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The Chancellor will take the rare step of ring-fencing part of the £900 million a year raised in air passenger duty to fund his scheme, designed to end poverty in Africa.
Only days before the G8 summit starts in Gleneagles, the Chancellor disclosed that France, Germany and Italy have all indicated that they want to join his International Financing Facility (IFF), and could introduce new air ticket levies to fund their contribution.
Treasury officials say that the UK levy, which ranges from £5 on economy flights to Europe to £40 for business class long-haul flights, will not be increased to finance the deal.
It was not yet clear last night how much of the £5 tax would be diverted into aid. “We are in negotiations with other countries and are discussing precisely these matters at the moment,” one Treasury source said.
However, talks with other EU members have centred on a levy of 55p to fund the deal. One option for France, Germany and Italy, who do not have an air ticket tax, is for a voluntary scheme where passengers have the opportunity to opt out of a special “aid levy”.
The backing of three major EU members resurrects the financing facility, Mr Brown’s pet project for African poverty .
The scheme was originally intended to raise £50 billion, but President Bush said that the US could not be a part of it, leading to speculation that it could not go ahead. However, France appears to have played a prominent role in salvaging the programme, which requires a reliable stream of revenue, such as a tax, to work properly.
Once the funding stream is in place, governments can borrow on financial markets, effectively “gearing up” on their investment. If Britain, France, Italy and Germany all take part, the total package could be worth many billions of pounds.
Mr Brown and the Treasury have been reluctant to ring-fence or “hypothecate” tax revenue for special projects.
However, they have made exceptions, earmarking tobacco duty for healthcare, and the 1p increase in national insurance for the NHS.
Mr Brown told MPs yesterday that he was prepared to make another exception to boost aid for Africa.
“There is a discussion about the use of air ticket levies as a contribution to that. We are prepared to hypothecate some of our air ticket levies to do so. Other countries are considering what they might do,” he said.
An announcement is expected before G8 begins next Wednesday.
Kenneth Clarke introduced air passenger duty in 1994 when he was Chancellor, but it has gone up considerably under Labour and become very unpopular with frequent flyers.
The Government hopes that using it to increase aid to Africa could sweeten the pill. Nevertheless, France, Germany and Italy are likely to face strong resistance from the airline industry if they try to introduce a new levy, even a voluntary one.Ulrich Schulte-Strathaus, the secretary general of the Association of European Airlines, told The Times yesterday: “The airline industry already contributes a lot through tourism to developing countries. It would be more beneficial to those countries to ease the restrictions on flights between them and Europe than to make it more expensive to fly to them by imposing a tax on tickets.”
Hans Eichel, Germany’s Finance Minister, is still pressing for a European-wide tax of about 55p a ticket. One possibility is that the fee would be included in the ticket price but passengers could opt out if they wished. Mr Schulte-Strathaus said that there were problems even with a voluntary scheme because it would lead to confusion among passengers. Some airlines on a route might take part while others might not.
“Some airlines already ask passengers to make donations to charity and so it is uncertain how much difference this would make,” he said.
Other EU members look less likely to join the scheme.
Austria, Spain, Portugal, Sweden and Finland have all expressed reservations.
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