Airlines have another go at trying to get rid of APD. Reminiscent of turkeys and Christmas.
EasyJet has produced two press releases, making out that a new study done for the airline industry shows that the UK economy would benefit if Air Passenger Duty was cut. EasyJet, BA, Virgin and Ryanair commissioned PwC to investigate the possible effect of abolishing APD. Using elaborate contortions of facts and logic, and glossing over the point that the main beneficiaries of abolishing the tax would be themselves (not UK plc) they ignore the inconvenient facts that the majority of air travel takes Brits abroad, to spend their money elsewhere. Only a minority – around 20% at most – of air passengers from the UK are on business. The study also ignores the fact that air travel pays no VAT and no fuel duty – making it a very special case, and very under-taxed in comparison to other sectors. Much of the “logic” behind the calculations by PwC of the suggested economic benefits of removing APD involve indirect effects, such as boosting tax take in a variety of sectors, increasing investment, and presumed spin off effects of this over time. All very dubious. No industry likes to pay tax, but there is no reason why air travel – largely discretionary spending by the better off – should escape a fair level of tax. These APD claims by the 4 airlines really are stunning nonsense.
The pressure from the 4 airlines got a frosty response from the Treasury, which made clear that the Chancellor had no intention of lowering APD. And consumer groups (Air Travel Advisory Bureau) pointed out that carriers often benefited by pocketing tax paid on cancelled bookings – travellers find getting the APD they have paid back from airlines can be very, very difficult. Critics of the industry say that airlines are happy to add their own levies to tickets, ranging from fuel surcharges to luggage charges and credit card fees. (See Times £ link )
The FT reports that a Treasury spokesperson said APD, which is forecast to bring in £2.9bn this year, makes an “essential contribution” towards helping meet the government’s deficit reduction plans. “We do not recognise the figures in this report or agree with the assumptions behind it,” the Treasury said. (FT link )
To see some of the real facts about Air Passenger Duty, rather than the misinformation being publicised for reasons of self interest by the airlines, see
Below is a comment from Cait Hewitt, Deputy Director of the Aviation Environment Federation, AEF:
Of course businesses want to boost their profits by paying less tax, but it’s a bit rich for the airlines who commissioned this report to complain, given that the aviation industry is entirely exempt from paying either fuel duty and VAT. A recent report by the Intergenerational Foundation estimated this effective subsidy to be worth around £11 billion a year (or £400 per UK household) based on a comparison with the taxes paid by private motorists. Taxing aviation at the same rate would raise five times as much revenue per year as Air Passenger Duty generates.
The idea that APD is a tax that hits poor families hardest is just not true; higher earners are far more likely to fly than people on low incomes. In any given year, about half the UK population don’t fly at all, while most of the growth in demand for flying has come from a wealthy minority who are making multiple return trips.
In relation to employment: aviation doesn’t have a great track record in terms of actually delivering the jobs that are always promised when airports want to expand. And the number of jobs per million passengers has been falling quite dramatically over time. The rule of thumb used to be that every million passengers needed a thousand airport and airline staff, but the figure for new jobs created is now more like 150 per million passengers – even fewer in the case of some low cost carriers.
Nobody likes paying taxes – but that is part of the deal, in a civilised society. We could all have more champagne, if it wasn’t taxed ….
We could have more of lots of things if they weren’t taxed …..(but just think of the consequences for society….)
First EasyJet press release (take with a huge pinch of salt – some of it is very dodgy, with deliberately misleading wording. A few AW comments in square brackets in brown):
“SCRAPPING FLIGHT TAX COULD PAY FOR ITSELF AND CREATE 60,000 JOBS, SAYS PIONEER STUDY”
A study commissioned by the UK’s four major airlines on the economic impact of Air Passenger Duty shows that its abolition could bring a lasting boost to the UK economy, generating a net tax gain for the Treasury and creating almost 60,000 new jobs.
The study by PricewaterhouseCoopers (PwC), The economic impact of Air Passenger Duty, used a model to simulate how changes in one area of the economy (such as tax policy) affects all the rest. This “dynamic” approach to modelling tax impacts is used by the IMF, World Bank and some national governments, and has been advocated by Chancellor George Osborne.
Applied for the first time to APD, the modelling finds that:
- Abolishing APD could boost UK GDP by 0.46 per cent in the first year, with continuing benefits to 2020.
- The GDP boost to the UK economy would amount to at least £16 billion in the first three years and result in almost 60,000 extra jobs in the UK over the longer term. [ See below for more on EasyJet and employment].
- Abolishing APD would pay for itself by increasing revenues from other sources such as income tax and VAT. [Bit rich seeing air travel pays no VAT]. This net benefit, even after allowing for the loss of APD revenue, would be almost £500m in the first year.
The modelling suggests this boost to GDP would come from three main sources:
- Extra investment by airlines to expand their networks, and investment by other aviation businesses to support this growth; [Air passenger traffic has not grown recently due to the recession, not to APD. Government figures confirm this].
- A net increase in inbound tourism, which constitutes an export for the UK economy; [Wonder why there is no mention of outbound tourism, which is very much larger than inbound, as more Brits to abroad than those from overseas come here]
- Over the medium term, higher business productivity resulting from increased business travel, which improves international business connections and creates employment. [There is little evidence that business travel is affected by APD. The fares are paid by the company, not the individual. Business travel is much less price elastic than leisure travel].
Per cent increase in GDP from abolition of APD –Source: PwC
Using cautious assumptions, PwC’s analysis shows that receipts from other taxes would rise as a result of APD’s abolition, primarily because of business growth, [there is no logical reason to presume that making flying a bit cheaper is going to turn round the UK economy and end the recession. 80% or so of UK air passengers are not on business] leading to a net revenue gain for the Government of about £500m in each of the first two years and averaging £250m annually over the period to 2020.
Fiscal Impact of APD abolition, £billions–Source: PwC
The study describes APD as a “substantial business cost”, equating to about £500m a year for UK businesses overall. It adds: “Abolishing APD has the potential to reduce the cost of flying, making it cheaper for businesses to maintain relationships with overseas customers. In this sense APD could be regarded as a tax on exports.” [Also a tax on imports – many of those businesses are importing – they are not all exporting].
The report ranks major UK taxes by how much additional GDP results from a £1 cut in tax revenue – a good guide to how much individual taxes can distort production decisions leading to inefficiencies in business decision making.
How much extra GDP results from a £1 tax cut (median value over 30 years) Source: PwC
|VAT||Income Tax||NICs||Corporation Tax||APD||Fuel Duty|
Comparing the impact of a variety of taxes, the analysis goes on: “APD is at least as damaging to the UK economy, and probably more so, than corporation tax or fuel duty.” It ranks major UK taxes by how much additional GDP results from a £1 cut in tax revenue – a good guide to how much individual taxes distort business decisions and consumer behaviour. [Actually, paying tax is not bad for the UK. How else would public services etc be funded? Paying taxes is the cost we pay for living in a civilised society – which costs money to maintain. We need companies to pay Corporation Tax. Witness the outcry recently about companies such as Amazon and Starbucks. The airlines and airports pay very little corporation tax, finding ways to account for profits/ losses between companies etc].
In recent Budgets, action has been taken to stem rises in fuel Duty and reduce corporation tax, while APD has risen continually. Since January 2007, APD has increased by up to 260 per cent for short-haul flights and up to 360 per cent for long-haul. [This disingenuous and deliberately misleading comment, that has been very carefully worded, because on 1st Feb 2007, APD went up from £5 to £10; therefore since February 2007, APD for short journeys ie. Europe has risen by only £3, from £10 to £13, which is a 30% rise. See Details The Chancellor announced that APD this year would rise in line in inflation. Not more.]
The study further indicates that APD is regressive. For families in the bottom income decile, the APD cost for a family of four travelling to a European destination is some 28 per cent of weekly household expenditure. About 45 per cent of APD-liable leisure trips in 2010 were made by passengers with below-average household income. [Very odd maths here. APD for a trip to Europe is £13 only. For a family of four that would be £52. If the family’s income was £187 per week, that would be 28% of their income – for that one week. Not in general. The rest of their holiday would be many hundreds of pounds. If a family has an income of £9,657, it is unlikely that they are going to be considering foreign travel by air. Certainly not in high season, when the airlines charge much higher fares – increases much larger than the £13 of APD]
The Economic Impact on Air Passenger Duty – A study by PWC
To view an abridged version of the PWC report: click here
To view the full PWC report: click here
This is the other EasyJet press release – along the same lines as the one above. Read with critical faculties alert !
BRITISH AIRWAY, EASYJET, RYANAIR AND VIRGIN ATLANTIC RESPONSE TO PWC REPORT ON THE ECONOMIC IMPACT OF AIR PASSENGER DUTY
Welcoming the PwC report, Willie Walsh, chief executive of British Airways’ parent company, IAG; Carolyn McCall, chief executive easyJet; Michael O’Leary, chief executive Ryanair and Craig Kreeger, chief executive of Virgin Atlantic jointly said:
“The PWC report highlights the critical role that aviation plays as an engine of economic growth for both international commerce and tourism. It confirms that abolishing APD would provide the UK economy with a much needed boost creating 0.46% GDP in the first year and at least £16 billion in the first three years and would also result in almost 60,000 new jobs in the UK.
“It proves that APD is one of the three most destructive taxes; alongside Corporation Tax and Fuel Duty.
“The Chancellor has taken action on those two taxes in the Autumn Statement and we would encourage him to use the forthcoming Budget to remove APD to stimulate economic growth and create jobs.
“Should APD be abolished the aviation industry would be able to move quickly to add new flights in and out of the UK, or invest in new products and services, creating new opportunities for businesses and much needed jobs across the UK.”
The FT reports also that, on the subject of the tourism deficit being increased by lowering APD:
“… the report also found that by encouraging foreign travel by UK residents, abolishing APD would mean some parts of the economy would suffer even if the overall impact on GDP was positive.
“The outflow [of UK consumers’ pounds] is partially offset by expenditure from foreign inbound tourists . . . [but they] tend to purchase a more limited range of lower value-added goods and services than domestic consumers,” the study said.
EasyJet and employment:
Number of staff a EasyJet (from EasyJet data):
8,446 in 2012 (so 2.6% more staff than in 2011)
8,228 in 2011
Number of Easyjet passengers:
58.4 m pax in 2012 (so 7.1% more passengers than in 2011)
54.5 m pax in 2011
so there were:
6,914 passengers per EasyJet staff member in 2012
6,624 passengers per EasyJet staff member in 2011
ie. 145 staff per million passengers at EasyJet. in 2012
and 151 staff per million passengers at EasyJet in 2011
EasyJet said they had 3.9 million more passengers in 2012 than in 2011. So per additional million passengers:
If there were 3.9 million extra passengers, and 158 extra staff, then there were about 41 more staff per extra million passengers.
The budget airlines really are not great at generating a lot of extra jobs.