Cutting through the hype in the aviation debate

With a lively Commons debate on Air Passenger Duty (APD) taking place last Thursday and the launch of the Davies Commission into Airport Capacity on Friday, you could be mistaken for thinking that politicians are starting to recognise the important role aviation plays in sustaining the UK’s international competitiveness.

While the Treasury may claim that it has always acknowledged the vital contribution the aviation industry makes to the growth and development of the economy, its drive to increase international trade by reducing corporation tax, simplifying the burden of red tape and creating a £5bn export financing facility has not been mirrored in their approach to aviation policy.

The UK currently has the highest air passenger tax in the world, with those flying from UK airports having to pay almost 400% more in APD than most other countries in Europe. Our airport capacity problem has been a political landmine for decades, with previous Governments struggling to make a final decision on such a divisive issue. Our current politicians are no different, with no party seemingly willing, officially at least, to commit to the recommendations of the Davies Commission report set for the summer following the next General Election in 2015.

It appears the Government is still failing to recognise the importance of a holistic aviation policy that tackles both air passenger tax and airport capacity, and acknowledging the way these different issues have to be understood together if an effective policy framework is to be introduced. Nevertheless, last week’s events can be looked at with some positivity. Although the Economic Secretary to the Treasury, Sajid Javid, reiterated that “we have no plans at this point for further consultation” on APD, up to 20 MPs from all sides of the house stood up during the debate, with little or no opposition, and expressed remarkably similar views on the damaging impact the tax is having on ordinary families, inbound tourism and inward investment. Both Neil Carmichael MP and Henry Smith MP additionally emphasised the need for a comprehensive aviation strategy that tackles the present troubles faced by the industry. One of the first outputs of the Davies Commission is likely to be the publication of revised air passenger demand forecasts in the New Year, which are expected to show demand increasing, but at a slower rate than previous DfT forecasts. The punitive level of tax on flying is undoubtedly a factor.

Because of the current Coalition Agreement not to build new runways at the three main London airports during the lifetime of this Parliament, the decision on airport capacity has been delayed and the buck passed to the next Government. Current levels of APD and the damage they cause to UK economic recovery, on the other hand, are something that can be challenged now.

I understand the importance of the contributions this tax makes to the public purse, especially during this time of austerity. Current figures show that APD will bring in close to £2.9bn in 2012/13 alone. My position, however, is that the loss of revenue to the Treasury from reducing this tax would be far outweighed by the gains from increased tourism and business investment. As an island, we rely on air travel links to attract inbound tourists and inward investment. High levels of aviation tax can render the UK unattractive as a holiday location and as a place to do business. The Government has claimed that it wants to follow our Olympic success by building trade links with emerging-market countries such as the BRIC nations. Yet, taking a look at one example, it currently costs a family of four travelling on a round trip from China to the UK £324 in APD. The same journey to France and Germany costs just £36 and £132 respectively, in aviation taxes. How can we compete with our neighbours and maintain our international competitiveness when we have the highest air passenger tax in the world? Research undertaken by The World Travel and Tourism Council earlier this year estimated that the UK's APD is preventing the creation of up to 91,000 jobs at a time when we most need them, and is costing £4.2 billion in additional revenue in 2012.

With the IMF recently slashing its forecast for UK growth for this year, the Coalition Government might want to reconsider ways to maintain international competitiveness. If the Treasury were to at least conduct a review into the wider impact of APD, we might better understand the potential for growth in tourism and inward investment.