The Blog

Businesses Are Being Given a Chance to Make Their Voices Heard on APD

Each year it is estimated that British businesses pay £500m in Air Passenger Duty (APD) to the Exchequer with a further £500m levied on foreign travellers who come to the UK to do business.
Getty Images

Think of the taxes that make British businesses uncompetitive and you're likely to think of Corporation Tax and VAT. They're often cited by tax campaigners and Government Ministers as the taxes that international businesses look at before investing in a country. They're certainly powerful but they're not the only ones - they also look at the level of flight taxes, especially if they'll be sending employees round the world to or from this new base.

Each year it is estimated that British businesses pay £500m in Air Passenger Duty (APD) to the Exchequer with a further £500m levied on foreign travellers who come to the UK to do business. Our APD is already the highest air passenger tax anywhere in the world and that is why this week A Fair Tax on Flying is launching a major new campaign to ensure that policy-makers understand just how much concern there is amongst businesses about the impact of this tax.

Last year over 200,000 people lobbied their MP about APD making it the largest correspondence campaign of this Parliament. Businesses large and small, from across all industries at home and abroad, are now being asked to join the chorus of voices against further increases in flight taxes. The goal is simple: for the thousands of businesses who we know are affected by the UK's high levels of APD to sign a new petition hosted here.

Despite predictions to the contrary, growth has not returned to the UK economy at the level expected. The IMF recently downgraded its UK growth forecast for both this year and next by 0.3% - to just 0.7% this year and 1.5% in 2014. This is the sharpest downgrade of any advanced economy across the two years- showing that the Chancellor is failing to stimulate the economy. We all need to look at how to get the economy moving again; the recent Government efforts to reduce red tape are, of course, welcome but will only help at the margins. If we wish to compete in the global race, as the Prime Minister often mentions, then the Government should really be making it easier for businesses to trade and compete internationally. There's no better place to look than reducing the cost of getting people and goods to wider markets by tackling the business burden of aviation taxes.

The damage done by APD is apparent - in the aviation sector we've seen airports and airlines specifically cite APD as a reason for lost routes, such as the Air Asia X route from Gatwick to Kuala Lumpur, the reduction of easyJet and Ryanair services from Bristol Airport and many domestic and European routes from Glasgow Prestwick and Southampton Airports. Continental Airlines also cited APD as one of the reasons its service from Bristol to Newark was stopped in November 2010.

However, what are less talked about are the economic benefits of the reduction or abolition of APD. Research indicates that removing APD could result in an additional 91,000 British jobs being created and £4.2 billion added to the economy in 12 months, according to the World Travel and Tourism Council. Recent analysis by PwC also supports this. It found that if the Chancellor acted now to abolish APD UK GDP could be boosted by nearly half a per cent (0.46% to be precise) in the first year of abolition, with continuing benefits right up until 2020. The GDP boost to the UK economy from abolition 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. Abolishing APD would pay for itself by increasing revenues to the Treasury from other indirect taxes- a rare feat for abolishing a tax. This net benefit, even after allowing for the loss of APD revenue, would be almost £500m in the first year. MPs must realize how beneficial cutting or abolishing this tax would be for the sake of businesses in each of their constituencies.

If last year was defined as the year when consumers voiced their anger about APD then this year is fast becoming the time for businesses to have their say. Our international competiveness only weakens as the Chancellor hikes APD each year. It's time for the Government to think differently about how to get growth back in the economy and looking at reducing the burden on businesses of Air Passenger Duty would be a good start.