Britain’s tax on flying is causing serious economic damage
IT’S THAT time of the year when the chancellor confirms that Air Passenger Duty (APD) is set to rise once again, ensuring that passengers flying from London’s airports will pay the highest departure tax of any country in the world. After the publication late last year of the Airports Commission’s interim findings, debate has rightly focused on airport capacity. But capacity is not the whole story. If the UK is to remain a competitive global aviation hub, reform of APD cannot be ignored.
This year’s APD rise – coming into effect on 1 April – will see the tax on an economy class seat to the US rise to £69 and to £138 for business class passengers, with the tax on flying to long-haul destinations like Australia and New Zealand rising up to £194 for some flyers. Contrast this with the rest of Europe: Ireland is abolishing its air travel tax on the same day the UK’s rises, making the UK one of just five countries in Europe that even levy a comparable tax; Germany recently froze its equivalent duty; the SNP is pledging a 50 per cent APD reduction if Scotland secures independence.
George Osborne is looking increasingly isolated on the issue. He was recently presented with a petition by A Fair Tax on Flying campaign – of which we are a member – signed by 250 UK chief executives, and calling for a review of the tax.
The government maintains that year-on-year increases are necessary. The deficit needs paying down and APD is regarded as a relatively painless way of achieving this. However, an in-depth analysis by PwC found that APD abolition would actually increase government revenues, as other indirect taxes rise from the resulting economic bounce. In the long term, it’s also estimated that 60,000 new British jobs would be created. The Treasury refutes these findings, but continues to stonewall calls for it to undertake its own study into the economic impact of a reduction or abolition of APD.
APD rises also sit at odds with government rhetoric on ensuring the UK is “open for business”. Levying thousands of pounds on business delegations visiting the UK undermines this aspiration. And flyers are motivated if nothing else than by price.
Further, the last few months have seen successive and commendable government delegations to China, India and elsewhere, making the case for investing in the UK and buying British. But the cost of doing business with UK companies, of which flying is a key component, is becoming an increasing barrier to trade. And savvy fliers are also finding ways to get around the tax – multi-ticketing via European hubs, for example, flying short-haul to Amsterdam and then hopping onto a long-haul flight to avoid paying the UK levy. This hidden avoidance is bad for the UK aviation industry, which loses passengers, and bad for the Treasury, which loses revenues.
So it’s time the chancellor gave serious thought to reform. The Airports Commission will take over a year to make its full recommendations, and any additional capacity will take years to build. But we can act now to make the UK aviation industry more cost-competitive: by reducing APD. We urge the government to re-think its plans and to listen to the business community, for whom this issue remains a serious ongoing concern.
Colin Stanbridge is chief executive of the London Chamber of Commerce and Industry.