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Are We Approaching the Flight Taxes Tipping Point?

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BRITISH AIRWAYS
PA

The hullaballoo surrounding a certain witness at this week's Home Office Select Committee hearing and the highly-trailed backbench debate on fuel prices obscured an equally important debate taking place in the Commons yesterday on the aviation sector. As family budgets tighten and British businesses look for competitive advantage over European rivals - the debate about the future of the UK's aviation tax, the highest anywhere in the world - is now beginning to appear on the radar of a critical mass of the UK's policy-makers.

But unlike previous debates on aviation - or flying as most people would say - this one saw a much greater degree of agreement from MPs of all sides especially around the impact of higher and higher flight taxes.

Yesterday's debate was the first time that I have seen almost unanimous opposition among MPs to further increases in the UK's aviation tax - or Air Passenger Duty (APD). The Government is considering increasing APD by double the rate of inflation in April 2012. As with most tax increases there comes a tipping point when a critical mass of the public and (often sometime later) policy-makers come to recognise the impossibility of sustaining a tax at a given level.

Consider this: on its introduction in 1994 APD was capped at just £10. By 2007 the higher rate charge was £80. In the three subsequent years, APD for short-haul routes has increased by 140% to EU countries, and for long-haul routes by up to 325%! What's more, according to the Office for Budget Responsibility, the Government's plans for further revenue-raising from APD will make it one of the biggest cash cows for the Government over the next four years. Not many people know this as APD is a stealth tax - there purely to raise revenue - and paid for by the travelling public. Every time you get on a flight at a UK airport you pay this tax. And you pay it at the highest level in the world. That's right in the entire world - a point not lost on MPs yesterday. It's because of these astronomical costs that policy-makers are finally waking up to the issue: it is hitting British passengers and businesses where it hurts.

It was not just the levels of opposition to APD but also the passion with which MPs made their case. The UK was "undoubtedly hemorrhaging passengers" according to the Central Ayshire MP, Brian Donohoe, who tabled the debate. He's right - international passenger numbers travelling through UK airports have fallen dramatically, from 192m to 172m between 2007 and 2010. Graham Stringer MP followed up, saying that hiking flight taxes and constraining airports were the equivalent to "turning off the internet" for the UK economy. Indeed, businesses pay over half a billion pounds each year in APD - one of the many costs borne by UK plc and which makes doing business in the UK that much less competitive than elsewhere in Europe.

What's more - as one MP pointed out - passengers are wising up to the fact that APD is not levied in most countries on the Continent. It's now not unusual for passengers taking long-haul flights to jump on a plane to Amsterdam, break their ticket and take an onward long-haul flight to their final destination. This saves £100s in taxes levied by the UK on flights departing British airports because taxes are based on the final destination; if that's Amsterdam it will be a lot cheaper than if it is Australia. The cost to the UK's aviation industry from this avoidance is significant - and it has the potential to undermine the Treasury's prime objective of raising-revenue from APD. But let's be clear, it is not the customer who chooses to fly via Amsterdam not London to save money who is to blame, it is the Government whose policy is encouraging this.

With the exception of the Minister responding in yesterday's debate, there was almost unanimous opposition to further rises in APD. After all, a recent ComRes survey of more than 150 MPs commissioned by ABTA, found that 75% were worried about the impact that future rises in APD would have on their constituents. It's no wonder: over 17,000 people and counting, have written to their MP to oppose future rises in the cost of flying.

Yesterday's debate may have troubled the front pages of the papers little, but the issue of higher and higher flight taxes is hitting the economy hard. It makes it harder for people to take holidays and harder for British businesses to remain competitive compared to their European competitors.

There is little doubt in my mind that a head of steam is building behind this issue. The decision for George Osborne is whether the damage, both economic to jobs and growth and political, for his Government, is worth the £2.6bn he nets from flight taxes. Cross-party unity on this topic and worsening economic data all point towards a revision of this tax policy - more pressure will come in the coming days and weeks before the Chancellors Autumn Statement - I for one hope he has listened carefully to the concerns of MPs from across the House yesterday - otherwise he's in for a bit of a surprise. Watch this space.