Scrap flight tax and watch economy take-off, suggests new analysis

New independent analysis of the economic impact of Air Passenger Duty (APD) shows its abolition could boost economic growth, create up to 61,000 jobs, and pay for itself through higher revenues from other taxes. UK airlines have welcomed the findings which suggest that the tax currently suppresses demand for flights by 10%. They have long argued that APD is a tax on trade, productivity and investment, as well as the family holiday.

In 2013, PwC were commissioned by four major airlines – British Airways, easyJet, Ryanair and Virgin Atlantic – to conduct an independent assessment of the abolition of APD. In May 2015, PwC were asked to update this study following publication of new supporting evidence and subsequent public policy changes. Both reports use an economic model to simulate how changes in Air Passenger Duty would affect the rest of the economy. This “dynamic” approach to modelling tax impacts is used by the IMF and the World Bank.

The updated analysis takes into account APD policy changes since 2013 and evidence presented by the Airports Commission in their December 2013 interim report. As part of their assessment for the need for new runway capacity in the South East of England, the Airports Commission assessed the relationship between the aviation sector and GDP. Separately, it found a stronger link than in the evidence used by PwC in their modelling for the 2013 APD study. By factoring in this new evidence the revised APD analysis suggests that the benefits of abolition had been underestimated and are even greater than previously thought.

The economic model has been updated to reflect this new evidence and has produced a new set of results suggesting that:

• APD abolition could boost UK GDP by around 0.5% in the first year, with continuing positive benefits up to 2020;
• the economy could be 1.7% bigger by 2020 than would be the case if APD were to remain unchanged;
• the increased economic output associated with abolition could lead to the creation of 61,000 jobs by 2020 – 1,000 more than the 2013 report found despite recent policy changes; and
• more tax revenue would be raised from other taxes than is lost from abolition, with a net £570m in extra tax receipts in the first fiscal year, and positive benefits through to 2020 that could add up to as much as £2bn additional tax receipts in total compared with the status quo.

The modelling suggests that the boost to GDP from abolition would come from three main sources:

• airline investment to offer new routes and maximise existing capacity to meet an estimated 10% increase in the demand for flights;
• higher productivity, international trade and investment from increased business and leisure travel; and
• a 7% net increase in foreign inbound tourism passengers by 2020 – equating to approximately 200,000 extra inbound tourist arrivals in the UK.

With the Budget less than a month away, the finding that APD abolition could raise more than £350m net in extra tax receipts in each year up to 2020 should interest the Chancellor who will be considering measures to boost the economy, productivity and trade, without losing tax revenue.

Fiscal results for abolition of APD – source PwC

The UK is one of just a handful of European countries to levy an air passenger duty, and in recent years a number of countries have abolished their equivalent taxes to become more competitive. For example:

• Ireland abolished their air travel tax in 2014;
• the Netherlands abolished their air passenger ticket tax in July 2009;
• Belgium abolished its air travel tax in 2008; and
• Denmark phased out its air passenger tax in 2006-07.

Germany has the next highest tax in Europe, but its Aviation Tax raised just £745m in 2014. In contrast, UK APD raised £3.17bn for the Exchequer in 2014/15.

136 countries are more competitive than the UK when it comes air ticket taxes and airport charges according to the World Economic Forum’s biennial Travel and Tourism Competitiveness Report published on 6 May. The UK is ranked 137th out of 138 countries in the WEF’s global Travel & Tourism Competitiveness Index, with just Chad below, propping up the table. Britain trails behind European competitors such as Sweden (26th), Spain (55th), Italy (83rd), Germany (110th) and France (114th). Countries outside of Europe that are actively encouraging the development of their aviation sectors rank highly, including Qatar (12th), India (16th), Turkey (22nd), United Arab Emirates (25th) and China (38th).

Nathan Stower, Chief Executive of the British Air Transport Association, said: “Next month’s Budget must challenge the existing orthodoxy on Air Passenger Duty. The UK is an island trading nation yet we have the highest tax on flying in the world. This independent economic analysis, using methodology used in studies for the Airports Commission, suggests that the question for the Chancellor is not ‘can we afford to abolish Air Passenger Duty?’ it’s ‘can we afford not to?’”

Carolyn McCall, Chief Executive of easyJet, said: “Abolishing Air Passenger Duty would boost the UK economy by supporting tourism, investment and business activity. There is a real opportunity with this for the UK to be more competitive. The Government has already removed the tax for children and we hope that it will abolish this tax completely, helping to make travel more affordable for all passengers.”

Willie Walsh, IAG Chief Executive Officer, said: “APD is an out of control tax. The Government just keeps piling on increases. Despite compelling evidence, the UK Government continues to cling to the notion that short-term gains in taxation trump long-term gains in economic growth and productivity.  It is short-sighted and continues to erode the UK’s standing in a global economy.”

Craig Kreeger, Chief Executive of Virgin Atlantic, said: “APD is a tax on UK exporters, productivity and growth. While we welcomed the recent changes to APD, it is frustrating that it has been left to research from the private sector to conduct a detailed economic analysis of its impact.  It is time for the UK Government to recognise, fully review, and take action to reduce the highest travel tax burden imposed by any nation.”

ENDS

10 June 2015

Airlines call on Chancellor to ‘finish the job’ and abolish Air Passenger Duty to boost growth, trade and tourism

The British Air Transport Association (BATA) has today called on Chancellor George Osborne to use next month’s summer Budget to abolish Air Passenger Duty (APD) to boost growth, trade, and productivity, and encourage inbound tourism.

BATA’s Budget representation, submitted on behalf of UK airlines, highlights how APD has transformed from a £350 million to a £3 billion tax in less than twenty years. It points to a report published last month by the World Economic Forum which found that the UK is ranked 137th out of 138 countries for the competitiveness of its air ticket taxes and airport charges. Evidence is presented showing that the next highest tax on flying levied in Europe, by Germany, raises £2.4 billion each year less than UK APD. BATA also provides the Treasury with a preview of new analysis conducted by PwC to be published next week that updates their 2013 report on the economic impact of APD and suggests that the benefits of abolition have been understated.

The Chancellor is urged to address significant concerns about the impact of the forthcoming devolution of APD on passengers and airlines flying from airports across England as a whole, not just one or two regions. The airlines welcome the Scottish Government’s plans to halve APD leading to full abolition, but argue that the UK Government should avoid ‘seriously flawed’ mitigations for a handful of English regional airports. BATA also argue that a Treasury discussion paper on policy responses to APD devolution planned for the summer must include the options of abolition and significant reductions of UK APD if it is to be credible.

The BATA submission states:

• Following the decision in the last Parliament to abolish APD for children, the Government should now finish the job and abolish APD for all other passengers during this Parliament to transform the UK’s international competitiveness, boost trade, increase productivity, encourage inbound tourism, and support the travelling public.
• In line with this objective, the Government should cancel the RPI increase in APD rates on 1 April 2016.
• The devolution of APD to Scotland and Wales raises significant concerns about market distortions and unfairness to passengers living in different parts of the UK. The UK Government could take a lead and eliminate these concerns by abolishing APD.
• A proposed Treasury discussion paper on policy responses to devolution should consider the widest range of policy options, including abolition and significant reductions of UK APD.

Nathan Stower, Chief Executive of BATA, said:

“The new Conservative Government wants to increase trade with the emerging economies, tackle low productivity and create two million jobs over the next five years. The experience of other countries and economic modelling for the UK suggests that the abolition of APD would make a significant contribution to those aims. The Chancellor should use the Budget to announce plans for the abolition of APD – the highest tax on flying in the world – during the course of this Parliament.”

ENDS

5th June 2015

UK’s ‘sky high’ tax on flying bottom of world league table

136 countries are more competitive than the UK when it comes to air ticket taxes and airport charges according to the World Economic Forum’s biennial Travel and Tourism Competitiveness Report published today.

The UK is ranked 137^th out of 138 countries in the WEF’s global Travel & Tourism Competitiveness Index, with just Chad below propping up the table. Britain trails behind European competitors such as Sweden (26^th), Spain (55^th), Italy (83^rd), Germany (110^th) and France (114^th). Countries outside of Europe that are actively encouraging the development of their aviation sectors rank highly, including Qatar (12^th), India (16^th), Turkey (22^nd), United Arab Emirates (25^th) and China (38^th).

The UK has such a low ranking because most countries do not tax air travel or do so at significantly lower rates. Figures released last week by HMRC showed that passengers paid £3.17 billion in Air Passenger Duty (APD) in 2014-15. Germany has the next highest tax in Europe, but its Aviation Tax raised just £745m in 2014. More than 20 EU countries do not have an equivalent tax on flying.

The Office for Budget Responsibility estimates that the tax take from APD will increase by a further £500 million during the next Parliament. Passengers will be paying £3.7bn a year by 2019/20.

Nathan Stower, Chief Executive of the British Air Transport Association, said:

“We knew UK Air Passenger Duty is sky high compared with our competitors in Europe. We know now that it is one of the least competitive taxes in the world. The next government should end this damaging tax on trade, tourism and families and abolish APD in the new Parliament.”

Commenting on the World Economic Forum’s findings, Carolyn McCall, Chief Executive of easyJet, said:

“The World Economic Forum rankings show that the UK is in the top five of countries with the highest aviation taxes in the world. This is further proof that APD is a tax that is making the UK less competitive, with a negative impact on UK tourism, investment and business activity.‎

“Abolishing APD would boost the UK economy and pay for itself by increasing revenues from other sources. Research by PwC has revealed that the GDP boost to the UK economy would amount to at least £17 billion in the first three years and result in almost 60,000 extra jobs in the UK over the longer term.”

Craig Kreeger, Chief Executive of Virgin Atlantic, said:

“This report highlights once again the damaging impact of Air Passenger Duty. Politicians from all parties are keen to claim that the UK is “open for business”, and yet we rank almost last on such an important measure of economic competitiveness.

“APD is a tax on exports – whether it’s on inbound tourism or business travellers – and the UK’s overall high rank in the report highlights what a disproportionate impact APD is having. Moving the UK up the international competitiveness rankings should be amongst the top priorities for any incoming Government.”        

ENDS

6th May 2015

New statistics show £158m increase in tax paid by air passengers

New statistics published today by HM Revenue and Customs show that passengers paid £3.17 billion in Air Passenger Duty (APD) in the financial year 2014-15 – an increase of £158m or 5.2% compared with 2013-14.

The Office for Budget Responsibility estimates that the tax take will increase by a further £500 million during the next Parliament, despite the duty being abolished for children under 12 from this Friday (and for under 16s from March 2016) and a recent simplification of the duty’s banding system.

By 2019/20, APD is forecast to raise £3.7bn a year – more than beer and cider duties (£3.6bn) and the TV licence fee (£3.3bn), and the same amount as the Bank Levy.

The total number of passengers paying APD in 2014 was 105.9 million – 1.5 million fewer than the pre-financial crisis peak year of 2007. However, the amount of revenue raised by APD has increased by over 70% over the same period – from £1.8 billion in 2007 to over £3.1 billion in 2014.

The UK has the least competitive tax on flying in the world and the highest in Europe by a big margin. Germany has the second highest air passenger tax in Europe, but it raised just £745m from its Aviation Tax in 2014. Most European countries don’t tax their citizens or visitors to fly abroad.

Both the SNP and the DUP have set out their desire to see APD abolished in their respective manifestos which means that a hung Parliament could see political pressure build for further significant action to be taken.

· SNP manifesto 2015 – ‘For our tourism sector, we will press for the early devolution of Air Passenger Duty (APD) so we can use this new power to encourage more direct flights to Scotland, with a reduction of 50 per cent and longer term plans to abolish APD completely.’

· DUP manifesto 2015 – Air Passenger Duty (APD) has a disproportionate impact on the regions farthest from the most prosperous South East. The duty therefore harms Northern Ireland’s business and tourism sectors. It hurts family incomes and harms our economy. The exemption of children from the tax is a partial admission of the negative impact it places on passengers. As the duty is a disincentive to travel – it is bad policy. Over the next parliamentary term Air Passenger Duty should be abolished.

Responding to the publication of the new HMRC statistics Nathan Stower, Chief Executive of the British Air Transport Association, said:

“These new statistics are worrying for anyone who cares about increasing exports, encouraging business growth and investment, and expanding tourism. It’s time to ask ourselves why our competitors either don’t tax air travel at all or do so at significantly lower rates. It makes no sense for an island trading nation to have the highest tax on air passengers in the world. The next government should transform our competitive position and abolish this damaging tax on trade, tourism, families and businesses in the new Parliament.”

Commenting on the new APD statistics, Willie Walsh, IAG Chief Executive Officer, said:

“Passengers paid £3.17 billion in APD in 2014/15 – an increase of 824 per cent since its first full year in 1995/96. Over the same period inflation rose by just 82 per cent.

“This tax is completely out of control. It is the highest aviation tax in the world and it damages economic growth and jobs. No wonder the Scottish government wants to abolish it. APD should be scrapped UK wide.”

ENDS

28th April 2015

British Air Transport Association responds to Liberal Democrat manifesto

Responding to the publication of the Liberal Democrat manifesto, Nathan Stower, Chief Executive of the British Air Transport Association (BATA) said:

“I welcome the Liberal Democrats’ recognition of the value of tourism and heritage to the UK economy and their commitment to make sure the British tourism industry is able to compete with other major world destinations. Unfortunately, their opposition to any expansion at Heathrow or Gatwick (as well as Stansted or a new Thames Estuary airport) will make that task harder over time, and is at odds with their promise to carefully consider the conclusions of the Davies Review.

“The Airports Commission, established by the Coalition Government, has spent over two years looking at whether new capacity is required and has clearly concluded that there needs to be additional runway capacity in the South East of England by 2030 to meet demand, with Heathrow and Gatwick the two shortlisted locations. I urge the Lib Dem leadership to study the Commission’s final report with an open mind.”

Last month BATA published a manifesto on behalf of UK airlines. Ready for take off: our priorities for the new Parliament sets out the vitally important economic and social contribution that UK airlines make to national life. Five key policy areas are identified where action is required in the next Parliament.

• Tax – abolition of Air Passenger Duty to transform the UK’s competitive position, lower the cost of flying and deliver significant benefits to the economy
• Airport capacity – the green light for new runway capacity without imposing pre-funding on today’s passengers, alongside further improvements to surface access to support airline growth at other airports.
• Sustainability – including support for the commercialisation of sustainable aviation fuels and controlling development near airports to support the industry’s actions in limiting the number of people seriously affected by noise.
• Border & Visas – keep Britain open for business and tourists whilst protecting the border, including providing Border Force with the resources it needs to maintain service levels and the need to make further progress on visa accessibility and competitiveness.
• Protecting passengers – secure lasting reform to European law to deliver clearer consumer rights and support industry progress in improving the passenger experience for persons with reduced mobility.

ENDS

15th April 2015

British Air Transport Association responds to the Conservative Party manifesto

Responding to the publication of the Conservative Party manifesto, Nathan Stower, Chief Executive of the British Air Transport Association (BATA) said:

“I welcome the Conservatives’ support for tourism and their commitment to simplify and speed up visa issuance for tourists. Visa application processes, wait times, information requirements and fees should be regularly reviewed and adjusted to be made competitive with other visa regimes such as Schengen. This is particularly important if the UK is to attract more visitors from important growth countries like China and India.

“It is disappointing that the Conservatives have missed an opportunity to set a new course on Air Passenger Duty. If you want to increase exports, expand inbound tourism and encourage UK businesses to invest and grow, it makes no sense to keep the highest tax on air travel in the world. With devolution of powers over APD planned for Scotland and being considered for Wales, a Conservative Government should avoid unnecessary complication and boost the UK economy as a whole by abolishing APD in the new Parliament.”

Last month BATA published a manifesto on behalf of UK airlines. Ready for take off: our priorities for the new Parliament sets out the vitally important economic and social contribution that UK airlines make to national life. Five key policy areas are identified where action is required in the next Parliament.

• Tax – abolition of Air Passenger Duty to transform the UK’s competitive position, lower the cost of flying and deliver significant benefits to the economy
• Airport capacity – the green light for new runway capacity without imposing pre-funding on today’s passengers, alongside further improvements to surface access to support airline growth at other airports.
• Sustainability – including support for the commercialisation of sustainable aviation fuels and controlling development near airports to support the industry’s actions in limiting the number of people seriously affected by noise.
• Border & Visas – keep Britain open for business and tourists whilst protecting the border, including providing Border Force with the resources it needs to maintain service levels and the need to make further progress on visa accessibility and competitiveness.
• Protecting passengers – secure lasting reform to European law to deliver clearer consumer rights and support industry progress in improving the passenger experience for persons with reduced mobility.

ENDS

14th April 2015

British Air Transport Association responds to Labour Party manifesto

Responding to the publication of the Labour Party manifesto, Nathan Stower, Chief Executive of the British Air Transport Association (BATA) said:

“I welcome Labour’s commitment to make a swift decision on expanding airport capacity in London and the South East. Whichever option is proposed in the Commission’s final report there will be controversy and some disagreement, but the UK cannot afford further delay. I hope that a speedy decision will enable substantial progress to be made during the life of the next Parliament.

“Border Force must have the resources it needs to deliver a safe and secure border while meeting passenger expectations for queue times and customer service, but imposing a new charge on non-visa visitors to fund 1,000 additional staff is not a sensible approach. Visitors from countries like the USA and Australia already pay the highest air passenger tax in the world to visit the UK by air at £71. Adding yet another charge will make the UK more uncompetitive in attracting international tourists, business travellers and inbound investment. We will propose alternative means of funding additional Border Force staff if Labour form the next Government.”

Last month BATA published a manifesto on behalf of UK airlines. Ready for take off: our priorities for the new Parliament sets out the vitally important economic and social contribution that UK airlines make to national life. Five key policy areas are identified where action is required in the next Parliament.

• Tax – abolition of Air Passenger Duty to transform the UK’s competitive position, lower the cost of flying and deliver significant benefits to the economy
• Airport capacity – the green light for new runway capacity without imposing pre-funding on today’s passengers, alongside further improvements to surface access to support airline growth at other airports.
• Sustainability – including support for the commercialisation of sustainable aviation fuels and controlling development near airports to support the industry’s actions in limiting the number of people seriously affected by noise.
• Border & Visas – keep Britain open for business and tourists whilst protecting the border, including providing Border Force with the resources it needs to maintain service levels and the need to make further progress on visa accessibility and competitiveness.
• Protecting passengers – secure lasting reform to European law to deliver clearer consumer rights and support industry progress in improving the passenger experience for persons with reduced mobility.

ENDS

13th April 2015

Budget 2015 – BATA comment

“The Government has missed an opportunity to go further in setting a new course on Air Passenger Duty. Retaining the highest tax on flying in the world doesn’t make sense when you want to increase exports, expand inbound tourism and encourage UK businesses to invest and grow.

“With the Scottish Government committed to halving APD rates when powers over the tax are devolved, and further devolution to Wales and the regions under consideration, the next Government should avoid unnecessary complication and boost the UK economy as a whole by simply abolishing APD in the new Parliament.”

ENDS

18th March 2015

Ready for take off – UK airlines launch manifesto for new Parliament

The British Air Transport Association (BATA) has today published its manifesto ahead of the General Election in May.

‘Ready for take off: our priorities for the new Parliament’ sets out the vitally important economic and social contribution that UK airlines make to national life.

Five key policy areas are identified where action is required in the next Parliament to create a more level playing field from which UK airlines can compete, grow and deliver more in the years ahead.

• Tax – abolition of Air Passenger Duty to transform the UK’s competitive position, lower the cost of flying and deliver significant benefits to the economy.
• Airport capacity – the green light for new runway capacity without imposing pre-funding on today’s passengers, alongside further improvements to surface access to support airline growth at other airports.
• Sustainability – including support for the commercialisation of sustainable aviation fuels and controlling development near airports to support the industry’s actions in limiting the number of people seriously affected by noise.
• Border & Visas – keep Britain open for business and tourists whilst protecting the border, including providing Border Force with the resources it needs to maintain service levels and the need to make further progress on visa accessibility and competitiveness.
• Protecting passengers – secure lasting reform to European law to deliver clearer consumer rights and support industry progress in improving the passenger experience for persons with reduced mobility.

Commenting on the launch of the BATA manifesto, Nathan Stower, Chief Executive of BATA, said:

“This is the first time that BATA has produced a manifesto setting out our priorities for the next Parliament. We will be using the document to campaign for policy changes and lobby politicians, officials, the regulator and other stakeholders in the months ahead on behalf of our members.

“The UK has a long and proud aviation history and our airlines are amongst the best in the world. However, our international competitors understand the benefits that aviation brings and their governments have taken strategic policy decisions to enable their industries to grow. The next five years are crucial for the UK industry and we will be working hard to influence public policy so that it enables our members to deliver even more for their passengers and the country in the future.”

The manifesto was previewed at an event in the House of Commons yesterday afternoon. The event, considering what a Labour government would mean for UK aviation, saw BATA members hearing from and questioning Gordon Marsden MP, the shadow aviation minister, Rt Hon David Hanson MP, the shadow immigration minister and Iain Wright MP, the shadow business minister.

ENDS

11th March 2015