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September 2022, Virtual
September 29 2022, Virtual
Much of this week's budget seems to have already been leaked to the media but there has been no word on travel's key concern - Air Passenger Duty. Rob Gillconsiders whether the chancellor will listen to the industry's pleas
The travel industry has been pretty much unanimous on its opposition to APD and has been bombarding chancellor George Osborne with reasons why the impending eight per cent rise is a very bad idea.
While it’s encouraging that the industry is speaking in one voice – which is a rarity on most issues – there seems only a faint hope that Osborne will take any notice and do something about APD in Wednesday’s budget.
There seems to be plenty of other matters weighing on the chancellor’s mind this week. Issues which apparently have priority over APD this time around, including the possible cutting of the 50p top rate of income tax, targeting loopholes on stamp duty avoidance and changes to personal tax-free allowances.
In the days before last year’s budget, it was widely leaked by sources within the government that the 2011-12 inflationary increase in APD would be frozen for a year and, indeed, this proved to be true. But this year there has been an eerie silence coming from Whitehall on the subject, just as there was in the run-up to Osborne’s autumn statement in November, when the eight per cent increase in APD was confirmed – albeit only through documents released after the chancellor had finished his speech.
That’s not to say that Osborne won’t pull a surprise on Wednesday – it just seems much less likely given the way the government has been operating since it came to power in May 2010.
It’s interesting to reflect how government policy on APD has changed in the two years since Osborne became chancellor. Both the Conservatives and Liberal Democrats promised that they would transform APD into a per-plane tax (basing payments on the aircraft rather than passengers) in their manifestos, and this policy even survived into the coalition agreement that was thrashed out after the election ended in stalemate.
But only 10 months later in March 2011, it was clear this policy was effectively dead when Osborne said the government was “reluctantly” dropping plans for a per-plane levy because it would illegal under international law. Although he added they would “work with others to try to get that law changed”.
A similar thing happened with the review into the banding structure of APD which looked into the anomalies suffered by destinations such as the Caribbean whereby flights to its islands incur higher APD charges than services to far-flung Hawaii.
The government looked at changing from the current four-band structure of APD to either two or three-band systems but eventually decided to do nothing and keep the status quo, claiming that “no banding structure will be entirely free of anomalies”.
So, we are left with exactly the same system as was implemented by the previous Labour government, which is hardly doing the industry any good at a time when other costs such as fuel are rising followed by the inevitable airline surcharges.
That’s not to mention the uncertainties surrounding the implementation of the EU’s emissions trading scheme (ETS) which can only add to the cost of aviation and threatens to provoke a trade war with the EU’s biggest trading partners such as the US, China, Russia and India.
Despite these headwinds, the industry has been steadfast in its representations against APD (it’s even brought arch-rivals such as British Airways and Virgin Atlantic, as well as Easyjet and Ryanair together to speak with one voice) and nearly everybody has been calling for an independent study to show how the duty is damaging the UK economy.
The WTTC has already produced a survey with Oxford Economics estimating that scrapping APD would create 91,000 new jobs in the UK and add £4.2 billion to the British economy within one year. While the British Chambers of Commerce claims that the planned APD increases could cost the British economy £100 billion by 2030, and 25,000 jobs within the next five years.
The industry has inevitably called for the eight per cent rise from April 1 to be scrapped. But how realistic is this when the government is estimating that the tax take from APD will rise from £2.6 billion in 2011/12 to £3.8 billion in 2016/17?
This represents a whopping 46% rise over the next five years and when you consider the airport capacity constraints around the south-east, APD is only going to have to keep rising unless the government can be convinced of its negative impact on the UK’s economy.
There doesn’t seem much hope for this change of heart in the near future. Everybody knows how short of cash the UK government is. This perilous financial position has only been highlighted by two leading global credit rating agencies, Fitch and Moody's, deciding to cut the UK’s debt outlook from “stable” to “negative” in the last few weeks.
All this puts Osborne in a tougher position as he has less room to manoeuvre and probably means that APD is here to stay. After all, it’s not - so far - a subject of overwhelming concern to the average man or woman on the street, and as such has yet to damage the government politically.
This means that the travel industry must continue to gather more information and data to clearly show the negative effects of APD on “UK Plc”. It’s only in this way that the government will eventually be made to “see sense” and not just regard aviation - and travel generally - as a cash cow to be milked forever without consequence to the wider economy.
It will be a hard slog but what other choice does the industry have?