Response by Saga to the consultation on Air Passenger Duty

Wednesday 20 April 2011

Response by Saga to the consultation on Air Passenger Duty

Some people regard the growth in international travel from and into the UK as somehow indicative of decadence. In this some gloomy commentators are reminiscent of the Duke of Wellington’s hostility to railways: “Railroads will only encourage the common people to move about needlessly,” (1835). Saga prefers the optimism of Antonio Tajani, European Commissioner for Enterprise and Industry: “Travelling for tourism today is a right. The way we spend our holidays is a formidable indicator of our quality of life,” (2010).

The Government’s overriding objective, restated in this consultation, is economic growth. To this end and mindful of the UK’s corporate taxation system has not proved internationally competitive it has moved significantly to reduce corporation tax. The Consultation emphasises the importance of air travel to the UK economy - In 2009 aviation contributed around £18 billion to UK output and represented around 2% of gross value added. The value-added achieved by workers in the sector is around one-and-a-half times the economy-wide average. But, the UK has the highest air taxation of all European and G20 countries. On this aspect of taxation the UK is internationally uncompetitive.

There is evidence of the harm that APD is inflicting on what could be a golden goose sector of the economy. Over the past six years APD has risen by 325% on long haul flights – hardly evidence of a fair or stable regime. Heathrow has fallen from first to fifth place in Europe in terms of the number of destinations served. Passenger numbers are down from 81 million in 2007 to 63 million in 2010. A recent survey by the European Tour Operators found that more than two thirds of inbound operators expect a 30% drop in visitors to London in 2012 compared with 2011, while outbound operators expect an increase in visitors to Paris, Brussels and Amsterdam. According to a survey of the attendees at the British and Ireland Marketplace, forward placements of business for London 2012 is currently running at 50% below 2011 levels. Chart 2A also indicates a significant fall in Band A passengers numbers since 2007/8.

The Government no longer defends the existence of APD for environmental reasons. The introduction of the EU ETS represents an effective regime to tackle residual carbon emission problems: “The Government’s goals for limiting global emissions from aviation are primarily to be delivered through international mechanisms such as the EU ETS” (para. 4.23). So, APD which was introduced as an environmental tax is now defended simply as a revenue raising mechanism: “This would have the attraction of refocusing APD on its core objectives of raising revenues for the Exchequer” (ibid.). The question arises as to whether in view of its economically depressive effects for the UK the tax should be retained at all. If revenue is to be raised might it not be better to raise it through general taxation rather than rely on a stealth tax which has lost its original justification?

If the Government is determined to keep APD as a tax raising mechanism then it is vital that it has its economically debilitative effects removed. This could be largely effected by reducing APD to an average of the European and G20 countries.

Saga has particular experience in relation to the island of St Lucia where we own the Bel Jou Hotel and the effect of APD. It makes no sense for APD to be at a lower level to reach Hawaii than to reach the Caribbean islands. Chart 2C shows the heavy dependence of Caribbean islands on tourism – over 30% of GDP in St Lucia is generated by tourism. The figures for Caribbean tourism in 2009 show a 12% drop in arrivals from the UK – a higher drop than from other countries. APD is harming St Lucia and the Caribbean. Alan Chastanet, Minister for Tourism in St Lucia, has said, “Any tax right now given the recession, would reduce the amount of demand which then converts into hotel stays and jobs for this country”. This distortionary effect of APD would be lessened by moving to a two banded APD.

Saga recommends abolition of the APD. Failing that, we believe APD should be reduced to a level competitive with our European/G20 competitors and moved to a two banded system to remove current outrageous anomalies.  We also suggest that nautical miles are used as the band measurement as that is the standard unit of measurement in the aviation industry.


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