Budget coming up this week – so it’s time for the habitual bash at APD by the airlines…
Date added: March 17, 2013
With the budget coming up on the 20th March, the airlines do their usual predictable attack on Air Passenger Duty, in the vain hope that the Chancellor will be persuaded to let flying be a bit cheaper, and agree to the Treasury forgoing an important source of revenue for the UK economy. The last attempt the airlines had was a report that they had written by PWC, with a range of claims about APD. The FT reported in February 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 [PWC] report or agree with the assumptions behind it.” (FT link ) Air Passenger Duty is charged because there is no VAT on aviation, and the industry is zero-rated. There is also no fuel tax on jet fuel. So APD is charged, because of these tax breaks the industry receives. The aviation PR spin is that aviation is vital to the UK economy. In reality, around 80% of trips made by air from the UK are for leisure purposes, the majority taking Brits to spend their money on trips abroad. Cutting APD would only be beneficial to the aviation industry. It would not benefit the UK as a whole.
Rival airline chiefs have joined forces in an unprecedented show of unity to call on the Chancellor to scrap Air Passenger Duty in Wednesday’s Budget to boost growth.
The tax is included in the ticket price paid by all passengers flying from a British airport and can add £92 to the cost of a standard-class long-haul flight, or £13 to a short-haul flight.
Airlines say the tax, which is due to rise next month, acts as a barrier to tourism and investment.
The open letter to George Osborne marks a rare show of unity between executives usually known for their outspoken and bitter rivalry.
Willie Walsh, head of the group that runs British Airways, and Ryanair CEO Michael O’Leary: The open letter (SEE BELOW) to George Osborne marks a rare show of unity between
The airlines have fought rises in the APD for years with legal challenges – while environmental campaigners have warned the measure does not stop people flying as much
They are Willie Walsh, who runs the group that owns British Airways and Iberia, Michael O’Leary of Ryanair, Carolyn McCall of easyJet and Craig Kreeger of Virgin Atlantic.
They say APD is the highest tax of its kind in the world.
They point out that a family of four flying to the US from most EU states pay no tax. However, if they travelled from Britain they face a bill of £260 on top of the cost of their tickets.
‘We compete ferociously with each other, but are united in the view that Treasury policy must change,’ they told Financial Mail.
‘We do not understand why a Conservative Chancellor chooses to impose suffocating taxes on an essential business sector. Aviation should play a crucial part in enabling Britain to trade out of recession and cut unemployment.’
This is the airline bosses’ open letter to the Chancellor, in full
From the Axe the Tax group: Carolyn McCall, easyJet, Willie Walsh IAG, Michael O’Leary, Ryanair and Craig Kreeger, Virgin Atlantic.
After five years of economic stagnation, it is abundantly clear that efforts to restore growth to the UK economy are failing.
In past downturns, GDP bounced back to previous levels in under four years. Not so this time, which is why a more-of-the-same Budget will not do.
We represent the four biggest airlines in the UK. We compete ferociously with each other, but are united in the view that Treasury policy toward our industry must change.
Aviation links British businesses to the global economy. It is the dominant channel for bringing overseas investors and visitors to our country. It should play a crucial part in enabling Britain to trade out of recession and cut unemployment.
Yet the Government doggedly maintains a shockingly uncompetitive tax policy that straitjackets aviation’s ability to grow the UK’s links with the world. We do not understand why a Conservative Chancellor chooses to impose suffocating taxes on an essential business sector.
Air Passenger Duty (APD) is the highest flight tax in the world. As the World Economic Forum recently confirmed, the UK is the least competitive country on the planet (ranked 139th out of 139) in terms of taxes and charges levied on air passengers. In other words, no other national government sees any economic sense in taxing people, tourism and trade so heavily.
Holland and Denmark toyed with a high-tax regime – only to abandon it when the negative impact on their domestic economies became obvious.
From most EU countries today, a family of four flying to the US would pay no tax. From the UK, they face an APD bill of £260. This deters not just UK residents, but overseas visitors too. We are told the Government wants to encourage tourism to Britain from the burgeoning middle classes of China and India. Yet visitors from these countries face APD of £81 per person. No wonder so many prefer taking their high-spending habits to France and Italy, where the respective taxes are £9 and £4.
While inflation has risen around 20 per cent since 2007, APD has rocketed by more than 300 per cent on many routes – and is set to increase yet again in April – as the Treasury continues to view our customers as easy targets.
But what about the long-term damage to our economy? After the Treasury ignored our calls to conduct a study on APD’s overall impact, we asked respected City giants PwC for an independent analysis. Their rigorous report finds that APD is exceptionally damaging for UK business. Using cautious assumptions, they forecast that abolition would boost GDP by £16bn, create nearly 60,000 jobs by 2020 and generate so much new economic activity that revenue from other streams such as income tax and VAT would bring the Treasury a net annual gain of at least £250m.
The report follows a method of modelling a tax’s total economic impact that is used by the IMF and World Bank and has been publicly advocated by, among others, George Osborne.
This is not special pleading. Airlines don’t pay APD. Passengers do.
The PwC study confirms the economic madness of burdening an island nation with the world’s highest tax on air travel. Let’s try something different, Mr Chancellor, and go for growth.
A report commissioned by the group from accountant PricewaterhouseCoopers using the Treasury’s own models, showed that scrapping the tax would boost the economy by £16 billion and generate 60,000 jobs by 2020. It would also lead to a 40 per cent rise in visitors to the UK. [The Treasury utterly rejected these claims. See link ]
However, while the industry is united in opposition to the tax, some airlines, such as regional carrier Flybe, favour a two-tier regime that would see passengers leaving London paying more than passengers from regional airports.
Since many of its passengers are on domestic flights, they pay the tax on the outward and the return flight.
The Treasury said the duty brought in £2.9 billion a year, which helped towards deficit reduction.
Earlier, on 4th February, when the airlines last had a concerted attack on APD:
PwC report on APD met by dismissive comments from Treasury – Chancellor has no intention of lowering APD
4.2.2013The 4 largest airlines in the UK (British Airways, Virgin Atlantic, EasyJet and Ryanair) commissioned a report from PwC on Air Passenger Duty (APD). The intention was to try and get APD reduced, or removed altogether. PwC put together arguments that the UK economy would benefit, if flyers could fly slightly more cheaply. There was a range of arguments, including more tax take, more investment, spin offs of all sorts. However, this has cut no ice with the Treasury. 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. 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. The report also had to admit that making flying a bit cheaper would have a negative impact on parts of the UK economy, as yet more Brits took they money to spend abroad.https://www.airportwatch.org.uk/?p=607.
If you can bear to read any further, there is another report on the airlines and their self interested campaign here:
With days to go until the Budget, airlines are ‘alarmed’ by the apparent lack of Treasury understanding about Air Passenger Duty.
According to the Board of Airline Representatives in the UK (BAR UK), airlines are ‘fast losing confidence that the Chancellor will announce a tax regime which will boost jobs and growth’.
BAR UK’s comments come as other trade bodies also step up lobbying in Whitehall ahead of next week’s Budget – but the chances that the Chancellor will listen seem unlikely.
Dale Keller, BAR UK chief executive, said: ‘Airlines have become alarmed by the apparent lack of Treasury understanding that Air Passenger Duty (APD) is a fundamental component of aviation policy.
‘The Chancellor wants a connected economy that’s on the move and aviation is absolutely central to achieving this.
‘Yet the Government seems single-minded in its desire to clip the wings of an industry that continues to be one of our remaining success stories and which funds its own infrastructure.
‘APD started out as a small tax with supposed environmental credentials but has grown into a monster that is more ‘user pays twice’ than ‘user pays’. It’s time to end this nonsense.
‘It cannot be right that the Treasury and Government can continue to dismiss over 200,000 emails to MPs, 12,000 emails to cabinet ministers, continued calls for a Treasury economic impact review, compelling new evidence in a PricewaterhouseCoopers report based on the Treasury’s own modelling and expert input from A Fair Tax on Flying and virtually every trade association and industry analyst.’
Meanwhile, writing in the Huffington Post, Darren Caplan, chief executive of the Airport Operators Association, said: ‘With the UK teetering on the brink of a triple-dip recession…what I do find surprising and disappointing is the reluctance of the Chancellor, George Osborne, to take one action that would undoubtedly boost jobs and growth, with all the additional spending coming from the private sector.
‘When he gets up to deliver his Budget next Wednesday, the Chancellor could use just ten words that would start to get us on the right path: “I have decided to cancel the planned increase in Air Passenger Duty”.’
However, airline bosses have failed so far to arrange a pre-Budget meeting with Osborne over the issue, according to The Daily Mail.
The Axe the Tax alliance of British Airways, Virgin Atlantic, easyJet and Ryanairhas met junior Treasury ministers, but has been unable to address the Chancellor directly.
‘Aviation lobbyists think the growing pressure on Osborne to kickstart growth, particularly after credit rating agency Moody’s stripped the UK of its prized AAA credit rating, could force him to think again,’ said the article.
APD, which rose 8% last year and is set to rise again on 1 April, costs £13 per passenger on a short-haul flight and £92 on a long-haul journey.
Caplan argued: ‘There is mounting evidence of the damage APD is doing. Last week’s World Economic Forum survey shows that the UK has become one of the least competitive countries in the world for ticket taxes and airport charges (only Chad was placed lower), below countries such as Senegal and Mali.’
The Chancellor has also been urged by a top economist to relax APD on business-related travel, according to The Daily Mirror.
Dr John Ashcroft, economist and chief executive of business group pro.Manchester, has written an alternative Budget, which includes the suggestion on APD, as well as the spending of £20bn on infrastructure across the UK, especially in northern cities, to rebalance the economy.