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Finance Bill

I am grateful to the former chairman of the Altrincham constituency Labour party for making that point; he may return to that role in the near future. He makes my point for me, because the Budget, and the Finance Bill that seeks to implement it, demonstrated a continuation of business as usual; the same procedure and approach that we have had over a number of years rolled on. Precisely what it failed to do was to respond in any significant way to changed circumstances. The underlying assumption of the past 10 or 11 years is that a high tax burden is sustainable and that the Government can keep taking money out of people's pockets and it will not hurt and people will not object. The assumption is that that is true for individuals and for companies. We are now starting to find—the story is the same from Labour Members—that such taxes are becoming much more difficult to justify in the difficult circumstances pertaining today when people are up against the credit crunch and worried about whether they can pay their mortgages or whether they will be in stable employment in one or two years' time. The only obvious concession to a new and more difficult economic situation was the six-month delay in the implementation of the fuel duty increase. That is a welcome recognition of the fact that fuel costs are rising for families and businesses, which is creating a competitive problem for UK hauliers, many of whom are competing against continental competition from countries that do not impose such high levels of fuel duty. However, the Budget was not clear about why the duty rise would have been unacceptable now. If it is because of the overall effect on costs for families or businesses, how will the Government respond if the same, or worse, circumstances appertain in October when they intend to proceed with the duty increase? People need some clarity on whether the Treasury accepts the principle that the costs in UK industry should not be levered up, creating an increasing competitive disadvantage for British businesses. Or was the delay just a response to short-term pressure and intended to get the Chancellor off the hook? Do the Government accept the principle that families are hurting because they have to pay increased fuel costs every week when they fill up their cars' fuel tanks, or was the delay just a short-term fix to put off the moment of reckoning? The same question arises in relation to the abolition of the 10p tax rate. It is welcome that Labour Members are starting to recognise that taxes cannot be increased again and again without consequences. For 11 years, taxes on all our constituents have increased dramatically. The pain has been mitigated, in many cases, by significant increases in salaries, easy credit, and rising house prices, which have given people a sense of security. It has also been mitigated by the hugely complex system of tax credits, which has reduced the impact on some groups of people. In proposing the abolition of the 10p rate of income tax, the Chancellor—or perhaps it is the Prime Minister—has belatedly discovered the joy of simplifying the tax system. That is welcome, but simplifying taxes when raising or maintaining the overall burden of taxation means that there will inevitably be losers as well as winners, which has also been demonstrated in the changes to capital gains tax. The drive towards simplification is welcome, but it has been necessary to introduce mitigating measures, such as entrepreneurs' relief and the transitional arrangements, because of the damaging effects—some of which were unintended consequences—on some people. With both the capital gains tax regime and the abolition of the 10p rate, I hope that a new understanding is developing on both sides of the House that there is a limit on how much it is fair or sensible to tax people, and that that limit has been reached if not exceeded. Much has also been said about how proper consultation could have helped on the capital gains tax issue. That brings me to my final issue, because I wish to congratulate the Treasury on its sensible and detailed consultation on the proposed tax change to aviation duty. The changes will come into effect in autumn next year, but the paving measures are in this Finance Bill. The intention is to move from air passenger duty to aviation duty. The consultation document released in January was a serious and thorough exploration of the options and some of the difficulties arising from the proposal. I suspect that by now, with the consultation drawing to a close on Thursday of this week, Ministers will have begun to arrive at some conclusions. It will be clear, for example, that applying aviation duty to freight could lead to significant problems for the UK air freight industry. It could lead to significant job losses, especially in some parts of the country, such as the area around East Midlands airport. It could lead to the diversion of air freight from UK airports to near continental airports, and that will not save any emissions. Instead, it will increase road haulage and the environmental impact caused by the transhipment of freight by road. It will also transfer thousands of British jobs to other EU competitor countries and that will clearly not be beneficial to the British economy. The document also goes into sufficient detail about some of the other difficulties that might arise. The first obvious answer is to exempt freight-only flights, but not all flights carrying freight are freight-only flights. Passengers and freight are often carried on the same aircraft. The second conclusion that is difficult to escape is that applying a distance criterion to aviation duty discriminates in favour of short-haul routes and against longer haul routes. Short-haul routes tend to give rise to the most emissions, which are concentrated during take-off and landing. Therefore, mile for mile, applying a distance criterion has a perverse effect. Thirdly, the inability to apply the charge to movements other than those that originate at UK airports would encourage the use of aviation hubs outside the UK. All the same aviation would take place, so there would be no environmental benefit. People would take short-haul flights from UK airports to Schiphol or Paris to transfer to their long-haul flights. All that that would achieve is to damage Britain's strategic economic interests by undermining UK hubs. Fourthly, the duty could have a damaging effect on regional airports. It could therefore increase the pressures on and congestion at Heathrow and other airports in the south-east of England. Fifthly, an upfront charge, unrelated to demand and the number of people on board a flight, would make it much harder to establish new long-haul routes from regional airports. I have a particular interest in Manchester airport, which is very close to my constituency. When long-haul services from regional airports are established, they often depend on relatively low volumes of use in the early stages, and putting a charge on the flight when the service is first inaugurated could render them uneconomic and uncompetitive, and might also lead to a diversion of traffic to the more congested airports in the south-east. Sixthly, basing the duty on the maximum take-off weight of the aircraft provides no incentive to invest in cleaner aircraft. Furthermore, while the shift to a duty based on air movements rather than passenger numbers is superficially attractive, the change could lead to higher emissions rather than lower emissions for all the above reasons. Given that the whole of aviation will, we hope, be included in the European emissions trading scheme within a relatively short period of time—that ought to cover the environmental costs of the industry—we are not talking about a provision that will have an environmental benefit. In fact, the new tax might defeat many of the objects that it purports to achieve. Finally, the proposals might actually breach international law. They might be contrary to the Chicago convention and the EU-US aviation agreement. For all those reasons, I hope that the Government will learn something from the numerous problems in their application of tax policy and tax changes in recent months. I hope that they will reflect on the fact that where they have not consulted, they have come unstuck. They have had to engage in some embarrassing changes in policy. They have had to execute some U-turns and have looked unprofessional and unco-ordinated in doing so. When they have engaged in some consultation but have not taken proper account of its findings, they have had further difficulties. In this case, the Government are consulting. They have given themselves a reasonable time period. They do not need to finalise the details of the duty regime until this autumn in order to give the 12 months' notice that they have promised the industry for implementation in November 2009. They have time to think again and to consider the implications of what they are doing. I strongly urge them to do so.