The Chancellor’s announcement of a sharp cut in Air Passenger Duty (APD) on long-haul flights from Belfast was welcome, if somewhat unexpected in its timing. But how significant is it?
The abolition of the long-haul APD rate from Northern Ireland represents a significant reduction in tax for individual passengers – from £60 to £12 in economy and from £120 to £24 in business class.
No doubt the Caribbean would settle for similar. So for Continental Airlines – or United, as it now is – for Belfast International Airport and for all who use the Continental service it is undoubtedly significant.
It shows the Treasury is listening – up to point – and willing to rectify an anomaly. In that sense it bodes well for the Caribbean, the victim of the most obvious injustice under the current banding regime which places flights to the region in a higher band than flights to the US (and thus to Los Angeles or Hawaii).
That apart, the significance of the move appears rather less positive. The reprieve for Belfast-New York passengers costs the Treasury very little, either in terms of revenue or as a precedent for reductions elsewhere.
Northern Ireland is unique in regard to APD in having a land border with another country, making it cheap, quick and convenient to fly from an airport under a different tax regime.
Flights from Dublin carry air tax of 3 euros per passenger, making the maths straightforward. However, the Treasury statement this week was clear: “Northern Ireland’s airports operate in unique circumstances.” As a justification, it can’t be applied elsewhere. The argument can’t be extended.
Bear in mind that no other air passengers into and out of Northern Ireland will see an APD reduction – when four million flew through Belfast International and 2.74 million through Belfast City last year.
Then look at the numbers. United is the only airline to fly long-haul direct from Northern Ireland. It will operate five times a week to Newark from November, with a full aircraft carrying 16 passengers in business class and 159 in economy.
With every seat full, those passengers would pay £11,460 in APD under the current regime. From November 1 they will pay £2,292, costing the Treasury £9,168 a day or £45,840 a week.
In a year the reduced tax takings would amount to £2.38 million. The sums are approximate – flights won’t be full, United may return to daily flights next spring, the rate of APD will no doubt change from next April – but the point is clear.
On the one hand, the Treasury can afford this concession – it will recoup the lost revenue by extending APD to executive jets. On the other hand, the reduced tax take would rapidly add up if the Treasury conceded more of the industry’s case.
The Treasury froze APD this year at a cost in revenue of £145 million. Yet the 2011 Budget statement was explicit: “The RPI [Retail Price Index] increase assumed in the forecast [for 2011] will be deferred and implemented alongside the April 2012 RPI increase.”
In other words, next April will see a double-inflation increase. The current RPI rate is 5.2%.
In the unlikely event that the Treasury decided to reduce its income from air travel, it would need to specify how it intended make up the shortfall or torpedo the confidence of the world’s financial institutions in its forecasts.
The Treasury is certainly nowhere near to being in a position to reduce taxation. On the contrary, economists this month identified a £12 billion black hole in the government’s finances. The Office for Budget Responsibility expects APD to bring £2.8 billion into the Treasury in 2012-13 and the Chancellor is hardly likely to turn his back on the money.
One final point: everyone expects the Chancellor to announce his plans for APD in his autumn statement on November 29. When I spoke to the Treasury this week, I got a distinctly different impression.
APD will inevitably form part of that statement, but the Treasury’s response to the consultation on air passenger duty will be revealed “by the end of the autumn – not necessarily in the autumn statement”.
And how did the Treasury interpret the cut in rate from Northern Ireland? “It’s only one route,” said a spokesman. “It does not make a huge amount of difference.”