This week's Autumn Statement brought precious little good news for the aviation industry. Fuel duty rises have been postponed and rail ticket rises moderated, but for airline passengers the news was less encouraging. A double-inflation Air Passenger Duty (APD) rise looks set to go ahead next year, meaning passengers booking family holidays for summer 2012 should expect higher fares: a family of four will now pay no less than £260 tax just to fly to Florida in economy class.
But this is not just about passengers, who are the ultimate losers from the chancellor's announcement. In fact, the decision to raise APD from April 2012 onwards sits at odds with much else of both what the chancellor had to say, and the government's wider plans to stimulate economic growth.
The government has been at pains to talk about the importance of increasing overseas spending in the UK. Earlier this month it announced an additional £27m for VisitBritain to attract overseas visitors. The prime minister himself has said he wants to see the UK grow inbound tourism by £2bn over the next four years and increase Chinese tourism fivefold, which he says would "add over half a billion pounds of spending to our economy and…as many as 10,000 new jobs".
The UK is badly missing out on Chinese tourism. UK visitor numbers from China have not increased since 2006, even though China has been experiencing annual double-digit growth in outbound visitors over this period. The chair of the Tourism Alliance, Brigid Simmonds OBE, recently said that the UK now finds itself in the position that we have ‘lost out on over £1bn of Chinese tourism revenue in the last decade'. The effect of the UK's Air Passenger Duty – the highest anywhere in the world – has been a major contributing factor to this. Today's double-inflation rise of around eight per cent means higher fares next year, and that will have a direct effect on the UK's inbound tourism: hardly consistent with the coalition's plans to attract more visitors to British shores, and symptomatic of a lack of joined-up thinking in government.
Then there is the impact on UK businesses. In his speech, the chancellor said: "We shouldn't price British businesses out of the world economy. If we burden them with endless social and environmental goals – however worthy in their own right – then not only will we not achieve those goals, but the businesses will fail, jobs will be lost, and our country will be poorer." This fits well with the goal of the prime minister's GREAT campaign – launched in September – designed to show the world that the UK is a ‘place to do business'. But the chancellor also said: "We've set as our ambition the goal of giving this country the most competitive tax regime in the G20".
Bizarrely therefore, doing business in the UK is set to get substantially more expensive, thanks to this week's announcement: four business travellers from the US, travelling in the ‘standard' APD rate (i.e. non-economy passengers) will now pay a total of £520 in air taxes to return home. Nowhere else in Europe is there anything like the same level of taxation on flying. Why should businesses facing financial pressures choose to come to the UK when the cost of travelling to and from our country is so expensive by comparison with our competitors? Foreign businesses are already being taxed an estimated £300m each year just to do business on British soil, and our own companies suffer the additional tax burden just to fly overseas. This will only get more expensive from April next year.
A Fair Tax on Flying alliance, of which BATA is a member, has long argued aviation should pay its fair share to cover its environmental footprint. But as the chancellor himself recently admitted, APD is no longer a green tax – it is, in his words, "fundamentally a revenue-raising duty".
In the Autumn Statement it was announced that there will be relief from the climate-change levy for energy-intensive manufacturing. The chancellor also pointed out that "now is not the time to impose environmental taxes to the detriment of UK businesses". Yet the industry's calls for the costs of the EU Emissions Trading Scheme (widely supported by the aviation industry) to be offset by reductions in APD have also been ignored. This is despite the fact that in written correspondence, the Treasury told us that they were looking at APD taxes and ETS 'in the round'. They clearly have not. Next year passengers will be faced with both higher flight taxes and the cost of the newly introduced ETS: a double whammy.
I understand, like anyone else, the acute challenges that the government faces in balancing the public finances. But it has been wildly inconsistent in applying general principles of policymaking to the specific issue of passenger taxes on flying. The chancellor must re-think this week's rise and undertake an independent review into the impact of APD on the UK's economy before making any further decisions. After all, it is the Treasury that has extolled the importance of evidence-based policymaking: I hope in this respect, at least, the government will be more consistent in marrying its intentions with its actions.