Ev 30 Northern Ireland Committee: Evidence
29 June 2011 Conor McAuliffe and Bob Schumacher
Bob Schumacher: Let’s be clear on one point. We are Q188 Ian Paisley: But you are telling us the service not paying the APD ourselves because we want to. It could essentially stop. Let’s get back to the two shops. is because there is an elasticity of demand, particularly One shop will close. You are essentially saying to us on the island of Ireland where the internet is pervasive that flight will stop and you will use the and our shop-window fares are manifest for all to see. Dublin-Newark link as the main link. Please be We experimented on the route in the early years—in straight with us on this. fact up to three years, before the economic downturn Bob Schumacher: No, what we are saying is that, in in 2007—with having a higher price out of Belfast a prejudiced market position—irrespective of a border that effectively took the APD as “fare plus APD there, but we understand there is a border there equals final price”. We saw the load factors because that brings this tax juxtaposition that is progressively drop out of Belfast and remain static or causing the trouble—one will always be prejudiced just down out of Dublin. That is where we had to against the other. Otherwise you would have a high make the pricing decision to eat the difference. street, if we can carry on that analogy, with only shops that sell everything at the same price. Of course not. Q185 David Simpson: To follow on from what However, we have schedule planners who look at the Alasdair was talking about, the price structure, your globe and say, “Where can we fly this aeroplane to?” preferred option is zero and in an ideal world that is Ultimately, it can fly anywhere: it can fly back into the way you would like it. But if zero cannot be markets in the US; it can fly into transatlantic markets. achieved—and on all of these things sometimes But at some stage someone says, “What is the politicians have to compromise—what would be a opportunity cost of operating a flight into Belfast that minimum? I think maybe Ian raised it as well. Where for the foreseeable future, as long as taxation is not addressed, is not going to make us money?” is the balance? If zero cannot be achieved—and everyone will try to do their best to try to achieve a positive outcome—where is the middle ground? Q189 Ian Paisley: I want to be straight with Justine Bob Schumacher: I think I would have to go back to Greening when she comes in here; I want her to know the consequences of action—or more importantly, the my poor analogy of the high street and say that, in the consequences of inaction—on this issue. Now if we end if you have two shops and one is paying a tax do not get this tax issue addressed, essentially you are of whatever that number might be, it will always be telling us the service out of Belfast could ultimately disadvantaged as long as the one down the road is stop and you already have a service provider going to paying no tax at all on sales. There is no cutting point Newark and North America anyway out of Dublin. there. Clearly the more revenue we get on that service That is what you are telling us. the more the market recovers, and we would like to Bob Schumacher: We have been in that market for be there to facilitate that recovery, of course. The much longer than we have been in Belfast, and of stronger the revenue, the more it can take on as a cost course there are other suppliers in the same market hit. But frankly, when it is in a situation where it is too. level pegging and then being taxed out of existence by comparison to another service or many services— Q190 Oliver Colvile: Forgive me—I have heard I think there are 13 transatlantic services out of your argument—but why are you continuing to Dublin—then we are in a bad place. operate the service? What is in it for you? Ian Paisley: Profit. Q186 Ian Paisley: Bob, forgive me; I am stupid. Are Bob Schumacher: Profit. you saying to us, very frankly, if we do not sort this out you are moving the service to Dublin? Is that what Q191 Oliver Colvile: But you say you are making a you are saying? That is what it sounds like to me. Or loss, though. are you saying that your shareholders—United Bob Schumacher: It has been profitable. Continental—are going to take the view, “Look guys, Oliver Colvile: In the past? this is stupid. We are not going to leak £3.2 million a Bob Schumacher: Indeed. Because we do not make year to the Exchequer. Ultimately we are going to decisions on a hair trigger, and ultimately we are very have to amalgamate this route with our existing routes cognisant of the world economic cycle. We have been out of the same island.” Are you telling us that? Please part of it in many, many markets aside from the be straight with us because we have to see Justine discussion we are having here today, including on Greening within the hour and we are going to have to mainland UK and in Europe. Many other carriers have say to her what you are really saying. So unpack it for also suffered the downturn with high oil and low us. If this tax continues, is this route in so much threat demand. This is a cyclical business and we are fully that essentially the only Newark service out of the aware and cognisant of that. We have made money in island of Ireland will be operating out of Dublin that market. We thought we would make money in Airport, not out of Northern Ireland? that market; we have been proven correct. But now Conor McAuliffe: If I could step in there, first of all we have seen a downturn; we are coming back off the there is no plan to move. downturn, but as we are coming up onto our knees again out of the downturn, taxation keeps going up Q187 Ian Paisley: I am not saying there is a plan. and the taxation in the South keeps going down. Conor McAuliffe: There is no plan to move the service to Dublin. There was a suggestion that the Q192 Oliver Colvile: Your analogy is with the two service would be used for Dublin-Chicago. shops. What the other shop of course could do is cobber Pack: U PL: COE1 [O] Processed: [07-07-2011 09:59] Job: 013271 Unit: PG03 Source: /MILES/PKU/INPUT/013271/013271_o003_th_Uncorrected NIC 29 06 11.xml
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29 June 2011 Conor McAuliffe and Bob Schumacher produce a different product and sell something that is not seen the UK’s rationale for saying they need an going to attract more custom. Is there anything that international legal regime change in order to make this you could do to try to make your service more legal, but it probably has to do with the fact that a per attractive? passenger duty goes to the passenger, but if you have Bob Schumacher: More attractive? I do not think we a per plane tax what you are doing is more putting the can do more than we already are doing. We are tax on the emissions from the aircraft, and the offering service out of three cities out of the island of emissions from the aircraft over, for example, the Ireland and that has been our business plan because United States is really a matter under customary we believe there are three individual markets there. international law for the US to regulate and not for But there is nothing more we can do in terms of the UK. So there are extraterritorial issues as well. attracting custom on board. As I say, we are very satisfied with where the load factor is and we will Q196 Lady Hermon: That is very helpful. That is a continue to rest our case on that. clear difference between easyJet and you. Thank you for that. Finally, to summarise for the Committee and Q193 Lady Hermon: Two brief questions. Well, they for the benefit of passengers who wish to book with are brief as I present them but that does not mean to Continental Airlines, if air passenger duty were to say that you have to be brief in response. The Chief remain unchanged—let’s hope it is not—just paint the Executive of easyJet was quoted in the Daily picture for your future commitment in Northern Telegraph of 21 May of this year as saying that that Ireland. particular airline favoured a move towards a per plane Bob Schumacher: As I think I said earlier, we are in tax instead of the air passenger duty. I wonder, as an a position where we have an enormous fleet of airline does Continental Airlines have a view on the aeroplanes and we look to optimise their utilisation. alternative of a per plane tax rather than a per We appreciate there are business cycles, and we sit passenger tax? through the high part of the business cycle and enjoy Conor McAuliffe: Yes, we have a very strong view. the ride and we go through the low part of the We oppose a per plane tax. business cycle, and as long as we can see an end in sight to either the low demand caused by Q194 Lady Hermon: And the reasons for that? macroeconomic issues or, in this particular case, Conor McAuliffe: One of the reasons, from an taxation, then we can see blue skies ahead, without internal administration point of view, is that we getting too corny. The issue for us, which is clearly believe that the air passenger duty is the lesser of two coming from our head office, is the UK Government evils. If you have a per plane tax then trying to pass needs to focus on this and not on the timeline that the through the cost of the per plane tax to the passenger Treasury consultation document has. involves accounting into the future and trying to figure Lady Hermon: Yes, it is a much shorter timeframe. out what your loads are going to be in six months’ Chair: Thank you very much. I am afraid I am going time. So there would be constant rejigging of the to have to draw this session to a close; I am terribly charge that you pass on to the passenger, which would sorry. result in passenger confusion and dissatisfaction. Q197 Kate Hoey: I hope you are going to be able to Q195 Lady Hermon: Would it not make you a more continue it, but your staff on Continental Airlines will efficient airline? be very upset because they love the Belfast route. Conor McAuliffe: I do not think we need a tax Bob Schumacher: We would all be very upset. incentive to be efficient. We have every economic Ian Paisley: It is an excellent service. incentive to be efficient. There are also legal issues Chair: Thank you very much. We could have gone that led the UK Government to abandon their proposal on a lot longer but we have got many other witnesses in the most recent consultation document. We have to see, but thank you very much for coming.
Examination of Witness
Witness: Janice Gault, Chief Executive, Northern Ireland Hotels Federation, gave evidence.
Q198 Chair: Ms Gault, thank you very much for particularly in Northern Ireland. We reckon 57% of joining us. Sorry to keep you waiting. I think you people possibly do not. So much and all as he would heard the introductions earlier, so I will not repeat be keen to affect taxes to hotels, I think it would be them. You are very welcome; thank you for joining us rather difficult to tax your aunt, your mother and a today. Perhaps I can start with what is probably a very variety of your other relatives. I do not really think it easy question. You have heard that Mr Michael is something that is particularly going to work in any O’Leary’s view is that, instead of taxes on flights or analogy; I do not think it is a particularly good way planes, there should be a tax on hotels. I think we can of doing it. probably anticipate your answer, but over to you. Chair: I thought you might say that. Janice Gault: Shockingly enough, from my experience with Michael he is always keen to pass tax Q199 Dr McDonnell: Janice, thank you very much to another direction. Surprisingly enough, not for coming to talk to us. Could you give the everybody who flies on a plane stays in a hotel, Committee, just for the flavour of where we are at, cobber Pack: U PL: COE1 [E] Processed: [07-07-2011 09:59] Job: 013271 Unit: PG03 Source: /MILES/PKU/INPUT/013271/013271_o003_th_Uncorrected NIC 29 06 11.xml
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29 June 2011 Janice Gault how many tourists do we expect to visit Northern Lingus and a number of other airlines will be happy Ireland each year? What is the occupancy rate in our to facilitate. It definitely is a real element. The fact, hotels? Is that stable or is it varying? too, is that it sends out a real message that in the Irish Janice Gault: We have had the position where out- economy tourism is very, very important; it is the of-state visitors have fallen from about 1.7 million to thing that they see as a job driver. They see it as a big somewhere in the region of 1 million—1.4 million if thing and all the reductions in tax have really set a you take out the other figures. That figure has been standard that we simply are not at at the moment. If heading south over the last number of years. In one people think they are going to pay £60 to fly into of those ironic situations, we did not attract a number Belfast, even if they do not realise they are paying it of business events beforehand because we did not themselves, it will put them off. have a large number of rooms; the money was invested in the bedrooms and now we have an Q202 Mel Stride: Do you have any frustrations economic downturn. But that is a cyclical thing and it about the way in which the media generally portrays will change. The occupancy level for last year was Northern Ireland? For example, we have seen a lot 58%; that is down from a high in September 2008 that about the problems in East Belfast recently; we saw was about the 78% mark. The average room rate last very little about the Peace Bridge in Londonderry. Is year was about £58; it has fallen away to about £55 that something that you feel frustrated about or you or £56 this year. We have seen the gross profit on feel could be addressed better? hotels fall from a figure in 2008 of about 27.8% down Janice Gault: Given that I am from Londonderry and to just under 20% as of the first quarter of this year. it opened on my birthday, I do. It is a very difficult That is not taking into account any other taxes or thing. Bad news sells. We spoke to the media last anything else. We are in the position where we simply year; we spoke to the BBC on 13 July. I have given need more tourists. That is basically what it boils the same interview every year for the last five years. down to. There is no simple answer to that; that is In fact, I told the person that I would simply tape last simply what the economy needs. year’s and they could replay it this year. We have had a 30-year ad running and it has not been a good ad. Q200 Dr McDonnell: Have you made any At the end of the day, the more normalisation we can assessment or comparison with the tourist industry have, the better. south of the border? If you take the figure that United Airlines gave you, Janice Gault: South of the border is very much a if you had $5 million to promote Northern Ireland in mixed picture. Dublin over the last probably nine an out-of-state region or alternatively subsidise a route months has consolidated its position. It certainly has to some degree, even in marketing terms—I know a higher room rate—the current figure we have is there are difficulties with the taxation side of it—that €85—with a better Monday to Thursday economy and would be a significant feature for us. It is very difficult a stronger weekend leisure economy. There have been to control the world media. It is one of those things. a number of events that have taken place that have We have got to find resolutions so that those actual added to that. They have opened a conference centre situations do not arrive. That is an issue for us. I and they have opened a number of other different areas that have helped. However, the South is a very would have loved to have seen the Peace Bridge with mixed picture. If you take Galway, Cork and Dublin, everyone walking over it featuring heavily. We had it is a much more buoyant picture, Dublin being the great news coverage last weekend with Rory McIlroy most buoyant of all three; if you head down the sunny all over the world. I was in Manchester last weekend south-east cost—Wexford, Waterford—it would be promoting Northern Ireland, and regrettably very few significantly lower than that and Donegal, Sligo and people focused on the Rory McIlroy story. Leitrim are having a pretty difficult time. Q203 Chair: It might be my imagination but as a Q201 Mel Stride: Welcome to the Committee. To regular traveller to Northern Ireland there seems to be what degree do you think APD is having an impact a higher density of very good hotels in Northern on visitor numbers coming into Northern Ireland as Ireland compared with some of the places where we opposed to the other factors that might be less might travel. Is that factual or is that my imagination? noticeable—the problems there have been over the Janice Gault: We have had about a £500 million many years of Northern Ireland’s history? investment and a lot of the hotels are new, so when Janice Gault: I think it is going to be a major feature you have new stock you are in that lucky position. for us. If you are doing a conference and you have There has also been a consolidation where a lot of 100 delegates and you have even to pay £12 per people have moved from smaller conurbations into delegate, that is a significant amount of money. larger hotels. In 1995 we only had one multinational, Simply, the more tax people see, the more it puts them which was the Hilton, which was the first hotel to off. That is a simple fact. If you are going to sit in the come. We now have about 13 or 14. It has actually front of the plane, it is going to cost you £120. had a very positive effect because the local operators There is another element of this as well. In reality, saw the multinationals coming and thought, “Well, at people could very easily come out of Heathrow, come the end of the day, we can compete with these people into Dublin or into Shannon and fly from there. So it and we are going to invest and do all the things to could be a double whammy. You do not get the £60 make sure we can succeed.” So we are in the lucky anyway because people make the short route to position where we have a good, well serviced hotel Ireland and move on from there, which I am sure Aer stock that is pretty modern. cobber Pack: U PL: COE1 [O] Processed: [07-07-2011 09:59] Job: 013271 Unit: PG03 Source: /MILES/PKU/INPUT/013271/013271_o003_th_Uncorrected NIC 29 06 11.xml
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29 June 2011 Janice Gault
Q204 Ian Paisley: Just on that point, you said about Ian Paisley: And we have given them £7 billion to bad news selling and I agree with you on that. help them through it. It is incredible. However, if you analyse CNN’s reportage, they gave Janice Gault: From our point of view, we would like something like 2.3 minutes to the Rory McIlroy story to see more tourists. That is the number one thing for and on the same night 1.1 minutes on the riots. Is it us. Northern Ireland has a story to tell and that is an just a case of the prurient interests of the public that important thing. The support we have had from DETI they remember the riots and they do not remember the has been very strong. Regrettably Tourism Ireland’s good news? budget is about to be cut. We obviously do not think Janice Gault: I think the CNN example is probably that is a good thing. We are of the opinion that there due to timing and the American interest in golf. is genuine interest in Northern Ireland; it is just Ian Paisley: That is our market. getting out there and saying, “It is easy to get here.” Janice Gault: That is part of our market and that is If you look, for example, at the routes from GB, we definitely a bigger part of our market. Unfortunately, have had about a 27% cut in our routes from GB into we were exposed to about four minutes of the rioting Belfast, which is a massive cut. Getting in and out to story and 30 seconds of the Rory McIlroy story, and London is a significant challenge. We have had a real that is the problem that we lie in. We have to have cutback in our routes from Europe. All those things good news stories. The Rory McIlroy story is an count. We were in Manchester last weekend and loads excellent story. Golf is an excellent market for us—a of people said, “Oh yeah, love to come, love to come.” great market from North America and a great short It is really difficult to get a flight. Flights to Dublin break market. I fly the Newark route about five or six are cheaper, easier and more frequent. That is the times a year. Every time I go on it I meet guys who commercial market. have flown in for four or five days. They do not want to come into Dublin, because if they come into Dublin Q206 Lady Hermon: What would you identify as they will go and play four courses in the South. They the main reason for the reduction in the number of want to come into Belfast, spend the four days and flights and routes from GB to Northern Ireland? then fly out again. Americans do not have 40 or 50 Janice Gault: Part of it is the global downturn; there days’ holiday a year; they want to utilise them. That is no question about that. The other part for us is it is is what they want to do. The world trend in holidays very difficult for people to know what there is in is changing. If you had said to somebody 10 years ago Northern Ireland because they generally see very they would go to Australia for 10 days, they would negative things. We have got to come up with a very have looked at you. Now people do that. People come strong, convincing argument that the Giant’s to Northern Ireland for three days and go back again. Causeway is on the north coast; Rory McIlroy plays in Hollywood— Q205 Lady Hermon: Thank you very much; it is Lady Hermon: County Down very nice to have you here this afternoon. Just for Janice Gault: County Down. Graeme McDowell the record, may I just say that Rory McIlroy is my plays in County Antrim just down the road, to keep constituent, of whom I am enormously proud? everybody right. I will find somebody from Belfast Ian Paisley: He speaks highly of you too. soon. We have got to come up with stories like that. Lady Hermon: That is for another day. We have a great opportunity next year. 2012 is a real Responsibility for tourism in Northern Ireland is year for Northern Ireland. We have Titanic; we have obviously a devolved matter. What are the priorities all those things coming along. It would be a that you could convey to us that we in turn could Titanic-like disaster if we lose our North American convey to the Northern Ireland Executive? Do you route. It really will be. We fought really long and hard feel you have had enough support from the Minister to get it. We are trying to get another route; we would with responsibility for tourism post-the Assembly love a route from Canada. Aer Lingus are hubbing election? What are your priorities to increase hotel people from Canada through Chicago to get them into usage in Northern Ireland? What is the impact Dublin and we would love another route. But if APD evidentially on hotels of the air passenger duty? Is stays the way it is, we have not a mission. there specific evidence that you could give to us that we in turn could give to the Treasury and the Q207 Lady Hermon: Yes, and you have identified Assembly? 2012 for the very good reason that Titanic and various Janice Gault: In answer to your question about what other sporting events are going to take place in you can do about tourism, we have had a massive Northern Ireland. As the previous witnesses have told capital infrastructure. There has been a lot of building. the Committee, it is a priority that this is sorted out We really need to get the story out there. We are very quickly, not in the timescale identified by the marketed internationally as an all-Ireland Treasury; the Government must decide within a year. destination—that is in mainland Great Britain and in Janice Gault: To the best of my knowledge, the 100th the rest of Europe and in North America—therefore, anniversary of Titanic is April 2012. We do not any price differential is very difficult to market on. necessarily want it to be the first anniversary of the That is a big, big problem for us. We are now sitting end of the Continental route. in a world where, come Friday, we will have 9% VAT Lady Hermon: Certainly not. on all food sold in the Irish Republic and 20% VAT on all food sold in Northern Ireland. The same will Q208 David Simpson: I am going back to the point apply to hotel bedrooms, where the rate will drop that Ian raised on the press. I think the press has a big from 13.5% to 9%. That is a real issue. part to play in this. If they want to get good news cobber Pack: U PL: COE1 [E] Processed: [07-07-2011 09:59] Job: 013271 Unit: PG03 Source: /MILES/PKU/INPUT/013271/013271_o003_th_Uncorrected NIC 29 06 11.xml
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29 June 2011 Janice Gault stories out there, they can do it. They have 24-hour Janice Gault: The simple fact is that, much and all as news; they have to fill it somehow. I suppose bad we are part of the United Kingdom, we are not news fills the press and sells papers quicker than good marketed overseas in that manner. We are marketed as news, and I think a lot of work needs to be done with an island destination—the island of Ireland. So when the media per se. The other side to the argument is you are standing in Washington or when I am standing the question I put to the two gentlemen in relation in Manchester, I am marketing the island of Ireland, to the options that both airports have indicated for of which Northern Ireland is a part. The tax regime transferring rates. For example, the Belfast that we are operating under is significantly less International suggested that band B would be scrapped favourable to the tourism industry than the regime that and the Belfast City had the view that it should be has been introduced in the South. Now I would say, if zero-rated. I think I probably know the answer, but it was successful in Northern Ireland, which I do not what is your opinion of that? doubt that it would be, maybe your constituents in Janice Gault: To be honest with you, I think the £12 Plymouth would be happy to avail of a similar thing is liveable with. I think zero pounds is a much better and then money from tourism could rise throughout story. I will say the situation in the South is that their the United Kingdom. Minister has given the aviation industry an ultimatum. He has told them that APD currently sits at €3; he has Q212 Kate Hoey: Thank you, Janice. I was told them that it will be reduced on the proviso that interested in the fact that the Consumer Council came they increase passenger numbers and they increase and gave evidence and of course made a great issue, their commitment to the aviation industry. Therefore, quite rightly in my view, about the fact that the it is not a straightforward argument of this Friday it is universal obligation in terms of being an island does going; there are certain codicils behind the scenes that not apply to Northern Ireland whereas it does to the have not all been agreed, to the best of my knowledge. rest of the islands. Is that something you would So there actually is an argument, if you were to say support—the idea that Northern Ireland is treated to Continental, “Okay, we will scrap this tax. You are much more like some of the islands where really you going to save £5 million; what are you going to do have to fly? If you want to get out of Belfast to with it? Will you bring in a flight twice a week from London or Manchester quickly, you fly. Washington Dulles?” Janice Gault: You have to fly. If you are in Northern Ireland, you simply have to fly. Most businesses see Q209 David Simpson: So what you are saying is we it as part of their business infrastructure; you have to could use this as leverage with Continental to get a fly and that is it. Even on the island of Ireland at the few extra lines in. It does not work like that. The moment, there are a number of routes—for example South of Ireland basically has said €12 or whatever it the Derry-Dublin route is a subsidised route. There may be, but in order to achieve that or maintain that are routes within the South that are subsidised as well, you have to have figures? because that is recognised. In some ways our road Janice Gault: No, the Irish Government has already network has improved greatly, though maybe the reduced it from €9to€3. Their plan is to reduce it benefit of the great road from Dublin to Belfast is now from €3 to zero. In order to do that, they have advised having its own repercussions. But there is a genuine a number of people, including Mr O’Leary and his argument for them. hotel tax, that they will expect them to increase If you look at Spain and the Canaries, the Canaries aviation numbers and that the balancing act will be operate under a totally different tax regime than the done with increased revenue, which will benefit rest of Spain in order to facilitate a tourism economy, everybody. and that is a decision that the Spanish Government made a number of years ago. It is something that Q210 Ian Paisley: But realistically you get a level could be looked at. Maybe it would have playing field. That is what you realistically get. repercussions for everything in the UK, not just the David Simpson: Yes. island of Ireland. Our real problem is we are marketed Janice Gault: Realistically, the average visitor from as an island destination, we are going to continue to North America spends about £430. They stay longer, be marketed as an island destination, and that of itself they spend more, they see more and they go back with presents a range of problems. a better message. There are actually more people in North America than most other places, so it is a Q213 Kate Hoey: Just on that issue you mentioned bigger opportunity. earlier about the promotion of Northern Ireland, I get the feeling sometimes that Northern Ireland loses out Q211 Oliver Colvile: Northern Ireland is part of the because they are marketed all over the world, United Kingdom, I am delighted to say. particularly in America, as part of the island of Ian Paisley: Say it again; I did not hear you the first Ireland. Do you not think we might be better if we time. had our own very specific Northern Ireland push that Oliver Colvile: I am delighted that Northern Ireland is unique and is different from the rest of Ireland? is part of the United Kingdom. But what I want to ask Janice Gault: We have worked very closely with is this. If APD were actually to be got rid of in Tourism Ireland on this, and we have done the GB Northern Ireland, what do you think the impact would Road Show in Britain, which is Northern be on the rest of the United Kingdom, and frankly Ireland-focused. We have picked a range of different why shouldn’t my community down in Plymouth end themes in America that are Northern Ireland-focused up also asking the same kind of thing? as well. In many ways, people abroad quite often do cobber Pack: U PL: COE1 [O] Processed: [07-07-2011 09:59] Job: 013271 Unit: PG03 Source: /MILES/PKU/INPUT/013271/013271_o003_th_Uncorrected NIC 29 06 11.xml
Northern Ireland Committee: Evidence Ev 35
29 June 2011 Janice Gault not see the differences that we see and do not see the Q218 Mel Stride: If we were discussing that, you differential in the same way. would feel a bit more enthusiastic about it? Janice Gault: I think VAT for us would be a more Q214 Kate Hoey: Yes, but we do not help them see immediate issue, but we can identify straight away the difference. Perhaps we should be. that, in the longer term, APD is something that needs Janice Gault: It is a catch-22 situation in some ways. to be addressed. The VAT is a short-term thing, but They see Ireland as a nice green island—I am not there is no point in us getting 17%, 15% or 20% saying that in a political sense—and it has benefits for VAT—whatever it is—on a shrinking economy. If we us, because they think, “Oh, that will be a nice place are able to grow that economy, the VAT argument to go,” and they do not focus on the other things. The balances itself out. At the current moment in time, the other side is we have different stories to sell, which figure that we have been set is for us to bring £1 billion of tourism income to the Province by 2020. In are of interest to a very definite diaspora, particularly order for us to do that we have got to attract new in Canada and North America and in parts of Australia markets; it is really that simple. Much and all as I as well—a totally different message to sell. It is would love everybody to come to Northern Ireland 10 important, but Tourism Ireland have made a real effort times every year for their holidays, I am realistic. We to identify those particular elements and move have got to go to new destinations. As time wears on, towards them. Even in the golfing fraternity we have people talk about the BRIC economies and you sort spent quite a bit of time getting people into those of think, “This is a lovely idea,” but that is going to messages and saying Northern Ireland has great golf be a realistic market for us in the future and we will courses—great links courses, which are the big thing not have the opportunity to attract that unless things in the States. change.
Q215 Kate Hoey: If we lost the Continental airline Q219 Lady Hermon: That target has been set by route to Newark, how would you sum up very briefly whom? what the effect would be on Northern Ireland, both Janice Gault: That is DETI. Our actual target is tourism and hotels? £1 billion in turnover and 4.5 million visitors. I will Janice Gault: I think it would have a huge effect on say the visitor numbers include visitors from the Irish our confidence, to begin with. Secondly, I think we Republic. They are included in the overall visitor would never get a route back for 10 years. We will numbers by definition of what a tourist is. not be able to maximise the opportunities we have next year. We have a number of events; we have Q220 Chair: You have rightly focused on the Derry/Londonderry being the City of Culture, we have challenges that Northern Ireland faces, but surely one the World Police and Fire Games. If we do not have advantage you have got and have had for a number of a direct route, it is going to make people wonder what years now is that the Republic of Ireland generally is sort of a place they are going to. quite expensive. It is not entirely down to the pound and the euro, is it? That must be helping Northern Q216 Mel Stride: You have mentioned two types of Ireland to an extent. tax differential are problematic. You mentioned APD Janice Gault: The Irish Republic has been but also VAT on accommodation. If there was a fixed traditionally quite expensive based on a number of amount of money that was coming from somewhere different factors, the majority of which they have now to potentially lower either of those taxes, which would addressed. They are subject to a number of labour you prefer over the other? agreements, most of which have been sorted out at Janice Gault: APD or VAT? this stage, but there was a particular way in which the Mel Stride: Yes. Which would be more important in salaries were calculated where you had to pay double terms of generating tourism and economic activity? time on a Sunday—it was called a JLC agreement. That has now been changed so those costs have fallen Janice Gault: This is a bit like offering a woman two away. They had a reduction in their minimum wage. chocolates and her saying she would like both. Both It is back up to €8.65, I think, but there have been of them have a real driver; there is no question about significant reductions in their actual cost base, which that. For us, VAT is an immediate issue. APD is a has in reality meant that their cost structure is slightly longer term issue, which is going to impact and is dissimilar to ours but not as much out of kilter as it going to prevent us growing. APD is simply going to was previously. Certainly the reductions that are going prevent us growing in any significant market. We are to come this week are going to address that. never going to get a second North American route and we are never going to get a Canadian route as long as Q221 Oliver Colvile: In your opinion, do you think this tax regime remains. The argument on VAT is that the setting of the APD should be given to the come Friday, if I am sitting in Newry and I am going Northern Ireland Executive? If that were to happen, to be up against a hotel in Dundalk, it is going to be do you think that might see a reduction in the block very difficult for me to find that 10% of a difference. grant that HM Treasury gives to Northern Ireland as well? Q217 Mel Stride: So would it be fair to say that the Janice Gault: If it was given as devolved, then it VAT reduction on balance would probably excite you would have to be given as a basket of things. Taxation a bit more than the APD? will have to be looked at as an overall structure. There Janice Gault: Both are equally exciting. is no question about that. If we were able to gain, it cobber Pack: U PL: COE1 [E] Processed: [07-07-2011 09:59] Job: 013271 Unit: PG03 Source: /MILES/PKU/INPUT/013271/013271_o003_th_Uncorrected NIC 29 06 11.xml
Ev 36 Northern Ireland Committee: Evidence
29 June 2011 Janice Gault would be a bit of a trade-off. If Her Majesty’s everything from corporation tax down to VAT and Treasury was getting more VAT from us, then the APD. Unfortunately we are attached by land to a block grant would not necessarily have to be reduced, jurisdiction that has a very favourable set of measures: because it would actually balance things out in the 12.5% corporation tax; 9% VAT; no APD. long term. It really depends on what the balance of the economy is. I would think that there should maybe Q223 Ian Paisley: Yes, but you do accept this is be a regional differential, which could either be a time critical? Westminster-decided differential or alternatively it Janice Gault: Yes, it is time critical. would go back to Stormont. If that were the case, there may be savings that Stormont may decide that they Q224 Ian Paisley: If the issue is devolved under will take a hit on in the short-term with a view to legislative change and all sorts of matters like that, looking at how it actually improved the airline figures whereas Her Majesty’s Treasury was able quite and the visitor numbers and then go back. If it quickly to make a decision for the Highlands and improved visitor numbers by 25% and the average Islands and address the issue with regards to APD, visitor in Northern Ireland spends £40 or whatever, then they could quite quickly resolve this matter. you would be able to go back and say the amount of Janice Gault: Yes. This is a time critical issue. VAT that has been given back to the Treasury is more, Christmas is coming. which in many ways would negate the argument. Ian Paisley: The goose is getting fat. Janice Gault: The goose will not be getting Q222 Oliver Colvile: So you think that what this particularly fat; it will be Thanksgiving and it will might also do is help rebalance the Northern Irish be over. economy? Chair: Okay. Ms Gault, thank you very much. You Janice Gault: Our economy is an economy that needs made an extremely good presentation of your case, if to have more activity. In order to do that, we need I may say so. Thank you for joining us. to have a tax regime that is favourable. That affects
Examination of Witness
Witness: Jeff Gazzard, Board Member, Aviation Environment Federation, gave evidence.
Q225 Chair: We will make an immediate start, if we people it may be that they would prefer to pay that may. Mr Gazzard, thank you very much for joining premium and fly from their more local airport. I think us. I think you have been in on the previous sessions, this is a unique situation where you have got the same which is always very useful. Perhaps you could just airline competing with itself, admittedly with a open by giving us your attitude to the APD tax different tax regime in one element of the tax that they overall. What is your general feeling about it? pay, but they may have lower airport charges at Jeff Gazzard: I think that if I were a Northern Ireland Dublin; they may have higher charges for airport and politician I would have exactly the views that you do. security in Northern Ireland. Unless you are seeing I was interested by one of the comments, which I the whole picture of how they operate, then it is think was made in some of the previous written difficult to make a value judgment. evidence and also today in oral evidence from Continental in particular, that a lot of this discussion Q227 Kate Hoey: So do I take it that you personally was centred around them competing with themselves are against abolishing or reducing the APD for 80 or 90 miles down the road, which I thought was Northern Ireland? very interesting. If they wanted to convince you of the Jeff Gazzard: We would prefer to see it kept as it is. degree of what I understood to be potentially cross-subsidy, then they should let you have the Q228 Kate Hoey: Who funds your group? spreadsheets for both of those routes so you should Jeff Gazzard: There are four of us full time. We are see the reality of what is going on there and perhaps understand it a bit better. the only organisation anywhere in the world that works on aviation issues. We have observer status at most of the civil aviation bodies that run civil aviation Q226 Kate Hoey: So what do you think the reality is? internationally, obviously on environmental issues. Jeff Gazzard: I think there is an element of Over the last eight or nine years we have given cross-subsidy going on there, but if you look at the evidence to most Committees here on these issues— load factors and the prices at which they are selling Transport Committee, EAC. tickets currently for both destinations for July, August and September, you can get tickets cheaper from Q229 Kate Hoey: Who funds you? Belfast sometimes than you can from Dublin. So I Jeff Gazzard: We are funded by two charitable trusts. think the sophisticated nature of airlines’ yield We do not take money from industry or Government. managements on a daily and hourly basis, the degree Our turnover is about £175,000 a year. So we are very to which there is only an 84-mile difference in there— small but compact. you will know much better than I do whether that is worth £60 in a businessman’s time; I suspect for some Q230 Kate Hoey: So you never fly? cobber Pack: U PL: COE1 [O] Processed: [07-07-2011 09:59] Job: 013271 Unit: PG03 Source: /MILES/PKU/INPUT/013271/013271_o003_th_Uncorrected NIC 29 06 11.xml
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29 June 2011 Jeff Gazzard
Jeff Gazzard: Of course I fly. and all the rest of it. In 2010 all incoming and Kate Hoey: Oh, you do fly? outgoing flights in the UK emitted about 44.9 million Jeff Gazzard: Yes. We are not anti-aviation or tonnes of CO2, and the reduction by the end of 2011 anti-flying, neither are we anti-Northern Ireland’s that they put down to APD would be 0.3 million unique situation, which the Committee has explained. tonnes. So you can work out for yourself that the price implications of that are minimal. We live in an age, Q231 Kate Hoey: But you are against any reduction notwithstanding the recession, of relative affluence. in APD? You have only got to look at the prices of easyJet this Jeff Gazzard: No. We are against growth of aviation week from Belfast to the three London airports they beyond environmental limits, and our fundamental fly to: £24.99 single ticket. position is that the industry can and should deliver environmental improvements and that would be the Q235 Kate Hoey: Sorry, when was that for? rate of growth that they should be allowed. Jeff Gazzard: Next week. £24.99 single ticket.
Q232 Kate Hoey: Have you ever travelled from Q236 Kate Hoey: Must have been the very latest London to Belfast by boat and train and do you know one, because I was trying to book late last week for how long it takes? next week and certainly did not pay that. Jeff Gazzard: I have travelled with hockey teams to Mel Stride: We look at the average revenue of these Ireland by boat and minibus in the past on several tickets. occasions. Jeff Gazzard: Yes, which would be £60 or something like that. But I do think that there is no question that Q233 Chair: Mr Gazzard has admitted he flies. air services should be allowed to grow from Northern Jeff Gazzard: Yes I do fly. Of course I fly. Equally, I Ireland. They have grown. You have got just over do most of our continental lobbying and advocacy 4 million passengers from Belfast International and work, and I do have on principle some of the most 2.7 from City, and I think that is a tribute to the convoluted train journeys in the history of the success of the airlines and deregulation. I accept railways. I have just come back from Spain and, for Ms Hoey’s point entirely that you cannot get to the instance, the cost equation versus time for us was: is UK mainland any other way. But APD is an integral that a night in a hotel on a train and is it worth paying part of getting the aviation industry to pay its way. the £300 to do that? That is what we decided to do. The UK is not alone with putting taxes on air travel So we are very aware of the vague hypocrisy for that reason. We know from the Government’s own allegations that people may use from time to time. sophisticated analysis—believe me it is But I do not have anything but sympathy for Northern sophisticated—that that is the impact it has on Ireland’s situation as an island. It punches well above demand; a mere 300,000 tonnes of CO2 off a total its weight given its population of 1.7 million or of 44.9 million. 1.8 million in terms of air service and passenger numbers already. If you were to compare that, not in Q237 Oliver Colvile: So in the words of 1066 and a disparaging sense, with an English county that is All That, is this a good thing or a bad thing? peripheral within England, like Cornwall for instance, Jeff Gazzard: I think it is a good thing. I think trying the way that air service has developed is astonishing, to get all forms of transport to pay their externalities, notwithstanding the alleged high level of APD to and which incidentally aviation still is nowhere near from Northern Ireland, and that is quite right too. doing, is a good thing. I understand that people have Chair: Speaking of which. a right to travel; I understand the importance of it to Northern Ireland. We are not trying to roll the clock Q234 Oliver Colvile: I represent a peripheral part of back. the country, and believe you me peripherality it is a The issue, if I can interject it in this particular very big issue in my neck of the woods. But what I question, is that besides the obvious nature of want to ask is this. The previous Labour Government Northern Ireland protecting its own, which is quite said that this tax was not a green tax; it was there right, there is growth within the system; there is simply to raise money. Do you see it as a green tax or capacity within the airports. I do not think that APD do you think that in reality it is good to have and we over the last decade has stopped that growth. I agree like the peripherality with the other issues that go with that there are anomalies from time to time and we that too? have heard that from the airlines today, but I do not Jeff Gazzard: I agree that it is not a green tax; it is a think it is an insoluble problem. The point is that the revenue-raising tax. When it was announced by Government also has a legal requirement to try to fit Kenneth Baker all those years ago in Parliament—and aviation emissions into a climate change policy and I can only go back and say what it was introduced that does mean limits. for—it was in place of VAT and excise duty on If I may be so bold, I will put a couple of paragraphs aviation fuel, which is tax free more or less in writing to the Committee, because that is the everywhere in the world apart from a small number strategic issue in which this discussion has to be of cents per gallon, funnily enough, in the US. It is framed: where is the UK going in terms of its climate best perhaps to ask previous Governments, which I change responsibilities and in particular what does did this week, what they felt the impact of APD was that mean for aviation? It means a limit of 2005 levels, environmentally. They have the sophisticated which is 39 million tonnes, by the middle years of the propensity to flyer models, Treasury’s model of GDP century. How we get there is not for today, but that is cobber Pack: U PL: COE1 [E] Processed: [07-07-2011 09:59] Job: 013271 Unit: PG03 Source: /MILES/PKU/INPUT/013271/013271_o003_th_Uncorrected NIC 29 06 11.xml
Ev 38 Northern Ireland Committee: Evidence
29 June 2011 Jeff Gazzard a pretty significant strategic framework to place this There is the general issue of APD, but the big issue discussion in. for us is the Newark connection, and the suggestion from some was that the banding should be changed Q238 Chair: Given that the EU’s Emissions Trading so that Newark would fall inside band A rather than Scheme is going to apply to aviation, is it still fair to band B. have this additional tax? Jeff Gazzard: I cannot pre-empt what they are going Jeff Gazzard: Yes. I do not buy that this is a double to do, but I think the Government are looking at a tax. There is a difference, as I have tried to point out two-band system overall. We would prefer a four-band to Mr Colvile’s question, between just revenue system because we think it makes sense to pay more raising—and if the Government wants to raise the further you fly, but that is our preference. The £2.2 billion, that is what it has done. Emissions difference between the two airports is self-evident. If trading is a different concept; it is a green tax designed you are the airport that flies long-haul you want one to spur airlines into buying more efficient aircraft; it band and if you are the airport that flies short-haul is designed to make it pay for its pollution by buying then you want a per plane tax because somehow you permits from other sectors that can reduce cheaply and think that is better for you. I do not want to get more quickly. It is a sophisticated green tax. Whether involved in the dysfunctional nature of inter-airline people like it or not, it is in place and it is going to and inter-airport competition. happen. The impact on prices at the current cost of carbon, which is about €15 a tonne, would be somewhere between €2 and €4 for short-haul, internal Q244 Dr McDonnell: You say you want four bands UK or medium European distance, to somewhere but would you agree or would you be happy if band between €18 and €36 for a trip to the US or China. A was widened to include flights up to 3,500 miles? Jeff Gazzard: The Government has already set its tax Q239 Chair: That is a huge amount to add on to the targets out. It raises about £2.2 billion from APD and APD that Northern Ireland faces. That is a huge wants that to go up to over £3 billion, so as long as amount. they raise that tax and there are differential bands then Jeff Gazzard: Well, it will only be about £2. I guess we would have to accept that. But our preference is for four bands. But I can see that in a Q240 Chair: No, the long-haul, which is the main situation like Northern Ireland’s, if two is what the point of the previous discussion. Committee decided, given the Government’s already Jeff Gazzard: The long-haul to Newark would proclaimed target is fairer, then that is fine. probably be in the region of about €8to€10. Is that a deal breaker? Q245 Lady Hermon: Could I just interject one little question, because I am curious about this. In response Q241 Chair: It is when you add it on to the other tax. to my colleague Kate Hoey’s question, you explained Jeff Gazzard: I do not think it is a deal breaker. The in fact that the Aviation Environment Federation is average cost of a ticket this summer transatlantic from funded by two charitable organisations. Would you wherever you go—Belfast or Zurich—is between care to name them for us? £700 and £800, so an extra £2 on that is negligible. Jeff Gazzard: Yes. One is the Esmée Fairbairn Interestingly enough, if you were to disassemble the Foundation, which you will be familiar with, a major extra costs and charges on an air ticket this summer, grant-giver, and the other is the Oak Foundation, you would find £190 to £230 is a fuel surcharge. With which is a project of our President, who founded the the greatest respect, they only go up; they never AEF 27 years ago when he was concerned about come down. small, local grass-field airports and pilot training. Q242 Dr McDonnell: Listening to your comments Q246 Lady Hermon: So it is funded by two there, am I correct in interpreting them to say that it charitable organisations. When you fly as a Board would be your contention that the air passenger duty Member, does the Aviation Environment Federation is simply a fair alternative to the VAT and to the fuel duty that the aviation industry does not pay? choose your flights based on the cheapest and best Jeff Gazzard: Yes. It is almost as simple as that. If value to the charitable institutions that fund the you were to look at a typical easyJet A319 flight, it Federation, or do they pick the greenest? seats 156 people and it uses 2,267 kilograms of fuel Jeff Gazzard: The greenest is quite often the cheapest. flying from Belfast to Stansted. That would be That would be Ryanair or easyJet. I only do our equivalent to paying £2,500 in fuel tax. APD per European work, so for instance we would have a limit passenger should in our view be around £20.21, but it of flights. I would have 10 trips a year. That is 20 is actually £12, so if you were to tax aviation fuel return flights. We would buy carbon in the internally at the same rate as excise duty and VAT on marketplace at twice the tonnage of the flight as a petrol, you would still owe the Treasury money on form of an offset, but it is not quite an offset. It is that calculation. I am not saying you would actually taking carbon out of the marketplace. For necessarily like to see that, but that is how it works trips to Spain, Northern Italy, Austria, Germany and out. Scandinavian countries and everywhere in between we would go by train, boat and ferry. That is not a Q243 Dr McDonnell: Let me take you around it hair shirt green agenda; that is just what we have to from the other side. What about the present bands? do to stick to our principles. cobber Pack: U PL: COE1 [O] Processed: [07-07-2011 09:59] Job: 013271 Unit: PG03 Source: /MILES/PKU/INPUT/013271/013271_o003_th_Uncorrected NIC 29 06 11.xml
Northern Ireland Committee: Evidence Ev 39
29 June 2011 Jeff Gazzard
Q247 David Simpson: As I said earlier on to other million to 550 million. So yes, we would lose some witnesses, there were some others that gave evidence air passengers, but yes, we would have growth. to the Committee. What would your opinion be of comments made by witnesses last week that the Q248 Mel Stride: What do you say to the argument aviation industry pays its way through taxes other than that a huge amount of investment is required to meet VAT and fuel duty? our climate change targets? Smart grids, renewable Jeff Gazzard: If you are talking environmentally, the energy, etc, huge sums of money. In order to afford European Environment Agency commissions a study that we will have to have economic growth; we have that is updated regularly on the external cost of all to get that money from somewhere. Taxing flights, forms of transport. For instance, the cost for road particularly business flights as well as tourist flights, transport would include the cost of congestion, road actually works against that—it diminishes growth. It construction, air quality impacts on human health makes companies such as Continental less profitable. from particulate matter, that kind of stuff. They have They have generated less tax and therefore have less done the same for air travel, and they put the external to invest in green technologies and things. Therefore cost, which is everything—habitat loss, climate € taxation and loading up costs on air flights in the long change—of passenger air travel at about 54 every run is not actually a good way to go. time a passenger flies 1,000 kilometres. And for Jeff Gazzard: It is if it is stifling growth. The freight, just out of interest, it is €271 for every freight Government’s figures that I quoted show that APD tonne kilometre. Now I understand they are very has had a minimal effect on that. I go back to the precise figures, but that is what quite a well respected Northern Ireland experience. I know this sounds Swiss think-tank and a German specialist transport horribly patronising, but the amount of air traffic that university came up with, and those figures have been endorsed and publicised by the European comes out of Northern Ireland is astonishing for the Environment Agency based in Copenhagen. size of the population. And that is quite right. That is Our view would be to look at it in a slightly different a function of deregulation and subsidies when way. If we were to tax aviation fuel at the same rate Continental first started flying from Belfast as we tax unleaded petrol, it would be about a £10 International. billion tax take to the Exchequer, and APD is about £2.2 billion. What do I think is a fair balance? Even Q249 Kate Hoey: But is it not also because people though I might want to see it in my lifetime, you will in Northern Ireland do have to fly to get out? It is very never ever get £10 billion worth of tax on aviation. It good that airlines have actually come in and done that. does fulfil a more than useful function in terms of Jeff Gazzard: I understand that totally. I notice you moving people, goods and services around not just are on the record as saying you are a great fan of from Northern Ireland but the world, and there is no easyJet. So am I. Who would not be? getting away from that. You cannot put that back in a box, and we do not want to. Q250 Kate Hoey: I am a great fan of all the airlines But such is the seriousness of climate change and the that fly from Belfast. other more local impacts that you will all be familiar Jeff Gazzard: But to answer the question—this makes with—noise at Belfast City affecting 11,000 people— me sound like a junior league politician—a balance that something should be done. I am 60 and a half; I has to be struck. I honestly think that if you look at never thought in my lifetime I would see a growth and the real impact these taxes and charges in Conservative Government come up with as green an the UK have, they are pretty minimal. The income aviation policy as the present Government has done— elasticity is pretty well established. Obviously leisure Coalition Government, sorry. And that is the strategic travel is more sensitive, business travel not so much. context. Do not think that because the UK has taken, in my opinion, a world lead on this, that other countries are lagging that far behind. Whatever one’s Q251 Mel Stride: On this point of the impact being views of Europe, there is a role for the UK to play. relatively modest, the economics of an airline are such If it believes that aviation should be not subject to that you have quite high fixed costs. You have got unrestrained expansion, and I picked my words very very high marginal profitability on the last passenger carefully there, then quite simply the work that the that steps on the plane, so a small change in revenues Committee on climate change did in terms of where is likely to have quite a significant impact upon the aviation should go is seminal. If the best the industry profitability. So these marginal effects can often be can do in terms of better technology, better air traffic more than just marginal, can they not? management, better aerospace and better engineering Jeff Gazzard: The income elasticity for business fares in fuselages is about 1% fuel improvement per year, is one. So allegedly if you put up the price by 1% you then my view is that is the growth that they should will get a 1% drop in demand. But that ignores the have. That is it. And that gives you growth. tipping point. I actually think we have to get to 15% There are many industries out there that would kill for to 25% increases before you get prices going down. 1% growth a year guaranteed. And to put the figures The situation with Continental and what is paid, as it on that, right now we are about 220 million competes with itself 84 miles down the road, is passengers per annum in the UK. Under that regime unique. It is a tax regime and a differential that is of controlling carbon, that would allow us to grow to unique. From what I have heard the Committee say, 374 million by 2050. The previous Government’s you are well aware of that and you may be well aware White Paper was somewhere in the region of 500 of what the suggestions are to try to cure it. cobber Pack: U PL: COE1 [E] Processed: [07-07-2011 09:59] Job: 013271 Unit: PG03 Source: /MILES/PKU/INPUT/013271/013271_o003_th_Uncorrected NIC 29 06 11.xml
Ev 40 Northern Ireland Committee: Evidence
29 June 2011 Jeff Gazzard
Q252 Kate Hoey: Perhaps you should have an be delighted if you could stay and listen in the public equivalent organisation, or maybe you have, in the gallery, but thank you very much for coming. Republic of Ireland. Jeff Gazzard: Thank you. Jeff Gazzard: Well, that is a good question. Q254 Kate Hoey: By the way, I have just looked it Q253 Chair: I think we could go on a long time on up: there isn’t an easyJet flight to be had for less than this issue. It has been extremely interesting, but I am £70 from Belfast next week. afraid we have the Minister waiting outside. I would Chair: There we are. Thank you very much. Jeff Gazzard: Thanks.
Examination of Witnesses
Witnesses: Justine Greening MP, Economic Secretary, and Shona Riach, Deputy Director, Environment Tax, HM Treasury, gave evidence.
Q255 Chair: Okay, I think we will kick off straight responded. We had a response from Naomi Long, one away. Minister, thank you very much for coming, and of the Northern Ireland MPs in this chamber. indeed Miss Riach. Thank you for joining us today. I Chair: One of our members, yes. think you know the background to our inquiry. I wonder if we could refer to the consultation you are Q258 Ian Paisley: The evidence that we have heard carrying out. I understand the official period is now so far, however, is that this is now time critical. Your closed, but we are hopeful, being a Select Committee, Treasury has been very good at being proactive with that you will take into account the words of wisdom regard to addressing this matter with parts of Scotland that we provide you with. Could I ask you just to and Ireland. We heard evidence today that we need summarise, has it been a very busy consultation? you to be proactive now and have a response before Justine Greening: Yes it has. If you compare it with Christmas on this for Northern Ireland. Do you think the one that happened back in 2008, I think there were you can hit that timeline? about 180 responses to that. We have had about 500, Justine Greening: If I can manage expectations. We and we have had a lot of very helpful engagement are working to a budget timeline, but we will seek to with a variety of stakeholders from the airports and go through and respond to the consultation feedback the industry to some of the members of this during autumn. So although we work to a budget Committee. So we have been very pleased with the timeline, clearly as a Government we can signal our engagement. The consultation finished a couple of direction of travel. I think if you look at the Fridays ago on 17 June, but we are very keen to get consultation document, we did very clearly open up your report, because over the summer period we will some areas that we were interested to get a response have time to go through those responses. It would be on in terms of the banding and business jets, for great, frankly, to have your report as part of that body example. So in a sense we have opened up the areas of evidence to consider. where we felt the debate lay, and we will be giving a response to what the consultation has brought out well Q256 Chair: You certainly will have. What was the before Christmas. main view expressed? Are you able to tell us? Justine Greening: I cannot yet. We have just started Ian Paisley: Good, thank you. going through all of the responses. But you will be aware of the breadth of the consultation, and as we Q259 Dr McDonnell: Thank you very much, may come on to discuss, one of the challenges with Minister, for finding the time to talk to us. This is a this area of taxation is a lot of different stakeholders particularly contentious issue for Northern Ireland for within the industry and other stakeholders have all sorts of reasons that I will not delay you with at different views on what they think good looks like in this stage. But one of the things that is rather a way. My challenge is to try to strike a fair balance frightening is the general level of air passenger duty, between all of that. but it is particularly important when it comes to the one transatlantic connection that we have. And we Q257 Ian Paisley: Yes, Minister, welcome here as heard earlier, and indeed they are still with us, that the well. Have you any idea what proportion of responses lifeline there, Continental, are absorbing something in you received from Northern Ireland? region of $5 million or £3.2 million of duty to keep Justine Greening: We had about 30 responses from that line alive. They are making no profit whatsoever. Northern Ireland. They came from a number of public In fact the loss on the airline is the equivalent almost bodies. I am pleased to say we got a very good level of the tax. You say you probably expect something in of response from local councils, and local authorities the autumn, or to at least begin to show a direction of in the devolved administration. We also got responses travel at that stage. When do you think we might be from chambers of commerce, the various airports and in a position to complete the reform of the air airlines affected. Belfast International Airport passenger duty? Because if I was to interpret them Consultative Forum also responded. And we got correctly, the Continental people were suggesting that responses from Northern Ireland travel and tourism they do not have a year left and it would take quite a organisations, and also some of the political parties bit of time, because once you announce the thing they cobber Pack: U PL: COE1 [O] Processed: [07-07-2011 09:59] Job: 013271 Unit: PG03 Source: /MILES/PKU/INPUT/013271/013271_o003_th_Uncorrected NIC 29 06 11.xml
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29 June 2011 Justine Greening MP and Shona Riach have to phase it into a programme and all the rest. Q261 Chair: But at this stage, correct me if I am Can you give us any comfort there at all? wrong, are you saying it would be extremely difficult Justine Greening: Perhaps if I explain the process. if not something you could not do to change the tax First of all, we do understand that in relation to APD, specifically for flights to and from Northern Ireland? because of the way in which people buy tickets and Are you effectively ruling that out as an option? the way in which the airlines will then attach taxation to those tickets, and the fact that people buy them Q262 Justine Greening: No I am not, in the sense well in advance, there is a particular need to signal that there were two aspects of the consultation that I in advance what is happening. The timetable we are think were relevant for Northern Ireland. The first one working to is that we have done the consultation and was our fresh look at the banding system, and whether that is now closed. Over the summer period we will we had got the mix of that right. The second part that look at the responses to that. In the autumn we will was important for Northern Ireland was the aspect of then respond as a Government to that. Of course, at the consultation that raised the option of devolution, the same time, later in the autumn we would publish and whether that was something that would be a Draft Finance Bill too. Therefore at that stage, if welcomed by the devolved administrations. Clearly there were some structural changes and they required what we want is an approach to APD that works for legislation, there is the possibility that they would be the whole of the UK. But we clearly recognise the in that Draft Finance Bill, and in a sense that would fact that it has a land border makes the situation that be a second bite of the cherry for the industry to then Northern Ireland is in unique. Therefore we felt we respond to see whether what we were talking about in wanted to have a consultation that was broad enough terms of the legislation would deliver what we had to enable us to look at those issues in more detail than said we wanted to achieve. Then the final piece is perhaps we would have been able to do if we had not the publication of the actual Finance Bill, which then explicitly put that option in there. Of course, the happens at the time of the budget. Calman Report that was done in relation to Scotland I wanted to stress to the Committee that Continental also raises the prospect of the potential for devolution Airlines have responded to the consultation, and they of air passenger duty too. have been in to meet with us in Treasury. I am planning to make sure I get a chance to meet with Q263 David Simpson: To follow on, and making the them face to face as well. This particular issue of this point again that this is time critical, you have outlined particular flight and its importance has been brought for us the process up until the budget stage and the out very strongly to us. As I am sure the Committee final report stage. So in effect, if all the ducks came can understand, we cannot structure a whole taxation in a row are we still looking at the whole issue taking system around one flight, not least because of state aid effect from 1 April, or can it be done any sooner? issues. However, I think as a Government we have Because of the timeframe, it is a lifeline for Northern been very keen to look at what we can do to support Ireland to the United States. the Northern Ireland economy specifically. Therefore Justine Greening: We are working to a budget the fact that this has emerged as one of the challenges, timeline, and I think it might be worthwhile for me to and it was raised in PMQ today, is something we are write to the Committee to knit together this issue of very aware of, and we want to see what we can do to the budget timeline, but also the fact that for the make sure that the viability of Belfast International airlines one of the reasons that in the past we have Airport and the key flights out of it is maintained. I announced APD rates in November is the need for talked about managing expectations, but what I cannot them to have several months’ notice so that they can do is structure the whole of APD around it. price up their tickets and systems effectively. One of the reasons we wanted to do the consultation was because the best way we can take a smart decision Q264 Lady Hermon: Minister, I wonder if I might is with good facts. And what the consultation has just add to the emphasis that has already been placed enabled us to do is get and gather a fact base that we upon the essential nature of making or flagging up a can now look at and interrogate, and that will help speedy decision. That is 2012 will be the particular us reach the right conclusion on how to reform APD anniversary of the sinking of the Titanic, sadly, but it going forward. will mean thousands and thousands of people destined to come to Northern Ireland, particularly in April. We Q260 Dr McDonnell: Thank you for that. Certainly will also have the World Police and Fire Games. you got the point that I would have made. I will repeat Again, thousand and thousands of people heading it. This flight is an economic lifeline to the United towards Northern Ireland, so it is absolutely critical States and to the foreign direct investment with which that we do not wait until the Budget speech sometime we hope to lift the economy. in March. I would encourage the Chancellor, who Justine Greening: That is very helpful to hear. I think hinted in a recent visit to Northern Ireland, correct me from my perspective, your report will help me build if I am wrong, that in fact there was a special case for further understanding from your sense about the Northern Ireland. But we cannot leave it until the priorities. Clearly there are a number of aspects of air Budget Day; it has to be much earlier than that. passenger duty as it affects Northern Ireland, and I Justine Greening: That is obviously very helpful think it will be interesting to hear from you about feedback from the Committee. Ultimately the where you think the priorities are for me to focus on Chancellor makes his decisions not just in terms of as a Minister. I can then see how that compares with the Budget itself but in terms of timelines. But I think our consultation responses. you are making very clear to me the timelines you cobber Pack: U PL: COE1 [E] Processed: [07-07-2011 09:59] Job: 013271 Unit: PG03 Source: /MILES/PKU/INPUT/013271/013271_o003_th_Uncorrected NIC 29 06 11.xml
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29 June 2011 Justine Greening MP and Shona Riach would like us to pursue. When I have met with Q266 Oliver Colvile: I would very much welcome stakeholders in the industry I have been very clear the opportunity of bringing some people from the with them that we do not want to see any delay South West to come and talk to you about this issue. ourselves either. So we have the due process that we Obviously you have had a response back from the need to go through as a Government in making any Northern Ireland Executive. Have you had any formal tax change, but at the same time I am well aware that discussions with Sammy Wilson, and have you looked for APD in particular there has been some uncertainty at all at the idea that you might devolve responsibility around the tax structure, not least the fact that there for setting this tax down to the Northern Ireland was a consultation done back in 2008. Then as a new Executive? Government we took our own fresh look at APD. So Justine Greening: We have had discussions generally I think that there is a desire on our part too to try to with the Northern Ireland Executive around APD. I ensure that we now progress this matter with some do not know what you call something that is four— urgency, and we do not plan to let the grass grow quadrilateral?—but back in February it included me, under our feet. Arlene Foster, Hugo Swire and Sammy Wilson, to talk collectively about the particular issue that we are Lady Hermon: I take that as a firm commitment that discussing here of APD. So I have been very keen to we will know before the critical month of April; I am talk to the Northern Ireland Executive about this. Of being really serious about this. There has been a huge course they are making their representations into the investment in Belfast in the Titanic Quarter because consultation document, which we take onboard very of the expectation of it being a major tourist attraction seriously. indeed, those conversations will continue to in April 2012. It is absolutely vital that airport taxes, happen, and I very much welcome them. particularly passenger duty, are dealt with well in advance of that. Q267 Ian Paisley: If the power was to be devolved, it would take considerably more time to put legislation Q265 Oliver Colvile: On that issue, Northern Ireland in place to allow all that to happen. I think it is is one story, but what are the implications going to be important that we have some feedback on it. I for the rest of the United Kingdom? I have a understand there is a meeting today with Sammy constituency that feels very peripheral as well, and Wilson and your colleague Danny Alexander does not have great transport links, and it would be specifically on this. Is that right? very interesting to see how this is going to operate. Justine Greening: I think this is why this discussion Do you not think that places like my city will end up is very helpful, because there is the principle of saying, “Well that is very interesting. Can we end up potentially being able to devolve a tax like APD, and having some of that too, please?” then there is also the need to look at the practice. Justine Greening: When we raised the prospect of I think there is no doubt that there would be some devolution it was in terms of a regional look at APD. complexity around how it is done, not least in the fact Whatever we need to do, we need to have something that you would end up with another set of tax rates for that works for the UK as a whole. In fact one of the Northern Ireland. The other challenge for the Northern other things we tried to do was work closely with the Ireland Executive would be priorities. In other words Department for Transport, because of course they if you felt that it was a priority to structure APD to have now developed their Draft Aviation Strategy bring in less revenue, where would you choose to document. When I said that one of the things that think that the other revenue that you would be came across to me, as the Minister looking after this forgoing would come from perhaps instead? I think area, was that everybody had a different version of that is part and parcel of the whole devolution agenda, what good APD looked like, the regional airports’ and I do not think it is a bad thing at all. But those perspective was particularly important and did help are some of the questions that are being raised by our shape some of our thinking in this area. We are well consultation, and that is one of the reasons why we are interested now to read through those responses we aware that those transport links are particularly have had, so that we get a very clear understanding of important, and we do not want to see them the opportunities but also understand the practicalities undermined. In fact this question came up in Treasury behind them. And so whatever we do, we go into it Questions last Tuesday, and that was the point that I understanding what it really means for people, and go made to that Member who asked me that question as well beyond what the theory might suggest. well. So we do understand. When I talked at the beginning about needing to find Q268 Mel Stride: Welcome to the Committee. What a proposal that strikes a fair balance for everybody, is the Treasury’s overall feel and view of this issue of these are some of the challenges that we are looking potentially devolving the responsibility for setting at. It is how we can set up a reformed APD that APD rates at the Northern Ireland Executive level? actually does meet the needs of regional airports, tries On balance do you think it is a good idea, or do you to ensure that in the case of Northern Ireland it does have reservations about it? not hinder economic growth and does not undermine Justine Greening: I cannot give you a straight answer everything else that we are doing on corporation tax to that because I do not want to pre-empt the fact that and national insurance, and at the same time means we are looking at the consultation responses right that we can still, in this time of fiscal deficit and the now. What I can say, though, is we raised it as a need to try to sort out our public finances, still raise question because we recognised that it is clearly an the revenue that we need from this tax. option, and therefore we wanted to find out what cobber Pack: U PL: COE1 [O] Processed: [07-07-2011 09:59] Job: 013271 Unit: PG03 Source: /MILES/PKU/INPUT/013271/013271_o003_th_Uncorrected NIC 29 06 11.xml
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29 June 2011 Justine Greening MP and Shona Riach people thought about that. We will look at whether it Justine Greening: I believe there is a reduced rate, proves to be a good option or not in the light of what but we can perhaps confirm that to you by letter. people have told us. So I cannot pre-empt where we Chair: Okay, thank you. will end up, but I think the fact that we were willing to open it up as an issue was absolutely the right thing Q276 Lady Hermon: Correct me if I am wrong, it is to do. It had come out of the Calman Report for £2.5 billion that is collected in APD from Northern Scotland. When we met up with people from the Ireland? Northern Ireland Executive or MPs, they were clearly Justine Greening: That is UK-wide. raising this as a possibility. It seemed sensible to me, given that we were doing a consultation on this area, Q277 Lady Hermon: And the equivalent? Do we to formally say this was one of the main areas that have an estimate of how much is actually collected in had been flagged up, so let’s open that up as a Northern Ireland? discussion point so that we can try to reach a Justine Greening: I think I do, and I am trying to conclusion on it. recall for the Committee exactly what it was. For 2012 to 2013 we anticipate the APD collection for Northern Q269 Mel Stride: So it is an option that you are Ireland will be £60 million. certainly potentially amenable to if the evidence is there for it. Q278 Lady Hermon: £16 million? Justine Greening: It was in the consultation because Justine Greening: 60, six, zero. it is an option. There are some practical challenges behind it, but we would not have put it in unless it Q279 Lady Hermon: Thank you. If the power were was clearly something we were willing to seriously to be devolved to the Northern Ireland Executive, to consider. the Assembly, a bit like the suggestion about devolving the power to set your own corporation tax, Q270 Chair: Roughly how much does the tax I take it that in fact would amount to a state aid, and generate altogether? therefore the equivalent take of air passenger duty Justine Greening: It is about £2.5 billion. would have to be taken off the block grant to Northern Ireland. Is that how it would actually work in Q271 Chair: Is it cheap to collect? Is it an efficient practice? tax? Justine Greening: You are starting to raise some of Justine Greening: It is actually. In fact it is one of the issues that we would need to look at. the most efficient taxes to collect out of all of the HMRC taxes. Q280 Lady Hermon: Yes, I would like you to spell those out to the Committee. Q272 Chair: That is unfortunate. Justine Greening: For that as an option? Justine Greening: Well, I suppose if you want to cut down on HMRC costs, it is probably good in that Q281 Lady Hermon: Yes. respect at least. Justine Greening: Any time you look at differential tax rates within a member state, the question of state Q273 Chair: When we get the Emissions Trading aid is always one that will need to be carefully looked System applying to aviation, that will obviously add at. As you are aware, in relation to Northern Ireland, an extra tax to flights. Does that money go straight for example, with the Aggregates Levy Credit back to the EU? Do they collect it? Scheme, we always have to be very careful to make Justine Greening: I am pleased to say that it does not. sure that the way in which we structure taxation does I am sure they wished it did, but it comes into the meet state aid requirements and we can get over that Treasury, and therefore it is part and parcel of our bar. So those would be some of the issues that we forward planning in terms of public finances. have to carefully look at if that was the route that we chose to go down. Q274 Chair: Is one reason for holding the consultation the fact that that is going to apply to Q282 Kate Hoey: Thank you Minister. I welcome aviation? It will have a significant impact. the fact that you recognise the unique position of Justine Greening: It is part of the overall tax agenda Northern Ireland in terms of this whole tax debate, as it affects aviation. In some other countries aviation and also the timing, because the timing is really will have a reduced rate of VAT applied to it, whereas important in terms of what we have heard from in the UK it is zero VAT rated. So you are right to Continental and others. Do you understand the flag up that what we try to do is look at the overall frustration of people, particularly in Northern Ireland, burden of taxation on any industry, including aviation but perhaps in the UK generally? We have just bailed as a whole. So we are not going to myopically just out the Republic of Ireland, and yet people in focus on APD and ignore the fact that there is the Northern Ireland have a land border. They see the Emissions Trading System, of which aviation will airlines with the corporation tax being greatly become part next year. reduced, no APD, and reduction in hotel room charge taxes. Does that not make it even more ridiculous that Q275 Chair: Talking about VAT, correct me if I am we cannot find a way of sorting out a situation where wrong, in the Republic it is largely zero, isn’t it, for people in Northern Ireland could end up without a aviation? flight directly to the United States? And indeed it cobber Pack: U PL: COE1 [E] Processed: [07-07-2011 09:59] Job: 013271 Unit: PG03 Source: /MILES/PKU/INPUT/013271/013271_o003_th_Uncorrected NIC 29 06 11.xml
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29 June 2011 Justine Greening MP and Shona Riach affects people travelling back and forth, and they have Justine Greening: The challenge we face is trying to to fly because of the problems of long distances, to strike this balance. Again, I think you hit on a point, the mainland. which is that around 78% of APD is raised through Justine Greening: We do recognise the frustrations. Band A, short haul. So if you have a strategy as a It is one of the reasons why having a consultation to Government of increasing the tax take from APD and provide a strong forum for us to debate and discuss you do not put it on short haul, what you then see is these issues was the right thing to do. It is the other it disproportionately, in some people’s minds, loaded reason why, as a Government, specifically looking at on long haul, with some of the challenges that that what we can do to support economic growth in then puts on those particular flights. One of the other Northern Ireland is critical too. One of the best ways issues that came out of the discussions that I had with that we can make sure that not just that long-haul a variety of stakeholders, and particularly MPs, was flight that goes from Belfast to Newark but every the issue of long haul. In terms of our economic links other flight remains viable is to make sure there is with other countries and our diaspora that we now economic activity happening that fills it up. But the have, and family links, that was another issue that other thing I would say is that the transaction that came out of the changes to APD that we have seen happened with Ireland was not a bailout per se; it was over recent years. I think it just demonstrates the a loan, and we expect to be repaid. challenge we have in trying to find a way through reforming APD that makes it fair for everybody. We Q283 Kate Hoey: When do you expect to get repaid are trying to strike that right balance between making on that one? I just cannot remember the date. sure that we have a revenue neutral approach, but also, Justine Greening: I am quite happy to confirm these with some of the issues around long haul, one that details, but I think I am right in saying we have not does not disadvantage communities and economies made that loan yet. unduly, but at the same time is fair. Kate Hoey: Do not worry, some other time. Justine Greening: I am quite happy to provide an Q285 Dr McDonnell: Minister, in section D of your update on that, Kate; that is no problem at all. What I paper you stated that since the 2010 Budget the would say is we have been prepared to provide a loan. Government had met a range of stakeholders, One of the reasons for that is we know that that individual companies and others. You included in that economic relationship between Northern Ireland and Gatwick, Leeds Bradford, Manchester and Newcastle Ireland is really important for Northern Ireland, and Airports. There was no mention of any Northern therefore it is in our interest to see Ireland get back Ireland Airports. I know you alluded to Belfast on its feet economically. At the same time, we would International earlier, but I was not quite sure whether be the first country to say that we believe tax matters that was implying there was direct consultation. are matters that are decided at the domestic level. Would it be possible for you to improve the Therefore, clearly, that also applies to Ireland. But consultation with those airports? does it mean that we want to make sure we are Justine Greening: For me to what, sorry? competitive? Yes. As you know, we have said we want to reduce corporation tax year on year precisely to Q286 Dr McDonnell: To meet the various airports in become more competitive over the coming years. Of Northern Ireland, or to certainly improve the course we look at APD in the light of all that too, consultation with them to alleviate some of the because we want to make sure that what we are doing isolation that they feel. does support the Northern Ireland economy very Justine Greening: I think we have been assiduous in clearly. trying to make sure that we have spoken with a range The challenge we have got is really the backdrop that of stakeholders. Obviously the Chancellor was over in we are all operating in, which is this huge problem Northern Ireland only last week. So I hope I can we have with public finances—trying to steer a route provide some reassurance that those contacts have through, making sure that we get those sorted out. You happened. I am continuing to have meetings with a only have to look at countries like Ireland or Greece variety of stakeholders in this area, and I am very to see the challenges they now face and how much happy to meet with the Northern Ireland Airports. But extra they are spending on debt interest because their as I have said, we have had a lot of discussion with interest rates are higher for Government borrowing. representatives of the industry and with elected So we have to sort that out in the short to medium representatives as well, so I think I have been term, but at the same time we do absolutely want to particularly keen to make sure we have that channel put in place the right ingredients for long-term of communication open. economic success in Northern Ireland. We want to get on with that agenda too. But it is certainly a challenge Q287 Kate Hoey: Did the consultation paper itself doing them both at the same time. take into account the uniqueness of Northern Ireland, the land border and the impact it could have on Q284 David Simpson: The Treasury’s consultation tourism and the business economy? That is paper had two options for reforming the APD. They presumably all part of the consultation. said that both would result in an increase in APD for Justine Greening: Did we look at the economic passengers travelling within the United Kingdom and modelling, and will we continue to look at economic Europe. Does the Government seriously consider modelling, to understand the impact and the options anyone apart from long-haul or long-range travellers that we now have and that we have consulted on? Yes. would be happy with either scenario? That is work that goes on within Treasury, but it is cobber Pack: U PL: COE1 [O] Processed: [07-07-2011 09:59] Job: 013271 Unit: PG03 Source: /MILES/PKU/INPUT/013271/013271_o003_th_Uncorrected NIC 29 06 11.xml
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29 June 2011 Justine Greening MP and Shona Riach also work that is informed by the facts and data that things right first time in a way that will stick legally we get provided by other interest groups, who matters. themselves look at what they think the impact of some of these options will be. They do their own modelling. Q290 Oliver Colvile: I just have some technical In some cases perhaps they get consultants in to do it questions really. Is the APD only payable by for them, and they then come in and talk to me and commercial airlines or do those people who have their officials about what assumptions they have made and private jets and fly in also have to pay it? what conclusions they have drawn. That is one of the Justine Greening: At the moment it is payable by reasons why doing these sorts of consultations is very commercial airlines but it exempts so-called business helpful, because we are then able to benchmark what jets. The consultation opens up the option to include we think the impact can be with what perceptions and business jets in the tax base for the first time. Part and stats other stakeholders have got. Between those parcel of being able to do that would mean getting a processes the ideal is to reach some kind of common sensible definition of what a business jet is in a way view. But I think particularly in this area, perhaps that we could then properly apply and implement the more than most areas that I look after as a Treasury tax on. Minister, that absence of a common view is one of the biggest challenges in trying to get the right solution. Q291 Oliver Colvile: I know it is not seen as a green But we are trying. tax, but that would mean that those business jets would also be helping to pay something towards the Q288 Kate Hoey: I just wondered if you thought environmental consequences of it too. Could you just there was ever any chance of getting Northern Ireland, explain, and I apologise in advance if this is a very which is an island off an island, to have the same silly question, but is the tax payable from the point of support and help as the Highlands and Islands do, departure or the point of arrival? using the public service obligation. Is that ever going Justine Greening: It is payable effectively on the to be looked at or is it a complete non-starter? point of departure based on your end destination. Justine Greening: In relation to that dispensation for that particular part of the country, it would prove Q292 Oliver Colvile: That is helpful. It has been put difficult to do it for Northern Ireland because the to us that your proposals on APD are incompatible Highlands and Islands dispensation is really based on with the Government’s policy to reduce Northern its remoteness. So it would be wrong of me to say to Ireland’s dependence on the taxpayer by promoting the Committee that I felt there was a parallel situation business and tourism, and reducing corporation tax. there. Of course one of the challenges that can come How do you reconcile these proposals? up with the devolution agenda is, for example, if you Justine Greening: As I explained to Kate earlier, in a devolved to Northern Ireland, we would potentially sense you have a short- and long-term challenge. The be solving your problem with a land border, but in short- to medium-term challenge in this Parliament is to get to grips with the financial deficit. It is costing devolving perhaps to Scotland and/or Wales, you then us £120 million a day, and that is squeezing the create two other land border challenges at the same amount of money that we have to spend on the public time. So I think what you can see coming out of our services and investment that we want to see and we discussion today is it is a complex taxation area to think could make a difference. We have to address work through. that and we have to make sure that duties like APD continue to contribute to tackling that deficit. But at Q289 Kate Hoey: It just seems very unfair to people the same time, we wanted to look at whether we were in Northern Ireland when they see what is happening collecting that tax in the most effective way. In other 80 miles down the road in the Republic. State aid does words, was there a better, more sensible and fairer not seem to work there or worry anybody or anything. way to collect that £2.5 billion? That was part and We always seem to have some great reason why we parcel of why we wanted to do the consultation and cannot do it, and yet we are in a very special, unique to look at whether there were any options to address situation. some of the thorny issues that had come out of the Justine Greening: That is one of the reasons we are discussions I had had with stakeholders, including the determined as a Government to look across the board ones we are talking about today. at what we can do to support the Northern Ireland economy. It is why the Chancellor was there last Q293 Mr Benton: Apart from the Republic of week, to show his commitment to do that. If there is Ireland, the Netherlands, Sweden, Denmark and Malta one message that I want to leave the Committee with, have all abolished APD. My first question is why does it is that we do take all these issues incredibly Her Majesty’s Government not do likewise? The other seriously. I have spent an awful lot of time thinking point I wanted to raise was, if you have studied what about these particular issues in relation to this happened in the Netherlands, the APD might have particular duty because I do understand the cost the Dutch Government over £1 billion in lost importance. At the same time I have got to get revenue. Despite it now being abolished, there was something that is sustainable, and as we have seen little sign that those Dutch customers who switched to with the challenges around the Aggregates Levy other airports in Germany and Belgium have returned. Credit Scheme, the challenges to that are ones that we Do you have any observations on that? And finally, want to try to get over as fast as we can. But the assuming APD is not abolished, how many passengers uncertainty around it is not helpful; therefore getting do you estimate will be permanently lost to Northern cobber Pack: U PL: COE1 [E] Processed: [07-07-2011 09:59] Job: 013271 Unit: PG03 Source: /MILES/PKU/INPUT/013271/013271_o003_th_Uncorrected NIC 29 06 11.xml
Ev 46 Northern Ireland Committee: Evidence
29 June 2011 Justine Greening MP and Shona Riach
Ireland’s airports on the assumption that they have be affected by different levels of APD. Another is to recourse, quite obviously, to Dublin? I would understand what that might then mean for individual welcome your observations on that. and regional airports, for example, or Northern Ireland Justine Greening: In relation to what happened in the airports and the situation they are in. At the same time Netherlands, obviously they brought in their version we have to look at how it affects communities. There of air passenger duty for about 18 months before is no perfect framework that means you can churn all abolishing it. As you pointed out, the research that of this into a computer and then it will suddenly spit was done on the impact of that tax showed that there out the right answer. Frankly, it is down to me and the was a change in behaviour of about 14% to 15% of Chancellor to look at those pros and cons and the passengers. About half of those passengers went to stresses and strains of the different options. We will different airports. As you said, some of them, for try to pick the one that we feel strikes the right example, went to airports in Germany. Then half of balance in terms of our differing objectives and them chose not to fly; they took a different mode of different stakeholders. This helps us to see what we travel. can do in terms of mitigating the risks for the areas It is something that we have looked at, but at the same where we feel that we have not made the level of time the challenges around the analysis were first of progress that we might have wanted to, but we just all the tax was not in place for a long time. But also simply have not been able to. Germany has now brought in its own air passenger duty. In fact I think I am right in saying that Austria Q295 Chair: We have concentrated a lot on has done so recently as well. So it is not clear what passengers, quite rightly. Can I just raise the issue of the longer term effects of those different changes in freight? Have you ruled out the idea of the per plane tax will be, but we do look at them, absolutely. duty in particular with regards to freight? In terms of how we see APD here in the UK, we do Justine Greening: At the time of the Budget we said want to make sure that we strike a balance between we had decided not to go ahead at the present time ensuring that we collect the right amount of revenue, with per plane duty. One of the key reasons we were but we do that in a way that does not see us unable to do that was because of some of the legalities disadvantage our economy. That is precisely what we around the Chicago Convention, and in practice wanted to look at in relation to the consultation. It is whether legally we felt it would be wise to embark on one of the reasons why we questioned whether the a change to per plane duty, which could take us down base should be widened, so we are consulting on a route where we felt we would be legally challenged, business jets, and this issue of whether people, in the and with all the uncertainly that would have brought case of hub airports, would hub offshore. The with it for the various industries affected. So having Netherlands was one country that was raised with us taken that decision we were then left to decide, if we as an example, and we looked at it very closely. You are going to have APD for the foreseeable future, is it will be aware that some stakeholders would say we right to leave it as it is, or should we look at whether should be taxing transfer and transit passengers. One we can address some of the issues that have been of the arguments against that had been that it would brought out to us as part and parcel of those damage the network and therefore make people discussions—the question about whether we should hubbing offshore more likely. So these are precisely shift to a per plane duty? I think the decision we took the sorts of issues that we have looked at in Treasury, was the right one, which was to say that we should and we will continue to. look to see if we can address some of these inequities that are being talked about by stakeholders. That is Q294 Mr Benton: Thank you for that. Just to change precisely what we are in the middle of doing right tack slightly, something you said earlier on in now: looking to see if we can do that successfully. response to one of my colleagues was about trying to Chair: Thank you. Any other questions? do what is best for the UK. Taking into account all kinds of differentials and adding up the cost benefits Q296 Kate Hoey: Have you visited Northern Ireland I readily acknowledge is an unenviable task. But given yet in your official capacity? our experiences over corporation tax, for example, Justine Greening: Not in an official capacity, but I when the imperative is to do the right thing, to do the very much look forward to going over there. I have best, in both cases for Northern Ireland. But it has all had a number of conversations with people like sorts of difficulties that I am sure the Committee Arlene Foster and, of course, Sammy Wilson. I think totally appreciate in terms of trying to hit this a natural next step would be for me to meet them on balancing act. So I wondered, against that their home ground, and I look forward to that very background, what sort of areas would you be looking much. at in justifying creating differentials? Will you just Chair: Minister, thank you very much for coming. It purely make a decision on the economic argument? was a very useful session. Best of luck with your very What sort of criteria will it be? What is the level? difficult balancing act. So thank you very much Where are the bands? If you follow the drift of where indeed. I am thinking, given how crucial it is and the difficulty Justine Greening: Thank you. of trying to effect this decision. Justine Greening: We do look at a number of areas. One is to understand how passenger behaviour will cobber Pack: U PL: CWE1 [SO] Processed: [07-07-2011 09:59] Job: 013272 Unit: PG01
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Written evidence
Written evidence from Belfast International Airport Introduction 1. Belfast International Airport (BIA) is pleased that the Northern Ireland Affairs Committee has allocated time in its schedule to take evidence in contemplation of preparing a report on this extremely important issue for Northern Ireland. 2. BIA welcomes this opportunity to provide a written memorandum of evidence to the Committee on the implications of Air Passenger Duty (APD) for Northern Ireland. 3. BIA has been campaigning for some time for a significant restructuring of APD, as we view it as an obstacle to re-building and re-balancing the Northern Ireland economy, given that it places Northern Ireland at a clear competitive disadvantage on an island-wide basis. 4. The continuation of the current structure of APD will do nothing except undermine concerted efforts to renew and develop the economy. At a time when there will be less financial resources in the Block Grant, and the likelihood of tax varying powers to bring about a reduced and more competitive level of Corporation Tax, APD represents a major disconnect in strategic thinking and flies in the face of positive measures to boost Foreign Direct Investment (FDI).
Belfast International Airport Statistics 5. BIA is the principal aviation gateway to Northern Ireland, facilitating domestic, European and long-haul services, as well as the key airfreight market, 24 hours a day, 365 days a year. The airport handles 75,000 Air Transport Movements (ATMs) per year, serving over 80 domestic and international destinations. In the past five years, the owners, Abertis, have invested tens of millions of pounds in airport infrastructure, directly benefiting the construction sector within Northern Ireland, and a similar level of investment is planned over the next five-year period. 6. Other key facts include: — 4.5 million passengers per annum (12,000 passengers per day). — Two-hundred and fifty businesses operate on the site. — In excess of 4,000 people are employed at the complex. — Salaries and wages total £250 million. — The rates bill is £5 million per year. — Operating costs are £25 million per year. — The contribution to direct and indirect taxation is £100 million. — Air Cargo throughput is 50,000 tonnes each year. — 100,000 tonnes are transhipped through airport facilities. 7. The complex is the second largest employment site in Northern Ireland, so its strategic importance cannot be over-stated.
Airport Throughput Projections 8. The global recession, combined with more recent increases in the rates of APD have had an adverse effect on passenger numbers using BIA over the past two years. Throughput declined from 5.2 million passengers in 2008, to just over four million in the last calendar year. That said, there are indications of market stabilisation, albeit at a much lower level than previously experienced. 9. The potential recognised in the 2003 Air Transport White Paper and restated within the airports 25-year development masterplan indicated that BIA had the capacity to grow to 8 million passengers by 2015 and to 12 million by 2030. Using generally-accepted international norms, that means there is the potential to create 3,500 new jobs at airport site. To get there, we have to make BIA and, by extension Northern Ireland, as appealing as possible to international markets and airline operators. 10. BIA has been endeavouring to attract new carriers to the marketplace, especially from North America and the Middle East. Of particular importance is the need to reinstate a direct Canadian service which, when operational, was hugely successful. The airlines we have been engaged with have said they are keen to explore these business opportunities but they have made the point forcefully that APD is an inhibiting factor. APD poses a current and future threat to commercial performance and makes Northern Ireland a less attractive place in which to do business. cobber Pack: U PL: CWE1 [E] Processed: [07-07-2011 09:59] Job: 013272 Unit: PG01
Ev 48 Northern Ireland Committee: Evidence
Market Distortion and Disadvantage 11. Northern Ireland is unique insofar as it is the only region of the United Kingdom that shares a land border with another EU Member State. What happens in the Republic of Ireland has a profound effect on Northern Ireland; price-sensitive advantage in one place, as evidenced over the years in forecourt fuel rates, is a significant disadvantage to trade quite literally just down the road. 12. BIA competes with other airports both in Northern Ireland and in the Republic of Ireland. Less than 90 minutes from Belfast is Dublin Airport which accounts for 20 million passengers a year compared with 4.5 million at Belfast International Airport which is Northern Ireland’s principal “gateway” airport and the second busiest on the island overall. APD places Northern Ireland airports at a distinct disadvantage to Dublin where the Government has announced its intention to reduce the equivalent tax to zero, because it is viewed as a barrier to the growth of the tourism sector. 13. The majority of air travel—somewhere in the region of 75% of air passenger traffic—into and out of Northern Ireland is bound for, or originating from, GB. This creates a highly anomalous situation where a passenger travelling on a return journey between NI and GB will attract APD twice, whilst a similar return journey to or from an airport across the land border in the Republic of Ireland only has to bear the tax once. 14. Furthermore, the comparison between the rate of duty payable in Northern Ireland and that levied in RoI at the lowest Band A level is £12 versus €3, soon to be reduced to zero. 15. Whilst there is anecdotal evidence that the start of the steep rise in APD from 2009 onwards has had a “dampening” effect on air travel from Northern Ireland, perhaps to the extent of 2–3 percentage points, it is difficult to isolate this from the general impact of weaker consumer demand in recent years. 16. It also needs to be taken into account that when travelling to and from Northern Ireland from the rest of the UK, the alternative of long distance rail is not available, and travel by road inevitably involves a ferry journey. This will tend to mask the true impact of APD on domestic demand. 17. However, of particular concern is the significant difference in tax in Band B of APD which covers flights in the 2,001–4,000 miles range. Compared to what will shortly be a zero charge in the Republic of Ireland, the passenger tax in Band B is £60 and £120 for economy and business class passengers respectively. This position is unfair, unsustainable and places Northern Ireland at an obvious and distinct disadvantage.
Tourism 18. Central to the re-building and re-balancing of the Northern Ireland economy is the development of a tourism sector capable of delivering 20,000 new jobs and creating hundreds of new businesses and visitor attractions. International passengers can and will vote with their feet which means that if they decide to holiday in Ireland, they are more likely to use services into and out of the Republic of Ireland as a direct result of APD differentials. 19. One of the downsides of this situation is that tourists who fly into the Republic of Ireland are more inclined to spend the bulk of their holiday in that jurisdiction, overlooking Northern Ireland and thus denying the region much-needed revenue streams. The converse is also true: tourists who use Belfast International Airport spend more time in Northern Ireland, spend more money and are of greater value to a sector trying to find its feet. We will fail to adequately exploit tourism, and miss out on significant employment, if we do not address the imbalance in APD. Northern Ireland must be enabled to play on a level playing field with the Republic of Ireland and not held back by a regressive tax.
United-Continental Route to New York 20. Of critical concern is the risk that the current rates of APD pose to Northern Ireland’s one and only direct trans-Atlantic service to the United States. Since its inception six years ago, the Belfast-Newark service has carried just over 600,000 passengers, 40% of them inbound tourists and business visitors. Based on conservative estimates made by the tourism and enterprise authorities, it has generated revenues to the Northern Ireland economy of just over £100M, and accounts for several thousand new jobs directly related to foreign direct investment placed in the region due to the availability of direct access. 21. Rather than passing on the full weight of APD to its passengers in the price they pay for their tickets, the airline has decided to absorb the cost in the short-term, in order to maintain competitiveness with Dublin at an “after-tax” level. That situation cannot continue without an end in prospect as it is clearly unsustainable. Without a favourable outcome to this consultation, there is a very real threat that the airline will be left with no other option but to withdraw from the Northern Ireland market. 22. Inevitably this will result in the loss of a vital tourism and business link to the United States and irreparable long-term damage inflicted on Northern Ireland’s standing and international reputation due to the “blight” that the loss of the route would create on our ability to persuade other long-haul operators into the market for many years to come. cobber Pack: U PL: CWE1 [O] Processed: [07-07-2011 09:59] Job: 013272 Unit: PG01
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Direct Impact of APD on Northern Ireland as a Region Within the UK
23. We do not believe that, given the imminent inclusion of aviation in the EU Emissions Trading Scheme at the beginning of next calendar year, APD will continue to perform its original purpose as an environmental tax. There is a prima facie case, therefore, for the elimination of APD as an environmental levy completely. As this is unlikely to happen, the only conclusion to be drawn is that air passengers will have to bear a double burden of taxation as a penalty for flying from the UK.
24. In recent years, the Netherlands, Belgium, Denmark and more latterly Ireland have announced plans to remove their equivalent to APD or reduce it to zero, as it was believed to be creating a barrier to the development of inbound business and tourism. Of the remaining EU states that still have an APD equivalent, the UK has the highest rates by a long way, some four times that of the next highest rate in Germany, which is considering whether to eliminate its APD equivalent in 2012.
25. The current rates of APD place the UK at the upper end of such taxes in the European context, and by deduction places the UK at a competitive disadvantage to other countries within the EU.
26. However, at a UK regional level, the competition issue is much more acute for Northern Ireland, given that it shares a very porous and transparent land border with another EU state that currently has one of the lowest flat-rates of APD (€3), which will shortly be reduced to zero.
27. Our observation of passenger trends over the past two years, since APD rates began to increase more steeply, is that Band A has had a dampening effect on air travel between Northern Ireland and GB particularly, although the absence of alternate means other than ferry crossings has moderated this impact artificially. The significant increases in Band B, where it becomes much more attractive to use air services in and out of Dublin airport, present a much greater challenge.
28. The relevant comparison is £60–£120 (depending on class) APD from Belfast, versus €3 currently out of Dublin, shortly to be reduced to zero. This places Northern Ireland at a significant disadvantage in attracting and developing air services that support the economic needs of the region.
29. This competitive disadvantage places at risk the £20million input annually to the Northern Ireland economy currently flowing from direct inbound tourism and business on foot of the daily Belfast-New York air service and places a significant barrier in the way of developing further long-haul services that could deliver similar returns.
Options for Addressing the Issue of APD in Northern Ireland
30. None of the options set out in the recent HM Treasury consultation paper of restructuring APD address the issues faced by Northern Ireland, simply because of its unique geographical location within the UK. They are an extension of the current structure which simply reallocates the tax take to a smaller number of bands. The outcome still leaves Northern Ireland at a competitive disadvantage when compared with the equivalent provisions in the Republic of Ireland.
31. We understand that any solution which involves treating Northern Ireland as a “special case” within the UK would be viewed by HM Treasury as an imperfect remedy, given its potential impact on Treasury budgetary projections which see total revenues from APD rising from the current £2.2 billion, to £3.6 billion by 2015–16. Any “special rate” created for Northern Ireland only, would have to be off-set by tariff increases elsewhere, or be negatively-hypothecated back into the NI Block Grant.
32. We would estimate that total APD take by HM Treasury from Northern Ireland air passengers is around £45 million annually. Of this, between £1½ million–£2million is derived from traffic subject to the problematic Band B rate. The “outsize” problem is therefore attached to around 4% of the relevant tax revenue.
33. We would therefore maintain that the locally devolved administration would be better placed to deal directly with the challenge. For that reason, BIA advocates the devolution of APD, either independently or as a component part of the tax varying powers currently under consideration by HMT.
34. It would become the responsibility of the Northern Ireland Executive to determine how best the rates of APD should be restructured to meet the air access needs of the region within the imperative shared by the Executive and the UK Government to rebalance the Northern Ireland economy. 22 June 2011 cobber Pack: U PL: CWE1 [E] Processed: [07-07-2011 09:59] Job: 013272 Unit: PG01
Ev 50 Northern Ireland Committee: Evidence
Written evidence from CBI Northern Ireland 1. CBI Northern Ireland is an independent, non-party political organisation funded entirely by its members in industry and commerce. Across the UK, the CBI speaks for some 240,000 businesses which together employ around a third of the UK private sector workforce. Our membership stretches across the UK, including businesses from all sectors and of all sizes. It includes the majority of the FTSE 100 companies, some 200,000 small and medium-sized enterprises (SMEs), more than 20,000 manufacturers and over 150 sectoral associations. CBI Northern Ireland welcomes the opportunity to respond to the Northern Ireland Affairs Committee on Air Passenger Duty (APD). 2. Aviation underpins a functioning modern economy, a competitive aviation industry is not optional, nor on the whole does it provide services that are discretionary. Northern Ireland is geographically isolated from the rest of the UK, meaning that as a region it is particularly dependent on strong air transport links; Air Passenger Duty poses a very specific challenge to Northern Ireland’s economic development. Viable alternatives to air travel to and from other regions in GB, by way or rail or road, are not available to travellers. While sea routes form an important part of the economic life of the province, they cannot provide the same speed and frequency of access. A number of our members from a variety of sectors have raised concerns about the impact (both direct and indirect) that air passenger duty has on their business. 3. As stated in the HM Treasury consultation on reform of Air Passenger Duty, the recent Business Innovation and Skills White Paper on Local Growth flagged up some of the long term regional imbalances in the UK economy. It states that government’s “focus should be on giving local areas the right tools, incentives, freedoms and responsibility to make their own choices”. 4. The HM Treasury consultation document, Rebalancing the Northern Ireland Economy has also emphasised that Northern Ireland faces a greater challenge than most other regions of the UK, and prosperity is still significantly below the UK average with no long term growth trend for GVA. The region is also unique in that it shares a land border with the Republic of Ireland, rather than another part of the UK. This means that air services compete directly with the regime set in the Republic of Ireland. The long term aim of HM Treasury is stated as “rebalancing the Northern Ireland economy by growing the private sector and increasing its capacity to export”. CBI Northern Ireland totally agrees that export growth and tourism will be essential aspects of growing the Northern Ireland economy. A small private sector capacity will have to expand, through investment by indigenous businesses but also by attracting Foreign Direct Investment inflows. Encouraging a higher rate of investment for many indigenous businesses will be based on their capacity to export, something that is heavily reliant on the direct international transport links provided by air and sea ports. The connectivity provided by direct links is vital for a small open market economy. Similarly companies considering a large investment in Northern Ireland will look at international connectivity as a key factor in potential access to markets. Shown below is a CBI commissioned Ipsos MORI survey from 2010 that underlines the importance of access to markets when making an investment decision: MOST INFLUENTIAL FACTORS WHEN CHOOSING TO INVEST (IPSOS MORI TELEPHONE INTERVIEW, AUGUST 2010, OF FTSE 350 COMPANIES AND THEIR FOREIGN EQUIVALENTS) Mean score (1–10, with 10 Factor being very influential) Access to markets 8.77 Political and economic stability 8.33 Nature/level of regulation 7.47 Availability trained/skilled workforce 7.31 Business taxation levels 7.30 Infrastructure 7.28 Good labour relations 6.98 Flexibility of work practices 6.91 Ability to attract internationally mobile staff 6.69 Availability of land/planning restrictions 5.97 Personal taxation levels 5.78 Exchange rate risk 5.34
5. The Calman Commission Report, Serving Scotland Better, found that air passenger duty was a suitable candidate for devolution for a number of reasons: — Devolving the tax would offer a strong policy instrument that would complement the existing powers granted under devolution. — It would not necessarily create any economic inefficiency or complexity. — The administrative burden of devolving the tax could be readily achieved as it is based entirely on location. cobber Pack: U PL: CWE1 [O] Processed: [07-07-2011 09:59] Job: 013272 Unit: PG01
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We understand that there is an agreement in principle to devolve APD to the Scottish Parliament although the power has not been included in the Scotland Bill currently before the House of Commons.
6. Air passenger duty is described as a revenue raising mechanism that provides appropriate environmental signals for the aviation industry (although it is not currently linked to any specifically defined environmental outcome); At APD’s current level air travel tax rates in the UK are among the highest in Europe. This contrasts with the regime in the Republic of Ireland which has reduced its air travel tax to €3, which will be reduced to €0 in the near future. This reduction has been in part influenced by a decision to increase tourist numbers, but also in preparation for the inclusion of European aviation emissions in the EU Emissions Trading Scheme. As Northern Ireland shares a porous land border with the Republic of Ireland there is a real competition issue, with air services in and out of Dublin airport in particular becoming much more attractive for international air routes. There are some international air routes we would consider to be particularly important for Northern Ireland’s economic development. Case Study: United-Continental route to Newark This daily service is the only direct trans-Atlantic service to the United States from Northern Ireland. The service itself has carried over 600,000 passengers over a six year period. United-Continental chose to absorb the cost of APD in the short term to remain competitive with services from Dublin Airport. This is not a long term solution, and this key tourist and business air link is at risk unless the differential between Northern Ireland and the Republic of Ireland is addressed. The loss of the service would affect future air route investment decisions providing an example to other airlines of the difficulty in operating a viable international service with the burden of current UK APD rates.
7. Independent analysis carried out by Avia Solutions for the BFS Masterplan in 2006 estimated that approximately 1.2 million potential passengers leak from the Northern Ireland catchment, with cost differentials between airports north and south, resulting from a combination of APD and the Sterling/Euro exchange rate being the primary factor. Additional costs from Aviation Duty will further exasperate the situation—European and direct USA flights could be most at risk. The table below shows a direct comparison between APD rates in Northern Ireland and the Air Travel Tax (ATT) rates in the Republic of Ireland. APD Band Economy Class Business/First class Republic of Ireland ATT A (0–2,000 miles) £12 £24 €3 B (2,001–4,000 miles) £60 £120 €3 C (4,001–6,000 miles) £75 £150 €3 D (over 6,000 miles) £85 £170 €3
8. The 2006 Stern Review on the Economics of Climate Change found that aviation is one of the few sectors of the economy where there is a risk of “trade diversion” and business relocation in response to unilateral increases in input prices to mitigate climate change impacts. Although the level of APD has had a dampening effect on domestic air travel, the disparity between the cost of air services north and south of the border has the biggest impact on Northern Ireland. APD is also disproportionately felt by low cost carriers, who run with very low margins making the price differential between the Republic of Ireland and Northern Ireland more pronounced. The rises in Band B have undermined the competitiveness and potential viability of international services increasing the likelihood of the relocation of services from Belfast to Dublin—Northern Ireland already experiences “dilution” and a loss of traffic to Dublin which is likely to increase under a new structure and/or further increases in APD.
Concluding Remarks
9. The UK government’s policy on APD should consider taking account of Northern Ireland’s unique geographic position, dependence on air travel and the competition local airports and air services face from the Republic of Ireland. As APD increases and a significant differential with the Republic of Ireland is created the competitive position of Northern Ireland is undermined, yet improving connectivity is a key element of helping to rebalance the Northern Ireland economy, through increasing exports and developing the tourism market.
10. The maintenance of domestic routes and protection of vital international air links should be an urgent priority for the Northern Ireland Executive, and the UK government. In the short term the application of some form of derogation or adjustment to APD (similar to that in place for flights departing from airports in the Scottish Highlands and Islands) in Northern Ireland should be considered as a priority, particularly with regard to all international air routes, until aviation tax differentials in the UK and the Republic of Ireland are reduced. CBI Northern Ireland also believes that there is a case emerging for considering devolving APD to the Northern Ireland Assembly.
11. As aviation is brought under the European Emissions Trading Scheme in 2012 it will be vitally important to ensure Northern Ireland’s competitive position is secured and a form of double taxation is avoided. 23 June 2011 cobber Pack: U PL: CWE1 [E] Processed: [07-07-2011 09:59] Job: 013272 Unit: PG01
Ev 52 Northern Ireland Committee: Evidence
Written evidence from Consumer Council for Northern Ireland Introduction On 22 June 2011 Ms Antoinette McKeown, Chief Executive, and Mr Aodhan O’Donnell, Director of Policy and Education, Consumer Council for Northern Ireland (CCNI) provided oral evidence as part of the Northern Ireland Affairs Select Committee inquiry into Air Passenger Duty (APD). This paper provides further detail on CCNI’s position regarding the impact of APD on Northern Ireland consumers. Information is also provided on CCNI’s work in relation to a number of other important air transport issues including the EC Access to Air Travel and Denied and Cancelled Boarding Regulations, credit and debit card payment charges and the 2010 and 2011 volcanic ash crises.
Role and Remit of the Consumer Council for Northern Ireland The Consumer Council for Northern Ireland (CCNI) is a Non-Departmental Public Body established by The General Consumer Council (Northern Ireland) Order 1984 and funded by the Department for Enterprise, Trade and Investment. CCNI is an independent consumer organisation, working to bring about change to benefit Northern Ireland’s consumers. Its aim is to make the consumer voice heard and make it count. CCNI represents consumers in the areas of transport, water and energy. It also has responsibility to educate consumers on their rights and responsibilities and to equip them with the skills they need to make good decisions about their money and manage it wisely. CCNI has statutory responsibility to protect and promote the interests of passengers travelling to, from and within Northern Ireland. The Consumer Council is responsible for handling complaints and enquiries from passengers travelling by bus, train, air and sea. CCNI assists individual passengers with their complaints and works with companies at a policy level to improve systems and procedures. We have strong relationships with all main transport providers, airport operators and Government transport policy divisions in Northern Ireland and Great Britain.
Air Passenger Duty Air Passenger Duty (APD) is a duty charged on a per passenger basis for flights departing from UK airports. APD was introduced by the UK Government on 1 November 1994. Northern Ireland passengers paid an estimated £55 million in APD in 2009–10.1 The high level of UK APD serves to undermine the Northern Ireland aviation sector with passengers incentivised to travel via airports in the Republic of Ireland rather than Northern Ireland in order to save money. Decreased demand for air services from Northern Ireland’s airports could lead to a decline in the number of services and routes operated, reducing choice and convenience for consumers living in Northern Ireland. Furthermore, an increase in the number of Northern Ireland passengers travelling via Republic of Ireland airports rather than Northern Ireland airports will result in a loss of revenue for HM Treasury, Northern Ireland airports and the region’s economy. In addition to the UK Germany, Austria, Republic of Ireland and France impose a duty on air travel. The rates of aviation tax in the UK and the other four European countries that have a similar tax are shown in the table below (figures converted to pounds sterling—June 2011). Aviation tax to Aviation tax to Aviation tax to Aviation tax to equivalent of UK equivalent of UK equivalent of UK equivalent of UK APD Band A APD Band B APD Band C APD Band D Country Destination Destination Destination Destination UK £12.00 £60.00 £75.00 £85.00 Germany £7.10 £22.17 £39.91 £39.91 Austria £7.10 £17.74 £31.04 £31.04 Ireland £2.66 £2.66 £2.66 £2.66 France £3.70 £6.64 £6.64 £6.64
Dependence on Air Travel Due to the region’s geographic location, Northern Ireland consumers are more heavily reliant on air travel than their GB counterparts. Based on the number of passenger journeys per head of population Northern Ireland consumers travel by air 14% more than the UK average. During 2010 7.1 million passengers travelled through Northern Ireland’s airports; 75% of journeys were to or from UK airports. Northern Ireland is also unique because as part of the UK it has the highest rate of aviation duty in Europe but also has a land border with the Republic of Ireland which has confirmed its intention to abolish its Air Travel Tax (ATT). The Consumer Council recommends that APD on flights operating to and from Northern Ireland airports should be reduced or removed to mirror the Republic of Ireland ATT. A reduction in APD would ensure 1 Based on Public Expenditure Statistical Analysis estimates and annual UK Air Passenger Duty receipts. cobber Pack: U PL: CWE1 [O] Processed: [07-07-2011 09:59] Job: 013272 Unit: PG01
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Northern Ireland consumers are not disadvantaged given their high dependence on air travel, and will ensure the region’s airports continue to deliver consumer choice.
Issues for Consideration Department for Finance and Personnel position In its response to the HM Treasury consultation on Reform of Air Passenger Duty the Northern Ireland Department for Finance states “if APD is retained it should have a single rate no matter the distance flown and that this rate should be akin, or lower, to that currently applied to Band A”. CCNI believes that this position fails to adequately take into account the interests of consumers. Most of the passenger journeys to and from Northern Ireland, 98.5%, are to APD Band A destinations with Band B destinations accounting for the remaining 1.5%.2 Therefore the position taken by the Department for Finance and Personnel would result in passengers continuing to pay the vast majority of the £55 million APD fees currently paid annually by Northern Ireland passengers. CCNI considers it essential that steps are taken to relieve the burden borne by Northern Ireland passengers travelling to Band A destinations.
Republic of Ireland Air travel Tax ATT is currently charged at €3 per passenger travelling on flights departing from Republic of Ireland airports; however the Republic of Ireland Government has confirmed in its May 2011 Jobs initiative it intends to remove ATT. Removal of ATT will result in each passenger travelling on a return flight to New York from Belfast in economy class paying £60 more in duty than a passenger on a return flight from Dublin to New York. The Republic of Ireland government has also announced its intention to reduce VAT for services relating to tourism. A new temporary second reduced rate of VAT at 9% will be introduced with effect from 1 July 2011 until end-December 2013. The new 9% rate will apply mainly to restaurant and catering services, hotel and holiday accommodation and various entertainment services such as admissions to cinemas, theatres, museums, fairgrounds, amusement parks and sporting facilities.
Scottish Highlands and Islands HM Treasury exempts flights departing from airports in the Scottish Highlands and Islands from paying APD. The Consumer Council believes this sets a precedent for permitting flexibility in the rate at which APD is imposed.
Potential devolution of control of APD CCNI believes the Northern Ireland Executive should examine whether or not devolution of responsibility for APD to Northern Ireland would benefit the region’s consumers. However, devolution in itself will not address the disadvantage faced by NI consumers in relation to APD—if devolved there must be commitment and action by the Executive to tackle the high cost.
Consumer Council Position — The Consumer Council recommends that APD on flights operating to and from Northern Ireland airports should be reduced or removed to mirror the Republic of Ireland ATT. A reduction in APD would ensure Northern Ireland consumers are not disadvantaged given their high dependence on air travel, and will ensure the region’s airports continue to deliver consumer choice. — CCNI calls on the Northern Ireland Executive and Treasury to examine whether or not devolution of responsibility for APD to Northern Ireland would benefit the region’s consumers. During the submission of evidence in relation to APD the Consumer Council for Northern Ireland referred to a number of important aviation issues for consumers and offered to provide a brief review of these points. These points are set out in brief below:
Research and Publications In May 2010 CCNI published Flights and Rights—A Consumer Council Research Report into passengers’ knowledge of their rights and attitudes to air travel. The research was conducted in February 2010, notably before the ash cloud of April 2010, and its key findings highlighted a number of issues that needed to be addressed. The following findings were included in the report: — Passengers have a very limited knowledge of their rights if their flight is delayed or cancelled or if they are denied boarding. — Less than half of passengers who experienced a problem with an airline or airport made a complaint. 2 Figure taken from DFP response to HMT Reform of Air Passenger Duty consultation. cobber Pack: U PL: CWE1 [E] Processed: [07-07-2011 09:59] Job: 013272 Unit: PG01
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— Airlines vary in terms of the level of assistance provided to passengers who have experienced disruption to their flights. Many passengers believe they have fewer rights to assistance and compensation when travelling with no-frills airlines. — The vast majority of passengers pay for flights using a payment method that includes a charge and many believe the final ticket price is not clear from the beginning of the online booking process. CCNI has produced an information booklet called Plane Facts outlining the rights of passengers when travelling by air and explaining how to complain effectively if passengers receive poor service when travelling. To date approximately 11,000 copies of Plane Facts have been distributed to Northern Ireland consumers. Flights and Rights and Plane Facts are both available for download from www.consumercouncil.org.uk
Key Statistics and Outcomes The Consumer Council received 1,049 enquiries and complaints from passengers about air travel in the financial year 2010–11. Of the complaints seeking financial recompense during this period the Consumer Council returned on average £321 to each consumer by assisting them with their complaint against their airline. Complaints most commonly relate to instances of Delays and Cancellations, followed by issues relating to customer service and airport and airline facilities and staffing. The following are examples of key operational changes undertaken by Northern Ireland airports and airlines operating from them following representations made by CCNI: — Improved training for an airport’s security staff regarding security screening of passengers with a disability or reduced mobility. — Amendments to an airline’s website to ensure passengers are required to input all relevant personal information, preventing instances of denied boarding because of incorrect information included on passenger boarding passes. — Amendments to an airline’s Terms & Conditions and Conditions of Carriage to include accurate information regarding the airline’s policy on refunding credit card charges. — Changes made to an airport’s policy on seating facilities available in security areas for passengers with a disability or reduced mobility. — Changes made to an airline’s passenger reward scheme to ensure flights advertised under the scheme are cheaper than standard fares and there is greater availability on popular routes.
Access to Air Travel Regulation—Regulation (EC) No 1107/2006 The Consumer Council is the designated complaint handler for Regulation (EC) No 1107/2006 regarding Access to Air Travel for Disabled Persons and Persons with Reduced Mobility. This regulation requires all EU airports, EU registered airlines and non-EU airlines operating within the EU to offer assistance to disabled passengers or passengers with reduced mobility when travelling by air. Since the introduction of the regulation in 2008 the Consumer Council has received a total of 251 consumer complaints and enquiries regarding the Access to Air Travel Regulation. Complaints cover a wide range of issues including the permitted carriage of medial equipment onboard aircraft through to treatment of passengers when being processed through airport security. In addition to assisting passengers with their complaints we also engage in a wide range of activities to promote awareness and understanding of the Regulation among the general public and with key interest groups.
Denied Boarding and Cancelations Regulation—Regulation (EC) No 261/2004 The Consumer Council assists passengers who have experienced cancellations, delays or instances of denied boarding when travelling by air. Air travel complaints have increased significantly over recent years as the number of passengers travelling through Northern Ireland’s airports has grown. Consumer Council research3 indicates the majority of air passengers have very limited knowledge of their rights. The Consumer Council provides advice and guidance in a range of formats aimed at raising passengers’ awareness of their rights and empowering passengers to complain when their rights are not upheld by airlines or airports. Passengers’ lack of knowledge was starkly highlighted during the periods of widespread disruption to air travel in 2010 caused by the volcanic ash crisis and severe weather during the Christmas holiday period. CCNI received over 460 enquiries and complaints during and immediately following the period of volcanic ash disruption in 2010, representing approximately a 540% increase in complaints compared to the same period in 2009. 3 Flights and Rights—A Consumer Council Research Report into passengers knowledge of their rights and attitudes toward air travel. cobber Pack: U PL: CWE1 [O] Processed: [07-07-2011 09:59] Job: 013272 Unit: PG01
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The 2010 ash cloud incident indicated that passengers want airport staff on hand to provide clear, concise information concerning their rights and to assist passengers in accordance with their legal obligations under Regulation 261/2004. The period of volcanic ash disruption in 2011, albeit less severe than the 2010 ash crisis, again gave cause for concern for passengers. The Consumer Council was active in informing passengers about their rights with information provided in all three Northern Ireland airports outlining passenger rights in instances of flight delays and cancellations. As a result of a successful press and media campaign, Northern Ireland television and radio news broadcasts and local newspapers carried a series of features on the rights of air passengers. CCNI has developed strong working relationships with local airports, airlines, the Department for Transport, the Northern Ireland Department for Regional Development and the Civil Aviation Authority to ensure the rights of air passengers are upheld. CCNI maintains frequent contact with key stakeholders to ensure all relevant bodies are informed of important consumer issues.
Payment Charges CCNI wrote to the European Commission in October 2009 querying whether airlines contravene Regulation (EC) No 1008/2008 by imposing high charges on customers paying by credit and debit charges. The Commission responded explaining that as long as an airline provides a charge free option they do not contravene the Regulation by charging payment fees. CCNI believes the issue of airline payment charges remains a serious consumer issue and has provided information to the Office of Fair Trading in support of its current investigation regarding credit and debit card surcharges. CCNI research4 highlights the following key findings: — Many passengers believe the final ticket price is not clear from the beginning of the online booking process; — The vast majority of passengers pay for flights using a method which incurs a payment fee; and — The majority of passengers believe taxes and charges, payment fees, check-in fees and baggage charges should be included in the advertised fare. The Consumer Council estimates that during 2011 airline passengers travelling to and from Northern Ireland will pay approximately £22.45 million in credit and debit card charges.
Volcanic Ash The restrictions on airspace imposed as a result of the 2010 volcanic ash cloud crisis had a significant impact on Northern Ireland air passengers. It is estimated that at least 250,000 passengers travelling to and from Northern Ireland were affected by the flight cancellations which began on 15 April 2010. It became clear during the first period of disruption to flights that airlines were inconsistent in providing assistance to passengers. Regulation (EC) 261/2004 states it is the responsibility of airlines to make passengers aware of their rights, however, there were many cases cited in the media where this did not happen. The Consumer Council received numerous contacts from passengers who were not provided with accommodation, meals and communications assistance when they were stranded following flight cancellations. In light of the feedback received from passengers the Consumer Council produced a paper in August 2010 which contained the following key recommendations: — Airlines should ensure staff are available at airports to assist passengers during periods of disruption to flights. — Airlines should provide free phone numbers to enable passengers to rebook flights and request information concerning the status of their flight. — Airlines should provide self service options online to enable passengers to process refunds or reschedule cancelled flights. — The European Commission should determine time-limits within which airlines must reimburse passengers for expenses incurred in instances where meals and/or accommodation are not provided free of charge when flights are delayed or cancelled. — The Consumer Council believes insurers should state clearly whether their policies will cover expenses incurred by passengers due to disruption to flights caused by volcanic ash or any other form of force majeure. 4 Flights and Rights: A Consumer Council research report into passengers’ knowledge of their rights and attitudes to air travel, May 2010. 5 In 2010 7.1 million passengers travelled through Northern Ireland’s airports. 6.6 million of these passengers travelled with scheduled airlines and 500,000 on charter flights (data obtained from Civil Aviation Authority) £22.4 million is calculated using 2010 passenger figures and based on the premise that 47% of scheduled airline flights are booked using credit cards, 34% using debit cards and 4% using a payment free option eg Visa Electron. Figures taken from Flights and Rights: A Consumer Council research report into passengers’ knowledge of their rights and attitudes to air travel, May 2010. cobber Pack: U PL: CWE1 [E] Processed: [07-07-2011 09:59] Job: 013272 Unit: PG01
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— Joint action should involve DETI, DRD, NITB, NICC, GBBCA, BIA, CODA and all airlines operating from Northern Ireland to ensure any passengers stranded in Northern Ireland in the future receive information and options for alternative transport provision, meals, communication assistance and accommodation where necessary, and high levels of customer service. 27 June 2011
Written evidence from ABTA Introduction 1. ABTA welcomes the opportunity to submit our views to the Northern Ireland Affairs Committee on behalf of our Members based in Northern Ireland and across the UK. 2. ABTA—The Travel Association was founded in 1950—and is the leading travel trade association in the UK, with over 1,300 members and over 5,000 retail outlets and offices. In Northern Ireland, ABTA has 44 members and 127 retail outlets and offices. Our members range from small, specialist tour operators and independent travel agencies through to publicly listed companies and household names, from call centres to internet booking services to high street shops. 3. ABTA Members provide 90% of the package holidays sold in the UK as well as selling millions of independent travel arrangements. The provision of quality, efficient and competitively priced passenger air travel is vital to the business interests of Members. 4. ABTA is the lead organisation of the Fair Tax on Flying campaign. This industry initiative presented a common set of principles and challenges to Government on the reform of APD and has called for the level of APD to be frozen; the system of banding reformed; premium economy not to be classed the same as travel in first class; a call for income from the EU Emissions Trading System (ETS) to be offset against total APD revenues (as will happen in Germany); and an investigation of the impact of APD on overseas destinations as well as the UK. 5. The challenges of the volcanic ash cloud in April 2010 and the winter 2010 snowfalls have shown just how dependent, as islands on the fringe of the European continent, that the UK is on aviation. Moreover, it also made clear how critical efficient and affordable air travel is for citizens in their regular activities. 6. ABTA believes that the high levels of aviation tax are putting UK businesses at a competitive disadvantage compared to our European neighbours and are damaging the position of the UK as a hub for global air travel. This impact is being felt especially in Northern Ireland which is unique in that it is the only part of the UK to share a land border with another state—Ireland. This is particularly problematic as aviation taxation in Ireland is considerably lower.
Economic Impact of Tourism and Aviation to the UK Economy 7. The Government has recognised that aviation plays an important role in the UK economy. HM Treasury’s March 2011 consultation document6 states that the aviation sector employs over 250,000 workers and supports an estimated 200,000 additional jobs through the supply chain. 8. Tourism is one of the largest industries in the UK, generating revenue of £115 billion per annum and directly employing over 1.5 million people.7 In terms of inbound tourism, the UK is the sixth most popular destination in the world with overseas visitors spending £16 billion per annum in the country. The value and potential of the UK tourism industry to help rebuild and rebalance the UK economy has been repeatedly recognised by the current Government. 9. In February 2010, the consultation for the draft Tourism Strategy for Northern Ireland to 2020 highlighted just how important tourism is to the economy of Northern Ireland. It is thought to support over 40,000 jobs in Northern Ireland, bringing new facilities to towns and cities, and creating opportunities in rural areas. 10. In 2008, there were more than 8.2 million passengers passing through Northern Ireland’s airports.8 With 75% of visitors to the UK entering by air, APD places the whole of the UK, and particularly Northern Ireland at a disadvantage.9 11. A 2009 report by Oxford Economics10 found that the APD increases in 2009 and 2010 could, by 2020, result in job losses to the wider economy of 1,400 in terms of connectivity, 7,700 in terms of trade, and 22,300 in terms of investment. By 2030, these APD hikes could likely result in a reduction of wider economic activity of £70 million in terms of connectivity, £330 million in terms of trade, and £450 million in terms of investment. This same report warned that by 2030, growth in APD of 5% a year could reduce the aviation sector’s annual 6 HM Treasury—Reform of Air Passenger Duty (March 2011) 7 “The Economic Contribution of the Visitor Economy—UK and the nations”, Deloitte, 2010 8 Table 7.3, Northern Ireland Transport Statistics 2008–09, DRD 9 Table 4.01, Travel Trends 2008, Office for National Statistics 10 http://www.aoa.org.uk/admin/uploader/UploadedDocuments/Oxera%20report%20- %20What%20is%20the%20contribution%20of%20aviation%20to%20the%20UK%20economy.pdf cobber Pack: U PL: CWE1 [O] Processed: [07-07-2011 09:59] Job: 013272 Unit: PG01
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Gross Value Added by £450 million, with wealth created in the wider economy reduced by £500 million in terms of connectivity, £2.6 billion in terms of trade, and £8.3 billion in terms of investment. 12. ABTA supports the efforts of the Government to steer a private sector recovery; however, the experience of hiking APD and refusal to offset ETS against APD does not support this laudable goal. Indeed, increasing APD makes a private sector-led recovery increasingly difficult. As Northern Ireland borders a low tax environment it is harder to encourage a private sector-led recovery with aviation taxation posing such a high barrier to entry and disincentive to operating in Northern Ireland. We urge the Government to look, urgently, at redressing the APD balance of Northern Ireland when compared to the Republic of Ireland.
Competition from Europe 13. We believe that the ever increasing tax burden on people flying puts the UK at a competitive disadvantage when compared to our European neighbours and will incentivise the strengthening of alternative hubs to the UK both within and outside Europe, causing the number of destinations served by UK airports to fall further. For example, in the last 10 years Heathrow’s position has fallen from 1st to 5th in Europe in terms of the number of destinations served. A reduction in the numbers of routes will impact upon the UK’s global connectivity, hampering job creation prospects, inward (and foreign direct) investment and economic growth within the UK. Ensuring there are working and affordable routes from all parts of the UK into the Heathrow hub is also an essential part of this mix. High rates of APD makes connectivity into Heathrow much harder and puts the economic links that this connectivity brings the nations and regions at risk. 14. The UK aviation sector is competing in an international market place where the burden of taxation has a very real impact on economic growth. The correlation between the two has been widely recognised in Europe. In the Netherlands, their version of APD was abolished within a year of its implementation because of the competitive disadvantage it brought to the Dutch economy. Belgian plans for a ticket tax were not implemented for similar reasons. A Danish tax was quietly withdrawn due to adverse effects on the economy and the tourism sector in particular. Germany’s aviation tax is charged at a significantly lower level than the UK’s and the German government has agreed to offset ETS revenues against its tax once aviation enters the ETS in January 2012. 15. The Irish government’s air travel tax was originally levied on air passengers at a rate of €10 for journeys of over 300km from Dublin with shorter flights levied at €2 per passenger. Following intervention from the European Commission that the distinction of imposing a higher tax on cross border flights was against EU law,11 the Irish government modified that tax so that effective March 2011, it was levied at a single rate of €3 per passenger regardless of the destination of the flight. 16. The new Irish government has recently announced it will eliminate its air travel tax to further bolster its air service network in order to assist further inward investment and tourism growth. This is expected to happen by October 2011. Table 1 COMPARATIVE AVIATION TAX RATES FOR A FAMILY OF FOUR To Europe To the USA To Australia From the UK £48 £240 £340 From Germany £30 £90 £164 From Austria £30 £90 £127 From Ireland £11* £11* £11* From France £4 £14.5 £14.5 From Other European Countries 0 0 0
* expected to be nil by October 2011. 17. Further, the Irish government has decided to reduce VAT from 13.5% to 9% for hotel accommodation and restaurants effective 1 July 2011, increasing further the differential between visitors to Northern Ireland and visitors to the Republic.
Northern Ireland 18. In our response to the HM Treasury consultation, we suggested that consideration should be given to treating Northern Ireland as a special case and recommended that APD be removed in its entirety in order that the economy of Northern Ireland is not severely disadvantaged on air taxation in contrast to the Republic of Ireland. 19. Passengers wishing to travel from Northern Ireland to the rest of the UK, and particularly to the south of England, are effectively obliged to fly. Northern Ireland is the only part of the United Kingdom that shares a land border with another EU Member State and the journey time from Belfast to Dublin Airport is 11 Regulation 1008/2008 of the European Parliament and of the Council on common rules for the operation of air services in the Community cobber Pack: U PL: CWE1 [E] Processed: [07-07-2011 09:59] Job: 013272 Unit: PG01
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approximately two hours. This juxtaposition of tax regimes is absurd and hugely uncompetitive for any operations from Northern Ireland. 20. The Republic of Ireland has announced that it intends to remove its version of APD altogether. The differential between flight taxes, even before this latest announcement, is considerable and we feel that efforts should be made to consider whether the UK APD tax regime makes the province uncompetitive in order to protect air services from Northern Ireland and, further, to encourage other airlines to commence operations. Table 2 PRICE VARIATION AS A RESULT OF APD BETWEEN DUBLIN AND BELFAST Reduced rate Standard rate Belfast to New York £60 £120 Dublin to New York £2.50* £2.50*
* expected to be nil by October 2011. 21. ABTA believes that APD is too high and makes the whole of the UK uncompetitive. The experience of Northern Ireland seems to confirm this. We would request that the Committee looks carefully at the impact that such a differential with EU Member States is having on the UK and Northern Ireland in particular and supports ABTA’s call for APD to be removed in Northern Ireland. We would like to stress, however, that we do not believe that the “lost revenue” should be made up by the remaining UK departures. It would require political bravery to implement the APD reduction but remains the right thing to do. Government would need to rebalance its economic forecasts accordingly, however, we believe the economic advantages of such a move would outweigh the simple line income loss for the Exchequer. 22. Thank you for taking our comments into consideration. 27 June 2011
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