The UK government's autumn budget 2017 announcement on Air Passenger Duty (APD) missed an excellent opportunity to cut APD rates and boost the competitiveness of the UK and its attractiveness as a destination for foreign investment. And the individual nations and regions which make up the UK know it. The question is: will their cries for change be heard?
Despite the entire aviation industry raising concerns year after year that UK air taxes are the highest in the world, and double those of Germany (the second highest on the list), the government failed to make significant progress. In the budget, it froze short-haul APD rates and long-haul economy rates, but compensated for this by increasing long haul rates for premium economy, business and first-class passengers. Business jet travelers also saw an significant increase.
The government may think this is a 'victimless tax' paid only by the expense accounts of business flyers, but that is hardly the case. Take the example of a family of four flying on premium economy to the UK. At best, the £64 extra they will now pay is the equivalent of an extra night's stay at a hotel, or tickets to a West End show. At worst, the extra is enough to tip the balance and send that family on holiday to a different country.
Such taxes, often used by governments as short term budget-related solutions actually have a negative impact on a country's economy, particularly in the long-run, costing jobs, pushing passengers and businesses to look for cheaper alternatives, deterring connectivity, and overall reducing attractiveness and competitiveness which constitutes a real blow to maintaining and attracting Foreign Direct Investment (FDI). For evidence that such taxes are counter-productive, look no further than Ireland and Austria. Ireland eliminated its air tax altogether to encourage investment following the global financial crisis, with spectacular results. Austria cut its passenger tax by 50% earlier in the year, and we hope they will eventually remove it altogether.
Removing APD would create a similar boost for Britain. In an update to its economic impact of APD study, PricewaterhouseCoopers concluded that the full abolition of the tax would result in an increase to GDP of 0.5% in the first year, lead to the creation of approximately 61,000 jobs in 5 years and generate additional net government tax receipts of £500 million in the first two years following its abolition.
Economic research is backed by reality. The fact is that Northern Ireland was given the power to cut APD to retain its competitiveness with the Republic of Ireland, which it has doe on long-haul flights and is now looking at for short-haul flights. Scotland is about to have the same power, although that has been delayed by the EU red-tape. Wales and the English regions, not unreasonably, are asking for similar options. Across the UK as a whole, the benefit of cutting APD is becoming increasingly obvious as Britain seeks a new place in the world post-Brexit.
Let us hope the call to London gets through before it is too late!
By: Rafael Schvartzman