MPs have called for the Treasury to commission a study into the impact of Air Passenger Duty on the UK economy.
APD was debated in the House of Commons yesterday (November 1) in a motion, tabled by Conservative MPs Priti Patel and Henry Smith, which called for a “comprehensive study” into the effects of the duty which should report to chancellor George Osborne before the budget in spring 2013.
The motion was passed unanimously by MPs following the debate and Treasury minister Sajid Javid said the government would “take note of Parliament’s view” on the issue.
Patel told the Commons that the high rates of APD were “counter-productive” and were “putting businesses off when they are making investment choices and decisions”.
“Attracting foreign direct investment is an essential component of the government’s plan for growth, and current APD rates are a barrier to foreign investors who are looking to expand into the UK,” she said.
“APD also acts as a deterrent to British businesses that are looking to exploit lucrative business opportunities elsewhere in the world, and particularly in emerging markets.
“Businesses in my constituency, including small and medium-sized enterprises, provide more than 80% of local jobs. They are hit hard by APD. They want to export more, but APD is a barrier.”
Smith said that some airlines had already axed UK flights directly because of the high rates of APD.
“AirAsia X stopped flying from Gatwick to Kuala Lumpur, and cited exactly the same reason - APD being far too high,” he said.
“The Netherlands scrapped air passenger duty after studies conducted by the Dutch government established that it was costing the economy more than it was bringing into the Treasury.
"I think that it is for the same reason that only six European countries charge any form of air passenger duty, and the amounts that they charge are very modest.”
Javid, who took up the role of economic secretary to the Treasury in the last cabinet reshuffle, said APD had to be looked at in the context of the government’s overall tax strategy and the need to reduce the UK’s financial deficit.
“Members have called clearly today for a cut in APD, or at least a freeze in cash terms, but let us be frank about the situation we find ourselves in,” said Javid. “Let us not forget that when we came to office we inherited a fiscal deficit of historic proportions.
“The 2012 budget set out APD rates for 2013-14, and again the rise is limited to no more than RPI inflation. The real burden of APD will therefore remain unchanged for a further year.”
“International aviation is generally not subject to tax on fuel and, in contrast to many other countries that apply VAT on domestic flights, no VAT is levied on international or domestic flights in the UK.”
“We have no plans at this point for further consultation, but we are keen to ensure that the aviation sector can continue to enable economic growth and support jobs across the country. APD makes an essential contribution to the public finances and to this government’s plan to create a stable platform for growth.”
The full motion passed by MPs calls on the Treasury: “to commission a comprehensive study into the full economic impact of Air Passenger Duty in the UK and calls on the government to freeze Air Passenger Duty while this study is being carried out and to use the evidence from the study to reform air passenger duty so that it is internationally competitive and supports economic growth, investment and jobs.”
“The government will take note of parliament’s view; it is important that we listen to the views of parliament,” said Javid.