This Week's Mini Budget Expected to Raise APD AGAIN
Survey finds half of 26 UK airports expect passenger numbers to fall if Air Passenger Duty raised by 2.5%
I am old enough to remember when a post war Labour Government Chancellor, keen to increase its spending power, decided that the good voters of the UK were getting their booze and fags too cheaply. So they whacked on a huge increase in duty for wine, beer, spirits and tobacco. Predictably there were cries of dismay from those addicted to their alcohol and nicotine. Also, predictably, there were those who praised the Chancellor from moral and health points of view. Then there were those who saw an opportunity to benefit from the large increases - namely smugglers who brought contraband in from abroad. (Tho' the Gaulloise and Gitannes brands of french fags with their pungent smoke did not go down well with Brit smokers).
The result of the large duty increases was a surprise and dissappointment to one group and one person in particular - the Treasury and the Chancellor! The result was that following the duty increases there was a massive drop in the income received by the Treasury from drink and tobacco sales. It was a clear case of "the more you tax, the less you receive".
The survey, (see E-tid http://www.e-tid.com/airports-warn-osborne-of-eye-watering-apd-levels/68406/ ) conducted by the Airport Operators Association (AOA), found that 25% of airports believe passenger numbers will fall by more than 5% in 2013/14 as a direct result of the latest planned APD increase, with a further 25% expecting them to fall by 2%-5%.
It also revealed that 73% of airports are ‘very worried’ by the Government’s plan to increase APD, while 83% feel that ‘current levels of APD are having an impact on whether airlines choose to fly from our airport’. Every airport in the survey backed calls for a freeze in APD until the Treasury has undertaken a full review of its impact on the UK economy. ABTA also announced the results of a survey finding that two-thirs of those polled think APD is already set too high. They also found support for and independent review.
The call for a review is also backed by airlines and the tourism industry, but so far this has been ignored by the Chancellor. There is perhaps an apt analogy here with the Chancllore being likened to 18th Centuty medical doctors who "bled" their patients of copious amounts of blood in the firm belief that it was best practice to help patients to recover. This was despite the fact that there was no evidence that bleeding was beneficial. We know now it wasn't. Thus, until the Treasury has research from an independent review, there is no evidence about the overall effect of APD on the UK's economy as a whole. Interestingly ABTA's poll published today also found evidence that the Treasury is not convinced of the need for a review - how 18th Century is that!!!
The argument for a proper and independent review for the need for and the effect of very high levels of duty on flights from the UK on the UK economy is not only sensible but it is vital. APD is a tax on one of the most important industries essential for the UK's economic recovery. The swinging increases in APD coincided with the 2008 recession. However since that time overall international passenger traffic has managed to recover (e.g. the 2012 Olympic effect). This may well have masked any negative effect because of higher levels of APD on Tresury receipts. But that is not the whole picture...The Dutch found with their APD that there was a more profound effect on their economy as a whole. Expected receipts from APD were in fact dwarfed by the negative effect it was having on their economy as a whole. Sensibly they dropped the duty after one year.
One of the other effects of the Dutch APD was to encourage passengers to pop over the national borders to nearby airports to take flights which were not taxed. In the UK some people have apparently been doing that, especially where long haul flights are concerned. Northern Ireland has (quietly) ditched APD. There are strong indications that UK regions may well follow . Wales is likely to, and one can imagine Scotland following. The regions all want their airports to be attractive to airlines and to prosective business travellers and tourists. A hike this week in APD will make the ability to drop APD locally because of devolution will become ever more attractive to the regions. Announcing an independent review about the need for and effect of APD on the UK economy (not just the Chancellors duty receipts) will do much to assure aviation, business and tourism that the Chancllor is serious about helping Britain recover - not just balancing the books he inherited from the previous Government.
