PASSENGER duty (APD) in the UK is the highest air passenger tax of its kind in the world today, and it’s still rising. After a 8 per cent hike in 2012 and a further increase in 2013, it’s due to go up again in 2014. The Office for Budget Responsibility expects APD to raise £3.8bn in 2017-18, but it’s deeply unpopular. A poll by ComRes last year found that four out of five people want to see APD cut or frozen.
The government must urgently re-think its plans for year-on-year APD increases. Over 250 leading business executives have today added their backing to a petition, arguing that high APD is worsening UK competitiveness, and calling for the government to urgently reduce the duty. Why should the government take these demands seriously? Let’s look at the evidence.
Reducing or abolishing APD would deliver long-term economic benefits for the UK. According to PwC research, abolishing the duty could see 60,000 jobs created, with GDP rising by almost half a percentage point in the first year. Further, due to the resulting economic stimulus, net Treasury revenues would go up, as revenues from other indirect taxes grow.
We are not calling for its abolition. However, the Treasury must listen to the compelling case that lower APD would benefit not just our sector but also the wider economy. Indeed, more than 100 MPs – and the parliamentary Transport Select Committee – have called for the Treasury to undertake a macro-economic review of the tax to establish what the wider economic impacts of reducing APD would be.
This is not just about the aviation or tourism sectors. High tax rates increase costs and affect the UK’s ability to trade, making it harder and more expensive to do business. Many European countries, including Holland and Denmark, have abandoned aviation taxes due to negative effects on their economies. Earlier this year, Germany froze its tax after a government-commissioned study found that 2m passengers didn’t travel in 2011 due to higher air fares.
At the Conservative conference, David Cameron acknowledged the importance of low comparative tax rates, arguing that the UK needed competitive taxes to attract global companies: “If those taxes are higher here than elsewhere, they don’t come here. And if they don’t come here, we don’t get those jobs”. Yet year-on-year rises on top of already high APD levels are at odds with this ambition. In a recent survey by the World Economic Forum of 140 nations, the UK ranked 139th for “ticket taxes and airport charges”. Only Chad was placed lower. There is a disconnect between words and actions in the government’s approach to APD.
With 18 months until the general election, and with all parties developing their manifestos, now is the time for an honest debate about the tax priorities for the next parliament. Against the backdrop of the IMF’s recent 2014 growth upgrade for the UK, policymakers should now start to assess which taxes could be reformed or cut.
Darren Caplan is chief executive of the UK Airport Operators Association. The AOA is a member of A Fair Tax on Flying – an alliance of airports, airlines, travel, tourism and business organisations – which campaigns for reform of Air Passenger Duty.