1.   The Committee asked (Q56) whether the Treasury, in calculating the economic benefit of APD receipts in the Impact Assessment accompanying the decision on the adding capacity at Heathrow airport, took into account the extent to which the APD would be paid by British taxpayers

  The Impact Assessment which accompanies the Secretary of State for Transport's 15 January decision on adding capacity at Heathrow was conducted by the Department for Transport, in line with best practice set out in HM Treasury's "Green Book: Appraisal and Evaluation in Central Government". The Department's approach to valuing benefits from additional capacity is set out in "Adding Capacity at Heathrow Airport—Impact Assessment". This is available at:

http://www.dft.gov.uk/pgr/aviation/heathrowconsultations/heathrowdecision/impactassessment/

  Paragraphs C17-G19, page 108 of the Impact Assessment explain the treatment of APD revenue. The Department counts the change in APD revenue that additional capacity brings through additional non-transfer passengers. This revenue accrues to government, but it is a benefit to society, to be passed on through lower taxation or increased spending in other sectors. This approach has been cleared with the Peer Reviewer, Michael Spackman from NERA Economic Consultancy (whose report is also available at the website above), and HM Treasury.

  The total APD revenue derived from additional capacity, when applied at the national level is estimated at £3.74 billion. Of this, £3.45 billion (92%) is estimated to be paid by UK residents.

2.   The Committee asked (Q57) how many of the projected additional passengers resulting from a third runway will be transit passengers, and will therefore not pay APD

  Additional capacity at Heathrow would lead to 21 million more passengers nationally by 2030, of which 8.1 million (38%) would be transferring between international flights—therefore neither commencing nor ending their journey in the UK.

  For Heathrow only, additional capacity would lead to about 44.4 million more passengers, of which 11.5 million (26%) would be transferring between international flights at the airport—therefore neither commencing nor ending their journey at Heathrow.

  Further information on passenger demand forecasts are set out in "UK Air Passenger Demand and CO₂ Forecasts (2009)". This is available at: http://www.dft.gov.uk/pgr/aviation/atf/CO₂forecasts09/

  Further to the comments I made when I appeared before the Committee, I am now able to offer some further detail of the Government's treatment of international to international transfer passengers.

  The Government's approach to measuring benefits is set out in the Heathrow Impact Assessment, available at the link above. Paragraph 1.5, page 11 explains the scope of benefits covered in the Impact Assessment.

  The Impact Assessment restricts itself to impacts that fall within the physical geography of the United Kingdom, except where those impacts form part of the UK's international responsibilities. For this reason the Department excludes benefits accruing to international-to-international transfer passengers as their benefits occur outside the physical geography of the United Kingdom.

  However, the monetized benefits partly reflect the benefits international to international transfer passengers convey on other passengers through increasing the viability of a wider route network and more frequent flights ie that demand from international-to-international transfer passengers increases the number of destinations served from Heathrow and greater frequencies, and which are therefore available as direct destinations for passengers from within the UK.

  In addition, the Department does take into account the additional climate change and local environmental emissions resulting from departing international-to-international transfer passengers as well as all other passengers. This is consistent with best practice.]

3.   The committee asked (Q101) how the Government is assessing the merits of a proposed "car scrappage" scheme, similar to the one that currently exists in France, and that which has been proposed in Germany?

  The Government is aware that versions of such schemes have been introduced in other countries.

Environmental benefits

—  The Government understands that in theory scrappage could help promote the purchase of lower-emitting cars—but there are questions over how effective this would be in practice.

—  It is important to balance out the environmental benefit of encouraging the purchase of new, low-emitting cars versus the environmental and economic cost associated with the act of scrapping vehicles.

—  DfT analysis is underway to analyse the costs and carbon abatement potential of different scrappage options. Initial analysis demonstrates that the costs outweigh the benefits even when the replacement vehicle has better than average fuel efficiency.

Value for money of scrappage

—  The value for money of the French and German schemes is questionable. The French originally said that the scheme would pay for itself—costs have in fact increased from €40 million to over €200 million per year. The German scheme is expected to cost around €1.5 billion and will run until 2009.

—  Those who are able to purchase new cars, after scrapping an old car, may have planned to do so anyway. A scrappage scheme is likely to have a large deadweight cost.

—  At the present time the Government is focusing its efforts on measures where we can be more sure of targeting the production and sail of low emitting vehicles, for example by developing the VED system and providing loan support to manufacturers.

4.   The committee asked (Q102) what assessment the Treasury has made of the net impact on carbon emissions of the whole fiscal stimulus package

Overall

  The capital spending element of the green stimulus consists of planned expenditure brought forward from 2010-11 into 2008-09 and 2009-10. We have not therefore made a detailed assessment of the emissions savings which will result. However, the Department of Energy and Climate Change's updated energy and carbon emission projections, published in November 2008, provide a breakdown of the emissions savings expected from announced Government policy.

£100 million additional resources for Warm Front

  As part of the fiscal stimulus an additional £100 million was allocated to the Warm Front scheme over 2008-09 and 2009-10. Assuming similar outcomes to those delivered under the current scheme, this should deliver emissions reductions of approximately 66,000 tonnes CO₂, per year for the lifetime of the measures installed.

Support for automotive industry

  New green investment is vital to ensure that the automotive industry emerges from the current downturn with the skills and technology base needed to be competitive in the global automotive market. The detail of the scheme will need to be agreed with the European Commission, and once underway the Government will consider applications on a case-by-case basis. Therein, assessments will be possible on the impact of the scheme in delivering a greener automotive industry. The Government is committed to ensuring that anything backed by the scheme:

—  Offers value for taxpayer's money.

—  Delivers innovation in environmental processes or technologies for the long-term.

—  Supports jobs, skills and R&D in Britain.

Ultra low carbon vehicles

  It is imperative that the Government considers rigorously all options for encouraging the development and use of ultra low carbon vehicles, and in this context HM Treasury is working closely with DfT to increase the take up of ultra low carbon vehicles. DfT are analysing the various options for an effective scheme design to use this increase in funding as effectively as possible.

  More details of this should be available at Budget and will include initial analysis of the likely take-up trajectory of these vehicles, enabling us to begin calculating the exact carbon abatement potential.

5.   The committee asked (Q108) how the Government is making sure that the obligations on energy companies are not pushing people into fuel poverty

  Great Britain's six largest energy suppliers have agreed with the Government to increase their collective annual spend on social assistance to £150 million by 2011.

  Any impact on overall energy prices of the provision of such assistance will be very substantially less significant than general energy price movements. Retail gas and electricity prices increased in 2008 in response to very significant rises in wholesale prices. Wholesale gas and electricity prices have now fallen by about 40% from their peaks. The Government wants the benefits of any falls in international and wholesale energy costs to feed through fairly to individuals who have to pay their bills, and as a boost to the economy as whole. Energy companies are now starting to reduce prices. The Chancellor and the Secretary of State for Energy and Climate Change have also asked Ofgem to publish quarterly reports on wholesale and retail prices. This will deliver greater transparency over future price changes.

  The Government has a range of policies in place to enhance the energy efficiency of the homes of low-income households, tackle fuel poverty, and provide financial support to vulnerable groups with the cost of energy bills. These include the Warm Front scheme, the Carbon Emissions Reduction Target, Winter Fuel Payments and Cold Weather Payments. A number of these policies have been enhanced or expanded in recent months.

10 February 2009