This tax will not fly: Don’t ground Britain’s growth

 
Darren Caplan
THE chief executives of rival airlines Virgin Atlantic, easyJet, Ryanair and the IAG group – which includes British Airways – do not normally agree to share a platform. That they chose to yesterday morning – outlining their opposition to Air Passenger Duty (APD) – is a sign of how seriously the aviation sector takes this issue.

The UK has the highest aviation taxes of any country in the world, netting the Treasury an anticipated £2.5bn this year. APD has increased by between 140 per cent for short haul and 325 per cent for long haul between 2007 and 2010; and at the same time passenger numbers travelling by air have, on Civil Aviation Authority figures, declined from 240m to 210m. To make matters worse, the chancellor plans to increase APD by double inflation next year.

In addition to the significant additional cost implications for business people, holidaymakers and the travelling public generally, there are a number of significant economic knock-on effects from the UK’s high level of APD. The first is its profound impact on inbound tourism. As an example, take China, one of the world’s fastest growing outbound tourism markets. Since 2000, global Chinese outbound tourism expenditure has risen by in excess of 400 per cent. Yet visitor expenditure in the UK from China has increased by just 125 per cent. The reason? A family of four from China will pay £600 more to visit the UK than most other EU countries – a combination of higher visa and APD costs. In fact, last year 3m Chinese tourists came to Europe yet only 127,000 of them visited the UK. We’re losing out on a huge growth market at a time when the British economy would benefit immeasurably from the inbound investment this sort of tourism brings.

The impact on UK businesses is also significant. Business class passengers leaving UK airports pay some 8.5 times the average of other countries in Europe, which still levy a charge. The Netherlands recently abolished their APD altogether because of the economic damage it was doing. Research by the Fair Tax on Flying alliance found that businesses alone paid the Treasury around £600m last year in aviation tax; and according to a recent British Chambers of Commerce (BCC) report, were APD to be increased by 5 per cent in real terms every year – a very likely scenario – there would be incredibly serious consequences for the UK economy. The increase in ticket prices would have a knock-on effect on jobs and growth. The BCC report found that growth could be curtailed by more than £1bn by 2015, with a potential loss to the economy of £3bn by 2020. In the words of the report, this “could reach a staggering £100bn by 2030”. Similarly, up to 25,000 jobs could be affected by 2015.

APD is bad for the UK economy, and hurts aviation’s ability to deliver jobs and growth. Almost 1m jobs depend on aviation, and a further 2.6m jobs on tourism in this country. The damaging impact of high and increasing levels of APD on the UK’s ability to grow and prosper in these tough economic time is clear. The Treasury must urgently re-think its plans for a double inflation increase in the next Budget.

Darren Caplan is chief executive of the Airport Operators Association. The AOA represents over 70 airport operators in the UK, and is also a member of the Fair Tax on Flying campaigning alliance.