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.