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The Case for Cost-Benefit Analysis of Air Passenger Duty

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On Tuesday, Parliament granted time to debate an important issue that a growing number of constituents across the UK have been urging policy-makers to re-assess - the high cost of Air Passenger Duty (APD). This summer, MPs have been inundated with hundreds of thousands of letters from constituents about the level of UK air passenger tax - the highest anywhere in the world. In common with many MPs, I myself have received over a thousand separate pieces of correspondence, calling for an impact assessment into the tax. It's no wonder: for some passengers, APD has increased by as much as 360% over the last seven years.

It's now 18 years since the tax was first introduced, and in all that time a thorough assessment to explore its impact on the rest of the economy has not once been undertaken. It's for this reason that I and a group of cross-party MPs called for the debate - an opportunity to explore whether there is wider parliamentary support for an economic impact-assessment and to call for a freeze on the tax until such a review has been undertaken (the Government plans further increases next year after increasing the tax by 8% this April).

Evidence-based policy-making should be the corner stone of every government, but successive administrations have increased the tax without first finding out whether it is actually a barrier to trade and travel. Just this week, I was told by a Treasury Minister, in a reply to a Parliamentary Question, that the Government has already consulted on it. I'm afraid to say, this is obfuscation though: there was a review last year but it only looked at the banding structure of APD and was nothing to do with an economic impact assessment.

What evidence there is suggests that the tax is incredibly damaging. Two areas that have received particular attention across a handful of studies include inbound tourism and inward investment. As an island nation, both rely on flying and international connectivity for growth.

Tourism alone accounts for £20.6bn in annual overseas revenue, the UK's sixth largest export earner. Yet, in a recent survey carried out by the World Economic Forum, the UK was ranked 134th out of 138 countries for travel and tourism competitiveness, with regards to "ticket taxes and airport charges". Despite the Government's ambition to build an Olympic legacy and attract better connections with the rapidly-growing BRIC nations, imposing the highest air passenger tax levels in the world is only going to make us internationally uncompetitive and unattractive as a destination. In fact, the current levels of APD has been given as one reason for the UK's share of the inbound Chinese market shrinking by half over the last 10 years. With a family of four from China paying £324 in APD for a return flight to the UK, it's hardly surprising.

It's important that we're seen as an attractive proposition, not only as a place of business, but also as a potential European hub for foreign companies. It is estimated that in 2010, the Treasury took at least £600m from businesses in flight taxes, half of this from foreign business travellers. Yet, last year, the Glasgow City Marketing Bureau said that the city has lost £22m alone in conference business because of the high levels of Air Passenger Duty (APD).

The World Travel and Tourism Council estimates that the UK's APD will cost the economy 91,000 jobs and £4.2 billion in additional revenue in 2012 alone, a much greater cost than the £2.9bn predicted for 2012 APD receipts. So, on top of the impact on inbound tourism and inward investment, it appears that the wider implications of APD in the years to come could be a lot more serious than the Government acknowledges. Nevertheless, this evidence is only piecemeal. We need a comprehensive Treasury-led review to determine the true impact of the UK's air passenger tax.

In a few weeks time, MPs will finally get to debate the issue of APD. 100 MPs have publicly stated that they'd like to see a Treasury-led review; An All Party Group in Aviation has called for a review; this summer 200,000 people have contacted MPs calling for a review and 90,000 non-UK residents have emailed the Treasury with the same requests. The message is clear. MPs now have the chance to take it directly to ministers. We must not let this opportunity pass us by.